AOLTW WAITS FOR U.S. APPROVAL
Because of the ubiquity of Time Warner's cable empire and AOL's ISP empire here, the competition concerns stateside are a bit more complex than those across the pond.
The concerns have a mantra-like familiarity by now: open access along the combined company's high-speed Internet lines, compatibility with AOL's popular Instant Messaging system and (perhaps the lesser of the three) preserving competition in the burgeoning "set-top box" market.
Though the proposed AOL-TW merger is under scrutiny from both the Federal Trade Commission and the Federal Communications Commission, the FTC is in the driver's seat. Officials at the FCC, which is reviewing whether the transfer of TW's broadcast licenses to AOL is in the public interest, said Wednesday (10/11) it would wait until the FTC ruled on the deal before rendering its own decision.
The FTC wants to preserve competition on the Internet, which it sees as the potential primary pipeline into America's homes for news, entertainment, shopping and banking. Competitors fear the combination of AOL's vast Internet package and services with TW's equally vast content and programming would provide consumers with a daunting all-in-one package that would be difficult for any one company to top. Especially since AOLTW would reach one-in-five cable households and eventually offer all those homes high-speed Internet access.
AOL must satisfy the FTC that the new company will permit competitors to rent space on those lines so consumers have an array of choices for Internet service.
Solving FTC concerns normally takes one of two forms: restructuring the deal and requiring divestitures or setting conditions on behavior. Although the FTC generally prefers structural solutions, AOL-TW officials have hope for the alternative. When the FTC approved Time Warner's purchase of Turner Broadcasting in 1996, it did so under a series of behavioral conditions which analysts say seem to have worked.
That precedent might set the stage for the FTC to take a similar approach with AOLTW. But finding the right formula might be difficult. While AOL and TW have pledged and agreed to open cable lines to competitors, recent stories have surfaced that cast some doubt on the companies' ability to do so.
Texas-based ISP Stic.net ran into a less than equitable deal from Time Warner, which required 40 Internet companies in Texas to give up 75% of their subscriber fees and 25% of revenues from other sources in order to gain access to TW's cable TV network (hitsdailydouble, 10/9).
NorthNet, an ISP based in Oshkosh, WI, has a similar tale to tell about trying to obtain access to Time Warner's cable system.
"Time Warner insisted that it be given a great deal of information before the discussion started," NorthNet said in a letter delivered to both the FTC and FCC. "Moreover, the pre-qualification letter made it clear that the ISPs did not have any right to interconnect, rather Time Warner was picking and choosing who would go on its systems."
According to the term sheet for access Time Warner Cable is using (acquired by Reuters), the ISP's home page placed on the cable system "will be subject to TWC's approval" and "there will be a dedicated availability of prominent above-the-fold areas on the home page of the service" for the cable operator to use at their discretion.
Additionally, Time Warner Cable demanded a "minimum monthly payment of $30 for each subscription sold."
"Time Warner asserts the right to sell my service and, perhaps set the price," NorthNet's letter to the FTC and FCC read, "as well as when to terminate the service."
The FTC is looking into both the NorthNet and Stic.net cases.
As negotiations continue, sources close to the dealings still believe a deal may be reached by month's end.
