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Time Warner Inc. said Monday that it has agreed to let EarthLink Inc. provide broadband Internet access over its cable systems, a move that could clear the way for the Federal Trade Commission to approve the media giant’s merger with America Online Inc. by early December. “This is a good business agreement for both Time Warner Cable and EarthLink, and we believe it will become a model for future broadband cable alliances,” AOL and Time Warner said in a joint statement. Neither company released a copy of the agreement. It is expected to permit EarthLink –the No. 2 Internet Service Provider after AOL — to offer a full range of broadband services, including streaming video, to Time Warner’s 12.6 million U.S. cable customers by the second half of 2001. The FTC told AOL and Time Warner earlier this month that it would not approve their merger unless it negotiated an open-access agreement with an ISP for each market where Time Warner operates a cable system. The agency also demanded the right to review the contract to ensure the terms encourage competition for broadband services. AOL and Time Warner on Monday gave the FTC until Dec. 14 to decide whether to accept the open-access agreement or challenge the merger in court. The previous extension of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 was set to expire Nov. 30. The companies said the two-week delay means they cannot finalize the deal this fall, as expected. “The companies expect to close their merger by the end of the year or the very early days of 2001,” AOL and Time Warner said in the joint statement. The delay was not unexpected, yet the news sent the price of both stocks lower. AOL was trading late Monday at $47.77, down $1.79, while Time Warner was at $70.74, down $2.21. Analysts said the delay in closing should not hurt AOL financially. “While the delay is not positive, if in fact the FTC approves the deal by mid-December, we do not believe investors will be worried about the extra few weeks by then,” Merrill Lynch & Co. analysts Henry Blodgett and Kirsten Campbell wrote in a research note. Antitrust experts were optimistic that the EarthLink agreement should seal the deal with the FTC. “This is an excellent development,” said Stephen Mahinka, a partner in the Washington office of the Morgan, Lewis & Bockius LLP law firm. “This is an actual deal with an actual party that can effectively compete. This should go a long way to resolving most of the problems.” One antitrust expert said the FTC is likely to accept the ISP agreement because the agency knows it is treading in dangerous waters by demanding the right to substitute its judgment of what is best for EarthLink for the company’s assessment. “The more the commission takes on the role of evaluating the efficacy of specific commercial solutions, the more it will find itself in the difficult position of evaluating business models and business plans,” the expert said. “It is not clear to me how far down that path the FTC is willing to go.” The EarthLink agreement also got a tentative nod of approval from consumer advocate Andrew Schwartzman, president of the Media Access Project. “This is one of several necessary elements to ensuring open access,” he said. “This helps establish an arms-length price and conditions on which an open access condition can be based.” Schwartzman, however, would not bless the deal until the details are unveiled. He said the agreement should not limit how EarthLink uses the bandwidth it purchases from Time Warner. That means EarthLink must be free to let customers do unlimited video streaming or use the service for business purposes if the company concludes that makes financial sense. Schwartzman said Time Warner currently limits some of these activities. “If the cable operator has imposed the same kind of limitations on this arrangement as are contained in the their own deals, then that would be problematic,” he said. Yet Schwartzman said the agreement could signal the end of the FTC’s 11-month review. “There is reason for cautious optimism,” he said. Dulles, Va.,-based AOL agreed Jan. 10 to acquire New York-based Time Warner in an all stock deal valued at about $112 billion. Copyright (c)2000 TDD, LLC. All rights reserved.

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