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FCC Makes AOL-Time Warner Merger Official

Jan 12, 2001, 19:49 (8 Talkback[s])
(Other stories by NY Staff)

By @NY Staff

The Federal Communications Commission Thursday night approved the merger of Time Warner Inc. and America Online -- the largest in US history -- but added conditions designed to help foster competition, especially with AOL's popular instant messaging platform.

Along with the blessing, the FCC voted 3-2 to impose restrictions on how the instant messaging platform would be made available to competitors, especially as the service is used to expand other media offerings such as video streaming over broadband connections enabled by cable connections. Approximately 140 million people use one or another form of instant messaging technology at this time.

Calling the FCC's internal debate "robust" and emphasizing the "minimally intrusive" nature of its restrictions, FCC chairman William Kennard told reporters today that these conditions were "all about preserving the open culture of the Internet."

However, the commissioners voted 3-2 to place restrictions on the merged company's instant messaging (IM) system when it operates over Time Warner's cable lines and that rival ISPs must have access to the firms cable pipeline.

"The FCC has never been faced with such a major deal before, especially one combining both traditional and new technologic issues," said Kennard. "This is truly a convergence merger."

The FCC's approval was the final regulatory hurdle necessary for the creation of a new media giant that combines AOL's 26 million subscribers with Time Warner's vast media properties. That includes cable channels, about 20 million cable television subscribers, magazines and even record companies to name a few. The deal's value is now estimated at about $103 billion. The merged company possesses combined revenues totaling more than $30 billion a year.

Comparing the potential monopoly of instant messaging to that of earlier telephone monopolies, Kennard told reporters today that new IM technology must be allowed to develop in a "competitive environment."

"All we're doing here is representing the industry's commitment to interoperability among instant messaging services and holding them to it," said Kennard.

Given AOL time Warner's likely domination in the potentially competitive business of new IM services, especially advanced IM-based high-speed applications such as videoconferenceing, conditions to prevent merger-specific harm are merited, the ruling stated.

"We don't know when AOL will decide to marry its Instant Messaging assets with its cable assets, but when they do we know that consumers will be protected," said Kennard.

In addition, the order placed restrictions on AOL's relationship with AT&T Corp., which has major cable holdings as well.

"AOL Time Warner shall be prohibited from entering into any agreement with AT&T, tacit or otherwise, that gives any AOL Time Warner ISP exclusive access to any AT&T cable system for the purpose of offering high-speed Internet access service," the FCC order said. The newly merged company is also prohibited from entering into any agreement "that affects AT&T's ability to offer any rates, terms or conditions of access to ISPs that are not affiliated with AOL Time Warner."

The approval follows the blessing by the Federal Trade Commission in December which also imposed conditions that AOL-Time Warner open its high-speed cable lines to competitors. But the FCC's order contained more information and concerns about the company's instant messaging platform, whose popularity and growth could be the groundwork for many new forms of e-mail and file sharing.

Consumer groups sounded fairly pleased with the terms of the FCC approval, noting that regulatory authorities were focused on fostering healthy competition between other major competitors of AOL Time Warner.

But clearly, a new era of media has dawned between an old economy, traditional media company and a major Internet player; major competitors have no choice but to adjust their strategies in order to compete with the behemoth.

With additional reporting from Internet News staff.

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