June 23, 1999
"Imagine Acme Construction is building a new road from your house to the expressway. This road may be your only direct route to it. And you absolutely must get there. Now imagine you can only use that road if you buy an Acme Car. Impossible? After years of choosing among competing Internet service providers, consumers are discovering that with cable high-speed Internet connections, they have no choice. Either you buy your Internet service from the company that owns the electronic road to your house, or you don't get the service."
Acme Construction? Acme Car? With this bit of silliness and misdirection, the CEO of Mindspring, Charles Brewer, in a USAToday Dueling OpEds, presented openNET Coalition's argument that what America desperately needs is a healthy dose of government regulation before it's safe for consumers to sign up for cable Internet access.
I suppose given the fact that one of the cable industry's big companies is RoadRunner, the reference to Acme is supposed to stand as some witty reference to Wile E. Coyote's sufferings at the hands of the legally negligent Acme Corp.. Having watched enough Road Runner cartoons to know the perils of what Acme Construction and Acme Car would bring to my physical well-being, I'd obviously be quite worried if Mr. Brewer's example represented any real analogy to the build-out of the information superhighway. It doesn't, though, so let's start cutting through the spin techniques above to get to the heart of what AOL, et al. are attempting to accomplish.
openNET Coalition. Ah, the group put together by AOL sounds so wholesome -- so downright American. Labeling the lobbying efforts of this group as seeking "openness" to the cable structure sounds so much better than say, "The Free Rider Coalition," which is a much more accurate title for the group that wants to costlessly profit from the billions currently being invested by the cable industry to quickly roll out faster Internet access.
Actually, saying that openNET's contributors are making no investment may be a little unfair, because they are apparently willing to spend in the lobbying department. Decide for yourself whether you think that truly useful cable Internet service is most likely to arise quickly as the result of millions of dollars being spent within the Washington Beltway to influence politicians, or whether it will arise through the billions that are being spent by competitors in an open market place to get a normally achieved return on investment by providing a superior service at a competitive price.
Right now RoadRunner and @Home have approximately 2% of the on-line market, compared to openNET Coalition's leader, AOL, which controls roughly 63% of the market. Normally, an entity that so clearly has the majority of the market wouldn't be so worried about its competitors, but the obvious lack of speed that exists through normal telephone ISP connections makes an alternative, any alternative, a real threat. Mr. Brewer's intimation above, though, that cable access would ever be the only direct route to faster Internet access, however, is disingenuous at best. Already regional phone companies are installing any number of variations of HDSL, ADSL, XDSL and other possibilities of high-speed access through standard phone lines.
What the consumer needs right now is a completed cable system that will offer an affordable alternative to today's currently unsatisfying narrowband circuit switched services. This, AOL and its compatriots stand bravely against, as they plead with their mouths and their money to our elected officials that the 2% of the online market that is currently being supplied by cable connections threatens to quickly present the consumer no choice. This line of reasoning has been starkly rejected by FCC Chairman William Kennard. In dismissing the flimsy Acme-inspired reasoning presented by Brewer, et al., Kennard stated, "We do not have a monopoly in broadband. We have a no-opoly because the fact is, most Americans don't even have broadband. We have to get these pipes built."
Getting the pipes built is a frightening possibility to AOL, so it's proposing getting those pipes as clogged as possible should they ever be built. Since cable's coaxial lines into customer's homes are already used for delivery of video services, equal access to every Internet service provider would slow cable lines down, so that they would provide virtually no helpful service to anyone.
As Louis has probably pointed out, the recent Portland/Multnomah ruling has thrown a lot of water on the prices of cable companies and @Home by raising the possibility that "Open Access" is something that can be imposed by local municipalities on cable companies. What investors are missing, however, is that the ultimate authority in this field is the Federal Communications Commission, and so far the FCC is speaking loudly against the intrusion of thousands of local municipalities into this nascent industry. At the present time, there is a multitude of choices for Internet access, but a real dearth in quality ones. While openNET wishes to keep the status quo in that regard, consumer choice is not in this case aligned with openNET's proclamations.
Next: The Bull Responds