TCS Daily

AOL / Time Warner: Free Markets Win!

By James K. Glassman - February 23, 2000 12:00 AM

The merger of America Online and Time Warner is great news for tech investors and consumers. To be clear, I'm not making a judgment on whether Steve Case cut a good deal with Gerald Levin. Depending on how you look at it, Case either wisely snared the world's greatest collection of media properties or else threw a monkey wrench into the AOL growth machine.

No, I'm focused on a bigger picture. Looking beyond the valuations of these two companies, this deal sends a powerful, positive message to technology fans. It says that markets, not regulators, will drive the Internet industry. Consumers, not bureaucrats, will tell companies which services they provide and at what cost.

Perhaps the largest recent threat to Internet growth has been the possibility that telecom bureaucrats would regulate high-speed networks. Cable television systems, with their fat pipelines into homes, can now offer super-fast Internet connections. Many Internet Service Providers (ISPs), which use slow telephone connections, have become alarmed by this competitive threat.

So a number of ISPs had urged regulators to force the cable industry into giving them "open access." Instead of negotiating for the use of cable's assets, ISP lobbyists had urged local and national politicians to dictate terms to the cable industry.

For most people in most industries, of course, this sounds ridiculous. The idea that a government commission would tell a mall owner which retailers could buy space and at what price is laughable. But that's how the U.S. telecom industry has worked for much of the 20th century. The question was whether the mistakes of the past would be repeated with 21st century networks.

America Online, largest of the ISPs, has just announced that the old regulatory game is over. By buying Time Warner and its massive cable systems, AOL has decided to pay for its broadband networks, not lobby for them.

The merger with Time Warner essentially kills the political debate, and allows tech companies to get back to competing for customers, instead of schmoozing utilities commissions. For AOL, it may appear to be an expensive act of leadership, but I don't think so. A free market means more growth and opportunity, and that's the kind of market where AOL has always thrived.

The message of this merger should be clear for regulators, but in case they missed the point, I'll be more direct: Don't regulate. Don't create a welfare on the wires in which each interest group gets its piece of the pipeline, and each company gets a government-mandated piece of the pie. If you try to assign slots on the cable infrastructure based on somebody's notion of the "public interest," you'll wander into a regulatory swamp from which you will never return. Just ask the FCC.

Allow the companies who are building the networks of the future to profit from those networks, and you'll be amazed at the results.

I have one more message: Way to go, AOL! Thanks for keeping a free, consumer-friendly market on the Internet.

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