AOL/Time Warner Merger Hits Snag
Friday November 17 3:00 PM ET
By KALPANA SRINIVASAN, Associated Press Writer
WASHINGTON (AP) - The government's examination of whether to allow two media giants - America Online and Time Warner - to become one company has gone into overtime, with negotiations tangled over the future of Internet competition and choice.
Here's a look at issues dominating the antitrust review of the $129 billion merger and what it means for consumers:
Q. What does the government want?
A. The Federal Trade Commission, the antitrust agency examining the merger, has demanded that the companies give Internet providers other than AOL access to Time Warner's high-speed cable lines. Regulators would ideally like AOL and Time Warner to sign a deal with another Internet company, like EarthLink or Microsoft's MSN service, before the merger closes. That way the government could ensure that Time Warner is charging AOL rivals reasonable rates to be carried on its cable Internet systems.
Q. What does this requirement mean for consumers?
A. It means that a subscriber to Time Warner's high-speed cable Web access will be able to choose an Internet provider other than AOL. Officials consider it a critical question because Time Warner is the nation's second biggest cable company and AOL, with 25 million subscribers, leads the pack for Internet providers.
The government is looking at ``how to ensure that, if this merger goes through, AOL and Time Warner cannot leverage their popular content and cable distribution system to disadvantage consumer choice,'' said Gene Kimmelman of Consumers Union.
Q. What do the companies say?
A. AOL and Time Warner executives say it makes good business sense to give their consumers choice, but they had resisted government mandates that could weaken their position at the bargaining table.
Already Time Warner has signed a letter of intent allowing the third largest Internet provider, Juno Online Services, to offer service over its high-speed cable lines. Now, the two companies are trying to hash out the specific terms of the agreement.
``The process is obviously closer to being completed, but it's not done yet,'' said Juno's Chief Executive Officer Charles Ardai. Technical and pricing issues are still being sorted out, he said.
``The important thing for truly open access is that you don't have a situation where one (Internet provider) gets preferred treatment,'' he said.
Time Warner has been negotiating with other online providers as well. But these efforts must satisfy watchful regulators. If not, the FTC can take the companies to court to scuttle the merger. The agency has given itself until the month's end to reach a decision. The deal also needs approval from the Federal Communications Commission (news - web sites).
Q. Why hasn't the question of Internet access taken center stage before?
A. The vast majority of consumers still get their Internet service through dial-up phone connections and, therefore, are guaranteed a choice of Internet providers. That's because phone companies are regulated as ``common carriers'' by the government and must give access to Internet providers who want to offer service over phone lines.
So, when consumers turn on their computers they typically can select from a number of Internet providers. That competition also has helped drive down prices.
Q. What makes cable Internet service different?
A. Cable pipes are not regulated by the government as a common carrier. For example, cable operators pick what TV channels they want to distribute to viewers. Now, cable companies like Time Warner and AT&T are branching beyond programming and are using cable lines to deliver superfast Web access, called ``broadband,'' to consumers.
Some argue that cable companies will become the gatekeepers of what online content reaches consumers - a fear exacerbated by cable surpassing phone, satellite and wireless companies in offering high-speed Internet service.
Q. Will the government expand its demands of Time Warner to all cable companies?
A. The FCC, the agency which deals with broader cable policy issues, is looking at this question right now. To date, the agency has declined to force the entire industry to open its cable lines to competing Internet providers, saying that it prefers the market to work out a solution.
Some experts say they don't expect an industrywide rule even if the FTC forces Time Warner to share it cable systems.
``I don't think it will necessarily be a requirement for the balance of cable operators,'' said Tom Eagan, a cable and satellite TV analyst with UBS Warburg. |
