AOL and Time Warner Ease ISP Monopoly Concerns

In a move that could potentially have a significant impact on Internet Service Provider (ISP) competition in the U.S., America Online, Inc. (Nasdaq: AOL) and Time Warner, Inc. (NYSE: TWX) announced a “memorandum of understanding” Tuesday stating that AOL will not be the exclusive ISP on Time Warner’s cable systems.

When AOL announced its merger with Time Warner in January, there was widespread concern that only AOL would be allowed to provide Internet access service to Time Warner’s cable customers. This scenario would have amounted to a virtual monopoly over U.S. consumer Internet access.

This latest announcement will likely help the two media giants avoid opposition from the U.S. Congress and the Federal Communications Commission (FCC), which have been pushing cable companies to open their wires to competitive ISPs.

The announcement of the memorandum, which the companies said they hope to follow later this spring with a “binding commitment,” is a step toward allaying concerns that AOL has reversed its position on open cable access.

Preempting Political Scrutiny

AOL and Time Warner executives took full advantage of Tuesday’s announcement to hammer home their argument that the AOL-Time Warner deal will not be anti-competitive.

“I am very pleased that we have been able to make this significant step forward today toward making open access a reality for consumers in the marketplace,” said AOL Chairman Steve Case. “It is exactly what we believe our two companies can achieve when we work [together].”

Time Warner Chairman Gerald Levin went a step further, saying, “I look forward to the rest of the cable industry following this same path of choice and innovation, which I believe will greatly accelerate consumer adoption of cable broadband services.”

The Plan

AOL and Time Warner’s open access plan is expected to serve as the framework for agreements by which other ISPs will be available to consumers over Time Warner Cable, the companies said.

In addition to providing a choice, AOL and Time Warner said they will not place any fixed limit on the number of ISPs with which Time Warner Cable systems can enter into commercial arrangements, and they will offer those ISPs the choice to partner on a national, regional or local basis.

Impact on E-Commerce Huge

In the Internet world, marketing and continued communications with customers is key, but AOL and Time Warner said they will not seek to control the relationship with the consumer. The companies are “committed to allow both the cable operator and the ISP to have the opportunity to have a direct relationship with the consumer,” they said.