AOL-TW PLAN TO DISCONTINUE OVERSIGHT DRAWS LITTLE FIRE

The condition was considered a huge victory for consumer rights activists at the time. But today, as AOL-TW petitions the govt. to have that requirement removed, the petition has drawn barely a whimper in FCC comments. Comments were due May 5, and replies Tues. As of Tues. afternoon, only 2 comments were listed on the FCC’s electronic docket.

AOL-TW, the world’s largest provider of IM services, still hasn’t developed interoperability, and in a petition filed at the FCC in April it asked the agency to drop its requirement that the company report in on its efforts every 6 months. The company argued that the Commission was wrong in its prediction that AOL-TW would become the dominant force in IM and that market conditions had changed so that it actually was at a disadvantage in competing with IM services provided by Microsoft and Yahoo. Both offer competing products with streaming video capabilities, something AOL TW can’t do under the agreement with the FCC.

Center for Digital Democracy (CDD) Exec. Dir. Jeffrey Chester, who was one of the consumer advocates leading the fight against the merger, denied the issue had ceased to be important, saying it was a “no-brainer” that the FCC should deny AOL-TW’s petition. Asked why CDD and other consumer- oriented groups hadn’t filed opposing comments, Chester said they were too pressed now with the FCC’s proceeding on media ownership to fight the AOL-TW battle.

“The plate is not just full, it’s broken,” Chester said. “We assumed that this is a no-brainer even for the folks at the FCC. If they approve this thing, [FCC Chmn.] Mike Powell might as well give the deed to the agency to [AOL-TW CEO Richard] Parsons.” Chester said the few opposing comments filed proved the FCC had done a poor job of informing the public about important issues and that public interest groups were “under-resourced.”

Similarly, Media Access Pres. (MAP) Andrew Schwartzman said his group cared about the issue but “this was one where the other IM players, Microsoft and so forth, needed to step up to the plate. We were willing to be supportive but we weren’t going to carry the water for them.” Besides, Schwartzman said, MAP had to make a “resource choice” because of the media ownership proceeding, which is up for a vote June 2. “We can’t stop every bullet. There’s only so many things we can take on,” Schwartzman said.

A spokeswoman for Yahoo!, another major player in IM, declined to comment on AOL-TW’s petition. However, she said Yahoo! continued to support efforts toward interoperability by working collaboratively within the industry. She said she wouldn’t speculate on when interoperability might be achieved, if ever. MSN, the other major player, also declined to comment, except to say it, too, continued to work within the industry “ so that consumers can communicate openly and freely with friends and family no matter what instant messaging service they use.” Microsoft had been vehement during the original merger proceedings in urging that the govt. put some restraints on AOL.

An AOL spokeswoman said she wasn’t surprised there wasn’t much opposition to its petition. “The case to remove the condition is a very strong one,” she said, and the initial predictions about AOL IM “have proven to be inaccurate.” What’s more, she said, it’s plain to see that there’s competition in IM today.

David McClure, pres. of the U.S. Internet Industry Assn. (USIIA), said he believed nobody was up in arms over AOL’s petition because the company wasn’t nearly as threatening as it appeared 3 years ago. In fact, if AOL can’t leverage its IM service through broadband -- and it appears AOL is struggling to break into broadband -- it won’t be able to keep up with its competitors, McClure said. “You're looking at a very tough economic environment right now for everyone,” he said. “The question remains: How much does AOL really dominate in Instant Messaging? Certainly, they have the numbers but if they're not able to move forward with a broadband strategy that makes any sense, all of the IM strategies in the world aren’t going to help their business case.”

While 3 years ago, industry players feared AOL IM would dominate business communications, it hasn’t, McClure said, instead becoming a medium used mostly by children and teenagers. IM also doesn’t make any money yet, he pointed out, and AOL can’t start charging for it because doing so would cause further hemorrhaging of subscribers.

Among the few who opposed AOL-TW’s petition were 2 former FCC staffers who were at the agency when it was considering the merger of AOL and Time Warner. Gerald Faulhaber, prof. of business & public policy at the Wharton School, U. of Pa., and David Farber, prof. of telecom systems, also at U. of Pa., argued that it was denying its own users interoperability in order to squeeze its competitors and that denying that service was a strategic decision by the company. They also charged that AOL-TW was trying to block competitors from interoperating with its own service. Asked about the dearth of comments in the proceeding, Farber suggested that Microsoft and Yahoo! at this point might not want to set a precedent of having the govt. intervene, especially if they truly were working toward an IM standard that, in the end, could give them a competitive advantage over AOL. Farber also theorized that, in order to make a case for the govt. to maintain the condition, those companies would have to disclose the number of users they had, something they wouldn’t want to do.

BellSouth, filing reply comments late in the day Tues., said it believed many AOL users had been forced to set up other IM accounts on other services because of the lack of interoperability. “AOL should not now be permitted to use the result of its failure to meet its interoperability commitment as a justification for the removal of a condition that was imposed to incent AOL to interoperate with its competitors,” BellSouth said. The company said Internet service providers were “constantly being pressured to cut their prices” and relied on enhanced services such as AOL’s advanced IM-based high-speed services to make a profit, demonstrating AOL’s continuing market dominance. The FCC is expected to make a decision within 60 days.