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October 25, 1999

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Subject:  Re: Context matters
Author:  nole1


Thanks for your thoughtful reply to my question of what you meant by context.

I agree that many posters on this board tend to view the broadband world in "@Homecentric" terms. I also agree that the exclusivity agreements are by far more important for Excite@Home than for any other company. In fact, that's pretty obvious, since they are the only company that would be directly affected if the open/forced access coalition had their way.

I think that the exclusivity agreements and the time limits on them are a very important means of allowing Excite@Home to grow big enough to compete without them. Once they have millions of subscribers, which they should have by June of 2002, they'll no longer be in a position of extreme vulnerability. At that point in time, cable companies who have exclusive contracts can choose to sell their shares of ATHM and open their lines to E@H's competitors or they may decide that the deal they have is good and E@H is their best route to offering service to their customers.

One thing should be noted about the expirations. At that point, it will be a competitive situation, with the cable companies as the customer and potential cable ISP's as the sellers. The terms offered by the competition will determine, in large part, what the revenue sharing between the ISPs and cable companies looks like. This includes both subscription revenue and content/advertising revenue.

"The biggest concern I'd have as either a potential competitor (such as AOL) or a regulatory body is the nature of the cable ISP infrastructure as it's being built."

That is a while in the future, however. The biggest concern I'd have as either a potential competitor (such as AOL) or a regulatory body is the nature of the cable ISP infrastructure as it's being built. As Milo Medin has pointed out, the infrastructure currently cannot deal with multiple ISPs. If this is true and the DOCSIS standard itself would have to change for multiple ISPs to be allowed access, the more the infrastructure is built, the more money "open access" will cost. Who will pay for the infrastructure to allow multiple competitors to hook to a single cable headend? That's the $64,000 question. I guarantee if millions of people pay money for a DOCSIS compatible modem, there will be a huge outcry if the standards are changed and they have to buy a new modem just to continue cable modem service.

You said:

Stripped of ideology and politics, the means of delivery is what open access is about.

In fact, from what Kennard's been saying over the past 10 months, or so, it is not access to the means of delivery at all. From his speeches, it's clear that his meaning of access is access to content, regardless of the means of delivery. This is one of the most misunderstood facets of this whole open/forced access debate. Different people mean different things when using the term "access".

It's very similar to the Microsoft antitrust trial when so much debate in the Senate was over what icons were initially placed on the desktop and what other defaults (including the operating system itself) were enforced by contracts between box builders and Microsoft. In this case, Excite@Home and AT&T have vigorously and repeatedly said that the Excite@Home service would not deny access to any content on the web. The "Open Access Coalition" is talking about access to competitive ISPs to the cable lines. In other words, the debate has all along had a ring of apples and oranges arguments from both sides.

So it all comes down to connection vs content. Content itself is not dependent on connection, per se (although the caching of content locally will provide a perception among users of "faster access to some content"). This brings us around to the questions you ask at the end of your post (# 20099):

One more piece of context, and a few questions.

Take a look at a list of the companies I referred to as America Online's "supposed allies" on open access. You can find one at

Who are they? What do they have in common with AOL? Who isn't on that list? For example, where's Yahoo? Does Yahoo also lack a good broadband strategy? Does Yahoo also need to do a cable deal?

"The reason Yahoo isn't a part of the coalition is that, as a pure content aggregator, they are completely connection agnostic."

The reason Yahoo isn't a part of the coalition is that, as a pure content aggregator, they are completely connection agnostic. They don't care who provides the connection, as long as their content is accessible. AOL, on the other hand, derives a good portion of their income from the connection (even though they haven't directly provided it for a while). They act as a middleman between the customer and the connection provider, skimming off a portion of the connection fee in turn for providing this service. They are in a relatively unique situation among content aggregators/providers, in that they charge customers for this service. I'm not referring to narrow segment content providers that charge (such as Wall Street Journal online), but to portal type of content providers. While the Bring Your Own Access (BYOA) plan is available, AOL loses some control of the customer by not providing them with the whole package of connectivity and content. The customer's e-mail address will not change if they drop BYOA, for instance. It's the money they lose in subscriptions and the loss of control over the customer (by such "features" as disconnecting customers after 30 minutes of browsing outside the proprietary AOL browser) that compel AOL to challenge the cable/Excite@Home model through legal means.

One last thought about what "open access" will mean to any company (such as AOL) that wants to pursue cable access to its customers, if and when it comes to pass. They will have to build/buy/lease a complete infrastructure which replicates Excite@Home's. E@H has leased a backbone from AT&T and is caching popular content locally with more hardware/software. For AOL, which provides all its content from Virginia, this may be a major (though not insurmountable) obstacle to achieving access even without exclusive E@H contracts. Remember that broadband content will cause much more congestion of the backbone, so if AOL continues to try centralized distribution of content once it becomes broadband, the backbone it buys/leases will be filled with 18 million customers watching videos, etc. They'll need to develop a corresponding local cache architecture, as well, or be passed by for being slow.

Scott (nole1)