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The Bells' triple play plan strikes out.









now face a tougher path to TV glory as Texas lawmakers hit an impasse late Saturday on legislation to give telcos a statewide video franchise that could have allowed the Bells to bypass a town-by-town approval process.

Texas is a key battleground between cable and phone companies as the Bells spend billions to expand fiber optic networks that will be capable of delivering video programming along with Internet access and phone service. Not only is Texas SBC's home state, it's also the state where Verizon introduced its first fiber offering last year.

Analysts say the nondecision in Texas, which isn't scheduled to be reconsidered for two years, is a bitter setback for the Bells.

"The fact that Verizon and SBC lost here after joining forces to push their case should signal troubles ahead in other states," writes Banc of America Securities analyst Dave Barden in a research note Tuesday.

To the Garden State

Earlier this year, a similar statewide franchise proposal failed in Virginia. Now attention turns to New Jersey where later this year legislators will consider whether telcos must seek local video licenses or merely state approval.

Lacking a more streamlined state franchise approval process, the Bells face a much more cumbersome path and are likely to make a federal case out of it. SBC, for example, has been

helping to draft a new version of the 1996 Telecommunications Act to capitalize on a more pro-business climate in Washington.

A Verizon representative said the company is on track to have its fiber services, or FiOS, available to 3 million homes in 13 states by the end of the year. In Texas, where Verizon has expended some of its biggest efforts and offers FiOS in four counties, the investment could get cut.

"We won't plan to expand our fiber footprint until there is more meaningful competitive environment in the video marketplace," says the Verizon representative, referring to the Texas game plan.

Those aren't exactly comforting words to investors who see outfits like fiber cable maker



and networking-gear maker Advanced Fiber, a unit of



, as prime beneficiaries of the telco's fiber ambitions.

Meanwhile, some investors see the ties growing stronger between the telcos and satellite TV companies like






. Currently, to battle the cable companies' encroachment into phone services, SBC and Verizon offer video packages by reselling satellite service.

One money manager said he was buying Echostar on the chance that SBC would renew its interest in owning the company. But CIBC analyst Tim Horan was skeptical of any mergers between telcos and satellite players. Horan says that EchoStar's national TV service wouldn't be a good fit with SBC's regional phone business.

Ballpark Figures

Apparently, the big snag for Texas legislators wasn't necessarily the statewide franchise, but the insistence by the Bells that phone price restrictions be lifted.

Texas state Sen. Troy Fraser, quoted in a story published by

The Dallas Morning News

Sunday, said he wanted a more "consumer friendly" approach that would protect residents from phone rate hikes.

The Bells face a shrinking core phone business coupled with the heavy costs associated with the upkeep of old line networks and the bulging expenses related to employee health care and retiree benefits. Growth areas like wireless and fiber-enabled Internet protocol TV are designed to be the new engines that pull the old business into the future.

But skeptics say the expense, estimated to be about $1,500 to string fiber to each home, will be disastrous to the telcos' financial structures. However, many observers say the doddering phone giants have little choice beyond competing with cable companies that are signing up thousands of phone customers every week.

For the investment community, the long-awaited triple play is beginning to look a little like a slow-motion squeeze play.