READY, WILLING, CABLE

By John Greenwald

Greetings, dear telephone customer! are you bewildered by all the marketing pitches for long-distance service that AT&T, MCI and Sprint have been hurling at you? Well, you ain't seen nothing yet. Consider what's come until now as basic training for the blitzkrieg of packages and special offers that will arrive once Congress moves to deregulate local telephone service and cable-TV and let eager new competitors charge into that field, bringing business rivalries, price wars, heated local politics and...yes, of course, TV linkups over phone lines and phone calls via cable. "Things will go insane in terms of all the different features and pricing packages," predicts David Goodtree, who follows the industry for Forrester Research in Cambridge, Massachusetts. "It will drive consumers nuts."

The coming profusion of consumer choice, confusing as it may be, is just what lawmakers have in mind. Their aim is to open up competition in the $400 billion telecommunications industry, dismantling 61 years of regulations that have walled off TV and telephone companies into separate industries. Unshackling the market, advocates of reform argue, will benefit business and, in the long run, provide bargains for consumers. The House is expected to take up its version of a reform bill by the time Congress recesses at the end of next week, if not sooner. A companion measure passed the Senate last month 81 to 18.

The very scope of the legislation has brought forth armies of lobbyists to advance the interests of clients ranging from the seven Baby Bell phone companies to cable- TV behemoths like Time Warner and Tele Communications Inc. (TCI). This onslaught of special interests has led consumer advocates and other experts to warn that what began as a laudable attempt to promote competition could wind up benefitting media giants far more than their customers. "The people screwed are the consumers," declares Gary Arlen, a telecommunications consultant in Bethesda, Maryland. "Cable rates will rise in the short term before there's rate relief from competition." Massachusetts Representative Ed Markey, the ranking Democrat on the House Telecommunications Subcommittee concurs: "Consumers will wind up tipped upside down, with money shaken out of their pockets to subsidize the deregulatory dreams of the largest monopolies in the country. The fiber-optic barons are in control."

Sponsors of the legislation brush aside such arguments. "The new environment is going to be consumer driven," asserts Texas Republican Jack Fields, who chairs the House telecommunications panel. "If [cable-TV and phone services] are not attractive, then consumers are not going to participate in your enterprise."

While the House and Senate bills differ in some particulars, their main objectives are largely the same. Like the Senate, the House would:

-- Let cable-TV and local phone companies enter one another's business. Other firms, including long-distance carriers, could also provide local phone service. Result: one-stop shopping in which companies would offer packages of telephone and TV services directly to the home. With that in mind, cable firms TCI, Cox Enterprises and Comcast last year joined forces with Sprint to develop a nationwide network for delivering cable and telephone signals to the same customers.

-- Reverse price cuts of as much as 17% that the 1992 Cable-TV Act imposed on cable rates. This would apply to systems carrying so-called expanded basic programming (for example, MTV or CNN in some markets). According to the Consumer Federation of America, the changes would add $5 to monthly bills for expanded service that now averages about $21.

-- Allow the Baby Bells to provide long-distance service, which they have been barred from doing under terms of the 1984 breakup of their parent, AT&T. This would represent a defeat for the long-distance carriers, which vehemently oppose letting the Bells enter their fields until the local phone companies face strong competition for local service on their own turf--something that might take years to develop.

-- Loosen restrictions on media ownership. Under the House version of the bill, a single company could own cable systems, radio stations and newspapers in the same market. Rupert Murdoch, for example, could own not only the New York Post and WNYW-TV in New York City but an unlimited number of radio stations and stakes in the local cable-TV system and the NYNEX phone company as well.

While President Bill Clinton has made no threat to veto the legislation, the Administration has misgivings about it. "This bill does a lot to the consumer but not much for the consumer," says Greg Simon, the chief domestic-policy adviser to Vice President Al Gore. Simon argues that allowing media moguls such unrestricted privileges would create "the Pottersville effect," after the dream sequence in It's a Wonderful Life. "Jimmy Stewart comes back, and Potter owns the whole town," Simon says. "That's what we're talking about here."

In fact, the House bill represents a balancing act of corporate interests that could still come crashing down. It teetered last week when AT&T, Sprint, MCI and nearly 500 other long-distance carriers bitterly challenged the provisions, added late in the game, that would permit the Baby Bells to jump into long-distance service before substantial competition arrived on the local level. Furious representatives of the long-distance industry swung from supporting the House bill to actively lobbying against it. On Friday a group of small long-distance carriers held a news conference with consumer groups to attack the bill. (Disagreements over the Bells' entry into long distance sank a similar measure last year after it had passed the House.)

For consumers, a swift Bell invasion of the long-distance market could push down rates in a hurry. But the cost of local calls would be slower to fall until the arrival of full-fledged competition from sources ranging from cable companies to advanced wireless phones that would provide alternative networks.

The Bell-AT&T squabbling is a paradigm of the shifting and shaky alliances between politicians and pressure groups in the telecommunications wars. Members of the long-distance coalition had relied on Thomas Bliley of Virginia, who chairs the House Commerce Committee, to deliver their agenda. But two weeks ago, House majority leader Dick Armey informed Bliley that conservative Republicans, including many of the activist and free-marketeering freshmen, objected to provisions that would delay the Baby Bells from entering long distance. In short, the provisions were "too regulatory." The same message came from House Speaker Newt Gingrich and Republican whip Tom DeLay.

That left the hapless Bliley to convene a meeting of long-distance lobbyists in the Commerce Committee hearing room on July 13 to convey the grim news. Stunned, the lobbyists began a desperate effort to find someone to whom they could plead their case. "Nobody wants to talk to us," complained a lobbyist for the long-distance coalition early in the week. "Nobody wants to negotiate. Something is fishy here."

Fishy or not, the Baby Bells have outmaneuvered the long-distance carriers at nearly every turn. "There's nothing in the House or Senate bills for the long-distance companies," says Charles Schelke, who follows the telecommunications industry for the investment firm Smith Barney. Part of the reason, he says, is that the Bells had "a much easier sales job because their approach has been, 'We should be allowed to get into everybody else's market at the same time our markets are opened.' That was intuitively attractive and reasonable."

But not to AT&T and the others, who are worried that the Bells would use their clout in local markets and local politics to steer customers toward signing up with them for long-distance service. Competitors fret too that the Bells already have the phone lines, switches and other equipment in place to enable them to enter the long-distance business before new companies can begin to offer local service.

The Baby Bells have not only outfoxed but also outspent their rivals. According to the Center for Responsive Politics, the Bells gave $3.1 million to congressional campaigns in 1994, $800,000 more than the long-distance companies and cable carriers combined. But more than just money has helped the Bells get their way. Their presence in every congressional district allows the phone companies to mount strong political pressure at the grass-roots level.

The jockeying over reform has caused tempers to flare. Some Senators saw evidence of overly strenuous industry lobbying last month, when Senator Larry Pressler of South Dakota, chairman of the committee that drafted the Senate's version of the bill, read into the record a letter from a Time Warner senior vice president, Timothy Boggs. The letter involved a contentious pricing provision favored by small cable companies and opposed by entertainment providers Time Warner and Viacom. It indicated that Time Warner's HBO unit had agreed to provide programs to a group of small cable-TV companies, including one in Pressler's home state of South Dakota, and that the agreement hinged on the removal of the pricing provision from the Senate bill. Said Pressler: "At no time during our conversation did I indicate that any specific action by Time Warner would result in deletion of the program-access provisions...[That] would be wrong, if not illegal. I resent the inference in your letter." Time Warner lobbyists claim the letter was merely a badly worded account of an innocent Pressler-brokered agreement. Nevertheless, the provision was excised--indeed, the same day as Pressler's speech--as part of amendments by majority leader Bob Dole.

Even if reform legislation were to fail, telecommunications companies would find ways of invading one another's turf--although the lack of congressional assistance would sharply slow the process. Laws permitting some competition in local phone service are already on the books in eight states, including New York, Illinois and Washington; 18 others are drafting measures to encourage more firms to enter the field. Under current provisions, Time Warner has begun to offer packages of cable-TV and local phone service in Rochester, New York; the company intends to provide similar plans to most of its 11.5 million U.S. cable subscribers over the next several years.

Competition is also beginning to pit Bell vs. Bell. U.S. West, based in Englewood, Colorado, last year acquired two cable-TV systems that serve 500,000 homes in Atlanta; in addition to cable programs, U.S. West will use the systems to offer local phone service and thereby steal customers away from BellSouth.

In one important way, the Baby Bells need the federal legislation for their long-term financial health. Says Schelke of Smith Barney: "The states are working to require the Bells to open up their local networks, and the Bells clearly will lose market share as that happens. Long-distance would be the obvious immediate offset." Already, dozens of firms known as "competitive access providers" deliver local voice-and-data transmission services to businesses, linking them to long-distance lines in competition with the Bells. Some of these newcomers have deep pockets. Teleport Communications Group, which operates in 37 markets, is owned by TCI and three other cable systems. "People are anxious for an alternative to the Bells," asserts Curt Hockemeier, a Teleport senior vice president. "It's going to be a wide-open fight." Declares James Crowe, chairman of MFS Communications, which is in 32 cities and plans to add 70 more: "Everyone wants in. Everyone is talking to everyone."

Not surprisingly, many of the newcomers charge that the Baby Bells are busily erecting barriers to these challenges. The upstarts, who often lease lines from the Bells and use them to provide transmission services, say the companies can be maddeningly slow to make equipment available. IntelCom Group, a Denver-based provider of alternative service, charged in an Federal Communications Commission complaint three months ago that U.S. West had failed to furnish high-capacity phone lines on schedule 83% of the time. The Bells "have obviously tried to drag this out and delay things," says J. Shelby Bryan, the president of IntelCom. "It's historic monopoly thinking."

The Bells attribute the delays to less sinister causes. U.S. West blames any slowness in providing lines on the robust growth of the Rocky Mountain region. In addition, the loss of lucrative corporate clients to the upstarts could force the Bells to jack up rates for less profitable residential service. Says Jamie DePeau, a spokesperson for NYNEX, the Baby Bell in the Northeast: "Competitors are saying, 'Let us skim off your best customers, and you guys get stuck with people who don't make any calls."

As for the consumers, they can expect to be jolted by the continuing clash of the titans. Under deregulation, cable rates are likely to shoot up in the short run. But by the end of the decade, experts say, increased competition should bring both cable and local phone rates down. And long-distance rates, which have tumbled more than 60% since 1984 after adjusting for inflation, will keep falling amid a proliferation of new competitors and discount plans. Still, says a senior congressional staff member, "the consumer is poorly represented in this process because his stake is small compared to those of the huge monied interests." He adds, "The consumer groups have worked hard on this, but they are soft voices compared to the screaming of the people for hire." The consumers, in the end, have an important opportunity for revenge. If they are angry when ballot time comes, they can always elect to disconnect.

--Reported by Tom Curry/New York, John F. Dickerson and Suneel Ratan/Washington and Richard Woodbury/Denver

With reporting by TOM CURRY/NEW YORK, JOHN F. DICKERSON AND SUNEEL RATAN/WASHINGTON AND RICHARD WOODBURY/DENVER