In one town, score is cable - 1, viewers - 0

In New Jersey, nation's first test of cable deregulation fails toprovide competition.

Karen Zimmerman was fed up with her cable company's high prices and poor service.

So when the pamphlet arrived at her door three years ago from the phone company, touting a higher quality signal with more channels for less money, she immediately signed her family up.

At first, she couldn't have been more pleased. The price was low. The digital signal was sharp. The choice of programming was wide and varied. And even better, the service people were friendly, fast, and efficient.

But three years into what had been the first commercial experiment where a local phone company competed, head-to-head, with a traditional cable service, Ms. Zimmerman is no longer happy.

"We're just disillusioned," she says. "In fact, we're pretty much without any TV right now."

The Zimmermans were one of the first families to get their cable through Bell Atlantic's new, upgraded phone lines in Dover Township, N.J. It was supposed to be the proving ground for the theory behind the 1996 Telecommunications Reform Act - that competition from alternative services, like phone companies and direct broadcast satellite (DBS), would drive prices down and consumer satisfaction up.

But the Zimmermans' tale reflects both the promise a truly competitive cable TV market offers and the stumbling blocks technology and old regulatory hurdles have thrown in the way of its success.

Three years after the bill's passage, Bell Atlantic has pulled the plug on its fledgling video network. And the people in Dover Township, like most Americans, are without a truly competitive alternative to cable. Across the US, prices have shot up 20 percent on average, and service remains problematic.

Nonetheless, in fewer than three weeks, as dictated by the 1996 law, all of the remaining federal regulations will be lifted from the cable industry.

Losing competitive edge

"The attempt at competition here failed," says Edmund Corrigan of Dover Township's Cable TV Advisory Committee. "While there is some competition in that you can go to satellite broadcasting, the really good competition that we had envisioned, between the telephone and the cable company, never really materialized."

At first, there was great promise. Bell Atlantic invested some $70 million in high-tech, fiber-optic cable that could provide a wide array of digital signals in Dover Township. It hired FutureVision to provide the programming. And in the communities that were wired, it set out to win over customers from Adelphia Cable, the company that had a monopoly in the town for decades. The commercial battle for customers began with a bang.

Falling prices - for a time

FutureVision started offering its basic package for $19.95, $5 a month lower than Adelphia Cable. Adelphia countered by dropping its rates to $18.95 in the areas FutureVision was available. FutureVision fired back and dropped its basic rate to $14.95. It also pledged that its rates would always be 20 percent lower than Adelphia's prices.

"We'll honor our pledge, even if it takes us down to zero," said then-FutureVision president Martin Lafferty at the time. "We're clearly in the game of getting market share."

But less than six months later, Bell Atlantic took over programming from FutureVision. A little over a year later, it beefed up its programming offerings and hiked rates 74 percent, to $25.95 a month. Adelphia followed with a rate hike of its own. In January, Bell Atlantic abandoned its video network altogether. "It did not come to fruition as a competitive model as first envisioned," says John Grosvenor, vice president of business affairs for Bell Atlantic Video in Reston, Va.

Mr. Grosvenor says price wasn't the problem, but rather the method of delivering the signal itself. Hard-wiring a community for a video network is costly and time-consuming. In Dover, it cost an average of $1,700 to wire each home. So Bell Atlantic has decided to pursue its video future in another direction - direct broadcast satellite, the fastest-growing alternative to traditional cable.

Pinning hopes on satellite TV

Working with satellite provider DirecTV, the company has designed a package it hopes will come as close to a direct competitor to cable as possible.

Right now, a variety of factors are keeping DBS from going head-to-head with cable companies. It usually costs more to install a satellite dish (although many companies offer special deals and professional installation). DBS providers can't offer local broadcast stations. And they can only provide "distant" network signals to people who qualify under FCC rules. And DBS customers usually have to pay at least two bills, one for the satellite service, another for the programming.

So to overcome such hurdles, the new service DirecTV from Bell Atlantic will wire homes with a satellite dish and antennae for local stations. That way customers will get the full array of satellite programming, along with their local stations, just like they do with a cable company. Bell Atlantic will also take over the paperwork, so customers will only have to contend with one bill.

"We believe this is one of the more promising, true alternatives to cable," says Grosvenor.

The service has been launched in New Jersey and the Washington and Baltimore areas. It's just become available in Philadelphia. And "very soon," Bostonians will be able to sign up.

But fewer than half of Bell Atlantic's estimated 2,600 cable subscribers in Dover Township have opted for the satellite option. Part of the problem is that the town sits on the edge of both the New York and the Philadelphia local television markets. Even with an antenna, reception of local stations can be poor.

Zimmerman says the prices weren't low enough to pique her interest. And she doesn't want to go back to Adelphia - particularly because it is now deregulated and can charge any price it wants. Although the state of New Jersey has begun proceedings to determine whether it should step in and reregulate the company.

"We've been renting a lot of movies and reading the newspapers to find out what's going on in the world," she says. "If it gets bad enough, I'll have to bite the bullet and go back to [Adelphia], but I don't really want to."