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America Online Inc.’s acquisition of Time Warner Inc. appears likely to win Federal Communications Commission approval by October, though the deal could be saddled with some regulatory restrictions on business practices. At a public hearing in Washington Thursday, none of the five FCC commissioners expressed opposition. Debate, rather, focused on whether the agency should impose open access requirements as a condition for approval or trust the companies to implement their pledges voluntarily. “I have not heard anything in terms of direct skepticism like one heard from the staff in the WorldCom/Sprint merger,” said Susan A. Lynner, an analyst at Prudential Securities Inc. FCC Chairman William Kennard used the forum to press the companies about so-called open access, the guarantee that competing providers of Internet services can pay to use the wide bandwidth of Time Warner cable systems to reach consumers with high-speed broadband services. “Ultimately this merger could ordain the essential nature of the broadband services that Americans receive,” Kennard said. AOL Chairman Stephen Case and Time Warner Chairman Gerald Levin devoted nearly all of their 45-minute presentation to reassuring Kennard and the other commissioners that they are committed to open access. Case argued that it is in AOL’s best economic interest to encourage open access because Time Warner’s cable operations only reach 12% of the country. For the remaining 88%, AOL relies on other providers of broadband services, such as the phone companies. “It would be silly for us to focus only on the 12% when we have a national business,” Case said. Backing up the pledge, Levin said Time Warner hopes to restructure contracts by the end of this year that bar it from offering multiple Internet service providers access on its cable lines. The contracts were set to expire Dec. 31, 2001. The executives also sought to reassure the FCC that the company would not restrict the ability of consumers to reach competing Web sites. “We would never do that,” Case said. “The reason is that our members would quit.” The deal gained support from two researchers invited to provide an overview. Esther Dyson, chairman of EDventure Holdings, said the market is changing too quickly for regulators to decide which business model works best. “The role of the government should be to let this go forward but to raise concerns,” she said. Yale University Professor Barry Nalebuff said the bundling of Internet access, cable and content is a win-win-lose proposition. AOL and Time Warner would make more money and consumers would pay lower prices, but competitors unable to bundle products would lose market share. Yet he questioned how long-term the harm to competitors would be because wireless Internet services in a few years will become the preferred means for distributing content. This would bypass the Time Warner cable systems, he said. But the deal did draw fire from competitors and consumer advocates. William F. Reddersen, executive vice president for strategic planning at Bell South Corp., urged the FCC to bar a merged AOL-Time Warner for making deals with AT&T Corp., which recently acquired cable operations when it bought MediaOne. “These two gigantic companies must be required to compete,” he said, adding that the agency should force them to sever all business ties. He also said Time Warner content should be available to all other providers on the same terms as it is sold to AOL. “We don’t object to this merger per se,” Reddersen said. “But this merger must be conditioned.” Preston Padden, executive vice president for governmental relations at Walt Disney Co., complained that the deal would let AOL-Time Warner dominate interactive television, a new medium that would mix traditional programming with the Internet. Padden said Disney is especially worried that AOL would gain control of interactive television offered over AT&T’s cable lines by giving the phone giant permission to offer local phone service through the Time Warner cable system. That would limit consumers’ ability to choose Disney’s interactive programs, he said. “We are trying to avoid a world where that choice is skewed or limited by companies that control the pipe into the consumers home,” Padden said. He reiterated a Disney proposal made earlier this month for the FCC to separate AOL-Time Warner’s content and transmission operations. Consumer advocates supported that idea. “Wait until next year, when you see what open access looks like before you approve this merger,” said Mark Cooper, research director at the Consumer Federation of America. Cooper also asked the FCC to impose an explicit open access requirement on the companies. The strongest support for the deal came from FCC Commissioner Harold W. Furchtgott-Roth, a maverick who argued that the agency only should conduct a narrow review on whether the broadcast licenses should be transferred. Issues such as open-access are inappropriate to consider as part of merger, he said. Furchtgott-Roth urged Kennard to bring up the merger for a quick vote, rather than sticking the commission’s timetable of ending its review in October. “Mr. Chairman, you could end this at our public hearing next week,” he said. Commissioner Susan Ness said the review should concentrate on whether the merger violates the Communications Act and if it will yield benefits to the public. The size of the deal alone is not an excuse for FCC action, Ness said. “Big is not necessarily bad unless it leads to anticompetitive behavior,” she said. Copyright (c)2000 TDD, LLC. All rights reserved.

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