Was Telecommunications Reform Just Another Act?

To consumers, who were promised more choices, new services and lower prices as a result of the Telecommunications Reform Act of 1996, the sweeping measure must seem like a case of legislative bait-and-switch.

A year after Congress enacted the landmark law to open the nation’s heavily regulated telephone and television industries to greater competition, long-distance telephone rates have risen, cable TV rates have remained high and little or no local telephone competition has emerged in most residential markets.

Instead, the law has created more regulatory red tape in the form of new efforts to control smut in cyberspace and violence on TV. The measure has also ignited massive industry consolidation that has spawned at least four multibillion-dollar mergers and fueled a buying binge that has diminished the ranks of small and minority broadcasters.

Television and radio station sales nearly doubled from about 1,175 outlets in 1995 to 2,100 in 1996, according to BIA Research Inc., a Chantilly, Va., firm. Two huge mergers are scheduled among four of the seven massive Baby Bell telephone companies. Critics say this is inevitably leading to less competition, not more.

“President Clinton and Congress promised the American people that enactment of the Telecommunications Reform Act would lead to a cornucopia of technological innovations,” said Audrie Krause, a veteran regulatory gadfly who heads San Francisco-based Net Action. “Instead, we’ve been censored in cyberspace, subjected to TV ratings systems and prevented from experiencing the benefits of a truly competitive marketplace by the emergence of ‘cartels’ created by [telecommunications] mega-mergers.”

Still, history suggests that it may be too early to paint the telecommunications act a dismal failure.

In 1992, for instance, a similar reform measure, the Cable Television Consumer Protection and Competition Act, initially failed to lower cable prices, improve service or produce much competition. But the exploding direct-broadcast satellite industry--which has been growing at 20% annually and now beams video programming by satellite to about 4 million subscribers in the United States--credits the legislation with giving it crucial access to cable programming at competitive prices and thus allowing it to give the cable industry its first serious competition.

What’s more, the ground rules for the local telephone competition mandated in the new law weren’t fully ironed out by the Federal Communications Commission until August. And soon after the agency issued its rules, it was sued in federal court by disgruntled local phone companies who accused the FCC of forcing local phone companies to offer rivals access to their networks at unreasonably low prices.

Although many local and long-distance carriers say they are nonetheless forging ahead with efforts to start local phone competition, the litigation has delayed some new telephone industry investment because of the uncertainty it has created over the local competition rules.

“People expect immediate change, but competition can only develop at the pace technology, economics and the nitty-gritty of the regulatory process will allow,” said William N. Deatherage, a telecommunications analyst at the New York investment house Bear, Stearns & Co. “I think competition in the local telephone industry will develop, but it will easily be a five- to 10-year process.”

Tom Tauke, executive vice president for governmental affairs at Nynex, added that many critics of the telecommunications act overlook numerous examples of competition that are already underway.

“People expected too much too soon . . . because all the players all promised too much too soon,” Tauke said. “But the fact is, when you look back over the past year, a lot of good things have happened.” Tauke said competitors are entering Nynex’s markets and that the company is allocating more than 1,500 telephone lines a week to rival firms.

Clearly, though, many telecommunications companies have scaled back ambitious modernization plans in the wake of the new law. And outside of the cellular phone industry, which in several markets is now being challenged by a new wireless rival called personal communications services, there appears to be little price competition.

Experts say one of the biggest disappointments of telecommunications reform has been the failure of the cable TV industry, which serves nearly 70% of American households, to seriously challenge the telephone industry. Meanwhile, the phone industry has scaled back its efforts to offer alternatives to cable TV programming.

In part, this is because the new law came at a time when many cable firms were up to their ears in debt and phone companies were having major technical problems with fancy new video delivery systems. But it’s also the result of a simple--and foreseeable--calculation on the part of many companies that they needed to focus their resources closer to home.

After spending hundreds of millions of dollars on a wireless cable TV system, for instance, Bell Atlantic and Nynex are now trying to extricate themselves from the television business because the technology does not appear to work very well in hilly terrain or among tall buildings. Their big hope for growth is the long-distance telephone business, where they’ll get a big head start when their announced merger is completed.

Perhaps the biggest about-face on new investment has come from the nation’s largest cable TV company, Tele-Communications Inc. The president of the Englewood, Colo., firm, John Malone, has admitted his company overreached in spending millions of dollars to try to overhaul TCI’s cable systems to carry telephone calls and provide speedier Internet access.

Now Malone says he intends to confine his company to its bread-and-butter cable TV business, where it faces a major threat not from phone companies, but from direct-broadcast satellite.

Meanwhile, the nation’s two largest long-distance carriers, MCI and AT&T;, offer local phone service to residential customers in just one state: California. And only a few thousand people have been able to take advantage of the alternatives because AT&T;’s service is available only in Sacramento, and MCI has restricted its offer to 25,000 customers because of problems it says it’s having with Pacific Bell.

“We have invested more than $1 billion in actual telecommunications facilities in local markets,” said MCI spokesman Robert Stewart. “Competition doesn’t happen overnight. . . . Our progress has been hurt by Pac Bell, which has been unable or unwilling to fulfill our orders on a timely basis. Pac Bell is fighting the competition tooth and nail.”

Lee Bauman, Pac Bell’s vice president of local competition, points an accusatory finger back at MCI: “Clearly, this is a part of MCI’s attempt to block Pacific Bell from competing in the long-distance market,” said Bauman. (Pac Bell cannot offer long-distance service until it faces competition in local phone service.) “MCI has been using their own inability to get the work done as an excuse to put the blame on Pacific Bell.”

Consumer activists such as Gene Kimmelman, co-director of the Washington office of Consumers Union, say technical and financial setbacks and strategic rethinking are to be expected in the fast-moving world of technology. And he said such obstacles would not pose a problem, except that the Telecommunications Reform Act had no provisions to control prices until true competition develops.

“I never said it was technically or economically feasible for the cable industry to be competing against the telephone industry” at this early juncture, said Kimmelman. “But what you can at least do is control prices until actual competition does develop. The telecom act doesn’t do that.”

But Rep. Thomas J. Bliley Jr. (R-Va.), who chairs the House Commerce Committee and has filed an amicus brief opposing the Baby Bells’ federal court challenge of FCC regulations, said that despite the criticism, he believes that in the end the telecommunications act “is going to be known as the most pro-consumer, pro-job legislation in decades.”

“I would have liked competition to have happened sooner rather than later,” Bliley said. “But make no doubt, competition will happen.”

Shiver covers telecommunications from The Times’ Washington bureau. He can be reached via e-mail at jube.shiver@latimes.com