Time Warner Feels Heat From SBC

On the heels of a dispute with Walt Disney Co. that led it to temporarily yank ABC programming from its cable systems earlier this month, Time Warner Inc. Wednesday landed itself in hot water with Southwestern Bell.

SBC Communications Inc. , which owns Southwestern Bell, filed complaints with the Federal Communications Commission and the Texas Public Utilities Commission accusing Time Warner Inc. of using its Houston, Texas employees to spy on Southwestern Bell’s Internet operations. The complaint also named Road Runner Inc., a cable modem service owned by Time Warner.

As evidence, SBC submitted a flier which had been distributed to Time Warner and Road Runner employees. The flier, which accompanied the paychecks of Time Warner’s Houston employees on May 12, offered a choice of $100 or free Internet service in exchange for ordering DSL service from Southwestern Bell and then canceling the order if it was confirmed. They were asked to report results to an administrator in the Houston office.

The flier said, “To qualify, we need your help in accomplishing our objective which is to locate areas in Houston that Southwestern Bell (our competitor) can and cannot service with their high-speed online service, DSL.”

Time Warner said about 20 employees called Southwestern Bell to request DSL service.

SBC asked the FCC to investigate and include the scheme in the AOL-Time Warner merger record because it raises further anti-competitive behavior concerns. SBC has also asked Texas regulators to investigate and develop a suitable remedy including, as appropriate, a cease and desist order, civil and administrative penalties, and requiring Time Warner and Road Runner to cover costs and attorney’s fees incurred by Southwestern Bell as a result of the program.

The incentives program was apparently an attempt to discover weaknesses in Southwestern Bell’s rollout of DSL service which Time Warner could exploit. Southwestern Bell and Time Warner are in stiff competition in Houston for the high-speed ISP market. Installers for both companies are working overtime, and the service is not currently available in parts of both companies’ service areas.

But the program was stopped in its tracks last week after someone associated with Time Warner provided Southwestern Bell with a flier. On May 17, SBC sent a letter of complaint to Time Warner’s corporate headquarters in New York and Road Runner’s headquarters in Herndon, Va., calling the incentives program “unethical and unlawful” and demanding details as to how many false orders were placed. The letter also asked if the program was offered in other areas.

In a statement issued Tuesday, Time Warner said, “We’ve looked into the situation and found out it was a local decision by a midlevel manager. As soon as management in Houston found out about it, they stopped it. It was a mistake and won’t happen again.”

But SBC argued that the program amounted to anti-competitive behavior and merits an investigation. SBC said orders for DSL service are expensive to process, costing the company as much as $370 in engineering and other expenses by the time a customer receives a confirmation letter. Also, the high demand for high-speed access in Houston means Southwestern Bell is already swamped with a backlog of legitimate demands and a glut of fake orders could seriously hinder its efforts to rollout the service.

That problem is compounded by the fact that SBC is currently under scrutiny for its performance as regulators consider whether Southwestern Bell should be allowed to sell long-distance service in its local region.

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