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Q & A : Telecom Reform Legislation Likely to Boost Cable Rates

August 05, 1995|KAREN KAPLAN | SPECIAL TO THE TIMES

President Clinton and Congress know where they stand and so do all the business lobbyists who have been working to influence the outcome. But most Americans are still trying to make heads or tails of the sweeping telecommunications reform that was passed by the House on Friday. The Senate has already passed its version of a telecom reform bill.

Here's a look at what the bills mean for consumers, investors and industry.

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Q: Will my cable bills go up?

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A: Probably. The House and Senate bills allow cable companies to raise rates for everything but "basic service." However, basic service can be defined as broadcast networks, PBS and local stations only--cable networks such as MTV and CNN may cost extra, with premium channels such as HBO and Cinemax costing even more. Small cable systems would be deregulated immediately, while larger ones would be deregulated within 15 months.

If a version of the reform bills becomes law, consumers groups expect the results to show up immediately on cable bills. The Consumers Union predicts that cable rates will rise by as much as $3 billion a year nationwide. When the Cable Act of 1984 allowed cable operators to raise rates, rates went up three times faster than inflation--60% between 1986 and 1992, said Gene Kimmelman, co-director of the Consumers Union's Washington office.

The reform proposals allow phone companies and broadcasters to offer cable services for the first time. Over the next five to 10 years, that may mean lower prices as consumers reap the benefits of the first competitive market for cable services.

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Q: What does reform mean for my telephone service?

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A: It is less clear what could happen to local phone rates. Rather than letting states regulate the companies, the House bill sets a price cap, and if the cost of providing phone service is lower than that, a phone company can keep the profits.

Both bills allow cable companies and long-distance carriers to get into the market for local phone service, preempting current state laws. But rather than creating more competition, consumer advocates predict, cable companies will merge with Baby Bells, driving rates higher.

On the long-distance side, the Baby Bells will be able to offer long-distance services, giving them a chance to go head-to-head with AT&T, MCI and Sprint. AT&T and MCI sent symbolic Monopoly games to legislators on Capitol Hill to highlight their contention that the bills will cement the Baby Bells' monopolies in local phone service while expanding into their turf. Consumer groups don't expect long-distance rates to rise.

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Q: Will cable investors benefit from telecom reform?

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A: Yes. Alan Gould, a cable analyst with Oppenheimer & Co. in New York, believes that although stock in cable companies has been rising over the past month or so, passage of a telecom reform bill could send stock prices up another 10% to 15%.

"We probably have an 80% to 90% chance that a telecom bill will be passed by the end of the year," Gould said. Even though the Senate bill is more restrictive than the version passed Friday by the House, 'anything will be more beneficial for the cable companies than the present regulations," he said.

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Q: What about stock in telephone companies?

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A: Share prices for the regional Bells are likely to rise because the legislation speeds up the day when they can enter the lucrative market for long-distance service. Merrill Lynch upgraded its ratings on the Baby Bells and GTE last week based on the belief that they will now begin offering long-distance services in the next two years--more than twice as soon as had been expected.

The New York securities firm also downgraded its rating for stock in AT&T because it and other long-distance carriers are likely to lose market share.

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Q: What about the V-chip?

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A: The bills require manufacturers to build televisions with a computer chip that can block programs that are violent or sexually explicit. Broadcasters and cable networks would label programs that parents might not want their children to see. Unlike the Senate, the House voted Friday to prohibit the federal government from regulating content on the Internet.

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Q: Will there be more mega-mergers like the Disney-Capital Cities/ABC and Westinghouse-CBS deals?

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A: Telecommunications reform makes this kind of consolidation more likely. One of the main reasons Clinton is opposed to the current bills is that he thinks they go too far toward promoting mergers that concentrate power in the hands of fewer companies instead of promoting competition and encouraging investment in these industries. The Senate bill even lets utilities provide telecommunications services.

The bills lift some restrictions regarding the number and kinds of media entities a single company can own.

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Times wire services contributed to this report.

* MAIN STORY: A1.

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