AOL-Time Warner merger wins FTC approval

By KALPANA SRINIVASAN

Associated Press

WASHINGTON – The Federal Trade Commission unanimously approved the merger between America Online and Time Warner – the largest proposed in U.S. history – after the companies pledged to protect consumer choice for the next generation of Internet services and content.

Today’s decision clears the way for the Federal Communication Commission to complete its review – the final hurdle before the companies can consummate the $111 billion deal. But FTC approval moves the companies far along in their quest to complete a merger they announced in January.

The FTC accepted a consent decree that addresses a range of likely anti-competitive effects posed by the deal. They include safeguards to prevent the company from shutting out other Internet providers from its high-speed service, also known as “broadband,” and from discriminating against the content of other companies delivered over its Internet or interactive television service.

“Our concern was that the merger of these two powerful companies would deny to competitors access to this amazing new broadband technology,” said FTC Chairman Robert Pitofsky. The agreement “is intended to ensure that this new medium, characterized by openness, diversity and freedom, will not be closed down as a result of this merger.”

That agreement also could set important precedents for how the government will oversee the development of new Web services still in their infancy.

The commission voted 5-0 to approve the deal, even though some members had earlier expressed concerns about its competitive impact on consumers.

To assuage wary regulators, Time Warner agreed to give consumers a choice of Internet providers, besides AOL, on its high-speed Web access delivered over its cable lines.

To fulfill that condition, Time Warner forged a deal last month to carry AOL’s chief rival, EarthLink. Under its agreement with the FTC, the combined company must offer at least three Internet providers, in addition to AOL, within three months of offering service in a market.

That’s to ensure consumers could select from a variety of Internet providers in the high-speed online world – similar to the choices they already enjoy with traditional dial-up connections.

Under the settlement, the combined business cannot discriminate in providing Time Warner content to Internet companies besides AOL. At the same time, AOL Time Warner cannot discriminate against content from other sources that it uses on its Internet systems or interactive television service. Some critics of the deal had feared that the combined business would use special technology to slow delivery of unaffiliated content.

The companies called the agreement “a win for consumers” that could pave the way for others. 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 and interactive TV and become the sole gatekeeper,” said Jeff Chester of the Center for Media Education. “They can’t do that now.”

AOL also agreed to conditions to ensure that it would not withhold its popular Internet service from other companies that offer high-speed Internet access over competing mediums, such as phone lines or satellite systems.

The merger would give Time Warner – a leading provider of media content such as movies, music and magazines – with a huge platform for reaching people online. AOL is the nation’s largest online company with 26 million subscribers. In turn, AOL could delivers its service over Time Warner’s extensive network of cable lines, capable of service nearly 21 million homes.

The FTC has struggled for months with the unprecedented marriage of old and new media. AOL is associated with its wildly popular instant messaging service and other products.

Media powerhouse Time Warner runs some of the best-known names in entertainment, including HBO and movies and music from Warner Brothers, and in journalism, such as CNN and Time Inc.

At the FCC, Chairman William Kennard said in an interview this week that the agency hopes to completes its review of the merger by year’s end. “We don’t want to extend this out indefinitely,” he said. But the FCC evaluation could stretch into early January, because the agency needs to look at the changes demanded by antitrust officials.

Sources familiar with the FCC’s review say the companies have been working to address agency concerns about the ability of AOL’s instant messaging service to work with similar products offered by other companies.

FCC approval is considered likely. The companies have said they hope to close their deal by the end of the year or early next year.

The deal was initially worth about $165 billion when announced in January, though its value has shrunk, along with AOL’s stock price, over the past several months.

Shares of AOL, which were trading at $73.75 at the time, were trading today at $49.75, up $1.30, on the New York Stock Exchange. Shares of Time Warner were up $1.56 to $74.16, also on the NYSE.