AOL-Time Warner Pact Puts Squeeze on Small ISPs.

THE Federal Trade Commission asserted its ideas about competition in approving the AOL-Time Warner merger earlier this month. Commissioners drafted a plan to require the corporate giant to open Time Warner's cable network to other Internet service providers that hope to compete with AOL in the broadband market.

But ISPs can only compete if they're invited to play. Large providers like EarthLink, MSN and AT&T may flourish under the plan drawn up by the FTC. But for smaller ISPs -- the ones that grew the Net from a playground for geeks and scientists into a cornerstone of modem life -- online access may become a spectator sport.

In drawing up the plan, the FTC was responding to consumer advocates who feared AOL might be planning a broadband monopoly. Time Warner owns one of the nation's largest cable networks, and AOL seemed poised to become the exclusive provider of Internet access after the merger was complete.

Federal law requires telephone companies to share access to their networks, so even small ISPs can offer high-speed digital subscriber line (DSL) service in areas where it's available. But those laws don't apply to television cable, so the cable companies can restrict customers to their own brand of Internet service.

The FTC crafted an innovative plan to make sure AOL will face some competition. The new mega-company must allow one rival ISP to purchase access to its cable system before AOL can launch its own broadband service. After AOL starts signing up customers, it will have 90 days to allow at least two more rivals onto its cables.

Squeezing small providers

AOL-Time Warner won't be allowed to interrupt rival providers' flow of traffic. And a government regulator will oversee the process to make sure the company is negotiating in good faith with those seeking access to its networks.

The plan guarantees competition on the national level, where AOL and other large providers play. But it doesn't seem to leave much room for small local providers, which lack the resources to strike similar deals.

Unless the government forces AOL-Time Warner to provide discounted access to thousands of local ISPs -- probably a long shot under the next president -- the little guys will get a push down the path to obsolescence.

Of course, it's not like they weren't on that path already. The days of turning an easy profit from a rack of modems and a few thousand dial-up subscribers are long gone. The big boys have used economy of scale to transform Internet access from a service into a commodity, driving all but the heartiest small-time players out of the residential market. The move to broadband creates even more pressure, forcing a need for expensive equipment even as investors are shying away from the online market.

The FTC has ensured that if AOL-Time Warner sets its sights on a particular local market for broadband service, it'll bring a bunch of big-brand competitors along for the ride. In the unlikely event that AOL-Time Warner grants small ISPs passage on its cables, it'll be like bringing the Olympics to town and telling the local kids they can play, too -- as long as they can keep up.

Left in the dust

The little guys might be better off if Congress passes the Internet Freedom Act, a bill introduced by Virginia Reps. Bob Goodlatte and Rick Boucher. That measure would, among other things, ensure that any ISP could purchase competitively priced access to customers of any closed-network Internet provider, including cable, wireless and satellite-based systems.

But that might merely forestall the inevitable. Local companies have open access to DSL lines, after all, and they're still losing ground to bigger competitors who can afford to forgo profits for market share. Now that nationwide ISPs have extended their reach into even the smallest markets, local providers are left in the same position as a small business that wants to, say, bottle some cola.

Or course, they can always target the niches, providing higher levels of service to local businesses and other picky customers. But as residential users shift to high-speed service, there's nothing the FTC or anyone else can do to prevent local ISPs from getting left in the dust.