Time Warner to Open Access to EarthLink
Following Pressure by U.S. in AOL Review
WSJ November 21, 2000
interactive.wsj.com
Excerpts:
'A Big Deal':
EarthLink CEO Garry Betty says the company's agreement with Time Warner will be good for business and predicts EarthLink will be cash-flow positive in the second half of 2001.
The FTC's view on the contract could make or break the merger, but FTC officials wouldn't comment on terms of the Time Warner-EarthLink deal. The FTC has previously indicated that it wants a signed, approved contract before it will approve the merger.
Ten days ago, the FTC delayed a vote on the deal to Nov. 30, but the companies have now given the FTC an additional two weeks to review the EarthLink deal before the commission votes on the merger. The FTC has to approve the Internet deal before it will consider approving the merger.
Even if the EarthLink deal is enough to satisfy the FTC, the merger is running behind schedule. AOL and Time Warner had been hoping to close the deal by the end of the fall -- or Dec. 21 -- but the FTC's demand put that timetable in doubt. The companies now say they expect to close the deal "by the end of the year or the very early days of 2001."
The FTC's demand clearly galvanized Time Warner's negotiators, who had spent months talking with Internet companies such as EarthLink without reaching a definitive agreement with anyone. (Time Warner had announced a preliminary agreement with Juno Online Services Inc. during the summer, but the FTC had indicated the Juno deal wasn't good enough.)
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In an interview, EarthLink's chief executive officer, Garry Betty,
"They came back and put something on the table which we felt we could live with," Mr. Betty said, adding that the two sides had been negotiating hard for the past 10 days to sign the definitive agreement. EarthLink, based in Atlanta, is the second-biggest Internet-service company in the U.S., with more than 4.6 million subscribers. AOL has slightly more than 20 million subscribers in the U.S.
Neither Mr. Betty nor Time Warner would disclose terms of the agreement, but the EarthLink executive said, "We know we will be able to make money with the deal." Jefferies & Co. analyst Fred Moran estimated that EarthLink would give up 65%-70% of its monthly access revenue to Time Warner under the deal, a figure neither company would comment on.
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The ground-breaking agreement is likely to accelerate the spread of high-speed Internet services by reducing the cost for consumers who want to subscribe to independent Internet services on cable lines.
Already, other cable companies are negotiating similar deals with Internet services, and Time Warner is also expected to strike similar deals with other Internet companies. But in a significant concession, Time Warner agreed to open up its cable systems to EarthLink before it makes access available to other Internet providers -- including AOL.
While AOL may not have to wait very long after EarthLink, Time Warner appears to have been responding to an FTC concern that Time Warner would put AOL on its systems well ahead of other Internet companies and reinforce AOL's market-share strength.
Mr. Betty said EarthLink would probably charge about $40 a month for its high-speed cable service. That's in line with what Time Warner's partly owned Road Runner service charges for Internet access, but $10 to $20 a month less than what consumers have to pay now to get independent Internet services on cable.
EarthLink also persuaded Time Warner to let it buy wholesale access to Time Warner's cable systems, enabling it to directly market its high-speed service to customers, something EarthLink had been rebuffed on earlier this year. Time Warner also may offer EarthLink as an alternative Internet service on its cable systems, Mr. Betty said.
The deal is contingent on FTC approval and the closing of the AOL-Time Warner merger. "We would support the merger going through as quickly as possible," Mr. Betty said.
One former Federal Communications Commission official, To-Quyen Truong, who just left the FCC's cable-services bureau as associate bureau chief and was involved in the AOL-Time Warner merger review, said the EarthLink agreement "is a big step in a positive direction," but would not say how the FCC might adjust its merger review in light of the deal, if at all. Ms. Truong is now a senior communications counsel for Dow Lohnes & Albertson. FCC officials declined to comment.
"It sets the bar by which other deals can quickly follow," said Mike McQuary, EarthLink's president. In a statement, Time Warner Cable's president, Glenn Britt, said the EarthLink deal was a "win for consumers and a win for the development of broadband cable Internet access." He said Time Warner was in "productive negotiations with additional" Internet companies "based on this agreement."
Other cable operators, meantime, are proceeding on their own apace. Comcast Corp., based in Philadelphia, plans to announce next week that it is launching a technical trial with Juno and other ISPs in early 2001.
The trial, which is expected to last for as long as three months, is aimed at figuring out how to offer a crush of competing ISPs over Comcast lines. It will also be aimed at gauging consumer interest. At the end of the trial period, Comcast plans to enter into negotiations for commercial contracts with Juno and others.
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