AOL/Time-Warner Opens Cable Network to Other ISPs

Saidin writes, "According to this story at news.com, AOL plans to open access to their cable lines for all ISPs to share. Good will, or just an attempt to keep the anti-trust demons off their back?" Well, AOL and Time-Warner are testifying in front of the Senate Judiciary Committee today, so draw your own conclusion. But, motive aside, competition is good. The full text of the AOL/Time-Warner "memorandum of understanding" is below if you're into reading such things.

MEMORANDUM OF UNDERSTANDING

Between Time Warner Inc. And America Online, Inc.

REGARDING OPEN ACCESS BUSINESS PRACTICES

February 29, 2000

1. This Memorandum of Understanding ("MOU") sets out the commitments that AOL Time Warner will make to provide open access (i.e., to make a choice of multiple Internet Service Providers ("ISPs") available to consumers) on its broadband cable systems. It is the intention of the parties to enter into as quickly as possible a binding definitive agreement to provide broadband AOL service on Time Warner's cable systems, which will be used as a model for the commercial agreements that will be available to other ISPs.

2. AOL Time Warner is committed to offer consumers a choice among multiple ISPs. Consumers will not be required to purchase service from an ISP that is affiliated with AOL Time Warner in order to enjoy broadband Internet service over AOL Time Warner cable systems. AOL Time Warner intends to encourage actively other cable operators similarly to provide consumers with a choice of broadband ISP offerings.

3. AOL Time Warner will effectuate such choice for consumers by negotiating arms-length commercial agreements with both affiliated (such as AOL) and unaffiliated ISPs that wish to offer service on the AOL Time Warner broadband cable systems. Pursuant to such commercial agreements, AOL Time Warner will partner with ISPs to offer consumers a choice of competing broadband Internet service offerings.

4. AOL Time Warner will not place any fixed limit on the number of ISPs with which it will enter into commercial arrangements to provide broadband service to consumers. AOL Time Warner will provide its consumers with a broad choice among ISPs, consistent with providing a quality consumer experience and any technological limitations in providing multiple ISPs on its broadband cable systems.

5. The terms of the commercial agreements between AOL Time Warner and ISPs wishing to provide broadband service will not discriminate on the basis of whether the ISP is affiliated with AOL Time Warner. Thus, while the economic arrangements reached by AOL Time Warner and ISPs wishing to provide broadband service will vary depending on a number of factors (such as the speed, marketing commitments, and nature and tier of the service desired to be offered), AOL Time Warner will not discriminate in those economic arrangements based upon whether or not the ISP is affiliated with AOL Time Warner. In addition, AOL Time Warner will operate its broadband cable systems in a manner that does not discriminate among ISP traffic based on affiliation with AOL Time Warner.

6. AOL Time Warner will allow ISPs to provide video streaming. AOL Time Warner recognizes that some consumers desire video streaming, and AOL Time Warner will not block or limit it.

7. AOL Time Warner will allow ISPs to connect to its broadband cable systems without purchasing broadband backbone transport from AOL Time Warner.

8. Consistent with technological capability, AOL Time Warner will offer ISPs the choice to partner with it to offer broadband Internet service on a national (on all AOL Time Warner cable systems), regional or local basis, in order to facilitate the ability of consumers to choose among ISPs of different size and scope. AOL Time Warner is committed to bring the benefits of the Internet to all Americans, and will not allow ISPs to offer "redlined" service to only a portion of an AOL Time Warner cable system that is fully enabled to provide broadband service.

9. AOL Time Warner is also committed to allow both the cable operator and the ISP to have the opportunity to have a direct relationship with the consumer. Accordingly, both the cable operator and the ISP will be allowed to market and sell broadband service directly to customers. When AOL Time Warner's cable systems sell broadband Internet service to a customer, they will be entirely responsible for billing and collection. When an ISP sells broadband Internet service directly to a customer, it may, if it so chooses, bill and collect from the customer directly.

10. This MOU represents an initial step by Time Warner and AOL to articulate the terms, conditions and parameters under which a combined AOL Time Warner will offer consumers access to multiple ISPs on its broadband cable systems. It is the intention of the parties to continue to refine those particulars in a manner that is responsive to, and consistent with, the desire of consumers to have a choice among multiple ISPs offering broadband service and the still-evolving nature of the cable infrastructure.

11. All of the foregoing is subject to all pre-existing obligations of Time Warner, including without limitation Time Warner's agreements with Serviceco, LLC (d/b/a Road Runner) and its fiduciary and other obligations to its partners. However, Time Warner will endeavor to reach agreements and accommodations with third parties to which pre-existing obligations are due that would permit the full implementation of the commitments described herein as quickly as possible.

--------------------------
Stephen M. Case
Gerald M. Levin
America Online, Inc.
Time Warner Inc.
-----------------------------

Thanks to attorney Don Weightman for providing the above text.

Comments

more links

[adimarco]

damn it, i submitted this hours and hours ago (with better links) :)

other links:

CNNFn
yahoo

This is all very interesting, in lieu of the FCC's recent ruling that cable providers do NOT have to do this. Perhaps AOL/TimeWarner isn't as bad as we thought, perhaps not :)

Anthony

What I think AOL is up to...

[evilquaker]

AOL has, of course, been actively lobbying Congress for open cable lines, presumably so that they could use them. When they bought Time Warner, they quit lobbying Congress, presumably because they now owned a cable network and didn't need. Today, they open up their lines. Very interesting. Are they being un-hypocritical or do they have ulterior motives.

Of course AOL has ulterior motives. They think this will help them make money. That's the only reason they're doing it.

I expected AOL to open TW's cable lines, and I'll explain why. My numbers may be off, but I think they're close enough that you'll get the idea.

AT&T and @Home have about 75% of the cable ISP market. RoadRunner has about 25%. AOL figures that if they open their cable lines, they'll lose about 50% of their customers to other ISPs (because they have the strongest brand, and they can offer the best pricing). Of course, they're still making money on those customers, just not as much. So they stand to lose somewhat less than 12.5% of the market. Where I think they gain is that they can force the FCC to open AT&T's lines, thereby gaining about half of AT&T's customers (brand is king), or about 37.5% of the market. How will this happen? First, AOL implementing an open cable system shows that it's possible, so AT&T's objection on those grounds is thrown out. Further, I think they're hoping that AT&T/@Home customers will start objecting to their exclusive arrangement ("My brother gets AOL, why can't I?"). Finally, if prices are lower, AOL can show that the customer is helped by opening the cable lines. That might be enough to force the FCC to step in...

Ob. Disclaimer: IANAB (I am not a businessman). The above could be complete hooey. But it makes sense to me...

What does this really mean for AOL/TW?

[WillAffleck]

As a shareholder in AOL, I'd tend to agree with the corporate analysis (did I really say that?) that opening the pipelines to non-AOL will still result in AOL gaining market share.

The fact is, most consumers are:
A. lazy
B. confused by all this computer stuff
C. lazy
D. don't like techy things
E. lazy

Additionally, opening the pipelines reduces legal costs for the FEC and SEC oversights of the merger, which is probably more of a big deal in terms of expense and effort. AOL wants to keep its dominant market share, and as MSFT reminds us, being distracted by fighting with the government makes for bad business and reduces the profit stream.

Plus, it's cool to be Open Source or Open Pipeline, anyway. You get to hang out with the Linux geeks and maybe get some of those IPO shares along the way ...

MOUs are Non-Binding!

[nellardo]

I don't think anyone else has mentioned this, buta Memorandum of Understanding (MOU) is non-binding! It is quite literally a simple statement that this what they think they're going to do. Any party to the MOU can change their mind and the other parties don't have a legal leg to stand on. Wait for the "Definitive Agreement" - that's the part that has any legal weight. An MOU is just a way to generate press.

Even at that, Time Warner Cable's prior contracts nuke lots of this - Road Runner's deal with Time Warner is as exclusive ISP. Ditto AtHome with the cable companies they're carried on. Nothing will change until either Road Runner and @Home willingly back out of their deal or they expire.