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AOL pledges open access
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February 29, 2000: 8:52 a.m. ET
CEOs, on Capitol Hill, say ISPs to get Time Warner cable access after deal
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NEW YORK (CNNfn) - Vowing to keep competition alive in cyberspace, America Online Inc. and Time Warner Inc. pledged Tuesday to open Time Warner's cable systems to AOL's rival Internet service providers after the companies complete their proposed $145 billion merger.
The companies pledged to offer consumers a choice of many ISPs, including AOL, across Time Warner's broadband cable systems, a policy known as open access. Consumer groups have been concerned that Time Warner, the nation's No. 2 cable company and CNN's parent, and industry leader AT&T could impede competition in cable-based Internet service.
AOL Chairman and Chief Executive Stephen Case and Time Warner's Gerald Levin appeared before the Senate Judiciary Committee Tuesday as part of an effort to convince regulators their pledge - what they called a "memorandum of understanding" - will benefit consumers.
"AOL Time Warner will build on our commitment to open access," Case said [457K WAV or 457K AIFF]. "With other cable companies considering following our lead, I believe implementation of open access is no longer a question of whether but of when."
Click here to read Case's statement
The promises came as U.S. regulators are inspecting the antitrust implications of the deal, which would pair Time Warner, the nation's largest entertainment company, with AOL, which boasts more than 21 million subscribers, making it the nation's leading online service provider.
Outlining their multi-point pledge, Levin insisted Time Warner's cable subscribers would have a choice of ISPs - not just AOL's service - and ISPs will be able to partner with Time Warner cable nationally, regionally or locally. [307K WAV or 307K AIFF].
Click here to read Levin's statement
Click here to watch testimony
In addition, the companies promised to allow ISPs to sell directly to their members broadband, or high-speed, Internet access over Time Warner's cable lines - without a combined AOL Time Warner acting as middleman. And they promised to allow competitors to provide streaming video across the Time Warner cable lines.
"We look forward to putting that open access framework into practice as soon as possible," Case added. The open access plan, however, is subject to current Time Warner contracts, such as with Road Runner, a broadband Internet access service that Time Warner partly owns.
The current Road Runner contract is set to expire in 2001 - and it could become a sticking point for the two companies as regulators, who must approve the deal, examine the merger. Time Warner said it would work to speed ISP choice before that contract ends.
Consumers Union still wary
At issue is whether officials will believe promises from AOL and Time Warner are enough to ensure competition, or whether they will believe regulatory intervention will be needed to protect consumers.
David Butler, a spokesman for Consumers' Union, said the companies want to stay free of any regulatory shackles. "While we consider AOL's announcement a step in the right direction, it is still hard to trust AOL's motives to do what's best for competition as opposed to what's in their best interest. They are not interested in a legal obligation."
Consumers' Union unveiled Monday a report, quoting Levin shortly after the merger as saying the companies were "going to take the open-access issue out of Washington, out of City Hall, to the marketplace."
The consumer group's report said AOL and AT&T have "flip-flopped" on their policy about open access since they began a buyout binge for cable properties. Case and Levin said they believed their commitment might spark other such pledges elsewhere in the industry.
One top AOL rival praised the open-access pledge. "Let's make it real -- and have it apply to everybody," Charles Brewer, chief executive officer of EarthLink Inc., said in an interview Tuesday with CNNfn's "Digital Jam."
EarthLink, which became the nation's No. 2 ISP after AOL through its recent merger with Mindspring Enterprises, doesn't own cable or phone lines to deliver its service, and as a result would benefit from open access to Time Warner's cable lines. Brewer said the promise amounts to a "step in the right direction" but also warned that "the devil is in the details."
One industry observer agreed with that cautionary assessment.
"Whether the companies really follow through on some of the things they are outlining is the real question," said Dylan Brooks, an analyst at Jupiter Communications. "It's about price and it's about timing."
Senators grill executives
For their part, senators offered muted optimism, but took issue with whether the verbal pledge will amount to concrete moves by the company.
Sen. Orrin Hatch, R-Utah, the Judiciary Committee chairman, praised the plan Tuesday on CNNfn's Ahead of the Curve program, saying: "The cable lines will have to be kept open, and I think this memorandum of understanding is a step in the right direction."
But during the hearing, Hatch alerted Case and Levin to concerns that "content cul-de-sacs owned and operated by Time Warner" may emerge following the merger. Case said it would be "foolish" for the combined AOL Time Warner to prevent access to competitors' content because it would deplete consumer choices and ultimately drive those consumers away.
Levin and Case promised a personal commitment to bring about open access. But Sen. Diane Feinstein, D-Calif., a member of the Judiciary committee, said the memorandum "doesn't seem like a binding commitment."
Responded Levin: "we are asserting a commitment, and that commitment is as strong a statement as we can make." (2.69MB Quicktime Movie)
The move to link consumers to the Internet through high-speed cable connections was seen as a driving force behind the deal, which was first valued at $182 billion in stock and debt when announced on Jan. 10. The deal is now worth about $145 billion because AOL's stock price has fallen.
As far as high-speed access goes, cable systems face competition from Digital Subscriber Line (DSL) technology that many phone companies are offering to provide faster Internet connections than across phone lines.
The merger would be the second largest of all time, after Vodafone AirTouch's planned $198 billion purchase of Germany's Mannesmann.
At the close of trading Tuesday on the New York Stock Exchange, shares of AOL (AOL: Research, Estimates) were down 1-1/2 to 59-1/8, while shares of Time Warner (TWX: Research, Estimates) slipped 1-7/16 to 85-1/4. 
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