FCC INSTANT MESSAGING COMPROMISE CRITICIZED ON ALL SIDES

Along with cable open access, IM became one of leading issues in FCC and FTC review of merger. AOL is by far leading provider of service, which so far generates negligible revenue for anyone but is expected to be important in future services. Competing providers have complained that AOL has shown no interest in allowing interconnection. They say that without interconnection to majority of other IM subscribers, they have hard time signing new users despite service innovations. AOL counters that it’s in favor of interconnection, but says efforts so far have been plagued by security and privacy problems, and it’s unwilling to allow its users to get spammed or spied upon. FTC, as well as the European Union, chose not to impose any IM conditions (CD Dec 15 p1).

IM is “an essential platform for the development of future high-speed Internet-based services that rely on real time delivery and interaction,” Tristani said in separate statement in which she wished for “even more forceful conditions… AOL’s dominant instant messaging platform should be interoperable.” However, Republican Comr. Powell, who’s expected to be next FCC chairman, was highly critical of agency’s move to “condition a hypothesized product and a hypothesized market… Whenever a regulatory agency has to make up its own acronym to describe a product or service it intends to regulate, one should be concerned.” He said “I concede there are serious problems presented by AOL’s dominance of current IM products” but “no competent antitrust authority… would conclude intervention was necessary.” He called assertion that IM would be essential facility “a breathtaking prediction and conclusion by a regulatory agency.”

Powell predicted more far-reaching ramifications for FCC’s intervention into Internet regulation. “This order makes clear that the FCC has jurisdiction to regulate virtually every Internet product,” he said, and ignores decades of deliberate avoidance by the Commission of such intervention. “The implications of that step are not fully considered here and that is why I am most hesitant (indeed unwilling) to make such a substantial leap… without greater notice and a fuller and broader opportunity to comment.”

“Today’s order is a step,” said competing IM companies, including AT&T, Excite@Home, MessageVine, Microsoft, Odigo and Prodigy. “We appreciate the Commission and its staff for addressing this issue. It is significant that the FCC recognizes that AOL’s aversion to interoperability is a problem.” “We're happy [the FCC] at least did something,” said an IM source. Based on recent reports, “there was a possibility that nothing could happen.” “We think it was good of the FCC to look into interoperability” at all, said Alex Diamandis, vp-mktg. for Odigo. “About 8 months ago, government agencies didn’t have IM on their radar. A lot of education went on with the FCC and their staff.”

But FCC’s order “will not provide any near-term benefits for today’s IM users,” competitors said. “Indeed, given the limited contract requirements that are part of the order, it is possible that consumers will not see material benefits from the Commission’s order even over the long-term… AOL’s stranglehold on IM will remain intact for now.” Indeed, both IM source and Wayne Crews of Cato Institute agreed that order gives AOL perverse incentive not to roll out new IM services that might open it up to interconnection requirements. “Who’s going to say exactly what ‘advanced’ is going to mean in the future?” Crews asked. “Is it going to be wireless?” Competitors certainly hope so, since several we contacted said their business models are mostly based on taking advantage of expected move of majority of IM traffic to wireless applications.

Several factors weighed against substantive IM conditions. Regulators “wrestled with the merger specificity of the issue,” said Diamandis. In other words, it wasn’t clear that AOL’s alleged IM hegemony had anything to do with its merger with TW, and that’s why the conditions were narrowly tailored to new services that could only be offered with help of TW assets. Competitors also had to wrestle with FCC’s historical reluctance to intervene on Internet issues. “We all have these ambivalent feelings,” said Barbara Dooley, pres. of the Commercial Internet eXchange (CIX), which ultimately filed in favor of IM conditions. Asking the FCC to regulate Internet relationships is “a very big and serious step,” she said, but ultimately necessary because AOL wasn’t operating as Internet companies have historically. There may be no going back, Dooley said, comparing AOL situation with development of e-mail, where companies wanted to interoperate with each other. “It seems that some companies have lost that perspective,” Dooley said. “It’s become commercial now, there’s so much money at stake.”

Despite getting so little help from FCC, competitors remained upbeat about future of competing IM services and prospects for full interconnection. AOL has pledged to work with Internet Engineering Task Force (IETF) and industry group IMUnified on common standards, although other companies say its participation has been half-hearted. “Federal officials, industry, standards- setting bodies and consumers will be watching AOL’s actions in the coming months to see if it lives up to the promises it has made,” companies said as group. Negligible conditions imposed by the FCC “give [AOL] more opportunity to delay,” said Diamandis. “That means, as IMUnified, we have to rededicate ourselves, without AOL, to be interoperable within ourselves. We have to work harder to bring about the next generation of IM. Maybe there'll be 2 competing standards,” IMUnified one and AOL’s, he said. Diamandis said IMUnified has specification “on the table” that it plans on launching in a month. If nothing else, the battle at the FCC “certainly raised the profile” of IM, he said.

“We believe we are a real competitor,” said spokeswoman for MessageMedia, which is focused on wireless applications. “We don’t feel this is the end of the road.” She said “interoperability is inevitable. AOL’s users will demand it… We're quite certain that AOL’s customers will want to speak with other people in the not too distant future.” Pointing to “hundreds of millions of users in the wireless world,” spokesman said “for us, those are our customers.” She said AOL’s interest in expanding its brand there may be to its disadvantage, since wireless carriers will want to work with companies such as MessageMedia, which let them brand their own offerings and have primary relationship with the customer.

But AOL’s dominance in industry so far has been underscored by recent withdrawal from business of 2 of companies that started FCC thinking about IM issues in first place -- Tribal Voice and iCast. “You can’t help but draw the conclusion” that AOL’s refusal to interoperate played a part in their demise, the MessageMedia spokeswoman said.