WSJ Article - America Online Changes Tune In the Debate Over Cable Access
February 14, 2000
Tech Center
America Online Changes Tune
In the Debate Over Cable Access
By KATHY CHEN
Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON -- When it announced its plan to acquire Time Warner Inc. last month, America Online Inc. promised to open Time Warner's vast cable networks to online rivals. But now AOL is backing away.
Behind the scenes of the $119.6 billion AOL-Time Warner deal, the year-old battle over "open access" to cable networks is reaching a turning point. The internal policy debate could help determine which companies get access to the fat pipelines that provide consumers with superfast access to voice, video, data and other services.
1AOL, Time Warner Set Plan to Link in Mammoth Merger (Jan. 11)
2Company Profile: America Online
* * *
3Join a Discussion: What do you think of the merger of AOL and Time Warner? What will this marriage of "old" and "new" media companies mean to the Internet industry?
AOL fueled the debate last year by insisting that federal and local governments force cable operators to open their networks to rivals offering high-speed Internet access. Time Warner, AT&T Corp. and other cable giants vehemently opposed this idea. When AOL and Time Warner announced their deal, both companies moderated their positions, saying they were committed to open access, though they saw less of a need for direct government involvement.
Now they are trying to reconcile their ideas of what open access truly is. AOL in particular is reconsidering its positions, including how soon it might implement an open-access policy, and whether cable pipes should be open to all Internet-service providers.
In October, for example, AOL made a filing with the city of San Francisco urging the city to establish an open-access policy ensuring that "all business system interfaces will be open to all ISPs." The city then was considering whether to require AT&T to open its newly acquired cable pipes to online rivals.
Now George Vradenburg, AOL's senior vice president in charge of global and strategic policy, says AOL and Time Warner may not open their cable networks to all ISPs -- and that AOL had never suggested that any cable operator should.
He says that all along, AOL has argued for opening to "multiple ISPs" in the context of technological capacity restraints, and that the San Francisco filing used the phrases "all" and "multiple" interchangeably. "You want to achieve as many ISPs as you can without increasing the costs or degrading services," he says.
'New and Fresh'
Mr. Vradenburg says both AOL and Time Warner remain committed to open access. Without discussing details, he says their approach will be "something new and fresh that is in the best interests of cable consumers in general."
People close to the situation say the companies could disclose specific principles of their open-access policy as early as this month. These people say the principles are likely to resemble those of the limited open-access agreement reached in December between AT&T and Atlanta Internet-service provider MindSpring Enterprises Inc., which earlier this month completed a merger with EarthLink Inc.
AOL has already signaled a shift in its strategy at the state and city levels. It recently asked its local lobbyists to stop pushing state legislation that would mandate open access, an AOL spokeswoman says.
Before the merger announcement, AOL had been participating in efforts to promote such bills in various state legislatures, including in Virginia, Pennsylvania, Michigan and Maryland. The spokeswoman says AOL has now removed itself from the debate in all these states, although it isn't opposing such legislation. "Our focus is on making open access real in the marketplace," she says.
AT&T pledged that consumers who access the Internet over its cable lines could choose their own Internet provider, but not until after 2002. When AT&T bought Tele-Communications Inc., it inherited Excite At Home Corp., which has an exclusive contract to provide Internet services to AT&T customers through 2002.
Open access will be a major issue in regulatory reviews by both the FCC and the Federal Trade Commission, which acknowledged Friday that it will review the deal for any antitrust implications. The FTC was the agency that reviewed Time Warner's earlier acquisition of Turner Broadcasting. That deal was approved after the companies agreed to make modest changes in the deal to protect competition.
AOL Chief Executive Steve Case has met in recent weeks with top executives of several cable companies in hopes of working out a voluntary, industrywide standard on open access, says Rep. Rick Boucher (D., Va.), who discussed the subject with Mr. Case. AOL declined to comment.
AOL's new approach could put the Dulles, Va., company in the awkward position of opposing some of its early allies in the open-access fight. "AOL has crossed the line from [supporting] public policy to pure private negotiations," says Mark Cooper of the Consumer Federation of America, which backed AOL's push last year for government involvement. "Once you cross the line, the little guys get overlooked."
Roadrunner Agreement
One impediment to AOL and Time Warner offering open access could be Time Warner's exclusive agreement with Road Runner, a cable Internet-service provider in which Time Warner has a stake. Under that deal, Time Warner promises to use Roadrunner as the sole ISP on its cable lines.
That deal is scheduled to end in late 2001, but Mr. Vradenburg said after the AOL-Time Warner deal announcement that AOL would push Time Warner to end the Road Runner deal earlier. That comment didn't sit well with Time Warner executives, who had no plans to end the contract prematurely.
In a joint interview last week, Mr. Vradenburg and Tim Boggs, Time Warner's senior vice president for global public policy, said the two companies would honor the exclusive agreement. "We have a contract and it's a fact of life and we'll live with it," Mr. Vradenburg said. He added that the companies won't use the period before the contract expires to gain an unfair advantage in the market.
Following the merger announcement, Mr. Vradenburg said that AOL would continue to support legislation that would set a national policy requiring all cable companies to provide open access. The bill is co-sponsored by Mr. Boucher and Rep. Bob Goodlatte, a Virginia Republican.
But during a recent visit with the two lawmakers, Messrs. Case and Vradenburg said they might propose changes that would reflect a solution reached by the market, such as an industry-negotiated standard, Mr. Boucher says. The congressmen plan to press ahead with the legislation anyway, and could try to move the bill out of the House Judiciary Committee this month. "We believe an industrywide solution would be preferable," says Mr. Boucher. "But I'm skeptical."
Greg Simon, co-director of OpenNet Coalition, a lobbying group of Internet companies and telephone companies of which AOL is still a member, says his coalition is willing to give AOL a "honeymoon period" of a year or so to implement open access. "But if they say they'll do it in two years, we'll jump in" and push for earlier implementation, he says.
AOL and Time Warner are expected to begin seeking approval from municipalities for the transfer of more than 2,500 cable franchise licenses within the next few months. Last year, AOL had urged cities to make open access a condition of approving AT&T's numerous cable-franchise transfers. Now AOL says it and Time Warner will offer a "market solution" that makes such government mandates unnecessary.
Andrew Schwartzman, president of the Media Access Project, a nonprofit, public interest law firm in Washington, says the companies' proposed solution isn't likely to stop many localities from demanding the same kinds of open-access requirements that AOL advocated last year. "It's possible AOL will be fighting on the other side of this issue," he said. "But we will tell them they'll have no credibility."
Write to Kathy Chen at kathy.chen@wsj.com4
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