Did Time Warner Lie?

In its memorandum of understanding, Time Warner claimed it would open its networks to ISPs. But there's no law against saying one thing and doing another.

"Those who come seeking peace without a treaty are plotting."
— Sun Tzu, The Art of War

by Brian McWilliams and Jim Wagner
of internetnews.com
[October 2, 2000]

Time Warner, Inc., is finding out that in order to talk the talk, it has to walk the walk.

Methinks the lady doth protest too much
Despite the company's repeated and insistent assurances it wants to and will provide open cable Internet access to competing Internet service providers, it three-year contract agreement is saying another thing entirely.

The open access debate for cable Internet services has been under intense scrutiny since February, when Time Warner (NYSE:TWX) and America Online, Inc., released its open access memorandum of understanding, in order to appease Federal Communications Commission officials overseeing the merger.

In return for issuing the MOU, Time Warner and AOL (NYSE:AOL) officials asked regulators not to make the document legally binding as a condition to the merger.

Secret services
Because of a non-disclosure agreement signed with Time Warner, ISPs have been reluctant to provide details of the agreement terms. But as the deadline approaches for FCC approval of the merger deal, more and more companies are stepping forward to be heard.

internetnews.com was able to obtain a copy of one of these confidential agreements and the terms imposed. According to the contract, there are a lot of stipulations that smaller ISPs say will make it almost impossible to offer competing cable Internet services, as the open access memo stated earlier this year.

In addition to the $50,000 ante every competitor is required to pay, 75 percent of subscription revenues would go to Time Warner. Also, the cable provider is demanding 25 percent of any cable-access advertising, web hosting and e-commerce revenues, plus Time Warner advertisements placed on the top of every ISP home page.

Moreover, Time Warner will send the monthly bill direct to the customer, giving the ISP the appearance of an unnecessary middleman. Driving home that point, Time Warner calls the shots when it comes to the termination policy, enforcing its standards on every ISP that participates.

To cap it all off, for every cable television subscriber who opts to receive the competing ISPs Internet service, Time Warner gets $30 of that monthly rate. And if the ISP doesn't subscribe .5 percent of its potential customers, Time Warner can terminate the contract after one year.

Imagine all the people
Stephen Heins, NorthNet Internet Service marketing director, said Time Warner officials knew full well no ISP would ever sign such a contract.

"We've heard the ongoing public relations soft and cuddly (statement), 'Yes, we're working on open access' from Time Warner, but the reality of the term sheet speaks for itself," Heins said. "In fact, they've left nothing on the table for ISPs."

We understand this is no free lunch," Heins continued, "and we aren't trying to steal their cable from them. We just want a wholesale revenue stream to provide overall solutions to high-speed Internet access, and whoever provides the best tech support, services and prices, wins."

To date, the FCC has maintained cable access is not within its purview, and matters like the cable debate were more suited for the Federal Trade Commission and the market regulating itself.

But the AOL/Time Warner deal underscores the increased presence converging technologies will play in the not-to-distant future. While not commercially available, the technology to provide cable telephony services is certainly possible. When that service becomes available down the road it might be too late for the FCC, who has authority over telecommunications regulation, to step in and correct the mistakes made.

Dave McClure, president of the U.S. Internet Industry Association, said in an interview open access was never Time Warner's intention from the beginning, and the FCC is doing little to prevent the merger from happening.

"Time Warner was never looking for small ISPs to use their cable service," McClure said. "They will carefully select the largest two or three providers to become their marketing partners. It was never about providing open access, because Time Warner doesn't want that.

"The sad part," McClure continued, "is that consumers will not be able to decide between competing services, because they'll all be Time Warner using a different name."

Ask not what your telco can do for you
McClure said the FCC won't do anything to rock the boat, and that ISPs and consumers should look to the Federal Trade Commission for help.

"We're very dissatisfied with the FCC, and its clear that we're going to have to go to the FTC for any help in this matter," McClure said.

But the FCC has been taking a close look lately at the two companies, and may be having second thoughts to a quick merger approval.

Earlier this year, Time Warner cut off Disney-owned ABC-TV for 48 hours over a contract dispute. And last month, a preliminary proposal from the European Commission rejected the AOL/Time Warner merger on the grounds it would stifle competition.

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—End