In the Wire Wars of 2004, price has been the ultimate weapon for the Baby Bells in their campaign to ward off customer-poaching by the cable companies. If you want high-speed Internet access from cable giant Comcast in Chicago, for example, it's going to cost you $42.95--assuming you're already one of Comcast's cable TV customers. Your other option is high-speed phone Internet access from telecom SBC Communications. It may be only half as fast, but that's speedy enough for most people. Order online and you can get it for as little as $26.95 per month. That sort of pricing advantage enabled phone companies in the second quarter to sign up more customers for broadband service than cable did for the first time ever.

But when you're involved in a hard-fought marketing war that may decide the future of your industry, price attacks can't go unanswered forever. In response to $29.95 digital-subscriber-line phone (DSL) service from telecom rival Verizon, Cablevision decided to do a little discount pricing itself. In June, the nation's sixth-largest cable operator, with 3 million subscribers in New York, New Jersey, and Connecticut, began temporarily offering new customers a "triple play" bundle of high-speed Internet service, unlimited phone service, and, of course, digital cable TV, for $90 per month for the first year. That dramatically undercut Verizon's combined voice, DSL, and satellite TV package of $135.

Escalation. It was a bold move--though not one applauded on Wall Street, where Cablevision shares tumbled. Smith Barney analyst Niraj Gupta pronounced the Cablevision triple-play price "dangerously low" with the potential to provoke "irrational competitive response" from Verizon. Whether smart or foolish, Cablevision's salvo was undeniably an escalation in a ferocious, wire-to-wire death match now being waged between the cable and telephone companies to supply all our current and future telecommunications needs.

While the Bells have been using low-cost broadband as their weapon of choice, cable companies have been using cheap Internet-based phone service--voice over Internet protocol--to steal customers. It's all part of the battle to own the broadband pipe into your home as well as to supply the voice, video, and data services that zip through it.

What's behind this crazed competitive environment is a mix of technological change--ubiquitous broadband, the emergence of voice over Internet technology--and the slowdown in both the core phone and cable businesses. "This battle is just beginning, and I expect it to intensify with quite a bit of turmoil," says Andrew Odlyzko, director of the Digital Technology Center at the University of Minnesota. "Who is going to come out on top? You can't predict."

In fact, both sides may lose, if advances in wireless technology, such as 4G or Wi-Max, render all this wired wrangling for naught. That may explain why Wall Street has been lukewarm about the stocks of both camps: Verizon, SBC, BellSouth, and Qwest on the phone side, and Comcast, Cox Communications, and Time Warner in cable. Whoever triumphs, industry insiders think the combat will be fast, furious, and decisive. Think Gulf War I rather than Vietnam. "Right now we're in the land-grab phase of all this, and the competition is becoming more and more desperate," says UBS Warburg analyst Aryeh Bourkoff.

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