FCC'S AOL-TW DEAL APPROVAL STOKES OPEN ACCESS, ITV RULES DEBATES

Most immediately, many cable critics said they would focus on FCC’s notice of inquiry (NOI) on cable open access issue, which they still hoped to turn into comprehensive rulemaking procedure under new Republican chmn. With AOL-TW required by FCC and FTC to open its high-speed cable lines to 3 independent ISPs and not discriminate against competitors, critics want similar rules to cover other MSOs. “We're going to press to get these principles applied to the whole cable industry,” said Gene Kimmelman, co-dir. of Consumers Union’s Washington office. He said Republican Comr. Powell, considered likely to succeed outgoing Chmn. Kennard, had stressed that he favored setting communications policy through agency rulemakings, not merger reviews. “We will test him on that,” Kimmelman said.

Most officials in 10 states where cable is regulated at state level refrained from commenting on FCC’s order approving AOL-TW deal, citing need to study full order. However, some regulators and officials in cities that had spearheaded move for open access said they believed that FTC and FCC conditions requiring multiple ISP access to high-speed cable lines would be extended to other MSOs.

L.A. Councilman Alex Padilla, who introduced open access legislation in City Council last year, applauded FCC for following “the lead of cities like Los Angeles in imposing conditions on the approval” of merger. Arguing that FCC’s requirement on AOL-TW to provide unrestricted access for ISPs was victory for consumers, he urged Commission to “demonstrate its leadership” by requiring same standards for all companies providing cable modem service. “Giving consumers a choice of an ISP -- regardless of whether the Internet is being accessed by dial-up, DSL, cable or wireless -- is a necessary step to ensure that gateways to content and information are kept wide open,” said Padilla, who chairs City Council’s Information Technology & General Services Committee.

Calling FCC action “great step forward though a little late in coming,” Portland (Ore.) City Comr. Erik Sten told us conditions must set standard and precedent that rest of industry ought to follow. “We are a little bit nervous that Kennard’s successor may not follow up on this,” he said, but even though FCC has been “a little slow and even too cautious” to take on issue, “good news is good news.” Saying FCC’s move “doesn’t do much for us in Portland” because AOL-TW doesn’t operate there, Sten said only way to have “true” open access was through federal policy. Although deal-by-deal requirements don’t constitute federal policy, FCC action “sets the tone,” he said.

San Francisco cable regulator Brian Roberts, whose city was among those that toyed with open access legislation, said he anticipated that FCC’s conditions would end up applying to other cable operators. He said FTC and FCC conditions on ISP access to cable lines reflected city’s position set out in reply comments to FCC’s open access inquiry.

NCTA officials said “the FCC’s conditions must be viewed as AOL-specific” because of company’s domination of U.S. Internet market and said they would continue to fight fiercely against turning open access NOI into rulemaking. “The ruling did not establish principles that can or should apply to all cable operators, none of whom serve more than 2% of Internet users in the U.S.,” NCTA Pres. Robert Sachs declared. N.J. Cable TV Assn. Pres. Karen Alexander said she didn’t expect FCC to extend open access conditions to other MSOs because it was action taken in response to specific company ability to control marketplace.

Cable officials also expressed hope that Republican-run Commission under Powell, who dissented from most of conditions in FCC’s merger approval order, would go no further than Democratic Commission did under Kennard. Indeed, pending prospect of Republican rule made some consumer advocates nervous that FTC and FCC open access conditions might never be vigorously enforced. “The conditions put in place by the FTC and the FCC are useful and potentially important provisions, but one has to wonder if the FCC or the FTC will have its heart in enforcement under a Bush Administration,” said James Love, dir. of Consumer Project on Technology. Love said that Powell, whose father sat on AOL board, “not only was opposed to the conditions placed on AOL-Time Warner, but he ridiculed the majority’s decision.”

National Assn. of Telecom Officers & Advisers Exec. Dir. Libby Beaty said she needed to study full order before making detailed comment but said FCC had taken into account FTC’s conditions and expectations of compliance of those conditions. She said she hoped that conditions were enforced to protect consumers.

Cable critics said they also would push Commission to act on its proposed proceeding on possible interactive TV (ITV) rules for cable industry. Well-placed sources said proceeding, expected to be approved as either NOI or notice of proposed rulemaking (NPRM) by end of this week, will explore barring all cable systems that offer interactive services from blocking ITV triggers from rival content providers, just as FTC imposed on AOL-TW. They said proceeding also could look at prohibiting cable operators from favoring their own content by caching it on local servers or sending it at higher data speeds than content from unaffiliated providers (CD Jan 3 p2). “I think we're going to ask a lot of questions and get feedback from the companies,” Comr. Ness said at FCC news conference Fri., while declining to comment on what conditions she favored.

At same conference, Kennard said Commission opted to proceed with broad industry NOI or NPRM on ITV after deciding it was “too early” to apply specific conditions to AOL takeover of TW. But cable officials, alarmed by move, said they would strongly oppose any attempt to impose rules on entire industry. “To commence a rulemaking one that could bind hundreds of companies that have nothing to do with this merger -- is totally unwarranted by the facts,” Sachs said. “Interactive television has yet to take form as a business. It’s regrettable that, in order to break an apparent deadlock over merger conditions, the Commission decided to take this action.”

In another stratagem, some cable critics plan to lobby new Bush Administration and Congress to enact proposed Title 7 regulatory plan that would impose similar high-speed data rules on phone companies, cable operators and other broadband players. Citing conflicting rules for AOL-TW, cable operators in western states, other MSOs and phone companies, they argued that this “crazy patchwork quilt of regulation” threatened future of Internet. “It’s now incumbent on Congress to bring coherence to the broadband marketplace,” said John Raposa, Verizon vp-assoc. gen. counsel, whose company backs that effort. He said such “uniform set of rules” probably would be “something more than the no regulation that AT&T has and less than the hyperregulation that ILECs have.”

FCC Conditions Based on Public Interest Authority

Relying on its broad public interest authority over spectrum license transfers, FCC went beyond FTC in imposing conditions on new AOL-TW combination. Specifically on open access front, Commission said AOL-TW: (1) Must open its high-speed cable lines to up to 3 rival ISPs per market, as already required by FTC. (2) Must allow cable subscribers to select participating ISP by method that doesn’t favor AOL affiliates. (3) Must permit all unaffiliated ISPs to control content of their customers’ first screen. (4) Must let participating ISPs directly bill their high- speed customers if they wish. (5) Must offer same technical performance standards that its affiliated ISPs enjoy to unaffiliated ISPs. (6) May not enter into any contract with ISPs that prevents them from disclosing terms to FCC confidentially.

On instant messaging (IM) service front, FCC gave AOL-TW choice of 3 options for complying with its requirement that company open any cable-delivered high-speed IM service to competitors. Specifically, Commission said AOL-TW: (1) May show it has implemented industrywide standard for server-to-server interoperability. (2) May show it has signed contract for server- to-server interoperability with “at least one significant, unaffiliated provider” immediately and 2 additional rivals within 180 days of first contract. (3) May seek relief “by showing by clear and convincing evidence this condition no longer serves the public interest, convenience or necessity because there has been a material change in circumstances.” At new conference, Kennard said AOL-TW might, for instance, cite market share statistics showing that its IM services no longer dominate market.

On other matters, Commission ruled that AOL-TW: (1) May not make deal with AT&T that gives any AOL-TW ISP exclusive access to any AT&T cable system. (2) May not enter any agreement with AT&T that “affects AT&T’s ability” to offer any rates, terms or conditions of access to non-AOL-TW ISPs. (3) Must notify Cable Bureau and International Bureau in writing of any transactions that boost company’s stakes in General Motors Corp. and/or Hughes Electronics Corp., parents of DirecTV, no later than 30 days after transaction.

In statement, Kennard called conditions “forward-looking and fair” and argued that they “avoid heavy-handed regulation by using a narrowly tailored market-opening approach.” Citing particular concerns about “the future of the instant messaging platform, the ability of competing broadband ISPs to access Time Warner’s cable systems and the potential for discrimination in the interactive television space,” he said that “the power of these players is immense and so is the potential for anti-competitive behavior.” At news conference, he also said he sought to keep regulatory hands off Internet by not imposing IM interoperability standard. “It’s all about preserving the open culture of the Internet,” he said.

Fellow Democratic Comrs. Ness and Tristani lauded merger conditions as way to keep Internet open and promote competition among ISPs. Tristani, who had pushed for even tougher IM conditions, said she accepted compromise provisions because they “go a long way to protect consumers.” But Republicans Furchtgott- Roth and Powell, while approving merger, dissented from either most or all of conditions because they doubted FCC’s authority or majority’s reasoning. Powell particularly questioned IM conditions, expressing concern about “the implication for Internet regulation.”