Telephone Firms Don’t Need Local Franchises for Video : Telecommunications: The ruling, which spares the companies high fees, is another setback for the cable industry.

WASHINGTON â€”  In a setback for revenue-hungry local governments, a federal appeals court ruled Friday that telephone companies seeking to offer video programming over their phone networks don’t need to obtain costly franchises from local officials.

The decision, which upholds regulations approved by the Federal Communications Commission in 1991, was also a setback for the beleaguered cable industry, which now pays millions of dollars annually in franchise fees to local governments for the right to offer cable TV.

If phone companies could deliver programming without the costs of franchise fees, they could have a competitive advantage over rival cable operators.

Experts say the ruling by a three-judge panel of the U.S. Court of Appeals in Washington could speed the emergence of alternative video suppliers and new telephone technology. A restrictive regulatory environment had left many phone companies reluctant to spend the huge sums necessary to modernize their networks for video delivery.

“We are very pleased,� said Chris Collins, a spokesman for the United States Telephone Assn., a Washington trade group. “It could have crippled video dial tone had the decision gone the other way.�

Video dial tone is one of the most promising methods by which phone companies hope to deliver programming through their phone networks. It differs from cable in that the phone companies, as common carriers, are required to carry all programs available. So if a cable viewer cannot get Cable News Network through his or her cable system, the channel can be ordered through video dial tone service.

Despite the technology’s promise, fewer than two dozen applications to offer video dial tone services are pending at the FCC. Many telephone companies had been focusing on ways to directly enter the cable business, which they viewed as more profitable than video dial tone because they could take a financial interest in the programs they supplied to customers.

Nevertheless, many local officials had sought regulatory control over video dial tone as well as the lucrative franchise fees the technology might generate.

“We have franchise agreements with all the other utilities such as water and sewer and cable companies because we believe we need to protect the right of citizens who, after all, own these right of ways� used by wires traveling along city streets, said Christine Treat, city attorney in Lee’s Summit, Mo.

Cable and local government officials said they had not yet decided whether to appeal the ruling.

However, phone companies are pushing ahead with video dial tone service. Bell Atlantic Corp., for example, was given FCC approval to offer video dial tone to 38,000 residents of Dover Township, N.J., the FCC’s first non-trial approval of the service.