Programming Battle May Change Picture of Cable TV : Industry: High court will review media policy. At stake is phone companies’ bid to get into broadcasting.

Trudy and Nick Marotta have a set of TV viewing choices at home that few Americans can match now but that may be available to most families within a decade.

“With a push of a button, we can choose from thousands of things to watch on TV,” Trudy Marotta said, from movies and sports to cartoons and public broadcasting specials. “I like it because we can determine what we want to watch and when. And we haven’t been to the video store in months.”

The Marottas are among 1,000 families in Northern Virginia chosen by Bell Atlantic Corp. to try out an alternative to cable television.

This 6-month-old experiment may be the first skirmish in a fiercely competitive war between the $100-billion-a-year local telephone industry and the $23-billion-a-year cable TV industry.

Until recently, both have enjoyed monopolies in their own realms. But last year, a U.S. appeals court in Virginia struck down the law that kept telephone companies out of the TV business and ruled that they have a free-speech right to select the kind of “video programming” supplied over the phone lines.

The U.S. appeals court based in San Francisco followed with a nearly identical ruling a few months later.

This week, in arguments that will combine two cases, the Supreme Court will hear the government’s last-ditch appeal to preserve the old policy of segregated media.

And if the high court does not overturn the 1960s-era barrier that has blocked telephone firms from getting into video programming, Congress will probably do the job itself.

The House and the Senate have passed slightly different versions of sweeping bills that would clear the way for open competition in the telecommunication sector. Not only would the legislation allow telephone companies to get into the cable TV business and vice versa, but it would even allow electric, gas and water companies to provide “telecommunication [or] information services.”

For the past two weeks, lawmakers from both chambers have been meeting to work out technical differences between the two versions. The two sides say they still hope to send the completed bill to President Clinton before the end of the year.

“This means consumers will finally have a choice,” said Washington attorney Samuel A. Simon, who became involved in the issue when the suburban cable TV franchise serving his home announced plans to drop its presentation of Chicago Cubs games.

In the Supreme Court, he filed a brief supporting free speech and open competition on behalf of an array of groups, from the Virginia Assn. of the Deaf to Mets Fans United (U.S. vs. Chesapeake & Potomac Telephone, 94-1893).

“We’re supporting the telephone companies because they are the only realistic, logical competitor right now,” he said. “They have the second wire into the house.”

Not everyone is so enthusiastic.

The Consumer Federation of America says it fears competition might not lead to more choices; it may instead lead to the “replacing of one monopoly with another.”

“Neither of these monopoly industries has shown a real interest in competing,” said Mark Cooper, the federation’s research director. “Instead, they like to buy up their competitors. The telephone companies are incredible money machines, and there’s nothing to stop them from buying up cable companies. You could end up with one big monopoly.”

The cable TV companies voice some of the same fears in their appeal to the Supreme Court (National Cable Television Assn. vs. Bell Atlantic, 94-1900). The National Cable Television Assn. joined the Justice Department in asking the court to preserve for now the legal barrier between telephones and cable TV.

“There’s nothing wrong with competition, so long as it’s fair competition,” said Jeffrey Sinsheimer, directory of regulatory affairs for the California Cable TV Assn. in Oakland. Without some regulatory oversight, he says, telephone companies could siphon off money from customers to subsidize their entry into video programming.

In Congress, however, cable TV industry lobbyists support the open-competition legislation.

“Competition [between the two industries] is not a question of if, but when,” said Rich D’Amato, a spokesman for the national cable TV group.

While the bill would end the cable TV industry’s near monopoly, it would also free cable TV companies to raise their rates. In 1992, complaints from angry consumers prompted Congress to reimpose rate regulation. As a plus, the legislation would free cable TV companies to tap into the local phone business.

“We are strongly supportive of the legislative approach,” D’Amato said.

However, cable TV industry officials say they worry that the Supreme Court could simply free the telephone companies to plunge into their business.

On its side, the telephone industry has a pair of legal heavyweights: Harvard law professor Laurence H. Tribe and former U.S. Solicitor Gen. Kenneth W. Starr, who is now the Whitewater special prosecutor. Starr’s law firm has represented Bell Atlantic for years.

“They [telephone companies] want to establish the principle that this is a ban on speech itself. It’s not just a regulation,” said Tribe. “Just like a newspaper wants to write its own stories, edit them and publish them, the phone companies want to be able to choose the programming, to edit it and to deliver it themselves.”

The ban on video programming by telephone companies began as a Federal Communications Commission regulation in the 1960s and was written into law in 1984. It was intended to shield the blooming cable TV industry from being crushed by the powerful Bell telephone companies.

These days, however, attorneys for the FCC and the Clinton Administration find themselves in an awkward spot. They are obliged to defend an old barrier until Congress repeals it, yet they agree in principle that the time has come for open competition.

“It’s no secret we’d love to have telephone companies get into the cable business and the cable companies get into the telephone business,” said FCC Deputy General Counsel Christopher J. Wright.

Telephone industry officials say they are eager to get into the video business. They also say that antitrust laws and FCC accounting regulations will prevent them from simply buying up cable TV companies or unfairly subsidizing their entry into the video market.

“There’s been a monopoly in the cable business, and we are the answer to that problem,” said Bell Atlantic attorney John Thorn.

So far, the “Stargazer,” Bell Atlantic’s experiment in Northern Virginia, is not a true alternative to cable TV. Unlike the Cable News Network and other operations, it does not offer live programming but rather access to a huge volume of taped programs.

The system works like the movie boxes in hotel rooms, but it allows viewers to stop and restart programs. Charges range from 79 cents for cartoon programs to $4.99 for new movies.

“I’m interested in old [Alfred] Hitchcock films and travelogues, and they have a good selection of both,” said Robert A. Lincoln, a retired foreign service officer in McLean, Va. “With the remote, an ancient guy like me can pretend he knows how it works, but I don’t have the foggiest idea how it operates.”

The signals come over the phone line but they do not interfere with calls, customers say.

Trudy Marotta says the new programming service has proved especially useful for her because she has a 10-year-old son and a husband who uses a wheelchair. But rather than replace the need for cable TV, it has proved to be an alternative to video rentals and special movie channels.

“We canceled HBO and the Movie Channel,” she said. The family now spends $12 to $15 a month for Bell Atlantic’s programming. “And I don’t have to run back and forth to the video store.” Bell Atlantic officials say they are confident that this trial will lead to a full-fledged video service.

“We will win either way,” through the courts or through Congress, said Thorn, the Bell Atlantic lawyer. “And in time, we will offer a different, better product than the cable companies. Consumers will be able to dial into a virtually unlimited amount of programming.”