The US Federal Trade Commission (FTC) Thursday approved the $111 billion merger of AOL, the nation's top Internet service provider, and media and cable conglomerate Time Warner.
The five-member commission unanimously approved the merger after the companies agreed to open their cable system to competing Internet service providers and also agreed not to interfere with their content. At a press conference Thursday, the FTC said AOL must report to the commission any complaints from rivals that they have had problems accessing news and entertainment content from Time Warner.
The merger will give AOL a new broadband distribution platform for its services, as well as new subscribers through access to Time Warner's media outlets. Time Warner's businesses include cable networks, publishing, music, film and digital media.
The combined company, to be called AOL Time Warner, would have revenue of about $40 billion and a global subscriber base of more than 100 million users.
The merger still needs the approval of the US Federal Communications Commission (FCC).
When the deal was announced in January, antitrust regulators as well as competitors raised concerns that the deal would reduce consumers' choices by limiting competition for high-speed Internet access and cable service.
"In the broad sense, our concern was that the merger of these two powerful companies would deny competitors access to this amazing new broadband technology," said FTC Chairman Robert Pitofsky. "This order is intended to ensure that this new medium, characterized by openness, diversity and freedom, will not be closed down as a result of this merger."
To fulfill the condition that it offer consumers a choice of Internet providers, the FTC said Time Warner has agreed to require AOL Time Warner to carry Earthlink, AOL's major rival. Under the agreement with the FTC, AOL Time Warner must also offer at least three Internet providers in addition to AOL, within 90 days of offering service in a particular market - if the technology exists.
And whether that technology exists is a very important issue, according to Robert Rosenberg, president of Insight Research in Parsippany, N.J.
"The issue is not whether consumers will have a choice of ISPs, but whether they have multiple access modes into their homes," he said. "If I only have two wires into my home, it's at best a duopoly, not a competitive situation."
In a joint statement, AOL and Time Warner said the FTC's action, "marks a key approval in the regulatory process that now is moving through its final stage. The companies are engaged in constructive discussions with the Federal Communications Commission, which is the final regulatory agency whose approval is needed to close the merger. The companies expect their merger to close by the end of this year or the very early days of 2001."
The companies said their agreement with the FTC is a win for consumers.
"This agreement advances the commitment the companies made last winter to offer consumers a choice among multiple ISPs on AOL Time Warner cable systems," they said. "The companies expect that their commitment to consumer choice embodied in the FTC agreement will become a model for other cable systems throughout the country."
Preston Padden, executive vice president of government relations at Disney, said in a statement, "The unprecedented open access and non-discrimination conditions imposed by the FTC Thursday represent a huge victory for consumers and for competition. With these safeguards in place, we congratulate AOL and Time Warner on their merger and wish them well. We look forward to working with the newly combined company in all areas, including the development of new media."
Jeff Chester, executive director of the Washington-based Center for Media Education, one of the four consumer groups that opposed the merger and called for open-access regulations, said the FTC deserved praise for arriving at an agreement that sets up a number of basic merger safeguards.
"These were difficult negotiations, with a lot of high-stakes lobbying on all sides, and Chairman Pitofsky and the FTC are to be commended for striking a balance between corporate concerns and the public interest," he said.