There were two legal surprises last month - not one. Two days after the Supreme Court embarrassed its apologists (more on that below), the Federal Trade Commission approved the merger of America Online (dossier) and Time Warner (TWX) under terms that took cynics by surprise. As cynicism is my brand, and apologetics my profession, it was a particularly bad week for this writer. Telling a happy story about regulators is hard enough; mustering an explanation for Bush v. Gore may well prove impossible.
Government regulators have been mulling the AOL-Time Warner merger for a year now. Given the quick approval of the ATT (T)-MediaOne merger, many expected the AOL-TW deal to go smoothly as well. It didn't. Opponents demanded assurance that Time Warner would allow access to its cable lines after the deal was sealed.
The argument in favor of open access - developed in part by AOL (before it tried to buy cable lines) - has taken hold in Washington. And for good reason. Innovation on the Internet has been fueled by a platform that is neutral among innovators. This neutrality, embodied in the network principle of end-to-end (build intelligence in the ends, while keeping the network itself simple), encourages the widest range of creators to develop new content and applications for the Internet. The danger of closed access - where the platform owner has the power to control which innovations are permitted and which are not - is the potential for strategic action by owners of the network that could dampen the eagerness of innovators to develop for the Net. Open platforms keep players honest.
Many found it hard to believe AOL would turn its back on this principle. Not only was there the problem of consistency ("openness, competition and rapid innovation" were the very "DNA" of the Internet, AOL Chairman Steve Case had argued, and therefore the government should ensure that "competition in all 'last-mile facilities' should remain open"), but there was something just too ugly about this company, nurtured by the Internet, now trying to change its mother's DNA. AOL of course is not the Internet; it was born a closed system far from the Net, and has only partially been opened. But its closed environment lives at the edge of the Internet, and the genius at its birth was the same genius that built the Net: Connect people first.
After the merger was proposed, however, AOL began singing a different tune. Case now argued the market, not government, should do the regulating. Consumer advocates were stunned; stock in cynicism soared. Most thought AOL, like AT&T before it, had jumped to the dark side.
But FTC Chairman Robert Pitofsky somehow succeeded in keeping Case and company true. Though the prospect of a more forgiving administration had been settled by the Supreme Court two days before, the FTC and AOL Time Warner agreed upon conditions for a merger that would avoid the dangers of closed access. AOL Time Warner promised to keep its cable lines open to competitors, and more significantly, it promised that would include interactive TV as well as the Internet.
The Clinton administration has had a less-than-stellar record defending what is important to the Internet. But in this and elsewhere, Pitofsky, a Clinton appointee, has left an extraordinarily important legacy. Without litigation, without self-serving press, the FTC succeeded in keeping alive a principle of competition that has served innovation and the Web well.
And so too do AOL and Time Warner deserve credit. No doubt many at AOL wanted to wait for the next administration. But one imagines the company saw the virtue of the open access its executives had previously promoted. The Net was built by those who convinced people to use their content, not by those who made using someone else's content difficult. On the side of open access, therefore, have been those with strong content - Disney, for example. On the side of closed access have been those whose value depends upon architectures to corral consumers - AT&T, possibly.
