THE TELECOM REFORM BILL : IMPACT ON TECHNOLOGY : Once It’s Law, the Action Begins

Like restless children waiting for the final bell at the end of a school day, technology companies ranging from Baby Bells to Microsoft are anxious for the ink to dry on telecommunications reform legislation that would allow them to make sweeping deals creating new markets for their products.

The industries touched by the measure--which also include cable and radio and television broadcasting--make up nearly a fifth of the U.S. economy. And, unleashed from many government regulations, their share could grow even bigger. Investment by phone and cable firms would also probably spur growth in computer and related industries that are especially important to California.

“We’re just going to see a huge wave of consolidation,” said Anna-Maria Kovacs, vice president of research for Janney Montgomery Scott in Philadelphia. “We’ll be looking at big capital expenditures, and we’ll finally get around to building that information superhighway.”

The regional Bell operating companies are expected to launch a flurry of activity, making deals with long-distance companies, cable operators and especially with each other. For example, Bell Atlantic and Nynex--already partners in the cellular business--are reportedly discussing a merger.

When all is said and done, some analysts expect the number of Baby Bells to drop from seven to as few as two or three--including Pacific Telesis, the parent company of Pacific Bell.

Pacific Bell has already partnered with Bell Atlantic and Nynex to deliver video over wireless cable networks, and the company has spent nearly $700 million on personal communications services, or PCS, licenses in government auctions.

Pacific Telesis could look to acquire GTE California, “a complementary set of properties for PacBell,” one analyst said. About 20% of GTE’s phone lines are in California, he said.

Like other Baby Bells, PacBell would probably form an alliance with a long-distance company, either through a joint venture or an acquisition. The company plans to invest several hundred million dollars to snag a piece of California’s $10-billion long-distance market.

One analyst said PacBell could afford an outright acquisition of a long-distance company, either alone or in partnership with another buyer.

Long-distance companies, meanwhile, would be competing with the Baby Bells on their own turf. Such competition must exist before the Baby Bells would be permitted to enter the long-distance arena.

If the Baby Bells get permission to enter the long-distance business within about a year, AT&T; and MCI would feel extra pressure to “build up their local business very quickly” through direct acquisitions rather than through strategic partnerships and alliances with smaller local providers, Kovacs said.

“MCI might very well end up in partnership with” a regional Bell operating company, Kovacs said. “Sprint has already chosen to partner with several cable companies and that makes it less likely they would partner with RBOCs.”

Wireless companies that already offer cellular services are also expected to compete for local telephone business, said Susan Passoni, an industry analyst for Cowen & Co. in Boston.

Aside from local phone service, “AT&T; has positioned itself pretty well in terms of getting into the wireless business,” Kovacs said. “They already own a large wireless operation.”

MCI has said that industry overcapacity will make it cheaper for the company to buy excess cellular capacity for resale rather than buy or launch a cellular business of its own.

Much of the investment by telecommunications and media firms would be channeled to vendors of powerful computers, database software, switches and fiber-optic cables. Microsoft and Silicon Valley-based firms such as Oracle Corp., Silicon Graphics Inc., 3Com and Sun Microsystems Inc. are expected to benefit.

“If they pass it, that’s good news, Microsoft Chairman Bill Gates said in a recent interview with The Times. “All we care about is that the communications companies really start investing in infrastructure and compete with each other like mad. The growth of our business . . . is totally dependent on the price of communications coming down.

Analysts say the legislation makes it easier for cable companies to get into cyberspace.

“Cable companies could be a very interesting conduit for World Wide Web and Internet services,” said John Reidy, a cable analyst with Smith Barney in New York. For that to happen, the companies must upgrade their infrastructure to handle two-way transmissions, he said.

Cable giant Tele-Communications Inc. will focus on developing new businesses such as computer online services, which can carry more data than high-speed ISDN phone lines, said analyst Michael Kupinski of A.G. Edwards & Sons in St. Louis.