AOLTW FACES OFF AGAINST U.S., EURO REGULATORS

The top executives of AOL and Time Warner continued their bi-continental attempts to gain acceptance on their proposed $129 billion merger, meeting with federal regulators here in the States and presenting a list of concessions to the European Commission over in the Old Country.

According to published reports, Federal Communications Commission chairman William Kennard said today that the FCC would make a decision in less than 30 days. Speaking to the press during a trip to India he said, "It is a convergence merger. We've not seen anything like this before."

On Thursday (9/21), AOL and TW submitted formal concessions to the EC in an attempt to win approval for their merger. The EC confirmed it received the companies' one and a half page document, which outlined four steps they planned to take to address the concerns raised by the commission, primarily the concern that the merged company would dominate the distribution of entertainment over the Internet.

The commission's concerns have been compounded by the pending $20 billion Warner Music Group-EMI merger, Reuters reported today. Sources said a decision by the EC on the merger of the muisc giants will come down in the coming week. A highly placed insider told hitsdailydouble.com that no one really knows what is going to happen, and that anything that has been reported is purely speculative.

"We received undertaking from the companies," EC spokeswoman Amelia Torres said. "I am not going to say anything on what the undertakings are about or whether they elaborate on previous undertakings. We will have to wait for the commission to examine those proposals and we have to wait for the final decision, which must be taken before Oct. 24.

According to sources, the concessions presented to the EC included a promise from Germany's Bertelsmann AG to "progressively exit" from AOL Europe (in which it holds a 50% stake). The companies will "put measures in place" to ensure Bertelsmann does not have any control of the venture while its share is bought out. The move would sever a potential link between the proposed Warner-EMI entity and BMG.

AOL also proposed taking similar measures to change the shareholding structure of AOL France, which it jointly controls with Vivendi, another company currently under EC scrutiny because of its proposed merger with Seagram.

Time Warner has promised it will not discriminate against non-AOL affiliated Internet service providers for five years after the deal is sealed. (Warner Music and EMI have made a similar five-year concession, offering to make their music compatible with at least three software music players not owned or controlled by them selves or AOL.)

AOL has also pledged that it will not force content providers wanting to sign a deal with AOL in the U.S. to make the same commitment to AOL Europe, for three years after the deal anyway.

Critics have pointed out that the concessions offered are very similar to those made earlier in the process, but EC spokeswoman Torres hinted at changes. "You don't suddenly resubmit the same thing you've proposed before, do you?" she asked. "What's the point of that?"

One official at a company opposed to both the AOL-TW and Warner-EMI deals called the remedies an insult. "The address none of the commission's concerns, nor those of third parties," he said. "For one thing, they only deal with music. What about all the other content transmitted over the Internet? This is wholly unacceptable."

The commission has not yet responded formally to AOL's proposal, which will be circulated to interested third parties and EU member states in the next few days. A ruling is expected by the EC no later than Oct. 24.

On this side of the pond, AOL's Steve Case and TW's Gerald Levin met with members of the Federal Communications Commission Tuesday (9/19) and the Federal Trade Commission Wednesday (9/20), the Wall Street Journal reported. Citing participants, the paper said the power couple discussed regulators' concerns about providing high-speed Internet access to rivals on TW's cable lines, as well as Internet "instant-messaging" and interactive television markets (hitsdailydouble, 9/5, 9/21).

The regulatory agencies are expected to impose conditions that would require AOLTW to offer access to rival Internet services through TW's high-speed cable lines. The FCC also is considering conditions that would open AOL's Internet instant-message services and interactive-television systems to competitors.

The FTC has signaled that it might go to court to block the merger if the companies don't agree to conditions that would limit their market power, people who have been briefed on the talks told the Wall Street Journal. Commission staff members already have interviewed potential witnesses for such a case, but the FTC hasn't decided how to proceed and has continued settlement discussions with AOL. For its part, the FCC has been expected to approve the merger, the paper said.

Meanwhile, the FCC dismissed said speculation about its review of the mammoth merger.

"Any media stories about potential staff recommendations or draft reports can only be based on incomplete and speculative analysis and do not accurately reflect the decision-making process at the FCC," the agency said in a statement that responds to media reports.

The agency hasn't delivered any recommendations to the five commissioners, meaning the tentative conclusions in a report may change substantially before the FCC acts.

Analysts expect the FCC's decision to be the final government action on the transaction. "The FCC at the staff level has been tougher on mergers than the commissioners themselves," Paul Glenchur, an analyst with Schwab's Washington Research Group, told Bloomberg News. "Given that precedent, I think it makes sense to be cautious here and not jump to conclusions about the commission's final outcome."