AOL Time Warner Promise Competition

KALPANA SRINIVASAN, Associated Press Writer
AP Online
01-12-2001
AOL Time Warner Promise Competition

WASHINGTON (AP) -- Newlyweds America Online and Time Warner promise to harness their vast resources to expand consumer choice for Internet access, entertainment and communications. To make sure the $106 billion merger doesn't have just the opposite effect, the government has set strict limits to keep the companies from crushing the competition.

Those include a requirement that AOL must make future generations of its popular instant messaging service work with competing services.

The companies crossed their last regulatory hurdle and swiftly moved to close their deal late Thursday -- a year and a day after announcing the unprecedented combination of old and new media.

The new AOL Time Warner wasted no time in touting the benefits consumers could expect from the fusion of the nation's largest Internet provider and a media titan. Executives said the company would break new ground in emerging technologies such as digital music, high-speed Internet access and interactive television.

``Our brands, services and technologies already touch hundreds of millions of people,'' said Chairman Steve Case, whose company AOL serves 26 million Internet subscribers. ``We will embed the AOL Time Warner experience more deeply into their everyday lives.''

Time Warner owns the cable networks CNN, HBO, and the Cartoon Network; magazine titles such as Time, People and Sports Illustrated; and offers movies and other programming under its Warner Bros. labels. It has a vast system of cable lines, second only to AT&T Corp.

New Chief Executive Officer Gerald Levin, said the range of businesses under the company's umbrella -- which includes movies, magazines, music and Internet services -- will ``empower consumers in new and exciting ways.''

But William Kennard, chairman of the Federal Communications Commission, said the agency wasn't willing to rely on the companies' good intentions. Instead, the agency set in place a series of conditions designed to define the company's role in offering growing services, while at the same time avoiding heavy-handed regulation of new technology.

``I believe that we have found the appropriate balance,'' Kennard said Thursday. Kennard, a Democrat, is expected to resign from the agency now that the merger review is over. Republican Commissioner Michael Powell, son of Secretary of State-designate Colin Powell, is the leading contender to be nominated by President-elect Bush as the next FCC chairman.

Public interest groups cheered the merger decision. Gene Kimmelman of Consumers Union said the government had ``transformed a merger that threatened competition into one that could actually expand consumers' choices for high-speed Internet and interactive TV services.''

The combined company will be required to make AOL's popular instant messaging service communicate with services offered by rivals. But that won't happen until instant messaging evolves to next generation services offered over Time Warner cable lines. That could include two-way video teleconferencing or the sharing of music clips and other files between users.

Before AOL Time Warner can offer such advanced services, it must either implement an industrywide standard to make different services communicate with each other or enter contracts to show its system can operate with at least three rivals within six months.

Rivals Microsoft, ExciteAtHome and AT&T had sought a broader condition forcing AOL to open its existing messaging service -- the short, real-time text messages millions of consumers now use -- to competitors.

The commission also fine-tuned requirements that antitrust regulators had put in place to protect consumer choice for high-speed Internet services. The Federal Trade Commission already had ordered AOL Time Warner to offer on its high-speed cable lines Internet providers other than AOL, such as EarthLink or Juno Online Services.

On Thursday, the FCC determined that consumers should be allowed to see their selected Internet provider as the first screen when they log on to their computers. That prohibits AOL from making its service the first screen and requiring consumers to open another link to get to their preferred provider.

The agency also required that AOL rivals carried on Time Warner's high-speed lines be allowed to directly bill their customers.

In yet another evolving market, that for interactive television, the commission did not impose any conditions on the companies directly. But it pledged to take a broader look at the whether to set rules for how interactive content is distributed. Interactive signals enable consumers to do things like look up information on a team while watching a sports game or click on a commercial to make a purchase.

The cable industry argues that the service is too new for the government to get involved.

European regulators cleared the deal in October, but not before pressuring Time Warner to withdraw a separate joint venture proposal with EMI Group of Britain, which would have reduced the number of major record companies in the world from five to four.

Shares of AOL Time Warner were down 13 cents to $47.10 in early trading Friday.

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