FOOL PLATE SPECIAL
AOL and Time Warner will reportedly make the "major concession" of not offering the AOL service over their cable lines until they've signed up a competing service. The focus of regulators is preventing AOL from getting a head start in high-speed Internet service. But is that really accomplished by the deal outlined Monday?
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Citing people close to the talks, the Journal reported that the deal between the merger-mates and the Feds would require the combined company to open its high-speed cable lines to competing Internet companies in each city served by Time Warner. Regulators also demanded assurances that prices for such access be set on a "nondiscriminatory" basis.
But in what the Journal called a "major concession," AOL and Time Warner have agreed not to offer AOL's service over Time Warner cable lines "until at least one competitor has been signed on to offer service over those same lines." Depending on market conditions, the companies might also "be required over time to carry at least three online competitors."
According to the article, the FTC is preparing to challenge the merger in federal court should negotiations between it and the two companies fail. The FTC has in recent days asked potential witnesses to prepare to testify at a preliminary injunction as soon as next week.
The focus of regulators is preventing AOL from getting "a head start in high-speed Internet service" as it becomes more available to consumers, the Journal said. But is that really accomplished by the deal outlined Monday?
Offering services
What's odd about all this is that, as it was reported, there appears to be so little to it. The "major concession" of not offering the AOL service over Time Warner's lines until after signing a competitor doesn't amount to much considering that, to date, the AOL service has never been "offered over" any particular line, be it cable, telephone, wireless, or Dixie cups and string.
True, closed cable systems present a different set of operating conditions than the open phone network AOL has fed on. But the conditions apparently being placed on the merger are based on a view that elevates the line itself -- raw access to the Internet -- above the reasons people want that access and what they actually do when they are online.
It comes down to this: Despite appearances, the AOL service, along with the rest of the Internet, is not really offered over specific access lines, but through whatever lines are available, whether provided by AOL, or by any access provider the customer chooses. The Feds might not fully get this, but AOL surely understands.
The scheme and the competition
Concern about competitors being able to offer services over cable is based on cable's closed infrastructure. That makes it difficult, maybe impossible, for non-cable providers such as EarthLink (Nasdaq: ELNK) and Juno Online (Nasdaq: JWEB) -- and even AOL in its guise as an ISP -- to move their current businesses to the cable platform without dealing with the cable owners, or to the high-speed telephone platform without dealing with the telcos, for that matter.
However, once the end user is connected and online, the services that matter -- for example, the service that brings you these words -- can be offered independent of the cable owner, or the local telco that provides high-speed DSL lines. Speed and cost aside, this is really no different from how online users have been accessing those offerings independent of their dial-up providers, while the providers have tried to get incremental ad and e-commerce revenue out of subscribers who pay their bills but otherwise rarely blink their way.
This is the basic scheme AOL has operated under from the start. Why is maintaining this arrangement on a high-speed platform considered a major concession?
The closing of the Internet
Longer-term, once Internet access is ubiquitous and its costs have been driven into the ground, the offers that count will be made directly between the producers of in-demand interactive services and the consumers of those services. The alternative to this is an online medium far more "closed" and with fewer choices than what we have today. The open-access conditions being placed on the AOL/Time Warner deal arguably reduce the chances of such a closing down of the medium. But they miss the point.
What makes the Internet different from television, and thus not meaningfully regulated by TV-centric views, is that it is not about open access, but open content, and that the relationship between the two isn't fixed.
Control over access could give a company control over content, which is something to be watched out for. But while the "major concessions" AOL and Time Warner are being asked to make would cut into the combined company's theoretical control over the access layer of the interactive medium, it doesn't begin to touch the content and commerce layers that are what this merger is about.
For sure, AOL and Time Warner will get away with what they can and try to reserve for themselves as much as possible. As a practical matter though, they have minimal business interest in controlling Internet access in the ways that concern regulators. And it continues to look like if this deal gets done, virtually all the concessions will have been freebies.
Your Turn:
Does it seem like AOL and Time Warner are getting off too easy? Just right? Or are the Feds making unreasonable demands? Share our thoughts on the America Online discussion board
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