Some FTC Staffers Back AOL-Time Concessions, Sources Say _____Breaking News_____
By Alec Klein
Washington Post Staff Writer
Saturday, December 2, 2000; Page E01
Some staffers at the Federal Trade Commission are now arguing that America Online Inc.'s recent concessions may be the best deal the government can get as it weighs whether to approve AOL's merger with Time Warner Inc., according to sources familiar with the matter.
The FTC staff has not made a recommendation to the five-member commission, and one may not be drawn up at all, but the antitrust agency has drafted a consent decree, which has been evolving since midsummer, sources said.
Some staffers are trying to persuade the commission that it should approve the deal on the table, which includes a key provision giving AOL rivals access to Time Warner's cable television network, rather than risk blowing up the $183 billion merger, sources said. Time Warner recently struck a deal to open its cable lines to EarthLink Inc. as a means of satisfying a critical FTC concern about ensuring consumer choice in the growing field of high-speed
Internet service.
Staffers have recently spoken with interested parties, who are not directly involved in the deal, and asked them to talk with the commissioners about the merits of the merger, sources said.
The FTC staff, however, is hedging its bet. It is continuing to review the EarthLink contract, and agency attorneys are preparing for litigation to block the deal in the event that a settlement falls through.
"There is absolutely no staff recommendation on this issue, and the commission position will be decided by a vote of the commission alone," said FTC spokesman Eric London.
It remains unclear whether the commissioners will approve the merger, which was announced almost a year ago. AOL officials declined to comment.
FTC staffers have asked interested parties whether it is important to attach a condition to the merger that would require Time Warner to offer its content to AOL rivals on a nondiscriminatory basis, sources said. Other questions have focused on the technical details of opening Time Warner's cable system to rival Internet service providers.
The companies believe they have already made generous concessions as part of Time Warner's contract with EarthLink. Under the pact, rival ISPs will have enough megabytes to offer their customers streaming media over the Internet, including full-length movies, sources said. Other cable ISPs, such as Excite At Home, have a 10-minute video-streaming limit. The companies have made a similar pledge to the Federal Communications Commission in their
memorandum of understanding.
Dulles-based AOL and Time Warner of New York have put forward the argument that, as a practical matter, the FTC could end up losing the concessions if the matter is forced into court. If the FTC litigates and wins, the merger would be blocked, and the agency would lose Time Warner's open-access agreement with EarthLink. And if the FTC loses in court, the merger would go forward with no conditions attached to it, and again, the agency would lose the
open-access agreement.
But the FTC is not without its own leverage. AOL and Time Warner are not expected to walk away from the deal, if only because they would be contractually obligated to pay breakup fees that could amount to billions of dollars. In addition, the two companies have so committed to the merger that they have already begun to cooperate on some corporate matters.
The two companies have shown some signs of discord, sources said. Time Warner, and its chief executive, Gerald Levin, are reluctant to agree to another condition that would require them to offer Time Warner's content, which includes movies, magazines and music, to competing ISPs on the same terms as those given to AOL, sources said. Although AOL has been more supportive lately, Time Warner has led the push against this provision--which effectively
would treat the Internet partnership like a cable television deal.
The 1992 cable act requires cable companies with interests in programming to not discriminate in providing their cable content to other cable providers and satellite TV providers. But Time Warner and AOL bristle at the idea of making their content available to others, including ISPs. Such a provision also would make more of Time Warner's content, including Time and other publishing interests, available to competitors.
However, some at the FTC believe Time Warner could use its sizable leverage to dominate the high-speed Internet-access market. According to this argument, AOL could make Time Warner content available only to its own online service as a way of gaining an unfair advantage over other ISPs.
The content provision presents a potentially delicate situation. If it becomes an intractable issue, and the FTC takes the companies to court and wins, Time Warner could walk away from the merger without paying any breakup fees, according to the companies' joint proxy statement. |
