FTC Chairman Has Misgivings on AOL Deal
By David Lawsky
WASHINGTON (Reuters) - Federal Trade Commission Chairman Robert Pitofsky has misgivings about America Online Inc.'s (NYSE:AOL - news) proposed purchase of Time Warner Inc. (NYSE:TWX - news) but it was unclear whether he will vote to block the deal, an industry source said on Tuesday.
Pitofsky and others have been meeting with rivals of AOL in the Internet service industry. The chairman met Tuesday with several Internet service providers (ISPs), who will be forced to compete with an even more powerful AOL if the deal goes through.
The industry source familiar with Pitofsky's views said that the chairman finds the deal problematic. On the other hand, he has not tipped his hand on how he will vote.
A spokesman for the FTC had no comment.
The FTC meets at 11 a.m. (1600 GMT) on Thursday to decide whether to approve the deal or to move to block it.
The flavor of some of the problems brought to Pitofsky's attention was expressed in a letter that Qwest Communications International Inc. (NYSE:Q - news) wrote to him and made public late Tuesday.
The Qwest letter said that Time Warner's cable transport facilities are an essential facility, that Time Warner is likely to tie it up with AOL's Internet access service and Time Warner will force consumers to pay twice for their choice of an Internet provider.
``The concessions offered by Time Warner to date are grossly inadequate and further support Qwest's position that there remain significant risks to competition in the emerging market for broadband Internet access service,'' Qwest said.
Other sources familiar with the situation said that a majority of the five-member commission -- buffeted by months of negotiations and lobbying by rival forces favoring and bitterly opposed to the deal -- were still pondering their decision.
The FTC staff has negotiated an agreement with AOL and Time Warner and will deliver its proposal on Thursday but take the unusual step of making no recommendation.
If the commission decides to sue in federal court to halt the deal its decision could transcend a new administration.
Ftc Is Major Hurdle For Deal
Whoever becomes president on Jan. 20 will have no options about replacing a commissioner before September, 2001, when Pitofsky's term ends -- unless a commissioner were to retire.
The new president will be able to appoint a new chairman, but should it be a Republican the chairman would be in a minority. The commission is made up of three Democrats and two Republicans.
The FTC has been the major hurdle the deal must clear.
European regulators, who considered a narrower range of issues than the Americans, signed off on the combination in October.
The Federal Communications Commission (news - web sites) will review the merger once -- and if -- it is approved by the FTC. But that is expected to be a relatively quick review.
The companies have said if they win regulatory approval they plan to move quickly to close their deal in the early days of 2001.
FTC commissioners have been concerned about the role of AOL and Time Warner in the emerging digital age.
Time Warner owns a series of stellar communications media, from Time Magazine to CNN and Warner Brothers movie company.
It also owns one of the two biggest cable systems in the United States. Cable systems can provide high-speed Internet service and are expected to be a key in the embryonic industry of interactive television.
The FTC has been concerned because AOL is already the largest Internet service provider in the United States and its ownership of Time Warner cable systems -- the second largest system in the country -- could shove aside potential competition.
In an effort to reassure the commission that it will permit competition to AOL on wholly owned Time Warner cable systems, AOL negotiated a deal giving access to another Internet service provider, EarthLink Inc. (NasdaqNM:ELNK - news) Inc.
The FTC has also encouraged AOL to sign up other competitors to use the Time Warner cable system.
The FTC has also been concerned about Time Warner's prominent role in providing programming.
On the one hand, the concern is that Time Warner might be reluctant to share its content with rivals to AOL.
And there is a concern that Time Warner cable systems might be reluctant to permit rival content on their systems.
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