October 6, 2000 12:55 PM PDT

AOL Time Warner can't be trusted on access, Hill panel told

WASHINGTON--Opponents of the proposed AOL-Time Warner union told a House subcommittee Friday that the company can't be trusted to provide access to its cable systems or instant messaging customers.

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AOL-Time Warner: Can it be trusted?
iCast CEO Heffernan
AOL Time Warner's "stated strategy is to monopolize (the interactive TV) field for itself," said Walt Disney general counsel Louis Meisinger.

The suggestion that AOL and Time Warner won't uphold their commitments to open their networks is timely, as the Federal Communications Commission is preparing to make a recommendation on the merger. FCC chairman William Kennard has promised the agency will announce its verdict by the end of the month.

The merger of AOL and Time Warner, originally announced in January of this year, is viewed as an important event in the evolution of the Net, since it combines a pure Net company with an entrenched media empire in the largest corporate transaction in history.

The two companies hope that the merger, if approved, will allow them to use the Net to distribute Time Warner's various media properties. Opponents of their plans say AOL Time Warner would have too great a share of the Net content and distribution markets and hold too much sway in the industry.

The House Commerce Telecommunications Subcommittee held Friday's hearing in response to a session last week, in which the only witnesses were America Online chief executive Steve Case and Time Warner CEO Gerald Levin.

After receiving pressure from other subcommittee members, subcommittee chairman Billy Tauzin, R-La., agreed to hold this second hearing with executives from several companies that will be affected by the pairing of the two media giants.

Disney has been leading the charge in demanding conditions on the merger, including open access for programming and interactive content.

The highest-ranking Democrat on the subcommittee, Ed Markey of Massachusetts, said it was odd to see Disney so concerned when "you're huge."

Meisinger replied: "Our concern, frankly, as a large company is that even our content can be foreclosed from the market" by a combination as large as AOL Time Warner. "That's a fairly daunting prospect."

A smaller competitor also expressed concerns about AOL and its professions of openness. In the instant messaging market, dominated by AOL, "the odds favor Goliath over David," said iCast chief executive Margaret Heffernen. She said AOL executives say they will agree to interoperability with other IM providers such as CMGI-owned iCast in what Lehman Bros. predicts will be a $6 billion market, but "nothing suggests that AOL can be taken at its word."

Heffernen brought a large poster to dispute the claim by Case made at the hearing last week that AOL is a leader in the industry-wide initiative for an IM standard. Referring to the participants of the Internet Engineering Task Force (IETF) initiative, the chart showed 3,777 emails sent through IETF in the last year, with only eight from AOL.

As for AOL's proposal on interoperability submitted to the IETF, Heffernen said "the proposal was instantly thrown out" for coming too late and for being untenable.

Lowell Gray, general manager of the Internet service provider Shore.net in Lowell, Mass., called for Time Warner and all other cable companies to be held to the same open-access requirements as phone companies.

As for the combination of AOL and Time Warner, he said, "I believe that vertical integration of content and communications, combined with the lack of data privacy protections, is a grave threat to our nation.

"It's not the government as Big Brother that I worry about," Gray said in advocating regulatory action. "It's the giant, all-seeing corporation with its database marketing and cookies." Cookies are small text files used for online tracking and profiling aimed at identifying people's online habits.

Unfortunately for Shore.net, iCast and Disney, the House won't be ruling on the AOL-Time You've got Time Warner Warner merger. But they and other witnesses were quick to call for special conditions to be imposed by the FCC or the Federal Trade Commission--the other regulatory body reviewing the merger.

But not all of the witnesses felt the government had to act. Wink Communications chief executive Maggie Wilderotter said her video-on-demand company has been providing interactive TV for years through agreements struck with cable operators, programmers and advertisers, and it anticipates being available to 3 million TV households by the end of the year.

"Our industry has demonstrated an ability to negotiate carriage of a variety of services in arms-length negotiations," she said. "We believe it would be premature to attempt to regulate an industry that is still changing very rapidly."

Without Case and Levin, the hearing drew far less interest than last week's showcase and was held in a smaller hearing room. Attendance by subcommittee members was also sparse.

Markey, who along with Rep. John Dingell, D-Mich., lobbied for the second hearing, said that interactive TV "only has a bright, hopeful future if we remain steadfast in our focus on open networks."

Dingell suggested that open-access requirements for all industry participants would be desirable, hinting that the FCC shouldn't necessarily look to impose regulations only on Time Warner or AOL.

Tauzin agreed but said any policy on open access should come from the subcommittee, not the FCC.

 

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