The Roadbed Has Been Laid For The Digital Superhighway

As you surf through 500 channels on your television a few years from now, remember Judge T.S. Ellis III. Why? On Aug. 24, the U.S. district judge in Alexandria, Va., threw out a federal law that forbade Bell Atlantic Corp. from entering the TV-programming business. In so doing, he smoothed the way for a digital revolution that promises viewers hundreds of channels and dazzling interactive services.

Ellis has cleared away a major piece of regulatory deadwood that has weighed down communications companies. "This is a sea change in this industry," says Stuart C. Johnson, a Bell Atlantic group president. Among other things, the ruling should allow regional phone companies to become full participants in building the much ballyhooed information superhighway. That's critical, because the price tag for the digital network could run into the tens of billions. Cable-TV companies already play a major role. But they can't build it themselves.

The Baby Bells, with their sophisticated digital networks and capacious wallets, are the other logical candidates. Indeed, US West Inc., Bell Atlantic, and others have expressed interest in building parts of the superhighway. Trouble is, the 1984 Cable Act prohibits them from selling programs to customers in their own territories. Without this incentive, they're less likely to spend the needed billions.

Consumers also could gain a lot from the ruling. Bell Atlantic wants to offer movies and interactive services such as video games to 60,000 customers in Alexandria. The company has already struck deals with broadcast networks and Hollywood studios for programming. Such a service would rival the local cable-TV monopoly and offer consumers more choice. Eventually, Bell Atlantic wants to offer the service throughout its seven-state region.

Ironically, the ruling may also boost cooperation among phone and cable companies. For now, Bell Atlantic is going it alone. But other Baby Bells have been trying to forge deals with large cable operators to jointly build digital networks. US West paid $2.5 billion for a 25% stake in Time Warner Entertainment, which owns Home Box Office and has 7 million cable subscribers. And industry executives say Southwestern Bell tried unsuccessfully to sell cable giant Viacom on a $2 billion alliance that would also have included cable operator Crown Media.

Media executives say phone companies now may be more inclined to strike deals with cable companies in their own territories since they can share programming revenues. "It seems a lot easier for a Bell Atlantic to buy into a cable system in their area," says Frank J. Biondi Jr., chief executive of Viacom.

More important, the Bell Atlantic ruling may improve what you see on TV. That's because it will uncork a new stream of money for programming. One of the big questions looming over the information superhighway is who will pay for all the sitcoms, movies, and other entertainment to fill the airtime. Phone companies would be a welcome source of funds.

SAFEGUARDS. Some experts fear the ruling would enable phone companies to become monopolies in video services, just as they largely remain in local phone service. But Congress can banish that specter by passing rules that would prevent the Baby Bells from buying 100% of cable systems in their own territories and by keeping in place rules that they allow other programmers to rent space on their new video networks.

Now, the ball is back in the Clinton Administration's court. During the 1992 campaign, candidate Clinton called the information superhighway a national priority. By letting Judge Ellis' ruling stand, he would give substance to the rhetoric. And the Baby Bells and cable companies could get on with turning the information superhighway from a cute phrase into a concrete reality.

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