From Washington: A Patchwork of Legislation and Regulation

America Online’s takeover of Time Warner is another great coup for Steve Case and his colleagues. This success was made possible by AOL’s use of technology, its good understanding of its customers, clever marketing, and astute political lobbying.

Up to the day of the merger, AOL’s main lobbying campaign sought to persuade federal, state, and local governments that AT&T shareholders be forced to lease their cable TV links to AOL at prices overseen by the government. AOL needed easy access to cable TV because AT&T’s cable ownership allows it to offer better Internet services (faster response, more video, simplified billing) than AOL could ever hope to achieve over telephone lines. But when AOL bought Time Warner and its stock of cable links, it immediately dropped the lobbying campaign, shocking its allies in the nonprofit advocacy groups who feared corporate control of cable TV would smother diversity and free speech online. AOL hid its strategy change by announcing it would continue to lobby for open access and would work with other companies to ensure open access, among other assurances. But the basic message was clear: AOL’s executives and the marketplace—not voters or legislators—would decide how their networks would be accessed.

To label AOL’s turnabout as duplicitous hypocrisy is to miss the point. Like many other companies, AOL champions the market when it is ahead and champions self-interested regulation when it is behind. Unlike many of the new companies in Silicon Valley, Case knew very early how AOL could benefit or be hurt by regulation, regulation that includes a slew of laws governing property rights, free-speech rules, privacy laws, and free-trade pacts. Thus Case told a Washington audience in October 1998 that "over the next five years, I believe the future of this medium will be determined more by policy changes than by technology choices." Case largely proved the point with his own very successful lobbying campaigns. For example:

• In 1995, AOL complained frequently about Microsoft’s plans to offer its upcoming Microsoft Network on the Windows 95 start-up screen. As AOL wanted, the Justice Department began an initial investigation. In response, Microsoft offered AOL a similarly privileged spot on its screen, and the Justice Department ended its investigation. Subsequent complaints from AOL and its allies helped spur the 1999 antitrust lawsuit against Microsoft, which significantly curbed Microsoft’s business freedom in 1999.
• Also in 1995, AOL was a central opponent of the Communications Decency Act, which was struck down by the Supreme Court in June 1997. Financially, this was vital for AOL, which had gained enormously from sex-chat. In a 1996 Rolling Stone article, Case acknowledged about half of the money AOL made was devoted to sex chat. It should be noted that AOL’s early rival, the moribund Prodigy online service, eschewed such sex chat.
• In 1997, AOL led the Internet industry’s campaign at the Federal Communications Commission to preserve the regulations that pay for the price caps on phone charges incurred by AOL’s at-home users. AOL won this fight against the well-established Bell companies, partly with the aid of a petition of 400,000 email messages sent to pro-Internet FCC commissioners. In Europe, where AOL has lost out to local ISPs that have allied with European telcos to offer free Internet service, the company is now lobbying national governments for similar price caps.
• In 1998, AOL led the industry’s successful charge for an industry-wide exemption from the states’ long-standing, sales-tax rules. The industry won an exemption for three years, plus a majority of the 19 seats on a panel tasked with devising a long-term solution. AOL won a seat itself, and with the rest of the industry panelists, handed the chair’s gavel to the governor of Virginia, AOL’s home state.

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If there is a conflict between the public trust and the profit-driven marketplace, adds Case, "I’ve always believed we should let the market decide."

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These are solid successes for AOL’s lobbying team, which started with one person in 1995. It has now grown to a team of roughly 10, plus a group of outside lobbyists hired for particular battles. The merger with Time Warner will roughly double the size of AOL’s lobbying forces, and boost its declared lobbying budget to roughly $3 million per year. This figure is undoubtedly low since it excludes many ancillary costs, such as the cost of overseas lobbying.

In all these policy fights, consistency and honesty are low priorities. Concepts such as the "Internet community," "free speech," "democracy" and "marketplace competition" are elastic enough to serve as props for the nonbusiness world of laws, traditions, customs, and manners that are to be used, twisted into new shapes, or discarded as needed. Consider these examples:

• AOL lobbyists object to draft federal legislation curbing online gambling, saying they would help create a global patchwork of laws and liabilities. But the lobbyists spent much of 1999 prodding U.S. cities to create a patchwork of pro-AOL cable-access laws.
• The company has repeatedly cited free-speech traditions when asking judges to negate laws against the distribution of the rawest pornography, and also to throw out a lawsuit against a book publisher who had published a how-to manual for assassins. But the company spent much of fall 1999 trying to sever communications between its instant-mail customers and those of Microsoft’s.
• In public, AOL’s executives say the Internet fosters democracy, diversity, and freedom by allowing one-on-one communications between citizens. But AOL’s top marketing executives say the company will grow rapidly because consumers prefer to buy products (such as AOL) elevated by advertising into a brand name.
• AOL’s lobbyists are adamant in saying the federal government should end curbs on the use of encryption. But they also insist government should not impose privacy protection laws (not even for teenagers under 18) curbing AOL’s ability to use detailed information about its 19 million customers for lucrative advertising campaigns.
• Case argues: "As leaders of this powerful new medium, we are holders of a public trust" to create a medium that "is as central to peoples’ lives as the telephone or television … and even more valuable." If there is a conflict between the public trust and the profit-driven marketplace, adds Case, "I’ve always believed we should let the market decide."

A lot of these fights are merely tactical squabbles between profit-seeking companies that are of no interest to the government or voters. However, they do illustrate an important issue: the battle of corporate priorities in the high-tech marketplace against voters’ priorities in a democratic nation— or in Lawrence Lessig’s felicitous phrase, "West Coast code" and "East Coast code."

In general, AOL and most of the Internet industry—backed by a growing number of libertarians—would prefer citizens register and vote at a Web site rather than at a polling booth, expressing themselves individually with cash instead of national ballots in an environment defined by the (competing) corporate priorities, not by the constitution. Indeed, Case makes a direct challenge to government, democracy, and citizens whenever he urges industry to unite around self-regulation. "The fact is, we must self-govern," Case told a Harvard audience of business leaders, advocates, and academics. "If we don’t, the Internet will go the way of other media, chopped up into national cubbyholes, taxed and regulated." Or to put it another way, the Internet could be overseen by democratically elected governments.

To some extent, this is just a routine call by an industry chief for less government regulation, cloaked in a nice mix of euphemisms, and supported by the (incomplete) truth that many people get what they want from the market, not from government. But as Internet boosters repeatedly declare, the Internet is not just flashy Web pages and the online purchase of galoshes. It is commerce layered in free speech, industry entangled with the citizenry, and the market intertwined with participatory democracy. This makes the self-rule call by Case and his like-minded allies in industry all the more significant—and all the more deserving of an occasional democratic response.

Consider Case’s assessment of how the Internet could reshape citizens’ participation in politics, which is how we resolve our differences on (more or less) a one-person, one-vote basis of equality as opposed to the one-dollar, one-vote marketplace. According to Case, the last interesting presidential election was not the election of Ronald Reagan, nor the reelection of President Bill Clinton, but 1960’s election of John F. Kennedy (who gained a narrow victory by urging more defense spending and a tougher stand against communism). But now, says Case, "Special interest groups have disproportionate access and clout … Let’s join together and use the Internet to spark greater interest in elections and politics and civic life."

This greater use of the Internet, added Case, may require politicians to abandon their brand-name political organizations—the political parties. "The Internet could further weaken the two-party system. I know some of you think that might be terrible, but I have to tell you, as an average citizen, I’m not so sure," he said in January 1998. Moreover, Case doesn’t seem to care much for politicians’ free-speech rights. "There is a risk that politicians’ unmediated use of the medium may be counter productive," he said in the same speech. But without the parties’ money, publicity, and volunteers, as well as an ideological backbone and a political brand name, individual politicians will become even more dependent on corporate contributions and corporate favors such as those provided by Steve Case.

Thus, the voters and the nation would be less able to debate and resolve national issues such as privacy, encryption, trade, job conditions, war, or welfare, partly because the party leaders wouldn’t be able to compel their members to actually implement any campaign promises whenever those promises run counter to the relatively narrow interests of each legislator’s home district.

So far, the politicians are loath to challenge Case’s marketplace vision. That’s partly because the high-tech market has been very successful creating wealth and jobs—elements that usually get politicians reelected. But a challenge to the industry’s claim for preeminence is likely to appear some time in the future, perhaps in the next recession when the high-tech sector fails to provide jobs and pleasures.

Alternatively, the challenge may come from future citizens seeking tighter environmental protection or less media-carried violence and porn. We’re already seeing this demand applied to the industrial-age economy, where for at least a century, and especially over the last decade, companies’ autonomy and property rights have been redefined and reduced by voters who prefer labor and environmental protections. These restrictions were once as unthinkable, just as the changes we will make in the future are unthinkable to us now.

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