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FCC, FTC EXPRESS CONCERNS
OVER AOL-TW MERGER

Our Merger Story Has More Acronyms
Than Betty Crocker’s Got Cakes!
Attorneys for the Federal Trade Commission have expressed concerns that the America Online-Time Warner merger would create a media juggernaut that could control the Internet.

According to the Washington Post, the FTC is prepared to block the proposed merger unless the companies agree to keep their high-speed cable lines open to competing entertainment and online companies. The FTC voiced concerns especially over certain markets where Time Warner operates cable systems without viable competition to its Internet cable access.

As the Post reported, this is by no means a deathblow to the merger deal. Discussions are expected to continue until some compromise is worked out that satisfies FTC concerns about consumer choice and meets the companies' goal of preserving their options.

"This is an early point of the process and the decision is up to the commission and obviously these discussions are part of the process that could lead eventually to action by the commission," said FTC spokesman Eric London.

Time Warner and AOL officials have pointed to the deal recently struck to open TW cable lines to Juno Online Services, the third largest ISP behind AOL and Earthlink, as proof that the combined companies are committed to a policy of open access. Along those same lines, AOL chief steve case',390,400);">steve case',390,400);">Steve Case and Time Warner chief gerald levin',390,400);">gerald levin',390,400);">Gerald Levin, in February, signed a nonbinding "memorandum of understanding" pledging to open their cable systems to competitors.

Also at issue here is AOL's $1.5 billion stake in satellite giant Hughes Electronics Corp., a unit of General Motors Corp., which the FTC has considered requesting AOL divest as a condition of merger approval.

In addition, the Federal Communications Commission is investigating AOL's relationship with Hughes and, earlier this summer, requested that AOL detail its strategic alliance with the satellite company. AOL, which has just begun to offer DSL service in selected markets, is expected to roll out Hughes' satellite service to many of AOL's 26 million online subscribers this fall. The roll out is part of the company's AOLTV interactive television service.

In contrast, AOL's chief interactive TV rival Microsoft has invested $50 million in a joint venture with EchoStar Communications, the number two satellite broadcaster, and Gilat Satellite Networks to provide Internet access and TV programming under its WebTV brand.

Satellites represent a small but growing form of wireless Internet delivery and an alternative to land-based broadband delivery such as DSL or Internet cable. Industry experts have speculated that the copper wires used for DSL service are too thin to adequately transmit the images necessary for services such as interactive television. Which makes the Hughes alliance such a point of contention.

Hughes' DirecTV service currently has about 8.7 million customers—roughly two-thirds of the U.S. satellite TV market—although, according to industry analysts, that number is expected to reach 10 million by the end of the year.

It is interesting to note that before it stood to become an owner of a cable Internet system, AOL was one of the staunchest advocates of a law that would force cable companies to provide "open access" to multiple companies.

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