Cable Contracts Belie Time Warner Assurances

Time Warner, Inc., is finding out that in order to talk the talk, it has to
walk the walk.

Despite the company’s repeated and insistent assurances it wants to and
will provide open cable Internet access to competing Internet service
providers, its three-year contract agreement is saying another thing entirely.

The open access debate for cable Internet services has been under intense
scrutiny since February, when Time Warner and America
Online, Inc., released its open access memorandum of understanding, in
order to appease Federal Communications Commission officials overseeing the

In return for issuing the MOU, Time Warner and AOL
officials asked regulators not to make the document legally binding as a
condition to the merger.

Because of a non-disclosure agreement signed with Time Warner, ISPs have
been reluctant to provide details of the agreement terms. But as the
deadline approaches for FCC approval of the merger deal, more and more
companies are stepping forward to be heard. was able to obtain a copy of one of these confidential
agreements and the terms imposed. According to the contract, there are a
lot of stipulations that smaller ISPs say will make it almost impossible to
offer competing cable Internet services, as the open access memo stated
earlier this year.

In addition to the $50,000 ante every competitor is required to pay, 75
percent of subscription revenues would go to Time Warner. Also, the cable
provider is demanding 25 percent of any cable-access advertising, web
hosting and e-commerce revenues, plus Time Warner advertisements placed on
the top of every ISP home page.

Moreover, Time Warner will send the monthly bill direct to the customer,
giving the ISP the appearance of an unnecessary middleman. Driving home
that point, Time Warner calls the shots when it comes to the termination
policy, enforcing its standards on every ISP that participates.

To cap it all off, for every cable television subscriber who opts to
receive the competing ISPs Internet service, Time Warner gets $30 of that
monthly rate. And if the ISP doesn’t subscribe .5 percent of its potential
customers, Time Warner can terminate the contract after one year.

Stephen Heins, NorthNet Internet Service marketing director, said Time
Warner officials knew full well no ISP would ever sign such a contract.

“We’ve heard the ongoing public relations soft and cuddly (statement),
‘Yes, we’re working on open access’ from Time Warner, but the reality of
the term sheet speaks for itself,” Heins said. “In fact, they’ve left
nothing on the table for ISPs.”

We understand this is no free lunch,” Heins continued, “and we aren’t
trying to steal their cable from them. We just want a wholesale revenue
stream to provide overall solutions to high-speed Internet access, and
whoever provides the best tech support, services and prices, wins.”

To date, the FCC has maintained cable access is not within its purview, and
matters like the cable debate were more suited for the Federal Trade
Commission and the market regulating itself.

But the AOL/Time Warner deal underscores the increased presence converging
technologies will play in the not-to-distant future. While not
commercially available, the technology to provide cable telephony services
is certainly possible. When that service becomes available down the road
it might be too late for the FCC, who has authority over telecommunications
regulation, to step in and correct the mistakes made.

Dave McClure, president of the U.S. Internet Industry Association, said in
an interview open access was never Time Warner’s intention from the
beginning, and the FCC is doing little to prevent the merger from happening.

“Time Warner was never looking for small ISPs to use their cable service,”

said. “They will carefully select the largest two or three
providers to become their marketing partners. It was never about providing
open access, because Time Warner doesn’t want that.

“The sad part,” McClure continued, “is that consumers will not be able to
decide between competing services, because they’ll all be Time Warner using
a different name.”

McClure said the FCC won’t do anything to rock the boat, and that ISPs and
consumers should look to the Federal Trade Commission for help.

“We’re very dissatisfied with the FCC, and its clear that we’re going to
have to go to the FTC for any help in this matter,” McClure said.

But the FCC has been taking a close look lately at the two companies, and
may be having second thoughts to a quick merger approval.

Earlier this year, Time Warner cut off Disney-owned ABC-TV for 48 hours
over a contract dispute. And last month, a preliminary proposal from the
European Commission rejected the AOL/Time Warner merger on the grounds it
would stifle competition.

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