Deal Would Allow Time Warner Into the Phone Business

Time Warner Inc. and BellSouth Corp. on Tuesday announced a deal that would allow Time Warner to compete for local phone service with the Baby Bell in the Southeast, blurring the line between cable and phone companies.

The agreement would connect the two companies’ networks so that when Time Warner began offering local calling over its cable television systems to customers in the region, they would be able to call anywhere in BellSouth’s nine-state region.

Time Warner is upgrading its cable TV networks in Florida, North Carolina and Tennessee so it can begin offering local phone service to its customers there by the end of the year. Without the connection with BellSouth, the service would not be viable.

The deal, one of many such deals being struck by regional Bells, helps pave the way for Atlanta-based BellSouth to meet a competitive checklist required in order for it to offer long-distance phone service in its region.

“This agreement contains all the checklist items required by the national legislation and is further proof that competition in our local markets is imminent,” Charlie Coe, a group president at BellSouth, said in a statement.

For New York-based Time Warner, it is an even bigger step.

Local telephone service is to be only the first lane on an information superhighway that Time Warner is building and hopes to extend across the country.

Time Warner plans to offer enhanced cable television, local telephone services, PC cable services and interactive television services all flowing through the same wire, spokesman Michael Luftman said Tuesday.

“You are going to see us doing this in all our large customer systems,” he said.

“PC cable” is Time Warner’s term for Internet connection and content services.

Tuesday’s deal is one of the largest steps so far in the convergence of markets for communications, information and entertainment. It was made possible by February’s Telecommunications Reform Act, which allowed cable TV and telephone companies to enter each other’s markets.

BellSouth’s stock closed up 50 cents at $40.125 and Time Warner gained 50 cents to $40.875 in consolidated trading on the New York Stock Exchange.

Time Warner has 11.7 million cable TV customers, making it the second-largest U.S. cable operator after Tele-Communications Inc.

Time Warner and BellSouth said public utility commissions in the states--Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, the Carolinas and Tennessee-- must rule on the agreement.