By Paul Farhi
Washington Post Staff Writer
Saturday, February 3, 1996; Page H01

The big are about to become huge.

With Congress passing legislation this week that strips away the monopolies of phone and cable TV companies, a new era of competition in telecommunications services may be at hand. The new law envisions a day when long-distance phone companies will offer local phone service, and local companies will sell long distance, and cable companies will do both.

But before the competition begins, many analysts say, the mergers will.

"Companies are going to consolidate to take advantage of the opportunities this [legislation] provides," said Sumner Redstone, the billionaire who controls entertainment conglomerate Viacom Inc., owner of Blockbuster Entertainment Corp. and Paramount Communications Inc. "If you're going to play in this game, size becomes a major factor."

Eventually, some experts say, consumers may encounter mega-consortia of allied companies -- what cable television kingpin John Malone once dubbed "bundles" -- for one-stop-shopping. Malone's notion was that these consortia would compete with one another to be the consumer's all-purpose provider -- phone service, Internet access, pay-per-view movies and more.

Indeed, dealmaking already has begun, picking up to a frenetic pace in the last year. It was driven, in part, by expectations that Congress would eventually throw everyone into the same big pool:

Entertainment and broadcasting companies, fearing encroachment from new competitors, have expanded their hold over programming and distribution. In one remarkable stretch in August, Disney bought Capital Cities/ABC for $19 billion, Westinghouse bought CBS Inc. for $5.4 billion and Time Warner Inc. offered $7.5 billion in stock for Turner Broadcasting System Inc., the parent of CNN. The CBS deal presumed that Congress would change the regulation that limits the number of radio and TV stations one company can own; Congress obliged.

Phone companies have been investing in entertainment programming and in "wireless" communications in order to jump into those businesses. Sprint Corp., for example, is tied in with three major cable companies in a venture to create a new national wireless phone network, while six of the seven regional phone companies are working cooperatively in two separate ventures to develop video programming.

Major cable TV companies such as Time Warner and Malone's Tele-Communications Inc. have spent the past 18 months buying and swapping cable systems to align their holdings into tightly concentrated "clusters" of systems. Anticipating the day when they will be allowed to offer phone calls over their wires, cable companies are aiming to create regional networks similar to those owned by the firms that now dominate the residential phone market, the seven Baby Bell companies.

The telecommunications bill now makes it possible for a Bell company to merge with a long-distance company, for cable companies and telephone companies to merge in small markets (and to take limited stakes in each other elsewhere), for broadcasters to buy TV stations covering up to 35 percent of the nation's households (up from the old limit of 25 percent) and for companies to buy an unlimited number of radio stations on a national basis (though no more than eight stations within a large local market such as Washington).

Mergers may permit companies not only to better defend their turf, but could give them the additional capital they'll need to expand into other businesses, said Alan Snyder of Snyder Capital Management, an investment firm with an $800 million portfolio.

For example, in order for the cable industry to upgrade its wires to provide phone service, cable operators will have to invest about $30 billion over the next five years, according to Decker Anstrom, who heads the industry's main trade association. That figure is larger than the industry's combined annual revenue in 1995.

In the competitive melee, however, some worry that public-interest obligations imposed decades ago by the government in exchange for granting companies valuable franchises will get run over.

"As more faceless groups [buy TV stations], it's going to lessen broadcasters' responsibility to program in the public interest, and I think that's sad," said Barry Diller, the Fox network founder who is attempting to develop another new broadcast network. He said that Congress missed an opportunity to better define broadcasters' obligations to provide public affairs programming, children's educational shows and news.

Andrew Blau of the Benton Foundation, a think tank that analyzes the communications industry, has similar concerns. "Am I cautious about the future of public-service obligations? Yes," he said. "Am I ready to write the obit for the public interest? Not just yet."