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Britain's Serious Fraud Office has yet to contact London-based securities houses after a request for help with a French probe into Eurotunnel SA /Plc share dealings, market sources said on Monday. The SFO said on Sunday it had been asked to lend a hand in an investigation by the French authorities into alleged market manipulation of the debt-laden channel tunnel operator's shares. The SFO said it would help in the French probe although it had no grounds to launch an investigation of its own into the dealings which form the basis of the latest Paris investigation. Securities firms contacted by Reuters on Monday said they had received no approach from the SFO and did not expect to do so. They all said they would co-operate fully if they were approached. The investigation is another chapter in a troubled corporate story littered with incidents, which earlier this year saw two firms -- Salomon Brothers and Swiss Bank Corp (SBC) -- cleared of insider trading. The two had been among underwriters of a Eurotunnel rights issue in 1994 and, although never named by Paris stock exchange watchdog the Commission de Operations de Bourse (COB), said that they were under investigation in July last year. The underwriting group also included Banque Indosuez, Morgan Grenfell, now owned by Deutsche Bank AG, Societe de Banque, Banque Nationale de Paris, Banque Paribas, Caisse des Depots, Crdit Agricole, Credit Lyonnais, Robert Fleming, S.G. Warburg (now part of SBC) and Belgian utility Tractebel SA. About two thirds of Eurotunnel shares are held in France and, as a general rule, more trading in the shares goes on in Paris than in London. The SFO's usual practise is to issue notices which require a person or institution to be interviewed or hand over documents, although it can also apply for a search warrant if it wants to surprise its target. On Monday, it remained unclear what period is currently under investigation. The COB has already investigated the period surrounding the rights issue, though it could be revisiting this highly volatile time. There have been persistent suggestions that some operators were short-selling at around the time of the rights issue -- forcing the prices down by selling shares they do not own in the hope of buying them back more cheaply later. Eurotunnel has called on stock exchange authorities on both sides of the Channel to investigate volatile dealings at various times over the years. Another example was in Agust 1995, when a rogue report that the company had signed a debt rescheduling agreement sent the stock reeling. The Anglo-French tunnel operator at that time denied it had signed a debt agreement and demanded an inquiry into the trading activity and erroneous reports surrounding its shares and the incident might well be the focus of the French probe. The incident occurred around three weeks before Eurotunnel announced a payments freeze on its huge debts and entered into negotiations on a rescheduling resulting in a restructuring of the debt announced a year later -- a year which also saw its fair share of leaks and speculation.

The London High Court on Thursday adjourned a hearing to decide whether British authorities will hand over to Italy documents related to the business affairs of Italian media tycoon Silvio Berlusconi. The judge decided the hearing could not be finished in the two days allotted and lawyers would have to return in the first week of October before two new judges. Britain's Serious Fraud office (SFO) seized the documents -- 15 bags full -- earlier this year from London lawyer David Mills who represents the business interests of former Italian Prime Minister Berlusconi, who, among other things, owns three TV channels and the football club AC Milan. An SFO statement after the adjournment said: "We regret that the court has not been able to hear this matter, particularly as it is now nearly five months since the documents were seized." The hearing stemmed from an appeal by Berlusconi and his company Fininvest and others against a decision that the papers be handed over to Italian magistrates. An earlier court hearing was told the papers were linked to fraud and false accounting allegations amounting to 41 million pounds ($64.33 million) at overseas companies which were moved from Switzerland to England. Italian investigators suspect Berlusconi's Fininvest may have used offshore companies to channel payments to politicians. Berlusconi is on trial in Milan for alleged complicity in bribing tax officials for lenient audits of Fininvest companies. The tycoon, who leads the centre-right Freedom Alliance, has also been indicted in another case in which he is charged with illegal party funding. In court on Thursday, a lawyer for the appellants told the judge the SFO had allowed Italian police too much time to see the documents before a decision was made on whether to send them officially to Italy. She also alleged that the Italian government's request for documents was too wide and amounted to a "fishing expedition", which is not allowed under British law.

Britain's Woolwich Building Society on Monday set the timetable for a three billion pounds ($5.1 billion) stock market flotation in July which will bring an average windfall of over 1,200 pounds to its members. The mutually-owned building society, the third largest in the country with assets of more than 30 billion pounds, said qualifying customers would receive at least 450 free shares upon its conversion to public limited company (Plc) status. The Woolwich said it expected a basic distribution of 450 free shares to around 2.57 million people, which includes qualifying employees and qualifying pensioners. Chief executive John Stewart said the Woolwich would be among Britain's top 10 banks and would be included in the FT-SE 100 index of blue-chip shares. "(The conversion and flotation) will give the Woolwich a corporate structure which will allow it to meet its strategic objectives by remaining an independent provider of a wide range of personal financial services," Stewart added. The Woolwich said its financial advisers, investment banks Schroders and BZW, have made an historic valuation that puts its market capitalisation at between 2.96 and 3.38 billion pounds with a mid value of 3.17 billion had the conversion happened on December 20, 1996. This represents a range of price per share of between 175 and 200 pence with a mid-price of 187.5 pence and is at the top end of market expectations, analysts said. Rob Thomas, building society analyst at UBS, said the eventual flotation price was likely to use the fairly strong performance of Abbey National Plc, the only other building society to have floated, as a benchmark. The Woolwich is one of four building societies -- traditionally mainly mortgage lenders but now expanding their role -- which plan stock market flotations in 1997. They are led by Britain's largest mortgage lender, the Halifax, which is expected to be valued at around 10 billion pounds, the Alliance & Leicester worth around 2.5 billion and the Northern Rock, which is expected to raise around one billion pounds. The Woolwich will be protected from takeover for five years after flotation but, if proposed legislation goes through this year, it would lose protection if it buys a financial company or if 75 percent of its shareholders vote to waive it. Banking analysts said the Woolwich would have to weigh up the pros and cons of losing its protected status. But to compete effectively in a congested market it would have to grow, especially in the life assurance and independent financial advice areas. "The Woolwich may decide that the 75 percent rule still makes it very vulnerable and the best chance for long-term survival is to grow through acquisitions," Thomas said. Stewart became chief executive last June after his predecessor Peter Robinson, architect of the flotation strategy, left amid allegations that he "misused the facilities" of the group, where he had worked for more than 30 years. Stewart at once identified life insurance and fund management as gaps in the Woolwich armoury. He has ruled out a move into commercial or investment banking, stressing that the bank will specialise in personal financial services. The Woolwich said the average distribution to members, including a variable element, would be 1,233 pounds, although the exact distribution would depend on how much people have in their accounts on the qualifying dates. An additional handout of up to 2,000 free shares will be made to savers who have been with the society for more than two years. ($1=.5899 Pound)

After a five year struggle, creditors of the collapsed, fraud-ridden BCCI will receive a payment of $2.65 billion on Tuesday, equal to 24.5 percent of their claims, a spokesman for the liquidators said on Monday. Bank of Credit and Commerce International, founded in 1972, was closed by central banks in 1991 and collapsed with debts of more than $12 billion when evidence of massive fraud and money laundering was unearthed leading to a tangled web of litigation which shows no sign of reaching an early conclusion. BCCI had assets of $24 billion and operations in 71 countries at the time of its collapse. Liquidator Deloitte and Touche said a further payment, reportedly of 10 percent, of the admitted claims which total some $10.5 billion should be made in the next 12 to 16 months. The gross fund of amounts recovered by the liquidators stands at around $4.0 billion and includes $1.5 billion paid by BCCI's majority shareholder, the government of Abu Dhabi, which will pay a further $250 million in due course following a settlement reached earlier this year. This, in addition to efforts by US authorities which resulted in the recovery of more than $500 million from the United States paved the way for the first dividend payment. A further $245 million was paid by Saudi billionaire Sheikh Khalid bin Mahfouz who the liquidators alleged was involved in covering up the BCCI scandal. Under a 1995 Luxembourg court settlement, Mahfouz agreed to pay without admitting liability, in return for the lawsuits being dropped. The liquidators still have outstanding claims against the Bank of England, the Institut Monetaire Luxembourgeois (BCCI's operations were based in Luxembourgh) and the auditors of the bank, international accountancy firms Price Waterhouse and Ernst & Whinney, now part of the merged Ernst & Young. Price Waterhouse has said it is making a multi-billion dollar counter claim against Abu Dhabi. Further law suits are also pending around the world in an attempt to recover further amounts. The two biggest groups of creditors of BCCI are in the United Arab Emirates (UAE) and in Britain. The English liquidators of BCCI, Deloite & Touche, have recovered over $1 billion and have been paid a massive $200 million in fees. In a report to the High Court earlier this year, the liquidator said legal fees in the liquidation ammounted to over $75 million so far.

Sir Chippendale "Chips" Keswick who, it was announced on Wednesday, will take over the chair of Hambros, one of the few remaining British independent investment banks, has been regarded by some as an outsider. The firm has been dominated by the Hambro family but Keswick, 56, has over 30 years under his belt at the bank where he will fill both the chairman's and chief executive roles from July next year. He can hardly be called a complete outsider. Nevertheless, it will be the first time in the bank's history that a Hambro has not occupied the chair. That history is a long one, dating back to 1839 in London and back into the 18th century and its Danish origins. Universally known as "Chips", Keswick is a member of the family which controls the Jardine group of companies in the Far East. He was born in Shanghai in 1940 and attended Eton College completing his studies at a French university. After a few years with Glynn Williams, Keswick joined Hambros Bank in 1965. He became chairman of the bank in 1986, vice-chairman of the group in the same year and chief executive last year. Keswick is known as a private person who is much more at home talking about the business than about himself. Married with three sons, Keswick is a non-executive director of the Bank of England as well as of De Beers Consolidated Mines, Anglo American and British housebuilder Persimmon. He lists his pastimes as bridge and field sports. Keswick, who takes over from Charles, Lord Hambro, chairman since 1983, has been involved with the bank during some recently troubled times. Hambros had appeared to lose its way, not following its peers into the competitive world of modern investment banking but still managing to make losses. Ironically, along with a few others, it has managed to remain independent while other names such as S.G. Warburg, Kleinwort Benson, Barings and Morgan Grenfell have fallen into the hands of foreign parents. Some observers would remark that Hambros wasn't worth buying but those people are beginning to feel that Hambros' new strategy of concentrating on its core banking and investment management businesses could be the way forward. Keswick says he is confident of the strategy and is unlikely to be be aloof from the business. "Chips will inevitably be a hands-on chairman," one of his senior colleagues said.

British bank Barclays on Tuesday sold its global custody business to U.S. investment bank Morgan Stanley for an undisclosed sum thought to be below 50 million pounds. The purchase by Morgan Stanley marks another step in the consolidation of custody business which is increasingly being seen as a banking activity where "big is beautiful". The custody business includes traditional safekeeping of securities, increasingly electronically, performance measurement and stock lending. "Barclays believes global custody has become very much a scale business requiring substantial investment in technology," said Chief executive Martin Taylor. A spokeswoman for Barclays said the investment in technology would be considerable and continuing and that Barclays had decided this would not be an effective investment. Sir David Walker, chairman of Morgan Stanley Europe, said, "This transaction enables us to offer a broader range of products to our clients. It will strengthen Morgan Stanley's global franchise, particularly in Europe, and will increase our fee-based revenues." Morgan Stanley said the combined custody assets of the two business would amount to some $390 million, taking it up the global custody ladder which is dominated by large American players. The list is headed by Chase Manhattan which has over $one trillion of assets in custody, followed by Citibank, Bank of New York, Deutsche Bank, the largest European player, and State Street Boston. Barclays was Britain's largest player followed by Lloyds TSB and Royal Bank of Scotland. Barclays Global Custody currently employs some 488 staff worldwide of which only those in sales, relationship management, marketing and client support will be moving to Morgan Stanley -- considerably fewer than half of the total. Barclays staff trade union UNIFI said only 67 of the staff would transfer with the business. Analysts said Morgan Stanley is expected to have paid under 50 million sterling for the business but the banks said that a final price would not be fixed for some time. The deal is expected to be closed at the beginnning of April 1997. Barclays had included custody in its "Businesses in Transition" category. These include "lending and other assets that are unlikely to be of long-term interest to the group or that need significant restructuring." "Barclays was going to have to pump a lot of cash into the business to make it work and obviously has other uses for its money," said one analyst who declined to be named.

Britain's largest mortgage lender, the Halifax Building Society, on Friday said its planned stock market flotation in June could be worth as much as 12 billion pounds ($20 billion). Unveiling a price range and details of share allocations to the society's members, Halifax chief executive Mike Blackburn said it "will represent the largest single extension of private share ownership ever witnessed in the UK," said The mutually-owned Halifax, with assets of over 100 billion pounds, said flotation adviser Deutsche Morgan Grenfell had estimated a share price of between 390 and 450 pence per share if the flotation had taken place on December 16, 1996. This equals a market worth of between 10.4 and 12 billion pounds, and analysts expect the final outcome to be at the top end of this range given the recent positive performance of the most comparable stock in the market, former building society Abbey National Plc. "The valuation of 12 billion (pounds) is right in line with our expectations," said Peter Toeman, banking analyst at ABN AMRO Hoare Govett. Other analysts agreed and many expect the price on flotation day to be higher, saying that Friday's figures looked a little conservative. The Halifax said each qualifying member will receive a basic allocation of 200 shares in a flotation of 2.675 billion shares. The Halifax has 6.7 million investing members and two million borrowing members. Of these, there is an overlap 700,000 which means that the Society is sending out a total of around 8.0 million voting packs. Investing members will also get a variable share allocation depending on how much money they had in their accounts on particular dates. This will range from 200 shares to a maximum of 1,181 for those with 50,000 pounds ($84,430) or more. At its special general meeting on February 24, over 50 percent of the investing members must vote in favour of the proposal or it will fail. The society has started a huge advertising campaign to encourage members to vote. The Halifax is expected to be in the top 20 companies by market capitalisation in the FTSE 100 index of blue-chip firms and is sure to threaten the Abbey's position as Britain's fifth largest publicly-quoted bank. It said it sees room for huge expansion in the British insurance and long-term savings sectors. "We'll focus on the UK personal financial services sector," Halifax spokesman Davis Gilchrist told Reuters Financial Television in an interview. "That's a very wide area, both on the borrowing side and, increasingly, on the savings side -- traditional savings and long-term savings." Asked whether the expansion would be by acquisition or through organic growth, Gilchrist ruled nothing out. "That will give us a major programme of expansion in life assurance and general insurance as well," he said. "We'll look at the best (expansion) method. In some cases, organic growth from a solid base can be the best way." The Halifax joins the Woolwich, Alliance & Leicester and Northern Rock which are all coming to the market this year from the building societies sector in flotations worth an aggregate of around 18 billion pounds. Economists have expressed concern that a large chunk of the proceeds will be spent as a windfall and could stoke up inflationary pressures in the British economy later this year.

British bank Barclays Tuesday sold its global custody business to investment bank Morgan Stanley for an undisclosed sum thought to be less than 50 million British pounds ($83 million). The purchase by Morgan Stanley marks another step in the consolidation of custody business, which is increasingly being seen as a banking activity where "big is beautiful." The custody business includes traditional safekeeping of securities, increasingly electronically, performance measurement and stock lending. "Barclays believes global custody has become very much a ... business requiring substantial investment in technology," said Chief Executive Martin Taylor. A Barclays spokeswoman said the investment in technology would be considerable and that Barclays had decided this would not be an effective investment. Sir David Walker, chairman of Morgan Stanley Europe, said, "This transaction enables us to offer a broader range of products to our clients. It will strengthen Morgan Stanley's global franchise, particularly in Europe, and will increase our fee-based revenues." Morgan Stanley said the combined custody assets of the two business would amount to some $390 million, taking it up the global custody ladder dominated by large American players. The list is headed by Chase Manhattan, which has more than $1 trillion in assets in custody, followed by Citibank, Bank of New York, Deutsche Bank, the largest European player, and State Street Boston. Barclays had Britain's largest custody business, followed by Lloyds TSB and Royal Bank of Scotland. Barclays Global Custody employs some 488 staff members worldwide, of which only those in sales, relationship management, marketing and client support will be moving to Morgan Stanley -- considerably fewer than half of the total. Barclays employee union UNIFI said only 67 of the staff would transfer with the business. Analysts said Morgan Stanley was thought to have paid less than 50 million pounds ($83 million) for the business, but the banks said a final price would not be fixed for some time. The deal is expected to be closed at the beginnning of April 1997.

British property giant Land Securities said on Wednesday there were signs of rental growth in some sectors of the British property market and that it expected more to come. Company chairman Peter Hunt said that while there was a feeling there was more rental growth to come, so far it had been patchy. Growth in rental rates would be slower than in the 1980s and because it was not across the board it was crucial to be selective in the properties and developments chosen. Land on Wednesday reported a pre-tax profit of 128.9 million pounds ($213 million) for the first half, including sales of properties, from 118.1 million pounds last time. The company, which reported an increased interim dividend of 7.35 pence, said it had plans for "major shopping centre schemes" in a number of British towns, including Canterbury, York and Sunderland, as well as "several proposed new leisure developments". The group said the annual level of expenditure on its current development programme was expected to peak during the second half of the financial year. It said revenue profit, which was down to 115.5 million pounds from 118.2 million pounds for the period, "is being affected by our prudent policy of not capitalising interest as part of the cost of carrying our substantial programme". But it was upbeat on its overall prospects. "We believe that our strategy of creating growth assets through development will result in a considerable addition to the rental income and capital value of the portfolio in years to come," Hunt said. "Yes, they (the developments) are on target, although you can never be totally sure," he added in an interview. Finance director Jim Murray told Reuters a drop in revenue profit for the half year, to 115.5 million pounds from 118.2 million pounds the previous year, was widely expected and had been flagged in advance. This reflected the fact that the group was financing a large development programme and was not capitalising interest as part of the cost of carrying this out. Hunt said property developments continued to be higher yielding business but that most land-owners were holding out on the sale of good land. "(There is) a much better performance on a development. It is the best growth stock...it's very much in demand. That's why we are concentrating on doing as much development as we can," Hunt added. The group was also buying investments in the "second-hand" market. "We are pursuing both avenues," he said, pointing out that Land Securities had recently added the Team Valley Retail Park, south of Newcastle-upon-Tyne, to its portfolio. This would make "a substantial and valuable addition to our 500 million pound retail warehouse portfolio," he said in his chairman's statement. During the half year the company had bought, or agreed to buy, nearly 80 million pounds of investment properties. Hunt said he did not think there would be a less favourable environment for the group if Britiain's opposition Labour party won power from the ruling Conservative government at the next general election, due to be held by May 1997. "I believe the strategies we are pursuing will apply equally within a New Labour environment as in a Conservative (one)." Hunt said that while he could not comment on possible acquisition targets, the firm looked at "everything from time to time" but would have to "want to own quite a high proportion of the properties" of any target company before making a bid.

Northern Rock Building Society will publish detailed proposals for its stock market flotation, including a preliminary valuation of the company, in the first week in March, director Adam Applegarth said on Wednesday. Applegarth told Reuters in an interview that the document will be followed by a special meeting of members in April to vote on the approval. But he declined to speculate on what value in shares each member would receive from the flotation, an amount which has been predicted at between 750 and 1,000 stg. Earlier, Northern Rock announced record profits in 1996, making a pre-tax profit of 167.5 million, a rise of 14 percent over the 145 million seen in 1995. This excluded 10.3 million stg of non-recurring costs related to the flotation. Applegarth highlighted the fact that the business had continued to perform well during the conversion process which he described as "onerous". "As one of the most cost-efficient lenders, it's important for us to improve those efficiencies and we've done that," Applegarth said. Cost to income ratio dipped to 33.1 percent at the end of 1996 compared with 33.5 percent at the end of 1995. Applegarth also pointed to the society's lending performance as a highlight of last year. Net lending jumped 44 percent 1.9 billion stg, giving the Northern Rock around 10 percent of the UK net mortgage market. Applegarth said market conditions were improving. "The general summary is that the market is looking slightly better than it did a year ago. With a bit of luck, this will be a sustained rise instead of falling back or a boom." He said that if British interest rates needed to rise it would be better for the home lending market if this were to happen gradually. Applegarth said the Northern Rock will not try and compete with Britain's large retail banks after its conversion in terms of the range of products they offer. "I have no doubt that if we attempted to become an all-singing, all-dancing high street clearing bank we would be too small and we would get eaten up," he added. Applegarth rejected any charge that in the long-term, the society's members would be worse off because of conversion. "What matters to customers is not the status of the company but the value of the packages they get." Applegarth said that "hairshirt" mutuals who are trying to justify the maintanence of that status by effectively paying dividends to their members through deflating their profits will not be able to count on this strategy in the longer term. "They don't have the profitability to go out and buy new customers," he said. Applegarth said Northern Rock's cost to assets ratio of 0.72 percent compares to around 1.2 percent for the top 10 building societies. "That means I've got a 50 pence margin to play with. We can use some of it to improve profitability and some of it, frankly, to cherry-pick business." -- London Newsroom +44 171 542 8864

Royal Bank of Scotland is constantly reviewing its options to expand its distribution channels, especially in the south east of England, its chief executive George Mathewson said on Thursday. "It's right to assume we've been talking to a lot of people," Mathewson told Reuters in an interview. "People (who are looking for a tie-up) assume they should talk to us because of our lack of penetration in the south east. All I can say is that we are reviewing all the options." He was speaking after the bank announced a 15 percent rise in pretax profits to 695 million stg, towards the higher end of market expectations, which saw Royal Bank shares rise 8p to 530p. Earlier this year, Royal Bank's arch-rival Bank of Scotland announced a banking joint venture with retailer Sainsburys and other banks are making moves in the same direction. It has long been assumed that Royal Bank would boost its distribution by buying an English building society and Mathewson again refused to rule out this possibility. "That remains a possibility," he said. "Assuming that a building society became available and that the price was not ridiculous." Mathewson said any such purchase would have to take into account shareholder value and business criteria like the strength of the brand name. Some analysts have doubted that Royal Bank's capital position would allow a major purchase but Mathewson dismissed such doubts. Noting that its capital ratios had strengthened over the past year (tier one to 6.8 pcercent from 6.3 and total to 11.0 from 10.3), Mathewson said Royal bank would have no trouble raising money if necessary. "Whatever we have done with our money has been open to market scrutiny -- unlike some other companies," Mathewson said. "We didn't just pay it down the drain. If we need money, we will make a case and we will get it." The Royal Bank results included a 22 percent gain for the UK banking operations and a 57 percent rise for its New England banking unit Citizens. But difficult trading conditions at its insurance unit Direct Line saw profits there collapse by 86 million stg to just 26 million. Mathewson said he was not really disappointed by the Direct Line result -- "But I'd prefer it (profit) to be bigger, don't get me wrong" -- saying that it stemmed from the higher rate of claims and market pressure against higher prices. "The pressure in the market means we couldn't put up prices to compensate but we are making an awful lot more than any of our competitors," he said. Mathewson said the outlook was positive for Direct Line. "But I'm not jumping to any conclusions. Prices are beginning to move (higher), many companies are losing substantial amounts of money and history tells me that can't continue for very long." In the UK bank, cost to income ratio dipped to 59.2 percent from 63.2 percent as the effects of the bank's "Operation Columbus" restructuring continue to come through. -- London Newsroom +44 171 542 8864.

Royal Bank of Scotland, which reports full year data next Thursday, is expected to raise its pre-tax profit from last year's 602 million stg but not by as much as analysts thought just a few months ago. They expect Royal Bank's profits to rise to between 670 and 700 million stg, with a much smaller contribution from its Direct Line low cost insurance, but benefits continuing to accrue from the bank's efforts to reduce costs. Total dividend is expected to be around 18.6 pence a share versus last year's 16.2p. The pre-tax figures will be complicated by an exceptional gain from Royal Bank's disposal of its 50 pct stake in Germany's CC Group, from which it said it would make 70 million stg, and by restructuring costs of around 23 million pounds stemming from an acquisition by its New England subsidiary Citizens. Forecasts for Direct Line vary widely but analysts are generally pessimistic, with the company's main market -- motor insurance -- going through "probably the most diffucult period in its history", as chief executive Ian Chippendale told Reuters in an interview last week. "I think Chippendale was sending a strong message," said one analyst who declined to be named. "I think he was softening up the market for a poor set of results." Some analysts suspect the results may not be quite as poor as hs been feared by some. They see the core bank as continuing to perform quite well with the positive results of its "Project Columbus" helping costs and income. David Poutney expects a pre-tax profit of 695 million stg, which includes the exceptional items, while BZW analysts expect 675 million. The market received a big clue on the performance of Citizens from the recent results of Bank of Ireland which owns 23 percent of the operation. "Citizens is doing reasonably well," Poutney said, but analysts say it is being affected by the rather lacklustre New England economy. The market will be expecting improvement in the cost income ratio but analysts say that even an improvement this time will leave the bank plenty of scope for improvement. The market will be looking for further clues on lending which showed good growth, mostly in corporate lending area, in the first half. Inevitably, Royal Bank will also be watched for signs of acquisitions. It is known to be interested in buying a building society to extend its presence in England but in the current climate, it is unlikely to be willing to pay the high prices likely to be asked. In any case, analysts say Royal Bank would have to raise cash to be able to perform any major acquisition. In the meantime, the market will be looking to its relationship with mutually owned insurance and pensions firm Scottish Widows, which some think may result in an eventual merger. Royal Bank shares were 15p higher on Friday to stand at 519-1/2p. -- London Newsroom +44 171 542 8864

Lloyds Bank was fined 325,000 pounds ($550,000) Wednesday by a British investment industry watchdog and appears set to pay millions of pounds in compensation to disadvantaged customers. The Investment Management Regulatory Organisation said it fined Lloyds, which merged with TSB last year to form Lloyds TSB Group Plc, for breaches of rules relating to its pensions transfer business between April 1988 and June 1993. Lloyds agreed to a settlement of disciplinary proceedings brought against it, the fifth such settlement IMRO has made with firms that have been found guilty of improper sales of pension products. IMRO said Lloyds "did not obtain or have systems to obtain all relevant facts about the personal and financial circumstances of its customers needed to advise them properly about pensions transfers." It said Lloyds had not provided certain customers "with all the information needed to enable them to make a balanced and informed decision on whether to carry out a pension transfer." Lloyds, which must pay IMRO's investigation costs of 63,000 pounds ($107,000) and make a contribution to its disciplinary costs, has already offered redress to some customers and the review of some 2,600 Lloyds transfer cases "is well advanced and will be substantially completed by Dec. 31, 1997," IMRO added. The bank expressed its regret in a statement. "Lloyds Bank deeply regrets the errors which have resulted in charges being brought against it by IMRO for its pension transfer business," it said. As a group, Lloyds TSB has made provisions totalling 165 million pounds ($279 million) for possible compensation payments to do with the mis-selling of pension products. These relate to the Lloyds Bank business as well as the pensions activities of TSB before the merger, and of Lloyds' insurance subsidiary Lloyds Abbey Life. The pension scandal, whereby individuals transferred their pensions and were disadvantaged as a result, has been one of the most serious faced by the British financial services industry in recent years. The affair knocked a big hole in the public's confidence in the industry and companies are set to pay a price running into hundreds of million of pounds as a result. In November, Britain's top financial markets regulator the Securities and Investments Board announced a new strategy to try and clear a logjam in the pensions industry's review of the selling of pension products and the payment of compensation to investors. Both regulators and insurance and investment companies have come under a barrage of criticism over the length of time it has taken to complete a review of cases. Lloyds said it has identified some 2,600 pension transfer customers of which it anticipates having to pay compensation to around 1,500.

The flotation price of the Halifax Building Society is expected to materialise at the high end of an estimate prepared by the Society's bankers last month, banking analysts said on Friday. Deutsche Morgan Grenfell, the Halifax's investment banking advisers, set a price range for the June float of between 390 and 450 pence which would produce a market capitalisation of between 10.4 billion and 12 billion stg. "The valuation of 12 billion (stg) is right in line with our expectations," said Peter Toeman, banking analyst at ABN AMRO Hoare Govett. Other analysts were in agreement but some expect the price on flotation day to be higher, saying that today's figures look a little conservative. "Based on a 1997 earnings per share figure of 44 or 45 pence, a share price of around 475 pence or even 490 pence would seem to fit," said John Leonard, banking analyst at Salomon Brothers. Analysts tend to use a comparison with Abbey National Plc to do their calculations. Abbey is the only building society to have converted so far, it became a bank in 1989, and still makes 65 percent of its money from its core mortgage and deposit activity, according to Rob Thomas, building societies analyst at UBS. The Halifax makes about 80 percent of its income from its core activities and looks set to expand vigorously into other areas like life and general insurance, long-term savings and funds management. "There's a good possibility that the Halifax will be rated higher than the Abbey when it comes to the market but the other societies will probably be lower," Thomas said. The Woolwich, Alliance & Leicester and Northern Rock will join the Halifax in floating later this year. Thomas added that the prospective flotation levels of the societies will fluctuate broadly in line with movements in the Abbey's share price between now and the summer. "Using the Abbey as a pointer is fine because banking sector valuations are pretty close together at around 10 times earnings, except for Lloyds TSB," said David Poutney, analyst at Panmure Gordon. "But there's nothing clever or scientific about it." Analysts agreed that one cloud on the horizon for potential shareholders may be the possibility of higher interest rates in Britain, especially after the general election which must be held by May 22. Currently, sterling strength is seen by some economists as keeping a lid on inflationary pressures and consequently rates, but there is a feeling that rates will have to rise. But analysts say a rise of 100 basis points or more would be needed to seriously dent the banking sector and damage the summer's flotations. -- London Newsroom +44 171 542 8864

British banks have a made a positive start to 1997. Share prices are buoyant and analysts on Thursday saw few serious clouds on the horizon to jolt the sector out of its seemingly inexorable rise. The sctor, which has outperformed the FTSE 100 index by around 20 percent over the past six months, has become more diverse in recent years. But, for differing reasons, analysts are quietly confident that based on a benign economic environment, the banks should continue to show good profit growth. There are also positive stories to be told on an individual basis with Barclays and National Westminster, for example, expected to offer further share buybacks and HSBC and Standard Chartered set to continue reaping the benefits of their strong Far East franchise. "The Far East is still looking attractive and we still have Standard Chartered on an outperform rating," said Nick Collier, banking analyst at Morgan Stanley. "We also like Natwest, it's the cheapest stock in the sector, and looks likely to emerge with a more compelling story in 1997," Analysts expect NatWest to consolidate its recent heavy acquisition programme and spend possibly 300 million pounds on buying back shares as its Tier One capital ratio measure rises. Barclays is also expected to continue repurchases on which it has already spent around one billion pounds. Lloyds TSB could also eventually join the share buy-back club as its capital ratios improve, though most analysts do not see this happening before 1998. Salomon Brothers banking analyst John Leonard said he expects the British economic outlook to remain favourable. The strength of sterling, while affecting those banks that report dollar income in sterling, looks set to keep the lid on inflation and interest rates, a scenario the banks should be able to deal with. If rates were to rise more than expected then that could be a problem for bank share prices if the market thought bad debt provisions were set to rise. On the other hand, many analysts are not convinced by the link between interest rates and bank share prices. "It's sometimes dificult to tell what causes prices to fall from the outside," said one analyst who declined to be named. "Bank shares have done very well in recent years and operators may well take profits on any (market) setback to lock them away. But that doesn't mean they have changed their view." On domestic banking, analysts are happy that banks have been moving more into higher-margin personal sector borrowing at the expense of the lower margins seen in the corporate sector. But they are less happy about the competitive mortgage market which, despite an upturn, is hardly setting the world alight. While bad debts remain stable, net bad debt charges could rise as releases of old provisions work their way out of the system. Other share markets could also have an influence, analysts say. Some investors compare the British and U.S. bank sectors and last year, the U.S. rather lost out. If this were to turn, then the British banks could come under some pressure, said Salomon's Leonard. But analysts are already a little nervous given that the banks' good run has continued with such strength. "Some stocks are definitely looking less compelling given the rush of blood we've seen in the New Year," said one.

Three of Britain's largest bulding societies, which plan stock market flotations in 1997, on Thursday said draft legislation relating to protection from takeovers had forced them to examine their float plans closely. The mutually-owned societies, who specialise in mortgage lending, the Woolwich, Alliance & Leicester and the Northern Rock, all plan to convert to bank status next year and have combined assets of around 70 billion pounds ($117 billion). But a change in the draft of a new Building Societies Act has thrown their plans into confusion as the government proposes to change the way converted societies will be treated in the crucial area of takeover bids. The issue is most pressing for the Alliance & Leicester as it seems highly unlikely that the new draft will be ready before Alliance members meet on December 10 to vote on conversion. Previously, converting societies were protected by a rule which protected them from takeover for five years after flotation, allowing them to make the transition successfully. Until now, the only one to have gone through the process is the Abbey National, which converted to a bank in 1989. Draft legislation is now under consideration although it is doubtful whether there will time for it to become law before next year's general election. The draft proposes that societies lose their immunity from takeover if they merge with another "financial institution" (after flotation) even on an agreed basis. A Treasury spokeswoman said this did not include the buying of mortgage portfolios from other financial institutions. The Treasury argues that converting societies should play by the market rules and that the focus of the bill is on those societies who want to remain mutual. "The loss of the five year protection if any acquisition is undertaken - not just a hostile bid - seems a little unfair," Adam Applegarth, director of Northern Rock told Reuters. The Teasury said it was considering representations to retain immunity in the case of friendly mergers where a large society might merge with a small local institution. Applegarth said the Northern Rock and other societies were also very concerned at another proposed clause which would allow shareholders of the new company to waive the five year protection, saying this could allow takeovers by the backdoor. He said a predator might be able to buy up 10 percent of the stock of the company and announce a bid at the same time, calling an extraordinary general meeting of shareholders which would be asked to waive the protection, bypassing the board. The societies all said the uncertainty was the biggest problem at the moment -- what the bill will say and also when it will be published and whether it will have time to be passed. "We think that if there is little chance that the bill will be passed, it would be better not to publish it at all, frankly," said Applegarth. The societies have a duty to inform members of all possible relevant information so they can make an informed decision. The Treasury said it hoped to publish its revised proposals next month regardless of whether the bill is likely to pass into law before the election which must be held by May 1997. A Woolwich spokeswoman said there was no more than a possibility that the draft bill would delay its float. "If the rules are changed, then the board would have a duty to reconsider," she said. The other societies took a similar view, but the Alliance & Leicester has a particular problem as its members have already been voting on the change by post. "At the moment we are steaming ahead, we are on schedule," a spokesman for the Alliance said. But he agreed that timing could be affected and confirmed that the Alliance board would discuss the problem at a meeting on Thursday. The Northern Rock plans to issue its transfer document, to members in early March of next year, but it must be printed in February, leaving little time for the government to produce the finished version of the proposed law ahead of this. ($1=.5956 Pound)

The world's major banks are busy jockeying for position in an emerging super-league that is set to dominate the massive and higly lucrative private banking market in the next decade, a survey showed on Wednesday. Private banking concentrates on "high net-worth individuals" -- people whose liquid assets, their easily available cash, is a number with a lot of noughts, usually at least $500,000. The survey, by accountancy and consulting firm Price Waterhouse, estimates the global market for these super-rich people at somewhere between $17 and $20 trillion. Of this, a sizeable amount, probably between $4 and $6 trillion is estimated to be in Europe, both in domestic markets and offshore. Ian Woodhouse, head of Price Waterhouse's private banking practice, said the survey sees the emergence of a private banking super-league comprising, perhaps, 25 to 30 banks. These will have at least $75 billion under management with many in the $100 billion-plus bracket. They will be banks like Chase/Chemical and Citicorp in the U.S.; Swiss Bank Corp, Credit Suisse, Union Bank of Switzerland, ABN AMRO and Deutsche Bank in Europe; and the HSBC group 00005.HK with its huge Asian franchise plus Midland Bank in Britain. In comparison, one of Britain's biggest private banking operations, the Coutts Group owned by National Westminster, has around 20 billion pounds ($33.6 billion) under management, putting it in the medium-sized bracket. Woodhouse says one of the trends to emerge from its latest survey, which received responses from 116 leading names in the industry, is that they all see the environment getting more and more competitive, "Competitive pressures are building. Clients used to walk through the door, now you have to go out and get them," he said. The super-rich are becoming more and more demanding and less and less loyal -- they will often use more than one bank or compare what is on offer from a number before making a choice. They are also demanding ever increasing levels of sophistication in the products they are sold. Complicated cross-border trust structures, for example, which can earn a huge margin for the private bank concerned. Private banks with healthy investment bank cousins are also looking to make the most of this resource. Client managers will often work with their investment banking colleagues to think up a product tailored to a client's needs or to beat what they are being offered elsewhere. Currently, Europe takes the biggest slice of the global private banking cake but the fastest growth is in India and the Far East and this latter region is set to take the lead soon, Woodhouse said. The survey shows that over half the private banks expect offshore business to grow by between 11 and 15 percent annually over the next five years. To take advantage of this, given greater client demands and competition, banks will have to manage their cost base as well as their revenue income. The survey also sees a continuation of the recent restructuring, merging and alliance-forming, which has been going on. New players are also expected as plain retail and investment banking areas become more and more congested. ($1=.5950 Pound)

Banking analysts said on Monday they were positive on implications for Bank of Scotland in its joint venture into supermarket banking with J Sainsbury, with one analyst even upgrading his recommendation. Others maintained their positive stances on the Scottish bank and played down the negative impact the innovative plan would have on the rest of the retail financial services sector. "The Sainsbury move is a confirmation of Bank of Scotland's strategy of alternative distribution into England," Goldman Sachs banking analyst David Townshend said. Goldman Sachs and BZW reiterated their positive stances on the group while SBC Warburg upgraded its recommendation on the stock to "trading buy" from "hold," market sources said. Bank of Scotland's link with Sainsbury is seen giving the bank a boost in the British market. The move is expected to help the bank enlarge its small retail customer base in England and find a new outlet for its range of financial services, which it can sell through its excellent technological infrastructure. Bank of Scotland's low-cost operation could mean Sainsbury's Bank could offer a better rate to depositors than customers currently get through retail store group Tesco's link with National Westminster Bank, BZW said in a research note. Tesco currently offers five percent on deposits. But even so, analysts doubted existing banks will lose many accounts to Sainsbury's Bank, which is due to begin trading in the first half of next year. "I don't see a material threat of switching," said Nick Collier, banking analyst at Morgan Stanley. Analysts said there is a certain amount of inertia in the banking market and many consumers already have more than one account so they could easily take on a Sainsbury account without necessarily closing their more conventional one. Some also noted that British banks, with already large customer bases, were addressing different problems. A lack of customers is not the problem for Barclays or Lloyds, said Tim Sykes, banking analyst at BZW. "These banks don't have the same need," Sykes said, "The thing they want to achieve is to sell more of their products to their existing customers." Most British banks have moved heavily into "bancassurance" style operations in recent years, offering a wide range of lending, investment and insurance products. Plain banks are also still seen as having an advantage in terms of the "horses for courses" argument. Analysts said many customers prefer a more traditional approach. While telephone banking has grown quickly in popularity in recent years, for example, the vast majority of bank customers still prefer having a "normal" account although seemingly few visit their branch very regularly.

Morgan Grenfell Asset Management, the fund management arm of Germany's Deutsche Bank AG, said on Tuesday trading would resume on Thursday in its three European funds suspended earlier this week. The three funds -- the 788 million pound ($1.23 billion) MG European Growth Trust, the 137 million MG Europa and the 444 million Dublin-listed MG European Capital Growth -- were suspended pending investigation into what DMG called "possible irregularities centring on certain unquoted securities." MGAM said fund managers will meet their liabilities "in respect of any irregularities identified in the course of the investigation into the three funds." Britain's Investment Management Regulatory Organisation (IMRO) has said it is investigating the management of the funds in conjunction with MGAM. A spokeswoman for IMRO said it had been working hard with MGAM to remove investors in the three funds from the state of limbo they had been in since Monday when dealings were suspended. IMRO said it was far too early to tell when the investigation into the funds would be complete. The investigation is thought to centre on the level of unquoted securities in the fund and their valuation. These include stock in some high-tech Scandinavian companies. The company said its parent bank, Deutsche, has bought some of the securities in the funds for its own account with a view to protecting investors' interests. It said that after taking this action "the prices at which the funds recommence dealing should not be affected by such irregularities". Industry sources said Deutsche Bank may have spent around 150 million stg buying securities for its own account and thus removing them from the funds. The sources said the theory behind the action was that, with the suspect securities removed, the funds should resume dealing at prices close to where they were suspended. But the 150 million pounds spent by Deutsche may not be lost because the stock will have a certain value which remains to be set. MGAM said enquiries centre only on the three funds and that dealing in all other Morgan Grenfell investment funds are unaffected. MGAM confirmed that Peter Young the manager of two of the funds -- MG European Growth Trust and MG European Capital Growth -- has been suspended and said he has been replaced by Stuart Mitchell who until February 1996 was manager of its offshore MG European Profund. Industry sources said the market will be relieved that MGAM has moved quickly to quell speculation and return the funds to an even keel but said confidence in MGAM may take longer to restore.

Britain's Northern Rock Building Society, due for flotation in the autumn, on Wednesday reported pretax profits of 167.5 million pounds ($270 million) for 1996, up 14 percent from 147 million the previous year. The home loan provider said it would publish its transfer document giving details of the flotation and a preliminary valuation in the first week of March. Members will meet to vote on plans to convert the institution into a bank in April. Northern Rock, based in the north-east of England and fiercely independent, said its profit figures excluded a non-recurring cost of 10.3 million pounds related to the conversion to bank status. Uniquely, the society has said it will create a foundation to which it will covenant five percent of its annual pre-tax profits after flotation. The money will go to worthy causes, mostly local communities in its area of operation. Northern Rock director Adam Applegarth declined to speculate on the value in shares each member would receive from the flotation. Predictions range between 750 and 1,000 pounds, valuing the floated company at more than one billion pounds. Applegarth highlighted the fact that business had continued to perform well during the conversion process which he described as "onerous". "As one of the most cost-efficient lenders, it's important for us to improve those efficiencies and we've done that," he said in an interview. The society's cost to income ratio dipped to 33.1 percent at the end of 1996 compared with 33.5 percent at the end of 1995. Applegarth pointed to the society's lending performance as a highlight of last year. Net lending for the year rose 44 percent to 1.9 billion pounds from 1.3 billion with its share in Britain's net mortgage lending market rising to 10 percent from eight percent. Assets grew 19 percent to 13.7 billion pounds from 11.6 billion. Net receipts from savers rose to 584 million pounds from 560 million in the previous year. Applegarth said the Northern Rock would not try to compete with Britain's large retail banks after its conversion in terms of the range of products they offer. "I have no doubt that if we attempted to become an all-singing, all-dancing high street clearing bank we would be too small and we would get eaten up." Applegarth rejected any charge that in the long-term, the society's members would be worse off because of conversion. "What matters to customers is not the status of the company but the value of the packages they get." Applegarth said that "hairshirt" mutuals who are trying to justify the maintanence of that status by effectively paying dividends to their members through deflating their profits will not be able to count on this strategy in the longer term. "They don't have the profitability to go out and buy new customers," he said. Applegarth said Northern Rock's cost to assets ratio of 0.72 percent compares with around 1.2 percent for the top 10 building societies. "That means I've got a 50 pence margin to play with. We can use some of it to improve profitability and some of it, frankly, to cherry-pick business." ($1=.6199 Pound)

The British government on Wednesday published proposed new laws governing home lenders which watered down the building societies' immunity from takeover if they converted into banks. The new legislation provoked a cool response from some home lenders and prompted one leading player to say its plans for conversion may well have been different if it had known what the government was planning. Under the new draft law, a building society would forfeit its five-year immunity from takeover after it converted to bank status if it took over another financial institution. The Woolwich, which has assets of just under 30 billion pounds ($50 billion) and plans to float next July, said it was disappointed the government had not taken account of its "serious concerns" on the timing of the draft. "Had our board known when it took the decision to convert that this (change in the law) was even a possibility, then we might have chosen to convert in a different way," a spokeswoman for the Woolwich said. The Treasury acknowledged the new Building Societies Bill might not even make it to the statute book before an election because of a lack of parliamentary time between now and next May, the last date for the polls to be called. If it went ahead, the Woolwich spokeswoman said the board would have a duty to revisit its conversion plans. The Alliance & Leicester in a statement also expressed disappointment, and said areas of concern "have still not been fully resolved." "We will now need to move forward while carefully considering outstanding issues," the Alliance statement said, noting the move came in the middle of "a long and costly conversion process". In contrast the Northern Rock, a third society which plans a flotation in 1997, welcomed the changes. "We are delighted with it," said Adam Applegarth, a director of the Northern Rock. "It's a prefectly reasonable compromise and you can't ask for more than that." A Treasury spokeswoman said it still hoped to find time for the bill in the Parliamentary agenda in the New Year. "The societies converting to banks will go ahead if that is what their members want," said Treasury Minister Angela Knight in a statement. "When converted they will be allowed to establish themselves. But if they want to play the takeover game then they will have to play by the same rules as everyone else." The Building Societies Association welcomed the revised Bill and encouraged its early introduction to Parliament. BSA chairman Brian Davis, who is also chief executive of the Nationwide Building Society that is not planning to convert, said the BSA fully supported the Treasury's "thoughtful compromise" on the question of takeover protection. Under current company law, 10 percent of shareholders can call a special general meeting of the company and this will not change for converting societies. But any proposal to waive its five-year immunity to takeover will have to be approved by 75 percent of the voting shareholders. Some societies had criticised the Treasury's proposals because they did not allow friendly takeovers, such as between one large society and a local smaller one. "We came to the conclusion that the distinction between friendly and hostile takeovers was too difficult to define and that it would have been unworkable," the Treasury said. The Halifax, the country's biggest home lender has already waived its right to takeover protection by transferring its business to an existing subsidiary. ($1=.6003 Pound)

A thankful Elizabeth Forsyth, a former aide of Polly Peck head Asil Nadir, walked free from court on Thursday after three judges allowed her appeal against a five-year sentence for handling stolen money. Forsyth, 60, who is also appealing against the money-laundering conviction itself, described her 10 months in prison as an "experience". "I would just like to thank the court for its understanding and consideration," Forsyth told reporters as she was freed from the cells of London's Royal Courts of Justice. Forsyth, who was chairman of South Audley Management, a firm set up by Turkish Cypriot Nadir to deal with his wealthy family interests before his Polly Peck empire collapsed in 1990 under a mountain of debt, said she could not comment further on the appeal as it was still continuing. Earlier, the appeal judges surprised the court by making it clear at once that Forsyth would not be returning to spend another night at Holloway prison. "We have formed a view that this sentence cannot stand," Lord Justice Beldam said at the outset of the appeal hearing, adding that the sentence was so disproportionate that, "taking into account the time she has already served...she should not serve any longer." Beldam, hearing the appeal with two other judges, then moved on to consider Forsyth's appeal against her conviction on two counts of dishonestly handling 400,000 pounds ($650,000) of stolen funds. Forsyth's lawyer, Geoffrey Robertson, later made a bail application so that Forsyth could be freed pending the outcome of the rest of the appeal. At the end of the court session, Forsyth told reporters she was heading for her mother's home. "I'm looking forward to going home...and it won't be an iron bed with a thin mattress," she said, adding that her son was arrving for a family reunion. She said of her time in prison, "I learnt an awful lot, it was an education process." She took up art in prison and was a library orderly. Asked if she bore any grudges against the legal system, she said: "There's a lot wrong with the system. The prison officers work very hard to do a difficult job under difficult circumstances." Forsyth has been in prison since March 1996 when Justice Sir Richard Tucker surprised those following the case with the severity of his sentence. During her five-week trial, the jury accepted that Forsyth had helped to launder money that had been stolen from Polly Peck by Nadir. Nadir still faces charges connected to Polly Peck but in 1993 he fled to northern Cyprus, a territory not recognised by the British government, skipping 3.5 million pounds ($5.67 million) bail.

NatWest Markets, the investment banking arm of National Westminster Bank, on Monday named Peter Hall as the man to run its expanding operations but other questions over the bank's strategy remained, analysts said. NatWest said Hall, who currently runs its American operations, would take over as chief operating officer of the investment bank, reporting to chief executive Martin Owen. At the same time, NatWest Markets said it would streamline origination and distribution functions into one Global Financial Markets division from the current capital markets and treasury divisions. NatWest said no job losses would result from the consolidation. The bank has been on the acquisition trail recently, buying corporate finance boutique J O Hambro Magan in October, spending $590 million on U.S. primary dealer Greenwich Capital and 472 million pounds on Gartmore, the British fund manager. It also acquired U.S. merger and acquisitions specialist Gleacher for $135 million. But analysts have expressed concern that NatWest will find it difficult to bring these all together, despite the fact that the businesses seem to compliment each other. Some feel that NatWest is spending large amounts of cash on buying businesses that could be near the top of their business cycle. "The NatWest markets business is robust and it can make returns while it is still building," said one analyst. "But a revenue downturn will tend to hit the players who are building rather than those who are already established." Currently, investment banks are enjoying generally the low-inflation, steady growth conditions seen in many major economies with an accompanying healthy amount of mergers and acquisitions activity. But a substantial downturn on Wall Street, predicted by many strategists, could leave some high-cost acquisitions looking a little less appetizing, analysts say. Owen said the fast growth of NatWest markets, both organically and by acquisition, had led him to the conclusion that the day-to-day operational management should be separated from strategy, client development and financial supervision. "As President and COO, Peter will be charged with implementing our operational plan, leaving me more time to work with global product heads to shape our strategies," Owen said. Analysts were happy that NatWest had brought an insider to the job. "Sometimes it gets difficult to keep continuity and things can start to fall apart," said one analyst. "I would class this appointment as continuity, so that's good."

Italian business tycoon Silvio Berlusconi on Wednesday lost an appeal in the London High Court against the transfer of documents to Italian authorities investigating allegations of fraud and false accounting. Britain's Serious Fraud Office seized 15 bags of documents in April from the office of London lawyer David Mills who represents the interests of former Italian Prime Minister Berlusconi in Britain. The judges, Lord Justice Simon Brown and Mr Justice Gage, rejected all the grounds of the appeal, but Brown agreed to hear an application by the appellants on Friday morning, which could lead to an appeal to the House of Lords, although legal sources said this was unlikely to succeed. The hearing stemmed from an appeal by Berlusconi, who was Italian Prime Minister for seven months in 1994 and is on trial in Milan on corruption charges, his company Fininvest and company president Fedele Confalonieri against a court ruling earlier this year that the papers should be sent to Italy. Brown said the papers were linked to fraud and false accounting allegations amounting to 51 million pounds ($82 million) which had been "surreptitiously removed from Fininvest and used for criminal purposes." He noted that prosecutions were already underway in Italy against Berlusconi for bribing Revenue inspectors and for making illicit donations to former Prime Minister Bettino Craxi. Italian investigators suspect Berlusconi who, among other holdings, owns three TV channels and the football club AC Milan, may have used offshore companies to channel payments to politicians. At the end of his judgement Brown pointed out that, "It is imperative to recognise, however, that none of the applicants has yet been convicted of anything and that nothing I have said should be thought to raise the least presumption of guilt against them." He rejected all the grounds of the appeal on the basis that the Italian request was not too wide, that it was justified and that the offences in question were not "political". One of the grounds of appeal had been that the SFO had gone to Berlusconi's lawyer's office on a "fishing expedition" -- an unspecific search -- which is illegal under English law. Brown described the case as a "wide-ranging, multi-faceted, international fraud involving far-reaching allegations against a large number of individuals in connection with an even larger number of companies." The SFO said it was "happy" with the ruling. "The SFO's fight against fraud on an international level has been strengthened by this welcome judgement," it said in a statement. The SFO said the judges had rejected all of the main arguments put forward by the appellants. "We look forward to the speedy transfer of the documents to Milan so that the investigators can get on with their job," it said. A hearing on Friday will decide whether Berlusconi can appeal against today's ruling to the British House of Lords. SFO senior assistant director Chris Dickson said the judges in the current hearing were aware that, if any House of Lords hearing did not take place until next year, this would mean the papers would arrive too late to be used in Italian proceedings. He said that if the appellants were not given leave to appeal on Friday he expected the papers to be transferred immediately, although this was a decision for the Home Office. ($1=.6260 Pound)

British fund management group Mercury Asset Management on Tuesday posted a 29 percent jump in first half pretax profits to 81.8 million pounds ($133.9 million), up from 63.6 million in the first half last year. It also saw its cash pile rise sharply to 261.6 million pounds from 189.9 million at the end of March, raising speculation that the firm might use the surplus to fund expansion in the lucrative U.S. fund management industry. MAM chairman Hugh Stevenson said the company would consider acquisitions but only if they increased value for shareholders. Asked if MAM was considering a U.S. acquisition, where MAM already operates, Stevenson said: "The US is obviously an extremely important market, it's the biggest savings market in the world but value for our shareholders is the main aim." On the cash pile, Stevenson said that the company prefers a conservative balance sheet. "Cash has risen materially in the last six months," he said. "It's a question of a balance between a prudent balance sheet and returning value in the form of dividends to shareholders. We've had a very progressive dividend policy over recent years." Mercury, formerly controlled by investment bank S.G. Warburg before Warburg was bought by Swiss Bank Corp last year, raised its interim dividend to 10 pence per share from six pence last time. It said the significant increase was due to a rebalancing between interim and final payouts. Funds under management rose to 85.9 billion pounds at the end of September after 70.9 billion at the same time last year. The most recent figure includes two billion pounds of net new business, which analysts said follows its recent growth trend. MAM said it had seen a rise in defined contribution pension scheme business in the last six months and expected this to be a growth area. Mercury shares were 23.5 lower at 11.19 pounds at 1130 GMT with analysts reporting some profit taking after the stock reached a year's high of 11.50 this week. The profit figures were just under some expectations but were mostly unsurprising. Some analysts, including Martin Cross of UBS, say the shares are fully valued. "The price/earnings ratio (at 21.6) is at the top end of the sector," Cross said. "It's near companies like Perpetual and M &G which are much more retail oriented and have better grwoth prospects in my opinion." Perpetual has a P/E ratio of 25.4 and M & G 22.3. Stevenson said it was too early to tell what effect problems at Morgan Grenfell Asset Management, where alleged irregularities are being investigated by Britain's Serious Fraud Office, might have on the funds industry in the longer term. "It's a growth industry," Stevenson said, "and it continues to grow. The UK market is changing and we have been doing more in defined contribution business." About two thirds of MAM's business is in the institutional pension fund management area, 20 percent for investors overseas and the rest for private investors. Costs continued to rise but were more than matched by revenue growth. Stevenson said the rise reflected the consolidation of its Australian subsidiary, large investment in systems and infrastructure, and "higher provision for variable remuneration" -- otherwise known as bonuses. ($1=.6107 Pound)

Anglo-French Channel Tunnel operator Eurotunnel on Monday announced a deal giving creditor banks 45.5 percent of the company in return for wiping out one billion pounds ($1.56 billion) of its debt mountain. The long-awaited restructuring brings to an end months of wrangling between Eurotunnel and the 225 banks to which it owes nearly nine billion pounds. The deal, announced simultaneously in Paris and London, brings the company back from the brink of insolvency but leaves shareholders owning only 54.5 percent of the company. "The restructuring plan provides Eurotunnel with the medium term financial stability to allow it to consolidate its substantial commercial achievements to date and to develop its operations," Eurotunnel co-chairman Alastair Morton said. The firm was now making a profit before interest, he added. Although shareholders will see their interests diluted, they were offered the prospect of a brighter future after months of uncertainty while Eurotunnel wrestled to reduce crippling interest payments negotiated during the tunnel's construction. Eurotunnel, which has taken around half the cross-Channel market from the European ferry companies, said a strong operating performance could allow it to pay its first dividend within the next 10 years. French co-chairman Patrick Ponsolle said shareholders would have to be patient before they could reap the benefits of the company's success. He called the debt restructuring plan "an acceptable compromise" for holders of Eurotunnel shares. The company said in a statement there was still considerable work to be done to finalise and agree the details of the plan before it can be submitted to shareholders and the full 225 bank syndicate for approval, probably early in 1997. Monday's announcement followed two weeks of highly secretive negotiations between Eurotunnel and its six leading banks. This was extended to the 24 "instructing banks" at a meeting late last week in London. Eurotunnel said the debt-for-equity swap would be at 130 pence, or 10.40 francs, per share. That is considerably below the level of around 160 pence widely reported in the run up to the deal, and will reduce outstanding debt of 8.7 billion pounds by 1.0 billion. The company said a further 3.7 billion pounds of debt would be converted into new financial instruments and existing shareholders would be able to participate in this issue. If they choose not to take up free warrants entitling them to subscribe to this, Eurotunnel said shareholders' interests may be reduced further to just over 39 percent of the company by the end of December 2003. Eurotunnel's shares, which were suspended last week at 113.5 pence ahead of Monday's announcement, should resume trading on Tuesday, the company said. ($1=.6393 Pound)

Former Barings treasury and risk chief Ian Hopkins has been banned from being a director in the City, industry sources said on Thursday after a three-day disciplinary hearing. Britain's Securities and Futures Authority (SFA) said in a statement that the outcome would not be formally announced until after any appeal process had ended. But the sources said the tribunal had banned Hopkins from being a registered director for three years and ordered him to pay an unspecified amount of costs. Hopkins, who was not immediately available for comment, did not appear before the tribunal, chaired by Judge Colin Kolbert, and was not legally represented. After he has been formally given the full written judgment, he will have 10 business days to lodge an appeal. Hopkins was among a group of former Barings executives against whom the SFA brought disciplinary charges for their part in the downfall of the investment bank. It collapsed nearly two years ago when Singapore-based trader Nick Leeson ran up debts of almost $1.4 billion in unauthorised derivatives trades. Hopkins, who worked for Barings in London, has always maintained that he tried to warn other Barings executives of the bank's dangerous position but that he was effectively ignored. He told a parliamentary committee investigation into Barings last year that his attempts to alert more senior Barings staff to potential problems had failed. He painted a picture of culture clashes between the traditional Barings banking activities and its newer securities activities. In the official Singaporean report into the Barings affair, executives of the bank were criticised for not heeding Hopkins's warnings. "In our view, the collapse might have been averted if Mr Hopkins's concerns had been taken seriously, and acted upon promptly and effectively," the Singapore inspectors said. The tribunal heard the SFA case, put by prominent barrister Presiley Baxendale, and questioned seven witnesses. It also took into account evidence given by Hopkins to the Singapore enquiry and to Britain's Board of Banking Supervision. Earlier this month the SFA reprimanded Barings former head of equity derivatives Mary Walz for her part in the bank's collapse and has already banned several other former Barings executives including former chief executive Peter Norris.

Former Barings executive Ron Baker rejects a lawsuit filed by Dutch bank ING Barings which makes a claim for repayment of a 100,000 pounds ($165,000) loan he is alleged to have received, his lawyer told Reuters on Thursday. ING Barings earlier confirmed a press report it is suing Baker for 113,000 pounds, representing the loan given while Baker was employed by Barings, plus interest. It is alleged to have been paid in two 50,000 pounds tranches, the last of which was made just two weeks before the collapse of the bank in February 1995. "He (Baker) is satisfied that he doesn't owe them (ING Barings) any money," Baker's lawyer Lindsay Hill, a partner at Fox Williams, said. "This doesn't constitute a good claim against Mr Baker." Hill said Baker, who was head of financial products at Barings, "roundly rejects" the ING claim and says that whatever money was paid to him, it was not sufficient to cover what he was owed. Asked if Baker was considering making a claim against ING Barings for unpaid money, Hill said his client was currently concentrating on a tribunal hearing where he is challenging charges levelled against him by Britain's Securities and Futures Authority (SFA). In May, Baker said he was satisfied he had acted properly throughout his time at Barings. He said he was not involved in the bank's agency business through which rogue trader Nick Leeson racked up $1.4 billion losses which bankrupted the blue-blooded investment bank. The tribunal hearing has been going on for around two weeks and is expected to conclude soon. If Baker loses, he has the opportunity to appeal. ($1=.6093 Pound)

Anglo-French Channel Tunnel operator Eurotunnel Monday announced a deal giving its creditor banks 45.5 percent of the company in return for wiping out one billion pounds ($1.56 billion) of its debt. The long-awaited restructuring brings to an end months of wrangling between Eurotunnel and the 225 banks to which it owes nearly nine billion pounds ($14.1 billion). The deal, announced simultaneously in Paris and London, brings the company back from the brink of insolvency but leaves shareholders owning only 54.5 percent of the company. "The restructuring plan provides Eurotunnel with the medium-term financial stability to allow it to consolidate its substantial commercial achievements to date and to develop its operations," Eurotunnel co-chairman Alastair Morton said. The firm was now making a profit before interest, he added. Although shareholders will see their interests diluted, they were offered the prospect of a brighter future after months of uncertainty while Eurotunnel wrestled to reduce crippling interest payments negotiated during the tunnel's construction. Eurotunnel, which has taken around half the cross-Channel market from the European ferry companies, said a strong operating performance could allow it to pay its first dividend within the next 10 years. French co-chairman Patrick Ponsolle said shareholders would have to be patient before they could reap the benefits of the company's success. He called the debt restructuring plan "an acceptable compromise" for holders of Eurotunnel shares. The company said there was still considerable work to be done to finalise and agree on the details of the plan before it can be submitted to shareholders and the full 225 bank syndicate for approval, probably early in 1997. Monday's announcement followed two weeks of highly secretive negotiations between Eurotunnel and its six leading banks. This was extended to the 24 "instructing banks" at a meeting late last week in London. Eurotunnel said the debt-for-equity swap would be at 130 pence, or 10.40 francs, per share. That is considerably below the level of around 160 pence widely reported before announcement of the deal, and will reduce outstanding debt of 8.7 billion pounds ($13.6 billion) by 1.0 billion ($1.56 billion). The company said a further 3.7 billion pounds ($5.8 billion) of debt would be converted into new financial instruments and existing shareholders would be able to participate in this issue. If they choose not to take up free warrants entitling them to subscribe to this, Eurotunnel said shareholders' interests may be reduced further to just over 39 percent of the company by the end of December 2003. Eurotunnel's shares, which were suspended last week at 113.5 pence ahead of Monday's announcement, should resume trading on Tuesday, the company said.

Royal Bank of Scotland on Thursday reported a 15 percent rise in full year pretax profits to 695 million pounds ($1.2 billion) as strong growth in its UK and U.S. banking operations offset a dip at its insurance unit. Chief Executive George Mathewson told Reuters the bank is constantly reviewing its options to expand market share, especially in the south east of England. "It's right to assume we've been talking to a lot of people," Mathewson said in an interview. "People (who are looking for a tie-up) assume they should talk to us because of our lack of penetration in the south east. All I can say is that we are reviewing all the options." Earlier this year, Royal Bank's arch-rival Bank of Scotland announced a banking joint venture with retailer Sainsburys and other banks are making moves in the same direction including Abbey National, which on Thursday said it would offer financial services in conjunction with supermarket chain Safeway's loyalty card. It has long been assumed that Royal Bank would boost its distribution by buying an English home loans institution and Mathewson again refused to rule this out. "That remains a possibility," he said. "Assuming that a building society became available and that the price was not ridiculous." Mathewson said any such purchase would have to take into account shareholder value and business criteria like the strength of the brand name. Some analysts have doubted that Royal Bank's capital position would allow a major purchase but Mathewson dismissed such doubts. Noting that its capital position had strengthened over the past year, Mathewson said Royal Bank would have no trouble raising money if necessary. "Whatever we have done with our money has been open to market scrutiny unlike some other companies," Mathewson said. "We didn't just pay it down the drain. If we need money, we will make a case and we will get it." Royal Bank said its U.S. bank Citizens, based in New England, lifted profits by 61 million pounds, or 57 percent, adding that it will continue its strategy of deepening its franchise and expanding its core business. Profits were also higher in UK Banking, up 97 million pounds or 22 percent, and this part of the business also showed a healthy improvement in cost-to-income ratio. The latter fell to 59.2 percent from 63.2 percent while the group ratio was down to 50 percent from 51.7 percent. Direct Line, which sells motor, house and life insurance, saw profits shrink by 86 million pounds to 26 million for the year as premium rates continued under pressure and it saw increased claims. Mathewson said he was not really disappointed by the Direct Line result -- "But I'd prefer it (profit) to be bigger, don't get me wrong" -- saying that it stemmed from the higher rate of claims and market pressure against higher prices. "The pressure in the market means we couldn't put up prices to compensate but we are making an awful lot more than any of our competitors," he said. Mathewson said the outlook was positive for Direct Line. "But I'm not jumping to any conclusions. Prices are beginning to move (higher), many companies are losing substantial amounts of money and history tells me that can't continue for very long."

BZW, the investment banking arm of Barclays Plc, said on Wednesday it plans to use state-of-the-art defence technology to help it with a perennial problem -- managing risk in the financial markets. The bank has formed the Financial Laboratory Club to develop new risk management solutions, using the scientific and computing potential of the Defence Evaluation and Research Agency of the British Ministry of Defence -- the biggest research and development organisation in Western Europe. Also involved in the project, which has funding of 1.8 million pounds ($3.0 million) for the first two years, are Silicon Graphics, insurance company Royal Sun Alliance, the London Stock Exchange, the City University and Business School and risk management consultancy Z/Yen. The British government is providing a grant of 750,000 pounds for the project and BZW is putting in 500,000 over two years. With margins getting ever finer in the highly competitive investment banking world, BZW hopes defence technology can help it keep ahead. "We have to manage our risk well," said Martin Dooney, global head of money markets at BZW. "We want to start setting the standard and make strides to be ahead of the pack." Dooney and DERA scientists believe there is enough common ground between the worlds of the trading room and the battlefield to make the exercise worthwhile. "The risks are obviously different," he said. "For the crew of a main battle tank it could be the missile defences of the opposing force and for the bond trader it could be the movement of short-term interest rates." But Dooney said there are many similarities, not least the fact that that both are high-stress environments which both require the sophisticated modelling and simulation techniques which have, until now, been largely the preserve of the defence industries. One reason for this is that research into this field needs massive computing power which DERA can provide via its four Cray Computer Corp super-computers which are millions of times more powerful than the average desktop PC. BZW believes the project can help people at every level in the company to better understand the firm's risk position by replacing a mass of numbers by visualisation techniques. The project will also look into using modelling techniques used to develop military consoles to look at the design of future trading stations and try to develop different ways of evaluating dealer performance. This will, in particular, provide early warning of problems based on trading pattern evidence. "The financial services industry wants something that it can use in the heat of battle," said Michael Mainelli, development director at DERA. "If financial markets are destabilised they could be as, or even more, damaging than a conventional war." $1=.5976 Pound)

Former Morgan Grenfell Asset Management (MGAM) star fund manager Nicola Horlick continued her battle against her ex-employer on Tuesday but, after a meeting with her lawyer, said her chances of being reinstated were slim. "Reinstatement doesn't seem very likely," she told Reuters. Horlick is waging a campaign for reinstatement or compensation from the firm from which she resigned in a blaze of publicity last week after allegations that she planned to defect and poach some of her colleagues. But so far MGAM, and its parent company Deutsche Morgan Grenfell (DMG), have remained deaf to her pleas. Horlick met her lawyer John Farr of law firm Herbert Smith again on Tuesday and although her advisers hinted it was far too early to talk of legal action against DMG, this has not been ruled out by Horlick's camp. The advisers indicated an early resolution of the dispute was unlikely and could take several weeks as Deutsche and MGAM had still to complete an internal inquiry into the affair. "It will take several days, if not weeks, I should think," one adviser said. Despite indications that discussions took place on Tuesday between Farr and DMG's legal representatives, a DMG spokesman denied there had been further contact. The bank is sticking firmly to its guns in the row with the 35-year-old mother of five, one of London's most prominent fund managers. It says Horlick, having been promoted to the rank of managing director, was suspended just days later for "soliciting staff" to join a rival firm and then resigned her position. The plot has thickened amid unconfirmed allegations that this was a prelude to a takeover of MGAM's pension fund business by Dutch bank ABN AMRO. ABN AMRO declined to comment on the latest reports but has already denied having tried to poach Horlick and her team. On Tuesday, however, the Dutch bank acknowledged it would be interested in buying a large British fund manager and its global asset management director Jan Vroegop told Reuters it would like to make "big steps" in London funds management. Horlick continues to deny allegations that she was leading a breakaway group. DMG's line is that Horlick will not be reinstated and that there will be no compensation because she had resigned. DMG's parent Deutsche Bank also said late Monday that it did not expect to go to court with Horlick. Deutsche board member Rolf Breuer, who is poised to take over the helm of Deutsche in May from Hilmar Kopper, said: "The facts are clear. Mrs Horlick inflicted damage on the bank with her attempt to poach staff and then resigned." Meanwhile, differing versions of what led up to her suspension continued to trickle out. British newspaper reports said ABN AMRO was involved with Horlick in planning to fund a management buyout of the 18 billion pounds ($30 billion) pension fund business which Horlick headed. They said ABN ARMO planned to recruit Horlick and her team and then to offer to buy the residue from Morgan Grenfell for a reported 385 million pounds. Horlick's colleagues were reported to have been unconvinced by the merits of ABN's alleged plan to poach the team, not least because one of the team's key aims had been to have Horlick promoted to a more influential position within MGAM. Once this happened it removed a key complaint against top management. MGAM has had a troubled time since the sacking of fund manager Peter Young last September after irregularities came to light in three of the group's funds, hitting staff morale and also rattling clients. Young has denied any criminal activity and is being investigated by Britain's Serious Fraud Office. So far no clients have withdrawn their business from MGAM as a result of the Horlick affair. However, several major clients have expressed their concern and said they would be reviewing their relationship with the firm. ($1=.6021 Pound)

British Chancellor of the Exchequer Kenneth Clarke on Tuesday took the expected step of phasing out tax relief on profit related pay (PRP) schemes. But analysts were pleasantly surprised the proposal still allowed new schemes to be registered as the tax relief is reduced and were relieved the Chancellor did not abolish the arrangement in one go. Clarke said there would be no change to the upper limit of pay that is free of income tax, currently 4,000 stg, in profit periods beginning before January 1 1998. For 1998 the ceiling will be reduced to 2,000 stg and 1,000 stg in 1999. No relief will be given for profit periods starting on or after January 1, 2000. "I'm not surprised that the relief was not abolished in one go," said Bob Rothenburg of accountancy firm Blick Rothenberg. "It would have created a lot of pressure on employers to compensate employees." Douglas Fairbairn of Ernst and Young said he was relieved at the Chancellor's proposals, which could have included immediate abolition. For Fairbairn, the main surprise was that new schemes would be allowed at the lower rates of relief. This was confirmed by the Inland Revenue, where a spokeswoman said if existing schemes were to be allowed to continue, it was only fair that companies wishing to introduce new schemes, even at the lower rates of relief, should be allowed to do so. Fairbairn said the fact that new schemes were to be allowed, meant he doubted the government's estimate of the yield from the measure would be met. The Inland Revenue said it expected the proposal to yield 100 million stg in 1997/98; 700 million stg in 1998/99; 1.7 billion stg in 1999/2000; and 3.1 billion stg in 2000/2001. Tax experts contacted by Reuters said one other possibility for Clarke would have been to limit the relief on PRP to the standard rate of tax, which he reduced to 23 percent from 24 percent, rather than the marginal rate -- currently 40 percent. After a slow start following its introduction in 1987, there are now around 14,000 PRP schemes covering 3.7 million employees. Take-up of the schemes increased considerably after the tax relief was doubled in 1991. -- London Newsroom +44 171 542 7717

A bumper crop of results from the six major British banks which start their reporting season next week should take aggregate pre-tax profit comfortably above 12 billion stg for 1996 from just over 10.8 billion stg in 1995. Analysts also expect some of them to return surplus capital to shareholders, either in the form of share buybacks or generous dividend payments. Leading the way on February 14 will be Lloyds TSB Group which, despite trading at a big premium to the sector, is still favoured by analysts because of its business mix. The bank's new chief executive Peter Ellwood is expected to give voice to his plans for the group as he takes over from Sir Brian Pitman. Lloyds is expected to weigh in with over 2.4 billion stg in pretax profit and dividend per share of about 13p, accompanied by the highest return on equity at around 32 percent. Next on the agenda will be Barclays on February 18, when many analysts are expecting another chapter in its series of share buybacks. The bank has already spent over 1.0 billion stg on these in the last 18 months. Profits are expected to rise to a consensus expectation of around 2.39 billion stg compared to 2.08 billion in 1995. Barclays is expected to show strong growth in businesses like Barclaycard and consumer lending but its investment banking unit BZW, which has had a year of upheavals, could disappoint. Barclays will be followed by the very different Standard Chartered, the London-based bank with a strong Far East franchise. Some analysts have cut their earnings estimates slightly but StanChart's pretax profit is still seen rising to around 870 million stg from 661 million last time. Growth in consumer banking in Asia will be tempered by the decline in the dollar, a possible small upturn in costs and the sale of its profitable private banking unit last year. A dividend of 14 or 15p per share is seen after 11p in 1995. HSBC Holdings, the other London-based bank with huge Far East interests and the most profitable bank in the group, reports on March 3. HSBC, which brings together Britain's Midland Bank, Hongkong Bank, Hang Seng Bank, and Marine Midland in the U.S., is expected to post pretax profits of some 4.6 billion stg after 3.67 billion in 1995. Dividend per share is seen rising to around 40p from 32p the previous year. HSBC is also expected to have been affected by the recent strength of sterling but will show profit gains in all its regions and units, with analysts bullish for the potential still to be unlocked in Asia. National Westminster Bank, unlike HSBC, has a much stronger focus on investment banking and has spent a lot of money building up its NatWest Markets unit with several acquisitions and other investment. This has led to nervousness among investors and the shares underperformed the rest of the sector last year. NatWest reports on February 25 and is expected to post pretax profits of 1.1 to 1.2 billion stg -- after disposal losses and exceptional asset write-downs -- and a full year dividend of 29p. Many analysts also expect a further repurchase of shares. Finally, Abbey National, in the news currently because of its bid for mutual life assurance firm Scottish Amicable, reports on February 27 and is expected to show pretax profits of around 1.15 to 1.16 billion stg (after 1.03 billion in 1995) and a dividend of around 26p compared to 21.75p. The Abbey's capital position has led to talk of a share buyback but the management is against this because of the large number of small shareholders on the register. A special dividend could be on the cards but most analysts expect the Abbey to continue its relatively generous ordinary dividend policy. The figures are likely to have been helped by some growth in the mortgage market and by a good rise in consumer lending. -- London Newsroom +44 171 542 8864.

BZW, the investment banking arm of Barclays Plc, has restructured its Global Markets division in another step towards reshaping its business to compete wth global rivals, banking sources said on Thursday. BZW has been carrying out a top-to-bottom review of the markets business including matching staff profiles and skills against the needs of sustaining a profitable business. The review resulted in around 30 people leaving this week, including Alex von Ungern-Sternberg, deputy chief executive of Global Markets, and Klaus-Peter Moeritz, head of foreign exchange trading in the UK and Europe. But not all were at such high levels. Those departing also include seven foreign exchange traders, metals traders, secretaries and telephonists. In an internal memo, Bob Diamond, who has been Global Markets chief since July, said von Ungern-Sternberg had decided to leave after the new structure was put in place as his role "was substantially narrower." Since Bill Harrison joined BZW as chief executive from Robert Fleming there have been the usual personnel changes associated with the investment banking business. There was no room, for example, for Barclays veteran Donald Brydon who had been running BZW after its previous head, David Band, died earlier in the year. Harrison and Diamond are thought to be working on methods to make profitability more sustainable -- a quandary which is at the centre of the debate on the investment banking industry. The industry's detractors, among them Lloyds TSB chief Brian Pitman, always point to the fact that the revenue stream cannot be relied upon as it is subject to market volatility. In the good times, when markets are booming and mergers and acquisitions on a roll, investment banks rake in profits as if there is no tomorrow and the participants get paid huge bonuses. But in the bad times, the banks can rack up heavy losses in markets which suddenly look very over-populated. Diamond, in common with the head of the Barclays group, chief executive Martin Taylor, is known to want to intensify the return on capital employed in the business. He knows that unless BZW's profits are sustained at high levels, he will find it difficult to put together the kind of team needed to succeed in an increasingly competitive and crowded environment. No aspect of BZW's markets business from gilts to JGBs (Japanese government bond) and dollar/yen to copper will be left out of the in-depth review, banking sources added. In the meantime BZW, along with other banks, will also continue to react to more short-term events in the markets. For example the departure of foreign exchange traders follows a period of reduced volatility in the market over the last few months. Ironically, such periods of volatility are key to both outperformance and underperformance which dictate returns on capital for investment banks. -- London Newsroom +44 171 542 8864

Ailing Union Plc, formerly a pillar of the London money market scene, could be broken up to release shareholder value after the company said it would not pay a final dividend for 1996, analysts said on Tuesday. They said a buyer might be found for Union's profitable fees and commission businesses to break them away from the loss making trading division which has been hard-hit by changes in the money market. "Union has lurched from crisis to crisis in the past few years," said one analyst who declined to be named. "It could be that they have come to the conclusion that it's time to salvage what they can for shareholders." Formerly known as Union Discount and with famously palatial offices in Cornhill in London's financial heartland, Union has had limited success in its struggle to diversify away from its traditional role as a discount house in the mysterious and highly cyclical and volatile workings of the money market. Forays into medical equipment leasing and equities market-making, in the shape of Winterflood Securities, ended in disposals and the years have seen Union shrink to a shadow of its former self with a market value of only 25 million pounds. Now, Union says the Bank of England's plan to remove the exclusive right of the seven discount houses to deal directly with the Bank in its liquidity operations will "have a significant impact on the group's future." As a consequence, it said that Advance Corporation Tax (ACT), which it had intended to carry forward on its books, would now have to be written off. It gave no figures but said this would rule out the payment of a final dividend for 1996. It also said that it would not receive any profit contribution in the 1996 year from a venture to sell equity index options trading software in Canada. Analysts said they had expected Union to hold its full year payout at three pence per share, with 1.5 pence coming in the second half. Union has said that it wants to develop its fee earning businesses and move away from a dangerous dependence on trading. The fee and commission businesses include the Union CAL futures and foreign exchange broking, liquidity fund manager Union Fund Management and Cornhill Commercial Services, which provides project finance advice and consultancy. Late last year the two "discount houses", Gerrard & National and King & Shaxon, merged but with them, the money market side of the business takes a back seat compared to private-client stockbroking and fund management. Union shares closed 12 pence lower at 81-1/2, having collapsed to 73p at one point. Directors at Union were not immediately available for comment.

Lloyds Bank was on Wednesday fined 325,000 pounds ($550,000) by a British investment industry watchdog and looks set to pay millions of pounds in compensation to disadvantaged customers. The Investment Management Regulatory Organisation (IMRO) said it had fined Lloyds, which merged with TSB last year to form Lloyds TSB Group Plc, for breaches of rules relating to its pensions transfer business between April 1988 and June 1993. Lloyds agreed to a settlement of disciplinary proceedings brought against it, the fifth such settlement IMRO has made with firms who have been found guilty of mis-selling pensions products. IMRO said Lloyds "did not obtain or have systems to obtain all relevant facts about the personal and financial circumstances of its customers needed to advise them properly about pensions transfers". It said Lloyds had not provided certain customers "with all the information needed to enable them to make a balanced and informed decision on whether to carry out a pension transfer". Lloyds, which must pay IMRO's investigation costs of 63,000 pounds and make a contribution to its disciplinary costs, has already offered redress to some customers and the review of some 2,600 Lloyds transfer cases "is well advanced and will be substantially completed by December 31, 1997", IMRO added. The bank expressed its regret in a statement. "Lloyds Bank deeply regrets the errors which have resulted in charges being brought against it by IMRO for its pension transfer business," it said. As a group, Lloyds TSB has made provisions totalling 165 million pounds for possible compensation payments to do with the mis-selling of pension products. These relate to the Lloyds Bank business as well as the pensions activities of TSB before the merger, and of Lloyds' insurance subsidiary Lloyds Abbey Life. The pensions mis-selling scandal, whereby individuals transferred their pension and were disadvantaged as a result, has been one of the most serious faced by the British financial services industry in recent years. The affair knocked a big hole in the public's confidence in the industry which is only now being repaired and companies look set to pay a price running into hundreds of million of pounds as a result. In November, Britain's top financial markets regulator the Securities and Investments Board (SIB) announced a new strategy to try and clear a logjam in the pensions industry's review of the mis-selling of pensions products and the payment of compensation to investors. Both regulators and insurance and investment companies have come under a barrage of criticism over the length of time it has taken to complete a review of cases. Lloyds said it has identified some 2,600 pension transfer customers of which it anticipates having to pay compensation to around 1,500. It said its procedures had been fully overhauled three years ago to ensure that other customers will not be similarly affected in future.

Fund management company Mercury Asset Management Plc is expected to post a good rise in pre-tax profits for the first half next Tuesday, having benefited from buoyant exchanges. On Friday, MAM shares stood near their year highs at 11.32 stg, with analysts expecting pre-tax profits of around 80 million stg, up from 63.6 million stg last time The market expects a higher interim dividend after six pence last year and some analysts see the company rebalancing the pay-out between the interim and final stage. Analysts said Mercury has already proved it can go it alone since it was broken away from former owner S.G. Warburg when the latter was bought by Swiss Bank Corp last year. At the time, there was talk of Mercury being taken over as banks looked to expand their fund management interests. But, this speculation has evaporated, although the bid premium in MAM's share price may not have, and there is more interest in what Mercury itself might buy. UBS analyst Martin Cross said any bid premium is unjustified and points out that MAM has a lot of capital, some of which it might want to spend on expansion in the U.S. markets. "That could be a worry, however, as there might be a fear that MAM would be buying at the top of the market," Cross said. Phillip Gibbs, an analyst at BZW, said he expects MAM to follow the trend of recent years in making relatively small strategic acquisitions. "It's been a pretty helpful period in terms of the markets, especially London where the FTSE index went up from 3,700 to 3,954 in the six months we're looking at," Gibbs added. Analysts will be looking at Maercury's cost base to make sure there has been no untoward growth. In any case, cost growth is expected to have been comfortably exceeded by revenue growth. Gibbs said the key element would be how much new money MAM has been able to attract as this is the main indicator of the fundamental health of the business. Mercury will also have profited from realisations in its venture capital business but the effects of problems at other fund managers, notably Morgan Grenfell Asset management, are not expected to have had too much impact in the first half. Mercury may have picked up some business and the effect may be more marked in the second half. -- London Newsroom +44 171 542 8864.

International accountancy and consultancy partnership Ernst & Young said it made a profit of 75.2 million pounds ($125.4 million) in Britain as it revealed financial details of its operations for the first time on Tuesday. The 21 percent rise in profit in the year to June 30 was made on gross fee income of 456 million pounds and represented a 17 percent rise in average profit per partner of 200,000 pounds. Ernst & Young's senior partner Nick Land also confirmed that the firm was still planning to become a limited liability partnership registered in the Channel Island of Jersey despite the fact that the government has said it intends to introduce legislation recognising partnerships of this kind in Britain. Land also said that Ernst & Young's worlwide revenue for the year to September would show a 13 percent rise to $7.8 billion. Ernst & Young is the world's largest tax accontancy practice and the second largest management comsultancy after Arthur Andersen. It was formed in 1989 from the merger of Ernst & Whinney and Arthur Young. Ernst & Young's move to limited liablity reflects an industry-wide change whereby accountancy firms feel exposed by their current unlimited liablity status, which puts personal assets in jeopardy if the firm were to become insolvent. Under an LLP, only the capital subscribed by each partner, which currently totals some 72 million pounds, and the personal assets of those partners shown to be directly responsible for any negligent act leading to a loss would be at risk. Land said there was too much political uncertainty in Britain ahead of next year's general election to rely on British legislation regarding LLPs emerging any time soon. The firm's move to LLP status is dependent on Jersey's legislation being finally approved and on the LLP's tax status being agreed with Britain's Inland Revenue. Land said that Ernst & Young's decision to publish its results had not been taken to gain any advantage. "We are not doing this for any competitive advantage," Land said. "We just thought it was time that we did it." He added that Ernst & Young wanted to take a full part in the debate on corporate governance and could hardly do so unless its own financial affairs were transparent. "Clients are also beginning to ask questions about our financial strength." Fastest growth in the past year was shown by Ernst & Young's management consultancy which increased gross fees by 40 percent to 77.4 million pounds. Only its insolvency practice saw a decline in fees during the year, ironically hit by the recovery in the British economy. ($1=.5995 Pound)

Britain's largest mortgage lender, the Halifax Building Society, said Friday its planned initial public offering in June could be worth as much as 12 billion pounds ($20 billion). Unveiling a price range and details of share allocations to the society's members, Halifax Chief Executive Mike Blackburn said it "will represent the largest single extension of private share ownership ever witnessed in the UK." The mutually-owned Halifax, with assets of over 100 billion pounds ($167.8 million), said flotation adviser Deutsche Morgan Grenfell had estimated a share price of between 390 and 450 pence ($6.54 to $7.55) per share if the IPO had taken place on Dec. 16. This equals a market worth of between 10.4 billion ($17.5 billion) and 12 billion pounds ($20.1 billion), and analysts expect the final outcome to be at the top end of this range given the recent positive performance of the most comparable stock in the market, former mortgage banker Abbey National Plc. "The valuation of 12 billion (pounds) is right in line with our expectations," said Peter Toeman, banking analyst at ABN AMRO Hoare Govett. Other analysts agreed and many expect the price on flotation day to be higher, saying that Friday's figures looked a little conservative. The Halifax said each qualifying member will receive a basic allocation of 200 shares in a flotation of 2.675 billion shares. The Halifax has 6.7 million investing members and two million borrowing members. Of these, there is an overlap 700,000, which means that the Society is sending out a total of around 8.0 million voting packs. Investing members will also get a variable share allocation depending on how much money they had in their accounts on particular dates. This will range from 200 shares to a maximum of 1,181 for those with 50,000 pounds ($84,430) or more. At its special general meeting on Feb. 24, over 50 percent of the investing members must vote in favour of the proposal or it will fail. The society has started a huge advertising campaign to encourage members to vote. The Halifax is expected to be in the top 20 companies by market capitalisation in the FTSE 100 index of blue-chip firms and is sure to threaten Abbey's position as Britain's fifth-largest publicly-owned bank. It said it sees room for huge expansion in the British insurance and long-term savings sectors. "We'll focus on the UK personal financial services sector," Halifax spokesman Davis Gilchrist said. "That's a very wide area, both on the borrowing side and, increasingly, on the savings side -- traditional savings and long-term savings."

Channel tunnel operator Eurotunnel on Monday announced details of a deal giving bank creditors 45.5 percent of the company in return for wiping out 1.0 billion pounds ($1.6 billion) of its massive debts. The long-awaited but highly complex restructuring of nearly nearly nine billion pounds of debt and unpaid interest throws the company a lifeline which could secure what is still likely to be a difficult future. The deal, announced simultaneously in Paris and London, brings the company back from the brink of bankruptcy but leaves current shareholders, who have already seen their investment dwindle, owning only 54.5 percent of the company. "We have fixed and capped the interest payments and arranged only to pay what is available in cash," Eurotunnel co-chairman Alastair Morton told reporters at a news conference. "Avoiding having to do this again is the name of the game." Morton said the plan provides the Anglo-French company with the medium term financial stability to consolidate its commercial position and develop its operations, adding that the firm was now making a profit before interest. Although shareholders will see their holdings diluted, they were offered the prospect of a brighter future and urged to be patient after months of uncertainty while Eurotunnel wrestled to reduce the crippling interest payments negotiated during the tunnel's construction. Eurotunnel, which has taken around half of the market in the busiest cross-Channel route from the European ferry companies, said a strong operating performance could allow it to pay its first dividend within the next 10 years. French co-chairman Patrick Ponsolle told reporters at a Paris news conference that the dividend could come as early as 2004 if the company performed "very well". Eurotunnel and the banks have come up with an ingenious formula to help the company get over the early years of the deal when, despite the swaps of debt for equity and bonds, it will still not be able to afford the annual interest bill of 400 million pounds. If its revenue, after costs and depreciation, is less than 400 million pounds, then the company will issue "Stabilisation notes" to a maximum of 1.85 billion pounds to the banks. Eurotunnel would not pay interest on these notes (which would constitute a debt issue) for ten years. Analysts said that under the deal, Eurotunnel's ability to finance its debt would become sustainable, at least for a few years. "If you look at the current cash flow of between 150 and 200 million pounds a year, what they can't find (to meet the bill) they will roll forward into the stabilisation notes, and they can keep that going for seven, eight, nine years," said an analyst at one major investment bank. "So they are here for that time," he added. The company said in a statement there was still considerable work to be done to finalise and agree the details of the plan before it can be submitted to shareholders and the bank group for approval, probably early in the Spring of 1997. Eurotunnel said the debt-for-equity swap would be at 130 pence, or 10.40 francs, per share -- considerably below the level of 160 pence widely reported in the run up to the deal The company said a further 3.7 billion pounds of debt would be converted into new financial instruments and existing shareholders would be able to participate in this issue. If they choose not to take up free warrants entitling them to subscribe to this, Eurotunnel said shareholders' interests may be reduced further to just over 39 percent of the company by the end of December 2003. Eurotunnel's shares, which were suspended last week at 113.5 pence ahead of Monday's announcement, will resume trading on Tuesday. Shareholders and all 225 creditor banks have to agree the deal. "I'm hopeful but I'm not taking it (approval) for granted," Morton admitted, "Shareholders are pretty angry in France." Asked what would happen if the banks reject the deal, Morton said, "Nobody wants a collapse, nobody wants a doomsday scenario." ($1=.6393 Pound)

Britain's Barclays Plc said on Monday it was in talks with U.S. group Morgan Stanley about its global custody business and banking sources confirmed the unit is up for sale. Barclays and Morgan Stanley were coy in responding to press speculation, saying only that they are "in discussions to explore the potential for future co-operation". The move would be another step in the consolidation of the global custody business which is becoming dominated by those banks who are willing to make the large front-end investment in systems which are necessary to later rake in fees. Barclays' custody business has 350 to 400 staff worldwide, with some working in the Far East, but has for some time been treated as not in the bank's core business. Securities worth some 150 billion pounds ($239.2 billion) have been placed with the unit. In its interim results, published in August, Barclays included custody in its "Businesses in Transition" category which includes restructuring businesses in France and the United States. The category including custody made a profit of 23 million pounds in the half-year to June 30. The report said, "Businesses in Transition primarily comprises lendings and other assets that are unlikely to be of long-term interest to the Group or that require significant restructuring." It was not clear when the deal will be finalised but analysts said it would mark a further step in the consolidation of the global custody market. "Consolidation is a natural if you look at the economic of the business," said John Leonard, banking analyst at Salomon Brothers. "It's a scale economy buisiness." Leonard said that some banks had taken the decision not to invest the large sums needed to get computer systems up to scratch to be competitive. Custody businesses range from traditional safekeeping of securities, which in Britain is dominated by Lloyds TSB and Royal Bank of Scotland, to performance measurement and stock lending. As such, it has ceased to be the largely risk-free business it once was although risk levels are still relatively low. "It guarantees a steady income stream but it's not totally insensitive to market volumes," Leonard added. Analysts said Barclays has presumably decided that without further investment, the business will be too small to compete on the global stage. They expect Morgan Stanley to pay well under 100 million pounds for the business. "It could well be less than fifty million (pounds)," said one. Finance workers' union BIFU attacked the leak of the discussions, saying staff face an uncertain future if the business was sold. It called on the bank to "come clean" over its intentions. ($1=.6270 Pound)

Britain's largest mortgage lender, the mutually-owned Halifax Building Society, on Thursday (corrects from Wednesday) said its planned stock market flotation in June could value it at as much as 12 billion pounds ($20 billion). "This will represent the largest single extension of private share ownership ever witnessed in the UK," said Halifax chief executive Mike Blackburn. The Halifax, which has assets of over 100 billion pounds, said its investment bank adviser Deutsche Morgan Grenfell had estimated a market price of between 390 and 450 pence per share if the flotation had taken place on December 16, 1996. This would have meant a company worth between 10.4 and 12 billion pounds and analysts expect the final outcome to be at the top end of this range, given the recent positive performance of the most comparable stock in the market -- former building society Abbey National Plc. The Halifax said each qualifying member will receive a basic allocation of 200 shares in a flotation of 2.675 billion shares. The Halifax has 6.7 million investing members and 2.0 million borrowing members. Of these, there is an overlap 700,000 which means that the Society is sending out a total of around 8.0 million voting packs. Investing members will also get a variable share allocation depending on how much money they have in their accounts on particular dates, this will range from 200 shares to a maximum of 1,181 for those with 50,000 pounds ($84,430) or more. At its special general meeting on February 24, over 50 percent of the investing members must vote in favour of the proposal or it will fail. The Halifax is expected to be in the top 20 companies by market capitalisation in the FTSE 100 index of blue-chip firms and is sure to threaten the Abbey's position as Britain's fifth largest publicly quoted bank. Due to its conversion route -- the Halifax is not setting up a seperate flotation vehicle -- the legal requirement is that over 50 percent of its investing members must vote in favour of the proposal at the special meeting. "It is a big voting requirement," said Halifax assistant general manager Graham Johnston, "50 percent is a higher hurdle than others have faced...we're very confident we'll get it." The society has started a huge advertising campaign to encourage members to vote. The Halifax will also not face the problem of other converting societies in that it has waived the protection from takeover that others will enjoy. It joins the Woolwich, Alliance & Leicester ALL.CN and Northern Rock who are all coming to the market this year in flotations worth an aggregate of around 18 billion pounds. Economists have expressed concern recently that a large chunk of the proceeds may be seen as a windfall by beneficiaries and will be spent. This could stoke up inflationary pressures in the British economy later this year. ($1=.5922 Pound)

A British High Court judge rejected on Thursday a $1.8 billion claim by the liquidators of Bank of Credit and Commerce International (BCCI) against accountancy firm Ernst & Whinney, now known as Ernst & Young. BCCI was closed by central banks in 1991 and collapsed with debts of more than $12 billion amid evidence of massive fraud and money laundering which has since led to a complex series of court cases, both criminal and civil, in several countries. Judge Hugh Laddie said the claim by the liquidators of BCCI (Overseas), Deloitte & Touche, that Ernst & Whinney owed a duty of care to the bank was based "long on assertion and deficient on relevant facts". Ernst & Young said the original claim against its predecessor firm was for $10 billion but this was reduced to $3.5 billion in June 1995. Following this judgement, the principal claim against Ernst & Whinney now stands at around $1.7 billion in respect of the firm's 1985 and 1986 audit of BCCI Holdings SA and BCCI SA. A similar claim remains outstanding against another international accountancy firm, Price Waterhouse, which took over as auditor to BCCI in 1987 when Ernst & Whinney resigned. "The BCCI liquidators have now had struck out, or been forced to withdraw, 85 percent of the claims originally brought against Ernst & Whinney," said Ernst & Young senior partner Nick Land. "We look forward to dealing with the remaining 15 percent in a similar fashion and to recovering our costs which are substantial." Land attacked the liquidators for choosing to spend millions of pounds pursuing what he called "speculative and unfounded claims" rather than making money available to those who suffered losses from the BCCI collapse. Deloitte & Touche was not immediately available to comment on the judgement. After a five year struggle, BCCI creditors began to receive payments last month. Deloitte & Touche said it was making a payment of $2.65 billion, equal to 24.5 percent of their claims. BCCI had assets of $24 billion and operations in 71 countries at the time of the collapse.

Lloyds TSB Group kicks off the UK bank reporting seson on February 14 and, despite trading at big premiums to the sector, is still favoured by analysts because of what they see as a well-positioned business mix. Lloyds is expected to weigh in with over 2.4 billion stg in pre-tax profit and dividend per share of as much as 13p, accompanied by the highest return on equity in the sector at around 32 percent. In 1995, Lloyds TSB made 1.65 billion stg. The bank's new chief executive Peter Ellwood will give voice to his plans for the group as he takes over from Brian Pitman. But with Pitman still at the bank as chairman, analysts are not concerned there will be a radical change of strategy. David Poutney, banking analyst at Panmure Gordon, says he expects Lloyds TSB to make a pretax profit of 2.45 billion stg and pay a dividend of 12.6p per share. "The key thing is to see how the cost-cutting is coming through," Pountney said. He estimates that savings from the 1995 merger between Lloyds and TSB will only have been between 75 and 100 million stg in 1996 but these will rise to 350 million stg in 1998 and the bank will be saving a further 50 million stg a year from its buyout of the minority of Lloyds Abbey Life. These transactions have taken Lloyds TSB's tier one capital ratio down to an expected six percent or just over and analysts say there will be little scope for the group to return capital until the second half of this year. Even then, the bank seems to favour returning value through more generous dividends than through share repurchases, said John Leonard, banking analyst at Salomon Brothers. Leonard expects a pretax profit of 2.456 million stg and a dividend payment of 12.6p per share, and he sees strong earnings growth at least for the next three years. Strategically in its core UK retail financial services business, Lloyds TSB wants to expand its life assurance presence, analysts said, and may do this by acquisition. The current bidding battle for mutually-owned Scottish Amicable will give a pointer as to the price that Lloyds might have to pay for such an expansion. Increasing its life assurance business would mean that Lloyds TSB continues to follow the strategy of building up the low-risk element of its earnings and an income stream that is both stable and high quality. In the figures for the second half of 1996, analysts expect to see evidence of continued growth in consumer lending and a bigger market share in mortgages, although the group is thought to have been less aggressive on the latter front in the second six months. -- London Newsroom +44 171 542 8864.

A thankful Elizabeth Forsyth, a former aide of Polly Peck head Asil Nadir, walked free from court on Thursday after three judges allowed her appeal against a five-year sentence for handling stolen money. Forsyth, 60, who is also appealing against the money-laundering conviction itself, described her 10 months in prison as an "experience". "I would just like to thank the court for its understanding and consideration," Forsyth told reporters as she was freed from the cells of London's Royal Courts of Justice. She said she could not comment further on the appeal as it was still continuing. Earlier, the appeal judges surprised the court by making it clear at once that Forsyth would not be returning to spend another night at Holloway prison. "We have formed a view that this sentence cannot stand," Lord Justice Beldam said at the outset of the appeal hearing, adding that the sentence was so disproportionate that, "taking into account the time she has already served...she should not serve any longer." Beldam, hearing the appeal with two other judges, then moved on to consider Forsyth's appeal against her conviction on two counts of dishonestly handling 400,000 pounds ($650,000) of stolen funds. Forsyth's lawyer, Geoffrey Robertson QC, later made a bail application so that Forsyth could be freed pending the outcome of the rest of the appeal. Forsyth has been in prison since March 1996 when Justice Sir Richard Tucker surprised those following the case with the severity of his sentence. She was chairman of South Audley Management, a firm set up by Turkish Cypriot Nadir to deal with his wealthy family interests before his Polly Peck empire collapsed in 1990 under a mountain of debt. During her five-week trial, the jury accepted that Forsyth had helped to launder money that had been stolen from Polly Peck by Nadir. Nadir still faces charges connected to Polly Peck but in 1993 he fled to northern Cyprus, a territory not recognised by the British government, skipping 3.5 million pounds ($5.67 million) bail. One of Forsyth's supporters told Reuters outside the court that her 90-year-old mother had been told and was said to be "well pleased". At the time of her sentencing, Forsyth's lawyers had argued for leniency saying she should remain outside prison to care for her mother. Another of Forsyth's lawyers, Peter Krivinskas, said an application by Nadir to have the charges against him dropped would probably depend on the outcome of Forsyth's appeal against her conviction. The outcome of the original trial was seen as a boost for Britain's Serious Fraud Office (SFO) which prosecutes big fraud cases but has failed to secure convictions in several high-profile cases. ($1=.6172 Pound)

British Chancellor of the Exchequer Kenneth Clarke could cut tax credits on dividends in a "robbing Peter to pay Paul" measure which would help fund widely expected cuts in income tax in his budget speech next Tuesday. Roger Bootle, group chief economist at HSBC Markets, thinks Clarke may well see pension funds as one target to provide him with some resources to distribute elsewhere. From a tax credit reduction to 15 percent from 20 percent, "the sufferers would be tax-exempt pension funds and higher rate tax payers with dividend income," Bootle said on Thursday. Accountancy firm Coopers & Lybrand, in its survey of budget options, says such a measure could save the Inland Revenue around 1.0 billion pounds ($1.68 billion) a year, although this would take some time to come through. But Coopers point out that such a move would act against the Government's long-term objective of encouraging increased private savings provision and might turn out to be a burden on the corporate sector if institutional shareholders press companies to compensate by raising gross dividend payouts. Bootle raises another negative aspect. "It would not necessarily be popular either," he says. "It would probably cause the equity market to fall and might well be described in the press as "Mr Clarke raids your pension - to give you an income tax cut'." Clarke has already removed the tax credit on targeted share buy-backs and special dividends associated with share consolidations and take-overs. Most economists expect no change in the basic structure of Corporation Tax itself, although Coopers say the Chancellor might introduce some minor measures to aid small business and entrepreneurs. But they are not so confident that the profit-related pay scheme, first introduced in 1987, will survive the budget unscathed. Under the scheme, employees get relief at their marginal rate of tax on 20 percent of their salary up to a maximum of 4,000 stg and the benfits are linked to the company reaching profit goals agreed with the Revenue. Estimates vary on how many employees are in the scheme from 3.5 to 4.5 million, but accountancy firm Ernst & Young says it is costing the Government some 1.5 billion pounds annually in lost revenue and rising. There also seems to be a measure of agreement on the idea that the scheme does not really link employees' pay to profitability since some companies guarantee no reduction in final salary if profits disappoint. Outright abolition of PRP is thought unlikely given it is firmly entrenched in many pay structures and would again put pressure on companies to make up the difference and so economists see Clarke possibly limiting the relief to the lower 20 percent rate of income tax. BZW economists say this could raise some 700 million pounds. ($1=.5950 Pound)

The British government on Wednesday published new draft legislation governing home lending institutions but a lack of parliamentary time might mean it will not reach the statute book before a general election. The Building Societies Bill, if passed, would remove a society's five-year immunity from takeover once it converts to bank status if it, in turn, took over another financial institution. Immunity would not be affected by one of the new banks buying mortgage books or by joint ventures, however. The draft received a mixed reception from the four societies currently planning to convert themselves into banks. A Treasury spokeswoman admitted that there was currently no slot for the bill in the Parliamentary agenda but added it remained hopeful an opportunity could arise in the New Year. "The societies converting to banks will go ahead if that is what their members want," said Treasury Minister Angela Knight in a statement. "When converted they will be allowed to establish themselves. But if they want to play the takeover game then they will have to play by the same rules as everyone else." The Woolwich, which has assets of just under 30 billion pounds ($49.97 billion) and plans to float next July, said it was disappointed the government has not taken into account its "serious concerns" on the timing of the draft. "Had our board known when it took the decision to convert that this (change in the law) was even a possibility, then we might have chosen to convert in a different way," a spokeswoman for the Woolwich said. If the bill was enacted, she said the Woolwich board would have a duty to revisit its conversion plans. In contrast the Northern Rock, also planning a flotation in 1997, welcomed the changes. "We are delighted with it," said Adam Applegarth, a director of the Northern Rock. "It's a prefectly reasonable compromise and you cant ask for more than that." The Building Societies Association also welcomed the revised Bill and encouraged its early introduction to Parliament. BSA chairman Brian Davis, who is also chief executive of the Nationwide Building Society that is not planning to convert, said the BSA fully supported the Treasury's "thoughtful compromise" on the question of takeover protection. Under current company law, 10 percent of shareholders can call a special general meeting of the company and this will not change for converting societies. But any proposal to waive its five-year immunity to takeover will have to be approved by 75 percent of the voting shareholders. Some societies had criticised the Treasury's proposals because they did not allow friendly takeovers, such as between one large society and a local smaller one. "We came to the conclusion that the distinction between friendly and hostile takeovers was too difficult to define and that it would have been unworkable," the Treasury said. The Halifax, the country's biggest home lender has already waived its right to takeover protection by transferring its business to an existing subsidiary. The mutually-owned building societies have traditionally been the largest mortgage lenders in Britain although in recent years, commercial banks have taken some market share. ($1=.6003 Pound)

Fund management Group Mercury Asset management will make acquisitions if it can enhance shareholder value, its chairman Hugh Stevenson said on Tuesday after announcing bumper profits and a sharp jump in its cash pile. Profits rose 29 percent to 81.8 million stg from 63.6 million stg in the first half last year while cash rose to 261.6 million stg from 189.9 million at the end of March. Asked if MAM was considering a U.S. acquisition, Stevenson said: "The U.S. is obviously an extremely important market, it's the biggest savings market in the world but value for our shareholders is the main aim." Stevenson said an acquisition which enhanced this value would have to be considered. On the cash pile, Stevenson said that the company prefers a conservative balance sheet. "Cash has risen materially in the last six months," Stevenson said. "It's a question of a balance between a prudent balance sheet and returning value in the form of dividends to shareholders. We've had a very progressive dividend policy over recent years." Stevenson said the rise in the interim dividend to 10 pence per share from six pence last time reflected a desire to rebalance the interim and final payout. He was unsure if this rebalancing was complete given the uncertainty of how the full year will turn out. Stevenson refused to comment on the state of world equity markets and thus the company's prospects for the second half, "We tend to reserve comments on the markets for our clients." But in a statement earlier, he said the firm was determined to create value through profitable expansion notwithstanding short-term market movements. MAM again showed that it is not missing its tie to former owner S.G. Warburg which was cut when the latter was gobbled up by Swiss Bank Corp last year. Stevenson said the first half had been positive with funds under management rising to 85.9 billion stg from 70.9 billion at the same point last year and 81 billion at the end of March. The current figure included 2.0 billion stg of net new business which was lower than the 2.5 billion stg seen in the second half of last year. He said it was too early to tell what effect problems at Morgan Grenfell Asset Management, where alleged irregularities are being investigated by the Serious Fraud Office, might have on the industry in the longer term. "It's a growth industry," Stevenson said, "and it continues to grow. The UK market is changing and we have been doing more in defined contribution business." About two thirds of MAM's business is in the institutional pension fund management area, 20 percent for investors overseas and the rest for private investors. Costs continued to rise but were more than matched by revenue growth. Stevenon said the rise reflected the consolidation of its Australian subsidiary; large investment in systems and infrastructure; and the coyly termed "higher provision for variable remuneration", otherwise known as bonuses. -- London Newsroom +44 171 542 8864.

Bankers in London say they hope to sign a package restructuring the 8.7 billion pounds ($14 billion) debt of channel tunnel operator Eurotunnel well before a new year-end deadline runs out. "Just as the previous deadline of April was a bit optimistic, the new one errs on the side of caution," said one banking source. "It'll look good now if they bring it in ahead of time." Earlier this week, Eurotunnel and its creditor banks agreed a nine-month extension of a debt payment standstill until the end of the year. The debt standstill went into effect in September 1995 and was due to run for 18 months. Bankers said, despite the fact that the extended standstill would mean interest would continue to accrue, this would have no effect on the debt deal which will continue to be applied to Eurotunnel's debt position as of October 15, 1996. "The interest and any other charges due since the cut-off date will become payable when the deal goes into effect," the banking source said. Last October, following marathon negotiations, Eurotunnel and the steering committee of banks agreed a restructuring deal which will have to agreed by a total of 225 creditor banks and the shareholders of the company. The deal included a 1.0 billion pounds swap of debt for equity at 130p per share, a swap for interest-bearing equity notes, shareholder warrants, loan notes and resettable bonds. An amount of 4.0 billion pounds would remain as junior debt, paying a fixed interest rate until the end of 2003 and then reverting to 1.25 percent above the London Interbank Offered Rate. The company also has the right to issue "stabilisation notes" to cover any unpaid interest resulting from the deal. These would be interest-free until the start of 2006 and would then pay 1.25 percent over Libor. Suspended at 113-1/2p ahead of the debt refinancing announcement last year, Eurotunnel shares quickly fell to below 90p in the days following and have remained relatively stable since then. On Wednesday, they were quoted up 2-1/2p at 86-1/2. The lower price means the 130p debt to equity swap price looks even better for shareholders but bankers say this is unlikely to cause a problem for the deal. "They (the shareholders) are getting a better deal on that portion of the debt but the shares were probably overvalued and I can't see my colleagues ditching the deal because of that," the banking source said. "The deal has to happen, both sides know that." ($1=.6035 Pound)

The Justice Department asked the Supreme Court Thursday to lift a lower court suspension of landmark federal rules aimed at prying open the nation's local telephone monopolies to competition. The department, acting on behalf of the Federal Communications Commission, said the lower court's "stay" could hurt consumers by delaying the introduction of full-fledged competition in the $100 billion market. The request comes after a U.S. appeals court based in St. Louis last week suspended key provisions of the FCC's "interconnection" order, which spells out how long-distance carriers, cable-TV operators and others could operate in the local phone market under the new telecommunications law. The rules were frozen while the appeals court considers a challenge to the FCC order by GTE Corp., the so-called Baby Bell phone companies, other local carriers and state regulators who want the measure overturned. They argue the FCC overstepped the power granted to it by Congress. The FCC, among other things, ordered the regional Bells and other local phone companies to lease their lines to new rivals at discounts of 17 percent to 25 percent. The three-judge appeals court panel said the opponents "have a better than even chance of convincing the court" that the FCC's rules conflicted with the law. But the Justice Department told the high court the appeals court action "already imperils" the timetable set by Congress for opening the local phone market. "The stay draws into question not just the timing of competition in the local market, but also the timing of full entry by the Bell companies into the long-distance telephone market," the department added. Long-distance carriers AT&T Corp. and MCI Communications Corp. among other companies, also asked the high court on Thursday to lift the stay. Lawyers were divided over the likely outcome. "They have a decent shot at lifting the stay," said Alfred Mamlet of Steptoe & Johnson. He noted the FCC's success last year in having Supreme Court Justice John Paul Stevens lift a lower court stay that had blocked a major FCC airwave auction. But others were less sure. "It's very difficult to predict," said Nicholas Allard of Latham & Watkins. The Justice Department request, along with those of the long-distance companies, is expected to go to Supreme Court Justice Clarence Thomas, who oversees matters related to the St. Louis-based appeals court. Thomas could refer the request to the full court for its consideration.

Regulators proposed Thursday to set aside $2.3 billion a year to link schools and libraries to the Internet at discounted rates, but declined to endorse President Clinton's call to hook them up free of charge. Eligible institutions could buy access to the computer network at discounts of 20 percent to 90 percent, under the plan offered by an eight-member board of state regulators and members of the Federal Communications Commission. "Schools will be able to connect every single classroom to the Information Highway," said FCC Chairman Reed Hundt, who oversaw the panel. "The ramp will be a high-speed, high-bandwidth, cutting-edge connection. The discounts, tailored to each school's individual level of need, will make building and maintaining the ramp truly affordable for every school." The Internet proposal is part of a broader plan to overhaul the multi-billion dollar "universal service" programme that ensures affordable phone service to rural communities and low-income neighbourhoods. The FCC must adopt rules by early May. Officials hope the wide-ranging proposal, which stems from the new telecommunications law, eventually will generate lower phone rates through increased competition. But some board members fear the plan -- to be paid for from the revenues of phone companies, cable TV operators and other communications carriers -- may prove too ambitious and ultimately push up rates. "A universal service fund that taxes consumers billions of dollars a year is not only inconsistent with congressional intent, but could be extremely harmful nationwide to consumers," said Laska Schoenfelder, chairman of the South Dakota Public Utilities Commission. Under the Internet provision, less well off institutions and those in out-of-the-way high-cost areas would be entitled to the larger discounts. Officials said the average discount would be 60 percent. One-third of schools would get at least an 80 percent discount, and the poorest 15 percent would get a 90 percent discount. "It is no secret and no surprise that access to technology in the nation's schools and classrooms is tremendously unequal," said Vice President Al Gore. "Wealthier schools are twice as likely as poor schools to have Internet access, and wealthier students use computers 20 percent more than their poorer peers." But the plan stops short of the president's proposal to give schools and libraries free basic service, with the nation's communications carriers footing the bill. In other areas, the board left many key provisions of its proposals vague, including the cost of the federal fund that would be used to subsidise carriers that offer phone service in high-cost rural areas and in low-income neighbourhoods. Overriding the objections of some regulators, the board proposed to fund the federal programme through the interstate and intrastate revenues of telecommunications carriers. Some state regulators objected to the use of intrastate revenues, saying such funds should be used only by the states to set up their own funds that would help provide distinct telecommunications services within their borders. The board said that the current $3.50 a month subscriber line charge that residential customers now pay should not be increased. The charge is used to help fund universal service. And it held out the prospect that the charge -- along with the "access" charges long-distance carriers pay to local phone companies to hook up to their networks -- could drop if the federal universal fund is indeed bankrolled by interstate and intrastate phone revenues.

Regulators this week gave final approval to a technology standard for a new generation of high-definition digital television, setting off a race between computer makers and TV manufacturers to woo viewers. The Federal Communications Commission on Tuesday approved the compromise standard hammered out last month between TV manufacturers, broadcasters and the computer industry. Digital TV offers crystal-clear pictures and CD-quality sound. It is also expected to promote a "computer friendly" TV system that allows viewers to watch programmes while surfing the Internet over the same "smart box." The new standard "hastens convergence, transporting us into a competitive world of computer-friendly television sets and broadcast-friendly computers," commissioner Susan Ness said. "Our decision also provides a springboard for global leadership in high-definition digital equipment and programming." The standard, among other things, covers how voice and video material will be attached to digital signals, how the signals will be "compressed" for transmission, and how they will be "reopened" at the TV receiver. But not every detail is spelled out. Under the industry compromise, the standard does not specify the video format by which images will be put onto the screen, or "scanned." Broadcasters and TV manufacturers had wanted to require a format known as "interlace" scanning. Computer companies argued that would stifle the convergence of TV and computer technologies. They wanted to mandate "progressive" scanning, which is better suited to computers, or no format at all. Progressive scanning, used by most computers, updates every line of the TV picture at each pass. Interlaced scanning, used in exisiting television sets, updates every other line. Because no scanning format was specified, the computer industry will be free to manufacture computers that use just progressive scanning. And TV manufacturers are ready to make sets that offer both interlace and progressive technology. That sets up a competition between the two industries over how consumers will want to watch TV -- over a TV set or over a computer. "Ultimately, the personal computer will be the preferred communications device in the household," said Paul Misener, manager of telecommunications and computer technology policy at Intel Corp., a major computer chip maker. Not so fast, argue TV manufacturers. "The computer people need to evaluate how the average consumer wants to get delivery to the home," said Lisa Fasold, a spokeswoman for the Consumer Electronics Manufacturers Association, an industry group. "TV sets typically last a lot longer than computers. And they're much more simple to operate." In any event, industry officials agree that digital TV is likely to hasten the long-promised convergence of TV and computer technologies. For example, sports fans will be able to watch a baseball game and split the screen of their machine to receive up-to-the-minute scores of other games over the Internet, according to industry officials. TV manufacuters expect to begin bringing digital receivers to market in 1998. The new sets are expected to cost from $1,500 to $3,000. Prices are forecast to drop as broadcasters offer more digitally transmitted programmes, presumably boosting demand for digital TV.

Ameritech Corp. Thursday became the first Baby Bell phone company to seek federal approval under the new telecommunications law to offer long-distance service from its regional calling area. The Chicago-based carrier asked the Federal Communications Commission for permission to provide long-distance service to residents in Michigan, one of five midwestern states in which the company now provides local service. Ameritech has 3.5 million customers in Michigan. Under last year's law, Ameritech and other Bells can offer long-distance service from within their local-calling regions once regulators are convinced the Bells have opened their local network to new rivals such as AT&T Corp. and others. The Bells can then provide customers the convenience of one-stop shopping involving local and long-distance service. "It's the single largest potential change that can occur quickly in the communications market," said analyst Scott Cleland of Schwab Washington Research Group. "If Ameritech gets a yes, it's easy for them to gain customers." The company has 11 million residential customers in Illinois, Michigan, Wisconsin, Indiana and Ohio. FCC Chairman Reed Hundt said Ameritech's more than 4,000-page application "opens a new chapter" in the implementation of the landmark telecom law. But the application is sure to face tough scrutiny at the agency and from other government regulators. Long-distance giants AT&T Corp. and MCI Communications Corp. called on the FCC to reject the move, saying Ameritech has not yet opened its local phone market. The FCC -- after consulting with the Justice Department and Michigan regulators as well as seeking public comment -- has 90 days to decide whether Ameritech's entry is in the public interest. In particular, the carrier must meet a detailed 14-point checklist showing it has opened its local network in Michigan to new competitors. "The American people have called for choice," said Ameritech Chief Executive Richard Notebart. "Congress responded last year by passing a law that accelerates a competitive marketplace for all communications services. Ameritech is stepping forward to make this happen." AT&T, however, called Ameritech's bid "clearly premature." "It's obvious that real local service competition does not yet exist in Ameritech's Michigan territory," said AT&T spokesman Ray O'Connell. O'Connell accused Ameritech of trying to delay competition by ignoring orders from Michigan regulators to open its local network. He pointed out that Michigan's attorney general has intervened against Ameritech in a case pending before the state's supreme court. "By any competitive or public interest standard, Ameritech's application to begin offering in-region long-distance service should be rejected," said Jonathan Sallet, MCI's chief policy counsel. The No. 2 long-distance carrier said that Ameritech still controls 99.6 percent of Michigan's local phone customers, and that only four companies offer local service in Michigan. None of the big three long-distance carriers -- AT&T, MCI and Sprint -- now offer such service. In any event, Ameritech's bid is expected to put pressure on other Bells to seek similar permission soon. Nynex Corp., which serves the Northeast United States, is considered a top candidate to seek approval in the near future.

Federal and state regulators raced Wednesday to finalise a multi-billion dollar proposal to ensure all Americans get quality and affordable phone service and that schools and libraries can hook up to the Internet. An eight-member board of state regulators and members of the Federal Communications Commission is trying to figure out the size of a federal fund to subsidise "universal" service. Estimates range anywhere from $4 billion to $12 billion a year. It could influence what consumers and businesses pay for their phone bills. "Depending on how big the dollar figures are and what the recovery mechanism is, consumers may have something at stake," said Mark Cooper of the Consumer Federation of America. The panel, established by the new telecommunications law, is scheduled to unveil its plans Thursday. Several issues are at stake, some of which were unresolved at the last minute. "All the issues are still being discussed," said a state official requesting anonymity. "There will be sections where we need further clarification on issues." Regulators must determine how local and long-distance companies, cable-TV operators, and other telecommunications carriers foot the bill to ensure that residents of secluded rural communities and poor inner-city areas get quality, affordable phone service. They must spell out how the nation's schools and libraries will get hooked up to the Internet and at what cost. And regulators must determine what roles the states and federal government will play in overseeing universal service. The board must issue its recommendations to the FCC by Friday. The agency must then issue final rules by early May. The nation's hundreds of local phone companies now provide universal service. It is funded in part via "access" charges that long-distance carriers such as AT&T Corp. pay to hook up to the local phone network. In 1994, local companies took in about $21 billion in interstate access charges. The seven regional Baby Bells received about $17 billion of that amount. Long-distance companies want those charges slashed. Following are the issues the joint board is grappling with: -- The extent to which schools and libraries should be hooked up to the Internet at discounted rates. President Clinton has proposed giving these institutions free basic service, with the nation's communications carriers paying the tab. Members of the joint board disagree on whether every school, or every classroom, should be wired. There also is disagreement over what discounts schools and libraries should receive. -- The type of funding mechanism that would be used to pay for universal service. The telecom law requires that companies offering interstate phone service -- or virtually all carriers -- must foot the bill for universal service in an "equitable and non-discriminatory" manner. A national fund will be established to pay for universal service. State regulators want the ability to establish and oversee their own funds as well. Those funds would be backed by intrastate phone revenues. -- How to ensure phone service to low-income consumers. Poor Americans currently receive subsidised service through two plans, "Lifeline Assistance" and "Link Up America." Both are expected to be retained, expanded and improved. -- How to determine the cost of subsidies for companies that offer phone service in high-cost, out-of-the-way areas such as rural communities. The joint board has been examining whether to calculate such costs based on existing costs of providing such service, or a new model spelling out different "proxy" prices that would be used as a reference by regulators. The proxy prices would influence how much subsidies carriers would receive.

Responding to a dispute with the United States, Canada said Tuesday it plans to develop its own satellite-TV industry rather than rely on U.S. companies such as Tele-Communications Inc. to jump-start the business. The announcement came just hours after the Federal Communications Commission rejected for a second time a bid by TCI and Colorado-based TelQuest Ventures to beam TV programmes to the United States from two satellites in Canadian-authorised orbits. The Canadian satellites also would have beamed shows to Canadian households via pizza-sized dishes. The satellites were to have been launched by Telesat Canada, a Montreal-based satellite-communications company. It planned to lease space to both TelQuest and TCI, the No. 1 U.S. cable TV operator. "My belief is that the time has come for us to proceed with a possible Canada-only solution and my hope is that there will be some companies that will be able to pursue that, including Telesat," Canada's minister of industry John Manley told reporters in Ottawa. Manley plans soon to invite Canadian companies to bid for the ownership and operation of two Canadian satellites. He told Telesat in a letter Monday he would revoke his ministry's support for the company to have access to the two satellite slots, unless the FCC gave the needed green light. The FCC, however, rejected the TCI and TelQuest requests by noting that the Canadian government had not yet officially licensed the two satellites. The FCC had issued the same decision earlier in the summer, prompting TelQuest and TCI in August to file emergency requests for FCC approval. Lawyers and government officials said the basis of the dispute stems from the Clinton administration's objection to allowing a Canadian satellite to beam programmes into the United States -- while U.S. companies cannot enjoy the same rights to broadcast into Canada. In July, administration officials urged the FCC to defer action on TCI and TelQuest's bid to offer direct broadcast satellite (DBS) services from the Canadian orbital slots. Officials from the U.S. Trade Representative's office, the Justice Department, the Commerce Department and the State Department said in a letter to FCC Chairman Reed Hundt that the requests "raise foreign, trade or competition policy issues within the jurisdiction of the Executive Branch." They argued that Canadian curbs discriminate against U.S. programmers by requiring a minimum amount of Canadian content in TV, cable and satellite-TV broadcasts. They asserted that Canada maintains curbs on the use of non-Canadian satellites to distribute phone and broadcast services to Canada. In his letter to Telesat, Manley noted that U.S. officials rejected proposals to allow the TCI-TelQuest venture to proceed, while not addressing the issue of Canada's content restrictions on programming. "The Canadians are going to insist on retaining their protectionist policies on content. And since the U.S. will not accept those policies, the Canadian are picking up their DBS marbles and going home," said Scott Harris, an attorney with Gibson, Dunn & Crutcher.

Television executives have tentatively agreed to rate shows based on their suitability for kids of different age groups, industry sources said Tuesday, disappointing advocates of a ratings system that would specify the level of sex, violence and bad language. The new ratings system is expected to be completed by year's end and would be similar -- but not identical to -- the 28-year-old system now used by the motion-picture industry. The Motion Picture Association of America (MPAA) code uses letters and numbers -- G, PG, PG-13, R and NC-17 -- to suggest the age groups for which a film is appropriate. The TV industry executives, meeting privately since March, rejected a system backed by children's advocates and educators to rate shows based on content -- sex, violence and language. An industry source said that approach -- now used by cable network HBO -- would be unworkable for the hundreds of shows on broadcast and cable TV and would fail to deliver a uniform standard across the various broadcast and cable networks. Individual networks or syndicators would rate their shows. "It's just too hard to have uniformity," said the source. The HBO system, first devised in the mid-eighties, offers content-based ratings such as "MV" for "mild violence," "SC" for "strong sexual content" and "AL" for "adult language." Industry sources stressed that the TV ratings system has not been finalised and that details need to be worked out. Publicly, executives said no agreement has been reached. "It would be premature to suggest that we've reached any agreement," said Decker Anstrom, president of the National Cable Television Association. Once completed, the ratings will be used with a "V-chip" that will be installed in new TV sets to allow parents to block shows they consider too violent or racy. News that a content-based system had been rejected brought protest from children's advocates and others. "It's very unfortunate. We're going to end up with a system that is not going to be very helpful to parents," said Kathryn Montgomery of the Centre for Media Education. Montgomery, who met Tuesday with the industry group overseeing the ratings system, charged that the TV executives "never seriously considered" a content-based system and that "their minds were made up from the beginning." Representative Edward Markey, R-Mass., the backer of the 1996 V-chip legislation, said the "'V' for violence" appears to have been "hijacked." "It's time the public joined in a search for the missing 'V' so we can restore it to the V-chip," he added. A survey issued last month by the National Parent Teacher Association, the Institute for Mental Health Initiatives and University of Wisconsin researchers reported that 80 percent of parents polled preferred a content-based ratings system.

The government's largest wireless phone auction ended Tuesday, with prices taking a U-turn back toward earth after 125 companies bid a total of $2.5 billion to offer a new generation of cellular service. The total was down 75 percent from a similar Federal Communications Commission auction that raised $10.2 billion last May. The average price for a license to provide "personal communications services," or PCS, tumbled more than 90 percent. PCS technology is expected to turn the wireless phone into a mass-market product, allowing consumers to use different communications services -- such as phone, paging, fax and Internet access -- through a single handheld device. The drop reflected the flood of new entrants into the wireless phone market, a dearth of new money after the sky-high prices paid at last year's PCS sale, and the smaller slice of airwaves covered by the new licenses, analysts said. The top bidder this time around was a unit of No. 3 long-distance carrier Sprint Corp. It bid $544 million for 160 licenses in Chicago, Houston, and Atlanta, among other cities. The permits cover a total population of 70 million nationwide. Next was a unit of long-distance giant AT&T Corp., which bid $407 million for 222 licenses in New York, Los Angeles and elsewhere. The licenses cover 139 million people. AT&T was followed by a unit of BellSouth Corp., which bid $205 million for 39 licenses reaching nearly 12 million people in the Southeast. The No. 4 bidder was OPCSE-Galloway Consortium, a consortium made up of Omnipoint Corp. of Arlinton, Va., and Galloway Entrepreneurs of Charlottesville, Va. It bid $181 million for 109 licenses. The licenses will allow the companies to expand their wireless networks. The FCC sold 1,479 PCS licenses nationwide in three different blocks, making this the most licenses sold at once. A third were reserved for small companies. Markets that generated the highest bidding were New York, Chicago and Los Angeles. Based on the population sizes covered by the licenses, the average bid at the auction was just $3.32 a person. That was down from the average bid of $39.88 at last May's "C-Block" sale, which was reserved for small companies. Analysts called those prices too high for companies to make much money. The FCC's first PCS auction, which raised $7.7 billion and ended in March 1995, had an average bid of $15.54. "It's phenomenally cheaper," said Jonathan Foxman, vice president of Americall International, a Phoenix-based PCS firm that bid at the auction. Mark Lowenstein, a vice president with Boston consulting firm Yankee Group Inc., called the latest prices "more reflective of the current market reality." Analysts listed several factors behind the lower prices. The airwave parcels sold, at 10 megahertz (MHz) each, were a third the size of the 30 MHz parcels sold at the two prior auctions and thus less attractive. The permits cover less geographic area. Analysts also said the wireless market was getting crowded with companies holding PCS and traditional cellular licenses -- meaning less profits. "The market is going to be too crowded," predicted P. William Bane, a director at Mercer Management Consulting. The steep prices at last year's PCS auction meant less money available this time around. "The latest prices are an indication that people have run out of money," said Bane. In addition, analysts said, Wall Street has not rushed to extend financing to PCS providers.

The state of Alaska has asked the Federal Communications Commission to ban broadcast advertising of hard liquor, adding to the controversy over whether liquor ads should be allowed on television and radio. Lawyers said the state's petition -- backed by former U.S. Surgeon General C. Everett Koop -- was significant. It could be used at the least as a vehicle within the FCC to generate public debate on the issue, or as a catalyst leading to rules restricting broadcast liquor promotions. "Whenever you have a state formally asking the FCC to step in, it legitimises the involvement of the commission for any 'doubting Thomases' that might remain," said attorney Nick Allard of Latham & Watkins. The FCC is divided over the issue. Chairman Reed Hundt favours banning the ads if TV stations refuse to abide by a voluntary ban. But two of the FCC's four commissioners have doubts over the FCC's authority to act in the matter. FCC officials have yet to decide how to handle the Alaska request, which was submitted last month but drew little notice. They also have not yet decided how to respond to a recent bipartisan request from 26 members of Congress asking the FCC to open a formal investigation into broadcast liquor ads. The split among commissioners has stymied action for now. The Federal Trade Commission has opened a formal investigation into alcoholic beverage advertising on TV, both for liquor and beer. It is training its sights for now on distiller Joseph E. Seagram & Sons and the Stroh Brewery Co. Seagram is a subsidiary of Montreal-based Seagram Co. Alaska, in its petition, asserted that the FCC does have the jurisdiction to act and called for speedy action. "Advertising of distilled spirits on television and radio will inevitably increase the use of this potent drug among the nation's young people," Alaska said in its petition, written by the state's attorney general, Bruce Botelho, and Assistant Attorney General Stephen Slotnick. The petition cited data showing that Alaska's per-capita alcohol consumption was third-highest in the nation in 1994. Alaska made its request after the nation's distillers last month ended their decades-old voluntary ban on broadcast ads. It had been in place since 1936 for radio and 1948 for TV. In June, Seagram began airing TV ads for its Royal Crown whiskey in Texas. Some dismissed Alaska's bid. "It's fair to say the Alaska proposal and (the state's) alcohol problem have more to do with a lack of sunlight than whether Seagram advertises for its whiskey," said attorney Robert Corn-Revere of Hogan & Hartson. "An FCC ban of hard-liquor advertising would have a very hard chance of surviving judicial review," he added. But others said a carefully crafted FCC proposal -- such as restricting the ads until after 10 p.m. or later -- could withstand judicial scrutiny. "The courts have looked favourably on regulations designed to protect children," said attorney George Vradenberg of Latham & Watkins. Lawyers said the FCC must decide what, if any, action it wants to take. Some within the FCC suggest putting the Alaska and congressional requests out for public comment to allow the agency to learn more about the issue. "Let's take it one step at a time," said an FCC official.

The nation's top communications regulator Friday appealed to nearly 1,200 television stations nationwide to adhere to a voluntary ban and refrain from airing liquor advertisements. Federal Communications Commission Chairman Reed Hundt, speaking a day after a liquor industry group said it would end its own voluntary ban on radio and TV promotions, also said he had no immediate plans to issue rules to block such ads. "That is a long, long and hard road to travel," Hundt said of the rulemaking process. For now, the FCC chairman plans instead to use his position as a bully pulpit to convince TV stations not owned by the four major networks to abstain from showing ads for gin, whiskey and other spirits. Seagram Co. Ltd. in June began airing TV ads for its Royal Crown whiskey in selected local markets. The National Association of Broadcasters (NAB), while "disappointed" with the lifting of the decades-old ban by the nation's distillers, declined to embrace Hundt's call for a voluntary ban. Hundt applauded the decision by the big networks -- ABC, CBS, NBC and Fox -- to leave unchanged their own policies against accepting liquor ads. Together, the four own about 50 stations in major markets. That leaves just under 1,200 commercial stations scattered across the nation not owned by the major networks. "The government has many, many options available to it. It's not necessary for these options to be explored if the broadcasters will stand up the way the four major networks have done," Hundt told a news conference. NAB President Edward Frits, however, noted that "over the years, individual stations have adopted their own standard regarding the acceptability of hard liquor advertising. "We believe this process has served American consumers well, since individual stations make and will continue to make judgments every day on what is most appropriate for their local audiences," he said in a statement. On Thursday, the Distilled Spirits Council of the United States, or Discus, said it formally ended its decades-old voluntary ban on radio and TV liquor ads. The ban had been in place since 1936 for radio and 1948 for TV. The group said distillers should enjoy the same right to promote their products as beer and wine producers, whose ads are carried on TV. Over the past 14 years, liquor consumption in the United States has tumbled 28 percent, to 325 million gallons last year from 449 million in 1981. The Seagram ad campaign already has unleashed criticism from lawmakers, regulators, consumer advocates and President Clinton. The FCC has opened its own probe of ads shown in Texas and New Hampshire. Meanwhile, other liquor makers have said they are planning their own ad campaigns or are considering their options.

The U.S. communications revolution is off to a slow start, unleashing more hype than competition among local and long-distance carriers, cable-TV firms, utilities and others. But experts say that, just one year after passage of the huge telecommunication reform bill, it is too early to judge it a failure. Most predict the current "phoney war" ultimately will be followed by heated competition, new services and lower prices in communications. But it will take time, possibly five years or more. "This is on track to be the kind of event that will change our economy and our society," said industry analyst Jeffrey Kagan of Kagan Telecom Associates in Atlanta. "Expecting there to be significant change in the first year is bordering on ridiculous," Kagan said. Scott Cleland of Schwab Washington Research Group agreed: "The timetable people had for this bill was overly ambitious." The Telecommunications Act of 1996, enacted on February 8, ripped down 62-year-old legal barriers and encouraged local and long-distance carriers, cable-TV operators, electric utilities and others to invade each other's backyards. Lawmakers, analysts and industry officials held out the prospect of one-stop shopping, enabling technology junkies to dial local and long-distance calls, hook up to the Internet, and speak over wireless phones via the same company. But that has yet to materialise in a big way and prices are up. Experts attribute the slow start to several factors. The law's timetable stretches out as long as 15 months. Consequently, key rules designed to help break open the $100 billion local phone market to new competitors have yet to be finalised by the Federal Communications Commission. A U.S. appeals court in St. Louis has suspended the market-opening rules already set by the FCC. And carriers are going to court over key decisions by state regulators. Moreover, industry officials say it takes time to get new technology, packaging and billing procedures in place. "It takes time to design a system, get the components ordered and assembled, hire the people and train them," said NYNEX Corp Executive Vice President Tom Tauke. The law's critics have plenty to gripe about. Prices for long-distance service were expected to fall, and the phone, cable-TV, utility, broadcast and computer industries were expected to scramble to bring entertainment, news, information and calling services to homes and offices. PROMISED COMPETITION IS BARELY SEEN, MANY PRICES RISE But a year later, the local phone market remains a monopoly run by the Baby Bells and other local carriers. So far, they have been successful in court fighting FCC rules. The $78 billion long-distance market remains dominated by AT&T Corp., MCI Communications Corp. and Sprint Corp.. However, Ameritech Corp. has asked for FCC approval to offer long-distance service from its local-calling region. Big cable-TV operators such as Time Warner Inc. and Tele-Communications Inc. have watered down plans to offer phone service and are instead defending their own turf. Phone companies have trimmed plans for cable-TV. Prices for communications services, instead of falling, are rising. Cable-TV rates jumped 7.8 percent last year, more than double the 3.3 percent rise in consumer prices. Residential interstate long-distance rates rose 3.7 percent, while intrastate long-distance rates jumped 6.1 percent. "My reasons for voting against the bill were valid. And I'm very sorry, because it's the American citizen who is paying more for these services rather than less," Sen. John McCain, chairman of the commerce committee, told Reuters. The Arizona Republican is planning hearings on the telecom industry but will not push any major bills this year. A string of mergers among the seven Bells, meanwhile, has narrowed the number of potential competitors in the phone business, with Bell Atlantic Corp. acquiring NYNEX and SBC Communications Inc. buying Pacific Telesis Group. Outside the Bells, No. 4 long-distance carrier WorldCom Inc. is buying MFS Communications Co., a supplier of local phone to businesses. And British Telecommunications Plc plans to buy the No. 2 U.S. long-distance carrier, MCI. "The forces of evil are running well ahead of the forces of good," says the Consumer Federation of America's Mark Cooper. "Price increases and market concentration are keeping apace .... Nothing good happened this year for competition." BILL'S SUPPORTERS COUNSEL PATIENCE But the bill's supporters counsel patience. "I don't think you can stop it now. The competition genie is out of the bag," Representative Billy Tauzin, a Louisiana Republican who chairs the telecommunications subcommittee, said. Industry officials admit they underestimated the task -- both the cost and complexity of new technologies to allow competition to proceed. Companies will have to overcome such hurdles when bundling together services -- such as local, long-distance and wireless phone services -- into one package for customers. And there are other complexities: long-distance carriers will have to lease space on their lines to local carriers wanting to offer long-distance service; alternatively, local carriers will have to lease their networks to long-distance carriers seeking to break into the local phone business. "Getting systems in place on every side is a tough thing to do," said Randy New, a BellSouth Corp. vice-president. Analaysts and industry officials also say that the FCC must still resolve key issues before local competition can truly come to the local phone market -- namely, how to finance and ensure affordable phone service for all Americans and how to cut the $20 billion in "access charges" long-distance carriers pay local phone companies to link to their networks. FCC Chairman Hundt says the courts, regulators and lawmakers must resist industry efforts to stifle competition. "For the next two years, everybody is going to beat us up to maintain the status quo," he told Reuters. "We should be very optimistic as long as we stay the course."

Federal regulators are set to kick off a two-part plan to slash rates on overseas phone calls, a move that could save consumers and companies billions of dollars but may ruffle the feathers of foreign governments. The Federal Communications Commission is expected Tuesday to make it simpler for U.S. and foreign phone companies to negotiate cheaper rates for international calls to and from the United States. Next month the FCC is expected to propose rules to cut the charges U.S. carriers pay foreign phone monopolies to complete overseas calls made from the United States. "The ultimate goal is to get lower-priced and better-quality services for consumers," said Don Gips, head of the FCC's international bureau. Officials say the foreign charges, or "accounting rates," run five to 10 times actual costs, reflecting the power of state-run monopolies unexposed to home competition. Monopolies control more than 90 percent of the non-U.S. market. U.S. phone companies, as a result, paid their overseas counterparts $5.5 billion more in 1995 than foreign companies paid U.S. carriers to complete calls. "This figure would drop in half overnight if American carriers simply paid fees even vaguely related to costs," FCC Chairman Reed Hundt said in a recent speech. He noted that the imbalance dwarfs the U.S. foreign aid budget of $2 billion. The United States has big imbalances with China, Jamaica, Mexico, Hong Kong, Columbia and Argentina, among others. "Those few countries trying to defend their monopolies are going to be nervous" about the FCC effort, said Dan Rosen of the Institute for International Economics. U.S. carriers support the strategy. "You've got to move accounting rates to cost," said AT&T Corp. Vice President Gerry Salemme. AT&T said it must pay 45 cents a minute to have its calls connected to the Dominican Republic, but that the actual cost is 7 to 8 cents a minute. The FCC actions come as the United States is seeking to open overseas telecommunications markets through talks sponsored by the World Trade Organisation. To cut rates and open markets, the FCC is adopting a carrot-and-stick approach. Tuesday's order is meant for open markets, such as those in Britain, Canada and Chile. The FCC will waive its "proportionate return" rules that limit the ability of U.S. and foreign carriers to negotiate lower rates for overseas calls. To win a waiver, a foreign carrier's home market must be open to competition. The existing rules require overseas companies to turn over their long-distance calls to U.S. carriers in the same proportion U.S. carriers send calls to a foreign carrier's home market. If AT&T, for example, accounts for 60 percent of calls to a country, then that country's monopoly must hand off 60 percent of its U.S.-bound calls to AT&T. The FCC proposal due next month would set "benchmark" rates for what U.S. carriers could pay foreign carriers to complete calls. These rates, according to FCC officials, would better reflect actual costs. The agency must still work out the details of how long a country would have to lower its rates and what steps could be taken if it refused to do so. "It literally has the potential of saving consumers billions of dollars," said Scott Harris, an attorney with Gibson, Dunn & Crutcher. But the plan could rub governments the wrong way. High rates charged by their own phone monopolies can be used to maintain bloated payrolls or to subsidise local phone service.

The brouhaha over Newt Gingrich's intercepted telephone call has shed light on how easy it is to eavesdrop on cellular calls and how seldom cases are prosecuted -- even though the law is violated daily. "It's had the chilling effect of reminding us all that anyone at any time could be listening to our most private conversations," Rep. Billy Tauzin, a Louisiana Republican, said of the widely publicized incident involving the House speaker. Tauzin, who chairs the House of Representatives telecommunications subcommittee, has called for hearings into cellular privacy. Federal law makes it a crime to intentionally intercept or disclose the contents of a telephone call, regardeless of whether it is over a hard-wired, cellular or cordless phone. But experts can cite only a handful of cell-phone cases that have drawn publicity. Politicians have been involved. Justice Department spokesman John Russell said that in the case of cellular calls, the law is "seldom used" and the department "seldom" gets complaints. For one, people rarely know when they have been overheard on their cell phone. And the complicated law is little known. In once case, Sen. Charles Robb, a Virginia Democrat, got into hot water in 1991 over an illegal tape recording of a cellular call made by a political rival, Virginia Gov. Douglas Wilder. Robb was spared indictment. Four associates pleaded guilty in the case. Another case in 1990 centered on an intercepted cell-phone conversation involving then-Rep. Bill Sarpalius, a Democrat from Texas. Tapes and transcripts of the call -- in which Sarpalius spoke with a young woman about a date and a possible job -- were made available to local media. Two unrelated men were later fined about $250 each in connection with the incident. Why the dearth of legal action? "Violations of this law are very, very hard to detect. That is why there are so few cases," said Clifford Fishman, a law professor at Catholic University of America in Washington. "The person whose privacy is invaded usually never hears about it and so does not alert authorities." What's more, the eavesdroppers usually are not familiar with the people they are monitoring. Penalties generally are light, except in cases involving repeat offenses or use of the information to commit another crime. The only times a case does seem to arise is when the perpetrator tries to capitalize on the conversation. "It doesn't come to light unless somebody makes political or commercial use of the information," said Paul Rothstein, a law professor at Georgetown University Law Center in Washington. Yet experts agree the law is broken frequently -- possibly hundreds or thousands of times a day -- given the availability and use of scanners that can tune in wireless calls. It's estimated that anywhere from 10 million to 20 million scanners are in use nationwide, many able to eavesdrop on cellular calls. "While the cellular industry may give their customers the illusion of privacy by assuring customers that it is illegal to listen, and that cellular-capable scanners are no longer manufactured or imported into the United States, millions of Americans do listen in," according to Bob Grove, publisher of Monitoring Times Magazine. Last week, the FBI opened an investigation into the taping and leaking of a telephone conference call between Gingrich and his top lieutenants. The probe came after a Florida couple said they delivered a tape of the cellular phone conversation to the senior Democrat on the House Ethics Committee. A transcript of the tape was published in two newspapers two days later, prompting Republican calls for an FBI criminal probe into the source of the leak. "You're not going to see the law enforced unless it involves a person of rank, such as a politician," said Linus Layne Baker, a Kansas City, Mo. attorney who was fined in the Texas case. "You won't see the media prosecuted either." One option under study in wake of the Gingrich incident is whether to beef up a law that outlaws the sale, manufacture or imporation of scanners capable of picking up cellular calls.

Regulators are set to kick off a two-part plan to slash rates on overseas phone calls, a move that could save American consumers and companies billions of dollars but ruffle the feathers of foreign governments. The Federal Communications Commission is expected Tuesday to make it simpler for U.S. and foreign phone companies to negotiate cheaper packages for connecting international calls to and from the United States. Next month the FCC is expected to propose rules to cut the charges U.S. carriers pay foreign phone monopolies to complete overseas calls made from U.S. shores. "The ultimate goal is to get lower-priced and better-quality services for consumers," said Don Gips, head of the FCC's international bureau. Officials say the foreign charges, or "accounting rates," run five to 10 times actual costs, reflecting the power of state-run monopolies unexposed to home competition. Monopolies control more than 90 percent of the non-U.S. market. U.S. phone companies, as a result, paid their overseas counterparts $5.5 billion more in 1995 than foreign companies paid U.S. carriers to complete calls. "This figure would drop in half overnight if American carriers simply paid fees even vaguely related to costs," FCC Chairman Reed Hundt said in a recent speech. He noted that the imbalance dwarfs the U.S. foreign aid budget of $2 billion. The United States has big imbalances with China, Jamaica, Mexico, Hong Kong, Colombia and Argentina, among others. "Those few countries trying to defend their monopolies are going to be nervous" about the FCC effort, said Dan Rosen of the Institute for International Economics. U.S. carriers support the strategy. "You've got to move accounting rates to cost," said AT&T Corp Vice President Gerry Salemme. AT&T said it must pay 45 cents a minute to have its calls connected to the Dominican Republic, but that the actual cost of the termination is 7 to 8 cents a minute. The FCC actions come as the United States is seeking to open overseas telecommunications markets through talks sponsored by the World Trade Organization. To cut rates and open markets, the FCC is adopting a carrot-and-stick approach. Tuesday's order is meant for open markets, such as possibly those in Britain, Canada and Chile. The FCC will waive its "proportionate return" rules that limit the ability of U.S. and foreign carriers to negotiate lower rates for terminating overseas calls. To win a waiver a foreign carrier's home market must be open to competition. The existing rules require overseas companies to turn over their long-distance calls to U.S. carriers in the same proportion U.S. carriers send calls to a foreign carrier's home market. If AT&T, for example, accounts for 60 percent of calls to a country, then that country's monopoly must hand off 60 percent of its U.S.-bound calls to AT&T. The FCC proposal due out next month would set "benchmark" rates for what U.S. carriers could pay foreign carriers to complete calls. These rates, according to FCC officials, would better reflect actual costs. The agency must still work out the details of how long a country would have to lower its rates and what steps could be taken if it refused to do so. "It literally has the potential of savings consumers billions of dollars," said Scott Harris, an attorney with Gibson, Dunn & Crutcher. But the plan could rub governments the wrong way. High rates charged by their own phone monopolies can be used to maintain bloated payrolls or to subsidize local phone service.

Regulators took the first of two steps Tuesday to slash the cost of overseas phone calls for consumers and businesses, making it easier for U.S. and foreign carriers to negotiate cheaper international rates. The Federal Communications Commission hopes to save U.S. callers billions of dollars by backing up the new rules with a plan next month to cut the charges U.S. carriers pay foreign phone monopolies to complete calls from the United States. Americans spend about 16 cents a minute for a domestic call. But they must shell out an average of 99 cents a minute to call overseas -- even though the cost of the calls are not much different, according to FCC officials. "At 99 cents a minute, you're not going to get a global information highway," complained FCC Chairman Reed Hundt. Tuesday's rules are targeted at countries whose own phone markets are open to competition from U.S. carriers, or are in the process of opening. FCC officials cited Canada, Britain, Chile and Sweden, as well as Europe and Mexico. The FCC will waive rules that limit the ability of U.S. carriers to negotiate cheaper calling rates with an overseas phone company whose own market is considered open. The rules were crafted to prevent market abuse by foreign monopolies. Don Gips, head of the FCC's International Bureau, said the new rules "will allow competitive pressures, rather than archaic rules," to govern the telecommunications market. AT&T Corp. Vice President Gerry Salemme said they "can lead to a significant reduction in the amount that American consumers pay for international telephone calls." Under the new approach, a company such as AT&T -- with FCC approval -- could ask competing foreign carriers to bid for the right to handle AT&T phone traffic from the United States to a foreign market. Alternatively, a U.S. carrier could offer end-to-end service from the United States to a foreign market without using the existing rate system for completing calls. Officials say these "accounting rates" run five to 10 times actual costs, reflecting the power of state-run monopolies unexposed to home competition. U.S. carriers paid their overseas counterparts $5.5 billion more in 1995 than foreign companies paid U.S. carriers to complete calls. While the accounting rates paid by both carriers are about equal, the imbalance reflects the fact that many more overseas calls are made from the United States than into this country. International calls from the United States account for about a quarter of all international calls worldwide. To reduce the rates, the FCC proposal scheduled for next month would set "benchmark" rates for what U.S. carriers could pay foreign carriers to complete calls. These rates, according to FCC officials, would better reflect actual costs. The agency must still work out the details of how long a country would have to lower its rates and what steps could be taken if it refused to do so. The FCC actions come as the United States is seeking to open overseas telecommunications markets through talks sponsored by the World Trade Organisation. The United States has big rate imbalances with China, Jamaica, Mexico, Hong Kong, Columbia and Argentina, among others. Next month's proposal is likely to ruffle feathers. "There will be concern from countries around the world with the benchmark item. There's no doubt about that," said the FCC's Gips.

Television industry moguls crafting a ratings system should spell out sexual and violence content of shows, not rely solely on a system like the motion picture code, a survey of parents issued Thursday concluded. The nationwide survey of 679 parents showed 80 percent preferred a system that specified the level of violence, sex or bad language rather than the age group for which a program is intended, as the motion picture industry's 28-year-old system does for movies. The survey was a joint effort of the National Parent Teacher Association, the Institute for Mental Health Initiatives and University of Wisconsin researchers. It came as TV executives raced to complete a ratings system in the next month. The executives favor an approach like the alphabetical code used by the Motion Picture Association of America (MPAA) for movies. Individual networks would rate their shows. But the survey sponsors -- along with Rep. Edward Markey, D-Mass. -- want a system that covers content and viewer age. "Parents want it all. They want every shred of information available about every program," said Markey, the author of a provision in the new communications law requiring TV makers to install a "V-chip" in all new sets. The device can be used with the upcoming ratings to let parents block shows they consider too violent or racy. Markey told a news conference it would be "very unfortunate" if the TV industry ignored the survey results and did not incorporate the kind of system used by the Home Box Office cable-TV movie channel to rate its shows. Each HBO show is given a rating based on content such as "MV" for "mild violence" or "SC" for "strong sexual content." Markey vowed the groups sponsoring the poll would "scream to the high heavens" if the TV ratings ignored program content. MPAA President Jack Valenti, overseeing the ratings' creation, said his group welcomed all suggestions. "We are trying to devise a TV parental guidance system which will be family friendly, easy to understand, easy to use, and most of all grounded in honorable purposes so that parents can better monitor and supervise the TV watching of their children."

Negotiations between American Airlines and its pilots union continued into the early hours of Friday, with neither side reporting any breakthrough that would avert a midnight strike at the nation's number-two carrier. A federal mediator refereeing the talks at a downtown hotel informed the pilots that American had rejected a key union contract proposal covering who should pilot -- and at what pay -- the carrier's smaller American Eagle planes. Mediators are shuttling back and forth between the two sides offering hypothetical "what if" proposals on a variety of issues in an effort the bring the two sides closer together and prevent a midnight Friday (0500 GMT Saturday) strike by the pilots which would throw the nation's air transport system into turmoil. "They're going to work all night, throughout the night. All day (Friday)," said Dave Bates, a spokesman for the Allied Pilots Association, which represents American's 9,000 pilots. He said the union is "disappointed at the lack of progress" so far. "We will continue to negotiate for as long as it takes. But (Friday) night at midnight the pilots will be on strike." Bates said no face-to-face talks had as yet been scheduled. An American spokesman would only say that the negotiations were continuing. Going into the talks on Thursday evening, Kenneth Hipp, chairman of the National Mediation Board, said he was hopeful an agreement could be worked out in time to avert a strike. The union had proposed that its pilots fly the American Eagle flights, but with lower pay than pilots flying the regular American aircraft. American, however, wants to continue using lower-paid commuter pilots from a different union to fly the smaller planes. While the mediator has informed the union of the airline's rejection of the proposal on small planes, union official said the company itself has not notified them directly of that. The dispute also centers around the pilots' pay. They now earn an average of about $120,000 a year. The union earlier had said it would offer a new pay proposal -- probably less than the 11.5 percent over four years it had sought. The latest reported offer from American was a six percent boost over four years. A strike would ground 2,200 American flights on Saturday and affect about 200,000 passengers. American, a unit of AMR Corp., accounts for about 20 percent of the nation's airline capacity. The Fort Worth, Texas-based airline is trying to rebook passengers on other carriers and has already canceled nearly all international flights scheduled for Friday night. American Airlines spokesman John Hotard said on Thursday the carrier was canceling 12 of its domestic flights scheduled for Friday. "There are some small domestic airports where we have no permanent place to park the planes if there is a strike, so we decided to cancel those 12 flights." A Transportation Department official said a strike could cost the U.S. economy up to $200 million a day. American Airlines Chairman Robert Crandall called for binding government arbitration of the dispute, a proposal the pilots have repeatedly rejected. "I think mandatory binding arbitration should be required" to prevent airline strikes, Crandall told a congressional subcommittee. Binding arbitration would mean both parties agreed to abide by the decision of an arbitrator. "I seriously doubt we could accept that," union spokesman Wally Pitts said. Crandall told a hearing of a House of Representatives Transportation subcommittee he was unsure if a strike could be avoided. "We have two choices: we can either cave in or take a strike. A strike of 90 days will destroy this airline." As the talks entered their fourth day of intensive bargaining, President Bill Clinton was keeping a close watch. Clinton could intervene and name an emergency board to try to resolve the issues. Under the Railway Labor Act, which also covers airlines, the president has the power to declare a national emergency to stop a strike and to keep planes flying for 60 days. The last time such an action was taken in an airlines strike was in 1966. But at an unrelated news conference on Thursday, Clinton repeated that the parties should use the government mediator to reach an agreement.

The federal government's bid to pry open the phone business has hit a snag that could postpone the onset of full-blown competition in the local and long-distance markets and delay cheaper phone service. The snag came when a federal appeals court Tuesday suspended, or stayed, key parts of a Federal Communications Commission rule opening local phone monopolies to competition from long-distance carriers, cable TV operators and others. Experts said the action could postpone competition in the $100 billion local phone market now controlled by the regional Baby Bell phone companies, until the case makes its way through the courts in coming months. A final decision could easily take a year or more. "We're in for a very messy 1997, and the dust won't settle until fairly deep into 1997," said Henry Geller, a former top telecommunications official in the Commerce Department. That, in turn, could delay the Baby Bells' entrance into the $70 billion long-distance market. The telecommunications law enacted in February lets the Bells offer long-distance only after they have opened their own markets to new rivals. Even before the appeals court acted, government officials suggested a prolonged delay of the FCC's rules would make it tougher for regulators to allow the Bells to enter the long-distance business. The FCC -- along with the Justice Department and state regulators -- has the final say over whether the Bells have satisfied a 14-point "checklist" that includes provisions of the now-suspended FCC rule. "If the stay chills investment and retards new entry into the local marketplace, it may become more difficult for the (FCC) to authorise the Bell companies to offer long-distance (service)," FCC Commissioner Susan Ness said in a speech only hours before the appeals court order. And she noted that the Justice Department -- whose views "must be accorded 'substantial weight'" by the FCC -- already has signalled it will be reluctant to support Baby Bell entry as long as as the key parts of the FCC's proposed rules are on ice. David Turetsky, deputy assistant attorney general in the department's antitrust division, said last month a stay would "seriously impair" the Bell entry process spelled out in the telecommunications law. Any delays could delay the benefits of competition that Congress and President Clinton promised when enacting the law. "The sooner there is competition in the local market, the consumer will benefit. And that's for sure when the Bells are allowed to go into long distance," said Geller. "That will result in marketing and price wars. And the consumer again will greatly benefit." But Baby Bell stocks rallied after the ruling because state regulators were likely to call for lower discounts when the companies lease their phone lines to new competitors, analysts said. GTE, the nation's largest local phone company -- which has spearheaded the legal challenge to the FCC rules -- jumped $3.625 to $42.25 on the New York Stock Exchange. BellSouth added $2.50 to $38.875, Bell Atlantic gained $2.125 to $60.875, NYNEX rose $1.625 to $44.50, Ameritech was up $1.75 to $56.125 and Pacific Telesis rose $1.28 to $34.66, all on the NYSE. The appeals court suspended the FCC rule until the judges consider a challenge to the measure early next year by GTE Corp., the Bells, other local carriers and state regulators. They argue the FCC overstepped its power by requiring the Bells and local carriers to lease their phone lines to new competitors at steep discounts of up to 25 percent. The court's action, for now, puts back in the hands of state regulators the responsibility to set such prices. But local phone company officials discount the chance that competition will be delayed. "The Telecommunications Act of 1996 passed by Congress in February is the law of the land and sets forth a timetable for the introduction of competition," said GTE Senior Vice President William Barr. He said that timetable is "unaffected" by the court's action and will proceed.

A television industry group is set to formally unveil its controversial system for rating programmes on Thursday so parents can better control the shows their children tune in. The group of broadcast, cable-TV and Hollywood executives has been meeting privately since March to fashion a motion-picture style system to rate the thousands of hours of shows based on their suitability for kids of different ages. Despite loud criticism from lawmakers, parents groups, consumers advocates, educators and others, the executives said they have decided against a content-based system that would spell out the level of sex, violence and strong language. They called such an approach unworkable. And they said an age-based system -- such as TV-14 as suitable for children age 14 and older -- will be easy for parents to use, simple to understand, and convenient for newspapers to publish. Jack Valenti, chief executive of the Motion Picture Association of America and head of the group developing the ratings, predicted to reporters that once more people begin to understand the new system, they will realise "this is a hell of a lot better than what we have now." The ratings, to be unveiled in Washington, are expected to include six categories. Four are expected to be: TV-G for suitable for all ages; TV-PG for parental guidance suggested; TV-14 for kids 14 and older; and TV-M for mature audiences. The other two will cover children's programs: those suitable for all kids and those for children older than seven. The ratings will be put in use next month. TV networks and syndicators will rate their shows. News, news magazine shows such as "60 Minutes" and sports will be exempted. But programmes such as "Hard Copy" and "Entertainment Tonight" are expected to receive ratings instead of being classified as bona fide news programmes, said one source. President Clinton last week gave the system a conditional green light, saying that critics should allow the TV industry to test the ratings for 10 months before demanding changes. Yet the controversy is unlikely to die soon. Kathryn Montgomery, president of the Centre for Media Education, a children's advocacy group, called the system "inadequate." She said it "fails to provide parents the information they need to make decisions about what their children will watch." Top officials at the Federal Communications Commission plan to reserve judgment until they study the system.

The television and entertainment industries vowed Thursday to use only their system for rating TV programs and promised to reject -- by legal means, if necessary -- any government-imposed plan. Following months of work, a group of TV and Hollywood executives are scheduled next week to unveil plans for a system to rate shows based on their suitability for kids of different ages, especially those under 14 years of age. It will be similar to the 28-year-old system of letters and numbers used by the motion-picture industry and which includes the ratings G, PG, PG-13, R and NC-17. "We will not use any other TV rating guidelines other than the ones we are going to announce next week," said Jack Valenti, chief executive of the Motion Picture Association of America and head of the "implementation group" developing the ratings. But parental groups, children's advocates, educators and some key lawmakers -- including Rep. Edward Markey, a Massachusetts Democrat -- have demanded that the group include a content-based system specifying the level of sex, violence and bad language. Lawmakers have not ruled out a legislative fix. "It is clear that the industry has so far failed to respond adequately to the fundamental interest of parents in knowing the specific content of TV shows in advance," Markey said at a news conference accompanied by other lawmakers and groups pushing for a content-based system like the one now used by the HBO cable channel. At a press conference responding to Markey, Valenti lashed back. He accused Markey of trying to use government as a "big brother" to impose his own scheme. And Valenti vowed not to bend under pressure and alter his group's system. "We're not going to change a word of it. We're not going to redot an 'i' or recross a 't,'" Valenti said. "If there is any intervention by government, we're going to be in court in a nanosecond." The Federal Communications Commission also must approve or reject the ratings system. If it were to reject it, the agency could call for development of an alternative plan -- one that Valenti said the industry would ignore. Once the ratings are implemented in January, Valenti did say the industry would revisit the system after about a year to determine whether it should be changed or "tweaked." "Is it perfect? Of course not. All subjective systems are flawed. So is ours," Valenti said. The ratings -- expected to include six broad categories -- will not apply to news, news magazine shows such as "60 Minutes" or sports. TV networks and syndicators will issue the ratings, with the categories "mingling" age and content, according to Valenti. Proposed guidelines leaked to the media include two for children: "TV-K" for kids and suitable for all ages; and "TV-K7" for children older than seven. The other four are: "TV-G" for general audiences; "TV-PG," parental guidance suggested; "TV-14" for parents strongly cautioned; and "TV-M" for mature audiences only. The rating are to be used in conjunction with a "V-chip" installed in TV sets that allow parents to block out shows they consider too violent or racy. The HBO system, developed in the mid-80s, offers ratings such as "MV" for "mild violence," "SC" for "strong sexual content" and "AL" for "adult language." But Valenti said that system is unworkable and is too complicated to appear in TV listings in the newspaper. He also said a 19-member monitoring and oversight group will be created to oversee the new ratings. It will include a chairman and representives from the creative side of the industry, TV broadcasters and the cable-TV industry.

An obscure part of the new telecommunications law could restrict how phone companies use confidential customer data to peddle everything from calling plans and caller I.D. to Internet access and credit cards. The law pits consumer advocates who fear an onslaught of telemarketers and a loss of personal privacy against local, long-distance and cellular carriers wanting to offer their customers one-stop shopping in the new communications age. The data, which include billing records and calling patterns, are taking on added importance as local and long-distance companies, cable-TV operators and others brace to get into each other's business under the new telecom law. "Everybody wants to use these data -- subject to the law -- for their marketing efforts, given that it's a much more competitive environment now," said attorney Alfred Mamlet of Steptoe & Johnson. "There are new technologies and new markets for the companies." The Federal Communications Commission is drafting rules to spell out the limits set by Congress on the use of "customer proprietary network information." CPNI details when calls are made, the destination, the frequency and length, the number and type of phone lines ordered, and the price of the bill. Few curbs existed before the new telecom law. The new FCC rules -- which stem from a provision in the law pushed by Representative Edward Markey, D-Mass., -- are expected in early 1997. The agency must decide what form of customer approval a carrier must receive before using the data for marketing. The rules will determine, for example, what if any okay is needed for a carrier to use a customer's long-distance calling pattern to pitch a cellular service if a customer is seen to make plenty of calls from the road. Many phone companies want the FCC to avoid stringent rules requiring detailed customer approval. Industry executives argue that consumers would benefit from flexibile rules that let companies target a customer's communications needs. "It would give us the opportunity to tailor their package of services to what they need and what they want," said James Spurlock, AT&T Corp.'s director of federal government affairs. But consumer and privacy groups fear the data could fall into the wrong hands without tough curbs and clear approval. They also fear an explosion in telemarketing: Companies could use CPNI to market a vast array of products and services unrelated to the phone service a customer actually receives. "When consumers sign up for telehone service, they don't expect the information to be used to market non-phone services such as credit cards or investment information," said John Windhausen, general counsel for the Competition Policy Institute (CPI), a consumer advocacy group. Companies already use the information. Long-distance carriers pitch cheaper plans based on a customer's calling habits. The marketing is expected to heat up. Under contention at the FCC is whether a company can use the data derived from its long-distance business to pitch local or cellular service, without prior customer assent. The telecom law lets carriers use CPNI without prior approval when supplying the service a customer ordered. The FCC has proposed to classify phone service under three categories: local, long distance and cellular. CPNI from one could not be used to market another without a customer's okay. A number of phone companies, including several regional Baby Bell companies, have asked the FCC for just one broad category that would give them greater marketing flexibility. Texas phone regulators, by contrast, propose categories based on "the exact services (the customer) has ordered." The FCC also has proposed requiring phone companies to notify customers of their right to restrict access to CPNI. Under contention is whether the notification should be oral or written, such as a notice stuffed into a bill or posted in the "white pages" phone directory. Consumer advocates, privacy groups and state regulators want advance written approval for use of the information. Some companies -- AT&T, several of the Bells and GTE Corp. -- suggest that no response to a detailed notification about a customer's CPNI rights should amount to a customer's blessing.

The nation's distillers Thursday formally reversed their 48-year-old voluntary ban on broadcast advertising of liquor, saying whiskey and gin should be treated just like beer and wine. The announcement -- coming two days after the presidential election and just ahead of the holiday season -- affirms the decision by Seagram Co. Ltd. in June to begin airing TV ads for its Royal Crown and Chivas Regal whiskey. That ad campaign has unleashed criticism from lawmakers, regulators and President Clinton. And the latest decision is sure to rachet up the debate. "For decades, beer and wine have been advertised on television and radio while the distilled spirits industry has upheld its own voluntary ban," said Fred Meister, president of the Distilled Spirits Council of the United States (DISCUS). "The absence of spirits from television and radio has contributed to the mistaken perception that spirits are somehow 'harder' or worse than beer or wine and thus deserving of harsher social, political and legal treatment." The reversal of the voluntary ban was adopted in DISCUS's "code of good practice." The announcement drew an immediate rebuke from the chairman of the Federal Communications Commission, who has made it clear he is opposed to the practice and has raised the specter of new rules that would bar such advertising. "This decision is disappointing for parents, and dangerous for our kids," said FCC Chairman Reed Hundt, whose agency has begun a probe of the ad campaign. Consumer advocates also objected. "Today's decision by DISCUS to dump its voluntary ban marks the beginning of an open liquor-marketing season on America's children and teens," said George Hacker of the Centre for Science in the Public Interest. He urged President Clinton to renew his appeal to distillers to return to the voluntary ban, and he called on the Federal Trade Commission to assist the FCC in its probe. In Congress, Representative Joseph Kennedy has offered legislation to make it illegal to advertise hard liquor on radio or TV. Broadcasters, meanwhile, criticised the distillers' decision but stopped short of refusing to run liquor ads. The National Association of Broadcasters advocated to continue leaving the decision on whether to air the ads to individual TV and radio stations. "We believe this process has served American consumers well, since individual stations make and will continue to make judgments every day on what is most appropriate for their local audiences," said NAB President Edward Fritts.

Regulators set aside a chunk of airwaves Thursday to let schools, businesses, communities and others bypass phone lines and send video images, data and voice over their own local wireless computer networks. The Federal Communications Commission's decision, for example, will allow a school to create a high-speed wireless network among classrooms that could then hook up to the World Wide Web, the multimedia portion of the Internet. That way, the school can avoid the costs of rewiring a building with high-capacity phone lines for computer use. Drilling through walls with asbestos can be expensive. "In many buildings, including schools, a wireless connection will be a cost-effective alternative to pulling wire through walls and ceilings," said Commissioner Susan Ness. Hospitals, community groups, companies and libraries also could create local high-speed networks in a building, or link up with computers and printers in nearby facilities or communities. Users of the new spectrum will not need an FCC license, just like users of baby monitors and cordless phones that also operate over the radio spectrum. And users will be able to cram more data on a high-speed wireless network than over a traditional phone line. Computers equipped with antennas are expected to allow consumers, businesses, hospitals and others to create the networks. Now that the FCC has set aside the spectrum, companies are set to produce the needed technology. The equipment, when it is available, must receive FCC approval. "Companies can now go ahead and build products for use in the spectrum," said Eric DeSilva, an attorney representing the Wireless Information Networks Forum. The consortium is made up of Lucent Technologies Inc., International Business Machines Corp. and other companies promoting wireless networks. Government and industry officials said potential applications abound. Hospitals staffers could receive on-the-spot patient data or X-rays over a wireless network throughout the building. Or a neighbourhood group could communicate within a community over the airwaves via computer. The FCC set power limits on the different spectrum bands that will be used so that existing users of the airwaves -- such as satellites and high-powered government radar systems -- will not face interference. Operators over the lowest spectrum band will be restricted to indoor use. Users of the middle band will be able to operate over a wider area, such as a college campus. And those using the highest band will be able to operate over several kilometres, such as within a community or with a nearby community.

Negotiations between American Airlines and its pilots union continued into the early hours of Friday, with neither side reporting any breakthrough that would avert a midnight strike at the nation's No. 2 carrier. A federal mediator refereeing the talks at a downtown hotel informed the pilots that American had rejected a key union contract proposal covering who should pilot -- and at what pay -- the carrier's smaller American Eagle planes. Mediators are shuttling back and forth between the two sides offering hypothetical "what if" proposals on a variety of issues in an effort the bring the two sides closer together and prevent a midnight Friday (0500 GMT Saturday) strike by the pilots which would throw the nation's air transport system into turmoil. "They're going to work all night, throughout the night. All day (Friday)," said Dave Bates, a spokesman for the Allied Pilots Association, which represents American's 9,000 pilots. He said the union is "disappointed at the lack of progress" so far. "We will continue to negotiate for as long as it takes. But (Friday) night at midnight the pilots will be on strike." Bates said no face-to-face talks had as yet been scheduled. An American spokesman would only say that the negotiations were continuing. Going into the talks on Thursday evening, Kenneth Hipp, chairman of the National Mediation Board, said he was hopeful an agreement could be worked out in time to avert a strike. The union had proposed that its pilots fly the American Eagle flights, but with lower pay than pilots flying the regular American aircraft. American, however, wants to continue using lower-paid commuter pilots from a different union to fly the smaller planes. While the mediator has informed the union of the airline's rejection of the proposal on small planes, union officials said the company itself has not notified them directly of that. The dispute also centres around the pilots' pay. They now earn an average of about $120,000 a year. The union earlier had said it would offer a new pay proposal -- probably less than the 11.5 percent over four years it had sought. The latest reported offer from American was a 6 percent boost over four years. A strike would ground 2,200 American flights on Saturday and affect about 200,000 passengers. American, a unit of AMR Corp., accounts for about 20 percent of the nation's airline capacity. The Fort Worth, Texas-based airline is trying to rebook passengers on other carriers and has already cancelled nearly all international flights scheduled for Friday night. American Airlines spokesman John Hotard said on Thursday the carrier was cancelling 12 of its domestic flights scheduled for Friday. "There are some small domestic airports where we have no permanent place to park the planes if there is a strike, so we decided to cancel those 12 flights." A Transportation Department official said a strike could cost the U.S. economy up to $200 million a day. American Airlines Chairman Robert Crandall called for binding government arbitration of the dispute, a proposal the pilots have repeatedly rejected. "I think mandatory binding arbitration should be required" to prevent airline strikes, Crandall told a congressional subcommittee. Binding arbitration would mean both parties agreed to abide by the decision of an arbitrator. "I seriously doubt we could accept that," union spokesman Wally Pitts said. Crandall told a hearing of a House of Representatives Transportation subcommittee he was unsure if a strike could be avoided. "We have two choices: we can either cave in or take a strike. A strike of 90 days will destroy this airline." As the talks entered their fourth day of intensive bargaining, President Bill Clinton was keeping a close watch. Clinton could intervene and name an emergency board to try to resolve the issues. Under the Railway Labour Act, which also covers airlines, the president has the power to declare a national emergency to stop a strike and to keep planes flying for 60 days. The last time such an action was taken in an airlines strike was in 1966. But at an unrelated news conference on Thursday, Clinton repeated that the parties should use the government mediator to reach an agreement.

President Clinton and Congress are again set to look to airwave sales to cut the deficit, although analysts note the radio spectrum is not a bottomless money pit and prices should fall as more space is sold. "They need to be careful that they're not killing the golden goose," said Joe Boyer of Hatfield Associates Inc., a Boulder, Colo. telecommunications consulting firm. "The issue may be whether the federal government creates a glut of spectrum available," said Boyer, noting that such an oversupply would force down prices -- and thus the amount of money the government could fetch through auctions. Auctions for the rights to use the airwaves have been a cash bonanza for Uncle Sam. Since the summer of 1994, the Federal Communications Commission has raised about $23 billion for the government through 12 spectrum auctions. The FCC has sold licenses for a new generation of cellular phones known as "personal communications services," or PCS, satellite TV, "wireless" cable TV and other services. "It's been the most valuable asset the government has had to sell in decades," said budget analyst Stan Collender of Burson-Marsteller. The president is set to unveil his fiscal 1998 budget on Feb. 6 for the year that begins next Oct. 1. White House officials have told lawmakers to expect spectrum auctions to be a part of the plan, though details are unclear. For fiscal 1997, Clinton proposed, among other things, to auction in 2002 the "analog" spectrum TV broadcasters would return to the government in the transition to high-definition digital TV. The sale was projected to raise $17 billion. But more sales could well mean lower prices. The Congressional Budget Office last year predicted the price of valuable spectrum under 3 GHz -- airwaves that can be used for PCS, digital TV, paging, and other services -- will fall "as more spectrum is brought to market." Already, there are signs of softer prices. A PCS auction that ended last month netted $2.5 billion, down 75 percent from a similar auction last May that raised $10.2 billion. The average license price tumbled more than 90 percent. Analysts were quick to note that smaller airwave parcels were auctioned at the latest sale and that financing terms extended by the government were not as attractive. But they also said the drop reflected the dearth of new money available after the sky-high prices paid at last year's PCS sale and the flood of new entrants to the market. "If everybody builds out the spectrum that has been acquired in the PCS auctions, there would be more than enough capacity for every man, woman, and child and every household pet in the United States," said Boyer. While more sales could mean lower proceeds, many analysts argue that more auctions also would usher in more competitors to the market -- and thus drive down prices of cellular phone service, pagers, Internet access and other services. "The first thing you have to think about is 'What's good for getting communications services to the public?'" said Charles Jackson, of Strategic Policy Research, a consulting firm in Bethesda, Md. "Only after you've solved that problem do you worry about auction revenues." Experts said plenty of spectrum is available to auction. "There's a lot more spectrum out there," said James Gatusso of Citizens for a Sound Economy, a free-market advocacy group. "There's much, much more that can be done," he said.

Federal regulators are set to kick off a two-part plan to slash rates on overseas phone calls, a move that could save consumers and companies billions of dollars but may ruffle the feathers of foreign governments. The Federal Communications Commission is expected Tuesday to make it simpler for U.S. and foreign phone companies to negotiate cheaper rates for international calls to and from the United States. Next month the FCC is expected to propose rules to cut the charges U.S. carriers pay foreign phone monopolies to complete overseas calls made from the United States. "The ultimate goal is to get lower-priced and better-quality services for consumers," said Don Gips, head of the FCC's international bureau. Officials say the foreign charges, or "accounting rates," run five to 10 times actual costs, reflecting the power of state-run monopolies unexposed to home competition. Monopolies control more than 90 percent of the non-U.S. market. U.S. phone companies, as a result, paid their overseas counterparts $5.5 billion more in 1995 than foreign companies paid U.S. carriers to complete calls. "This figure would drop in half overnight if American carriers simply paid fees even vaguely related to costs," FCC Chairman Reed Hundt said in a recent speech. He noted that the imbalance dwarfs the U.S. foreign aid budget of $2 billion. While the accounting rates paid by both carriers are about equal, the imbalance reflects the fact that many more overseas calls are made from the United States than into this country. The United States has big imbalances with China, Jamaica, Mexico, Hong Kong, Columbia and Argentina, among others. "Those few countries trying to defend their monopolies are going to be nervous" about the FCC effort, said Dan Rosen of the Institute for International Economics. U.S. carriers support the strategy. "You've got to move accounting rates to cost," said AT&T Corp. Vice President Gerry Salemme. AT&T said it must pay 45 cents a minute to have its calls connected to the Dominican Republic, but that the actual cost is 7 to 8 cents a minute. The FCC actions come as the United States is seeking to open overseas telecommunications markets through talks sponsored by the World Trade Organisation. To cut rates and open markets, the FCC is adopting a carrot-and-stick approach. Tuesday's order is meant for open markets, such as possibly Britain, Canada and Chile. The FCC will waive its "proportionate return" rules that limit the ability of U.S. and foreign carriers to negotiate lower rates for overseas calls. To win a waiver, a foreign carrier's home market must be open to competition. The existing rules require overseas companies to turn over their long-distance calls to U.S. carriers in the same proportion U.S. carriers send calls to a foreign carrier's home market. If AT&T, for example, accounts for 60 percent of calls to a country, then that country's monopoly must hand off 60 percent of its U.S.-bound calls to AT&T. The FCC proposal due next month would set "benchmark" rates for what U.S. carriers could pay foreign carriers to complete calls. These rates, according to FCC officials, would better reflect actual costs. The agency must still work out the details of how long a country would have to lower its rates and what steps could be taken if it refused to do so. "It literally has the potential of saving consumers billions of dollars," said Scott Harris, an attorney with Gibson, Dunn & Crutcher. But the plan could rub governments the wrong way. High rates charged by their own phone monopolies can be used to maintain bloated payrolls or to subsidise local phone service.

The Clinton administration is making a $36 billion bet in its new budget that companies will rush to pay big bucks for a chunk of the airwaves to roll out newfangled communications services to the public. As a part of the bet, the administration is wagering it can overcome major political forces, such as TV broadcasters, opposed to aggressive plans for selling spectrum. Experts are split on whether the wager will pay off. To finance its fiscal 1998 budget, the White House proposed Thursday to raise $36.1 billion by selling licenses to firms wanting to sell new ways to link to the Internet or send video images through the air, among other things. The administration also proposed to auction toll-free 888 phone numbers instead of giving them away. The White House, however, offered few details about its grand auction plan, which covers the five years through 2002. Many economists think the $36 billion is achievable because of the large amounts of spectrum still available and the rush by companies to develop new products incorporating the Internet and other communications services. "There's a lot of unmet demand for frequencies that can be used to offer new services," said James Gatusso of Citizens for a Sound Economy, a free-market advocacy group. "A lot of people are coming through the front door of the Federal Communications Commission asking for spectrum." Among the new services that could be rolled out in the future over newly available spectrum: high-speed wireless access to the Internet or mobile video services that allow drivers to download maps or traffic pictures in their cars. Critics charge that any aggressive bid to sell spectrum to companies that want to use it for any purpose will backfire by driving down airwave prices and hurting companies -- such as wireless phone providers -- that already hold licenses. "What they will do is drive the price of spectrum to zero and therefore kill the goose that lays the golden egg," said Tom Wheeler, president of the Cellular Telecommunications Industry Association, an industry trade group representing cellular carriers and other wireless phone providers. Since 1994, the FCC has raised about $23 billion through 12 spectrum auctions for wireless cable television, satellite TV, a new generation of cellular phones and other services. The White House proposed four auctions to raise: -- $700 million through the sale of 888 phone numbers. -- $17.1 billion by extending and broadening the FCC's auction powers to sell spectrum not used by TV stations. -- $3.5 billion to sell part of the airwaves now occupied by TV channels 60-69. The channels would be made available through the transition to high-definition digital TV. -- $14.8 billion through the sale of the analogue spectrum now occupied by TV broadcasters. The frequencies also would become available in the transition to digital TV. The administration wants to speed up the return of the analogue spectrum to the government by requiring stations to return it by 2005. The auction would be held in 2002. But broadcasters want to postpone any auction. "We remain opposed to upfront auctions or accelerated giveback of broadcast spectrum. We expect the government will receive full value for spectrum once the broadcast industry transition to digital is complete," said Dennis Wharton, a spokesman for the National Association of Broadcasters. The NAB supports an FCC plan for an approximately 15-year transition to digital broadcasts.

Television and Hollywood moguls on Thursday formally unveiled their controversial system to rate TV programmes, ushering in a new era meant to enable parents to control their kids' viewing habits better. Broadcast and cable-TV networks will begin displaying the six ratings categories at the start of shows as soon as Jan. 2. The ratings will appear briefly as a small icon in the upper left-hand corner of the TV screen. The age-based system is similar to the 28-year-old motion-picture industry ratings and will apply to nearly all shows, including cartoons and talk shows. News and sports programmes will be exempted. President Bill Clinton, appearing in the Oval Office with leading TV and Hollywood executives, called the new ratings a "huge step forward over what we have now, which is nothing." While not endorsing the system, Clinton said the ratings "are going to give America's families more help in choosing appropriate television programming for their children." Even before its unveiling, the system had drawn flak from lawmakers, parent groups, children's advocates, educators and others. They want the ratings content-based, specifying the level of sex, violence and strong language. The ratings are: TV-G for suitable for all ages; TV-PG for parental guidance suggested; TV-14 for parents of children under 14 strongly cautioned; TV-M for mature audiences only and two categories applying to children's shows: TV-Y for all children and TV-Y7 for kids seven and older. Executives said they expected programmes such as "Hard Copy" and "Entertainment Tonight" to receive ratings instead of being exempted as bona fide news programmes. "Our goal was to create TV parental guidelines which would be simple to use, easy to understand and handy to find, and we have accomplished it," said Jack Valenti, president of the Motion Picture Association of America and head of the group that developed the television ratings. The group included representatives from the broadcast and cable-TV industries and Hollywood. "We don't claim any divine inspiration," Valenti told a news conference, adding that the system was "not written in stone." Industry executives plan to review the ratings over the next few months. "What we are presenting is our best offer," Valenti said. Networks and producers will rate their own shows, unlike the movie industry, where an independent panel rates films. TV executives argue they have far more programmes to rate, with up to 2,000 hours a day of shows, equivalent to about 1,000 movies a day. Critics, while welcoming the system, say it is vague, does not go far enough and will prove unhelpful to parents. Child advocacy, public health, religious and education groups plan a campaign to see that a content-based system is developed. They favour an approach in which letters such as V, S and L are used to denote the level of violence, sex and bad language. "The system which they propose is too complicted. It's too vague. It doesn't give parents the information which they need in their homes for their kids," said Representative Edward Markey, a Democrat from Massachusetts and a vocal critic of the TV industry plan. He called on the industry to test both the aged-based and content-based systems side by side in the home. But industry officials said a content-based plan would be unwieldly. They said their own system would be more practical for parents, and more convenient for newspapers to print. The ratings stem from the telecommunications law enacted in February that requires new TV sets to include a "V-chip." The technology, expected to be available in a year or so, will be used in conjunction with the ratings and allow parents to screen out programmes they do not want their children to watch. Clinton last week gave the system a conditional green light, saying critics should allow the TV industry to test the ratings for 10 months before demanding changes. Top officials at the Federal Communications Commission will review the ratings over the next few weeks. Under the telecommunications law, the FCC must set up an advisory panel to devise a ratings system if the industry fails within a year to craft an "acceptable" plan. Valenti vowed to fight any government-imposed system in court on First Amendment free speech grounds.

The television and entertainment industries vowed Thursday to use only their system for rating TV programmes and promised to reject -- by legal means, if necessary -- any government-imposed plan. Following months of work, a group of TV and Hollywood executives are scheduled next week to unveil plans for a system to rate shows based on their suitability for kids of different ages, especially those under 14 years of age. It will be similar to the 28-year-old system of letters and numbers used by the motion-picture industry and which includes the ratings G, PG, PG-13, R and NC-17. "We will not use any other TV rating guidelines other than the ones we are going to announce next week," said Jack Valenti, chief executive of the Motion Picture Association of America and head of the "implementation group" developing the ratings. But parental groups, children's advocates, educators and some key lawmakers -- including Representative Edward Markey, a Massachusetts Democrat -- have demanded that the group include a content-based system specifying the level of sex, violence and bad language. Lawmakers have not ruled out a legislative fix. "It is clear that the industry has so far failed to respond adequately to the fundamental interest of parents in knowing the specific content of TV shows in advance," Markey said at a news conference accompanied by other lawmakers and groups pushing for a content-based system like the one now used by the HBO cable channel. At a press conference responding to Markey, Valenti lashed back. He accused Markey of trying to use government as a "big brother" to impose his own scheme. And Valenti vowed not to bend under pressure and alter his group's system. "We're not going to change a word of it. We're not going to redot an 'i' or recross a 't,'" Valenti said. "If there is any intervention by government, we're going to be in court in a nanosecond." The Federal Communications Commission also must approve or reject the ratings system. If it were to reject it, the agency could call for development of an alternative plan -- one that Valenti said the industry would ignore. Once the ratings are implemented in January, Valenti did say the industry would revisit the system after about a year to determine whether it should be changed or "tweaked." "Is it perfect? Of course not. All subjective systems are flawed. So is ours," Valenti said. The ratings -- expected to include six broad categories -- will not apply to news, news magazine shows such as "60 Minutes" or sports. TV networks and syndicators will issue the ratings, with the categories "mingling" age and content, according to Valenti. Proposed guidelines leaked to the media include two for children: "TV-K" for kids and suitable for all ages; and "TV-K7" for children older than seven. The other four are: "TV-G" for general audiences; "TV-PG," parental guidance suggested; "TV-14" for parents strongly cautioned; and "TV-M" for mature audiences only. The rating are to be used in conjunction with a "V-chip" installed in TV sets that allow parents to block out shows they consider too violent or racy. The HBO system, developed in the mid-80s, offers ratings such as "MV" for "mild violence," "SC" for "strong sexual content" and "AL" for "adult language." But Valenti said that system is unworkable and is too complicated to appear in TV listings in the newspaper. He also said a 19-member monitoring and oversight group will be created to oversee the new ratings. It will include a chairman and representives from the creative side of the industry, TV broadcasters and the cable-TV industry.

The Federal Communications Commission is expected to curb its power to approve or reject long-distance rates by ending a Depression-era rule requiring telephone carriers to notify the FCC before rate changes. The new rules, set to be adopted on Tuesday, are meant to pump more competition into the $70 billion long-distance market and trim government red tape for AT&T Corp, MCI Communications Corp, Sprint Corp and other long-distance carriers, said FCC officials. The 1934 rule that is headed for the scrap heap has forced long-distance companies to notify the FCC in advance of plans to change rates or offer new services through "tariff" filings with the agency. It was intended originally to let regulators review the changes while giving the public an advance look, although the language contained in the filings is arcane and read by few. Regulators say the new approach will let companies respond more quickly to competitors' price changes -- without the need to file burdensome paperwork with the FCC. They also say it will reduce the opportunity for companies to collude tacitly on long-distance rates. And carriers will have to notify residential customers directly of a rate change. Currently, they unveil any rate increases through the complex tariff filings. The new approach represents the first major step the FCC has taken under a provision of the new telecommunications law allowing it to shed outdated rules if the public interest is not harmed. Currently, tariff filings take effect one day after their submission to the FCC. But it has not always been that way. When it was considered a "dominant" long-distance carrier, AT&T complained that the filings offered competitors an early look at its plans, allowing the others to mimic the move and implement it beforehand. The top long-distance company had to wait up to 60 days after a tariff filing for a new promotional plan before it could act on the plan. A year ago, the FCC ended AT&T's dominant carrier status. That also ended the long delays. The FCC tried to eliminate long-distance tariff filings for "non-dominant" carriers such as MCI and Sprint about a dozen years ago. But a court said the agency lacked the power to do so. The FCC then asked Congress to change the law. Industry officials have sought -- but apparently without success -- to retain the option of filing tariffs for certain residential telephone plans, saying that would make it easier to let consumers know what their phone rates are. "We think there ought to be something in place for the mass marketplace," said an AT&T spokesman. He added that tariff filings allow residential customers to know the terms and conditions of their service. And he said they save the company the expense of having to communicate those terms and conditions to individual customers. But critics complain that such a practice would make it tougher for consumers to know when a rate rise was coming, because it would be buried in the jargon of the tariff filing. Officials do favor ending tariff filings for big business customers, paperwork that can run hundreds of pages. Ending the practice, they say, would give carriers added flexibility to negotiate the best deals with big customers. Business users agree. "It allows for individual customers to negotiate the best terms and conditions for them, while preserving the normal customer-supplier confidentiality we see in other contracts," said Ray Cline, director of information systems for the American Petroluem Institute, an oil industry trade group.

Ameritech Corp. won an important endorsement Wednesday from Michigan regulators in its bid to become the first Baby Bell to offer long-distance telephone service from its local calling region. The Michigan Public Service Commission voted to advise the Federal Communications Commission that it appears Ameritech has met a 14-point checklist for opening its local phone network in the state to new competitors -- such as AT&T Corp. and other companies wanting to offer local phone service. That checklist was spelled out under last year's big communications law as a condition for local carriers to offer long-distance service from their regions. "We're extremely disappointed with this decision. It seems to ignore the overwhelming evidence that Ameritech faces no viable local telephone competition in Michigan," said an AT&T spokesman. An Ameritech spokesman was not available. The FCC will make the final determination on whether Ameritech has indeed met the technical checklist for entry into the $78 billion long-distance market. But a negative review from Michigan would have dimmed the Chicago-based carrier's prospects considerably. The Justice Department must issue a recommendation to the FCC by Feb. 21. Ameritech asked the FCC on Jan. 2 for permission to provide long-distance service to residents in Michigan, one of five Midwestern states in which the company provides local phone service. Ameritech has 3.5 million customers in Michigan. Long-distance carriers such as AT&T and MCI Communications Corp. have called on regulators to reject Ameritech's request, saying the company has not yet opened its local market fully to competitors. The Michigan commission said that in a 2-1 vote among commissioners the agency authorised the filing of its comments in the Ameritech case with the FCC. "For many years, the Michigan Public Service Commission has supported allowing expanded choice for telephone customers," said commission Chairman John Strand. "Our comments today are designed to assist the Federal Communications Commission to follow a course that will introduce more competition in the telecommunications marketplace." After filing its initial request with the FCC, Ameritech was forced to amend its application with an additional 1,500 pages of documents. Regulators had determined that many needed pages were missing. Other Baby Bells are expected to ask the FCC for similar approval soon.

An obscure part of the new telecommunications law could restrict how phone companies use confidential customer data to peddle everything from calling plans and caller I.D. to Internet access and credit cards. The law pits consumer advocates who fear an onslaught of telemarketers and a loss of personal privacy against local, long-distance and cellular carriers wanting to offer their customers one-stop shopping in the new communications age. The data, which include billing records and calling patterns, are taking on added importance as local and long-distance companies, cable-TV operators and others brace to get into each other's business under the new telecom law. "Everybody wants to use these data -- subject to the law -- for their marketing efforts, given that it's a much more competitive environment now," said attorney Alfred Mamlet of Steptoe & Johnson. "There are new technologies and new markets for the companies." The Federal Communications Commission is drafting rules to spell out the limits set by Congress on the use of "customer proprietary network information." CPNI details when calls are made, the destination, the frequency and length, the number and type of phone lines ordered, and the price of the bill. Few curbs existed before the new telecom law. The new FCC rules -- which stem from a provision in the law pushed by Rep. Edward Markey, D-Mass., -- are expected in early 1997. The agency must decide what form of customer approval a carrier must receive before using the data for marketing. The rules will determine, for example, what if any okay is needed for a carrier to use a customer's long-distance calling pattern to pitch a cellular service if a customer is seen to make plenty of calls from the road. Many phone companies want the FCC to avoid stringent rules requiring detailed customer approval. Industry executives argue that consumers would benefit from flexibile rules that let companies target a customer's communications needs. "It would give us the opportunity to tailor their package of services to what they need and what they want," said James Spurlock, AT&T Corp.'s director of federal government affairs. But consumer and privacy groups fear the data could fall into the wrong hands without tough curbs and clear approval. They also fear an explosion in telemarketing: Companies could use CPNI to market a vast array of products and services unrelated to the phone service a customer actually receives. "When consumers sign up for telehone service, they don't expect the information to be used to market non-phone services such as credit cards or investment information," said John Windhausen, general counsel for the Competition Policy Institute (CPI), a consumer advocacy group. Companies already use the information. Long-distance carriers pitch cheaper plans based on a customer's calling habits. The marketing is expected to heat up. Under contention at the FCC is whether a company can use the data derived from its long-distance business to pitch local or cellular service, without prior customer assent. The telecom law lets carriers use CPNI without prior approval when supplying the service a customer ordered. The FCC has proposed to classify phone service under three categories: local, long distance and cellular. CPNI from one could not be used to market another without a customer's okay. A number of phone companies, including several regional Baby Bell companies, have asked the FCC for just one broad category that would give them greater marketing flexibility. Texas phone regulators, by contrast, propose categories based on "the exact services (the customer) has ordered." The FCC also has proposed requiring phone companies to notify customers of their right to restrict access to CPNI. Under contention is whether the notification should be oral or written, such as a notice stuffed into a bill or posted in the "white pages" phone directory. Consumer advocates, privacy groups and state regulators want advance written approval for use of the information. Some companies -- AT&T, several of the Bells and GTE Corp. -- suggest that no response to a detailed notification about a customer's CPNI rights should amount to a customer's blessing.

A U.S. appeals court in St. Louis is set to hear arguments Friday on whether to reactivate or throw out a major Federal Communications Commission order opening the $100 billion local phone market to competition. Lawyers and analysts predict the FCC and its long-distance phone company allies will lose the latest battle to GTE Corp., the Baby Bells, other local carriers and state regulators who want to overturn the order. It spells out how new entrants to the local phone business can link to Bell local networks. The appeals court suspended the FCC order in October, pending Friday's case. "The FCC faces a tough uphill battle," said attorney Alfred Mamlet of Steptoe & Johnson. "This case is headed for the Supreme Court." As a result, the FCC's "interconnection" order is likely to hang in legal limbo for at least a year while it is fought over in court -- a prospect analysts expect will cloud the phone industry's outlook and weigh on phone company stocks. "It adds to the uncertainty out there," said analyst Scott Cleland of Schwab Washington Research Group. The order was meant to implement the 1996 communications law, which allowed local and long-distance carriers, cable-TV operators and others into each other's business. The appeals court, in suspending the order, sided with the local carriers and state regulators who charged that the FCC overstepped its power by issuing national rules on pricing and other matters instead of leaving those issues to the states. The court wrote that opponents "have a better than even chance of convincing the court the the FCC's pricing rules conflict with the plain meaning" of the 1996 law. With the order expected to remain on ice for a while, lawyers and analysts said state regulators and federal judges will have the chief job of prying open local phone monopolies to long-distance companies such as AT&T Corp. and others. FCC Chairman Reed Hundt warned that piecemeal deregulation -- with judges around the nation ultimately deciding terms for opening local phone markets -- would have a "very negative impact" on industry efforts to raise capital. FCC officials have said the case will not be resolved before the high court until spring 1998, at the earliest. The order requires the Bells and other local carriers to lease their phone lines to new competitors at discounts of up to 25 percent. The FCC also ordered local carriers to "unbundle" their local networks into pieces -- such as call-switching devices and operator and directory assistance -- so new competitors can lease components to complete their own networks. The "unbundled elements" were to be priced at competitive levels based on the cost of new and more-efficient facilities. In the meantime, state regulators have been issuing decisions on terms for opening the local markets. FCC Chairman Hundt said that despite the suspension of his agency's order, 29 of 31 states so far have adopted the FCC pricing policies. But even those decisions are being challenged. GTE Corp. in particular, as well as AT&T, have appealed some of those rulings to federal courts around the country. Henry Geller, a former FCC general counsel, blamed the legal morass on Congress, saying lawmakers "botched" the job of writing the 1996 law. "The whole idea was that the courts weren't going to be determining this," he said.

Regulators proposed Thursday to set aside $2.3 billion a year to link schools and libraries to the Internet at discounted rates, but declined to endorse President Clinton's call to hook them up free of charge. Eligible institutions could buy access to the computer network at discounts of 20 percent to 90 percent, under the plan offered by an eight-member board of state regulators and members of the Federal Communications Commission. "Schools will be able to connect every single classroom to the Information Highway," said FCC Chairman Reed Hundt, who oversaw the panel. "The ramp will be a high-speed, high-bandwidth, cutting-edge connection. The discounts, tailored to each school's individual level of need, will make building and maintaining the ramp truly affordable for every school." The Internet proposal is part of a broader plan to overhaul the multi-bilion dollar "universal service" program that ensures affordable phone service to rural communities and low-income neighborhoods. Officials hope the wide-ranging proposal, which stems from the new telecommunications law, eventually will generate lower phone rates through increased competition. But some board members fear the plan -- to be paid for from the reveneus of phone companies, cable-TV operators and other communications carriers -- may prove too ambitious and ultimately push up rates. "A universal service fund that taxes consumers billions of dollars a year is not only inconsistent with congressional intent, but could be extremely harmful nationwide to consumers," said Laska Schoenfelder, chairman of the South Dakota Public Utilities Commission. Under the Internet provision, less well off institutions and those in out-of-the-way high-cost areas would be entitled to the larger discounts. The plan stops short of the president's proposal to give schools and libraries free basic service, with the nation's communications carriers footing the bill. In other areas, the board left many key provisions of its proposals vague, including the cost of the federal fund that would be used to subsidize carriers that offer phone service in high-cost rural areas and in low-income neighborhoods. Overriding the objections of some regulators, the board proposed to fund the federal program through the interstate and intrastate revenues of telecommunications carriers. Some state regulators objected to the use of intrastate revenues, saying such funds should be used only by the states to set up their own funds that would help provide distinct telecommunications services within their borders. The board said that the current $3.50 a month subscriber line charge that residential customers now pay should not be increased. The charge is used to help fund universal service. And it held out the prospect that the charge -- along with the "access" charges long-distance carriers pay to local phone companies to hook up to their networks -- could drop if the federal universal fund is indeed bankrolled by interstate and intrastate phone revenues.

The television industry's controversial system for rating programs is set to begin airing Wednesday on the big networks ABC, CBS, NBC and Fox. Broadcast and cable networks will carry the ratings, though start dates will vary. Time Warner Inc.'s upstart WB network began rating shows on Dec. 22. Cable network Black Entertainment Television does not plan to use the ratings. Following are questions and answers about the system, unveiled by TV and Hollywood executives on Dec. 19. Question: What are the ratings? Answer: There are six categories, with two for children's shows. Like the 28-year-old motion-picture industry ratings, the TV ratings are meant to show a program's suitability for kids of different age groups. In general, they are: TV-Y -- Children of all ages. TV-Y7 -- Children seven and older. TV-G -- Suitable for all ages. TV-PG -- Parental guidance suggested. TV-14 -- Parents of children under 14 strongly cautioned. TV-M -- Mature audiences only. Q: How about some examples? A: Westinghouse Electric Corp.'s CBS issued these ratings: "Teenage Mutant Ninja Turtles," TV-Y7; the Rose Bowl parade, TV-G; "Touched by an Angel," TV-PG; and "Chicago Hope," TV-14. Walt Disney Co.'s ABC offered the following: "Bugs Bunny and Tweety Show," TV-Y; "Sabrina, the Teenage Witch," TV-G; "Lois and Clark," TV-PG; and "NYPD Blue," TV-14. General Electric Co.'s NBC will broadcast the Holocaust movie "Schindler's List" in February with a TV-M rating. And News Corp.'s Fox said the year's first episodes of "Melrose Place" and the "X-Files" will be rated TV-14. Q: What are prime-time shows likely to receive? A: Networks expect most will carry a middle-of-the-road TV-PG. But a show's rating can vary from episode to episode. Q: Where will the ratings appear? A: They will be displayed briefly as a small icon in the upper-left corner of the TV screen at the start of a show. Newspapers, TV Guide and cable publications and on-screen listing services are expected to publish the guidelines. Q: Are all shows affected? A: No. News and sports programs are exempted. All other programs, including cartoons and talk shows, will be rated. Each local TV station will have the final say over whether a show is rated and what rating it will receive. Q: Who will rate the programs? A: Networks and producers will rate their own shows, unlike the movie industry, where an independent panel made up of parents rates films. TV executives contend they have far more programs to rate, with up to 2,000 hours a day of shows. Q: What's been the public's reaction? A: Mixed. The ratings have drawn flak from some lawmakers, parent groups, children's advocates, educators and others. These groups say the new system does not go far enough. They favor a system that also would specify violence, sex and foul language, using letters such as V, S and L. An example: V-PG for a program in which parental guidance is suggested because of violent scenes. Q: What do the critics plan to do? A: They will ask the Federal Communications Commission to reject the industry's plan. And they want the industry to test the two approaches side by side in the home. Q: What's the industry's response? A: It will not participate in such a test. Executives also argue their system "mingles" age and content. For example, the system notes a TV-14 show may contain "sophisticated themes, sexual content, strong language and more intense violence." Q: What is the origin of the ratings? A: They stem from the communications law enacted in February that requires new TV sets to include a "V-chip." The technology, expected to be available in a year or so, will be used with the ratings to allow parents to block certain shows. Q: What is the FCC's role? A: The FCC must set up an advisory panel to devise a new system if the agency considers the industry plan unacceptable. Q: Would the industry use such an alternative? A: No. It has vowed to fight any government-imposed plan in court on First Amendment grounds.

The Justice Department asked the Supreme Court Thursday to lift a lower court suspension of landmark federal rules aimed at prying open the nation's local telephone monopolies to competition. The department, acting on behalf of the Federal Communications Commission, said the lower court's "stay" could hurt consumers by delaying the introduction of full-fledged competition in the $100 billion market. The request comes after a U.S. appeals court based in St. Louis last week suspended key provisions of the FCC's "interconnection" order, which spells out how long-distance carriers, cable-TV operators and others could operate in the local phone market under the new telecommunications law. The rules were frozen while the appeals court considers a challenge to the FCC order by GTE Corp., the so-called Baby Bell phone companies, other local carriers and state regulators who want the measure overturned. They argue the FCC overstepped the power granted to it by Congress. The FCC, among other things, ordered the regional Bells and other local phone companies to lease their lines to new rivals at discounts of 17 percent to 25 percent. The three-judge appeals court panel said the opponents "have a better than even chance of convincing the court" that the FCC's rules conflicted with the law. But the Justice Department told the high court the appeals court action "already imperils" the timetable set by Congress for opening the local phone market. "The stay draws into question not just the timing of competition in the local market, but also the timing of full entry by the Bell companies into the long-distance telephone market," the department added. Long-distance carriers AT&T Corp. and MCI Communications Corp., among other companies, also asked the high court on Thursday to lift the stay. Lawyers were divided over the likely outcome. "They have a decent shot at lifting the stay," said Alfred Mamlet of Steptoe & Johnson. He noted the FCC's success last year in having Supreme Court Justice John Paul Stevens lift a lower court stay that had blocked a major FCC airwave auction. But others were less sure. "It's very difficult to predict," said Nicholas Allard of Latham & Watkins. The Justice Department request, along with those of the long-distance companies, is expected to go to Supreme Court Justice Clarence Thomas, who oversees matters related to the St. Louis-based appeals court. Thomas could refer the request to the full court for its consideration.

Federal and state regulators raced Wednesday to finalize a multi-billion dollar proposal to ensure all Americans get quality and affordable phone service and that schools and libraries can hook up to the Internt. An eight-member board of state regulators and members of the Federal Communications Commission is trying to figure out the size of a federal fund to subsidize "universal" service. Estimates range anywhere from $4 billion to $12 billion a year. It could influence what consumers and businesses pay for their phone bills. "Depending on how big the dollar figures are and what the recovery mechanism is, consumers may have something at stake," said Mark Cooper of the Consumer Federation of America. The panel, established by the new telecommunications law, is scheduled to unveil its plans Thursday. Several issues are at stake, some of which were unresolved at the last minute. "All the issues are still being discussed," said a state official requesting anonymity. "There will be sections where we need further clarification on issues." Regulators must determine how local and long-distance companies, cable-TV operators, and other telecommunications carriers foot the bill to ensure that residents of secluded rural communities and poor inner-city areas get quality, affordable phone service. They must spell out how the nation's schools and libraries will get hooked up to the Internet and at what cost. And regulators must determine what roles the states and federal government will play in overseeing universal service. The board must issue its recommendations to the FCC by Friday. The agency must then issue final rules by early May. The nation's hundreds of local phone companies now provide universal service. It is funded in part via "access" charges that long-distance carriers such as AT&T Corp. pay to hook up to the local phone network. In 1994, local companies took in about $21 billion in interstate access charges. The seven regional Baby Bells received about $17 billion of that amount. Long-distance companies want those charges slashed. Following are the issues the joint board is grappling with: -- The extent to which schools and libraries should be hooked up to the Internet at discounted rates. President Clinton has proposed giving these institutions free basic service, with the nation's communications carriers paying the tab. Members of the joint board disagree on whether every school, or every classroom, should be wired. There also is disagreement over what discounts schools and libraries should receive. -- The type of funding mechanism that would be used to pay for universal service. The telecom law requires that companies offering interstate phone service -- or virtually all carriers -- must foot the bill for universal service in an "equitable and non-discriminatory" manner. A national fund will be established to pay for universal service. State regulators want the ability to establish and oversee their own funds as well. Those funds would be backed by intrastate phone revenues. -- How to ensure phone service to low-income consumers. Poor Americans currently receive subsidized service through two plans, "Lifeline Assistance" and "Link Up America." Both are expected to be retained, expanded and improved. -- How to determine the cost of subsidies for companies that offer phone service in high-cost, out-of-the-way areas such as rural communities. The joint board has been examining whether to calculate such costs based on existing costs of providing such service, or a new model spelling out different "proxy" prices that would be used as a reference by regulators. The proxy prices would influence how much subsidies carriers would receive.

The Federal Communications Commission's new rules opening the local telephone market to competition are likely to survive a slew of legal challenges leveled by state regulators and local phone companies, lawyers predicted Wednesday. They said it is unlikely a federal court would overturn the core of the "interconnection" rules. They said such a move would happen only if the FCC acted arbitrarily, or grossly overstepped its legal boundaries by making the rules inconsistent with the new telecommunications law. But lawyers do not believe the FCC has overstepped the law. "Unless the commission has really overstepped the bounds, no court is going to be eager to overturn this carefully constructed apple cart," said attorney Jeffrey Olson with Paul, Weiss, Rifkind, Wharton & Garrison. Scott Harris, a former top FCC official who is now an attorney with Gibson, Dunn & Crutcher, echoed that view. "The commission will eventually win in court," he said. State regulators already have filed suit to block the new rules, which the FCC issued last month. On Wednesday, the New York Public Service Commission said it asked the U.S. Court of Appeals in New York to annul the rules, which implement the 1996 Telecommunications Act. The regulator said the FCC rules are an intrusion on the state's authority to set local telecommunications policy. Last week, the National Association of Regulatory Utility Commissioners -- which represents state regulators -- said it would ask the courts to offer a speedy review of the rules. The regulations are designed to break open local phone monopolies and give long-distance companies, cable television firms and others a crack at offering local phone service. Meanwhile, GTE Corp and Southern New England Telecommunications Corp said they would ask a federal appeals court in Washington to block the rules. BellSouth Corp said it would ask a federal appeals court to overturn the rules, charging that the FCC had "gone far beyond the intent of Congress." U S West Communications Group is exploring legal options, including a legal challenge or having the court set aside certain components of the rules through a "stay." In addition, the United States Telephone Association, a trade group representing the Baby Bells and local phone companies, said it is exploring its legal options and plans to be involved in the appeals process. But lawyers think the rules will withstand such moves. "The (FCC) did such a good job here it is going to be sustained on appeal," said Harris of Gibson, Dunn & Crutcher. Lawyers said that while a court could rule against the FCC on smaller aspects of the interconnection rules, the heart of the rules should remain unscathed. Still, lawyers hedged their bets and said it was possible that the FCC could lose and that the legal challengers could pull a rabbit out of the hat and have the rules overturned. "You may get lucky. You may win the lottery," said Olson of Paul, Weiss, explaining the tactics behind the challenges. "If I were a betting man, the odds favor the commission over the petitioners," said former FCC General Counsel Henry Geller. "But I wouldn't put a lot of money on it."

Lawmakers and law-enforcement officials voiced support Wednesday for tougher laws to bar eavesdropping on cellular phone calls, following the uproar over Newt Gingrich's intercepted call. A House telecommunications subcommittee is training its sights on a little-enforced law banning the sale, manufacture and importation of scanners that can pick up cellular calls. Despite the 1992 law, scanner enthusiasts have used legal loopholes to modify tens of thousands of otherwise legal scanners so they can overhear cellular traffic. An estimated 10 million legal scanners are in the hands of the public. "Our goal is to make sure that the sale of this kind of equipment drops precipitously," declared Representative Edward Markey, a Massachusetts Democrat and author of the law. Markey, speaking at a hearing of the subcommittee, called the modified scanners "a great danger to the presumption of privacy" enjoyed by users of cellular phones. Markey expressed support for closing the necessary loopholes to make it tougher for scanner operators to illegally tap in on cellular calls. The head of the subcommittee, Representative Billy Tauzin, R-La., also said "there is a problem in enforcement." He noted the Federal Communications Commission refers potential criminal cases to other agencies "that may have less interest in enforcing the anti-intercept laws, due to other, and perhaps, more important law-enforcement priorities. "Perhaps a solution is to rationalise the respective enforcement roles of the FCC, the Justice Department and the FBI," Tauzin added. Last month, the FBI opened an investigation into the taping and leaking of an embarrassing conference call between House Speaker Gingrich and his top lieutenants. The probe came after a Florida couple said they delivered a tape of the cell-phone conversation to the senior Democrat on the House Ethics Committee, which was deliberating over a politically charged case involving Gingrich. A transcript of the tape was published in two newspapers two days later, prompting Republican calls for an FBI criminal probe into the source of the tape. Federal law also makes it a crime to intentionally intercept or disclose the contents of a phone call, regardless of whether it is over a hard-wired, cellular or cordless phone. Criminal violation is punishable by a penalty of up to five years in jail and a $250,000 fine. But in the case of wireless calls in particular, the law is little enforced and penalties are light because cellular traffic is so easily intercepted. Unless there are "aggravating" circumstances, such as a repeat offence, eavesdropping on a cellular call is treated as an infraction, with no jail time and a maximum fine of $5,000. Deputy Assistant Attorney General Robert Litt suggested to lawmakers they explore "whether it continues to make sense" to levy different penalties for eavesdropping on the different types of calls. "From the point of view of the person having the conversation, the invasion of privacy is the same," he said.

U.S. Vice President Al Gore on Wednesday defended last year's telecommunications law against critics who charge it is a failure, saying that the Clinton administration has no plans to try and reopen the act. "This is the first year of a process of change that will take quite some time," Gore told a group of reporters. He also noted that several key provisions of the sweeping law have yet to be implemented. The law, enacted last February 8, ripped down 62-year-old legal barriers and encouraged local and long-distance carriers, cable-TV operators, electric utilities and others to invade each other's backyards. Gore said the difficult negotiations over the bill during the prior four years have led most participants to realize just how delicate and complex the legislation is. "Most reasonable people believe it will be a little time before much of it is opened up," Gore said, echoing the view of several lawmakers on Capitol Hill. But critics -- including influential Arizona Republican Senator John McCain and consumer groups -- complain that despite the bill's enactment, the $100 billion local phone market remains a monopoly run by the Baby Bells and other local carriers. They also note that the $78 billion long-distance market remains dominated by AT&T Corp, MCI Communications Corp and Sprint Corp. Prices for communications services, instead of falling, are rising. Cable-TV rates jumped 7.8 percent last year, more than double the 3.3 percent rise in consumer prices. Residential interstate long-distance rates rose 3.7 percent, while intrastate long-distance rates jumped 6.1 percent. Gore noted, however, that the increases in cable-TV rates are not a result of the new law and that they come within the guidelines established by a major 1992 cable-TV law. Meanwhile, big cable-TV operators such as Time Warner Inc and Tele-Communications Inc have watered down plans to offer phone and other services and are instead defending their own turf. Gore said he was "surprised" by those decisions, but added that it has not been universal among all cable companies. "I rather suspect the pioneers who make these investments will be handsomely rewarded by the market," Gore said. That, in turn, should spur other cable companies to take the plunge and diversify their offerings. Meanwhile, Gore aide Greg Simon told reporters that the administration is sticking by its proposal for an expedited auction of analog spectrum that will be returned by television broadcasters during the transition to digital TV. Under the administration plan, the government would auction the spectrum in 2002, with digital TV stations required to return their analog channel to the government no later than 2005.

Supreme Court Justice Clarence Thomas refused Thursday to reinstate landmark federal rules aimed at prying open the nation's $100 billion local telephone market to full-fledged competition. Thomas let stand, without comment, a U.S. appeals court order suspending key parts of the Federal Communications Commission's "interconnection" rules. The FCC, long-distance giants AT&T Corp. and MCI Communications Corp., and other phone companies had asked Thomas to restore the rules, but he rejected the request. The FCC and the long-distance companies immediately submitted a new request for the high court to lift the lower court's "stay." The matter is expected to be taken up by the entire Supreme Court for consideration. In the meantime, deregulation of the nation's local phone monopolies remains in legal limbo. The 8th U.S. Circuit Court of Appeals, based in St. Louis, issued its stay on Oct. 15 while it considers a challenge to the rules, which spell out how long-distance carriers, cable-TV operators and others can link up to the local phone market under the new telecommunications law. Oral arguments are set for January. GTE Corp., the Baby Bell phone companies, other local carriers and state regulators want to overturn the rules, saying the FCC overstepped its authority and usurped state powers to issue policies on pricing and other matters. Local companies and state regulators had requested the stay. "We're gratified that the court declined to lift the stay. We are anticipating that the appeals process (against the FCC rules) will go forward and we think that is the right decision," said Bell Atlantic Corp. spokesman Jay Grossman. The FCC and the long-distance companies had told the high court the stay ran counter to the telecom law and would hurt consumers by delaying the introduction of competition in the local market. Thomas oversees appeals from the St. Louis-based appeals court. The FCC rules, adopted in August, are intended to serve as a guide to negotiations between local phone companies and new rivals seeking to enter the local market. They also are intended to serve as a reference for state arbitrators overseeing stalled negotiations. The FCC rules, among other things, require the Bells and other local carriers to lease their phone lines to new competitors at steep discounts of up to 25 percent. With the stay in place, state regulators will hold sway in determining what pricing and other policies will apply to the interconnection agreements between the Bells and GTE and new market entrants. Regulators in several states already have begun to issue preliminary arbitration agreements. Scott Cleland, an analyst at the Washington Research Group, said the decision to leave the stay in place throws the process of telecommunications deregulation into uncertainty. "It decentralizes the deregulation process down to the states and injects a lot of potential uncertainty over time," he said.

Regulators took the first of two steps Tuesday to slash the cost of overseas phone calls for consumers and businesses, making it easier for U.S. and foreign carriers to negotiate cheaper international rates. The Federal Communications Commission hopes to save U.S. callers billions of dollars by backing up the new rules with a separate proposal to be unveiled next month to cut the charges U.S. carriers pay foreign phone monopolies to complete calls from the United States. Americans spend about 16 cents a minute for a domestic call. But they must shell out an average of 99 cents a minute to call overseas -- even though the cost of the calls are not much different, according to FCC officials. "At 99 cents a minute, you're not going to get a global information highway," complained FCC Chairman Reed Hundt. Tuesday's rules are targeted at countries whose own phone markets are open to competition from U.S. carriers, or are in the process of opening. FCC officials cited Canada, Britain, Chile and Sweden, as well as Europe and Mexico. Under the plan announced Tuesday, the FCC will waive rules that limit the ability of U.S. carriers to negotiate cheaper calling rates with an overseas phone company whose own market is considered open. The rules were crafted to prevent market abuse by foreign monopolies. Don Gips, head of the FCC's International Bureau, said the new rules "will allow competitive pressures, rather than archaic rules," to govern the telecommunications market. AT&T Corp. Vice President Gerry Salemme said they "can lead to a significant reduction in the amount that American consumers pay for international telephone calls." Under the new approach, a company such as AT&T -- with FCC approval -- could ask competing foreign carriers to bid for the right to handle AT&T phone traffic from the United States to a foreign market. Alternatively, a U.S. carrier could offer end-to-end service from the United States to a foreign market without using the existing rate system for completing calls. Officials say these "accounting rates" run five to 10 times actual costs, reflecting the power of state-run monopolies unexposed to home competition. U.S. carriers paid their overseas counterparts $5.5 billion more in 1995 than foreign companies paid U.S. carriers to complete calls. While the accounting rates paid by both carriers are about equal, the imbalance reflects the fact that many more overseas calls are made from the United States than into this country. International calls from the United States account for about a quarter of all international calls worldwide. To reduce the rates, the FCC proposal scheduled for next month would set "benchmark" rates for what U.S. carriers could pay foreign carriers to complete calls. These rates, according to FCC officials, would better reflect actual costs. The agency must still work out the details of how long a country would have to lower its rates and what steps could be taken if it refused to do so. The FCC actions come as the United States is seeking to open overseas telecommunications markets through talks sponsored by the World Trade Organisation. The United States has big rate imbalances with China, Jamaica, Mexico, Hong Kong, Columbia and Argentina, among others. Next month's proposal is likely to ruffle feathers. "There will be concern from countries around the world with the benchmark item. There's no doubt about that," said the FCC's Gips.

The television industry's new ratings system is a bust and is rife with inconsistencies that make it tougher for parents to pick shows appropriate for kids, a conservative media watchdog group charged in a new study on Tuesday. The Media Research Centre reviewed 150 hours of shows in the two weeks that ended Jan. 16 on six broadcast networks: ABC, CBS, Fox, NBC, UPN and WB. The study concluded the age-based system, which began airing Jan. 1, was confusing and contradictory. TV officials said it was too soon to judge. The study, for example, said 61 percent of shows got a middle-of-the-road TV-PG rating -- parental guidance suggested -- although about half of these shows contained obscenities while half did not. Words such as "ass," "bastard," and "son of a bitch" were typical on PG shows, and while an obscenity for sexual intercourse was bleeped out three times, it was understandable when uttered, the study said. It also charged there was no consistency within different episodes of a series. In an episode of CBS's "Moloney," a girl shot her uncle. The man fell over dead with no blood. That bloodless depiction drew a TV-14, for parents of kids under 14 strongly cautioned. An episode a week later had a lesser PG rating even though it showed a bloody torture scene, the group said. In that episode a man put a razor blade in his wife's hand, then clasped the hand between his own and squeezed it violently, forcing the blade into her hand and causing the hand to bleed. "After only a few weeks of the new system, it is apparent that those who said it would never work were right," said Brent Bozell, chairman of the Media Research Centre. Bozell told a news conference the system "is a failure and should be junked at the earliest possible opportunity." Others from the opposite end of the political spectrum said the study's findings backed their own view. "You can't tell what the content of the shows are from the ratings," said Kathryn Montgomery of the Centre for Media Education, a children's advocacy group. A number of groups representing lawmakers, parents, children's advocates, educators and others believe this system is too vague and advocate a content-based system that would specify violence, sex and strong language, using letters such as V, S and L. The current ratings have two categories for children: TV-Y, children of all ages, and TV-Y7, children 7 and older. Aside from TV-PG and TV-14, the other two categories are: TV-G, suitable for all ages; and TV-M, for mature audiences only. TV industry officials stressed that their system was still in its infancy and that it was too early to draw conclusions. "The television industry's parental guidelines system is barely 42 days old. Before its critics attempt to kill it in the cradle, it should be given a fair chance to establish itself," said Martin Franks, CBS Inc. senior vice president. Congress was expected to hold hearings later this month on the system's effectiveness.

Deregulation of the $100 billion local telephone market is progressing -- but not by the script written by the Federal Communications Commission. Although the Supreme Court Tuesday declined to revive key parts of the FCC's landmark rules for prying open local phone monopolies, the march to competition is not dead, industry and government officials agree, and earlier fears that consumers would not see lower rates anytime soon may be overblown. "Things haven't come to a halt," said Henry Geller, a former FCC general counsel. "It's not the end of the world." But the deregulation road map has changed. State regulators, not the FCC, are calling many of the shots over how to open the local market to competition from the likes of long-distance carriers such as AT&T Corp, cable-TV operators, utilities and other companies. The states do, however, appear to be taking account of the FCC's now-defunct rules governing the prices new entrants to the local business must pay to acess the existing network controlled by the Baby Bells and other local carriers. FCC Chairman Reed Hundt -- who last month charged that an appeals court order suspending the FCC rules amounted to a "monkey wrench" in the deregulation process -- now sees matters differently. "I'm pretty encouraged as of this moment about the general trend here," he said last Friday. What's more, long-distance carriers such as AT&T are not now sounding alarm bells. And despite warnings that state regulators would give local carriers preferential treatment once the FCC rules were suspended, the Baby Bells and other local companies concede that state decisions so far represent a "mixed bag" for them. BellSouth Corp Vice President Randy New insists "it is impossible not to conclude" the states are being independent. Last month, a U.S. appeals court in St. Louis suspended key provisions of the FCC's "interconnection" rules that spell out how new entrants can hook up to the local network under the new communications law. The court said the FCC likely erred when writing them. The Baby Bells, GTE Corp and other local carriers and state regulators want the rules overturned. They argue that the FCC unfairly snatched from the states power to issue policies governing pricing and other matters. Thanks to the appeals court order, state regulators are responsible for deciding important pricing issues. The FCC rules prescibed standardized prices for all 50 states. Lawyers and industry officials agree that even though the FCC rules are suspended, their influence still lingers. Regulators in Texas, Maryland, Virginia, Pennsylvania, Iowa, and elsewhere have not strayed far from them in arbitration decisions they've issued involving AT&T and MCI Communications Corp. and the Baby Bells. The decisions lay the groundwork for how the two long-distance giants access the local network. "So far, states are taking an approach generally consistent with the FCC's rules," said Richard Levine of the management consulting firm A.T. Kearny Inc. The FCC required the Baby Bells to lease their networks in bulk at discounts of 17 percent to 25 percent. The FCC also ordered local carriers to "unbundle" their networks into seven pieces that new rivals could lease to complete their own networks. The price of the pieces -- such as call-switching devices and operator assistance -- were to be based on the cost of new and more efficient facilities. "In general, the states so far are very consistent with the FCC's interconnection order and with the general pricing construct the FCC laid out," said AT&T Vice President Steve Davis. Predicted Dan Hubbard, a senior vice president for a division of SBC Communications Inc : "There will be competition in the local markets by the early part of 1997."

The government's largest wireless phone auction ended Tuesday, with prices taking a U-turn back toward earth after 125 companies bid a total of $2.5 billion to offer a new generation of cellular service. The total was down 75 percent from a similar Federal Communications Commission auction that raised $10.2 billion last May. The average price for a license to provide "personal communications services," or PCS, tumbled more than 90 percent. PCS technology is expected to turn the wireless phone into a mass-market product, allowing consumers to use different communications services -- such as phone, paging, fax and Internet access -- through a single handheld device. The drop reflected the flood of new entrants into the wireless phone market, a dearth of new money after the sky-high prices paid at last year's PCS sale, and the smaller slice of airwaves covered by the new licenses, analysts said. The top bidder this time around was a unit of No. 3 long-distance carrier Sprint Corp. It bid $544 million for 160 licenses in Chicago, Houston, and Atlanta, among other cities. Next was a unit of long-distance giant AT&T Corp., which bid $407 million for 222 licenses in New York, Los Angeles and elsewhere, followed by a unit of BellSouth Corp., which bid $205 million for 39 licenses. The No. 4 bidder was OPCSE-Galloway Consortium, a consortium made up of Omnipoint Corp. of Arlinton, Va., and Galloway Entrepreneurs of Charlottesville, Va. It bid $181 million for 109 licenses. The FCC sold 1,479 PCS licenses nationwide in three different blocks, making this the most licenses sold at once. A third were reserved for small companies. Markets that generated the highest bidding were New York, Chicago and Los Angeles. Based on the population sizes covered by the licenses, the average bid at the auction was just $3.32 a person. That was down from the average bid of $39.88 at last May's "C-Block" sale, which was reserved for small companies. Analysts called those prices too high for companies to make much money. The FCC's first PCS auction, which raised $7.7 billion and ended in March 1995, had an average bid of $15.54. "It's phenomenally cheaper," said Jonathan Foxman, vice president of Americall International, a Phoenix-based PCS firm that bid at the auction. Mark Lowenstein, a vice president with Boston consulting firm Yankee Group Inc., called the latest prices "more reflective of the current market reality." Analysts listed several factors behind the lower prices. The airwave parcels sold, at 10 megahertz (MHz) each, were a third the size of the 30 MHz parcels sold at the two prior auctions and thus less attractive. The permits cover less geographic area. Analysts also said the wireless market was getting crowded with companies holding PCS and traditional cellular licenses -- meaning less profits. "The market is going to be too crowded," predicted P. William Bane, a director at Mercer Management Consulting. The steep prices at last year's PCS auction meant less money available this time around. "The latest prices are an indication that people have run out of money," said Bane. In addition, analysts said, Wall Street has not rushed to extend financing to PCS providers.

The Federal Communications Commission reined in its regulation of long-distance telephone rates Tuesday by scrapping a Depression-era rule requiring phone carriers to tell the agency beforehand of rate changes. FCC officials said the move was designed to inject more competition into the $70 billion long-distance market and cut thousands of pages of government red tape for long-distance companies such as AT&T Corp. and MCI Communications Corp. But industry officials and consumer advocates argued the new approach will lead to consumer confusion and make it tougher for consumers to get the best possible deals. The 1934 rule the FCC ended forced long-distance carriers to tell the FCC ahead of time of plans to change rates or offer new services via "tariff" filings with the agency. The rule was intended originally to let regulators approve or reject the changes while giving the public an advance look. Under the new approach, companies will be required to disclose their rates and conditions to the public, such as through ad campaigns or over the Internet computer network. FCC officials said the onset of greater competition in the long-distance market made the old rule outdated. They said that few people actually read the complex filings. Officials said elimination of the tariff requirement removes the opportunity for long-distance carriers to tacitly collude on phone rates by getting a preview of their competitors' pricing policies. "Competition will intensify and consumer benefits will increase as a result," said Commissioner Susan Ness. The tariff filings currently take effect one day after their submission to the FCC. When AT&T was classified a "dominant" carrier, the No. 1 long-distance company had to wait up to 60 days. The FCC ended AT&T's dominant status last fall. The new approach is the first major step the FCC has taken under a part of the new telecommunications law allowing the agency to shed outdated rules, as long as the public interest is unharmed. The new rules will take effect in nine months. "We think it's a terrible mistake," said Mark Cooper of the Consumer Federation of America. "You need informed choices." He noted that groups such as his use the data from the tariff filings to help consumers find the best phone packages and avoid questionable deals. Industry officials had sought -- but without success -- to retain the option of submitting tariff filings for certain residential and small-business phone plans, saying that would make it easier for customers know their phone rates. "While AT&T has always favoured less regulation, we're concerned the FCC's decision to mandate the end of tariffs will lead to more consumer confusion and possible litigation," said AT&T Vice President Gerry Salemme.

Following weeks of talks, representatives from the television and computer industries reached an agreement in principle Monday on a broadcast standard for a new generation of high-definition digital TV. The accord is aimed at allowing the Federal Communications Commission to finalise by year's end a government-prescribed standard for advanced digital TV, which offers cinema-quality pictures and CD-quality sound. TV manufacturers, as a result, hope to begin bringing digital-TV receivers to market in 1998. While the accord between the computer, broadcast and consumer electronics industries calls on the FCC to issue a broadcast transmission standard, the agency would not mandate key aspects of digital TV technology. Instead, the eventual shape of the TV screen and the technology for putting images on to the screen would be dictated by the market -- and not a government agency. FCC officials welcomed the pact. "I am confident that, based on today's announcement, the FCC can act before the end of 1996," Commissioner Susan Ness said in a statement. FCC Chairman Reed Hundt said, "Our goal has been to trust the market, not government, to define the digital television of the future. Today's agreement is wholly welcome." Computer companies, led by Microsoft Corp. Chairman Bill Gates, had objected to the broadcast standard the FCC initially proposed in May, saying it would work poorly with computers and stifle the the convergence of TV and computer technologies. The long-promised convergence would allow consumers to watch TV and surf the Internet via the same "smart box." The latest round of talks, which were held in Washington, also resolved objections raised by Hollywood directors, actors and cinematographers who complained that the proposed screen size would mangle images in wide-screen films. The FCC proposal stalled after the Clinton administration made an election-year reversal in August and warned the plan could be "overly prescriptive" and could "stymie" development of new products and services. It initially backed the plan, but reversed itself after the objections from the computer industry and Hollywood. "If the FCC acts this year, it could make high-definition TV a reality for consumers in 1998," said Gary Shapiro, president of the Consumer Electronics Manufacturers Association, a trade group representing TV makers. The latest talks involved representatives for TV broadcasters, the big networks, TV manufacturers Philips Electronics N.A. Corp. and Thomson Consumer Electronics, plus Microsoft, Intel Corp., Compaq Computer Corp., and Apple Computer Inc. The initial FCC proposal stemmed from a recommendation by an advisory panel that included representatives from the entertainment, broadcast, electronic and computer industries. The plan took more than eight years to develop. The negotiations were initiated after a request last month from Commissioner Ness. She set a Nov. 25 deadline for the negotiators to reach agreement, although the date was not legally binding.

The Supreme Court Tuesday declined a request by federal regulators and long-distance phone companies to reactivate landmark rules intended to pry open the nation's local phone monopolies to competition. The denial means key terms and conditions for deregulating the $100 billion local phone market will for now depend on the decisions of state regulators in the 50 states -- instead of on uniform rules issued by the Federal Communications Commission. The denial was a defeat for the FCC and long-distance giants AT&T Corp. and MCI Communications Corp., which had sought to reinstate FCC rules suspended by a U.S. appeals court pending a legal challenge to the rules. Supreme Court Justice Thomas had declined to restore them. It was a victory for the regional "Baby Bell" companies, GTE Corp. , other local carriers and state regulators who are seeking to overturn the rules in the appeals court in St. Louis. They argue that the FCC unfairly snatched from the states power to issue policies governing pricing and other matters. The rules spell out how long-distance companies, cable-TV operators, utilities and others wanting to get into the local phone business can plug into local networks under the new federal telecommunications law. "For all practical purposes the states have complete control over the prices new entrants will pay to share the existing telephone networks during the critical period when competition is supposed to begin in local telephone markets," FCC Chairman Reed Hundt said after the high court's denial. The appeals court temporarily suspended the rules last month, saying the FCC probably erred when it drafted them. On Oct. 31, Justice Thomas declined a request by the FCC and its long-distance allies to lift the lower court's "stay." They separately asked Justices Ruth Bader Ginsberg and John Paul Stevens to reconsider the request, and the justices referred the matter to the entire court. "The stay prevents grossly arbitrary and distored pricing rules from going into effect and ruining the whole process," said GTE General Counsel William Barr. "It does not delay the timetable set forth in the Telecommunications Act of 1996 for the introduction of competition, but instead allows for a more level playing field." Oral arguments in the case are set for January. FCC Chairman Hundt conceded Friday it was unlikely the appeals court would decide in favour of the FCC, and he doubted that the rules would be put into effect for at least 1-1/2 years, if ever, while they were fought over in the courts. Hundt was encouraged, however, by the actions of state regulators arbitrating connection agreements between the Bells and their long-distance rivals. He said key provisions of the arbitration decisions issued thus far were similar to the suspended FCC rules. Iowa, Texas, Maryland, Virginia and Pennsylvania have been among the states that have issued decisions that will lay the groundwork for arbitrated agreements between the Bells and AT&T, MCI and No. 3 long-distance company Sprint Corp. "There hasn't been any evidence that the states are going off and doing any wild and crazy stuff," said analyst Robert Mayer of Deloitte & Touche Consulting Group.

Deregulation of the $100 billion local telephone market is progressing -- but not according to the script written by the Federal Communications Commission. Although the Supreme Court Tuesday declined to revive key parts of the FCC's landmark rules for prying open local phone monopolies, the march to competition is not dead, industry and government officials agree. In addition, fears that consumers would not see lower rates anytime soon may be overblown. "Things haven't come to a halt," said Henry Geller, a former FCC general counsel. "It's not the end of the world." But the deregulation road map has changed. State regulators, not the FCC, are calling many of the shots over how to open local markets to competition from the likes of long-distance carriers, cable-TV operators, utilities and other companies. The states do, however, appear to be taking account of the FCC's now-defunct rules governing the prices new entrants to the local business must pay to acess the existing network controlled by the Baby Bells and other local carriers. FCC Chairman Reed Hundt -- who last month charged that an appeals court order suspending the FCC rules amounted to a "monkey wrench" in the deregulation process -- now sees matters differently. "I'm pretty encouraged as of this moment about the general trend here," he said last Friday. What's more, long-distance carriers such as AT&T Corp. are not now sounding alarm bells. Despite warnings that state regulators would give local carriers preferential treatment once the FCC rules were suspended, the Baby Bells and other local companies concede that state decisions so far represent a "mixed bag" for them. BellSouth Corp. Vice President Randy New insists "it is impossible not to conclude" the states are being independent. Last month, a U.S. appeals court in St. Louis suspended key provisions of the FCC's "interconnection" rules, which spell out how new entrants can hook up to the local network under the new communications law. The court said the FCC likely erred when writing them. The Baby Bells, GTE Corp. and other local carriers and state regulators want the rules overturned. They argue that the FCC unfairly snatched from the states power to issue policies governing pricing and other matters. Thanks to the appeals court order, state regulators are responsible for deciding important pricing issues. The FCC rules prescibed standardised prices for all 50 states. Lawyers and industry officials agree that even though the FCC rules are suspended, their influence still lingers. Regulators in Texas, Maryland, Virginia, Pennsylvania, Iowa, and elsewhere have not strayed far from them in arbitration decisions they've issued involving AT&T and MCI Communications Corp. and the Baby Bells. The decisions lay the groundwork for how the two long-distance giants access the local network. "So far, states are taking an approach generally consistent with the FCC's rules," said Richard Levine of the management consulting firm A.T. Kearny Inc. The FCC required the Baby Bells to lease their networks in bulk at discounts of 17 percent to 25 percent. The FCC also ordered local carriers to "unbundle" their networks into seven pieces that new rivals could lease to complete their own networks. The price of the pieces -- such as call-switching devices and operator assistance -- were to be based on the cost of new and more efficient facilities. "In general, the states so far are very consistent with the FCC's interconnection order and with the general pricing construct the FCC laid out," said AT&T Vice President Steve Davis. Dan Hubbard, a senior vice president for a division of SBC Communications Inc., predicted: "There will be competition in the local markets by the early part of 1997."

The nation's distillers Thursday formally reversed their 48-year-old voluntary ban on broadcast advertising of liquor, saying whiskey and gin should be treated just like beer and wine. The announcement -- coming two days after the presidential election and just ahead of the holiday season -- affirms the decision by Seagram Co. Ltd. in June to begin airing TV ads for its Royal Crown and Chivas Regal whiskey. That ad campaign has unleashed criticism from lawmakers, regulators and President Clinton. And the latest decision is sure to rachet up the debate. "For decades, beer and wine have been advertised on television and radio while the distilled spirits industry has upheld its own voluntary ban," said Fred Meister, president of the Distilled Spirits Council of the United States (DISCUS). "The absence of spirits from television and radio has contributed to the mistaken perception that spirits are somehow 'harder' or worse than beer or wine and thus deserving of harsher social, political and legal treatment." The reversal of the voluntary ban was adopted in DISCUS's "code of good practice." The announcement drew an immediate rebuke from the chairman of the Federal Communications Commission, who has made it clear he is opposed to the practice and has raised the specter of new rules that would bar such advertising. "This decision is disappointing for parents, and dangerous for our kids," said FCC Chairman Reed Hundt, whose agency has begun a probe of the ad campaign. Consumer advocates also objected. "Today's decision by DISCUS to dump its voluntary ban marks the beginning of an open liquor-marketing season on America's children and teens," said George Hacker of the Center for Science in the Public Interest. He urged President Clinton to renew his appeal to distillers to return to the voluntary ban, and he called on the Federal Trade Commission to assist the FCC in its probe. In Congress, Rep. Joseph Kennedy has offered legislation to make it illegal to advertise hard liquor on radio or TV. Broadcasters, meanwhile, criticized the distillers' decision but stopped short of refusing to run liquor ads. The National Association of Broadcasters advocated to continue leaving the decision on whether to air the ads to individual TV and radio stations. "We believe this process has served American consumers well, since individual stations make and will continue to make judgments every day on what is most appropriate for their local audiences," said NAB President Edward Fritts.