Bell-TCI Deal Raises Antitrust Issues, Information Highway Hopes

Phone, cable firms seem ready to build information infrastructure

THIS week's $30 billion deal - Bell Atlantic Corporation's purchase of TeleCommunications Inc. (TCI) - is the latest and largest sign that the private sector is eager and willing to build national information highways.

The news sounds sweet to policymakers, since the debt-strapped federal government can hardly afford to install a two-way, high-volume electronic pipeline into every American home.

But the recent spate of alliances between telephone and cable television companies complicates an already difficult challenge for lawmakers: How to encourage such investments and entrepreneurship while avoiding the rise of media monopolies that could hurt consumers.

``That's the public policy balance that is going to have to be struck,'' says Stuart Brotman, a senior fellow at the Annenberg Washington Program.

The issue is part of a long-simmering debate. Policymakers and consumer advocates want to make sure the information highway is not just for a privileged class of ``information-rich'' Americans, but becomes a vital resource for all. Fostering this vision within private-sector phone and cable networks is a major regulatory challenge.

The latest concerns are of the old-fashioned antitrust variety: The phone and cable industries, rather than mounting an expected battle to deliver competing information products, are rushing into each other's arms. The Bell Atlantic-TCI deal is only the most prominent, with smaller phone-company investments in cable firms recently made by Nynex, US West, Southwestern Bell, and BellSouth.

Earlier this year, Rep. Edward Markey (D) of Massachusetts warned in a speech to the telephone industry against such a trend. Mr. Markey, chairman of a House telecommunications subcommittee, said phone companies should ``only be permitted to get into the cable business the old-fashioned way - by building a new system. They cannot get into the business by buying an existing cable system.''

The reason for his view was ``simple,'' Markey said: Buying a cable system does not increase competition in the market for video services.

Phone and cable companies have long been barred from competing directly in each others' markets. Now advances in information technology are blurring industry lines and forcing regulators to open doors to competition. That should mean lower prices and more options for consumers. But if phone companies enter the video business by buying a cable firm, then ``the competitive picture has not changed one pixel,'' Markey says.

The congressman called for hearings to look into ``media concentration'' shortly after Wednesday's announcement of Bell Atlantic's buyout of TCI, the nation's largest cable operator.

Meanwhile, Vice President Al Gore Jr., who like Markey is a long-time proponent of a national information highway, echoed similar concerns: ``The administration supports any development in the communications marketplace that is pro-competitive and fosters the development of an open, interactive information infrastructure.'' The Justice Department, Federal Trade Commission, and the Federal Communications Commission will review the deal.

Industry officials say that worries about monopolies are unfounded. Under current law, phone companies cannot operate cable within their phone-service regions. Thus Bell Atlantic will have to divest some TCI franchises. Without the ability to own a cable presence in their phone-service areas, the Bell companies may move to compete aggressively with cable firms by upgrading their phone lines for video and other new services.

But the cost of doing so is high, even for the cash-rich Bells. The recent deals suggest that many of them see investment in up-and-running cable firms as the easiest way into the video market. The cable companies, in turn, hope to gain switching technology to transform their one-way delivery system into a two-way stream of data for interactive TV or other communications.

``Together, we will help make the information superhighway a reality,'' Bell Atlantic chairman Raymond Smith said.

No one expects the TV and phone companies to bear the entire responsibility for setting up the nation's communications infrastructure. But in recent months, Mr. Brotman notes that a consensus has developed that the cable industry's coaxial cable network represents a cheap alternative to laying fiber-optic cable into every home. The public-policy purpose of the data superhighway, which Gore and others have espoused, is to improve America's economic competitiveness by linking libraries, schools, and homes to information quickly and cheaply. Consumer advocates worry that this ideal clashes with the driving force behind the recent alliances: potential profits.

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