ISPs in Last-Ditch Try to Gain Rules on AOL Merger

Fearful that the Federal Trade Commission won’t go far enough to protect their interests, small and mid-size Internet service providers are making a final push this week to persuade commissioners to impose tougher conditions on the America Online-Time Warner merger or block it entirely.

The FTC, which has postponed action on the merger several times in the past, is expected to review the matter again Thursday.

Smaller ISPs, which have been lobbying regulators for months, complain that the FTC has focused too heavily on protecting the interests of a handful of large ISPs, such as EarthLink Inc. or Microsoft Corp.’s MSN, but done little to help the more than 7,000 smaller companies that now serve as the gateway to the Internet for millions of consumers.

A loose-knit ISP coalition sent representatives to Washington to make their case to FTC commissioners.

Meanwhile, FTC staffers recently invited AOL nemesis Microsoft to weigh in on the merger, sources said. Microsoft officials, who have repeatedly raised concerns about the deal, declined to confirm or deny that they will speak to the antitrust agency again this week. “We’ve had a dialogue with the [FTC] staff,” said a Microsoft spokesman.

The smaller ISPs want the FTC to force Time Warner to lease out space on its high-speed cable lines and give them at least the same terms it offers AOL, including the right to serve businesses and the ability to provide unrestricted interactive television services. In addition, the smaller ISPs want the FTC to set limits on how much AOL-Time Warner can charge for the access.

AOL-Time Warner has vowed to open its cable lines to rival ISPs but has resisted efforts to have the government set the terms.

Without such FTC-imposed conditions, however, smaller ISPs fear that AOL-Time Warner will give preferential treatment to its own ISP or other large ISPs, leaving the smaller players behind as consumers migrate toward high-speed Internet connections and interactive TV.

The demise of small, independent ISPs would hurt consumers by reducing choice, competition and diversity on the Internet, said Jeff Chester, executive director of the Center for Media Education.

“There must be safeguards for small and medium-sized ISPs,” said Chester, who is urging the FTC to kill the deal. “Otherwise, this deal is going to turn the Internet into just another cable-television channel.”

AOL officials declined to comment Tuesday, as did an FTC spokesman.

Joining in the campaign to protect small ISPs is the American Civil Liberties Union, which is scheduled to meet today with FTC Commissioner Sheila Anthony.

“To us, this is an extraordinarily important free-speech issue,” said Barry Steinhardt, associate director at the ACLU’s national office in New York. Without protections for small ISPs, the merger threatens to put Internet access into the hands of a few large monopolies, he said.

The FTC already has demanded that AOL-Time Warner sign a contract with at least one major ISP rival. That deal, announced last month, will allow AOL’s chief rival, EarthLink, to lease Time Warner’s cable lines and compete with AOL.

By requiring AOL-Time Warner to negotiate with another larger, nationwide ISP, the FTC was hoping to ensure that AOL-Time Warner would be faced with at least one strong competitor. Smaller ISPs, by contrast, might not be in a position to stand up to AOL-Time Warner.

Smaller ISPs say that they provide invaluable service to consumers and small businesses, and may be more aggressive than larger ISPs in negotiating with AOL-Time Warner.

For example, EarthLink has refused to say whether it won the right to offer interactive TV services in its deal with AOL-Time Warner.

“We would make sure that we have access to the entire spectrum of interactive television,” said Joseph Marion of the Federation of Internet Solutions Providers of the Americas.

Some ISPs are asking the FTC to require AOL-Time Warner to negotiate at least one access contract with a small ISP.

If the ISPs fail to sway the FTC and the deal is approved, opponents vow to take their case to the Federal Communications Commission.

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The Washington Post contributed to this report.