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Technology Stocks : America On-Line (AOL) -- Ignore unavailable to you. Want to Upgrade?

To: ANANT who wrote (40506)	12/13/2000 1:04:43 PM
From: ANANT	Read Replies (1) \| Respond to of 41369

AOL/Time Warner: The Limits of Regulation Regulators reviewing the antitrust implications of the AOL/Time Warner merger are concerned that one company will wield too much power. The entity born of this merger won't come from concentration within an industry, however, but from the cross-breeding between industries, and from the creation of a new industry in which a new, single company will preside as the founding monopoly. By Nico Detourn (TMF Nico) December 13, 2000 In an article about the pending Federal Trade Commission (FTC) vote on the merger of America Online (NYSE: AOL) with Time Warner (NYSE: TWX), the Washington Post offered a brief glimpse at the thought process of one of the commissioners now considering the deal. Citing unnamed sources, the Monday article said Commissioner Mozelle W. Thompson was concerned that "the combined companies would wield too much power in their respective industries -- the Internet and the media -- and he does not see an easy way of fixing the problem through the regulatory process." The paper says Thompson is expected to vote against the deal, although "some within the agency hope he may still come around." Commissioner Thompson's dilemma is understandable. It captures the complexity at the heart of this landmark merger. Still, it's difficult to see how concern for the "combined companies" wielding too much power in their "respective industries" would be addressed by nixing the deal. The view that AOL and Time Warner are in "respective industries" -- different industries -- has made it difficult for the deal's critics to oppose it simply on conventional antitrust principles, which preserve industry and market competition. In reality, the power wielded by the entity born of this merger won't come from concentration within an industry, but from the cross-breeding between industries, and from the creation of a new industry in which a new, single company will preside as the founding monopoly. Problem is, the circumstances presented by AOL and Time Warner don't quite fit the FTC's jurisdiction or its preconceptions. While something about the deal doesn't sit right, it's hard to pin down what that is. Wrenching negotiations This dilemma is further highlighted by the Post's story, which quotes sources as saying that, after months of "wrenching negotiations" with AOL and Time Warner, "three -- and possibly four -- members of the five-member FTC now believe that the settlement agreement on the table is the best deal they can get" from the companies. Reports have all the involved parties analyzing the situation such that, if the FTC sues to block the merger without additional concessions by the companies, it risks losing the all-important open access conditions the companies have already agreed to. Reading that, it almost seems as though the FTC has been petitioning AOL and Time Warner for approval of its conditions rather than the other way around. Indeed, although the decision is ultimately the FTC's to make, the known history of the negotiations suggest an Alice in Wonderland-like bargaining process in which the FTC's objections and conditions dovetail with the companies' stated interests. If that's correct, then AOL and Time Warner should put AT&T (NYSE: T) and Excite@Home (Nasdaq: ATHM) at the top of their "Thank You" lists. In arguing throughout 1999 that open access was bad for the industry and consumers, Ma Bell, the broadband Internet service provider, and their allies worked as the "advance team" for the mega-merger announced last January, helping to ensure that the concessions made by AOL/Time Warner appear greater than they actually are. It's widely anticipated that the FTC will vote tomorrow to approve the merger, though the recognition that the companies might have gotten off easy has led to last-minute calls by the deal's critics for tougher regulatory conditions on the merger. In addition, the final go-ahead to combine the companies will require approval by the Federal Communications Commission (FCC), which is waiting for the FTC to act. All this leaves plenty of opportunity for another twist or two before this process is played out.