Finish the Job, FCC

Thursday’s Federal Trade Commission approval of the America Online-Time Warner merger cleared the way for creation of the world’s largest information and entertainment company. The FTC rightly curtailed the $106-billion company’s enormous market power by, among other things, requiring it to lease its cable lines to AOL’s competitors on fair terms. It is now up to the telecommunications regulator, the Federal Communications Commission, to make open access a rule for the entire cable industry.

The reach, resources and potential impact of the AOL-Time Warner merger, both economic and cultural, are hard to overstate. AOL, with 28 million Internet subscribers, controls 40% of the market, about as much as 20 of its nearest competitors combined. Time Warner reaches nearly 100 million readers of magazines such as Time, People and Sports Illustrated and, besides studios and a major record label, owns such popular cable channels as HBO and CNN. As the nation’s second-largest cable company, behind AT&T;, it can deliver all this “content” to nearly 13 million homes.

The FTC rightly saw the need to rein in such market power. It required AOL Time Warner to lease its cable lines to competing Internet service providers on competitive terms and ordered AOL to develop its digital subscriber line service so telephone lines can compete with cable for the delivery of high-speed Internet. It also ordered AOL not to interfere with competitors trying to offer interactive TV--an emerging technology--to Time Warner cable subscribers.

AOL competitors and consumer groups were encouraged by the FTC’s stringent limitations. Cable companies expressed alarm over the precedent represented by the FTC terms, and no wonder. They have a monopoly in virtually all their markets and do not like the notion of opening their networks to competing Internet companies. Clearly, it will take an FCC rule or legislation to open the cable networks to competition.

AOL Time Warner is not allowed to use its market power to bargain for better access to other cable systems than it itself provides. But cable company competitors such as AT&T; and Cox Cable are under no such restriction. They could offer Time Warner a special deal in exchange for its vast content and shut out every Internet company other than AOL. So AOL Time Warner could end up the dominant Internet provider on all the cable networks.

The FTC, after months of negotiations, has worked out terms of open access that both the nation’s second-largest cable company and the Internet service providers have accepted. The FCC should now impose such terms on all the cable companies.