FCC to Lift AOL Video IM Ban

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In a move that paves the way for America Online to launch videoconferencing and other next-generation applications of its instant messaging network, sources close to the Federal Communications Commission say the regulator intends to drop a two-year-old restriction on AOL Time Warner’s development of advanced, broadband-based IM services.

The news was first reported by the Washington Post. Calls to the FCC for comment were not returned by press time.

According to an FCC source who spoke to InstantMessagingPlanet.com, the Commission has already voted on the matter, and plans to announce its ruling by the end of the week.

AOL declined to comment, since the FCC has yet to make a formal announcement on the matter. However, Tricia Primrose, a spokesperson at the New York-based media conglomerate, told InstantMessagingPlanet.com that the company was optimistic about the possibility of the ban’s removal.

“We believe we made a compelling case to the FCC on this issue, and we are hopeful that they will reach a decision soon, and that it will be a favorable outcome for us,” she said.

When the FCC does make its announcement, it will officially clear the way for America Online to launch services like streaming video chat using its broadband network — features similar to those offered by rivals like Yahoo! and Microsoft and even by AOL’s partners, like Apple Computer .

Such services have become increasingly popular also in the enterprise space, where a slew of software vendors are working to merge IM with audio, video, IP telephony, and application sharing. (Microsoft’s upcoming Live Communications Server, for instance, will link enterprise IM to Office System applications while also laying the framework for telephony integration and multimedia conferencing through Session Initiation Protocol.)

Primrose also declined to comment on AOL’s plans for new services and products should the FCC remove the restriction.

“We’re not even going to do any speculation as to what this would mean … until we know for sure,” she said.

AOL had been petitioning for removal of the restriction since early this year. Such a move would overturn a stipulation written into the FCC’s approval of the America Online-Time Warner merger in 2001, which forbade America Online from launching so-called “Advanced, IM-based, High-Speed” (AIHS) services — such as videoconferencing — unless it could prove that it was no longer the dominant player in free, public IM, or unless it opened its systems to interoperate with competitors.

At the time, the FCC had decided that the combined company could stifle competition by using its vast market share in the public IM space to catapult itself to a monopolistic position in AIHS services.

More than two years after that decision, the Commission’s political makeup has been significantly altered — a factor that could have worked in the company’s favor in seeking to have the ban removed. The original limitations were imposed by a Commission dominated by Democrats; now, however, Republicans control a majority of seats on the FCC.

The Commission also is now chaired by Michael Powell — who, as a commissioner, voted in favor of the original merger but disagreed with the FCC’s limitations on advanced IM services.

At the time of the merger, Powell released a statement criticizing the IM restriction as having been based on “a competitive analysis that I believe is flawed and undermined by the known evidence” and relying on “the venerable and amorphous public interest standard.”

“AOL Time Warner must offer interoperability for a product that does not as yet exist — some sort of new-fangled video instant messaging product that [the FCC] calls an Advanced IM-based High-Speed Service, or ‘AIHS,'” he wrote.”When a regulatory agency has to make up its own acronym to describe a product or service it intends to regulate, one should be concerned.”

In May, AOL also signed a landmark, $750 million settlement with Microsoft over antitrust issues. As part of the settlement, which centered around a payment to AOL and concessions allowing the media behemoth to use Microsoft Web browser and Digital Rights Management (DRM) technology, the two companies said they would “explore” IM interoperability. But sources close to the companies said such work would be slow in coming, if it’s achieved at all. It’s unclear whether the agreement had some bearing on the FCC’s decision.

Yet there’s also been heated criticism of efforts to lift the ban. In May, two former FCC officials blasted the company’s request to have the prohibition removed. University of Pennsylvania Profs. Gerald Faulhaber and David Farber said AOL’s current market share does not present a “compelling” case for the FCC to OK the launched of advanced services over AIM. Faulhaber was the chief economist at the FCC at the time of the historic merger, while Farber served as the Commission’s chief technologist.

Instead, they argued that AOL’s continued reluctance to support interoperability serves only to deny its users the benefits of accessing the other 40 percent of the IM market while also tipping the market by denying users of rival services access to its lion’s share of the market.

The two also wrote that AOL can easily demonstrate that it is no longer dominant in IM by offering to interoperate with competitors. “If they are truly not dominant, then this is their best strategy. But if they are dominant (as they claim they are not), then they would refuse to interoperate (which is what they are actually doing).”

To support its case, AOL has brought out its own former FCC staffers. In its petition for relief from the limitations, AOL submitted an affidavit from Northwestern University Prof. William Rogerson, also a former chief economist at the FCC, from 1998 to 1999.He stated that AOL was no longer dominant in text-based IM because there are “three strong and stable competitors in the market.” He also pointed out that both Microsoft and Yahoo! have launched streaming videoconferencing services.

While lobbying the FCC for change, AOL has been busy at home, developing a means to provide similar functionality while skirting the FCC’s restrictions on streaming video IM. In the latest version of its flagship America Online service, the company began offering a service in which IM users can record a short video clip of themselves and forward it to a friend.

Christopher Saunders is managing editor of InstantMessagingPlanet.com.