Monday, December 12, 2005 - The Progress & Freedom Foundation Blog

"Consumer" Group Predictions Gone Awry

In an April 2000 joint petition filed at the FCC to deny the merger the merger of AOL and Time Warner, Consumers Union, Consumers Federation of America, Media Access Project, and the Center for Media Education began their pleading this way:

"The AOL Time Warner merger adds a dangerous new dimension to the emerging structure of the cable TV/broadband Internet industry. It extends the reach of two huge, vertically integrated firms across the cable TV, broadband Internet and narrowband Internets. It removes a likely competitor for the still entrenched cable TV monopolists." An further on: "The AOL Time Warner merger also raises a fundamental question about whether this new giant will be able to quickly capture the product market for interactive TV. The wedding of these two dominant firms--with control over access to the cable broadband infrastructure and control of the world's largest narrowband subscriber base gives them a chokehold on the future development and preservation of a robustly competitive Internet."

"Dangerous new dimension"..."still entrenched cable monopolists"...."chokehold" on the Internet...Dramatic language indeed, but divorced from reality then and now.

I was reminded of these consumer group prediction upon reading Steve Case's op-ed in the Washington Post urging the "splitting of Time warner into several independent companies and allowing AOL to set off on its own path." Case makes the case for "liberat[ing] the disparate businesses and lett[ing] them compete on their own."

By the way, in the prospectus filed with the SEC in June 2000, Case made the case that: "AOL Time Warner will have an unmatched ability to provide ...a full range of interactive services delivered across current and emerging platforms. The combined company will be able to lead the next wave of Internet growth as interactivity extends beyond the personal computer to the television, wireless telephone and personal organizers, as well as Internet-enabled devices--allowing consumers to access the Internet from anywhere and at anytime, and making the interactive experience even more convenient and valuable to them."

Of course, since June 2000 there has indeed been a tremendous growth in Internet interactivity, enabling consumers to experience and use a diverse range of communications and information services in heretofore unimaginable (at least to me!) ways. So Case's case back then about the direction of interactivity and convergence surely had merit. Whether or not, as a matter of business organization, corporate culture, management structure, and the like, the merger made sense then I do not know. And I don't profess to know whether an unraveling makes sense now.

But the one thing I do know is that the predictions of the consumer groups in 2000 did not come to pass. Despite what they said then, I think even they would agree that (AOL)Time Warner does not have a "chokehold" on the future development and preservation of a robustly competitive Internet. The predicted "dangerous dimension" to the structure of the cable TV/broadband Internet industry didn't materialize.

Maybe Steve Case even wishes they had been proved right. Maybe a "chokehold" on the Internet would have made Steve Case an even richer man than he is today. But Case's case for a Time Warner break-up is far different than the one put forward by the consumer groups in 2000.

posted by Randolph May @ 4:14 PM |