Guaranteed Access Simmers on Back Burner

Cable operators are adopting a very low profile in a brewing fight over the possibility of communications-system operators charging Internet services such as Google and Yahoo for guaranteed access to their networks.

SBC Communications Inc. (now AT&T Inc.) officially threw down the gauntlet in November, when chairman Ed Whitacre griped to BusinessWeek that allowing Internet companies like Yahoo, Google and Vonage Holdings Corp. to use its broadband pipes for free is “nuts.”

Earlier this month BellSouth Corp. stepped into the fray, according to a report in The Wall Street Journal, starting talks with online movie companies like Movielink LLC and at least one gaming company about charging for guaranteed access to its networks.

But charging Internet portals like Yahoo and Google a premium to guarantee that customers will be able to reach their Web sites could butt up against Federal Communications Commission-announced principles advocating lawful access to Internet content.

That was an issue five years ago during the federal approval process for Time Warner Inc.’s merger with America Online Inc., as regulators pushed for concessions that the merged companies would allow all Internet service providers to use their networks.

But some argue that regulators could not have envisioned the proliferation of downloadable video, which threatens to eat up significant chunks of bandwidth and slow down cable and telco networks considerably.

That will likely take at least a few years, if ever, to occur. Apple Computer Inc. said last week that just 8 million video clips and shows were downloaded for $1.99 each from its iTunes Music Store in the fourth quarter. In contrast, iTunes sells about 3 million songs per day.

But it could pose a threat if usage rises considerably. High-speed Internet revenue represents between 16% and 23% of total cable revenue for the top five MSOs.

Right now, MSOs aren’t taking a stance on the issue. Of the top five companies in the country, Comcast Corp., Time Warner Cable and Charter Communications Inc., declined comment. Cablevision Systems Corp. and Cox Communications Inc. did not return calls for comment.

National Cable & Telecommunications Association spokesman Brian Dietz also declined comment.

Privately, some operators say they are content to let the telcos bear the brunt of the criticism.

“We’re watching them take a little bit of heat,” said one executive who asked not to be named. “We are studiously avoiding this issue for now.”

Cable companies also remember the “open-access” battles that started around 2000 and led to a requirement of multiple Internet access providers on Time Warner Cable’s platform when America Online and Time Warner Inc. merged.

“We had our knuckles firmly rapped,” said another MSO executive who requested anonymity.

But charging for access may not bring bodily harm to network operators, in the end.

In a research report last week, Wachovia Securities cable analyst Jeff Wlodarczak wrote that charges for guaranteed access are inevitable.

“We believe that as applications inevitably develop that are increasingly bandwidth intensive, it is likely to force players to further restrict bandwidth and we believe this could help lead to a “pay twice” model for cable, where, besides regular service revenue, cable operators generate additional fees from Internet players for guaranteed bandwidth,” Wlodarczak wrote. “For the large Internet players like Google, a pay-for-quality-of-service model would only strengthen their current position in the market.”