AOLTW NOW FACES U.S. CONCERNS
Doesn’t Carry Any Weight Stateside
Europe's acquiescence does not signal the Americans are likely to follow suit quickly, observers said.
"AOL-Time Warner is predominantly a U.S. transaction," Scott Cleland, a regulatory analyst with the Precursor Group, told the Financial Times. "In the end, the FTC will be the primary driver. Having the EC is an additional leverage point in the negotiations."
The main reason American approval will be more difficult is that the issues involved are very different. Foremost among them is TW's cable system, which is connected to about 20% of U.S. cable subscribers. Distribution of high-speed Internet access over cable was not an issue in Europe, where TW does not own any cable outlets.
The Federal Trade Commission's chief concern has been whether the new company's control of must-have content—plus high-speed Internet distribution over its cable modems—will unfairly harm competing Internet service providers and other broadband services such as high-speed access over phone wires, called digital subscriber lines. The Washington Post, meanwhile, reports TW has been accused of asking huge tributes from ISPs in exchange for access (see story, tech section).
The Times reports the FTC is known to be preparing a lawsuit to block the deal, which it could use if negotiations fail to reach a compromise. For now, the lawsuit is seen merely as leverage for the FTC. But Robert Pitofsky, the agency's chairman, has a reputation for antitrust enforcement.
The FTC's insistence that TW sell its cable system as a condition of the deal would almost certainly halt the merger.
Sources say TW CEO Gerald Levin has insisted he would rather call off the merger than be forced to part with the company's cable outlets. Telecommunications executives familiar with the negotiations, however, see this condition as a growing possibility, as it would solve almost all the concerns raised by the FTC and the Federal Communications Commission.
The FCC is expected to raise the issue of AOL's instant messaging, where competitors have criticized it for forbidding outside systems to interconnect with its dominant chat network.
Meanwhile, the chairman of the Senate Judiciary Committee warned that ties between AT&T and a merged AOLTW threaten competition, even as AOL vigorously defended those ties, the Wall Street Journal reported.
The ties—AT&T owns a 25% stake in the Time Warner Entertainment partnership—effectively link what many expect will be the nation's two largest providers of high-speed Internet access, said Sen. Orrin Hatch (R-UT).
"I am concerned that the AOL-Time Warner merger, if approved with this intertwined interest with AT&T, might have anti-competitive effects to the detriment of consumers," the chairman wrote in a letter to the FTC.
Gene Kimmelman, co-director of the Consumers Union advocacy group in Washington, welcomed Sen. Hatch's letter. "Policy makers are finally choking on the enormous level of consolidation and cross-ownership in the cable industry," he said.
In a letter to the FCC, AOL said it shouldn't be forced to sever ties with AT&T as a condition of the merger because the agency addressed the issue in a review of an earlier merger. "Neither through ownership nor contractual relations will this merger give rise to any 'AT&T connection' that would harm competition in any relevant area," lawyers for AOLTW wrote in the letter.
The market power of AOL and TW was the No. 1 topic Friday during the second round of hearings in front of the House Commerce Committee's telecommunications panel.
At the hearings, rivals of AOL and TW urged the government to require TW to let multiple Internet providers use its cable-TV lines as a condition of the proposed deal, an important issue in both the FTC and FCC reviews. The rivals disagreed on whether the government should require such a policy for the entire cable industry.
