By Elizabeth Wasserman
The next epic Internet battle could pit America Online against the At Home Network.
AOL asked the Federal Communications Commission last week to require cable television companies selling broadband Internet access to let customers choose their own ISPs. Some independent ISPs, having been rebuffed by cable operators, are expected to follow AOL's lead. Most cable operators have exclusive contracts with providers like At Home, Road Runner Group and others.
This is just the tip of the iceberg for federal regulators, and it underscores a broad problem outlined by a recent FCC staff report. The cable and telephone industries have been operating under very different regulatory regimes, yet they'll soon be direct competitors in the high-speed Internet access game.
The agency is now seeking comment from industry and consumers about whether cable Internet services should operate under standard cable regulations, more stringent telecommunications rules or an altogether new category of restrictions. The commission is also beginning to allow the Baby Bells to set up separate subsidiaries for high-speed data services. These would operate outside certain regulatory requirements. Meanwhile, when the FCC asked for comments about how it could speed deployment of broadband services, all of the industries supported the concept but argued against new regulation.
"The differences in [the regulation of] these industries are grounded in the history of the very different services they traditionally offered," says Barbara Esbin, associate chief of the FCC's cable services bureau. "The question for the future is: Are these regulations still viable when you have these industries competing to provide broadband service?"
In preparation to move from a narrowband to a broadband world, the request from AOL seeks to ensure that consumers continue to have a choice among some of the estimated 4,500 ISPs and online companies now providing service over telephone lines. The country's largest cable operators now provide high-speed Internet access over cable modems to fewer than 500,000 consumers, but that number is expected to grow very rapidly.
Cable networks can carry data to personal computers 100 times faster than copper telephone lines. A report last month from Forrester Research predicted that cable would lead the charge to high-speed Internet service, garnering as much as 80 percent of broadband households by the year 2002. That would leave only 20 percent to the telephone companies and ISPs that deploy DSL services.
"Our issue is that, if you're a TCI subscriber, you have to buy service from At Home in order to get broadband service," says George Vradenburg III, senior VP of AOL. "Customers have certainly demonstrated that they like choice on the Internet. They may have different price sensitivities and different needs. Right now there are Internet services that offer no-frills service for $9.95 or less, on up to the standard $21.95 per month. But you only get a choice of one cable service, for something along the lines of $39.95."
"Residential customers should be free to choose whichever ISP they want," echoes Dick Edmiston, VP of research and development at EarthLink, an ISP with 800,000 subscribers that is planning to join the fray. "Lots of competition is best for consumers. And right now the cable providers have no competition."
AOL and the other ISPs want to ensure their survival by making cable operators and local telephone carriers give broadband customers a choice. Because of the more stringent regulations under which they operate, the telephone companies will probably have to give in. But cable companies have always had more control. They fought to have their Internet service offerings included in the Telecommunications Act of 1996 as "cable services," on the grounds that Net offerings are like traditional cable offerings because operators can localize content and browsing capability. Not surprisingly, cable companies vehemently oppose being required to open their networks to others.
"AOL's request extends regulation to a new medium where it does not belong," says David Pine, At Home's general counsel.
"There is nothing that would cause a cable operator to give away programming control," says Cynthia Brumfield, a senior analyst with Paul Kagan Associates. "They want to be the sole determiners of what content goes over their pipelines - with video, and Internet, as well."
Indeed, most of the big cable operations own or are affiliated with the ISPs with which they have contracts. Tele-Communications Inc. has a 42 percent interest in At Home, which has an exclusive contract with TCI through 2002. Road Runner Group, which offers service in 29 cities, is a subsidiary of Time Warner.
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