Teamwork looks likely in new cable service ventures.

Cable operators still contend phone companies pose threat

The cable industry in California expects local phone companies to team up next year with television networks and/or Hollywood studios to begin providing cable service, due to a Federal Communications Commission decision last month allowing such joint ventures.

That is unless the cable companies can stop the whole thing through an appeal in federal court, which likely will be filed this month.

The issue, in media circles, is called "Telco" (as in telephone company), and it concerns the entry of the Bell companies and other phone service providers into a wealth of other industries.

In a statement issued last month, the FCC said telephone companies should be allowed to develop a wide range of communications services, including "cable" television and computer data services, providing competition for other industries that are none to happy about facing off against the utility monopolies.

The commission said the phone companies can sell the services separately, so long as they offer full access to their lines to competitors.

Further, the FCC said phone companies could team with other companies, such as television networks or studios, to provide cable television service in places where they provide phone services (something not allowed under federal law) without a franchise from the local government.

"It will be appealed, and I believe it will be overturned," said Alan Gardner, vice president of regulatory and legal affairs at the California Cable Television Association.

The FCC is seeking comments on whether telephone companies should be allowed to acquire "a limited interest in the programming" provided via what is known as "video dial tone." Comments are due to the FCC by Jan. 23.

Gardner said he is concerned about statements made by GTE California that it hopes to start providing cable television service next year. GTE already is providing service, in cooperation with Apollo Cablevision, at a test case community in Cerritos. Asked if GTE wants to get into the cable business soon, the company's state manager of public affairs, Larry Cox, last month answered: "You bet."

Everyone involved agrees that eventually, if not sooner, fiber-optic telephone cables will carry a gamut of information, including audio (telephone service), video and data. The question is when and under whose regulation, so the various industries involved are frantically scrambling to be heard about how to control the utility monopolies' entry into these emerging, competitive fields.

Although the Public Utilities Commission in California has not yet approved the mass replacement of copper phone wire with fiber optics, which is required for the advanced transmission technology, Gardner said GTE could provide cable service on copper wire, limited to one channel at a time in any given home, with picture quality about that of a VHS tape played on a video cassette recorder.

If the service is cheap enough, people will sign up, Gardner predicted.

The main concern of cable companies in California is that the phone companies will cross-subsidize, using phone revenues to keep cable bills lower, despite state regulations prohibiting such fund mingling.

John Gibbs, president of the Los Angeles Cable Operators Association and vice president of corporate and legal affairs for Continental Cablevision, said it would not be economically feasible for phone companies to compete directly against established cable operators if the phone companies had to follow the same rules the cable companies do.

But the FCC's recent statement said phone companies shouldn't be required to obtain franchises from local governments to provide video signals, as cable television companies must, Gibbs noted.

"If it's on an equal basis, more power to them," said Gibbs.

At a recent gathering of cable operators, Steven Effros, executive director of the Community Antenna Television Association, said if the courts uphold the FCC ruling, then "it might mean the end of city regulation of cable."

But Gardner disagreed, saying the franchises may continue, applying only to cable companies and not to utility partnerships.

Meanwhile, Congress is considering a variety of measures to regulate the Bell companies' entry into video and data services, and to further regulate the cable industry.

The so-called Cooper Bill (House Resolution 3515, introduced by Rep. Jim Cooper, D-Tenn.) would force the Bell companies to set up separate subsidiaries if they want to provide information services. Some legal scholars say the bill is unconstitutional, violating the First Amendment right to free speech.

The bill would replace court-imposed restrictions, lifted last summer by District Court Judge Harold Greene, which prohibited telephone companies from providing cable/data services in areas where they offer phone service.

The Cooper Bill is supported by the American Newspaper Publishers Association, which also thinks controls are needed to keep the phone monopolies from gouging their captive consumers for the cost of providing the new services.

Senate Bill 12, which reportedly has been shelved until January, would further regulate the cable industry. According to reports from Capitol Hill, a compromise substitute bill is being floated that is supported by President Bush and expected to be distributed as an amendment in January.

House Resolution 3560, which is supported by Los Angeles Mayor Tom Bradley, would give local governments more control over the rates charged by the cable companies to which they grant franchises.