AOL Asks FCC to OK Video IM

America Online has asked the Federal Communications Commission to drop a two-year-old restriction on the media conglomerate’s development of broadband-based video instant messaging and other advanced services.

While signing off on the America Online-Time Warner merger in 2001, the FCC had decided that the combined company could hurt competition by using its vast market share in the proprietary IM space to catapult itself to a monopolistic position in advanced, high-speed, IM-based services — such as videoconferencing.

But on Wednesday, America Online submitted a petition to the FCC asking that it be excused from the restriction on the basis of “materially changed circumstances” since the commission’s January 2001 ruling.

At that time, the FCC had said that AOL would be allowed to offer such services only if the company either opened its systems to standards-based server-to-server interoperability with other networks, or was able to prove that there had been a change in circumstances — in other words, that it no longer had a dominant market share in IM.

If the FCC decides to remove the condition, it would free AOL to deploy streaming video services to broadband users. The company’s rivals in the public IM network space, Microsoft and Yahoo! , have since begun offering person-to-person streaming video built into their instant messaging clients. Yahoo! launched its built-in video support in 2001; MSN followed suit last month, although it has supported launching Windows NetMeeting from the client.

To meet the FCC’s criteria for dropping the restriction, AOL must show that its AOL Instant Messenger and ICQ networks no longer represent a “dominant” force in the free, public IM space.

“Dominance,” in most cases, is considered being able to profitably set prices above the levels dictated by competition, or to hurt or wipe out competition by selling product at unnaturally low prices. Since AOL and its rivals don’t charge for their IM clients, though, the concept of dominance applies more here to market share.

According to the FCC’s original ruling, if AOL shows market share data to back up its claim that it no longer has the potential of building a monopoly in advanced IM services on the back of its free service, the company would be required to demonstrate that it has not been a “dominant” provider of presence-based services for at least four consecutive months.

“There is clear and convincing evidence that the assumptions and predictions made at the time the Condition was imposed … have proven to be incorrect,” wrote Steven Teplitz, vice president and associate general counsel at AOL, in the company’s application. “Even assuming … that the Condition was justified at the time it was imposed, it is ‘no longer necessary in the public interest, convenience, and necessity.'”

“Since 1999, when AOL served 100 percent of IM users, AOL confronted two major new IM entrants, Yahoo! and Microsoft, as well as numerous smaller entrants,” the application continues, citing figures from industry researcher Media Metrix, now part of comScore Networks. “As a result, AOL has experienced a substantial decline in its IM share. Its share of unduplicated, all-location users has fallen from 100 percent to 58.5 percent in just three and one-half years.”

AOL’s application, public comments on which are being received until early May, has been more or less expected. In addition to being the only large IM player without video support, the company also has been under pressure for some time to develop new services that piggyback on its existing offerings and increase revenue — like many players in online media. In recent months, AOL has rolled out a number of add-on services for members of its flagship service, like integrated voicemail.

But its major competitors and a host of startups have been busily developing advanced products that hinge on presence or IM, which had been forbidden to AOL under the FCC’s conditions. Microsoft, for instance, is expected later this year to deliver its “Greenwich” Real-Time Collaboration platform — which would support IM and video-conferencing, among other modes of communication. AOL makes note of this fact in its application for the video IM restrictions to be lifted, and supporters claim that its existence now actually hurts competition.

“This artificial restraint on AOL’s provision of streaming video [IM services] harms the public interest by negatively affecting investment and innovation,” Teplitz wrote. “Continued application of the [c]ondition serves only to deprive consumers of the benefits of competition — namely, increased innovation and choice.”

In an affidavit in support of AOL’s claim, Northwestern University Prof. William Rogerson — a former chief economist for the FCC — wrote that he believes “there is now clear and convincing evidence that there are three strong and stable competitors in the market for instant messaging. As a result, there is no longer any plausible reason to conclude either that AOL is dominant in text-based IM services or that this market has ‘tipped’ or is in danger of ‘tipping’ to AOL.”

“Furthermore, a variety of other developments, such as the fact that Microsoft and Yahoo! have already launched streaming video AIHS services independent of AOL, also support the conclusion that competition is strong and vibrant in this market,” Rogerson wrote.

In March, when MSN announced that it would officially support Webcams provided by Logitech for streaming video built into the MSN Messenger client, AOL said that it was looking into the potential for similar features.

America Online also gave signs months ago that it had ceased to seriously consider developing server-to-server interoperability. After reporting that a pilot effort to link AIM to IBM Lotus Sametime had proven too costly and inefficient to be practical, the company said it would focus instead on as an IM provider for non-competitive companies — such as the case with Apple Computer’s iChat.

In any event, the conditions are more suitable than ever for the restriction to be overturned. For one thing, the current FCC has a Republican majority; at the time of its passing in early January 2001, the group’s three Democrat and two Republican commissioners split on issues surrounding AOL instant messaging along party lines. FCC Chairman Michael Powell, a Republican, and a commissioner at the time, dissented from the IM stipulation.

Christopher Saunders is managing editor of

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