Time Warner, EarthLink Reach Deal
By Alec Klein
Washington Post Staff Writer
Tuesday, November 21, 2000; Page E01
Time Warner Inc. has struck a deal to open its cable television network to EarthLink Inc., a potentially crucial agreement that could pave the way for the media giant to win regulatory approval of its merger with America Online Inc.
EarthLink is the nation's second-biggest Internet service provider, behind AOL. It will offer its service over Time Warner's high-speed cable lines, which serve 12.6 million U.S. customers, sometime in the second half of next year, according to terms of the deal announced yesterday.
The agreement is contingent on the closing of AOL's $183 billion takeover of Time Warner, which is being reviewed by the Federal Trade Commission.
The binding contract, which officials from both sides pushed hard to complete over the weekend, signals a possible breakthrough for Dulles-based AOL and Time Warner of New York in their protracted negotiations with the FTC. Citing antitrust concerns, the agency wants the companies to sign a cable-access deal before the merger is approved, sources have said. The FTC wants to maintain consumer choice and fair prices among Internet providers by ensuring that AOL's rivals have nondiscriminatory access to Time Warner's cable system, which covers about 20 percent of the market.
AOL and Time Warner said yesterday they have asked the FTC to once again delay any action on the merger until mid-December so that the agency can review the deal with EarthLink. That will push back the merger's closing to the end of the year, or early next year, the companies said. Previously, they said the deal, which was announced on Jan. 10, would close by the fall.
"It would appear that Time Warner and AOL have really met all the objections of the FTC," said Christopher Dixon, an analyst with the investment bank UBS Warburg. But Dixon added that the delay could put pressure on AOL's stock, which has dropped about 35 percent since the merger was announced. "At the end of the day, this is a transaction that has taken much, much too long," Dixon said.
Officials of Atlanta-based EarthLink said that under the agreement no other unaffiliated Internet provider will be able to offer service on Time Warner's system before EarthLink. EarthLink officials also said they will offer their service on Time Warner's network at the same time, or before, AOL does. AOL is the world's dominant Internet service provider, with about 28 million subscribers. EarthLink has more than 4.6 million subscribers.
AOL and Time Warner officials declined to comment on the specific terms of the agreement, but sources familiar with the deal said that the price EarthLink will pay for access to Time Warner's cable network is similar to what EarthLink pays for DSL, or digital subscriber line, an alternate form of high-speed access that works over telephone lines. EarthLink pays telecommunication providers about $25 to $30 of the $40 total that it charges per customer per month for DSL service.
In addition, sources familiar with the deal said that EarthLink will pay AOL Time Warner a portion of its revenue--in the low double-digit range--from e-commerce transactions. In some cases, the revenue sharing will have a ceiling on it, they said. The agreement also includes language that gives EarthLink access to AOL and Time Warner's set-top boxes for interactive television, according to sources briefed on the deal.
"It's a contract of first impression, meaning that no one has seen one of these before," said Robert W. Doyle Jr., former deputy assistant director of the FTC's bureau of competition. "Even though it may be comparable to what the telecoms offer in terms of DSL lines, nobody has ever seen what a contract offered on a competing cable looks like. So [federal regulators] are going to be very careful about how they evaluate it."
As part of the agreement, Time Warner said it will offer its customers a range of services, including its own in-house service, AOL, and those of EarthLink. EarthLink officials said that the services and prices it offers customers will be competitive with those of other ISPs with whom Time Warner reaches agreement.
AOL and Time Warner are close to reaching contractual terms with Juno Online Services Inc., the nation's third-largest ISP, but talks with Microsoft Corp.'s MSN, the fourth-ranked ISP, have stalled in recent days, sources said. Meanwhile, AOL and Time Warner have begun talking with some smaller ISPs about giving them cable access on a regional basis, sources said. Among regional ISPs, Time Warner has talked informally with RMI.Net of Denver.
The EarthLink agreement is conditioned on Time Warner ending its exclusive agreement with Road Runner LLC, a high-speed ISP of which Time Warner is the single biggest shareholder, with about a 36 percent stake.
"It looks like a step in the right direction," said Preston Padden, chief lobbyist for the Walt Disney Co., one of the most vocal opponents of the merger.
The deal represents a reversal from September, when EarthLink accused Time Warner of offering terms so onerous that it called into question AOL and Time Warner's commitment to open access.
"It's a good business agreement for Time Warner Cable and EarthLink, and we believe it can serve as a model for future broadband agreements between ISPs and cable companies," said Time Warner spokesman Edward Adler.
The cable-access deal also is expected to be a big boost for EarthLink, and the market cheered it, sending the company's shares up nearly 17 percent, to $8.34, in Nasdaq Stock Market trading yesterday. AOL shares lost $2.47, dropping to $47.09. Time Warner fell $3.34, to $69.61.
© 2000 The Washington Post Company |
