White House Wants Cable, Phone Firms to Compete : Communications: Clinton plan would encourage both industries to offer voice, data and video services.

In a plan that would throw the telecommunications business wide open to competition, the Clinton Administration wants to sweep away many of the restrictions preventing cable television firms, phone companies and long-distance carriers from invading each others’ markets.

The Clinton plan, to be outlined next week by Vice President Al Gore and then embodied in legislation, would let phone companies like Pacific Bell into the video business, let cable companies provide a dial tone and allow aggressive competitors like MCI Communications Corp. to do both.

A source close to the White House said the Administration’s plan would discourage proprietary communications networks in favor of an open system connecting everyone and accessible to all. The model would be today’s phone system, allowing anyone to call anyone, rather than the cable system, which offers mainly top-down communications.

The Administration also hopes to bring services even to those who can’t afford it--perhaps through a new telecommunications levy or by setting up industry-funded public “information kiosks” for those unable to afford regular phone service.

The planned Clinton initiative would be the most important attack yet on the regulatory bulwark surrounding telecommunications, a bulwark already under pressure from powerful new technologies and aggressive companies such as BellSouth Corp., which this week became the sixth Baby Bell to file suit for the right to provide cable TV services in its own service area.

“BellSouth’s objective is to be a full-service media communications company, providing our customers with voice, data and video services,” said William Reddersen, a BellSouth senior vice president.

Indeed, President Clinton’s initiative comes as the seven regional Bell companies have joined forces to prepare a unified lawsuit that they hope will demolish the elaborate structure of competition-constraining rules created by U.S. District Judge Harold H. Greene in 1982 when he issued his now-famous order to break up American Telephone & Telegraph.

The Clinton plan also comes on the heels of a proposal by the California Public Utilities Commission to introduce more competition in the state’s communications industry. “It’s a horse race among legislators, regulators and the courts to see who gets there first,” says Prof. Bill Davidson, a USC telecommunications expert.

Any of these initiatives, if successful, would remove some major barriers to the creation of the information highway Clinton has vowed to bring about. For consumers, increased competition would probably accelerate the arrival of a host of new services based on interactive television, including education, shopping and entertainment on demand. For business, it will mean an array of new opportunities, as well as the end of the monopolies that so many telecommunications firms have enjoyed for so long.

Gore is expected to outline the Administration’s telecommunications policy in a speech to the National Press Club in Washington. He will likely follow up next month with a speech introducing the bill in the House.

“It’s a key initiative for the Administration,” says Eli Noam, a telecommunications expert at Columbia University who has advised the Administration. “They don’t want to abdicate control over it.”

A task force chaired by Commerce Secretary Ronald H. Brown is overseeing the Administration proposal, which is being worked on by staff at the Office of Management and Budget, the National Telecommunications and Information Administration and the National Institute for Standards and Technology.

The result is expected to be comprehensive legislation encompassing key elements of two other bills introduced last month. One bill, by Rep. Edward J. Markey (D-Mass.), would allow cable companies and telephone companies to enter each others’ markets but would require them to open up their networks for use by competitors. The other bill, by Rep. John D. Dingell (D-Mich.), would allow Bell companies to manufacture telephone equipment and to enter the lucrative long-distance market after five years.

The Clinton Administration is expected to favor a bill that covers the same ground but gives more flexibility to the Federal Communications Commission to make policy under its new chairman, Reed Hundt, a prep school friend of Gore and a law school acquaintance of Clinton.

Clinton’s bill will also propose a way to guarantee that telephone services are available to everybody at reasonable rates. Bell companies currently charge long-distance carriers hefty fees for access to their network, partly as a means to subsidize unprofitable consumers in rural areas. But critics say such cross-subsidies act as a barrier to competition by raising the cost of services that come through the “local exchange.”

It wasn’t immediately clear how the Administration would solve the thorny problem of who will pay for those who can’t. An estimated 7% of Americans are now without any phone service, and attempts to tax somebody to provide it could touch off a bitter fight.

Noam is hopeful that after years of furious infighting among varied interest groups in the telecommunications arena, progress will finally be made. Now that the local phone companies are moving outward into new services and competitors want to move into the local business, “you have the elements for a grand bargain.”

Separately, a consortium of the seven Bell companies has prepared an extensive lawsuit that seeks to disqualify the “Modification of Final Judgment” issued by Judge Greene in 1982, which blocks Bell companies from manufacturing equipment or offering information and long-distance services.

The consortium is not expected to file its suit for at least six weeks, pending progress on the legislative front. But industry sources say it will be the broadest effort yet by the Bell companies to throw off their regulatory shackles. The suit will include testimony from more than 30 expert witnesses on the public benefits of deregulating the communications market.

“Our policy has always been to look at the judiciary and the legislature,” said Ronald F. Stowe, vice president of Washington operations at Pacific Telesis Group, who declined to discuss specifics.

The promise of revolutionary telecommunications technologies such as interactive television has been held back by the slow pace at which regional Bells have invested in modernizing the last leg of the local phone system--the old-fashioned copper segment extending right into the home or business.

Regulations that enforce the phone companies’ local monopolies while barring them from entering new markets have discouraged such investments.

The inevitability of deregulation in telecommunications is underscored by a major policy statement to be released today by the Council on Competitiveness, a nonprofit organization of business, academic and labor leaders.

The council found that, given the rapid pace of technological change in communications, “the key issue is not whether, but when and under what conditions, to permit full competition in all markets. Ultimately, any vendor should be able to offer any communications service to anyone anywhere using any technology.”

Helm reported from Seattle and Shiver from Washington.