Aol Time Warner Awaits Fcc's Ok

According to an FCC spokeswoman, "Chairman [William] Kennard has said he wants to wrap this up by the end of the year, but there are four other commissioners. I can't really give a pinpoint date."

If the FCC is able to give its expected approval this month, it will be one of the biggest holiday gifts ever given to a U.S. entertainment and media company.

The deal obtained approval by the FTC Dec. 14, which had presented the biggest hurdle because of the agency's antitrust authority. Insiders say that in the days leading up to the 5-0 decision, the FTC commissioners were still not satisfied with promises by the two companies to allow full Internet and content access to competitors.

Approval came after executives for the two companies made a late-hour pledge to increase cable-line usage to competitors and to log complaints from competitors that are not able to easily obtain Time Warner's content. The companies agreed to a government-enforced consent decree.

The decree is seen as a policy turnaround for the FTC, which had allowed the marketplace to determine access. A host of companies and other entities, from Microsoft and Disney to upstart Internet service providers (ISPs) and consumer groups, had barraged the commission with their concerns. Under the five-year consent decree, AOL Time Warner will be required to make available at least one unaffiliated cable-broadband ISP service on its cable system before AOL begins offering service and make available two others within 90 days. It also prohibits the company from discriminating against or interfering with bandwidth content contracted by nonaffiliated ISPs, including interactive TV. It also puts fairness clauses on AOL's digital-subscriber-line services.

Robert Pitofsky, FTC chairman, says, "Our concern was that the merger of these two powerful companies would deny to competitors access to this amazing new broadband technology." He adds that the commission's order "is characterized by openness, diversity, and freedom and will ensure that this new medium will not be closed down as a result of this merger."

Jupiter Communications analyst Aram Sinnreich says that the concessions detract from the value of the vertical integration of the two companies, but they were expected.

"It was very clear from the outset that AOL would have to make serious concessions, both in spirit and in [the] letter of the law to assure that it would not act monopolistically in any market it competes in," Sinnreich says. "That includes the recorded music market—music distribution, music media, all of that."

Meanwhile, whether the FTC's changing philosophy—to examine access and diversity concerns—will continue in a Bush administration is doubtful, since the president-elect has called for a more "hands-off" approach by the agencies.

After the FTC's approval, insiders predict that the FCC will also give its nod to the deal, since the FCC's concerns have been similar to the other agency's: whether the merger will lessen the number of media voices available, restrict open Internet access, and prevent consumers from getting content from other companies.

The European Union approved the deal Oct. 11 on the condition that the new company does not block rivals from being able to access emerging online media and entertainment markets and that it keeps its high-speed cable lines open.

The combination of AOL, the world's largest ISP, and Time Warner, the music (Warner Music Group), movie, magazine, TV, and cable conglomerate, will result in a company that wields tremendous power. AOL has about 28 million subscribers, and Time Warner's cable operations have 12.6 million customers.

But just how influential the combination will be on how the music industry operates is up for debate, analysts say.

"At the end of the day, it's about who's got the juice," says one music analyst on Wall Street. "If AOL Time Warner shakes out that AOL is going to control the business plan for the future distribution of music, it's a new day [for the industry]. If it's the guys in Warner Music doing it, it's the same old day. For me, the call is who is in charge of the blueprint."

Jupiter's Sinnreich says that the one area where the deal is likely to have a meaningful impact is in the development of digital-music subscription businesses.

"The thing about AOL is they have such great distribution and so many great existing billing relationships with consumers that, anti-competitive issues aside, it would be foolish for other record labels not to get on board for a [subscription] service that would reward them equally to the rewards of Warner Music," he says. "Sometimes a rising tide really does float all boats. You need the critical mass of an AOL to really get this stuff off the ground."