Commentary: Is Aol's Instant Messaging An Unfair Advantage?

Not long ago, during the courtroom skirmishing over the Microsoft Corp. antitrust suit, America Online Inc. was depicted as one of the many victims of the arrogant Bully of Redmond. Now it is AOL's turn to be cast as the neighborhood menace. As part of their scrutiny of AOL's proposed merger with Time Warner Inc., the Federal Trade Commission and the Federal Communications Commission are probing complaints that AOL's popular Instant Messenger system is a monopoly. Possible victims include Yahoo!, AT&T, andMicrosoft.

The outcome could affect the way Federal regulators oversee the Net. Instant messaging started as a party line for the under-30 set, but it has turned into a key wireless communications tool with far greater importance. "Instant messaging is the glue to coordinate communications between devices," says Brian Park, senior producer for rival Yahoo! Messenger.

It's also raising a new set of trustbusting issues. AOL has 90 million customers communicating on a system open only to those companies it selects. Its nearest rival, Microsoft, has 17 million. That makes AOL an ideal test of the "network effect" advantage, a theory of special interest to FTC Chairman Robert Pitofsky. It holds that the more users a technology has, the more attractive it is to others, until it becomes a de facto standard--and a monopoly. "Instant messaging really is a perfect example of the concerns about network effects in the New Economy that Pitofsky has been talking about for some time," says Robert A. Skitol, an antitrust attorney at Washington's Drinker Biddle & Reath.

Pitofsky won't talk about AOL while its merger with Time Warner is pending. But in principle, he's open to some fairly radical solutions. "The presumption is that mandated access is not something you would be quick to move on," he says. "But there may be circumstances where it's the only way to encourage competition."

Government-ordered "open access" has rarely been imposed outside tightly regulated industries such as phones and electricity. But there are other examples. In 1945, the Supreme Court forced Associated Press to provide its news feeds to all papers, not just its collective owners. Pitofsky says such a tough approach would have to be used cautiously, "but I wouldn't say never."

In the case of Instant Messenger, AOL has royalty-free licensing agreements for its technology with 20 companies, including EarthLink, Apple Computer, and IBM's Lotus Notes. However, major messaging rivals such as Microsoft, Yahoo, and Tribal Voice have been turned away. "It's as if one telephone company decided that its customers couldn't talk to customers of any other phone company," charges AT&T WorldNet Chief Counsel Michael C. Lamb.

AOL says Instant Messenger is not a good example of the network effect because lots of other outfits offer a similar service. Moreover, execs say, a hastily created open standard for instant messaging might open the door to the junk mail and computer viruses that plague wide-open e-mail systems. "If people start getting tons of Spam on IM, that will just kill the experience," says Chief Technology Officer William J. Raduchel.

Industry proponents of a common standard concede that AOL has legitimate security concerns. But they also think technical fixes could solve the problem. In fact, AOL proposed such fixes on June 15 to the Internet Engineering Task Force, an ad hoc group that loosely oversees the Net. Critics dismiss AOL's proposal, however, saying it is far too general for this stage of the process. "It really isn't a proposal but an esoteric conversation that doesn't include a time frame or commitment by AOL," says Tribal Voice CEO Ross S. Bagully.

If AOL cooperates with its rivals, industry observers believe a messaging standard could be created within a year. It's one way to ensure that Pitofsky's musings on the network effect remain just that--rather than a harbinger of another antitrust swing at a New Economy icon.

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