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REWIRING AMERICA

THE BALTIMORE SUN

An article in Sunday's Business section incorrectly identified the chairman of the House telecommunications subcommittee.

The chairman is Rep. Edward Markey, D-Mass. Rep. Jack Fields of Texas is the ranking Republican on the panel.

The Sun regrets the errors.

When Congress passed its last comprehensive law to govern the nation's telephone system, Franklin D. Roosevelt was president, 35 percent of American homes had phones and you couldn't place a call from Baltimore to Washington without an operator's help.

The Communications Act of 1934 served the nation well for decades, promoting the concept of universal service so effectively that more than 94 percent of the nation's households now have phones. But since federal Judge Harold Greene ordered the breakup of AT&T; in 1982, Congress has been deluged with calls telling it the venerable law is obsolete.

After a decade of putting those calls on hold and letting the courts dictate telecommunications policy, Congress appears ready to act in 1994. Roused to a sense of urgency by mega-mergers and technological revolution, an institution that often seems grounded in the 19th century is poised to rewrite the industry rule book just in time for the 21st.

The stakes are enormous. What Congress decides, or fails to decide, could affect the telecommunications choices Americans will have -- and at what cost -- for decades. Some consumer advocates worry that critical decisions will be made with little public attention.

"We are entering into the 21st-century information age blindfolded," said Jeffrey A. Chester, executive director of the Center for Media Education in Washington. "This is the electronic legacy we are leaving our children and grandchildren."

For many members of Congress, the 2-by-4 across the head was the October announcement that Bell Atlantic Corp. would acquire Tele-Communications Inc., the nation's largest cable-television company. That deal, valued at about $30 billion, illustrated the convergence of the telephone and the television and showed how much the world had changed while Congress has remained disconnected.

Bills before Congress

When Congress returns from its holiday recess in January, it will face at least four major bills to break down legal and regulatory barriers to competition in the local telephone, long-distance telephone and cable-television industries. By February, the Clinton administration is expected to introduce its own comprehensive bill.

For consumers and businesses, the proposed legislation is intended to lower prices and to speed the introduction of a wider array of choices. For the regional Bell companies, it could mean liberation from the shackles imposed by Judge Greene's "MFJ," the modified final judgment in the American Telephone & Telegraph Co. antitrust case, which spells out what the Bells can and cannot do. For cable and long-distance companies, it could mean new competition and new opportunities.

Congressional and industry sources say the chances for action next year are the best they have ever seen. There is an emerging bipartisan consensus that greater competition, rather than stricter regulation, is the best way to ensure that the march of technology isn't impeded and that consumers aren't taken to the cleaners.

Washington veterans warn that any bill must weave a perilous path among competing interest groups. At every turn, industries that profess to want a level playing field will be trying to sneak in a comma to tilt the law in their direction. A bow in one industry's direction could bring fierce opposition from another. If not for health care, this would be the lobbyist's dream bill of 1994.

For now, though, members of Congress are emphasizing comity over conflict.

Rep. Rick Boucher, a Virginia Democrat who is one of the House's experts on telecommunications policy, says a consensus has emerged in Congress around a few broad principles. According to Mr. Boucher, any comprehensive bill should:

* Create competition in the cable business by repealing the section of the 1984 Cable Act that prevents phone companies from providing video programming. The restriction already has been eroded by a federal court ruling in August that the curb violated Bell Atlantic's First Amendment rights.

* Eliminate the regional Bell companies' monopoly on local phone service by opening the field to competitors.

* Require that all participants in a local phone market pay their share of the cost of providing universal service to the least profitable segments of residential markets.

* Once there is competition for local telephone service, eliminate provisions of Judge Greene's order that bar the regional Bells from offering long-distance service or making telecommunications equipment.

Many of these provisions were contained in complementary House bills introduced last month. One -- by Rep. Edward J. Markey, a Massachusetts Democrat, and Rep. Jack Fields, a Texas Republican who is chairman of the House telecommunications subcommittee -- deals with restrictions imposed by federal laws. The other -- by Rep. John D. Dingell, a Michigan Democrat who is chairman of the House Energy and Commerce Committee, and Rep. Jack Brooks, a Texas Democrat who is chairman of the House Judiciary Committee -- deals mostly with antitrust restrictions imposed by Judge Greene.

In the Senate, the main proposal for telecommunications reform has run into opposition from the regional Bells because it would not let them into the long-distance game.

The Markey proposal

Among the existing bills, the Markey proposal seems to have the broadest appeal -- co-sponsors range from some of the most conservative Republicans to some of the most liberal Democrats in the House.

The bill would write into law Mr. Markey's vision of "two independently owned wires running down every street in America," competing with each other and with wireless communications systems to deliver phone, video and advanced digital services to consumers.

It would allow phone companies to provide video programming through their networks. But it would forbid them to operate phone and cable-TV systems in one area, and would restrict cross-subsidization of new businesses with revenue from regulated phone service.

The bill also would sweep aside restrictions on competition in the local phone business, a provision of interest to the cable companies that control the second wire into most homes.

The Markey bill has been received favorably by many of the companies it would affect, including the regional Bells and AT&T.; The cable-TV industry applauded the provisions to open up the local phone market but expressed concern that the bill would let phone companies begin television programming too quickly.

The bill's authors hope that competition will do for the local phone market what it did for the long-distance market after the 1984 breakup of AT&T.; According to a study by Applied Economics Partners in Menlo Park, Calif., long-distance rates fell by an inflation-adjusted 30 percent between 1985 and 1988 and by an additional 17 percent between 1988 and 1992.

Carol Wilson, editor of the trade journal Telephony, said it's difficult to say how much consumers might save on local phone service in a competitive environment. Some people pay rates that are already subsidized and that presumably would not fall, she said. Others might save a significant amount by buying phone service as a package deal with their cable service, she said.

Sponsors of the bill also hope that competition will increase pressure on the regional Bells to roll out new services over upgraded phone lines.

Still, despite Mr. Markey's record as a friend of consumer interests, he has drawn criticism from former allies in consumer advocacy groups.

Bradley Stillman, legislative counsel for the Consumer Federation of America, said his organization would oppose the bill unless more consumer safeguards are added.

One objection, he said, is that the bill's loopholes would allow a telephone company to buy a cable company within its service region and thwart Mr. Markey's goal of a competitive marketplace.

"It still would result in turning a two-wire world into a one-wire world," Mr. Stillman said.

He added that the bill would not adequately protect rate payers from having to pay for the phone companies' new ventures. "There's been a marked inability of state and federal regulators to follow the money, so to speak, and prevent cross-subsidization," Mr. Stillman said.

Consumer advocates and some economists express similar concerns about the Dingell-Brooks bill, especially about the provisions to let regional Bell companies enter the long-distance market.

Lee Selwyn, president of Economics and Technology Inc. in Boston, asserts that the legislation would give the Bell companies an unfair advantage and "will probably contribute to remonopolization."

The White House influence

Both consumer advocates and the industries involved are waiting to see what the White House proposes in the comprehensive telecommunications bill being drafted under the supervision of Vice President Al Gore.

Participants in the process aren't talking publicly about specific proposals, but an administration official said the two-wire concept is "essential to competition." Another priority, he said, is crafting rules to encourage the investment of private capital to rebuild the nation's information infrastructure.

He added that the administration would likely draw heavily on the bills that are pending.

Mr. Chester, the consumer group leader, hopes that the administration's bill will include many of the safeguards that he believes are missing from the pending legislation.

TC "This is one of the most important decisions the Clinton administration will make," he said. "It's as important as health care or NAFTA. And there's really no public debate about it."

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