Last week, two midsize communications companies – one telephone, one cable – released positive earnings results. This otherwise unremarkable event belies a struggle for supremacy between the incumbent telephone industry and the cable television industry.

The two companies are based in Anchorage, Alaska. Why look to Alaska? Because Anchorage is the most contested battleground between the local phone and cable companies. It is illustrative of the forthcoming national battle between telephony and cable.

One of the companies, Alaska Communications Systems [ACS] is the incumbent local telephone company in Anchorage. It also has a substantial wireless presence throughout Alaska. By incurring more than a half-billion dollars in debt, ACS bought the telephone assets from a struggling municipally owned company in the late 1990s.

The other company, GCI, is the local cable company. Operating in northern latitudes where the signals of competing satellite carriers such as DirecTV and Dish Network are not easily received, GCI has significant advantages relative to cable operators in the Lower 48.

In the wake of the Telecommunications Act of 1996, GCI was one of the first cable companies to offer telephone services in competition with the local phone company. GCI has been one of the most successful competitive local phone companies in America, having captured approximately half of the Anchorage telephone market. Today, both ACS and GCI offer consumers packages of voice, data, video, and wireless services.

The commercial war between ACS and GCI is one of the bitterest in America.

They fight not just for the loyalties of local businesses and residents; they also grapple for legal rights before government agencies and in courts of law. The ACS-GCI rivalry spills into Alaska politics and elections.

Through 2002, GCI dominated the fight. GCI’s market cap steadily rose to dwarf the ever-declining market cap of ACS, which struggled under a heavy debt load. ACS’s customer base eroded. It lost several disputes before the FCC, state regulators, and federal courts. Uncertainty of the direction of federal telecommunications regulation harmed all telecommunications providers, but particularly the weaker market participants such as ACS.

ACS reversed its downward spiral over the past two years. It hired a new CEO, Liane Pelletier. It began winning disputes before state agencies. Greater clarity of federal rules, particularly those favorable to incumbents, has disproportionately helped ACS.

ACS also improved its financial structure. It steadily reduced its debt burden. Its market capitalization is 300% greater than two years ago. It now offers a dividend. It recently issued new equity and entered a new, lower-cost credit facility.

The recent success of ACS has not come at the expense of GCI. GCI remains the larger firm with greater revenue, market capitalization, and enterprise value than ACS. GCI continues to win customers, both in Anchorage and around Alaska.

But the competitive balance in Alaska, which just three years ago decidedly favored GCI, seems today to have reached an equilibrium where both firms can prosper. The future of both companies looks bright.

The strategic war rooms of large telephone and cable companies doubtlessly watch the struggles of their smaller cousins in Alaska with close interest. The biggest threat to each of these Goliaths, however, may not be the other but the Davids of the Internet.

A former FCC commissioner, Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He can be reached at hfr@furchtgott-roth.com.