Baby Bells Suffer Setback as Panel OKs Reform Bill : Telecom: Cable television industry wins a round with the removal from the legislation of most rate regulations.

The powerful regional Bell telephone companies suffered a big setback on Capitol Hill on Thursday as a key House panel approved a broad telecommunications reform bill that would slow their entry into the lucrative long-distance business while giving nearly all of their rivals freer rein to compete.

The cable television industry, for its part, scored an important if widely anticipated victory as the House Commerce Committee rejected a last-ditch challenge by Democrats and retained provisions in the bill ending most cable rate regulations.

In moving the highly contentious telecom reform effort, the committee voted 38 to 5 for a measure that would require “facilities-based” competition from a rival if a local telephone provider wanted to immediately offer long-distance service to its customers. In the absence of such established rivals, the local carrier would have to wait up to 18 months while federal regulators complete an exhaustive assessment of competition in the local phone market.

The measure also calls for local phone companies to form separate subsidiaries to offer long-distance service and requires them to sell local phone service to resellers at “economically feasible rates.” In addition, the bill would relax media cross-ownership restrictions, though it would retain, for the most part, limits on foreign ownership of U.S. broadcast media.

The telephone provisions, part of a sweeping reform measure aimed at throwing the telephone, cable and long-distance industries open to greater competition, were seen as a major setback for the Baby Bells, which are eager to go after a bigger piece of the burgeoning telecommunications and information markets.

The bill now heads to the full House, where it must be reconciled with another bill aimed at setting the ground rules for local phone companies’ entry into the long-distance business. The Senate is also working on telecom legislation, and any House bill would have to reconciled with what will probably be a somewhat different Senate bill.

Thus, while the Bells still have several more chances to affect the ultimate outcome--and could even opt to block any legislation at all, as they did last year--it now appears likely that the full House will approve a telecom bill much more restrictive than what the Bells had sought.

“Last week, most of the RBOCs [regional Bell operating companies] seemed pleased with the bill, but I think some of them now are screaming bloody murder,” said Brian Moir, a veteran Capitol Hill lobbyist who represents a coalition of large corporate telephone users fighting the Bells.

For months, the Baby Bells have marshaled armies of lobbyists, taken out full-page newspaper ads and even launched electronic sites on the Internet in an effort to persuade Congress to allow them rapid entry into the long-distance business. Interest has been so high that lobbyists have paid people $1,000 or more to stand in line overnight to secure them seats at the legislative proceedings.

“We were surprised that the Commerce Committee added more regulation to legislation that was expected to open markets and allow competition that would benefit consumers,” said Bill McCloskey, director of media relations for BellSouth. “This legislation would force Bell companies to sell our services to competitors below our costs . . . [while] keeping us out of long-distance for a long, long time.”

But jubilant long-distance carriers hailed the bill.

The “House Commerce Committee came out solidly on the side of consumers,” said Larry Harris, a senior vice president at MCI Communications Corp.

For nearly a decade, Capitol Hill lawmakers have tried to reach a consensus on how to overhaul the nation’s 61-year-old communications laws to promote lower prices and greater competition. Debate has centered on three issues: when to allow local phone companies to offer long-distance service and vice versa, whether to subject cable companies to federal rate regulation, and how swiftly to ease ownership restrictions on broadcasters.

For the most part, lawmakers chose the deregulatory route Thursday.

They voted to throw out longstanding cross-ownership rules that limited the number and type of media properties that broadcasters and cable companies could own in the same city as well as across the United States--though the plan also includes some safeguards to protect against undue concentration of media ownership.

And over the objections of Democrats on the panel, the Commerce Committee voted to immediately free small cable systems from rate regulation and free larger cable system operators within 15 months, even if they face no other cable competition.