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COMPUTING

From...
Industry Standard

Few antitrust fears for AOL Time Warner

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January 11, 2000
Web posted at: 11:57 a.m. EST (1657 GMT)

by Elizabeth Wasserman

(IDG) -- The biggest regulatory obstacle that the proposed merger between America Online and Time Warner may face in Washington is time itself.

The Internet giant and the media conglomerate represent complementary but not necessarily competing business interests. The federal government's mandated antitrust review may be lengthy in duration but is unlikely to find the type of conflicts that would put the kibosh on the largest media merger in history.

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A federal antitrust review, which is required under the Congressional Hart-Scott-Rodino Antitrust Improvement Act because of the merger's size, is likely to be spearheaded by either the U.S. Department of Justice or the Federal Trade Commission. Both arms of the administration say that hasn't yet been determined. The involvement of Time Warner's cable television and broadcasting interests and concerns about the impact on consumers of combining content with access may also give the Federal Communications Commission an excuse to weigh in with its own separate review.

Most federal officials first got wind of the planned joining of AOL and Time Warner on Monday morning. The companies have yet to file paperwork with any government agencies. Therefore, the regulatory review process which could take anywhere from the standard 50 days to upwards of the eight months that it took federal officials to sign off on Time Warner's acquisition of Turner Broadcasting has yet to begin.

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During a conference call with analysts Monday, AOL Chairman Steve Case, who would become the chairman of the merged AOL-Time Warner entity, said that officials of the two companies "don't expect any regulatory issues."

"The only real concern people might have is on the issue of open access," Case conceded, referring to the pitched battles AOL and other Internet service providers have waged in Washington and in municipalities nationwide to open cable broadband networks to competitive providers. Case said that AOL Time Warner would be committed to the principle of choice and would open its cable network to ISPs, but did not specify a timetable.

"We have an unbelievable collection of brands and people but they're highly complementary and none dominate their segment," Case added. "There is not really a consolidation in the sense of expanding your position, which might be the case if we were buying a major Internet company."

Time Warner Chairman Gerald Levin said during the call that he expects the company will seek approval from the FCC and local municipalities for the transfer of cable franchises from Time Warner to the new company. He also said that the company would obviously submit a filing under the Hart-Scott-Rodino Act, but that he expected little resistance. "The combination of AOL and Time Warner doesn't really hit any regulatory barriers and, certainly from my perspective, this is a compelling combination that actually has an opportunity on a worldwide basis to make a substantial contribution."

Analysts agree that the potential antitrust implications of the deal are few. "On the surface, the only apparent antitrust problem appears to be the fact that AOL and Time Warner's Roadrunner might be seen as being competing Internet services," says Robert Litan, a former Justice Department antitrust official who is now a fellow at the Brookings Institution. "But Roadrunner is a pipsqueak of a player compared to AOL's service. It's conceivable they could force the divestiture of Roadrunner. But that's not a big deal."

Others speculate that consumer groups are likely to raise questions with federal authorities about the new company's commitment to opening its cable systems to competing ISPs and about the potential hazards for consumers if a company can combine content and access on the Internet.

"Steve Case is the Benedict Arnold of the digital age," says Jeff Chester, executive director of the Center for Media Education, which had joined with AOL in fighting for open access. He pointed out that AOL rejected AT&T's pledge last month to open its cable networks to ISPs after an exclusive contract with ExciteAtHome expires in 2002, but now Case is embracing the same position AT&T had taken. "He means open access on AOL Time Warner terms, like AT&T proposed doing last month with MindSpring," Chester says. "These are rules that favor them and not a level playing field. We need enforceable federal rules to ensure nondiscriminatory access to cable broadband infrastructure."

Others say the deal could also raise flags over the combined AOL Time Warner's ability to limit access to Internet content. "From the consumer point of view, there may be questions about whether you'll have to be an AOL subscriber to get Time magazine," says Charlene Li, an analyst with Forrester Research (FORR) . "That combination of media with the access is one through which you may be able to block access to your competitors' subscribers."

Estimates vary on how long it will take the federal government to sign off on the merger, but all bets are on eventual approval. "The basic roadblock is going to be time," predicts James Lucier, an analyst with Prudential Securities in Washington. "It's going to take probably eight to 10 months at a minimum to get this done." He also believes the proposed merger will cause Congress to revisit the topic of copyright protections over streaming video. That topic seemed to have been settled in the satellite television bill that passed last session. At the last minute, in a surprising defeat for broadcasters, negotiators withdrew a clause in the bill that would have barred ISPs from carrying television broadcasts. Broadcasters are expected to press the issue again this coming year.

It may also take time to resolve the question as to which federal agency would likely take the lead in reviewing the antitrust implications of the merger. Justice and the FTC both have some expertise in this area. The FTC ruled on Time Warner's acquisition of Turner. Justice approved AOL's acquisition of Netscape Communications.

Spokesmen for both agencies say the matter has not been determined. Likewise, a spokesman for the FCC says that agency has no comment at this time about whether it will pursue a separate inquiry into the proposed merger.

"They may fight over it," Litan says of the agencies.

During its review of AT&T's acquisitions of Tele-Communications Inc. and MediaOne, the FCC has so far refused to require AT&T to pledge to open its cable systems to competitive ISPs. According to analysts, that inaction may indicate that the FCC will not require such a pledge of AOL Time Warner, either.


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