FCC okays merger of AOL and Time Warner

FCC okays merger
of AOL and Time Warner

Yes vote comes with relatively few restrictions

By Jeff Bercovici

   A year and one day after America Online said that it would acquire Time Warner in the largest media merger ever, the Federal Communications Commission has given its approval to the union.
    The vote to approve the $104 billion deal was unanimous, while three of the five commissioners voted to place conditions on the approval aimed at holding AOL- Time Warner to its promises regarding open internet access and preventing the merged entity from gaining a stranglehold over instant messaging services.
    "With the merger of AOL and Time Warner, we are seeing the creation of a new platform for communications based on the Internet," said FCC chairman William Kennard in announcing the decision.
    "Our challenge is to make sure that consumers get the full benefits of this new world technology without importing the dangers of monopoly and bottlenecks from the old world. We have met this challenge."
    News of the approval will likely meet with a mixed reception from media people, who look forward to the increased opportunities for cross-media buys but generally dislike consolidation and the effect it has on price.
    The FCC was the last hurdle for AOL and Time Warner, who closed the deal shortly after the agency announced its decision. Last month, the Federal Trade Commission gave approval subject to conditions intended to protect competition in the markets for broadband services and interactive television.
    The biggest point of contention in the FCC’s deliberations was whether to require AOL to open its instant messaging network to outside providers. Though now used primarily as a sort of high-speed email, instant messaging is expected to take on far more importance as technology develops that will allow users to send video and sound files, and even to utilize such applications as videoconferencing.
    The commission ultimately struck a compromise on instant messaging: For the time being, AOL-Time Warner won’t be required to open its network, but before it can move to the next generation of messaging, it must either secure an interoperability agreement with another provider or adhere to an industry-wide protocol allowing such interfacing of networks.
    On the point of open access to its high-speed cable networks for rival internet service providers, the aim of the FCC measures was to reinforce restrictions already imposed by the FTC. Under the new conditions, AOL-Time Warner must allow client ISPs to bill their customers directly, and it cannot discriminate in technical performance in terms of what the FCC calls "Quality of Service mechanisms" such as caching services and customer support.
    Interactive television was another area in which the FCC was expected to seek some sort of concessions. But the agency declined to put any restrictions of this sort on the merger, saying only that it would look into it for a possible future ruling that would apply to all cable operators.
    With the AOL-Time Warner question finally settled, Chairman Kennard is expected to resign his post within the next week, before President Elect Bush is inaugurated. The agency is expected to take a more conservative, anti-regulatory line under the Bush Administration.
    Michael Powell, one of two commissioners who opposed placing conditions on approval of AOL-Time Warner, is considered the most likely candidate to be the next chairman. In a statement voicing his dissent to the conditions, Powell said, "Fascinating though the issues are, and as serious as they are, I believe the Majority has given in too much to their collective imaginations, rather than sound reasoning based on the record, in reaching some of the conditions on the merger."

- Jeff Bercovici is a staff writer for Media Life.

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