ACCESS ISSUES WON’T DERAIL
AOL-TIME WARNER DEAL
"There was never any question the deal would go through," said Jeff Chester of the Center for Media Education, one of the four groups that filed objections to the merger. "The only question is what safeguards will be in place."
As has been widely reported, including in this very space yesterday (hitsdailydouble, 9/6), officials at both the Federal Communications Commission and the Federal Trade Commission have raised concerns about the merger. Stories in the Washington Post and Wall Street Journal yesterday that detailed the FCC and FTC's concerns over the deal, in fact, caused stock in both companies to fall: AOL stock fell 44 cents, to $57.06; Time Warner fell $2.88, to $81.50.
Stories in today's Wall Street Journal and New York Times emphasized the fact that while there may be conditions put upon the merger, they would not be so restrictive as to derail the deal. Even the European Commission's concerns over the merger (hitsdailydouble, 9/6) appear to pose little threat to the deal.
"It is still possible that the regulators will impose some conditions," wrote Merrill Lynch analyst Henry Blodget in a note to clients. "But we do not expect such conditions, if any, to impact the financial performance or strategy of the company."
The main issue is access, especially cable Internet access. America Online has 24 million members; Time Warner's cable systems are available in 20 percent of the country's homes. Critics are concerned that the combined company could dominate not only consumers' ability to access the Internet but also the evolution of the Internet.
The FTC has suggested that the AOL-Time Warner merger could violate antitrust laws because of the marriage of these two dominant positions. As a result, the FTC is likely to demand that the combined company provide "nondiscriminatory access" to competitors. It is a claim that Time Warner officials do not believe the FTC could support, primarily because of the many competitors to cable access in the Internet access market, namely old-fashioned "dial-up" services, DSL lines and the burgeoning satellite market.
The access issue goes beyond simple Internet access, however. Some have suggested that AOL divest its 5 percent, $1.5 billion stake in Hughes Electronics, the parent company of satellite provider DirecTV. Others have voiced concern over AOL's domination in the instant-messaging game, the impact the merger would have on interactive TV services and whether plain old cable channels would be pushed out of the mix once the merged company started flexing its muscles.
But the companies have pointed to deals like that made with Internet service provider Juno, which struck an access deal with Time Warner, as proof that the industry giants are committed to open access.
However, that deal isn't finalized yet, primarily because Time Warner still has a restrictive deal with cable Internet provider Road Runner (jointly owned by AT&T and TW). And Juno said yesterday that it hoped to pay the same price for access to Time Warner cable lines as AOL ends up paying.
"In the absence of genuine competition," asked Juno Chief Executive Charles Ardai, "what assurance can a purchaser like Juno have that they will make rates competitive over time?"
And Walt Disney (the company not the flash-frozen animation pioneer) has been concerned that lucrative channels such as its ESPN cable sports networks might lose out to AOL-TW competitors such as the CNNSI network. Disney lobbyist Preston Padden has been pushing for government intervention in the merger since July (hitsdailydouble, 7/20).
"There is a big difference between an honest, nondiscriminatory, government-mandated open access on the one hand and a private deal you've negotiated when you have all the leverage," Padden said.
But despite all the flap and all the concern, AOL and Time Warner officials are still pressing on, full speed ahead. "We are confident that we will successfully address all of the issues that have been raised in the review and we are on track to close in the fall," said a Time Warner spokesman.
"Right now there's a lot of noise around the progress of the merger closing process," said Merrill Lynch's Blodget. "People tend to forget that all of this was expected and is totally par for the course."
