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Phone Co. Competes With Cable TV in N.J.

WHEN the pamphlet arrived at their door touting more channels for less money and at a higher quality than the current cable-TV company, the Zimmermans were so delighted they immediately signed up.

"We had complained about the cable company's monopoly, the poor service and lack of channels for years," says Karen Zimmerman, a graphic designer. "We would have been hypocrites if we didn't."

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The Zimmermans became one of the first families in Dover Township, N.J., to receive their television signal over Bell Atlantic's upgraded telephone lines. The signal is digital. The clarity, according to Ms. Zimmerman, is sharp as a tack. The choice of programming is wide, varied, and instantly changeable with the click of the remote. And the service people, she says, are friendly, fast, and efficient.

While other experiments with what is now called "open systems video" (OSV) have been under way for years, Dover Township is the first place it is competing commercially, head to head, with a traditional cable service.

It's also a proving ground for the theory behind the Telecommunications Reform Bill passed by Congress earlier this year. The bill eliminates all federal regulation of cable companies completely in 1999. The theory is that competition from alternative services - like OSV and direct broadcast satellite (DBS) - will keep prices down.

Consumer advocates are wary. They doubt competitive services will be available in enough communities to keep monopolistic cable companies from raising their prices at will. That's in part because the much-vaunted digital revolution got off to a stumbling start. Instead of the millions of homes the telephone industry had hoped to have wired for OSV by now, the Zimmermans are part of a select group of only several thousand homes.

But if the contest in Dover Township is a portent of things to come, consumers have a reason to smile.

Two months ago, the commercial battle for customers began with a bang. FutureVision, which is providing the video services on the Bell Atlantic system, started offering its basic service for $19.95, $5 a month lower than Adelphia Cable Communications. Adelphia countered by dropping its rates to $18.95, but only in the areas in which FutureVision is available. So the new digital company, which has pledged that its rates will always be 20 percent lower than Adelphia's prices, dropped its basic rate to $14.95 for all of its customers.

"We'll honor our pledge, even if it takes us down to zero," says Martin Lafferty, president of FutureVision. "We're clearly in the game of getting market share."

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So far, Lafferty says, three out of four homes that have been offered the new service have signed up for it. That's more than 1,600 subscribers since the end of January. Each month, Bell Atlantic plans to upgrade into another 1,500 homes.

Adelphia, which has served Dover Township for 25 years, is fighting back. Besides lowering its prices wherever FutureVision becomes available, the company has added more channels and beefed up its customer-service program.

"We've been preparing for this," says John Rigas, founder and chairman of Adelphia Cable. "We've upgraded our system and we anticipate we'll do just fine."

Adelphia says that 15 customers have already switched back after testing FutureVision. The cable company was not able to provide any documentation.

Adelphia also says it plans to offer an array of high-tech services but it will continue its television programming in the traditional analog signal.

Lafferty says that gives FutureVision the edge. It transmits a digital signal that produces a clearer picture and allows for interactivity.

But as the battle between the technologies gets under way in Dover Township, critics and consumer advocates are not convinced. They note that there are still hundreds of thousands of communities across the country that don't have access to the fiber-optic cable needed for digital video. To wire them will take a huge capital investment. Bell Atlantic is spending, on average, $1,700 to upgrade each home in Dover Township.

And while DBS is growing by leaps and bounds, its reach is still minimal compared with cable. DBS serves only about 1.7 million households, according to the Federal Communications Commission, compared with the 61.7 million homes that subscribe to cable.

"The corporatist theory that all new technological developments are going to help everyone is wrong," says Rep. Bernard Sanders (I) of Vermont, who voted against the Telecommunications Reform Bill. He says many people will be left at the mercy of cable companies because there is not much money to be made in low-income, rural communities.

But Lafferty is determined to prove Representative Sanders wrong. By next Christmas, FutureVision and its parent company, TelQuest, plan to offer wireless digital video services: a kind of cableless cable that will be transmitted over the air. They hope to eventually reach 40 percent of the country.

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