Sprint, cable firms join to offer local phone service

October 25, 1994|By Los Angeles Times Sun Staff Writer Michael Dresser contributed to this article

In a move that could have significant implications for Baltimore, a consortium of three large cable TV operators and Sprint Corp. will unveil plans today for a new telephone company to compete head-on with existing local phone companies.

The new, unnamed company aims to use both cable TV lines and wireless communications technology to give businesses and residences a choice in buying local phone service, which is now generally available only from a single provider.

If it succeeds, the venture could fundamentally alter the balance of power in the telecommunications industry, undermining the position of the regional Bell companies.

Maryland, one of a handful of states to have opened the door to competition with the incumbent local carrier, could become one of the first states where the new alliance offers local phone service. The Baltimore area is particularly well suited for such a venture because one partner, Tele-Communications Inc., owns the cable companies in Baltimore City and Annapolis, while another, Comcast Corp., holds the cable franchises in Baltimore, Harford and Howard counties.

That "clustering" would give a competitor to Bell Atlantic Corp. important economies of scale in marketing and managing such competitive services.

But the new company, whose backers also include Cox Enterprises, will have to invest billions of dollars and overcome myriad regulatory and technical obstacles to make its plan a reality. Analysts noted that the alliance was structured to allow the partners to pull back relatively easily if things do not go smoothly.

An earlier effort by TCI to carve out a place in the telephone business by merging with regional phone company Bell Atlantic collapsed, demonstrating the difficulties in combining two huge and culturally divergent businesses.

Initially, a key priority of the new venture will be to win some of the radio frequencies that are to be auctioned off in early December by the Federal Communications Commission. The radio spectrum is to be used for a new generation of wireless communications services known as personal communications services.

Over the past few weeks, nearly all the major players in the telecommunications industry have been engaged in frenzied negotiations to secure allies for the PCS auctions in advance of a Friday deadline for disclosing bidding partnerships.

The PCS auctions now appear likely to pit the Sprint-cable group against AT&T and its newly acquired McCaw Communications subsidiary, and against a new consortium linking four of the regional Bell operating companies. MCI Corp., once expected to be a major player in the auctions, appears to be without allies for the moment, and has said it may settle for being a re-seller of other companies' PCS services.

Some analysts think that might be the smartest way to go. Aspiring PCS providers will have to spend billions for the licenses and billions more to build PCS networks.

Herschel Shosteck, a wireless expert based in Silver Spring, calls the plan "a wonderful cocktail for fiscal suicide." He says he would be surprised if PCS systems were commercially operational by 1997 -- and by then, he says, cellular companies will already have 40 million subscribers on well-established, reliable systems that can offer everything PCS does.

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