April 4, 2003 12:29 PM PST

AOL asks FCC to lift IM restriction

AOL Time Warner has submitted a petition asking to be excused from the instant messaging interoperability requirements imposed by the Federal Communications Commission.

The petition, made public by the FCC on Friday, asks the regulatory agency to remove a restriction forbidding America Online from offering video streaming through its popular instant messaging services. The FCC currently requires AOL to open its IM network to competitors if it launches "advanced" high-speed IM services as a condition to approving AOL's January 2001 merger with Time Warner.

If the FCC approves AOL's request, it would lift a key restriction on the media giant's IM products. The restrictions were imposed after technology giants such as Microsoft and AT&T aggressively argued that a combined AOL Time Warner would unfairly dominate IM services. However, AOL claims the past two years have proven that the battle for IM market share remains competitive.

The petition argues that AOL's IM services, AOL Instant Messenger and ICQ, face more competition from Microsoft and Yahoo, both of which have launched video conferencing features on their respective IM clients. The petition also disputes the order's original argument that AOL's dominance would increase given the lack of interoperability, now that MSN and Yahoo have amassed millions of users as well.

"There is no longer any plausible reason to conclude either that AOL is dominant or that the market is in danger of 'tipping' to AOL," said Northwestern University professor William P. Rogerson, who provided an affidavit on behalf of AOL Time Warner.

When the restriction was approved, the FCC also opened the door for AOL to later argue that it no longer was needed.

"Knowing the condition was based on assumptions and predictions, the FCC specifically created a way for it to be removed," said AOL spokeswoman Kathy McKiernan. "The last few years have shown that IM competition is vital, strong and growing, and this condition is simply not necessary,"

The petition is not surprising given AOL's actions over the past year and the shifting balance of power in IM. AOL last summer said it was backing away from pursuing server-to-server interoperability and would instead support a hosted strategy, such as its deal with Apple under which AOL powers the computer maker's iChat client.

Hosted IM describes a service in which AOL strikes deals to provide the network and functionality for another company's IM system. In contrast, server-to-server interoperability would mean allowing other companies to tap into AOL's network and communicate with its users, a move that AOL has fought to avoid.

Hosted IM "is a way for (AOL) to remain competitive from a features perspective while at the same time keeping a closed AIM environment that has served them well to date," Jupiter Research analyst Michael Gartenberg said.

AOL's McKiernan said the company would remain "open to IM interoperability so long as a solution is secure, reliable and cost effective."

Although AOL has remained an IM leader, competitors Microsoft and Yahoo have largely quieted their calls for IM interoperability. The main reason is that MSN and Yahoo have watched their own user base grow in part because people tend to download multiple proprietary clients that they operate simultaneously on their PCs. Thus, the lack of interoperability has actually helped all competing services grow their user base.

In January 2003, AOL had 62 million unique users to its Web-based and proprietary AIM services, plus 8 million for ICQ, according to ComScore Media Metrix. MSN was second with 20 million unique users while Yahoo rounded out third place with 18 million.

Microsoft and Yahoo were not immediately available to comment on the petition.

IM is one of the most pervasive and contested uses of the Internet. AOL pushed it to the mainstream as a feature in its proprietary client and as a free download off its Web site.

IM?s allure stems from its ability to allow real-time conversations that can?t be overheard by coworkers, spouses or parents. More recently, IM has taken hold inside businesses, transforming the way employees communicate and collaborate with co-workers and customers.

For years, AOL was the only player on the block. But in 1999 Microsoft joined race when it launched its MSN Messenger service with a feature that allowed it to communicate with AIM users. AOL reacted by blocking MSN, a tactic that would later haunt the online giant.

When AOL announced its intention to acquire Time Warner in January 2000, Internet and media companies were concerned about the strength of the combination. Media companies feared the company's hold on Internet, cable and entertainment would shut competitors out of AOL Time Warner's distribution network. The merger review process also allowed tech competitors to criticize the implications for the Internet.

Microsoft, for example, vigorously argued for the FCC to require AOL to open its IM network as condition to approving the merger. Even Chairman Bill Gates played a role in expressing concerns over AOL's dominance when he telephoned then-FCC chairman William Kennard.

Gates' interest is more evident now, as Microsoft has made IM a leading component of its enterprise communications plans. The company last month launched Greenwich, server software that offers business-class IM. Future versions of Greenwich will include voice calling, video conferencing, e-mail and other features.

Microsoft also has rallied behind Session Initiation Protocol (SIP), which allows for IM interoperability as well as other communications functions. A company executive this week said SIP would help make the telephone obsolete.

News.com's Ben Charny contributed to this report.

 

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