AOL Time Warner Inc. has lost one of its key partners on high-speed Internet service, leaving the media giant in search of a new deal to satisfy conditions imposed by the federal government in approving its merger.
High Speed Access Corp., a small Internet service provider, confirmed yesterday that it has pulled out of its agreement to provide its customers Web access over AOL's Time Warner cable-television network. The Denver firm, which has about 176,000 Internet subscribers, said it failed to come up with the funding to pay for a content partner or market the Internet service over cable.
"Given the current capital markets situation, it's particularly difficult to move forward," said High Speed spokesman Andy Holdgate.
As a condition of approving the $112 billion merger of America Online Inc. and Time Warner Inc., the Federal Trade Commission ordered the combined company to open its cable network to at least three rival Internet service providers.
The FTC, an independent antitrust agency, was concerned about preserving competition as the Internet moves from slower telephone links to faster access over cable lines. The deal with High Speed Access was the latest signed by AOL Time Warner, the nation's second-largest cable operator. It also reached agreements with EarthLink Inc. and Juno Online Services Inc.
To replace High Speed, AOL Time Warner said it is in talks with other Internet service providers, although it declined to identify them. "We look forward to announcing more deals in the future," said AOL Time Warner spokeswoman Kathy McKiernan.
AOL Time Warner plans to start offering EarthLink over its cable system later this month, beginning in Columbus, Ohio, and Syracuse, N.Y. Juno's service, pending FTC approval, will be offered over AOL Time Warner's cable lines within 90 days after AOL Time Warner launches its own Internet service over its cable network in the fall, McKiernan said. AOL Time Warner also will have to have a third alternative provider lined up by that time.
In recent filings with the Securities and Exchange Commission, High Speed indicated it was having trouble raising capital to fund its operations, which it believed would make it difficult to follow through with its AOL Time Warner deal. High Speed is contemplating selling some assets to Charter Communications Inc., one of its largest shareholders and a major cable competitor to AOL Time Warner.
With High Speed's withdrawal, AOL Time Warner removed the first FTC complaint lodged against it since its merger. In May, the Center for Digital Democracy, a D.C. nonprofit advocacy group, asked the FTC to look into AOL Time Warner's contract with High Speed, alleging that it was not an independent Internet provider because it already had business ties to AOL Time Warner.
"This is a reprieve for AOL Time Warner," said Jeff Chester, head of the advocacy group. "They now have to show the public that they are committed to open access and competition."