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America Online Inc. and Time Warner Inc. appear close to winning government approval for their proposed merger, although sources warn that the companies are in no mood to concede more to resolve last-minute objections. “The companies have gone as far as they are going to go,” said one source involved in the transaction. The companies are betting that the Federal Trade Commission — despite its tough talk about potential litigation — is actually satisfied with the proposed consent decree because it guarantees at least three competing Internet service providers will operate over Time Warner cable lines. One of those companies will be EarthLink Network Inc., the country’s second-largest Internet provider after AOL. The contracts with the other ISPs must be at least as favorable as the EarthLink deal. “They [the FTC] should be pleased,” the source said. “They will get more open-access relief [under a consent decree] than if they litigate and either win or lose.” This is because AOL would not be bound by its open-access commitments were the FTC to file suit. If the agency convinced a court to block the deal, then Time Warner would be free to keep its lines shut to competitors. Were the government to lose in court, the newly merged AOL-Time Warner either could block competing companies from their lines or negotiate tougher financial terms. One source who had been skeptical that a deal would close now says an agreement will come unless AOL or Time Warner suddenly loses interest in completing the merger. The FTC and companies have until Dec. 14 to reach an agreement, unless AOL grants more time. The FTC is expected to vote as early as next week on whether to accept the consent decree or litigate. The agency on Monday postponed a decision on the deal. The biggest potential stumbling block is the insistence of at least one FTC commissioner that AOL agree to sell Time Warner entertainment and news programming to rival Internet companies. The Wall Street Journal first reported this objection. One source working on the deal said the companies would litigate the merger rather than agree to this condition. “They are not prepared to cede control over Time Warner’s content,” the source said. “There is no supportable antitrust theory for such vertical relief. Time Warner is not close to being dominant in any content area.” Time Warner previously agreed in its acquisition of Turner Broadcasting System Inc. to carry competing news programs on its cable system. The FTC insisted on this condition because it feared Time Warner’s ownership of Turner’s Cable News Network could create a bottleneck that would limit the amount of cable news available to consumers. A lawyer noted that agreeing to carry competing news channels is not the same as agreeing to sell content to competitors. This is because Internet companies have many other choices for programming which AOL is powerless to block. AOL and Time Warner officials have said they expect to close the deal in late December or early 2001. A spokesman for the companies declined to comment further. The market reacted unfavorably to news about the deal. The stock prices for both AOL and Time Warner were down more than 7 percent on Tuesday. Copyright (c)2000 TDD, LLC. All rights reserved.

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