Dueling Fools
June 23, 1999

Open Access:
AOL v. Excite@Home

The Bull Rebuttal
by Louis Corrigan ([email protected])

I'm afraid Bill has tried to pull a Road Runner by leaving readers in a cloud of confusing dust. One of the few comments I agree with is that consumers need "a completed cable system that will offer an affordable alternative to today's currently unsatisfying narrowband circuit switched services." Only, that's exactly what the openNET coalition wants.

The idea that AOL and other ISPs want to "costlessly profit" from the billions cable companies are spending to upgrade their facilities is just untrue. AOL is basically a content-community company that also resells Internet dial-up access leased from MCI-Worldcom <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WCOM)") else Response.Write("(Nasdaq: WCOM)") end if %>. Much of the fee that consumers hand AOL each month goes to pay for the leased access lines. This is exactly the arrangement AOL wants to strike with AT&T and other cable system operators.

In other words, AOL wants to become one of the cable industry's major paying customers, literally spending millions if not billions of dollars for broadband access. Such bulk buying should allow cable companies to recoup their investments more quickly. By extension, AOL could also channel millions of individual customers to the cable companies' services, potentially helping them increase monthly revenues from traditional cable TV, local telephony, and long-distance.

The deal between @Home and its cable partners allows @Home to keep a third of the broadband access fee while the cable companies get the rest. Even if the cable companies gave AOL a bigger slice of the pie, they would still have a better chance of recouping their costs more quickly since AOL's millions of customers represent not just the ripest and largest market for broadband services but a huge market for all the other services cable systems want to provide. Of course, openNET is merely about all ISPs getting the same deal.

AT&T and the other cable operators aren't looking simply for reasonable economic returns. They're looking to extend their local monopolies in cable to a monopoly in Internet access. Assuming it were possible for the cable operators to do this, then the broadband option would be that much less affordable for consumers because @Home would have no direct competition to keep cable Internet access prices in check. That's exactly the opposite of what Bill says he wants.

Next, Bill's assertion that AOL and the openNET coalition is looking for more government regulation is deceptive if not disingenuous. Cable is a regulated industry. Always has been. And it will be until the whole interactive multimedia market is much farther along its path to convergence. Capitalism doesn't exist without a regulatory framework, especially in an area where there is no natural competition.

As the Portland court decision proves, local governments do have a right under the existing regulatory structure to set guidelines for how cable companies must operate. The Open Access issue may be a new one, but Judge Tanner found that the current rules apply to it. If AT&T doesn't want to abide by Portland's guidelines, that's fine. The company can sell its Portland cable system to someone who's willing to meet the city's requirements. That's just how capitalism works.

Finally, the idea that AOL is somehow trying to slow the rollout of broadband cable access is completely ridiculous. What's their incentive for doing that? AOL actually has the luxury of being agnostic about access. If you're Steve Case and Bob Pittman, the only thing you favor is competition for access between cable, DSL, and satellite because you want to pay as little as possible to lease the high-speed conduit. The faster cable rolls out Internet access, the faster the Bells will invest in their rollout of DSL services. AOL wins regardless.

Granted, AOL doesn't want @Home to hold exclusive rights to the cable networks. But there's nothing wrong with wanting competition to exist on a level playing field. That's what will benefit consumers. Moreover, there's no evidence that allowing multiple ISPs to access cable lines will slow down cable systems anymore than increased Internet traffic alone will slow them down. That's a non-issue.

I do agree with Bill that the FCC may ultimately decide the issue. But cable companies have plenty of economic incentives for upgrading their systems without allowing them to extort even heftier profits from consumers via their exclusive alliance with Excite@Home. If Chairman Kennard buys into all of the cable industry's posturing and tries to give away too much to the cable operators, he's going to be flamed to death by consumers.

Next: The Bear Responds