As the dust settles on the AOL-Time Warner merger, a new sobriety has taken hold on exactly what this new mega distribution and content company can achieve. Not only is there a cooling off of overall sentiment about the revenue-pulling power of the web, but to gain regulatory clearance, the new entity faces some restrictions on exactly what it can do to exploit its market power.

US regulators came up with "open access" guidelines to limit how much the new company can control access to and the way content flows over AOL-Time Warner pipes to consumers.

AOL-Time Warner must negotiate non-discriminatory contracts with other internet services providers and it must not limit users to its own "first-screen". Other ISPs and providers should be able to expect good technical performance for their services on AOL-Time Warner's platform and they should also be able to control their own billing and subscriber relationships.

Just how crucial open access is was underlined best by the actions of AOL itself. AOL was one of the biggest advocates of open access to cable networks. In its pre-merger days, AOL maintained that giving consumers access to all sorts of ISPs and rival content would increase competition and lower costs to the consumer. But that was before the online giant announced it would buy Time Warner. Once the merger deal was signed in early 2000, AOL went very quiet about the positive merits of open access.

That is the situation in the US. How much of open access should be exported to Europe? Well, according to a new study from the Dutch Nyfer Institute, not very much at all, at least not yet. The title of the report, Regulation versus Innovation, gives a big clue to where it's coming from: open access should be mandated only for dominant players and regulators should remember that "emerging technologies need time to mature". So, the bottom line is: if you regulate (too early), they (cable operators) will fail.

It's worth pointing out that the Nyfer study was commissioned by two big cable companies in The Netherlands, UPC and Casema. The study is independent but clearly the cable companies were spurred to commission it by concerns about moves by the local Dutch regulator to allow cable companies only a two-year grace period before mandating open access.

"It does not seem prudent to decide now what action should be taken after two years - the communications sector is developing much too fast for that," says the study. It recommends that after a grace period regulators should assess the cable market and then decide proper action. Clearly the study and the cable operators are trying to call the attention of Brussels to the matter because the European Commission is working on its own set of rules.

So how much market power do cable companies have today in Europe? That depends. The Dutch cable market is very developed, whereas there is very little cable in Italy or in Spain. Even compared to the Dutch market, US cable is probably two to three years ahead, contends Phillip Meier-Scherling, vice-president of European telecommunications at Credit Suisse First Boston. In remarks made at the Brussels launch of the Nyfer study, Meier-Scherling said that Europe's cable operators are all heavily indebted and that if open access is implemented now, it could have "bad consequences".

Clearly companies such as UPC are already under pressure. Just how much pressure was underlined by the effect of a conference call with analysts in late January on the company's already deflated share price. UPC announced it was trimming back its rollout plans for broadband services. Just 250,000 of its seven million customers will receive digital set-top boxes by the end of the year, or 50,000 less than originally forecast. Investments in its Swiss operations and in eastern and central Europe will be slowed down and its Chello ISP company will be rolled into its fledgling content company. "It is important to increase our revenue per unit," said CFO Charlie Bracken, "and to invest capital where we get the best return."

The mood on the call took another downturn with the news that Moody was considering a possible downgrade of UPC's nearly $5bn debt. The ratings agency said it had "concerns about the adequacy of both UPC's liquidity position...and its existing businesses", which means it isn't at all sure if UPC's income is strong enough to service its interest bills.

How much should UPC's troubles inform policy decisions about open access?

If there is no incentive to invest then companies won't do it, but how long do we protect companies from figuring out a business plan that works without a lot of help from regulators? In the best of all possible worlds there should be several different delivery platforms for interactive content and services. But in some countries there may not be several competing physical infrastructures. and building them may prove too expensive.

Companies that have infrastructure like UPC, Telewest and NTL have to focus on what they do best, which is providing a platform for the delivery of whatever content is out there to the people willing to pay for it. Goldman Sachs contends in a report that open access can be considered a positive thing for those with networks that provide a good, fast and reliable connection to subscribers. These networks can charge for access and also earn money from advertising and transaction fees. Granted, Goldman was looking at the US market, but the mantra holds: If you build it right, they (the subscribers, the money) will come.