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Telecommunications bill may bring upheaval

THE BALTIMORE SUN

WASHINGTON -- The first tangible effect of the Senate's sweeping overhaul of telecommunications law, experts say, would be chaos: mind-numbing new marketing deals, outrageous prices, bankruptcies, hostile takeovers and schemes to make a quick killing amid the confusion.

But in the end, most experts say, the results should be lower prices all around and a headlong rush to offer advanced communication services over fiber-optic networks and satellite.

They have some models in mind: in particular, the breakup of the Bell System in 1984. While the breakup was at first a baffling headache for consumers, it has since become a boon. Long-distance telephone prices have plunged nearly 70 percent.

The communications bill, which the Senate passed on Thursday, has a strong chance of becoming law by year-end. It would once again turn the telephone business upside down.

But it would go much further than that, ultimately affecting virtually every form of electronic communications in the country.

Proponents say the bill would obliterate the old monopolies in local telephone service and cable television by letting the industries invade each other's markets.

"It's dynamic, it's messy and if there isn't a significant competitor in the market, the monopolist or oligopolist will charge top dollar," said W. Russell Neuman, professor of international communications at the Fletcher School of Law and Diplomacy at Tufts University.

"People probably won't want to hear this," he said, "but it will be a lot like what happened after airline deregulation," in which, after several complaints, passenger volume has surged.

Consumers have had virtually no voice in the battle in Congress over telecommunications changes. The result is a bill driven almost entirely by the forces of business and technology, and its impact is almost certain to be jarring.

And while economists agree on the benefits of the bill's big picture, much of the almost frenzied wrangling of the bill's six days on the Senate floor were over details that could bring hundreds of millions of dollars in windfalls along the road to deregulation.

Cable television prices, freed from regulation, would almost certainly increase over the short term. The cost of basic local telephone service may creep up, though long-distance prices are likely to decline. Confusion will also increase, but so will the use of new services.

Television, radio and newspaper publishing may also be

transformed. Both the House and Senate bills would greatly increase the number of television and radio stations a single company can own, paving the way for a large-scale consolidation of mom-and-pop stations into nationwide chains.

The House bill would usher in an even more radical change, allowing a single company to own, in the same city, two television stations, multiple radio stations, the cable television system and even the local newspaper.

That has provoked a furious debate between Congressional Republicans and the Clinton administration, which wants to take a more cautious stance.

"We don't want to turn every city in the country into Pottersville," said Greg Simon, a top aide to Vice President Al Gore, referring to the town in the movie "It's a Wonderful Life," where one mean-spirited tycoon dominated its entire economy.

In a grand bargain, local telephone companies would be forced to open their markets to new rivals. by adopting a "check list" of measures that rivals believe would make it practical to enter the market.

In exchange, the local companies would immediately be allowed to enter the cable TV business and eventually the long-distance market.

As part of the bargain, the legislation would also free cable

television companies from most price regulation. Acting under a law passed in 1992, the Federal Communications Commission imposed a 17 percent rate cut on cable companies last year and subjected future rates to a series of complex formulas.

Industry experts say cable TV rates are almost certain to rise, at ++ least in the short term, if the bill passes.

Fewer than 1 percent of all cable systems face a significant competitor at the moment, and studies by the commission in 1993 showed that cable systems with exclusive franchises charged about 30 percent more, on average, than the handful of systems that did have competitors

New direct-to-home broadcast satellites, like Hughes' Communications DirecTV, now offer more than 150 channels of movies and television programming, including all major cable networks. While DirecTV has been a big success in its first year, the entire direct-to-home industry has thus far captured only about one million homes.

Bradley Stillman, legislative counsel for the Consumer Federation of America, predicted that cable television prices could increase $5 a month -- an increase of more than 50 percent over the near term.

Cable industry executives adamantly disagree with that estimate, but Wall Street analysts say that price increases of some sort are inevitable.

"Prices will go up," said Steve Schutzman, a bond analyst at Salomon Brothers who tracks the cable industry. Indeed, he said, cable companies have several reasons to raise prices as fast as they can.

Many of the biggest companies, including Tele-Communications Inc. of Denver and Time Warner Inc., are contending with a mountain of debt at precisely the time when they need to increase the capital spending to match looming competition from the telephone industry.

Meanwhile, competition in the television market from telephone companies is likely to take longer than many people expect -- particularly for small markets. Several of the most aggressive Baby Bells, including Bell Atlantic Corp. and US West in Denver, have pulled back on their plans amid uncertainties about technology.

Small cities and towns will not see competition for at least five or six years -- if ever. Bell Atlantic, as an interim step, hopes to offer cable programming over a relatively inexpensive microwave technology known as "wireless cable."

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