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COURT RULING CLEAR POSITIVE FOR LOCAL PHONE INDUSTRY, FITCH SAYS -- FITCH FINANCIAL WIRE --

 NEW YORK, Aug. 25 /PRNewswire/ -- Yesterday's ruling in U.S. District Court allowing Bell Atlantic to offer video service is clearly positive for local telephone companies' credit quality. The decision significantly improves the strategic position of the local telephone industry. To the extent that the ruling is broadly applied, it will help generate additional revenue and help boost asset turnover. However, in light of the likelihood of an appeal, the varying capital requirements, and some ongoing competitive threats to the local service, Fitch does not anticipate rating upgrades for the local telephone industry near term.
 Although Fitch expects this ruling will be automatically appealed, barriers to competition in communications services will ultimately be overturned unless there is an overwhelming and compelling public interest in sustaining those barriers. This court ruling is consistent with that view. Although the former Bell companies are already permitted to offer information content, the 1984 Cable Communications Policy Act effectively prevented them from providing the most lucrative type of content, entertainment programming. If sustained on appeal, this ruling is the most significant change in the legal and regulatory environment in the local telephone industry over the last several years.
 Local telephone networks are already being upgraded to offer video service on a trial basis. Fitch will evaluate the impact on credit quality of the network upgrades necessary to offer an appropriate level of cable service. This ruling will allow the telcos to generate the necessary operating income to help support the investment in the video transmission assets. Given the local telephone companies' enormous sunk investment in plant and equipment, an increase in asset turnover can have a powerful positive effect on credit quality.
 The former Bell system companies currently are prohibited from providing long distance service. Since a significant portion of television programming is transmitted by satellite and other long distance facilities, the ban effectively prevents them from carrying standard television programming. If and until that long distance ban is lifted, the local phone company video offerings would be restricted to content that does not violate this ban. The local telephone industry also faces ongoing competitive threats from alternative access providers, and more aggressive long distance companies, including AT&T. In addition, the diversification efforts of the telephone industry over the last decade has shown that the opportunity to compete in a new market is not a guarantee of financial success. The telcos will only be successful to the extent that they offer a superior cable service at a competitive price. Consequently, the ruling will not result in rating upgrades in the foreseeable future.
 -0- 8/25/93
 /CONTACT: Timothy Cain of Fitch, 212-908-0587/


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WB -- NY059 -- 5808 08/25/93 15:21 EDT
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Date:Aug 25, 1993
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