AOL's Access Saga.

A mid the jubilation of the announced AOL buyout of Time Warner, one group wasn't celebrating: AOL's allies in its fight to force AT&T to provide open access to its newly acquired cable empire.

"We think it sucks," James Love, director of Ralph Nader's Consumer Project on Technology, told ZDNet News. Jeff Chester, another consumer advocate, called AOL's chairman the "Benedict Arnold of the digital age." Chester explained, telling ZDNet News, "Everyone who wants to compete on the Internet-unless they're a close personal friend of Steve Case or Time Warner CEO Gerald M. Levin--should be worried."

For more than a year, Steve Case and AOL had been these folks' patron saint in their attempt to get access to the property of America's cable companies. AOL long ago figured that to remain competitive in the emerging home Internet market, it would need fast, inexpensive connections for its customers. In the future, as cable companies start to exploit their broadband capability, AOL'S ability to compete might be seriously eroded.

AOL figured it had some time to develop options. It invested in Hughes Electronics Corporation, which offered the promise of high-speed wireless connections. It developed deals with local Bells for DSL packages that offer faster service over turbo-charged phone lines. But in mid-1998, when AT&T announced it was buying TCI and MediaOne--and therefore 60 percent of America's cable capacity--AOL felt threatened.

Case had long argued that the government should stay out of the Internet--this was certainly his position on the Communications Decency Act, which sought to regulate e-pornography. Yet, unlike Microsoft's Bill Gates, Case had always paid attention to the workings of Washington. Feeling pressed, AOL developed a multi-layered strategy to force cable companies to give AOL and other ISPs access to their fast connections.

First stop was Washington, where AOL's crew made its case to Congress and the FCC. Two Virginia congressmen sponsored legislation, but it was going nowhere. AOL struck out at the FCC as well. So the forces went to work at the local level, lobbying city councils to block cable license transfers to AT&T unless it agreed to grant open access to its lines.

"Microsoft is a predator, too, but they didn't go to Washington to try to regulate their competitor," AT&T's Milo Medin told Regardie's Power, a DC-area business magazine that exposed AOL'S strategy in its September/October 1999 issue. "Bill Gates hasn't gone to DC and tried to get Linux banned. Who'd have thought that AOL would become a bigger bully than Microsoft?"

Indeed, the AOL open access saga illustrates an important point. Gates has long been scorned by DC's power elite-and compared unfavorably to AOL'S Case--for failing to recognize the importance of Washington. But there's danger in becoming too proficient in Washington, at least if one wants to stay consistent. The skills that allow a firm to protect its interests by holding regulators and politicians at bay are easily employed for using those same politicians and regulators to hobble competitors.

It's no surprise, however, that the day after the announced AOL/Time Warner merger, executives of the newly formed entertainment/communications behemoth were once again singing the praises of the market. Now that AOL has plans to own 13 million cable connections, its executives express less enthusiasm for government regulation. While another executive vowed to remain part of the open access coalition, Case told The Wall Street Journal that "we need to take [open access] off the table."

Case is right, and his merger illustrates why, in the Internet age more than ever, government regulation is rarely needed to protect consumer interests. The merger also shows why executives ought to be careful before they call for it to try to secure competitive advantage. Not only is it likely to be too slow to succeed, but the forces for regulation summoned by a firm may turn against it.

This is the situation in which AOL now finds itself--needing regulatory approval from both the FCC and the anti-trust regulators at either the Federal Trade Commission or the Department of Justice to complete its deal. Sen. Orrin Hatch (RUT), an experienced hounder of Microsoft, has expressed concern about the merger. Senator and presidential candidate John S. McCain (R-AZ) says the deal needs "close scrutiny." The Senate is already planning hearings.

On principle, one has to wish AOL well. But at a more visceral level, one can't help hoping that the James Loves and Jeff Chesters of the world spoonfeed Case and company some of their own medicine.

SALLY C. PIPES IS PRESIDENT OF THE PACIFIC RESEARCH INSTITUTE FOR PUBLIC POLICY, A SAN FRANCISCO-BASED THINK TANK THAT ANALYZES NATIONAL ECONOMIC AND SOCIAL PROBLEMS AND PROPOSES FREE-MARKET SOLUTIONS.