COMPANY TOWN : No Telecom Bill Means States, Courts Must Sort Out Issues

Congress’s failure to pass a comprehensive telecommunications reform bill this year will mean plenty of extra work for state regulators and the courts as they retain responsibility for an array of high-stakes telecom issues--all of which feature powerful industry factions with diametrically opposed interests.

Take the question of whether or not regional phone companies should be allowed to offer their own video programming in competition with cable TV firms. The Bell companies say they need those rights to justify making the huge investments necessary to link schools and hospitals with high-capacity lines and to offer such services as video-on-demand. Cable TV firms and other opponents counter that phone customers will end up subsidizing such ventures, and that the Bells will freeze out independent program providers.

Three courts have found in favor of the Bells on First Amendment grounds, ruling that the bar on programming interferes with the phone companies’ free-speech rights. But two of the cases are under appeal and at least five more cases on the same issue are pending.

The failed federal legislation would have put an end to the legal bickering. Now, at least one of the cases seems headed for the Supreme Court.

Or consider competition in local and long-distance phone markets. A call within a regional calling area, known as a LATA, is typically handled by the local Bell company--even if it’s to a location hundreds of miles away. (These longer intra-LATA calls are known as local long distance, or toll calls.) A call between LATAs is a long-distance call.

The proposed telecom reform bill would have required states to open up the intra-LATA market to competition. Now the battle between long-distance carriers and local phone companies that was fought on Capital Hill must be replayed in each state, with often-underequipped public utility commissions trying to sort through the issues.

The same applies for competition in local phone service--a business cable operators and long-distance carriers are eager to be in. Although four states have stripped the local carriers of their legal monopolies and invited competition--and eight others are expected to do so within a year--many states are dragging their feet. And none have determined how they will handle the sticky issue of subsidizing basic phone services--which local carriers have traditionally done with their monopoly profits.

Nick Allard, a Washington attorney who deals with telecom regulations, is optimistic that the efficiency of having a single national policy will ultimately carry the day as the issue is taken up again by Congress next year.

“There is really a lot of consensus” on the need for federal rules, he says. “It would have been better for everyone to have a rational system instead of this crazy quilt of outdated regulations.”

Telecom Regulation: A Status Report

An effort to rewrite the nation’s telecommunications laws died in the Senate on Friday. Without new federal laws, many vital issues remain the province of state regulators and the courts.

LOCAL PHONE SERVICE:

* An $80-billion market controlled by local monopolies.

Current Rules: New York, Illinois, Massachusetts, and Washington now allow competitors--notably cable TV and long-distance companies--to challenge regional Bell operating companies or other monopoly local carriers. Eight more states will allow competition next year, and California will do so by January, 1997.

Key Issues: Potential competitors say customers must be able to change companies without changing phone numbers. Measures are required to prevent Bells from exploiting their monopoly position. Arrangements are needed to cover subsidies for universal service, anywhere from $4 billion to $20 billion annually.

LOCAL LONG DISTANCE (TOLL):

* A $14-billion market dominated by Bell companies.

Current Rules: There is open competition in 43 states. California will allow competition beginning Jan 1.

Key Issues: Long-distance providers say they cannot be competitive if customers must use special access codes, as will be the case in California. Competition lowers prices but local carriers boost the cost of basic phone service to make up revenue.

LONG DISTANCE:

* A $60-billion market dominated by MCI, Sprint and AT&T.;

Current Rules: Regional Bell companies are barred from the market by the court order governing the breakup of the Bell system.

Key Issues: Bell companies contend their entry into the market would enhance competition and are mounting a legal challenge to the court order.

CABLE:

* A $20-billion market controlled by local monopolies in most places.

Current Rules: Bell companies are barred from owning cable companies where they provide phone service.

Key Issues: Bell Atlantic won the right to carry video signals to homes in Dover Township, N.J., and is applying for the right to offer video programming as well. Other Bell companies have a total of 27 applications with the FCC to offer cable-type services. District courts in Alabama, Washington and Virginia, citing free-speech concerns, have overturned provisions of the Cable Act of 1984 barring Bell ownership of cable programming sold in their own regions. Cases are on appeal. At least five other court challenges on the same issue are pending.