Sprint, 3 Cable Firms Plan New Phone Company

A consortium of three of the nation’s largest cable TV operators and the Sprint Corp. today will unveil plans for a new telephone firm designed to compete head-on with local telephone companies such as Pacific Bell, executives familiar with the venture said.

The new, unnamed company aims to use both cable TV lines and new wireless communications technology to give businesses and residences a choice in buying local phone service, which is now generally available only from a single, monopoly service provider.

If it succeeds, the ambitious venture could fundamentally alter the balance of power in the booming telecommunications industry, undermining the position of the huge regional Bell operating companies and opening up an immense new market for cable operators and long distance firms.

But the new company, whose backers include the cable firms Tele-Communications Inc., Comcast Corp. and Cox Enterprises as well as long-distance carrier Sprint, will have to invest billions of dollars and overcome myriad regulatory and technical obstacles to make its plan a reality. Analysts noted that the alliance was structured in a way that allows the partners to pull back relatively easily if things do not go smoothly.

An earlier effort by TCI to carve out a place in the telephone industry by merging with regional phone company Bell Atlantic Corp. collapsed, demonstrating the difficulties in combining two massive and culturally divergent businesses.

Initially, a key priority of the new venture will be to win some of the radio frequencies that are to be auctioned off in early December by the Federal Communications Commission. The radio spectrum is to be used for a new generation of wireless communications services known as personal communications services, or PCS--and the price for nationwide PCS licenses is expected to be in the billions.

Over the last few weeks, nearly all the major players in the telecommunications industry have been engaged in frenzied negotiations to secure allies for the PCS auctions in advance of a Friday deadline for disclosing bidding partnerships.

The PCS auctions now appear likely to pit the Sprint-cable group against AT&T; and its newly acquired McCaw Communications subsidiary, and against a new consortium linking four of the regional Bell operating companies. MCI Corp., once expected to be a major player in the auctions, appears to be without allies for the moment, and has said it may settle for being a reseller of other companies’ PCS services.

Some analysts think that might be the smartest way to go. Aspiring PCS providers will have to spend billions for the licenses and billions more to build PCS networks.

Herschel Shostek, a wireless expert based in Maryland, calls the PCS plan “a wonderful cocktail for fiscal suicide.” He says he would be surprised if PCS systems were commercially operational by 1997--and by then, he says, cellular companies will already have 40 million subscribers on reliable, well-established systems that can offer everything PCS does.

As ambitious as the Sprint-cable venture’s PCS plans are, however, they pale in comparison to the task of building a genuine competitor in the mainstream local telephone business. The new company plans to offer such services by leasing the facilities of the cable companies and then installing costly telephone switches and other necessary equipment.

The three cable companies in the venture reach 30 million homes, about one-third of the nation’s households. The partnership hopes to reach more households by offering attractive terms for leasing the facilities of other cable companies. The coaxial cables used by cable companies have huge capacities and thus can be used to carry telephone calls as well.

The obstacles to the plan are daunting. Only six states currently allow cable companies to compete in the local phone business; California is not among them. And a federal law that would have overridden local prohibitions died in Congress this year. The entrenched local telephone companies, moreover, have enormous amounts of cash--and political clout--with which to stave off would-be competitors.

And the cable companies will have to upgrade their lines so they can reliably carry phone services. Existing telephone wires, for example, carry their own power to homes so that phone services won’t be disrupted in the event of a power outage. Cable companies that want to offer phone service will have to do the same.

Long distance carriers such as Sprint have for years chafed under rules that require them to pay a large chunk of their revenues to local phone companies to cover the local portion of long-distance calls.

Times staff writer John Lippman contributed to this story.