Regulators Push Phone and Cable To Compete
Wireless devices, `video dialtone' may be the next market innovations. FALLING BARRIERS
FEDERAL regulators are opening the way for phone companies and cable television providers - whose cables run into or past most of America's homes - to do battle.
Consumers will not see the changes for several years, experts say, but the result could be more services at lower prices.
A family could send home-video clips to relatives by phone, for example, and the Bell companies could become a conduit for pay-per-view movie services as a result of a rule change announced last week by the Federal Communications Commission.
The FCC also confirmed its intention to open additional radio spectrum for wireless phone service and data transmission. This "personal communications network" would add to existing cellular and hard-wire phone services. Cable TV companies are among the parties interested in providing such services, since their cables could be used as the backbone on which the wireless networks could be built.
"The possibilities are virtually unlimited," says Nancy Stark, spokeswoman for Bell Atlantic, which also eyes the personal communications market. "That whole [telecommunications] pie is going to get larger."
But some experts warn that markets for these new services may not grow as fast as proponents hope. Americans could see their phone bills rise to cover the $200 billion to $400 billion cost of the fiber-optic lines needed to carry the new video services.
In a move that would help the regional Bells get revenues to cover the huge investment in fiber optics, the FCC recommended that Congress allow phone companies to sell video programming, from which they are currently barred. Thus pay-per-view movies and other services by "video dialtone" could be provided not only by other companies but by the phone companies themselves.
Meanwhile, the personal communications network has uncertainties of its own.
"We're not even sure if it can be a viable business," says Peggy Laramie, spokeswoman for the National Cable Television Association. The system would be based on "microcells," relay sites for wireless transmissions that would be more numerous than the "cells" used by current cellular phones. Each microcell would serve a half-mile radius.
Cox Enterprises, a cable company based in Atlanta, is currently testing such a system in San Diego. In a February demonstration, Cox chairman Jim Kennedy placed a call from San Diego to FCC chairman Alfred Sikes in Washington that was relayed from microcell to Cox's cables and then into the traditional phone system.
But Herschel Shosteck, a telecommunications market analyst, says he sees little opportunity for personal communications networks to compete with cellular as the main provider of wireless communications.
"Personal communications networks will be fundamentally an inside-the-company system" for businesses such as airports and convention centers where two-way radios and paging devices are currently used, Mr. Shosteck predicts.
The FCC rulemaking process on personal communications networks still has a long way to go. Meanwhile, cellular phones are becoming cheaper and lighter-weight, and the subscriber base is building, he notes.
"The high users [of mobile communications] will already be on cellular" by the time a personal communications network is in place, Shosteck says. The FCC's "notice of proposed rulemaking" last Thursday called for comments on who should be allowed to get licenses for the personal communications network spectrum. The commission must decide whether current cellular providers - which include the Bell companies - should be allowed to license the new spectrum.
"It's just another round of the regulatory process," says Clifford Bean, director of telecommunications consulting for Arthur D. Little in Boston. "That will give the cellular industry an opportunity to enhance its competitive position."
Shosteck forecasts that about 33 million Americans will be cellular subscribers in the year 2000, up from 7.5 million today.
And several big cellular providers are working with IBM Corporation to provide wireless data-transmission services. That area is expected to grow with the rise of inexpensive hand-held computers like Apple's forthcoming "Newton," which is operated with an electronic pen rather than a keyboard. Proponents of the new networks say the system requires lower-powered phones, offers a clearer signal, and is more secure from electronic eavesdropping.
Whatever transpires, it seems clear that the telephone business - long dominated by one company - is getting more complex. In 1984, the year that the Bell system was broken up into AT&T and the seven Baby Bells, Congress also passed the Cable Policy Communications Act, which deregulated cable TV and prevented phone and TV companies from entering each other's businesses.
This week, Congress is scheduled to consider whether to reregulate the cable TV rates in response to alleged price gouging. A company is typically the only provider in its area.
Longer term, cable TV competition could be enhanced by the FCC's proposal for Congress to override the 1984 act so that phone companies can enter the video business. Last year, phone companies won the right to deliver information services.