AOL rivals put instant messaging wars on FCC radar

"It's not clear to me that it's a communications service," FCC Commissioner Michael Powell said in an interview with CNET News.com. "It's not clear to me it's even merger-specific."

Since then, IM has vaulted to the front burner of the FCC's investigation of the largest corporate merger in history. FCC staffers now want to loosen AOL's grip on instant messaging as a concession to passing the merger, according to one source close to the commission. FCC staffers want to impose a firm deadline for AOL to open its IM network so that other technologies, including those from its largest rivals, can communicate with AOL members, the source said.

Initially underestimated in its popularity, instant messaging is a powerful form of communication that has become part of a larger conflict that will ultimately determine who controls much of the Internet itself. As with email and browsers, companies that own this technology can lead their subscribers to advertising and other revenues while increasing the value of their real estate on the PC desktop.

AOL underscored the importance of this fight last year by blocking other forms of instant messaging from working with its own. But this aggressive tactic increased scrutiny from Congress and federal regulators, who have been lobbied heavily by AOL competitors seeking to turn instant messaging into a key issue in the Time Warner merger.

It's too early to tell whether the lobbies will pay off. FCC staffers must submit a proposal to commissioners, who then vote on whether to pursue action against the merger.

But a loose coalition that includes CMGI's iCast and Tribal Voice, Microsoft, Prodigy, and Odigo has generated enough interest that senators are writing concerned letters to regulators.

Turning the tables
Until recently, AOL had managed to keep regulators off the IM trail by successfully characterizing the IM battle as a corporate scuffle. A source recently told CNET News.com that the Federal Trade Commission--the other U.S. agency charged with approving the AOL-Time Warner merger--would not likely make IM an issue in its review of the deal. The source said that it would be difficult to apply antitrust law to instant messaging because the service is free.

The FTC has focused instead on "open access" of Time Warner's cable properties, signaling that it will require strong assurances that the combined companies will not discriminate against competitors seeking to distribute content.

Regulatory interest in instant messaging represents a setback for AOL. Although the company has said it supports standards allowing rival IM services to interoperate with its AOL Instant Messenger (AIM) and ICQ technologies, the addition of instant messaging into the regulatory equation adds new complications for the companies.

AOL showed early success in keeping IM off the table, despite efforts by competitors to lay the groundwork for a deeper review of the merger, which was announced in January.

iCast and Tribal Voice began filing letters and reports to the FCC in April, asking commissioners to include instant messaging in the review of the merger. They also said AOL had fallen back on its promises to fast-track interoperability.

The companies also formed FreeIM as an attempt to generate a coalition of support among other companies involved in instant messaging. But many still questioned whether it was relevant to the merger despite AOL's assurances that it would open its network.

"We started this campaign when no one understood it," said Margaret Heffernan, CEO of iCast, which has been the most vocal in its efforts to force open AOL's hand. "It was on nobody's radar screen."

But as the lobbying efforts among competitors intensified--and the closure of the merger approached--more people on Capitol Hill and in the FCC began listening. Company lobbyists and executives began knocking on senators' doors and arranging meetings with FTC and FCC staff.

Their efforts seem to have stimulated more senators to express their opinions about the deal. Senate leaders, including Edward Kennedy, D-Mass.; John Kerry, D-Mass.; Barbara Boxer, D-Calif.; Max Cleland, D-Ga.; Conrad Burns, R-Mont.; Harry Reid, D-Nev.; and Olympia Snowe, R-Me., began showing interest and writing letters to express concern over AOL's instant messaging dominance.

Meanwhile, staffers for Boxer and Burns last week requested a briefing with FTC officials to learn more about the review and to voice their opinions about issues including instant messaging. The FTC canceled the meeting, however.

Though the Senate has no role in approving the merger, members can influence opinion among regulators reviewing the deal.

In addition to visiting senators, representatives from companies such as iCast have met with the FCC and FTC to convey their stance. The main objective with the FCC, according to Heffernan, is to show why instant messaging is relevant to communications policy.

"What we've been doing with the FCC is to explain issues, to explain why AOL's protests are a smoke screen, and why it is a very fundamental piece of communications policy," Heffernan said.

AOL unruffled
AOL downplayed the FCC's interest in instant messaging, saying it supports interoperability but arguing that the issue does not belong in the merger debate.

AOL and Time Warner executives have said instant messaging is a feature, not a standalone business. AOL has also stated that it plans to make its instant messengers interoperable within a year but must first tackle the technology challenges of ensuring security and privacy for its members.

Furthermore, AOL has built the success of its IM services from scratch. Though the AIM software originally was a feature in the company's proprietary online service, AOL eventually let non-AOL subscribers download the software off the Web for free.

AOL dominates the IM sector through sheer numbers. AIM has 65 million screen names, and ICQ has 73 million downloads and an undisclosed number of screen names from AOL's proprietary service.

Competitors, however, view AOL's dominance and its unwavering moves to block others from penetrating its system as potentially threatening. They've made these views the basis of their campaign to open AOL.

The battle over instant messaging has been in the spotlight for more than a year. Last summer, AOL and Microsoft engaged in a cat-and-mouse game after the software giant launched its own messenger service that was interoperable with AIM users. AOL immediately responded by blocking access and criticizing Microsoft's move as akin to a hack into its servers.

Though Microsoft eventually pulled back, the scenario became a familiar pattern. Companies including Prodigy, AT&T, Tribal Voice, iCast and Odigo all tried to let their services work with AOL, but the attempts ended with the same results. The companies said they were using a protocol that AOL had made public to let others communicate with AIM. But AOL said the moves undermined the security and privacy of its members.

"We support open instant messaging so long as consumer privacy and security can be protected," said AOL spokeswoman Kathy McKiernan.