Takes Over the Establishment: Will Success Ruin AOL?
By Jerry Harris
Third Wave Study Group
of Time Warner is the most striking example of the power of the
new info tech industry. AOL is a 1990s start-up company built on
the idea of connecting people on-line. The explosive growth of the
Internet rocketed AOL into America's number one service provider.
This put its CEO, Stephen Case, in the position to take-over Time
Warner, part of the classic establishment in publishing and media
content. The radical upstart of the open access movement walked
off with the old guards prize possession after less than a decade
on the scene.
With Time Warner,
AOL got the second largest cable company in America. So the question
now is, will AOL abandon its position as a major defender of open
access? Cable is how broadband will reach millions of homes, speed
up the Internet by a factor of 50, and carry better video images.
Service providers need access to cable, especially the thousands
of small independents and non-profits that have built the Internet
into the alternative information hotbed that exists today. With
the merger of cable, service provider and content provider into
one corporation, AOL may decide its in their interests to offer
everyone else second-class access at higher rates.
This is already
the strategy of AT&T, who isn't just a long distance phone company
anymore, but the largest cable corporation in the U.S. since its
takeover of TCI. When Portland told AT&T they had to provide
open access in return for approval of their franchise license, AT&T
decided to challenge the ruling in court. As Daniel Somes, head
of AT&T's cable division said, they didn't spend $56 billion
on cable "to have the blood sucked out of our vein." Portland's
insistence on public access is what AT&T terms "forced
access." According to their corporate logic, a violation of
their right to set prices through control of the "free"
challenge is opposite of AOL's long standing position on open access.
But AT&T and AOL are now joined through Time Warner. AT&T
already has a joint venture with Time Warner to offer phone service
over TV cable systems in 33 states. Furthermore, AT&T has moved
to buy MediaOne, America's third largest cable company, which also
has a 25% interest in Time Warner. This links all the 800-pound
gorillas together in an info tech/communications industry, which
continues to blur the line between what is dot.com and what isn't.
The New York
Times has reported that AOL "appears to have changed its tune…and
joined AT&T in arguing the free market will eliminate the need
for new regulations…" (1)
Michael Armstrong, said…"I was not surprised at the change
of heart because they now are us…I think we together now will
kill this whole issue of forced access because we both have the
same interests… we want everyone to come with us, because
if everyone comes with us we'll make the most money." (2) Armstrong
would make George Orwell's heart jump as he turns open access into
"forced access", and monopoly control into the free market.
with Armstrong is he believes the whole world is moved by the love
of money like himself. As he states…"We are motivated
by self-interest and greed just like they are." In turn, Armstrong
believes that every service provider "wants to make a return,
whether it's from advertising or e-commerce or transactions,"
so access to his cable service is "something that we would
mutually negotiate." (3) Presumably negotiations that would
end in a nice profit, with AT&T and AOL holding monopoly control
of cable. But where does this leave the thousands of providers that
aren't in it for greed, but to provide alternative information and
free communication? Obviously in Armstrong's world these providers
don't count and should be priced out of broadband cable access.
Those who advocate
open and free access have long argued that the decentralized architecture
of the net would prevent its capture by corporations whose only
interest was turning it into a vast profit driven market. But broadband
cable may develop as the new system that circumvents the old phone
line carriers. If AT&T has its way the new architecture will
be reserved for those who can pay, while the old slower system can
be used by everyone else. And AT&T may just have the clout and
power to get their way. AT&T generates about $24 to 26 billion
in cash flow a year, more than any other nonfinancial institution
in the U.S. As Armstrong points out, long-distance is a "cash
machine" and "cash will be king." (4)
1. New York Times, 1-16-00, BU19. "For AT&T and it's Chief,
a Redefined Cable Landscape," by Seith Schiesel.