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AOL Picks Cable ISP Partners
You may recall that when AOL and Time-Warner were permitted to merge, a few conditions were placed by the FTC. One of them is that AOL must permit a few other ISPs to offer service over all of the cable modems owned by Time-Warner. AOL lied to the regulators and said that "technical difficulties" prevented them from permitting open competition among any ISP that wanted to offer service; instead AOL will carefully choose a grand total of three other ISPs to offer service. Well, they've put in the paperwork - Earthlink, Juno, and High Speed Access Corporation. AOL is of course the nation's largest ISP; Earthlink is second; Juno is third; HSA is another huge cable modem company. AOL has financial dealings with all three - that is, they're already in bed together, partners, not competitors. You can guess that they're going to be competing *wink*wink* fiercely *wink*wink* to offer you the best price {snicker}.
If you look at the cost breakdown of a multi-company service, you'll find that the carrier makes the bulk of the money. I have DSL at home, and I found that of the $50 per month that I pay, the carrier (Verizon) gets $35 of it, and my ISP (Acecape, who I highly recommend) gets the other $15.
AOLTW really has nothing to worry about here -- if anything, it means they get a good sized chunk of lucrative wholesale business. And they picked a good bunch of partners -- companies like Earthlink pride themselves on providing little more than raw connectivity: a market segment which has very little intersection with AOL's customer base. The typical AOL customer is unsophisticated and wants to have his/her hand held through the entire online experience.
Possibly most important of all is that this arrangement conveniently excludes Microsoft from the picture. MSN is the biggest threat to AOL right now, and since AOL is one of the few companies left that can hold its own against Microsoft, seeing them remain strong is vital to the industry, whether you use/like their services or not.
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...They are certainly correct in that opening their network is not anywhere as simple as the Telcos and DSL people. For telcos and the DSL providers, they have a very distinct Layer 2 vs Layer 3 division here. The link from the End-User to the local CO is a point-to-point link; that is, unshared. The ISP can then tap into the data stream at one of several points (the closest being the local CO, the farthest being a long-distance backhaul). The bottom line here is that DSL/T1/T3 connections can all be made at the Layer 2 level, with no consideration for IP numbering. That makes it easy for ISPs to compete, since they bear the cost for all layer 3 equipment, and can differentiate their products that way.
With cable modems, however, the medium is shared. The best (albeit a inadequate one) analogy is that every cable modem is a workstation on a old thinnet (10Base5) ethernet network, with IP information assigned via bootp. While it is possible to have multiple IP ranges assigned on a local neighborhood loop, it can get real messy real fast. Also, a large amount of the Layer 3 hardware will be (and realistically, should be) provided by AOL, so they bear a large amount of costs that would otherwise be done by the ISPs. Thus, it's far harder to differentiate one ISP from another.
It's possible, and I definitely think we really need to make sure that cable providers compensate the public for their locally-granted monopolies, but it's not anywhere as simple as with the telcos.
-Erik
There are always four sides to every story: your side, their side, the truth, and what really happened.
I read a lot about the M$ trial. I read the findings of fact, the conclusions of law, and the decision on the appeal. Every page. One of the things that I learned is that in order for it to be a monopoly, a relevant market has to be defined. Also, in order to have a monopoly, there must be no easy way for a customer to switch from the monopolist's products or service.
Isn't it reasonable to define the relavant market for AOL Time Warner's cable stuff, as the broadband market? If true, then why aren't all the DSL providers already competitors? I currently have a Time Warner cable modem in my house, but I qualify for and can easily switch to DSL.
If this is true, is it really fair to say that AOLTW has a monopoly in broadband services?
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Actually, with BT being so very very poor, we're in the faintly ridiculous position of AOL actually being on our side here in the UK (on this issue at least), seeing as they're the ones making the most noise about BT's low quality service and the alleged preference they've been showing to their minority ISP when it comes to DSL lines. I suggest any folk from elsewhere in the world go check out The Register and do a search for BT to see just what a hinderance they are to wide-scale broadband.
Anyway, the rest of us can currently only hope to trail in the wake of AOL's attempts to get a better service to exploit^H^H^H^H^H^H^H deliver to it's users. But since BT is rapidly going down the pan, I guess it's going to be a tough fight.
That may sound a bit silly, but there is some truth to it. In over 95% of the places where cable is available, the local goverment has created, by law, a local monopoly through the franchise system. Basically, they authorize one and only one provider of cable service in a particular area. Im my case, its Time-Warner. Now why would a local government not allow others to come in and compete to offer service? Because they get a cut of the GROSS the cable company makes. Thats right, not the profit, but the gross. Again, in my case, its 5% right off the top. Its something like a mofia protection racket. The company pays 5% to the government, and the government insures that there won't be any pesky competition.