Electronic Warfare   

The newspaper industry and the Baby Bells are bitter rivals now, but they may well end up working together to deliver news and information to American homes.

The day may soon arrive when newspaper readers sit down to skim the morning headlines and check stock prices, the weather, classified ads and their horoscopes without getting ink on their fingers. They'll be using a computer or television set linked to a telephone line.

And while they're at it, they may use their "telecomputer" to check specialized business news and sports scores, peruse the Yellow Pages, and even do some banking and shopping.

If you're one who imagines this scenario is from the script of some off-off Broadway production of "The Future Front Page," think again. These are just a few examples of the brave new world of information services that the nation's seven regional telephone companies – the Baby Bells – are prepared to offer. They are currently spending millions of dollars trying to convince members of Congress and the general public that they should be allowed to enter this marketplace.

For most of the nation's daily newspapers, however, the idea of a future without newsprint is a nightmare. And they are not sitting idly by. The industry that tried to kill radio and television news in their cribs is also now on Capitol Hill to stop the latest and greatest menace to its existence.

As Democratic Rep. John Dingell of Michigan has observed, it's a battle between "the very rich and the very wealthy." Caught in the middle is the public. Some consumer advocates maintain that the government should ensure that there are diverse sources for news and information. Allowing the phone companies into the electronic information business, they say, would let them not only manage the delivery system – the phone lines – but dominate the news, information and entertainment marketplace as well. Some constitutional experts, however, contend the Bells' right to provide news and information is protected by the First Amendment regardless of the arguments against them.

No matter how the dispute plays out in Congress and the courts, one thing is certain for the newspaper industry. Having survived the computer revolution, it now faces a new challenge: how to electronically repackage and distribute news and information. Even if the telephone companies are not the threat that newspapers think they are, the current debate is forcing newspaper publishers from Maine to California to change the way they do business. And experts predict that the newspapers, in order to survive, will eventually have to work jointly with the phone companies.

"Newspapers that aren't experimenting with and learning about electronic information today are going to be left behind tomorrow," Frank Blethen, publisher of the Seattle Times, told industry colleagues recently.

He was delivering the keynote speech for the third annual conference on Talking Newspapers and Telecommunications Opportunities in New Orleans. And his message was clear. "The successful newspapers of the future will be the ones that figure out how to enhance their core printed product while reusing their database..to provide supplemental information with as many delivery options as possible."

But are newspaper managers ready for the Electronic Information Age? "Key executives at most newspapers came up through the ranks before computer technology had much impact on the newspapers," says Roger Fidler, director of new media development for Knight-Ridder. "There is a fairly high degree of technophobia among many [of them]. They are comfortable with the printing press and the way the process has worked."

Even so, attitudes are changing. "I've seen significant changes in the minds of senior executives at major newspapers," says Fidler. "There is an awakening process going on about the potential of new technology."

According to the American Newspaper Publishers Association (ANPA), 150 newspapers now provide free interactive voice services; more than 500 offer 900 numbers or other pay telephone services for access to a variety of full-text databases; 11 offer a fax delivery of the next day's headlines; and seven offer local consumer-oriented videotex services using home computers or terminals.

In the nation's capital, the Washington Post's free telephone service allows readers to punch in codes for three dozen categories ranging from AP news to a soap opera directory. In Chicago, the Tribune Co. bought a $5 million stake in America Online, a computer information firm. The two companies created Chicago Online, which soon will offer news, sports and other information to Chicagoans who own computers with modems. Cox Enterprises bought an interest in Teleport Communications – an alternative to the telephone companies – which offers private fiber optic communications networks to businesses. And in Seat-

tle, Blethen, who heads ANPA's telecommunications committee, is even helping the "enemy" deliver an information service. Since December, cellular phone customers of U S WEST, one of the seven regional phone companies, have had access to stock and weather reports, sports scores and other information by calling the Seattle Times InfoLine.

Blethen stresses that U S WEST is a distributor, not a partner. It's an arrangement, he adds, that illustrates what both do best. "They distribute. We assemble, edit and package information. You have a perfect match."

"Both industries are being pressed and don't have high growth rates now," says Teresa Elder, director of strategic planning for U S WEST. "It's silly not to be talking."

Disconnected Parties

There seems to be more shouting than talking, though – at least publicly. In February hearings on the regional Bell companies, House members asked newspaper industry officials why the papers and the telephone companies can't cooperate. ANPA President Cathleen Black replied that the Baby Bells have made it "nearly impossible to work together" by obstructing access to local service.

ANPA wants the Bells, which service more than 80 percent of U.S. household phonelines, to continue to provide maintenance and leave the content to others. Unless this separation is assured, the association says the Bells will jeopardize the wide range of information sources currently available, which include 24,000 services operated by cable companies, broadcasters and database firms. These services range from legal-library files to reports on local surfing conditions.

Historically, newspapers haven't welcomed competition from new media sources. They took active steps to challenge radio networks in the 1930s and television in the late 1940s. But they never believed the phone companies would pose such a substantial threat until one night in 1980 when a few publishers were having dinner with AT&T Chairman Charles Brown at the prestigious Metropolitan Club a few blocks from the White House. It was all quite friendly until Brown told the group that AT&T considered information services, including classified ads and electronic Yellow Pages, fair game for competition.

The next day, Katharine Graham, then publisher of the Washington Post and head of the ANPA, called former Federal Communications Commission Chairman Richard Wiley and hired him to help lead ANPA's fight against AT&T. The war heated up very quickly.

In early 1981, while ANPA pressed its case in the courts and on Capitol Hill, the trial in the Justice Department's longstanding antitrust suit against AT&T began. The next year, Justice announced a consent decree calling for the breakup of AT&T in 1984. As part of the agreement, Ma Bell was barred from electronic publishing for at least seven years, when its status was to be reviewed. But a worried ANPA appealed to U.S. District Court Judge Harold Greene, who was responsible for overseeing the decree's implementation, to extend the ban indefinitely to the new Baby Bells. Much to the newspapers' relief, Greene barred the seven regional companies from providing information services. He also forbade them from offering long distance service and manufacturing equipment.

In 1987, at the request of the Justice Department, which favored removal of these restrictions, Greene reviewed the decree. A year later he gave the Bells limited rights to transmit information produced by others. As a result, new services, such as Prodigy and CompuServe, which give consumers access to a myriad of databases and electronic bulletin boards, became available.

That was just the beginning. For the newspapers, the ground gave way on July 25, 1991, when Greene reluctantly lifted the full ban on information services. Greene wrote in his 71-page decision that unshackling the Bells would make them "the only entities in the developed world to have this kind of stranglehold on information." But the judge was under strict instructions from the appeals court to remove the restriction unless he had concrete evidence that the Bells would hamper competition. He had none, and Bell opponents appealed all the way to the U.S. Supreme Court to no avail. The high court turned down their request for a hearing.

Unleashed Bells

Freed by the courts, the telephone companies can now go after the newspaper industry's most vulnerable and most valuable asset: advertising revenues. Newspapers are the major beneficiaries of media advertising, pulling in $32 billion last year. And advertising accounts for approximately 80 percent of the total revenues of a newspaper. So when the phone companies threaten to market electronic classified ads and Yellow Pages, especially at a time when the number of newspapers, readers and revenues are declining, the newspaper industry takes out the long knives.

The Bells say the newspapers, which own radio and television stations and have financial interests in cable, are only interested in protecting their investments in print operations and that all their talk about diversity is purely self-serving.

"It's not that we will drive them out of business or take classified revenues away from them," argues Ronald Stowe, vice president of Washington operations for the Pacific Telesis Group. "They simply don't want to make the upfront investment in electronic systems. In hard times, with declining revenues, they don't want to have to deal in a field that is competitive."

The Bell companies argue that newspapers now have a virtual monopoly on daily classified and display advertising and therefore the freedom to raise rates as much and as often as they wish.

Now that the courts have removed legal obstacles, the Baby Bells say they are entitled to offer new information services. They contend that this burgeoning market already has a diversity of information services and that strict safeguards and enforcement mechanisms imposed by federal and state regulators will guarantee equal access to markets for other competitors, including newspapers. Furthermore, Bell executives say that existing restrictions on using local telephone revenues to fund new information services will also help ensure that they have no special advantage over other information service providers. Finally, they maintain that the newspaper industry's opposition will deny Americans access to information services that are already available in Japan, France and other countries.

Stowe and officials at other Bell companies view the dispute as a battle of Gutenberg versus fiber optics, glass strands that can move large quantities of high-speed data, audio and video. With the transition from copper wires to a nationwide network of fiber optic "superhighways" expected to be completed between 2010 and 2020, telephone, television and computer services could all flow through one or two wires, delivering libraries of information to American homes.

The Baby Bells have rallied the support of educators, organizations for the disabled, and other groups who say new services would bring important benefits. Their roster includes the American Council of the Blind, the Communications Workers of America, the NAACP, the National Education Association, the National Consumers League, Alliance for Public Technology and the United States Telephone Association, which represents more than 1,100 local telephone companies.

"We see the inevitability of Bells going into information services," says John Barker, senior associate for telecommunications policy studies at the National Consumers League, a group that focuses on workplace, consumer fraud and telecommunications issues. "And we think the current safeguards and regulatory authority are sufficient to regulate them."

The Bells' case has received strong support from leading experts on constitutional law. Floyd Abrams, who has argued First Amendment cases for newspapers and whose client roster has included ANPA, represented Bell Atlantic in court to lift the information services restriction. And Harvard Law School professor Laurence Tribe says the First Amendment protects the free speech of corporations, including the phone companies, just as it does individuals.

In his analysis sent to Capitol Hill, Tribe describes information services as "expressive activities" protected by the First Amendment. "The provision of information services by local telephone companies is protected speech," he writes.

Businesses, he argues, have the right to create and edit information, or buy it from others to supply consumers. Tribe says these activities are no different from what a newspaper does, or what a publishing company does when it buys and publishes a manuscript, or what a brokerage firm does when it gathers data and provides investment advice over the phone.

Court rulings favoring the Bells, he adds, reinforce their "clear and substantial right" to offer information services, including the business of "gathering, creating or editing information." He believes these guarantees also bar action by federal lawmakers to limit the Bells' activities: "Congress has no legitimate role in deciding who may compete in the marketplace of information or ideas."

Putting the Bells on Hold

To strengthen its presence in Washington, ANPA hired Cathleen Black away from her position as publisher of USA Today last June.

"Cathie's coming on board has given ANPA a spark of new leadership and helped to coalesce the industry," says Wiley, a leading partner in a prominent Washington law firm that represents ANPA.

Black, who worked for Gannett for eight years, doesn't mince words. She describes the Baby Bells as "modern-day robber barons" and the "hydra-headed" offspring of AT&T. "We are charged up," she says. "We smell blood." In addition to hiring Black, ANPA has made a major financial commitment to beef up its stable of outside lobbyists.

Fear of the telephone companies has spurred an unusual alliance among the newspaper, cable and broadcasting industries. The coalition of supporters also includes Dunn & Bradstreet, Mead Data Central (suppliers of LEXIS-NEXIS), MCI, the Consumer Federation of America and the National Newspaper Association, which represents nearly 5,000 small daily and weekly papers.

Gene Kimmelman, legislative director of the Consumer Federation of America, a group representing 246 nonprofit organizations, says the Bells' anticompetitive behavior has been well-documented and must be monitored so that local telephone customers do not finance the companies' expansion into new market areas. Last December, CFA issued a report accusing the Baby Bells of overcharging their customers $30 billion since they were created in 1984.

Kimmelman worries that as part of their drive to maximize profits, the phone companies' chief priority will be to expand their own monopolies rather than to enhance competition and improve service for their local phone customers – one of the primary reasons they were spun off from AT&T.

"Their track record demonstrates their predilection to inflate local telephone rates, to finance ventures that undercut competitive firms, and to discriminate against firms outside the phone network," he says.

Jeffrey Chester, co-director of the Center for Media Education, a public interest policy and research group, is also wary of the Baby Bells' intentions. "By using new fiber optic networks," he says, "the phone companies will eventually eclipse both broadcasting and cable to become the primary delivery system for all communications."

Especially troubling for Chester is the prospect that the diversity of views and information, as well as the public's access to information, could be constrained by the consolidation of such power in the hands of the phone companies. He says the Bells could cross-subsidize new services by using revenues from local phone ratepayers and substantially boost the cost of essential information, which could limit the availability of news and restrict access for minorities, educators, nonprofit groups and others outside the mainstream.

Kathryn Montgomery, the center's other co-director, believes that as concepts such as pay-per-view television become more widely accepted, they will be applied to other areas, including news.

"News as we know it is going to be completely repackaged..and sold for a lot of money," she says, "making it less accessible and affordable. We need to make sure that we build in guarantees for certain kinds of services. Otherwise, we have no assurance that a national news service will be available and affordable to most members of the public."

Chester's and Montgomery's concerns echo those voiced by Judge Greene in his ruling last July. He said the most probable consequences of the Bell's entry into information services "will be the elimination of competition from that market and the concentration of the sources of information of the American people in just a few dominant, collaborative conglomerates."

Heavy Lobbying

On Capitol Hill, help for the newspapers' cause came in the form of a bill sponsored by Reps. Jim Cooper, D-Tenn., Thomas J. Bliley, R-Va., Mike Synar, D-Okla., John Bryant, D-Tex., and Dan Schaefer, R-Col. The Bell companies oppose it because it bars them from offering electronic publishing in the regions where they provide telephone service until 50 percent of their customers have access to another local telephone service and at least 10 percent actually sign up for it. Sen. Daniel Inouye, D-Hawaii, chairman of the Senate Commerce Committee's communications subcommittee, has introduced a similar measure.

Cooper defends his bill as "pro-competitive," but the telephone companies argue that the restrictions smack of protectionism for the newspapers. "It's like telling the Washington Post that [it] can advertise only products for sale in Chicago, Atlanta and San Francisco," says Stowe of Pacific Telesis.

Newspapers have published dozens of editorials favoring the bill. Only a handful of papers, including the Wall Street Journal, the Washington Times and the Journal of Commerce, as well as New Republic columnist Michael Kinsley, have opposed the publishers. Meanwhile, a steady stream of publishers has flowed through the halls of Congress. The lobbying effort has provoked allegations by several lawmakers that some newspaper executives are using the power of the press to intimidate them into supporting the bill.

The Bells have been pressuring federal legislators as well. They targeted Cooper and the other initial sponsors of the House bill with letter-writing campaigns and radio ads in their districts. But even more annoying for Reps. Bryant, Schaefer and Synar was a Bell-sponsored phone attack in which the Bells prodded their employees to dial a toll-free number and then connected them to the representatives' offices.

In an election year with anti-incumbent sentiment running high, members of Congress are understandably worried about alienating either of these two powerful interests. So despite the publishers' efforts, lawmakers have been reluctant to officially sign on to Cooper's bill, and there has been little progress in crafting compromise legislation that both sides could accept.

"This is such a sensitive issue and a battle of titans that a lot of members are lying low," says Dave Eck, legislative director for Schaefer. "They say, 'I don't want to come between my phone company and my newspaper.' "

The bill's prospects aren't helped by the waning session, pending cable legislation, lack of desire for negotiating any compromise by the telephone companies, and overlapping interest of several House committees on the future of the Baby Bells.

"Based on our merits, we're doing extraordinarily well," says Charles Ferris, a lobbyist for the newspaper industry. and former FCC chairman "But I can't say that we can translate that sentiment into enactment of law. The real concern is that it's an election year with limited time and we need action."

But it's a lot easier to stop legislation than to pass it. "It's a tough fight," says Jacquelyn Jackson, who heads the Times Mirror corporate office in Washington. "We have time working against us."

The newspaper industry's position is also hampered by the Bush administration's hands-off-business philosophy. At the FCC, Chairman Alfred Sikes has put deregulation on a fast track and is even pushing to lift restrictions that now bar the telephone companies from entering the cable television business.

The newspaper publishers plan to keep court challenges alive, but the phone companies are already trumpeting potential new information services from traffic reports to interactive video services that can link schools to each other. In February, NYNEX made the first move into electronic Yellow Pages.

"Our strategy is to take advantage of the freedom won in the courts and to discourage members of Congress who might be tempted to turn back the clock," says Laird Walker, vice president of federal relations for U S WEST.

Hanging Separately

Some observers say the Bell companies' united front gives them a pronounced edge over the loosely affiliated newspaper industry.

"The newspapers can't agree among themselves," complains Cooper. He's frustrated that the American Society of Newspaper Editors (ASNE) has not publicly supported his bill, and is miffed by reporters, bent on displaying their independence, who "enjoy provoking their publishers" by writing articles critical of the newspaper industry.

"It may well mean that ANPA will lose this battle because it can't marshall its troops the way the Bells do," he says. "It's much more a life-or-death issue for newspapers than for the Bells."

Cooper is trying to convince more editors and reporters to take a stand on the issue. "They need to have full disclosure but they need to fight," he says. "To give away this issue just because of hypersensitivity would be a terrific business mistake for publishers, but a professional mistake for journalists."

It isn't a comfortable issue for the newspapers. In fact, it's one that some organizations have sidestepped so far. When asked about ASNE's position, its president, Miami Herald Publisher David Lawrence, says tersely: "Simply, the issue has arisen between board meetings. We had one in November, we'll have a board meeting in April. It would certainly be a fitting topic to discuss."

"It is a battle we should not fight," says Allen Neuharth, former chief of Gannett and now head of the Freedom Forum. "Instead we should acknowledge that the free enterprise system is as important as the free press.. The posture of ANPA is to preserve a monopoly while crying monopoly on the other side."

One potential area of conflict of interest arises when publishers are lobbying for the bill while their reporters are covering the issue. Those actively involved in the fight, such as Robert Johnson, publisher and CEO at Newsday, say they see a sense of duty, not conflict.

"I feel it's not only appropriate but essential," he says. "Our reporters have had enough experience with an activist publisher who has served on various boards or other organizations they had to cover... It's no different than reporters going out to cover something that has been on the editorial page."

Arthur Ochs Sulzberger Jr., new publisher of the New York Times, says he is "extremely comfortable" with ANPA's role. "The issues that ANPA deals with, whether it is telecommunications, postal rates or diversity in the work force, are issues that all of us in this business face. My experience with ANPA is that it is astutely aware of the division between the news and business sides of a newspaper.

"A publisher has to wear both hats," he adds. "It's not an easy line. It's often a difficult line for Congress to understand. But it does not negate our need to have a voice in these important issues."

Shotgun Marriage?

The political ploys and legal jockeying will undoubtedly drag on for a while. But both titans realize that each side has the knowledge the other side lacks: The newspapers know how to assemble, edit and package large amounts of information, while the phone companies control the most sophisticated delivery system to American homes. The nascent medium of fiber optics just may need their combined efforts to succeed. And they know that without a truce, both stand to lose out in the marketplace.

Not surprisingly, away from the klieg lights of the public arena, executives from both sides are beginning to discuss possible partnerships. "I wish we were spending as much on joint ventures as fighting the battle in Washington," says Walker of U S WEST. Seattle Times Publisher Blethen, who is already working with U S WEST, concurs: "We'll probably look back in 10 years and ask ourselves, 'Why did those people waste millions of dollars arguing over public policy?' "

Jerry Friedheim, vice president of the Freedom Forum and Cathleen Black's predecessor at ANPA, notes that executives at newspapers and local phone companies have traditionally been close associates, with newspaper publishers serving as directors on local phone company boards. While this debate has pitted them publicly against each other, "at no time has it driven them away from talking to each other," he says. "Ten years ago neither industry had to commit to the future. Both have had time to learn about it and to try some experiments. In the end, and sometimes it seems to take forever, people are more likely to do the right thing."

But does the "right thing" mean that a new entity made up of the phone companies and the newspaper industry will come to dominate the news and information business? If so, will the public interest be served by such a marriage?

Chester of the Center for Media Education is among those calling for an open debate to ensure public access to a diversity of information sources. "No one," he says, "is talking about safeguards. The Bells with their tremendous clout and the added power of the daily newspapers can potentially drive out all competition in the local information market.

"We're unleashing a new media hybrid on the American public," he adds, describing a monster with two heads representing the phone companies and the newspapers, and two legs representing broadcasters and cable. "Pity the competitor or the special interest group that tries to go against this powerful torrent of communications might." l