AOL-Time Warner Approved by FTC
W A S H I N G T O N, Dec. 14, 2000 -- The Federal Trade Commission today unanimously approved the merger between America Online and Time Warner — the largest in U.S. history — after extracting last-minute pledges from the companies aimed at protecting consumer choice for the next generation of Internetservices and content.
Approval for the $111 billion deal came after AOL and Time Warner made a last-minute offer to increase competitors’ use of cable lines and log complaints from rivals about obtaining Time Warner content.
The deal still has to pass the Federal Communications Commission, but any objections they might have would be mucheasier to surmount, making FTC approval tantamount to a full check-off, some say.
“The body language, if there can be such from the FCC, seems to have been pretty favorable, in that this transaction heads the media business toward the next leg of evolution,” said Lanny Baker of Salomon Smith Barney. “We’re a hurdle away from the end of the race.”
Consent Decree Addresses Issues
The commission voted 5-0 to endorse the deal, even though approval was in question earlier this week, with some members expressing concerns about the union’s impacton consumers.
The commission accepted a consent decree that addresses a range ofanti-competitive effects of the deal. They include safeguards toprevent the company from shutting out other Internet providers fromits high-speed service, also known as “broadband,” and fromdiscriminating against the content of other companies deliveredover its Internet or interactive television service.
“We believe that this order negotiated in good faith by these parties should prevent foreclosing of access and open the door to this extraordinary new technology,” said FTC Chairman Robert Pitofsky.
Under its agreement with the FTC, the combined company must offer at least three Internet providers, in addition to AOL, within three months of offeringservice in a market.
That’s to ensure consumers could select from a variety ofInternet providers in the high-speed online world — similar to thechoices they already enjoy with traditional dial-up connections.
The settlement also says the combined business cannot discriminatein providing Time Warner content to Internet companies besides AOL. At the same time, AOL Time Warner cannot discriminate againstcontent from other sources that it uses on its Internet systems orinteractive television service. Some critics of the deal had fearedthat the combined business would use special technology to slowdelivery of unaffiliated content.
A Win for Consumers
The companies called the agreement “a win for consumers.” The “commitment to consumer choice embodied in the FTC agreement will become a model for other cable systems throughout the country,” they said in a joint statement.
Even consumer advocates, long skeptical of the merger's impact,lauded the conditions reached with the FTC. “AOL and Time Warner thought they could take the Internet andinteractive TV and become the sole gatekeeper,” said Jeff Chesterof the Center for Media Education. “They can’t do that now.”
Time Warner also wins in the merger, according to analyst Baker, because it gets broader exposure on the Internet.
“What Time Warner gains is probably the most desirable dance partner that there is to take the Time Warner assets and content and brands and extend them into the interactive, online medium,” he said.
European regulators already have signed off on the merger. The FCC hassaid it would act by year’s end.
But the major hurdle for the companies had been the FTC, which struggled for months to grapple with the issues triggered bythe unprecedented marriage of old and new media. AOL is thenation’s largest Internet provider with 26 million subscribers anda trademark name associated with its wildly popular instantmessaging service and other products.
Media powerhouse Time Warner runs some of the best-known namesin entertainment, including HBO, CNN and movies and music fromWarner Brothers. The company also controls an extensive network ofcable lines, capable of serving nearly 21 million homes.
The government feared that together, the two companies couldshut out competitors for emerging Internet services, such as superfast Web access. Time Warner is offering such service — dozens oftimes faster than today’s dial-up connections — on its cable pipes.
Access to Cables, Content
To assuage those concerns, Time Warner last month forged an agreement with Earthlink, the No. 2 Internet service provider and AOL’s chief rival. The FTC had scrutinized the termsof that arrangement to see that Time Warner’s prices and terms are fair.
The agency wanted a blueprint in place so other Internetproviders, such as Microsoft’s MSN service, could reach similaragreements with Time Warner.
Small- and medium-sized online companies raised redflags that the EarthLink deal terms — still undisclosed — would not letthem get on Time Warner’s systems.
If that’s the case, “innovation is going to slow to a snail’space,” said Stephen Heins, director of marketing for NorthNet, aWisconsin Internet company with 2,500 customers.
EarthLink officials assert the deal includes fair prices and canserve as a model.
“It creates a foundation rather than a limit for the ability ofothers Internet providers to negotiate with Time Warner,” saidDave Baker, a company vice president.
Consumer groups and rivals worry that AOL-Time Warner willdiscriminate against other programming coming in over its Internetand interactive TV systems.
Contributing to this report were ABCNEWS Radio, MONEYScope contributing editor Andrew Serwer, The Associated Press and Reuters.