Regulatory Walls to Tumble: Phones, TVs Enter New Era

IN its rush to create the telecommunications industry of the future, the United States has decided to smash open the floodgates of competition and see what happens.

Such deregulatory experiments have worked before. The US led the way in freeing up its airlines and long-distance companies to compete, leaving the rest of the world to play catch-up. But nothing has ever been tried on this scale.

Instead of one industry, the US is deregulating five. The new legislation will not only allow competition within industries; it encourages competition among them, tearing down regulatory walls that have stood for more than 60 years. Passed overwhelmingly by Congress last week and expected to be signed by President Clinton this week, the telecommunications reform law will affect every American who turns on a television set, uses a telephone, or logs onto the Internet.

Experts predict sweeping and unpredictable change.

"Things will be in a state of dynamic frenzy," says Chris Crafton, director of industry affairs for General Instrument Corp. The Chicago company is one of many high-tech suppliers likely to benefit as the deregulated industries grasp for a competitive edge.

What does seem clear is that the new law will usher in a period of megamergers. Free to invade one another's businesses, broadcasting, cable TV, and telephone companies will try to get bigger in order to compete, experts agree.

"The big will get bigger," says Michael Wirth, director of the school of communication at the University of Denver.

After four years of serious wrangling, the US House of Representatives on Thursday approved 414 to 16 the sweeping rewrite of the nation's Depression-era communications laws. An hour later, the Senate passed the same measure 91 to 5. President Clinton has said he will sign it.

No one knows how the new law will play out. Some experts foresee most Americans being able to choose between two full-service communications and entertainment pipelines into their homes: one their current local phone company and the other their current cable TV firm.

But others predict phone-cable mergers. Consumer groups doubt the telecommunications law will lower prices for customers. When the US deregulated the airlines and long-distance telephone companies, prices dropped dramatically before the industries began to consolidate around the most effective competitors. But the pressures to consolidate in telecommunications are so large, these groups argue, that this time the order may be reversed and the mergers could fail to benefit customers.

"The concern here is that the bill will deliver on the deregulation, but it may not deliver on the competition," says Bradley Stillman, telecommunications policy director for the Consumer Federation of America in Washington.

The bill's highlights include:

*Long-distance and local phone companies will be able to compete for one another's business. Instead of getting one bill for each service, consumers will be able to choose a single company to handle all their telephone needs. Because it is harder to build a local-phone network than a long-distance one, and because the regional Bell firms currently have a virtual monopoly on local service, the legislation forces the Bells to open up their regions to competition before they can move into the long-distance business. This process will take more than a year. "Sometime in the '97 time frame, you will see carriers being able to provide combined services," says J. Michael Brown, AT&T's vice president of federal legislation.

Telephone companies will try to get bigger to compete. Two regional Bell companies - Bell Atlantic and Nynex - are already talking about merging. The legislation leaves long-distance companies free to partner with or buy up local-service providers.

*Cable TV companies will be free to offer telephone communications, too. And their systems are well-positioned to carry data. Cable companies are working on devices that could give computer users Internet access several hundred times faster than today's telephone companies deliver.

*Telephone companies, meanwhile, want to offer TV-like programming. Various regional Bell telephone companies are working on ways to deliver video over their networks. Bell Atlantic reportedly is poised to extend high-speed fiber-optic lines to clusters of homes in a major East Coast city. Such lines, which are even faster than cable TV's coaxial cables, conceivably could allow Americans to hook up their television sets to their phone lines.

*TV and radio broadcasters are free to expand and own as many stations as they want as long as they don't reach more than 35 percent of the US population. The new law strikes down rules that limited companies to 12 TV stations or 20 FM and 20 AM radio stations. Some companies have already positioned themselves to take advantage of the new law. Station-owner Westinghouse Electric Corp. has planned to purchase of CBS Inc., for example.

*The new legislation does tighten some restrictions. TV manufacturers will have to introduce a special chip into every new set. Called the "v-chip," the device electronically blocks access to violent or other objectionable TV shows. The idea is to give parents control over what their children watch. Free-speech advocates say the new criminal penalties will inhibit Internet communications.

Effects on TV, Phone, Internet