- The Washington Times - Friday, December 15, 2000

Federal regulators yesterday approved America Online Inc.'s $110 billion purchase of Time Warner Inc., but they attached strong conditions to the transaction that unites the world's largest Internet service provider with the media giant.
The Federal Trade Commission approved the largest proposed merger in U.S. history by a 5-0 vote after Sterling, Va.-based AOL and Time Warner agreed to let some Internet service providers (ISPs) lease access on Time Warner's cable system.
The companies, which outlined on Jan. 10 their plans to join forces, still must earn approval from the Federal Communications Commission before their union is complete. Some FCC members have said they hope to complete their review by year's end. But AOL and Time Warner considered FTC approval the more difficult regulatory hurdle to cross.
AOL and Time Warner said in a joint statement that the FTC's decision "marks a key approval in the regulatory process that now is moving through its final stage. The companies are engaged in constructive discussions with the [FCC], which is the final regulatory agency whose approval is needed to close the merger."
The companies expect final regulatory approval no later than early next year.
The FTC consent order provides consumers with protections intended to prevent a combined AOL-Time Warner from monopolizing the market for high-speed Internet access over cable lines by giving them more ISPs to pick from. The marriage of AOL with a media conglomerate also will give subscribers access to Time Warner's trove of information, movies and music on the Internet and lead to development of interactive television, which blends broadcast programming with the Internet services.
The union between AOL and Time Warner aligns multiple brand names, including Time Warner's Cable News Network, Home Box Office, Cartoon Network, Warner Bros., Looney Tunes, Warner Music Group, Time magazine, People magazine, Sports Illustrated, Fortune and Entertainment Weekly with America Online's CompuServe, Netscape, ICQ instant messaging, Digital City and AOL Moviefone.
After the FTC's private meeting yesterday, FTC Chairman Robert Pitofsky said the consent order with AOL and Time Warner was the result of complicated, vigorous negotiations that concluded within the past several days.
"With this order, the problems have been addressed and competition preserved," he said.
Mr. Pitofsky said the key issue revolved around open access whether a combined AOL-Time Warner would exclude other ISPs from offering Internet connections over Time Warner's cable network.
Commissioners were sensitive to the open-access issue because AOL with 26 million subscribers has far more customers than any other ISP and Time Warner Cable is the second-leading cable provider with 12.6 million customers.
Mr. Pitofsky said he recognized that high-speed access is the wave of the Internet's future. Because of that, and because Time Warner Cable is the only cable provider in some U.S. cities like Houston it was necessary to push for open access, he said. The FTC's open-access requirement ensures consumers have more than one ISP to pick from if they are buying high-speed Internet access over Time Warner cable lines.
"I think open access is the way to go for the country, for consumers and for content providers," Mr. Pitofsky said.
AOL and Time Warner have tried to avoid open-access mandates from regulators, and last month they reached an agreement with EarthLink Inc., the nation's second-largest ISP with 4.6 million subscribers, to let it lease access on Time Warner's cable system. AOL and Time Warner have argued that the high-tech industry should not be strapped with regulations.
The consent order requires AOL-Time Warner to offer customers at least three Internet service providers to pick from, in addition to AOL, no more than 90 days after beginning to offer service in a market.
Time Warner can refuse to carry competitive Internet service providers on its cable network if technical issues make it problematic to add an ISP.
Consumer groups praised that measure.
"This substantially opens the broadband market. It's an enormous breakthrough on the road to open access," Consumers Union co-director Gene Kimmelman said yesterday.
Jeffrey Chester, executive director of the Center for Media Education, which has opposed the merger, praised the FTC for setting up some safeguards and striking a balance between corporate concerns and the public interest.
Despite the unanimous vote, FTC Commissioner Mozelle Thompson said he didn't decide to approve the merger until a day before the vote. Mr. Thompson said the open-access provision the measure forcing AOL-Time Warner to let other ISPs onto the cable network convinced him that protections were in place to preserve competition.
Small ISPs remained skeptical that the FTC's conditions will be enough preserve competition.
"I don't think regulation is the answer, but I think that with this merger there was an opportunity to do something and the FTC missed it," said Sue Ashdown, executive director of the Washington-based American ISP Association, a coalition of 2,200 small and medium-sized ISPs.
Terms of the consent order will remain in place for five years.
In addition to the open-access provision, the consent order says AOL-Time Warner cannot interfere with Internet content delivered across Time Warner cable lines that doesn't originate from AOL.
Critics like the Walt Disney Co. have feared AOL-Time Warner would use technology to slow delivery of content not developed by AOL or Time Warner.
The FTC could have taken AOL and Time Warner to court if they had not agreed to the terms in the consent order.
"I believe this was an illegal merger that is remedied by this order," said Rich Parker, head of the FTC's bureau of competition.
The FTC will appoint a monitor trustee to ensure the companies meet the terms of the order.
The transaction was valued at $166 billion when the companies outlined their plans to join. Shares of AOL closed yesterday at $50 a share, up $1.55, on the New York Stock Exchange. Shares of Time Warner were up $1.90 a share, closing at $74.50, also on the New York Stock Exchange.

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