- The Washington Times - Thursday, July 27, 2000

America Online Inc. expects to eventually win the government's approval for its proposed purchase of Time Warner Inc., but only after fending off concerns from competitors and consumer groups today at a Federal Communications Commission hearing.
Despite a raft of objections that the new AOL Time Warner could dominate cable television and the Internet, the world's largest Internet service provider does not expect to have to make concessions to earn regulatory approval for its $140 billion acquisition of Time Warner.
"We're not competing in anything. They aren't offering Internet access and we aren't making movies," said George Vradenburg, AOL's general counsel. "It isn't like US Airways and United Airlines or Sprint and WorldCom."
Federal regulators are reviewing United Airlines' planned purchase of US Airways. Sprint Corp. and WorldCom Inc. called off their proposed merger two weeks ago because of government opposition.
Critics will argue regulators must place conditions on the AOL Time Warner deal because the new company would affect millions of consumers, from those in front of computers to those in front of televisions.
AOL, based in Sterling, Va., has 23 million customers. Time Warner Cable is connected to 12.6 million homes. Time Warner's news outlets Time magazine, CNN, People magazine, Sports Illustrated, Fortune and Entertainment Weekly among them reach millions more.
Even before a union is approved, Walt Disney Co., owner of the ABC television network, will ask regulators to split AOL Time Warner in two. Under that proposal, one company would operate the business that distributes information and the second business would manage cable and Internet networks distributing that content.
Consumer groups will ask the FCC to require AOL Time Warner to open its cable network to competing Internet service providers that want to market Internet access over high-speed cable lines.
"Our fear is AOL will shut down the open architecture of the Internet so it resembles a walled garden," said Walt Disney Executive Vice President Preston Padden, chief lobbyist at the most vocal opponent of an AOL-Time Warner union.
The FCC will try to determine whether a merger would harm consumers and is expected to make a decision by October.
The Federal Trade Commission plans an antitrust review of the merger to determine whether it would hurt competition and could complete its examination by fall.
The European Commission also is reviewing the transaction.

Opening cable lines

While AOL would get access to high-speed cable lines by purchasing Time Warner, other Internet service providers (ISPs) believe they are excluded from the cable network. They have lobbied for laws mandating access to high-speed lines. AOL has, too. But after the Jan. 10 announcement that it planned to buy Time Warner, AOL stopped seeking laws forcing open access for ISPs that want to market high-speed Internet connections.
Consumers Union Co-director Gene Kimmelman says AOL flip-flopped, which means AOL Time Warner can't be trusted to open its cable network to ISPs and the FCC must force it to do so. The FCC has been unwilling to force open access.
Jeff Chester, of the nonprofit Center for Media Education, has called AOL Chairman Steve Case the Benedict Arnold of the digital age for ending his call for open-access laws.
In February, moments before their chairmen testified at a Senate hearing, AOL and Time Warner pledged to open their cable TV lines to all ISPs.
But industry groups want more than a spoken pledge or the nonbinding memo AOL Time Warner filed with the FCC outlining its open-access plan.
Open-access proponents support a binding document between AOL Time Warner and the FCC requiring the company to open its cable network to competitors.
"If the FCC does something in the way of rule-making, we're all for it as long as it's done expeditiously," said Richard Bond, co-director of the OpenNet Coalition, a group of pro-open access ISPs.
Time Warner Chairman Gerald Levin appeased critics a bit last week. Mr. Levin said AOL Time Warner will end an exclusive deal with Road Runner sooner than planned. The deal gave Road Runner, a cable Internet service provider, the sole right to offer high-speed Internet access to Time Warner's customers.
Mr. Vradenburg said restructuring the deal could mean AOL Time Warner begins leasing its cable network to competitors next year.

Going interactive

Walt Disney, ABC's parent company, will push for assurances that viewers have the same opportunity to use interactive television when they watch ABC programs and shows from other networks as they have when they watch Time Warner shows.
That's important because television and the Internet are becoming synonymous as both are delivered over the same cable pipe, and the convergence is leading to a development called interactive television.
AOL has started AOL TV, which provides Internet content over television and links to Internet sites. It lets TV viewers turn televisions into desktop computers. People watching a CNN program on the Vietnam War would be able to "click here" and buy a book about the war that programmers promote during the documentary.
Critics are dissatisfied with verbal promises that the company will treat all programming delivered over the company's Time Warner cable system the same.
"We are sure that interactive television functionality will work when you're watching CNN," Mr. Padden said. "Will it work if you're watching ABC?"
Mr. Vradenburg said AOL Time Warner would have nothing to gain by limiting interactive television services.
"We've learned we have to respond to consumer demand to offer everything," he said. "The more interactive program options we have, the better off we'll be."
NBC filed a document Tuesday with the FCC asking the agency to impose a "meaningful, enforceable commitment by AOL Time Warner to provide nondiscriminatory access" to Time Warner's cable networks by other providers of programming.
Placing restrictions on how AOL Time Warner must handle competitors' interactive television programming could be difficult because the service still is being developed and regulators aren't familiar with the new technology, said antitrust expert Robert Crandall, senior fellow in economic studies at the Brookings Institution.
"It's very difficult to know the remedies when you don't know the abuses," he said.

Conflict over Hughes

AOL's potential ownership of cable giant Time Warner could force it out of the satellite television market. AOL may be asked to sell its $1.5 billion stake in Hughes Electronics Corp., which markets satellite television and through DirecTV.
AOL's share of Hughes is important because FCC rules say a single company can serve only 30 percent of the paid television market. That includes home satellite and cable customers.
Time Warner controls about 18 percent of the U.S. cable market.
Analysts expect regulators to be concerned whether AOL has too great a hold on systems delivering cable if it pairs with Time Warner and still owns part of Hughes.
The Consumers Union has requested that the FCC make AOL sell off its Hughes holding.
"They will kick and scream, and then they will get rid of it," said Scott Cleland, chief executive with the Precursor Group, an independent analyst group.
Mr. Vradenburg says AOL's stake in Hughes is 5 percent so small it won't become an issue.

Blackout lingers

But the May blackout will.
Time Warner stopped ABC programming on its cable networks while the two companies fought over a contract. About 3.5 million homes in 11 markets were unable to view ABC programming for 39 hours in May.
The company is still taking criticism for the blackout, and merger opponents will remind regulators about the event.
"What they did May 1 was a pretty dramatic repudiation of consumer choice based solely on business interests," said Mr. Padden.
Mr. Cleland said the companies will be asked about the likelihood of another blackout.
"They have to say it was an unmitigated disaster and that it won't happen again. They will have their apology ready and well rehearsed," he said.
Time Warner already has apologized, and it will offer conciliatory words again today.
"We regret that consumers were caught in the middle of a business dispute, and we can assure that it won't happen again," said Time Warner spokesman Ed Adler.

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