- The Washington Times - Friday, July 28, 2000

America Online Inc. and Time Warner Inc. tried to ease concerns about their proposed merger Thursday and convince the Federal Communications Commission the $140 billion transaction would harm neither consumers nor competitors.

During the nearly five-hour hearing, AOL Chairman Steve Case said his company's purchase of Time Warner would improve Internet services and speed up the industry's development of faster Internet connections over cable lines.

"We are confident that the proposed merger of AOL and Time Warner will drive the Internet's development, helping to spur a new era of innovation and robust competition," Mr. Case said, trying to deflect criticism from consumer groups and competitors.

Mr. Case was one of 16 witnesses to testify at the FCC hearing, which drew hundreds of people.

Critics said the five-member FCC should place conditions on AOL's purchase of Time Warner, which was announced Jan. 10 and would create an entertainment, Internet and cable giant.

Mark Cooper, director of research for the Consumer Federation of America, urged the FCC to require AOL and Time Warner to abide by a promise to open Time Warner Cable's network to Internet service providers (ISPs) that want to market high-speed Internet connections but have no access to the cable networks.

"Don't approve this until you see what open access looks like," said Mr. Cooper.

FCC Chairman William E. Kennard also emphasized his own desire to see cable operators open their networks so ISPs can offer high-speed services, and he said consumers will remain skeptical about promises from companies like AOL and Time Warner until they can buy faster Internet service that is delivered over cable lines.

"Everyone here agrees that platforms should be open. The question is how we get there," he said.

The FCC so far has not required cable lines to be opened to competitors.

Time Warner has 12.6 million cable customers.

But Mr. Case and Time Warner Chairman Gerald Levin repeatedly said they plan to complete renegotiations on a contract with Road Runner, which has an exclusive contract allowing it to market high-speed Internet access over the Time Warner Cable system. That will allow a merged AOL Time Warner to lease access on the network to other ISPs that want to compete with AOL, the Sterling, Va.-based ISP with 23 million customers.

Mr. Levin said Time Warner already is working on plan to lease access to its cable network, and invited other ISPs to join up.

"Maybe I should give out my e-mail address. Any ISP that would like to negotiate with Time Warner Cable, we're ready, willing and able," Mr. Levin said.

FCC members also asked probing questions about whether AOL Time Warner would be able to alter the quality of interactive television services broadcast over Time Warner's cable system in an attempt to influence consumers to pick their own interactive television over similar services from competitors.

AOL and Time Warner are likely to have the broadest range of interactive television services which blend TV and Internet functions before competitors do.

Mr. Cooper suggested the FCC require AOL and Time Warner to sign a policy pledging they will not discriminate against the content broadcast on the Time Warner system by competitors.

AOL dismissed the argument.

"It makes absolutely no business sense to do that," AOL Interactive Services Group President Barry Schuler said.

Walt Disney Co. and BellSouth Corp. both lobbied the FCC to place multiple conditions on any union of AOL and Time Warner.

Walt Disney Executive Vice President Preston Padden suggested AOL Time Warner be split into one content company to manage its information and one conduit company to manage the cable and Internet network over which that information would travel.

BellSouth Executive Vice President William Reddersen asked the FCC to cut ties between Time Warner and AT&T; Corp.

AT&T; has a 25 percent share in cable systems owned by Time Warner through its purchase of MediaOne.

That shared investment could harm consumers because AOL Time Warner and AT&T; wouldn't be true competitors.

A small group of protesters opposing the AOL-Time Warner union gathered outside the FCC offices before the hearing.

James Love, director of the Consumer Project on Technology, started in 1995 by Ralph Nader, said before the hearing that AOL Time Warner would behave like a monopolist.

He said he organized the protest because few consumers seem to be paying attention to the world's biggest merger.

"We felt we needed to take a different approach," Mr. Love said.

Mr. Case seemed matter-of-fact after he left the hearing midway through the proceeding.

"It was a good opportunity to get some facts on the table," he said as he walked out. "I hope the commission found it helpful."

The FCC could make a decision on the merger by October.

The Federal Trade Commission and European Commission also will review the proposed deal.

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