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America Online and its competitors are bringing their biggest guns to the Federal Communications Commission to fight over the company’s merger with Time Warner. So far, AOL is winning the battle. AOL Chairman Steve Case dropped in on FCC Chairman William Kennard two weeks ago. Case, accompanied by Time Warner Cable President Richard Parsons, urged the FCC to approve the mega-merger without imposing any conditions on AOL’s instant-messaging service. Microsoft countered with a phone call to Kennard from Bill Gates, who urged the FCC to force the merging companies to allow communications between users of AOL’s instant-messaging service and users of competing services. Kennard acknowledged the importance of interoperability but resisted the remedy sought by Gates and companies AT&T and Yahoo, according to people familiar with the call. The FCC is the only remaining regulatory hurdle for AOL and Time Warner after the Federal Trade Commission gave its blessing last week. The FTC required the merger partners to share their high-speed Internet lines with competitors and forbade them from blocking other interactive television services. It also appointed a trustee to monitor the companies for five years. Instant messaging was one of the points of contention raised by merger opponents that the FTC did not address, leaving the issue to the FCC to resolve. AOL has more than 120 million users of its two instant-messaging products, a base that dwarfs its competitors, though Yahoo and Microsoft have been growing rapidly. AOL blocks people using competing instant-messaging software from exchanging messages with its users. The company has said it wants to allow interoperability eventually, but not until its concerns about the security and privacy of its subscribers are resolved. Competitors counter that those concerns could easily be addressed, and they charge that AOL is simply stalling. Last Wednesday, FCC staff gave formal recommendations on the proposed merger to Kennard and the agency’s other four commissioners. The staff recommended that AOL be forced to allow interoperability, but only when offering “advanced” instant-messaging features and when the service was running over Time Warner’s cable wires, say people who spoke to the FCC. “Advanced” capabilities go beyond the current ability of instant-messaging software to send text messages, allowing for the transmission of video or multimedia content. The recommendation’s limits left AOL’s instant-messaging competitors fuming. “This remedy doesn’t get us where we want to go,” says an official at a company lobbying the FCC. “We hope they’re willing to go back to the drawing board.” “What we’re looking for is a good kick in the pants for AOL to come to the table and negotiate interoperability,” says Alexander Diamandis, VP of instant-messaging provider Odigo. The five FCC commissioners are not bound by the staff recommendations, however, and some changes are likely. Nevertheless, several commissioners, including Kennard, have said they want to complete the FCC’s review by year-end, leaving little time for major modifications to the staff proposal. An FCC spokeswoman declined to comment, as did an AOL spokeswoman. A Microsoft spokesperson was not immediately available for comment. Related Articles from The Industry Standard: AOL-Time Warner: Days of Wine and Poses? FTC Approves AOL-Time Warner Merger AOL-Time Warner Dealings Getting Stale Copyright � 2000 The Industry Standard

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