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Cable industry continues push to open networks

The cable industry appears to have the FCC in its camp, as long as it cooperates and embraces potential revenue streams associated with opening its networks to outside ISPs.

So far the cable industry appears to be having its way.

When the fight for equal access to cable Internet systems by Net service providers was mounting last year, cable operators called for a hands-off approach to regulating their networks. Internet service providers such as America Online and MindSpring Enterprises desperately wanted to provide high-speed Net access via cable networks and saw potential cable regulation as a possible avenue.

But AT&T, Time Warner and others argued that "marketplace driven" deals, not new laws, would be a better way to ensure that unaffiliated ISPs gained access to cable's high-speed Internet systems.

Today's deal between Juno Online Services, a large subscription-based, free ISP, and Time Warner Cable, one of the nation's largest cable TV companies, marks the first time that Time Warner has agreed to open its network to a rival. Previously, Time Warner and AOL agreed to work together, though the two powerhouses now plan to merge.

The deal underscores the cable industry's efforts to placate federal regulators who have scrutinized their massive mergers. Analysts say a willingness to work with third-party ISPs now could thwart further scrutiny later.

Thus far, the cable industry has been successful in warding off new regulations. It also appears to have the Federal Communications Commission (FCC) in its camp, as long as it cooperates and embraces potential new revenue streams associated with opening its networks to outside ISPs. The changing thought process is evidenced in a series of concessions made to the ISP industry in recent months.

"Some of these players remember what it's like to come out of a heavily regulated environment," said George Peabody, an ISP industry analyst at the Aberdeen Group, a market research firm. "I don't think they want to be regulated."

AT&T has agreed to work with outside ISPs in addition to its majority-ownership stake in Net-over-cable firm Excite@Home. The efforts come despite Ma Bell's recent legal victory concerning so-called open access at the federal court level in Portland, Ore. Ma Bell won a protracted legal case, providing the company with relief from local governments that wanted to impose cable open-access regulations. In spite of that ruling, AT&T and now Time Warner remain willing to open their networks on their own terms.

AT&T signed a deal with MindSpring to give the ISP access to AT&T's cable networks. The company also recently announced a series of tests with at least 10 ISPs to study the technical implementation and financial issues surrounding open access.

At the time of the AT&T-MindSpring deal, Ma Bell was in the process of digesting MediaOne Group--an acquisition that attracted massive regulatory scrutiny concerning Ma Bell's percentage of cable ownership.

Like AT&T's alliance with MindSpring, the Time Warner-Juno deal comes as the media giant is in the process of being acquired by AOL. Consumer groups and others have criticized the merger and are anxious to grasp hold of any way to draw regulators' attention to reasons why the merger should not be approved.

"We look forward to reaching agreement You've got Time Warnerwith other ISPs as quickly as possible and to offering our customers a broadening array of choices in how they experience the Internet," Glenn Britt, president of Time Warner Cable, said in a statement on the Juno deal.

"They're doing this because they realize that if they don't do it, they could be forced to," said Lynda Starr, a broadband industry analyst at Probe Research. "When you're under scrutiny, you want to put your best foot forward."

Some analysts say only time will tell whether deals such as the Time Warner-Juno alliance are more an experiment or a true commitment to open access, based upon how quickly additional ISP partners are brought into the fold.

Juno, after all, does not directly compete with AOL, because its advertising-supported ISP service is free. By first working with a free ISP, critics could argue that AOL is buying itself time before bringing a true competitor, such as MSN or other major ISPs, into the mix.

But some analysts say the cable industry not only recognizes the potential regulatory dilemma it faces if it does not open its networks to others, but also is recognizing new ways to make money on open access. Content distribution deals, wholesale access revenues and other newfound arrangements could prove to be lucrative for AT&T, Time Warner and others, they say.

"It's not like (the cable operators) don't get anything out of it. They'll get all sorts of added revenue," Starr said. "Even though they don't want to believe it's in their best interest to open their networks, it is, because consumers want choice."