Former FCC commissioner Ervin Duggan once cracked that cable TV operators need not fear telephone company entry into the TV biz because bureaucratic-bound telco execs “sleep in pajamas” and are thus incapable of delivering creative programming.

Duggan’s pajama principle will be sorely tested if the Federal Communications Commission has its way, thanks to a decision last week granting telco giant Bell Atlantic the right to own programming over “video dialtone” phone lines.

Ruling marks a historic first, since telcos previously were relegated by the FCC to being merely a “common carrier” of TV programs owned by others.

Specifically, the FCC granted Bell Atlantic the OK to conduct a six-month VDT experiment in 2,000 homes in Arlington, Va., and said Bell Atlantic may own a 50% stake in the program network. FCC member Rachelle Chong seemed to sense the importance of the decision when she claimed “the premise of VDT has dramatically shifted.”

Action on the Bell Atlantic case came as the FCC also reached a “tentative conclusion” proposing that all telcos be permitted to own programming on their VDT networks. The FCC sought comment from interested parties on its early conclusion that “in light of the public interest benefits of video dialtone, it (the FCC) should not ban telephone companies from providing their own programming over their own video dialtone platforms.”

The FCC conditioned its Bell Atlantic grant on assurances that the Baby Bell won’t cross-subsidize its video venture by milking money from telco ratepayers. Moreover, the FCC insisted that Bell Atlantic not discriminate against other program providers or packagers.

Though FCC members reserved the right to reverse the tentative conclusion, that possibility seems remote. The reason: Two federal appeals courts and district courts in three other locales have overturned on First Amendment grounds Congress’ 1984 ban on telcos entering the video arena.

FCC staffers conceded their action was driven by the court decisions. Bell Atlantic lawyer Mike Glover said the FCC found that “barring us from being one of the programmers on the network just isn’t an option to them any longer.”

Other noises

Congress itself may also be ready to end the telco-cable cross-ownership ban. As part of its broad effort to rewrite the 1934 Communications Act, Republican lawmakers last week floated the possibility of tossing out the telco-into-video restriction within a year.

The cable TV industry – which has long suspected that Reed Hundt’s FCC harbors an anti-cable bias – reacted predictably to the decision.

National Cable Television Assn. prez Decker Anstrom said the FCC “appears to be relentlessly preoccupied with getting the phone companies into the TV business, while neglecting the broader issues of creating competition in the $100 billion local phone monopoly.”

Bob Thomson, a senior veepee with Tele-Communications Inc., the nation’s largest cable MSO, called it “a little odd that they (the FCC) would issue a notice of proposed rule-making exploring whether telcos should have a right to own programming while at the same time granting Bell Atlantic that right.”

Cablers also argued that the FCC again avoided the central question of whether telcos must acquire a franchise from local municipalities in order to deliver cable-like programming. Cable operators claim telcos should be forced to obtain a franchise, which could result in telcos paying up to 5% of VDT gross receipts to cities in the form of franchise fees.

FCC staffers said the agency will rule on the franchise question at a later date. Arlington, Va., officials are free to demand that Bell Atlantic obtain a franchise, according to the FCC.

Former FCC chairman Al Sikes, who launched the VDT concept during his tenure at the agency, said he supported telco ownership of programming “so long as they don’t cross-subsidize and continue to provide common carriage of other programs.”

Aggressive company

Bell Atlantic has been the most aggressive of the seven regional Baby Bell companies in their bid to enter the video delivery business. Its “Stargazer” navigational system will feature video-on-demand movies, educational programming and interactive home shopping options.

Mitchell Praver, Stargazer’s director of content acquisition for Stargazer, said Bell Atlantic is actively pursuing rights to broadcast, cable and sports programming.

Bell Atlantic also recently entered into an agreement with Creative Artists Agency and telcos PacTel and Nynex to develop, acquire, package or license programming over VDT lines. Bell Atlantic spokeswoman Frankie Russell said the company plans major expansion into the program production business as a result of the CAA deal.

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