Baby Bell to Buy Cable TV System : Communication: The $650-million acquisition of Hauser Communications by Southwestern Bell still faces regulatory obstacles.

In a move that underscores the rapidly converging worlds of the telephone and cable television businesses, Southwestern Bell on Wednesday said it would buy New York-based Hauser Communications for $650 million.

The deal, which still must overcome regulatory hurdles, would be the biggest plunge yet by a telephone company into the lucrative cable TV industry, which is on the verge of major technical breakthroughs that will offer viewers services such as movies-on-demand and interactive shopping.

Earlier this month, Denver-based US West Inc. said it would modernize its phone network to carry interactive video and information to millions of homes within its operating territory.

And only a few weeks earlier, Philadelphia-based Bell Atlantic disclosed that it would build a competing cable TV system in New Jersey and sued the government to overturn federal restrictions barring phone companies from owning cable systems within their service areas.

Hauser Communications serves 225,000 cable subscribers in the affluent Washington suburbs of Montgomery County, Md., and Arlington County, Va. The system’s customers--not insignificantly--include lawmakers who are shaping the regulatory framework for the telecommunications infrastructure of the future.

Jim Kahan, senior vice president of corporate development at Southwestern Bell, said the cable TV business represents strong growth prospects, thanks to “new technologies like video compression, intelligent converter boxes and fiber optics.”

Analysts say that telephone companies are beginning to stake out claims in the cable TV business because cable systems are technically superior to most phone lines, which cannot deliver “full-motion video” pictures or interactive services to the home.

For the phone companies, acquiring a cable TV system can be more economical than laying new fiber optic lines, they said.

“The residential phone business is not growing,” said John Field, a cable analyst with Hanifen Imhoff Inc. in Denver. “If anything, it’s shrinking. All the cable companies are diversifying into cellular and cable around the globe.”

The deal is also seen as a counterstrike against the cable industry.

Many cable TV operators, including giants Telecommunications Inc. and Time Warner, have made no secret of the fact that they would like to use their cable lines to provide conventional telephone services. Just last week, Time Warner announced that it would begin testing telephone service over a cable TV system in Orlando, Fla.

“The cable system is becoming a communication network for voice, data and video,” said Robert Morris, a telecommunications analyst with Goldman, Sachs & Co. in San Francisco. “The phone company would like to be in that business too, so they are going on the offensive and will try to lock up as many cable companies outside their regions as they can.”

Southwestern Bell, based in San Antonio, Tex., is the smallest of the seven Baby Bell operating companies created by the breakup of AT&T; in the mid-1980s. Nonetheless, Southwestern Bell was the first of the Baby Bells to diversify into cellular telephones and also owns 10% of Mexico’s recently privatized telephone system. Its revenue hit $10 billion last year.

Paving the way for Southwestern Bell’s entry into the cable TV business was a 1991 federal appeals court decision that threw open the door for the regional Bell operating companies to get into the news, information and computer data businesses.

Although the 1984 Cable Act still bans telephone companies from owning cable systems within their own service areas, observers say most of the barriers to ownership elsewhere are rapidly tumbling.

In addition, the Clinton Administration wants to encourage rapid deployment of “electronic superhighways” that can transmit huge amounts of data, voice and video over fiber optic lines. Vice President Al Gore, one of the chief proponents of last year’s cable TV re-regulation bill, favors allowing telephone companies to compete in the cable industry.

This is not the first time that a telephone company has tried to buy a cable TV company.

Pacific Telesis tried in 1989 to purchase the Chicago cable television operations of Prime Cable but ran into regulatory roadblocks that continue to stymie the deal.

According to Pacific Telesis, the 1984 consent decree that spun off the Bell operating companies from AT&T; prohibits the Baby Bells from entering the long-distance phone business.

Under current interpretation of the consent decree, communication via cable over a wide area is equated with providing long-distance service. A waiver from the Department of Justice and approval from the court overseeing the breakup of AT&T; is required.

Nonetheless, some experts do not foresee a problem.

“Where it used to be a sizable task, now it’s almost ministerial,” said John Cole, a Washington communications attorney. “I don’t think they are going to have any trouble. The whole climate has changed.”

Times staff writer Carla Lazzareschi contributed to this story.