By Mike Mills and Paul Farhi
Washington Post Staff Writers
Sunday, January 19, 1997; Page H01

AT&T, MCI and Sprint each raise their rates days before Thanksgiving. Cable television prices climb steadily throughout 1996. Four of the seven regional Bell companies merge with one another. MCI gets bought out by the biggest phone company in Britain. And Westinghouse, Time Warner, Rupert Murdoch, et al., go on buying binges, fattening already swollen corporate bellies.

Wait a minute. Is this what Congress had in mind a year ago? Wasn't there a law that was supposed to bring more competition to the trillion-dollar telecommunications sector, creating lower rates and more choices for consumers?

It sounded that way last February. Then-Sen. Larry Pressler (R-S.D.), sponsor of the Telecommunications Act of 1996, vowed upon its enactment on Feb. 7 that it "will lower prices on local telephone calls through competition. It will lower prices on long-distance calls through competition. It will lower cable TV rates through competition. . . . This is the biggest jobs bill ever to pass this Congress."

There's not much evidence for any of that one year later; in fact, the opposite appears more accurate. Thus, critics of the law -- from the right and left -- seem entitled to take a clean shot at it. And here are two of them:

"Every time I pick up a newspaper, it says cable rates are going up, phone rates are going up, other service rates are going up," said Senate Commerce Committee Chairman John McCain (R-Ariz.), who voted against the law. "What this legislation tried to do is ensure there were no losers" among the competing industries.

"The industries basically lied," said Gene Kimmelman, co-director of the Consumers Union. "The costs are too prohibitive for the phone companies to go into cable and vice versa. But they exaggerated their plans to get Congress to act."

Harsh assessments, both. Defenders argue that it's way too early to begin passing judgment on one of the largest, most complex pieces of regulatory legislation ever to become law. "These things don't happen overnight," said co-sponsor Sen. Ernest F. Hollings (D-S.C.). "What you're seeing is all kinds of positioning. On balance, everybody agrees it's a heck of a good law. . . . [But] it'll be another couple of years out to see any kind of fall in prices."

Even so, 1996 was hardly a bellwether for the kind of consumer benefits promised by the law's supporters, who ranged from President Clinton to House Speaker Newt Gingrich (R-Ga.). In fact, it's safe to conclude that the only things that have happened in the past year are things the critics warned about:

Prices are up. Never earthbound to begin with, monthly rates for cable TV service climbed at more than twice the rate of the consumer price index in the past 12 months. Long-distance phone rates increased an average of 3.7 percent in 1996, slightly faster than inflation, according to the Labor Department. For the two-thirds of Americans who are not on any discount calling plan, rates have increased roughly 12 percent.

Promises of cross-industry competition haven't been met. The cable industry's two biggest players, Tele-Communications Inc. and Time Warner Inc., have acknowledged that they won't be rolling out phone service over their wires any time soon. And while Ameritech Corp., US West Inc. and other phone companies are investing in traditional cable systems, phone firms have largely dropped or shelved plans to send video programs over phone lines.

Local phone companies remain monopolies in residential markets and lack significant competition in most business markets. Price increases have been negligible, but there are growing complaints about service in many regions.

In the long-distance market, smaller carriers and resellers have been prospering, but they've barely dented AT&T Corp.'s market share: AT&T has 54 percent of the $70 billion market, down from 55 percent a year ago. MCI Communications Corp. and Sprint Corp. held steady at 18 percent and 9 percent of the market, respectively.

While some newer parts of the market are hiring, such as wireless and Internet companies, promises of enormous job growth in traditional telecommunications businesses -- "3.6 million jobs by 2003," predicted Sen. Christopher J. Dodd (D-Conn.) in an oft-repeated industry guesstimate -- have yet to begin to materialize.

Instead, Time Warner's acquisition of Turner Broadcasting System Inc. resulted in about 1,000 job losses; TCI's recent cost-cutting moves have trimmed about 2,500 jobs. AT&T cut 7,700 jobs from its payroll in 1996, though it hired 8,200 in new areas. The Bells continue their plans to streamline. "The act," acknowledges Bell Atlantic Corp. President Jim Cullen, "has not stimulated huge levels of job growth anywhere in the industry."

Mergers blossomed. Time Warner bought out Ted Turner. After swallowing CBS Inc., Westinghouse Electric Corp. gulped down radio station giant Infinity Broadcasting Corp. Murdoch's News Corp., taking advantage of the law's looser restrictions on TV station ownership, became the largest station owner in the nation by adding New World Communications to its Fox lineup.

In the telephone industry, Bell Atlantic is acquiring Nynex Corp.; SBC Communications Inc. is buying Pacific Telesis; WorldCom, the fourth-largest long-distance carrier, is consuming local-business carrier MFS Communications Corp. And in the biggest takeover ever of an American company by one from abroad, British Telecommunications PLC is colonizing District-based MCI.

Will these mergers help or hurt consumers? The companies behind them say they need to combine to offer more services and compete on a global scale. But others argue that merger mania forestalls competition by creating giants that can scare off would-be rivals.

"In radio and television, people are going right to the limit [of the law]," said Greg Simon, domestic policy adviser to Vice President Gore. "One year later, the concerns of the president regarding media concentration are well-founded." (President Clinton had threatened to veto the telecommunications bill until Congress pulled back on some of its media-friendly provisions.) Even so, the radio industry's consolidation has been so rapid that the Justice Department has repeatedly intervened to limit the scope of some deals.

V-Chips and the Internet

Thus far, the most visible effects of the law have involved social and cultural engineering, rather than inter-industry competition. The new TV ratings system, for instance, was a direct outgrowth of one part of the law requiring TV set manufacturers to install so-called V-chips. The chips, which supposedly will allow parents to block objectionable programs, aren't in sets yet. But TV executives, fearing the government would impose its own ratings system, came up with their "voluntary" system instead.

Schools and libraries also are about to get wired to the Internet at vastly reduced rates, as the Federal Communications Commission prepares rules requiring phone companies to foot the bill. And another part of the law, barring people from making "indecent" material available to minors via computer networks, now awaits a Supreme Court hearing before it can be enforced.

Supporters of the legislation say more is happening than meets the eye. "Nineteen ninety-six was the year for getting the rules in place," said John Zeglis, general counsel of AT&T; "There is a lot that's happening that's been out of the public view."

Exhibit A: States already have begun or completed about 240 arbitrated pricing agreements between local monopoly carriers and their would-be competitors who want to lease local phone networks. That covers some 75 percent of all telephone lines in this country.

These state-by-state accords could mean that some residential consumers and many businesses will be able to choose among competing local telephone providers by the end of the year.

Exhibit B: Long-distance competition might be on the horizon, too, at least in some places. A big change could come in April, when the FCC must act on a petition by Chicago-based Ameritech to offer long-distance service to its local phone customers in Michigan. Bell Atlantic's Cullen said his company will file a similar application for this region by April. The law says the FCC must rule on the Bell petitions within 90 days.

Finally, the FCC before summer is expected to complete action on the most crucial, and most complex, part of the new law: Restructuring the patchwork of subsidies that flow between long-distance and local telephone companies.

Those decisions -- which will take place far from any advertising wars you might see on television -- probably will have the greatest impact on telephone rates. If state regulators agree, for example, with local carriers that they're not being fairly compensated once final pricing rules are set, local phone bills might go up. But if the FCC and states can remove all the subsidies and establish the real costs of the services that local and long-distance carriers provide one another, then free-market competition should bring rates down.

Where the Competition Is

Interestingly enough, most of the good news in telecommunications over the past year involves parts of the industry little affected by the new law.

A slew of new competitors offering wireless telephone service have been showing up in every town, putting downward pressure on cellular phone rates. Phone and cable companies also have begun competing to offer faster Internet access.

In TV, direct broadcast satellite systems are providing super-clear TV pictures in more than 4 million households nationwide, offering some stiff competition in the upper end of the cable TV market.

There are, of course, those who believe the federal government could do more to rev up the engines of competition. Economist Thomas Hazlett suggests one simple, if politically contentious, fix: reforming regulations so that wireless companies can share big blocks of the airwaves reserved exclusively for TV stations.

McCain says he'll hold hearings in his Senate Commerce Committee over the next few months to assess the impact of the law. But he adds, "I don't see Congress revisiting this in any significant way this year."

Maybe lawmakers realize that a law that took eight years to wend through Congress will take longer than 12 months to have any impact in the marketplace.

"If the law represents the industry's Independence Day from regulation, on the time chart, it's only July 5 right now," said FCC Chairman Reed E. Hundt. "And you can't get Christmas in July."