AOL Files With FTC to Refute Unfair Ad Charges

AOL Time Warner general counsel filed a letter with the Federal Trade Commission chairman Wednesday in response to charges of anti-competitive violations to terms in its merger agreement earlier this year.

In an email interview with internetnews.com, Mike Luftman, vice president of media relations at AOL Time Warner, said the company’s actions to restrict competitors from advertising on their network does not violate the letter of the law.

“It is standard practice throughout the media industry not to accept advertising from direct competitors, as SBC and Verizon are with cable operators,” Luftman said. “There is nothing in our agreement with the government that touches on this issue whatsoever.”

According to Mitch Katz, a FTC spokesperson, AOL/TW’s letter will go through internal channels, where a determination will be made whether an investigation should be conducted or not. To protect a company’s reputation from wrongful accusations, the FTC doesn’t announce the launch of an investigation and, Katz said, “you won’t ever hear about it until after we’ve make our determination.”

On Friday, consumer advocacy organizations weighed in with their thoughts on the media giant’s unofficial policy to deny ads from competitive broadband Internet service providers (ISPs) by filing a letter with the FTC.

Advocates from the Consumers Union (publishers of the Consumer Reports magazine), Consumer Federation of America, the Media Access Project and the Center for Digital Democracy filed a letter addressed to FTC Chairman Timothy Muris, urging him to investigate AOL/TW’s policy to refuse digital subscriber line (DSL) ads from competitors.

“…the Commission prohibited the merged company from discriminating against competitive Internet service providers (ISPs) seeking to promote DSL services,” the letter read. “As the company appears to now be violating this requirement, we urge the Commission to investigate this anti-competitive behavior and remedy this problem.”

The filing is the end result of a letter sent by long-time AOL/TW critic Stephen Heins to a group of reporters last week. In the letter, Heins related the story of a Wisconsin ISP’s unsuccessful attempts to promote DSL service on a local affiliate of the Time Warner cable TV network.

The letter produced a media frenzy, giving national attention to a practice that, while not technically illegal, raises many anti-competitive questions.

AOL/TW officials have since maintained their innocence.

But officials at Verizon Communications, one of the four Baby Bells in the U.S. and essentially one-fourth owner of the nation’s DSL network, were puzzled by the AOL/TW response, saying they don’t have a similar television platform for their DSL services.

Catherine Lewis, Verizon spokesperson, said that you can look in any phone book and find Time Warner cable listed there, if they provide coverage in the area. Another form of advertising, flyers found in the customer’s phone bill, is typically reserved for companies providing billing services.

“I mean, Campbell’s soup isn’t advertising in our telephone bills, so it’s not like we deny them because they’re a cable service provider,” Lewis said.

While a good lawyer will be able get the media giant out of any anti-trust violations, industry experts agree, AOL/TW is doing it at a particularly crucial juncture in DSL development.

DSL, one of the three broadband pipes for transporting high-speed Internet traffic (along with cable and wireless), has been beset by technical and operational difficulties. The end result: DSL, predicted to be the broadband choice over cable, is reeling on the ropes.

According to a recent report by Cahner’s Instat Group, cable modem subscribers will continue to out-number DSL subscribers in the U.S. and Canada through 2004. The report also finds that broadband subscriber rates will more than triple, from 6.8 million to more than 19 million.

Michael Powell, since his appointment as chairman of the Federal Communications Commission, has geared his policy decisions with competition between broadband platforms in mind. His vision is for cable, DSL and wireless technologies to spur competition in the U.S.

That vision is threatened by AOL/TW, which owns the second largest cable network in the nation, behind AT&T Corp. If the company starts blocking advertisements on its network, competition will skew, since many local and regional ISPs depend on cable station advertisements to promote their DSL services, along with the newspaper and radio.

With more than 12 million broadband users slated to enter the broadband market, anti-competitive measures taken now by any broadband provider will have a negative affect on Powell’s broadband wishes.

Powell seems to recognize this, and used a recent cable venue to deliver an indirect warning

In an address to cable executives at the National Cable & Telecommunications Association in Chicago Tuesday, the Associated Press reports, Powell warned those assembled against abusing their position as market leaders.

“Cable will be one of the great digital gateways to the consumer, you must be cognizant of not misusing that power,” Powell said. If executives do, it “could result in the erosion of the healthy regulatory environment that currently exists.”