Telcos triumph in court

Congress’ ban against telephone company delivery of cable TV programs in local phone service areas was declared unconstitutional Tuesday in a decision that could alter the shape of U.S. telecommunications for years to come. It could also pave the way for new investment in Hollywood by telephone companies.

The ruling from U.S. District Court in Alexandria, Va., represents a slam dunk win for Bell Atlantic Corp., the Philadelphia-based Baby Bell which challenged the law. But more importantly, the decision — unless overturned on appeal — gives at least one of the well-heeled telcos entree into the world of video program ownership as part of the much-ballyhooed “information superhighway” system being promoted by the Clinton administration.

Art Bushkin, president of information services at Bell Atlantic, said he would not rule out eventually buying an interest in a Hollywood studio, similar to U.S. West’s $ 2.5 billion investment in Time Warner Entertainment. But Bushkin said the company’s “primary goal is to ensure that our customers have access to the content” of studio-produced programs.

Judge T. S. Ellis III struck down a provision in the 1984 Cable Act that prevented Bell Atlantic from providing packaging and pricing for video program services in its local service region. Ellis held the ban to be “facially unconstitutional as a violation of plaintiff’s First Amendment right to free expression.”

It’s unclear from Ellis’s decision just where Bell Atlantic will now have a free video rein: Bell Atlantic execs believe the decision is applicable in its entire six-state Mid-Atlantic region, and perhaps the entire U.S.; cable industry officials believe it’s applicable only in eastern Virginia.

Acting FCC chairman James Quello said he also believes the decision affects only eastern Virginia. Nevertheless, Quello said the court’s ruling has “far-reaching potential.”

Quello, who last year dissented from an FCC recommendation that telcos be allowed to provide video in their service region, has since changed his mind. “With themulti-channel world coming on, we have to let the phone companies come in,” he said.

Quello predicted the U.S. Dept. of Justice and the cable industry will appeal the Ellis decision to the U.S. 4th Circuit Court of Appeals in Richmond, and perhaps to the U.S. Supreme Court. A Justice Dept. spokesman declined comment. Decker Anstrom, acting prexy of the National Cable Television Assn., called the decision “bad news for consumers” and predicted it will be reversed on appeal.

Though Ellis’ decision did not address the question of video program rights for other Baby Bells, it seems likely that lawsuits willbe filed throughout the country challeging the restrictions.

Bell Atlantic representatives hailed the ruling at a press conference Tuesday. Bushkin called the decision a “major victory for consumers in our region.” He said the company is “prepared to be an aggressive programmer in our region and throughout the U.S.”

James Cullen, head of Bell Atlantic Network Services, said his firm is now intent on building a “full service network” in Alexandria, to compete head-to-head with Jones Intercable’s local cable TV system. The full service network will include fiber optic broadband wires to the home that will allow consumers full voice, video and data on demand.

Jim Carlson, a spokesman for Jones Intercable in Denver, played down the importance of Tuesday’s ruling, saying “it’s important to note this is just the first round” in a court case that could take years. As for the competitive threat posed by Bell Atlantic, Carlson said Jones “is not afraid of competition, as long as it’s fair competition.”

Carlson said telephone customers need safeguards against the possibility that telcos will bankroll cable ventures by jacking up telephone rates. That argument was also made by House telecommunications subcommittee chairman Ed Markey (D-Mass.), who said “the Christians had a better chance against the lions than competitors and consumers will have against the telephone companies unless we build in substantial safeguards.”

Markey said Congress must pass legislation “to ensure that telephone subscribers do not become deep pockets for new speculative ventures by the local Bell company.”

While Markey appeared skeptical of Ellis’s decision, some lawmakers were praising it. Rep. Rick Boucher (D-Va.), the sponsor of a bill to repeal the cable-telco cross-ownership ban, said the ruling is a “recognition of the need for unlimited entry into the video marketplace by all service providers.”

Boucher said passage of his legislation is still needed because the appeal process is likely to take several years.

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