News

AOL Heads Group To Press Congress

2/07/1999 7:00 PM Eastern

Washington -- A new coalition spearheaded by America Online
Inc. is running to Congress as the next move in the lobbying campaign to make cable
operators provide broadband access to unaffiliated Internet-service providers.

The coalition's primary legislative objective --
derogated by cable interests as showy political "chutzpah" -- is the passage of
a law that would ban exclusive contracts between cable operators and ISPs in which they
have financial interests.

"We're going to the Hill," said Greg Simon,
co-director of the OpenNet Coalition, which announced its formation last Wednesday with
the stated goal of preventing cable systems from becoming "the Internet
gatekeeper."

Simon said he was unsure whether his group would seek to
extend the ban to all exclusive deals between cable operators and ISPs, or just keep it to
deals that involved vertically integrated parties.

"I don't know about that point yet," he
said. But Simon made it clear that he is looking to break up the industry's
relationship with At Home Corp. (parent of @Home Network) and Road Runner.

Senior Federal Communications Commission officials said the
formation of OpenNet, pressure from public-interest groups and demands from local
regulators -- like the Mt. Hood Regulatory Commission in Portland, Ore. -- to regulate
cable Internet access would not force a speedy reconsideration led by FCC chairman William
Kennard.

"What I hear the chairman saying is that we have to
keep our eye on it," a senior FCC official said, adding that Kennard hopes for
business solutions, rather than regulatory solutions, given the fact that the
broadband-access market has fewer than 1 million total subscribers. "This market is
just rolling out."

Last week, Kennard was quoted for the first time confirming
reports in Multichannel News Jan. 18 that the FCC would not condition its approval
of AT&T Corp.'s $48 billion acquisition of Tele-Communications Inc. on the
unbundling of TCI's high-speed Internet transport from its affiliated @Home ISP.

Simon, a former top communications-policy adviser to Vice
President Al Gore, is splitting top lobbying duties in the coalition with Rich Bond, a
former chairman of the Republican National Committee during the Bush administration.

The coalition broke into the daylight less than a week
after the FCC refused to endorse an AOL-backed plan calling on cable operators to open
their networks to all ISPs as insurance against cable one day dominating Internet access
and unfairly reaping the rewards of e-commerce.

"There should be no exclusive deals between cable
broadband-conduit owners and their own affiliated Internet-service providers," Simon
said.

Simon -- who likely had a hand in deciding who currently
serves on an FCC that is controlled by Clinton appointees -- nevertheless mocked the
agency's decision to monitor the Internet-access market, rather than regulating it.

"I would argue that waiting to see the cable
monopolists leverage their Internet dominance is like waiting to see what Godzilla does to
Tokyo," he said. "It may take a little while. But when it's over, it's
really over."

The cable industry worked for months to ensure that the FCC
would rule that policing the broadband Internet market at this stage was unnecessary. In a
57-page report released last week, the commission said it would "monitor broadband
deployment closely," but it would take no other steps.

Paul Glenchur, director of the Schwab Washington Research
Group, said AOL would have difficulty sparking interest on Capitol Hill, but the momentum
could shift if cable operators raise their rates sharply after rate regulation expires
March 31.

"It pays to be careful," Glenchur added.

In a statement, National Cable Television Association
president Decker Anstrom said AOL was searching for regulatory and legislative crutches to
prevent companies that have better services from competing for the business of AOL's
15 million narrowband subscribers.

"We never cease to be amazed by AOL's chutzpah
and its tired, old 'regulate your competitor' approach," Anstrom said.

AOL, which hired Simon, has assembled a coalition that
includes at least two companies that have been fierce rivals: MCI WorldCom and U S West.
The latter spun off cable MSO MediaOne Group Inc. last year, and it retains a stake in the
company.

"Policy-making sometimes make for strange
bedfellows," MCI spokesman Peter Lucht said.

Also joining the coalition were MindSpring Enterprises,
Prodigy Communications Corp., Netscape Communications Corp., Cable and Wireless Corp.,
Bertelsmann Internet Services and ISP associations from Washington and Texas.

It's not clear whether AOL would seek to amend
communications or antitrust law.

An aide to Senate Commerce Committee chairman John McCain (R-Ariz.) said McCain favored a
marketplace solution -- a comment suggesting that AOL would have better luck with Senate
Judiciary Committee chairman Orrin Hatch (R-Utah), who oversees antitrust laws and who
pushed the Department of Justice to investigate Microsoft Corp.

In fact, Hatch last year accused Microsoft of attempting to
corner the Internet-access platform through its purchase of WebTV Networks and through
investments in Comcast Corp. and Road Runner totaling $1.6 billion.

The cable industry argued that its major companies have
invested heavily and at great risk to upgrade their networks and to create @Home and Road
Runner. They said phone companies, satellite carriers and wireless phone companies are all
competing in the broadband market -- a point endorsed in the FCC's report -- with
financial success guaranteed to no one.

"While we are certainly optimistic, customer
acceptance of our vision and @Home's vision is not a proven thing," said James
W. Cicconi, AT&T general counsel and executive vice president of law and government
affairs.

Barry Babcock, chairman of Charter Communications -- which
inherited a stake in @Home from Marcus Cable -- said AOL's open-access plan was a
strategy to exploit cable's investment for its own gain without having made any
investment.

"That's exactly what's happening,"
Babcock said. "They didn't take the risk, but they want all of the
benefit."

Simon answered Babcock's point by accusing cable of
investing merely to squash the competition.

"When people say that open cable networks are bad for
investment, what they mean is, it is bad for investment in @Home, which has a monopoly
business model," he said.

Access to cable facilities has been variously described as
open access, cable unbundling and nondiscriminatory access. Whatever the name, one thing
seems clear: The FCC would have to regulate the price of access.

"I think that kind of regulation becomes inevitable
because everyone would be concerned about cross-subsidization by cable ratepayers,"
Glenchur said.

Simon said that would embroil cable operators in a huge
debate with access seekers over the appropriate price that they should pay and to what
extent cable operators can recover legacy costs in their rate structure.

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