MERGER—Open Access Assured with AOL-Time Warner Merger

As the dust clears from the AOL-Time Warner, Inc. merger earlier this month, San Fernando Valley Internet users may have reason to cheer. Under an agreement with federal regulators, the new company will now allow other Internet service providers equal access to its cable broadband service in the Valley and throughout the country. The victory comes after public interest groups, Internet service providers and others, including Los Angeles City Councilman Alex Padilla (who represents the Northeast Valley), helped push the Federal Communications Commission for a so-called “open access” order. “Giving consumers a choice of an Internet service provider regardless of whether the Internet is being accessed by dial-up, cable or wireless is a necessary step to ensure that the gateways to content and information are kept wide open,” said Padilla, an open access advocate. In November, Padilla won approval from the Los Angeles City Council for his resolution asking the commission to mandate that cable companies offering broadband Internet services adopt an open-access policy. Padilla argued that in the Valley, in particular, AOL-Time Warner should give Internet service providers open access to the merged company’s cable services. The area, he says, has been growing in the number of Internet users who use a variety of service providers, all of whom would be shut out from the AOL-Time Warner broadband cable services. Kathy McKiernan, a spokeswoman for AOL-Time Warner, said the company is committed to open access and cited a memorandum of understanding that both AOL and Time Warner signed in June, calling for improved access by other Internet services. At issue are AOL’s 27 million Internet subscribers and Time Warner’s 12 million cable television customers, which combine to create a formidable force. Smaller Internet service providers may struggle to stay in business without AOL-Time Warner’s open access pledge. The San Fernando Valley has an estimated 315,000 households with Internet access, according to a 1999 study by the Economic Alliance of the San Fernando Valley. Although AOL-Time Warner would not say how many homes here are wired into its service, officials at one of its chief rival EarthLink, Inc. said they are pleased with the open access agreement with the FCC. “This decision will help ensure that consumers have choice in broadband Internet providers,” said Dave Baker, EarthLink vice president for law and public policy. “The guiding principle of the Internet has always been choice in access, in content and in applications.” A call for FCC action But Padilla said he hopes the federal regulators would seek similar agreements elsewhere. “The FCC should demonstrate its leadership by taking the next step, which would be requiring the same standards for all companies offering cable modem Internet service,” Padilla said. Under the agreement, the commission requires that rival Internet service providers be allowed to access the cable service, but consumers must be able to choose their Internet home page on the cable service and be able to have an account or other financial arrangement with a rival Internet service. Already, AOL-Time Warner has made an agreement with Atlanta-based EarthLink, its on-line rival, to give customers an alternative to its AOL service. New York-based Juno Online Services, Inc. is also in talks on a similar contract with the media giant. The EarthLink pact, some say, was key to helping speed federal approval of the mega-merger. That contract signals a marked turnaround from September when the smaller on-line service questioned AOL’s commitment to open access after a failed agreement. At the time, AOL offered EarthLink and others access to its cable line only if Time Warner received 75 percent of their subscription revenue and 25 percent of those from e-business and other revenue sources. EarthLink, which has 4.7 million subscribers nationwide, is followed closely by Juno, which has 3.7 million subscribers. Both, however, are dwarfed by AOL-Time Warner’s 27 million subscribers. It is unclear how many of these subscribers live in the San Fernando Valley. Padilla aide David Gershwin said the open access issue is especially important to Valley residents and businesses that are increasingly Internet-oriented. “This is an area that’s growing and more people are getting on the Internet, so we have to keep the access gates open,” he said. The issue was one of several that held up federal approval last year with a storm of criticism from rival Internet service providers and cable television rivals who claimed the merger would stifle competition. Analysts say AOL underestimated the stiff opposition it would face in its acquisition of Time Warner, further delaying final regulatory approval. The company later agreed to a number of concessions, including open access, and allowing EarthLink and Yahoo, Inc. to share its instant messaging system, which blocked messages from other Internet services with similar systems. These concessions were the key to winning merger approval, said Gene Kimmelman, co-director of Consumers Union, which publishes Consumer Reports magazine. “This should promote new competition for high-speed Internet services,” he said. Meanwhile, Michael Eisner, chairman of the Burbank-based Walt Disney Co., said in a statement that the open access pledge is a positive step for the new merged company. Eisner had been critical of the merger and sought stiff conditions from federal regulators. Disney officials were infuriated last year after its television network, ABC, was cut from Time Warner cable during the critical May “sweeps” period in New York and Los Angeles over a licensing dispute.