The Internet Works Best Without Government Regulation

“The Internet works because it is open,” said Greg Simon, co-director of America Online’s OpenNet Coalition.1

The OpenNet Coalition has been lobbying Congress, the Federal Communications Commission (FCC) and various municipalities, asking them to force cable companies to let AOL sell Internet services over TV cable networks.

But America Online recently sang a different tune after it blocked Microsoft, Yahoo! and Prodigy from sending instant messages to approximately 80 million2 users of AOL’s two instant messaging products.

AOL wants open access to its competitors’ systems, while keeping access to its own network closed.

The instant messaging issue became an all-out war of the nerds in late July after Microsoft released its new instant messenger software, MSN Messenger, which could communicate with AOL instant messenger users.

Instant messaging allows Internet users to know when their friends and other contacts are online, and to send them short text messages. It is particularly popular with teenagers, although IBM will soon release instant messaging software allowing businesses to hold meetings over the Internet, complete with presentations, charts and slides.3

AOL promptly altered its programming to isolate its users from receiving messages from MSN Messenger customers. Microsoft responded by altering its software to get around AOL’s fix, and the war was on.

As software programmers competed to alternatively open and close instant messaging communications between Microsoft and AOL customers, their companies’ executives took the war to the air with dueling press releases and public statements. “Microsoft,” said AOL spokeswoman Ann Brackbill, “is essentially emulating the behavior of a hacker.”4

Eight companies, including Microsoft, Yahoo!, Prodigy Communications Inc., AT&T, Excite@Home, Inc., Activerse, Inc., Tribal Voice, Inc. and Infoseek, sent a letter to AOL CEO Steve Case asking AOL to join them in establishing industry-wide instant messaging standards.5 If developed and implemented, these standards would allow users of any instant messaging product to communicate with a user of any other instant messaging product.

Some of the most interesting observations came from industry analysts who predict AOL will back down in the instant messaging war. They believe AOL will allow instant messaging access to AOL customers, lest AOL’s apparent double-standard on open access hurt its attempt to get government to force cable companies to give AOL access to cable lines.

In that battle, AOL has lobbied Congress, the FCC and several municipalities, including Portland (OR), San Francisco, Broward County and Miami-Dade in Florida, Denver and others, asking them to force owners of TV cable systems to allow AOL and others to sell Internet services by cable.

Owners of TV cable systems, including AT&T, AOL’s biggest target, are resisting. They say they’ve spent billions to buy TV cable systems so they can sell Internet services through them, and they shouldn’t have to let their business rivals profit inexpensively from their expensive investment.

FCC Chairman William Kennard is sympathetic to AT&T’s position. He believes government should take a “high-tech Hippocratic Oath.” That is: “First, do no harm.” He supports “a hands-off, deregulatory approach” to the issue that lets business competitors fight it out in the marketplace.6

Kennard also hopes that local municipalities won’t try to regulate access to the Internet, as AOL has sought. In a June 1999 speech to the National Cable Television Association in Chicago, Kennard said:

There are 30,000 local [cable] franchising authorities in the United States. If each and every one of them decided on their own technical standards for two-way communications on the cable infrastructure, there would be chaos.

Imagine if we had a highway system where every town could set the parameters for the size of cars and the size of lanes. Or how to get onto on-ramps and off-ramps. We wouldn’t be able to drive to the store, much less to another state.

Similarly, the Information Superhighway will not work if there are 30,000 different technical standards or 30,000 different regulatory structures for broadband.7

Kennard makes a good point when he notes that a deregulatory environment in the communications business helped create over 200,000 U.S. jobs in the past five years,8 and that the European Internet service provider market, which is highly regulated, generated less than one-quarter the income of their less-regulated U.S. counterparts in 1998.9 Simply put, a deregulated market allows for competition, and competition stimulates innovation and technological advancement, which in turn spurs economic growth, new jobs and a higher standard of living.

Battles between AOL and Microsoft, AOL and AT&T and other Internet wars are part of healthy competition. But in these battles, the competitors should avoid the temptation to ask government to settle their battles for them. That road will hurt not only the Internet, but the U.S. economy as a whole.


Amy Ridenour is president of The National Center for Public Policy Research. Comments may be sent to [email protected].


Footnotes:1 John Borland, “ISP Lobbying Group Aims for Open Access,” CNet, February 3, 1999.

2 Reuters, “Will AOL Open Instant Messaging?” PCWorld Online, July 27, 1999, downloaded August 1, 1999 from,1440,12002,00.html.

3 Bloomberg News, “IBM Unveiling Instant Messaging Software for Business,” special to CNet, July 26, 1999.

4 Reuters, “Microsoft Asks Case to Work on Open IM Standards,” special to CNet, July 10, 1999.

5 Patrica Fusco, “Industry Leaders Invite AOL to End Instant Message Fight,”, July 30, 1999.

6 William E. Kennard, Chairman, Federal Communications Commission, “The Road Not Taken: Building a Broadband Future for America,” speech to the National Cable Television Association, Chicago, IL, June 15, 1999, downloaded from, on August 1, 1999.

7 Kennard, June 15, 1999.

8 Kennard, June 15, 1999.

9 William E. Kennard, Chairman, Federal Communications Commission, speech to the Federal Communications Bar, Northern California Chapter, July 20, 1999.

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