FTC Vote On AOL Deal Uncertain
_____Special Report_____
By Alec Klein
Washington Post Staff Writer
Thursday, November 30, 2000; Page E01
One of five members on the Federal Trade Commission now supports a settlement that would allow America Online Inc. to go forward with its takeover of Time Warner Inc., but it is unclear whether there are enough votes to ratify the deal, according to sources familiar with the matter.
Commissioner Orson Swindle, a Republican and former Reagan administration official, thinks the two companies have made enough concessions to warrant approval of the $183 billion merger, sources said. AOL and Time Warner recently announced a deal with rival Internet service provider EarthLink Inc., allowing the nation's second-largest ISP to compete with AOL in selling service over Time Warner's cable lines.
Swindle, a top contender to be the next FTC chairman if George W. Bush becomes president, has generally resisted government intervention in business dealings, believing competitive issues should be resolved in the marketplace. He declined to comment on the merger.
Swindle's stance helps to bring into better focus where the commission stands on what has been an unexpectedly contentious and drawn out merger review: On the opposite side of the spectrum from Swindle is Commissioner Mozelle W. Thompson, a Democrat and former Treasury Department official, who finds the merger unpalatable, sources have said. Thompson has indicated that the combined companies would wield too much market power, and he is uncertain that the government can fix the problem, they said. Thompson, who was traveling yesterday, could not be reached for comment.
It takes a simple majority of the commission to approve a deal. It is unclear where the other three commissioners stand: Chairman Robert Pitofsky, a Democrat, has been guiding the FTC staff's negotiations with the companies, and he has sought to impose conditions that would ensure a competitive marketplace, sources said. Republican Thomas B. Leary is considered a moderate with a strong background in antitrust law. Sheila F. Anthony often votes with her fellow Democrats but at times goes on her own, including her vote not to join the majority in challenging the recently proposed baby-food merger between H.J. Heinz Co. and Milnot Holding Co.
The FTC met yesterday behind closed doors to discuss various aspects of the merger, but the commission did not reach any conclusions, sources said. Also yesterday, officials of Atlanta-based EarthLink were in to see FTC officials to go over their contract with Time Warner, sources said. The FTC wants to ensure that EarthLink, which absorbed a loss of $41.7 million in its latest quarter, excluding acquisition and merger-related costs, did not feel pressured to strike a deal with Time Warner that may have included unfavorable terms and conditions, sources said.
On Tuesday, the FTC invited some outside experts to review the EarthLink deal as well, sources said.
Terms have not been disclosed, but sources said that under the contract, the price that EarthLink would pay for the access is similar to what EarthLink pays for DSL, or digital subscriber line, an alternate form of high-speed access that works over telephone lines. In addition, EarthLink would pay AOL Time Warner a portion of its revenue, in the low double-digit range, from e-commerce transactions. Time Warner's cable lines serve 12.6 million U.S. customers.
Also, the contract stipulates that Time Warner would cover the cost of providing customers with a modem and service installation, sources said. Deals for DSL access often require that the Internet provider cover such expenses.
FTC spokesman Eric London declined to comment. EarthLink spokesman Dan Greenfield also declined comment.
Dulles-based AOL and New York City-based Time Warner have pushed backed the deadline for FTC action until Dec. 14. It is the latest in a series of delays, but the companies hope to make enough progress in negotiations to put the commission in a position to vote as early as next week, sources said.
One of the remaining sticking points in the talks is over Time Warner's content, they said. The companies feel they made a major concession by striking a deal with EarthLink, sources said, but they are reluctant to agree to another condition that would require them to offer Time Warner's content, which includes movies and music, to competing Internet providers on the same terms as those given to AOL.
The companies believe that it would be hard for the FTC to defend such a content provision on antitrust grounds in court because Time Warner does not dominate the market, sources said. AOL and Time Warner have bristled at this condition in part because it came up late in the negotiating process. The deal was announced Jan. 10.
As part of their strategy, AOL and Time Warner believe that the FTC will not push too hard on a content provision at the risk of losing a settlement that includes what the companies consider a major open-access agreement. Even though the companies are optimistic about reaching an accord with the FTC, they are preparing for litigation, as is the federal agency, sources said.
Meanwhile, the FTC is continuing to look at potential conditions to ensure competition in interactive television, a nascent field that is expected to be developed by AOL and Time Warner. |
