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The Cutting Edge / Focus on E-Business

AOL-Time Warner Deal Could, Ironically, Lead to Open Access

Technology: FTC may make merger approval contingent on combined companies sharing cable with other ISPs.

November 16, 2000|EDMUND SANDERS | TIMES STAFF WRITER

WASHINGTON — The cable industry cheered loudly a year ago when America Online--frustrated by government inaction--abandoned its battle to force cable companies to share their wires with Internet rivals.

But in an ironic twist, it now appears that AOL's bid for Time Warner, the nation's No. 2 cable carrier, will spur the very kind of government intervention it had been seeking in the first place.

As a condition of the AOL-Time Warner deal, the Federal Trade Commission is on the verge of taking its first major policy step toward requiring cable companies to share their high-speed wires with Internet Service Providers (ISPs).

Though such conditions would not be legally binding on other cable carriers, the government's requirement in the AOL-Time Warner deal could become the de facto standard for the entire industry, experts predict.

"This is going to serve as a model for other broadband access providers," said Norman Hawker, an associate professor at Western Michigan University who has been tracking the government's policy on open access and Internet issues.

The FTC's decision, expected in the next three weeks, will help shape one of the Internet's biggest debates: deciding who will have access to the all-important high-speed cable lines.

Though only a fraction of Americans currently access the Internet via high-speed cable lines, it's expected that a majority will migrate to these broadband lines over the next few years as video-based programming and interactive television become more available. Whoever controls those lines could yield tremendous clout.

FTC Chairman Robert Pitofsky, not satisfied with AOL's past promises to permit rivals to use Time Warner wires, is seeking concessions that are far more exacting and specific than many observers expected. Discussions include details about how many rival ISPs that AOL-Time Warner must sign up and how much those services will pay for that access.

AOL and Time Warner also are under pressure to negotiate a lease contract with a rival ISP, likely to be EarthLink or Juno Online, so regulators can review it before approving the merger and ensure that the terms are not discriminatory.

Because AOL-Time Warner would be the nation's No. 1 ISP and No. 2 cable company, rivals such as AT&T and Comcast would face significant competitive and political pressure to adopt similar terms and practices, industry observers say. Certainly, any company that expects to find itself in front of the FTC in the future would need to ensure that it meets the government's standard.

"Lawyers for other companies will be looking to this decision," said Howard Morse, an antitrust attorney in Washington and a former FTC official.

As a result, what was first perceived as a blow to advocates seeking open access now looks as though it could produce their biggest victory yet.

"This could be the first public standard for open, nondiscriminatory access to cable wires," said Gene Kimmelman, executive director at Consumers Union in Washington. "We will have won the first chapter of the open-access debate, though we still need to carry this further and make it an industrywide practice."

Some cable leaders disagree, saying the AOL-Time Warner deal raises special antitrust concerns.

"The circumstances here are unique and do not apply to any other cable operations," said David Beckwith, spokesman for the National Cable Television Assn.

But others are clearly worried about the potential precedent set by the AOL-Time Warner deal. In a recent filing with the Federal Communications Commission, Cox Communications and Comcast warned that "the imposition of a forced access requirement on AOL-Time Warner--no matter how narrowly drawn that requirement may be--will necessarily curtail the flexibility of other broadband providers."

Officials at AT&T, which is testing open access on its cable lines in Denver, said they are committed to opening their cable lines to rival ISPs but stressed that the marketplace should dictate the terms, not the government.

"We are against having the government try to figure out a one-size-fits-all solution or a lowest common denominator," said Mark Rosenblum, an AT&T vice president.

Negotiations between the FTC and AOL have been delayed several times because of differences over the open-access issue. If an agreement is not reached by the end of the month, the FTC might sue to block the merger.

On the other hand, if both sides agree to a consent decree, Kimmelman and others predict that open-access supporters will gain a powerful new ally in their struggle.

"Lo and behold, the newest advocate for open access will be AOL-Time Warner," Kimmelman said.

Eager to create a level playing field, AOL-Time Warner might seek to have its own merger conditions imposed upon its rivals, observers say. The company has already argued to government regulators that it would be unfair to place it under restrictions that do not apply to its competitors.

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