The Smoke-Filled Room: America Plugged In
Sager, Ryan H.
by Ryan H. Sager America Plugged In America Online isn't repeating Microsoft's mistakes. J J hey're just doing what comes T naturally in Washington; I I special interest lobbying, ]eft Chester...
...In another case, he convinced a federal judge that AOL was not responsible for allegedly libelous comments made about White House aide Sidney Blumenthal by Matt Drudge, even though Drudge's column was distributed by AOL and Drudge was paid by AOL as a content provider...
...This hypocrisy is not lost on AOL's former allies...
...AOL is helping to lead the way...
...by the 1997-98 cycle it ranked 9th, giving a total of $B7,ooo, according to the Center for Responsive Politics...
...I won't say anything," Zuck says knowingly ofVradenburg...
...In politics, the numbers tell the story...
...Heading the list of these "politically savvy people" is George Vradenburg III, who orchestrated AOL's assault on AT&T, first at the federal level, and then with guerrilla warfare in cities around the country...
...One modest victory came in late 1998 when South Carolina withdrew from the antitrust suit, only a few months after Microsoft made the largest political donation that the state GOP had ever received...
...So good in fact that he navigated the company through a slew of problematic lawsuits after coming on board as general counsel in 1996...
...Learning to live with Washington, and live happily, is quickly becoming the industry's greatest challenge...
...The question now is whether Congress will believe them...
...Few analysts expect the merger to be blocked, pointing to many other issues of concern to AOL...
...Microsoft is the biggest example, having been drawn into Washington's political culture almost entirely because of the government's antitrust suit...
...I I special interest lobbying, ]eft Chester says of AOL...
...However, after pouring millions of dollars into a lobbying effort with targets ranging from the FCC down to city halls around the country, AOL abruptly jumped ship and left its former allies at sea after acquiring a cable network of its own in the deal with Time Warner...
...In the 1993-94 election cycle AOL ranked 185th in contributions to federal candidates...
...ndeed, any company that finds its interests at odds with those of AOL had better be prepared to take cover...
...So far Microsoft's political strategy has struck some as a failure--its lobbying for a reduction in the Department of Justice's budget came off as inept and impolitic...
...Telephone regulations have always been of central importance to AOL, since most of its members reach it through dial-up connections...
...He thinks that the only difference between the cable broadband market before the merger and after the merger is that now it is in AOL's best interest to keep the government uninvolved...
...Chester, the executive director of the Center for Media Education, is one of a gaggle of AOUs former political allies who feels betrayed in the wake of that company's recently announced merger with media giant Time Warner...
...AT&T learned this the hard way during the battle over open access...
...The Internet is no longer something isolated from the outside world, but instead is something central to almost everyone's world...
...The question, therefore, is not whether technology companies will learn to live with the government, but when the remainder oftech companies will follow the lead of companies like AOL and Microsoft in paying homage to the Washington monolith...
...AS a distribu66 M ay 2 o o o _9 The American Spectator tor of content--other people's articles, stock quotes, financial advice, TV shows, and music--AOL worked hard to limit its liability to copyright, libel, and obscenity violations...
...It has opened an office in downtown Washington and hired such insiders as former Christian Coalition executive director Ralph Reed and former Republican National Committee chairman Haley Barbour...
...AOL is hardly the only high-tech company that has learned to contribute money and to lobby the government...
...He defended IBM during its antitrust litigation in the late 7o's, and in 1985 negotiated a settlement in Gen...
...William Westmoreland's libel suit against CBS...
...If nothing else, Microsoft has provided a cautionary tale for other companies-a tale that AOL has read over and over and had nightmares about...
...Now, as an owner and creator of content-with magazines such as Time and People, TV channels such as CNN and the Warner network, and movie and music operations--AOL has an interest in tougher copyright laws...
...This puts it at odds with other companies in the industry that rely on other people's content...
...In 1998, he struck a deal with a number of state attorneys general to keep AOL from having to re-sign all of its customers after a dispute over AOUs marketing tactics...
...AOL created a new position for Vradenburg-Vice President for Global and Strategic Policy--but his very presence at the company symbolizes the changes that have taken place in the hightech industry...
...AOL's campaign giving has grown over the 9o's...
...I think AOL has shown a pattern of jumping up and down and waving their arms while trying to close a merger," says Zuck, referring to the company's involvement in the Microsoft antitrust trial shortly before buying up Netscape in 1998, even though Netscape was the supposed victim of Microsoft's anticompetitive behavior...
...He is a suit whose role at AOL is to make nice with the government...
...So far in the current election cycle, AOL is the second largest donor of soft money in the computer industry, behind Microsoft, which, spurred by its antitrust trial, gave almost twice as much as AOL...
...Now that AOL is invested in a cable system of its own, its position has changed...
...Early in 1999 the Virginia Assembly passed a tax break (tailored specifically for AOL) that will potentially save the company $18 million on a new data facility it is building...
...These groups had hoped to stop AT&T, which after a series of acquisitions now owns approximately 6o percent of the nation's cable systems, from gaining too much power in the emerging market for broadband Internet access, a market widely seen as the future of communications...
...Chester's group, along with a number of Internet service providers and public interest groups, had united with AOL las t year in a crusade for what they termed "open access" to AT&T's newly acquired high-speed cable broadband network...
...Other teeh companies are fighting for laws to protect privacy on the Internet, visas for high-tech workers, freedom of speech online, and, most importantly for many companies, a continuation of the moratorium on Internet sales taxes, which will expire in October of 2ool...
...By mid1999, tech companies already had donated more than three times as much in this presidential election cycle as they did to Bill Clinton and Bob Dole combined in 1996...
...AOL has always been somewhat apart from the mainstream of this world...
...Over time one aspect of public policy or another draws these companies to Washington...
...Little else has been achieved but Microsoft hopes, and not unjustifiably, that intense lobbying has gained sympathy for Microsoft's cause in the Republican Congress, should the company need legislative protection...
...In AOL's native Virginia, he led an effort last year to form a political action committee for the region's technology industry, focusing on education and taxation...
...Open access is one...
...AOL understands this deeply...
...AOL is betting a lot of time and money that it will...
...Aside from open access, a number of other issues will become important to AOL after its merger with Time Warner -- issues that separate it from much of the rest of the tech world...
...To back up its claim, AOL has had to commit to an open network itself, promising to allow other ISPs onto its cable lines should the merger go through...
...His 3o-year career is that of a politically connected corporate superlawyer...
...AOUs increased activism has already paid offhandsomely...
...Vradenburg's banAOL is hardly the only high-tech company that has learned to contribute political money and to lobby the government...
...Contributions from the company to local races jumped from $500 in 1997 to more than $1oo,ooo in 1999...
...Jonathan Zuck, president of the Association for Competitive Technology, agrees...
...America Online has some of the most savvy political people in the industry," says the Association for Competitive Technology's Zuck...
...After a year of full-scale lobbying at every level ofgovemment for laws forcing cable systems to be open to any Internet service provider (ISP) that wanted to provide service through them, it is desperately backpedaling, claiming that the problem of access can be handled in the marketplace...
...But this promise is little different from AT&T's own promise to open up its lines after its exclusive contract runs out with its ISP Excite@Home in zoo2...
...While such a flip-flop is understandable, if not commonplace, in the business world, it is nonetheless eye-catching in the often high-minded tech world...
...The American Spectator _9 May 2 o o o 67...
...Located in Virginia as opposed to the West Coast, and scorned by computer programmers and tech elites, it remains one of the tech indusRYAN H. SAGER is Washington reporter for Reason magazine...
...For now, AOL must convince members of Congress that its proposed merger with Time Warner is not a danger to consumers...
...As the tech world has begun to merge with the real world, attention from all levels of government has become a reality for an industry that once saw itself as virtually transcendent of government authority...
...According to the influential Washington-area business magazine Regardie's Power, when AOL was dragged into the trial, Vradenburg's connections to the government's legal team-David Boies, the lead attorney for the government in the case, is a family friend-helped AOL avoid sensitive questions about the deal it was cutting with Netscape, news of which would have harmed the government's case...
...As the term "new economy" becomes more and more synonymous with the word "economy," it is a simple fact of life that the government will take great interest in it...
...dling of the Microsoft antitrust trial was more critical still...
...Even more important will be AOL's stance on copyright issues...
...Contributions of soft money and to congressional candidates have risen even more dramatically...
...Vradenburg is no slouch on the local political scene, either...
...Cable regulations will now take center stage, along with any governmental action touching on other broadband avenues, such as wireless technologies...
...I find it very disingenuous," says the Center for Media Education's Chester...
...In embracing the political culture of self-interested lobbying and litigation, AOL is simply adjusting to the pressures that have faced all tech companies, giving a glimpse of the future...
...It makes sense--at this point only Microsoft has more reason to curry favor...
...The moral of that story in short: Don't shun Washington, or it will shun you...
...They're trying to make a lot of promises," says Zuck...
...He's good...
...Companies like Oracle, Gateway, and Cisco have much at stake as they lobby for retention of their research and development tax breaks...
...try's biggest and most influential players...
...As AOL Chairman Steve Case put it last year, 'qlae future of the Internet will be shaped more by policy choices than technology choices...
Vol. 33 • May 2000 • No. 4
