FTC unlikely to use messaging against AOL Time Warner

The Federal Trade Commission is unlikely to force America Online to open its instant messaging network as a condition of approval of its merger with Time Warner, according to a source close to the review.

While the FTC said it won't comment on pending antitrust investigations, a high-ranking official confirmed that it's difficult to apply existing antitrust law to instant messaging because the service is offered free, meaning there's no commercial market to regulate.

About 80 percent of all IM users favor AOL's proprietary software, but competitors such as Microsoft that want access to those IM users have sought to use the regulatory review processes of the FTC, the Federal Communications Commission and the European Union to force AOL to open its IM network. The FTC, FCC and EU must approve the merger for it to be completed.

"Clearly, this is a positive for AOL," said ING Barings analyst Youssef Squali. While he thinks AOL will eventually open its IM network, Squali said, "Time is of the essence...and time is on AOL's side."

As long as AOL can keep its IM service closed, Squali said it "keeps gaining more and more regular users and more and more market share." At more than 70 percent market share, "you have to think twice to come up with other competitors" to AOL, he said.

In June, AOL said it would be willing to participate in a global standard that would make IM equivalent to email in terms of its ability to communicate with any user regardless of ISP affiliation. However, AOL refused to give a date for when it would make such a move, saying it has no control over the development of such a standard, which doesn't yet exist.

While Microsoft would welcome regulatory intervention with AOL, MSN lead product manager Bob Visse said the company's focus is on working with its colleagues in the IM Unified Group to finalize and publish an open IM protocol by the end of this month.

"AOL hasn't participated meaningfully" in the standards process under way with the Internet Engineering Task Force, unlike Microsoft and its IM Unified Group partners, Visse said. The IM Unified Group--which includes AT&T, Excite@Home, iCast, MSN, Odigo, Phone.com, Tribal Voice and Yahoo--intends to submit its protocol to the IETF, and all members have pledged to convert their systems to the standard by the end of 2000.

"All IM providers are welcome to adopt this standard," Visse said. The bottom line for Microsoft, however, is that it wishes "AOL would stop blocking interaction" by users of other IM services, he said.

The FCC is continuing its review of the proposed merger. The commission reviews mergers based not on strict antitrust law but rather on whether the move benefits the public interest. As such, it has more flexibility in reviewing AOL's IM service as part of the Time Warner merger, and on Aug. 15 it requested a third round of information from the two companies on IM and other issues, such as open access to Time Warner's cable system.

The FCC seeks more information on AOL's interactive TV plans, Time Warner's arrangement with cable ISP Road Runner, AOL Time Warner's plans for instant messaging and AOL's interests in digital subscriber line (DSL) services.

Other questions included an extensive breakdown of the relationship between AOL, Time Warner and AT&T.

The FTC's reluctance to regulate on IM was first reported by USA Today.