AOL Time Warner conditions preserve competition

Jeremy Pelofsky

WASHINGTON: Conditions placed on the new AOL Time Warner by the Federal
Communications Commission were designed to preserve competition in the emerging
world of high-speed Internet service via cable despite intense debate, the
agency's chairman said on Friday.

The FCC unanimously approved late Thursday the creation of AOL Time Warner to
become the world's largest media company, but attached many conditions to the
deal, including one that will open the new company's advanced instant messaging
services on cable lines to rivals.

The agency also forced AOL Time Warner to allow more access to its cable
pipeline by competing Internet services, including giving rivals control of
their own content on the cable system and having a direct relationship with
their customers.

"This agency wants to make sure that as the phone network migrates to
this exciting new place called the Internet, that some of the old competitive
issues that we had to deal with in the telephone world, like monopoly
domination, aren't replicated in the Internet space," Kennard said.

However, the adoption of conditions was the subject of lengthy, and often
heated debate within the agency. A narrow majority of the commissioners agreed
to the conditions, but the two Republicans, Michael Powell and Harold
Furchtgott-Roth, disagreed with most of the restrictions.

"I believe the Majority has given in too much to their collective
imaginations, rather than sound reasoning based on the record, in reaching some
of the conditions on the merger," Powell said after the decision was
announced on Thursday.

The comments from various commissioners underscored the intensity of the
debate within the FCC and the technical nature of grappling with the combination
of old and new media companies. It took a year and a day to win all the
necessary regulatory approvals for the $106.2 billion combination.

Time Warner has the second-largest collection of cable systems in the United
States and an enormous publishing arm that includes Sports Illustrated and
People magazines while AOL has close to 29 million Internet subscribers,
including 2.6 million Compuserve members.

"We've never seen a merger of this size and scope, or one that creates
so many challenging policy issues, because it's truly a convergence
merger," Kennard said at a news conference.

Kennard, a Democrat, also said on Friday he will leave the agency Jan. 19, a
day before Republican President-elect George W Bush will be inaugurated.

He is widely expected by industry representatives to be succeeded by Michael
Powell, who is the son of Secretary of State designate Colin Powell.

Intense debate

For example, one restriction was imposed on a technology that does not even
exist yet, the marriage of AOL's instant messaging real-time chat service with
Time Warner's cable system, such as streaming video over the high-speed
platform.

If launched, AOL Time Warner will have to make that advanced system
interoperable with that of rivals unless an industry-wide standard for
interoperability is established or contracts with competing services are
negotiated.

"We don't know exactly when AOL will decide to marry its cable assets
with its instant messaging assets," Kennard said. "We do know that at
such time that they do, we can be confident that consumer interests will be
protected."

But despite pressure from companies including Microsoft Corp. and
ExciteAtHome Corp., which have their own instant messaging services, the FCC
declined to make AOL's widely popular existing instant messaging service, the
exchange of real-time typed messages, interoperable with other systems.

Still, AOL has told the FCC and Congress an interoperability standard would
be developed by mid-2001 and Kennard said the company will have to report to the
agency about its progress toward achieving that goal.

"We completely support interoperability, but we want to make sure that
the security of our members isn't compromised," AOL's Co-Chief Operating
Officer Bob Pittman told Reuters.

And the company will be watched like a hawk by the regulators and lawmakers.

In addition to reporting requirements to the FCC, the Federal Trade
Commission, which oversees antitrust issues, will have a monitor ensure
compliance with that agency's conditions for five years.

The Senate Judiciary's subcommittee on antitrust "will carefully monitor
the actions and development of AOL Time Warner to make sure that competition is
preserved and that consumers reap the benefits of this merger," Sens. Mike
DeWine and Herb Kohl, who lead the panel, said in a statement.

AOL Time Warner shares ended down 76 cents to $46.47 in Friday trading on the
New York Stock Exchange.

(C) Reuters Limited 2001.