(FORTUNE Magazine) – The melody borne on the breeze from Capitol Hill this summer might be called "At Long Last, War." Congress is poised to toss out the antiquated Communications Act of 1934 and tear down the barriers dividing the industry's different camps. This is sure to set the players, a bunch of CEOs that includes some very tough guys, scrambling to get at each other's business-and throats. AT&T's Bob Allen and Time Warner's Gerald Levin have long salivated about muscling in on the local telephone business, via phone lines and cable, respectively. Bell Atlantic's Ray Smith will finally get his shot at the national stage by way of the long-distance business, while Viacom's Sumner Redstone can already hear cable operators begging for his Paramount movies and other programming to help fill new channels. Aussie-turned-Yank Rupert Murdoch will be able to load up his News Corp. with more TV stations, adding to his Fox network.

Lingering uncertainties over how the Senate will reconcile its version of deregulation (already passed) with the House's (pending) make much of this a tough call for investors. As S.G. Warburg analyst William Deatherage points out, this is especially true for fans of telephone companies. The final bill could tilt in favor of either the Baby Bells or the long- distance carriers. Overall, however, joy may raise all boats. Says telecommunications consultant David Yedwab of the Eastern Management Group: "Within a year of passage of legislation, we'll see major run-ups across the board because of the euphoria that the market is now open." Thereafter, however, investors can expect a stock shakeout as the players launch on a feeding frenzy, swallowing smaller fry as the best way to devour new markets. Here is how the different industry groups may fare and how investors can best play them:

BABY BELLS. Winners. Once they are unchained, the Baby Bells will slip into the long-distance business as easily as dialing the operator. Add a switch or two, string a few wires between their central offices, and these guys are multistate long-distance powers. The Senate bill would let them do so in about a year; the House version, as it stands, would take somewhat longer. In either case, the Bells will first have to show that they have opened their markets to local competition. Some analysts like Ameritech because it has already taken steps to do so. Tim Horan of Smith Barney, however, prefers Bell Atlantic, BellSouth, and SBC (formerly Southwestern Bell), which are trading at an average discount of 13% to the stock market, using P/E valuations based on expected 1996 earnings. He says each of these companies should enjoy 8% to 9% annual earnings growth over the next five years.

LONG DISTANCE. Losers, but...They will be stripped of their oligopoly, and their stock is already up an average 14% this year. However, AT&T (recent share price: $53), MCI ($21.50), and Sprint ($33.13) still have their admirers. Expect AT&T to do especially well. It will once again become a full-service telephone company able to offer end-to-end service to businesses and consumers, leasing space from the Baby Bells and reselling it at a profit. Doing so would let it keep every penny of long-distance revenue from those calls instead of turning over access fees to the local phone company. AT&T will also attack the local market with wireless service from its new McCaw subsidiary. As Bell Atlantic vice chairman Jim Cullen says, "Baby Bell competition in the long-distance business won't put a dent in the U.S.S. AT&T."

Richard Klugman, an analyst at Paine- Webber, thinks AT&T will rack up annual earnings growth of 11% over the next five years. He also likes Sprint shares, which should dart ahead once the company spins off its cellular operations.

CABLE. winners. Once again these companies will be unregulated players, virtually free to charge what they wish and add new channels to their packages. Nor will they be obligated to carry the telecasts of obscure stations in their franchise areas. The only effective competition they face today is from satellite broadcasters, which don't carry local channels. Most Baby Bells are years away from mounting a comparable video slate.

Tom Wolzien of Sanford Bernstein believes the cable winners will include Time Warner (whose magazine company publishes FORTUNE). He says if Time Warner can raise its cable rates by 10%, the value of the stock could rise by $2 a share. Tele-Communications Inc., the other major cable outfit, also stands to be a big beneficiary of deregulation. Analyst Jessica Reif of Merrill Lynch calls TCI stock "incredibly cheap," trading at seven times her estimates of 1996 cash flow per share, at the bottom of the range for cable stocks.

The big cable caveat for investors in both these stocks sits in the White House. Says Warburg analyst Deatherage: "The Administration doesn't want to lighten up on the cable industry." So far, market vibrations have overridden that, with the share prices of Time Warner and TCI rallying since the Senate passed its version of the bill.

BROADCASTERS AND PROGRAMMERS. Winners. Both the Senate and the House like this crowd. The companies stand to be unshackled from restrictions on how many TV and radio stations they can own. They will also have new outlets, presumably when phone companies begin video service. Christopher Dixon of PaineWebber says large TV station owners like Capital Cities/ABC, GE's NBC, and CBS are obvious winners. And, of course, CBS is still touted as a takeover target for the likes of Ted Turner. Harold Vogel of Cowen & Co. thinks CBS shares, recently $66, have a takeover value of $80. With foreign ownership restrictions lifted as well, Murdoch's News Corp., which is based in Australia, wins twice.

The news is also good for cable programmers like Turner Broadcasting System and Viacom. At least 50 incipient cable networks have died on the vine in the past year or so because cable operators couldn't raise rates and thus had no incentive to add new services. But things are now looking up. Analyst Reif at Merrill thinks Viacom will thrive in the deregulated environment because there will be more buyers of its vast programming assets. Turner also stands to benefit from demand for its programs, and it is enjoying a sharp upturn in ad revenues. Reif thinks Viacom's B shares, now $46, will hit $70 in a year, and Turner's B shares will rise from a recent price of $20.63, to $27, within the next 12 months.

Stay tuned.

EUROPE'S SUMMER BARGAINS

With economists easing back on their expectations for European growth, are the equity markets worth a look? The smart money says yes, though you will hear few ringing endorsements. Barton Biggs, global strategist at Morgan Stanley, pretty much echoes the rest of Wall Street sentiment when he says, "I'm not bearish on Europe these days. I just think the markets are relatively boring."

The ennui is caused in part by this year's unexpected, and precipitous, decline in the dollar, which makes goods manufactured in Europe more expensive, stalling European exports. Still, few economists expect that Europe's recovery will be choked off altogether. And stock pickers are finding opportunities.

Many European shares trade in the U.S. as American depositary receipts, but some of the best bargains right now, analysts say, are to be found among lesser known stocks that trade only in their home markets. U.S. investors can buy these shares through their American broker, though the commissions will be a bit higher than for domestic shares.

George Evans, a portfolio manager of the $2.3 billion Oppenheimer Global fund, likes German machine-tool manufacturers like Traub. Traub outsources much of its manufacturing to Slovakia and Italy, where labor costs are cheaper. The company currently has a six-month backlog of new orders. Evans also likes Gildemeister, another machine-tool manufacturer, and Veba, a large conglomerate with businesses ranging from electricity to chemicals.

In Britain, stocks are threatened by the prospect of rising interest rates, but there are interesting plays nonetheless. British sterling has declined nearly 10% against the deutsche mark in the past six months, increasing inflationary pressures but giving intra-European trade a kick. Clive Gillmore, a portfolio manager with Delaware International Advisers in London, likes GKN, a company with two disparate businesses: pallet manufacturing and auto parts. A pick of James Henderson, at London's Henderson Investment Management: Smith & Nephew, which makes medical products for hospitals and consumer medicines.

- John Wyatt

BEATING THE TAX MAN WITH A CHARITABLE TRUST

You bought stock in Coca-Cola 20 years ago, built up a healthy business, or maybe took a fancy to a painting now worth a bundle. You want to enjoy some of those profits or simply reinvest in another area, but even thinking about the capital- gains taxes you would owe if you took your profit is downright agony. Consider, then, a charitable remainder trust, which would let you enjoy some of those profits, help out a favorite charity, and deny Uncle Sam his due.

Let's say you paid $50,000 for stock now worth $250,000. Rather than sell it and pay tax on $200,000, you put the stock in a trust. The trust--and you can be a trustee--can sell the shares and reinvest the proceeds without paying capital-gains taxes, and then pay you a predetermined annual return for the rest of your life. You also get a charitable tax deduction, based on IRS estimates of how much is likely to be left in the trust when you die.

Charitable remainder trusts are a popular tool among financial planners for both retirement and estate planning, and it's no wonder: They offer you and your spouse lifetime income you didn't have previous access to, plus that warm feeling we all get when ducking taxes.

Stock is the most common medium in such deals, but not always. Harvard received a remainder trust in 1991 in the form of a Stradivarius violin worth $770,000, substantially more than its $40,000 value in 1960, when the donor inherited it. As typically happens with this sort of donation, Harvard sold the violin and began building up the trust to pay the donor his annual return. Harvard, of course, gets to keep whatever remains of the sum when either the donor or his designated trust beneficiaries die.

Most people using the trusts are old enough to be looking over their estates and doing last-minute reshuffling of their assets to plan for retirement or disbursement of their wealth. This form of giving came in handy for John L. Loeb, 92, founder of Loeb Rhoades & Co. and a Harvard alum (Class of '24). He recently gave his alma mater $70.5 million, the bulk of his assets, in the form of a remainder trust from which his children will receive income after he and longtime wife Frances pass on.

Charles Collier, senior planned-giving officer at Harvard, compares the charitable remainder trust to a Swiss army knife because of all its various options. A favorite is a unitrust. It gives you a fixed percentage of the trust's total value, recalculated annually. You'll benefit most from a unitrust if the principle will be invested aggressively, or in a bullish economy, but be aware that your annual income will decline if the trust's investments fall in value.

You cannot get your money back once it's in the trust, but you can reconsider who it will go to if, for instance, your city library disbands the program you intended to support. You don't have to guarantee the charity your money, so long as you are trustee. "You can change your mind on your deathbed," says financial adviser Marshall Gunn (no relation to the undersigned).

A close cousin of the remainder trust is the charitable lead trust, in which the charity receives the interest income of the principal that you sign over for a given number of years, beginning at your death. Your heirs will get the balance. The total interest received by the charity between now and then is deducted from your estate tax. Jacqueline Kennedy Onassis, knowing that her children, John Jr. and Caroline, were already well provided for, set up a lead trust for her grandchildren, who will be adults by the time they inherit.

- Eileen P. Gunn