The nation's regional telephone companies won a potentially sweeping victory yesterday as a federal judge in Alexandria, Va., toppled the legal barrier preventing them from competing head-to-head with cable television companies in their local operating areas.
In a decision with immediate implications for Maryland, U.S. District Judge T. S. Ellis III ruled that a "draconian" provision of a 1984 federal law that barred a Bell Atlantic Corp. subsidiary from competing for a cable television franchise in Alexandria was unconstitutional.
If upheld on appeal, the ruling could give Marylanders the choice of buying their cable television and local telephone service from the same source: Chesapeake & Potomac Telephone Co. of Maryland. Like its counterpart in Virginia, C&P is a Bell Atlantic subsidiary.
"We believe that this ruling allows us to offer video programming anywhere in the region," said Eric Rabe, a spokesman for Bell Atlantic, which has made no secret of its ambition to enter the video programming business.
The decision is not immediately binding on other federal judges, but if its reasoning is adopted by other courts, the impact on the telecommunications industry could be dramatic.
"A lot of people were waiting with bated breath to see what was going to happen. . .," said Ian McCaleb, editor of Local Telecom Competition News, a newsletter based in Potomac. "This could blow things wide open for the telephone companies."
Decker Anstrom, president of the National Cable Television Association, criticized the ruling as "bad news for consumers" and said he expects it will be reversed on appeal to the 4th U.S. Circuit Court of Appeals in Richmond, Va. There was no indication yesterday whether the government would appeal, but Mr. Anstrom's association has the right to appeal as a co-defendant in the case.
"We believe telephone companies, with $100 billion in revenues, should be prevented from providing video direct to their subscribers in their local communities, because they have powerful financial incentives to pad customers' bills with expenses that should be paid by shareholders," Mr. Anstrom said in a statement.
The seven regional Bell companies, or "Baby Bells," have been operating under a multitude of restrictions since they were created to inherit AT&T's regional telephone monopolies in the breakup of "Ma Bell" in 1982.
Concerned that the Bell companies would have an unfair advantage because of their local monopolies, Congress passed the Cable Communications Policy Act of 1984, barring them from providing video programming within their phone service areas. Under the law, Bell Atlantic could own a cable firm in Idaho or Arizona, but couldn't operate one in its home territory of New Jersey through Virginia. Southwestern Bell, for example, operates Hauser Communications Inc.'s cable system in the Washington suburbs.
The lawsuit was filed in December after a Bell Atlantic subsidiary sought permission from Alexandria officials to compete with the city's cable provider but was turned down because of the federal law.
In his ruling yesterday, Judge Ellis said Congress' concern was legitimate but its remedy was too sweeping an abridgment of Bell Atlantic's free speech rights.
"There is no more draconian approach to solving the problem of potential anti-competitive practices by telephone companies in the cable television industry than a complete bar on their entry into that industry," the judge wrote in his opinion in the case, Chesapeake & Potomac Co. of Virginia vs. U.S.
The decision was hailed by other regional Bell operating companies, which had filed briefs in the case in support of Bell Atlantic.
"This precedent may hasten the day when consumers gain more choices about where to buy cable and multimedia services. Greater competition is welcome news for customers," San Antonio-based Southwestern Bell said.
The Southwestern Bell statement lauded the ruling as "just the beginning" of the dismantling of curbs on the Baby Bells' activities, including a barrier imposed on their entry in the long-distance telephone market.
That restriction, imposed under U.S. District Judge Harold Greene's "modified final judgment" in the AT&T antitrust case, could be weakened under yesterday's ruling, Mr. McCaleb said.
"It opens up a little bit of a hole that certainly could get a lot bigger very quickly," the trade publication editor said.
Bette Ann Massick, a telecommunications industry analyst with S. G. Warburg & Co. in New York, said their court victory would give the regional Bells more incentive to speed the upgrading of their networks.
"This is investment the phone companies will make anyway. The point is whether it takes 10 years or 30 years," she said, adding companies would have added incentive to invest in broad-band networks that can carry two-way video services.
After the midday announcement yesterday, Bell Atlantic's stock jumped, closing up $2.625 at $59.375. Other regional Bells posted gains across the board.