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Federal regulators are on track to complete their review of America Online Inc.’s acquisition of Time Warner Inc. by early fall and have yet to find anything that would cause them to block the deal. “So far, there are no problems, and things are moving smoothly,” said one source close to the deal. According to interviews with those involved with the merger and those who are monitoring it closely, the Federal Trade Commission aims to complete its antitrust review by the end of September. The Federal Communications Commission, which rules on whether the deal is in the public interest, is expected to follow with its decision in early October. “Approval is certainly in the cards,” said Andrew Schwartzman, president of the Media Access Project, which has repeatedly criticized the transaction. “The only question is what kind of approval.” The FTC has privately asked the parties how AOL would open Time Warner’s cable lines to competing Internet service providers and whether it would attempt to restrict access by companies seeking to compete with AOLTV, an interactive television service the online concern is preparing to roll out, sources said. The concerns are similar to those raised at a recent FCC hearing, when the commissioners demanded details from AOL and Time Warner about when they would open their networks to competitors. “They are not overly troubled,” said one source familiar with the parties. “They know there are some issues that they have to deal with.” Those issues don’t appear to be insurmountable. Company lawyers are believed to be working on a draft consent decree that would be submitted to the FTC. It would be similar the 1996 agreement reached in the Time Warner-Turner Broadcasting System Inc. deal, which limited the ability of Time Warner and Turner to bundle programs, required Time Warner to give rival programmers access to its distribution system and mandated all Time Warner cable systems to carry at least one competing all-news channel besides Turner’s CNN. Specifically, the AOL-Time Warner consent is expected to require AOL to sell its minority stake in Direct Television, a satellite service that competes with cable. It also is expected to include restrictions on the merged company’s behavior, such as requiring it not to discriminate against other providers of Web content or interactive television. Less clear at this stage is whether the decree would include a so-called open-access requirement, which means AOL-Time Warner would have to open its cable lines to competing Internet service providers. FCC is believed to prefer imposing an industry-wide open access regiment rather than saddling AOL-Time Warner alone with this requirement. Also the companies have committed to open their cable system to competing ISPs, so including it in the decree may not be necessary. Composing an acceptable decree seems possible, since all of the top lawyers involved in the AOL-Time Warner case worked on the Turner agreement. This includes former FTC senior deputy director George Cary, now a partner in the Washington office of the Cleary, Gottlieb, Steen & Hamilton law firm, which represents Time Warner. Also holding over from the Turner case is Robert D. Joffee, the Cravath, Swaine & Moore partner who has remained antitrust counsel for Time Warner. AOL’s top gun, Joe Sims of the Washington office of Jones, Day, Reavis & Pogue, represented Tele-Communications Inc., another participant in the Turner deal. “You have the same actors involved, and the rational strategy would be to work out a consent decree,” said one lawyer familiar with the deal. AOL officials did not return calls. Time Warner spokesman Scott Miller declined to comment about the status of negotiations with regulators. He said, however, the companies expect FTC and FCC approval by late fall. Antitrust issues are not expected to derail the transaction, Miller said. A regulatory source cautioned that a resolution is not assured for early fall just because the parties are still talking. Yet FCC chairman William Kennard has an incentive to keep the regulatory-review process on track. The term of FCC Commissioner Susan Ness – one of his allies on the five-person board – expires when Congress adjourns for the year. That may occur the first week of October. Ness’s departure would leave the FCC with two Democratic and two Republican commissioners. Republican Commissioner Harold W. Furchtgott-Roth opposes restrictions on merger approvals, but the two Democrats are inclined to use the merger approval process to restrict AOL-Time Warner’s business. That would leave Republican Commissioner Michael Powell as the swing vote who could break a 2-2 tie. It would be much easier for Kennard to push through restrictions on AOL-Time Warner if he had Ness in his corner. This situation puts indirect pressure on the FTC to act quickly. In other recent cases, the FCC has sought to have the antitrust reviews of deals completed before it acts. Ceding the lead to the antitrust agency lessens the political heat on the FCC, which has come under attack from Republican lawmakers who question why it should be reviewing deals at all. The FCC let the Department of Justice take the lead in the WorldCom Inc.-Sprint Corp. review. When DOJ blocked the deal, it was criticized, while Capitol Hill ignored the FCC. Copyright �2000 TDD, LLC. All rights reserved.

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