Hypocrisy Runs Deep at AOL

A company tries to ride the tiger of Big Government

By Dave Kopel of the Independence Institute

6/15/00 7:30 p.m., National Review Online. Also by Kopel: AOL-Time Warner Merger Spells End of Forced Access Campaign. Mar. 13, 2000

In the modern telecommunications and computer industry, no company has worked more aggressively to use the power of government against its business rivals than has America On-Line. It is poetic justice — and a good warning to the rest of the digital world — that the federal government is now seeking to "crack down" on AOL.

The Federal Trade Commission has announced that it will launch an antitrust investigation of the proposed AOL merger with Time/Warner; the investigation will be aimed at AOL's "instant messaging" services. Instant messaging allows people who are logged onto the Internet to communicate immediately, by having a typed conversation in real time. This is faster than e-mail, for which the delay between sending and receiving a message may be seconds or hours.

AOL owns the largest instant-messaging service, AOL Instant Messenger, and the second-largest service, ICQ (an independent company that AOL bought). Together, the two AOL services have well over half of the instant-messaging market.

Time Warner, on the other hand, doesn't own any instant messaging. But TW does own lots of cable-television lines, and these cable lines are being upgraded to provide high-speed "broadband" Internet connections to consumer's homes. The FTC is apparently worried that AOL/TW will use its market power in instant messaging to dominate whatever instant messaging will be used for in a broadband context.

The FTC case shows the worthlessness of antitrust. AOL hasn't done anything wrong in achieving its current leading position in instant messaging. By combining AOL's instant-messaging expertise with Time Warner's cable pipes, AOL may be able to bring all sorts of new benefits to consumers. Relying purely on flimsy speculation about what "might" happen if AOL/TW succeeds too well, the FTC is blocking AOL and TW from carrying out a business plan that will help consumers.

If this reminds of you the Microsoft antitrust case, it should. There, even the government's chief expert economist admitted that Microsoft had harmed competitors, but had done nothing to harm consumers. Yet Microsoft is to be prevented from entering new markets, and to be split in half, because of speculation about alleged harm that "might" happen in the future. The federal case against Microsoft was, of course, pursued at the behest of Microsoft's inferior competitor Netscape, which is currently owned by AOL.

One "remedy" that the FTC is examining is that AOL be required to open up its instant-messaging system, so that people who use other instant messengers (e.g., programs from Yahoo, or Microsoft), can communicate with AOL customers. AOL has so far insisted, quite rightly, that the AOL and ICQ instant messengers are AOL's property, and if AOL doesn't want to enable communication with non-AOL programs, it shouldn't have to.

Over the past year, AOL has been engaged in a technical war with other instant-messaging companies; as the other companies invent new ways for their own customers to communicate with AOL's customers, AOL invents new ways to block them.

But the most amazing thing about the AOL war against open access to its instant messaging isn't the code-writing: it's AOL's hypocrisy. Even while AOL was fiercely resisting industry pressure to open up its instant messengers, AOL was lobbying all over the country to force AT&T to open up its cable-television lines to AOL! AT&T owns TCI and various other cable-television properties, and AT&T is hard at work to bring high-speed Internet access to the home, via those cable-television lines. If you sign up with AT&T for "cable modem" Internet service, you'll have full access to the entire Internet. Your Internet Service Provider will be Excite@Home, an affiliate of AT&T. For the past several years, AOL and other slow, narrow-band Internet Service Providers have been waging a mostly unsuccessful lobbying campaign to force AT&T to let these rival ISPs use AT&T's cable lines — at the same price as AT&T's own affiliate.

It's bad enough for businesses to lobby for government to confiscate a rival business's property rights. It's even worse when the biggest pro-confiscation lobbyist (AOL) is rejecting the very same arguments (Open Access) when its own property is involved (instant messaging) that the lobbyist makes when it wants to take someone else's property (AT&T's cable lines).

But the story of AOL's hypocrisy is not yet complete. Upon buying Time Warner, AOL suddenly found itself to be the owner of millions of cable-television lines. AOL promptly dropped out of the "Open Access" coalition, and decided that markets, not government, should decide Internet access.

AOL likes to consider itself at the center of the new digital economy. Yet in terms of lobbying behavior, AOL is at least as bad as the foolish corporate bureaucrats of the old economy, who tried to direct government power against their competitors. In the long run, unleashing government power to attack one business made every business less secure. As President Kennedy observed, regarding Third World nations that flirted with the Soviets, "He who rides a tiger dare not dismount."

Now that the tiger is starting to eat AOL, perhaps the other digital companies which worked so hard to encourage the federal government to persecute Microsoft may start to have second thoughts. Or perhaps nothing will change until they too end up in the tiger's belly.

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