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While AOL and Time Warner made concessions to European antitrust regulators in the area of digital-music distribution and links with online service-provider rivals in Germany and France, they did little to address some U.S. industry concerns.

EU EXECUTIVE BODY OK'S AOLTW

It’s Official, We Can Now Drop The Hyphen…
At Least In Europe
As expected, the European Union's executive body Wednesday conditionally approved AOL's $129 billion acquisition of Time Warner, allowing the proposed mega-company to clear the first in a series of hurdles it must jump to gain acceptance.

The two companies will have to divest themselves of certain European businesses. AOL will dissolve its European partnership with the German company Bertelsmann, which owns half of AOL Europe, the report said (hitsdailydouble.com, 10/10). Furthermore, AOL has promised to revamp the shareholding structure of AOL France, which is jointly owned by the French media company Vivendi.

Even though the deal will pass Euro regulatory approval, it doesn't mean it is in the clear, especially in the United States.

While AOL and Time Warner made concessions to European antitrust regulators in the area of digital-music distribution and links with online service-provider rivals in Germany and France, they did little to address some U.S. industry concerns, including dominance or potential dominance of the growing markets for Internet instant messaging and set-top boxes for interactive television, the Wall Street Journal said.

Those two issues, along with concerns related to the high market shares of AOL and TW in U.S. Internet and cable services, respectively, remain at the center of continuing reviews by the U.S. Federal Trade Commission and Federal Communications Commission.

The main regulatory issues in the U.S. are the terms of access to Time Warner's high-speed cable lines for AOL's competitors.

Another question that could hold up the merger relates to regulators' potential demand that Time Warner end its relationship with AT&T, which owns 25% of Time Warner Entertainment. AT&T disclosed that it is urging federal regulators to force the sale of its stake in the cable partnership as part of the FCC's approval of AOLTW. The disclosure is part of an increasingly bitter, private dispute between the cable-industry companies over terms of AT&T's exit from the partnership, a stake AT&T acquired when it bought MediaOne Group last year.

On the issue of AT&T, U.S. regulators and lawmakers have expressed concern about future ties between AT&T and a merged AOL-Time Warner, because the companies would control half of the cable lines in the country. AT&T apparently is seeking to use those concerns to gain leverage in its talks with Time Warner to leave the partnership.

Time Warner Entertainment owns most of Time Warner's cable systems, with more than 12 million subscribers, as well as some programming assets.

Talks aimed at restructuring or ending the agreement are unlikely to be successful, AT&T said in an FCC filing Tuesday. An alternative plan for AT&T to sell its shares to the public couldn't begin in time to meet an FCC-mandated deadline for AT&T to reduce its cable holdings by next May.

"In the absence of a negotiated settlement between the parties, which appears unlikely, the only alternative to the uncertainties created by [a public offering] would be an obligation on both parties to ensure the fair and timely termination of the partnership," AT&T's general counsel, James Cicconi, told the FCC.

The FCC is expected to approve the merger, with some conditions, by the end of the month. The FTC is seeking further-reaching restrictions to protect competition in the market for high-speed, or "broadband," Internet access. The FTC is expected to act by the end of the month if the two sides can agree on terms of a settlement.

During today's Yahoo!-related stock market bloodbath, AOL closed down $2.74 at $54.50 and Time Warner was down $3.71 at $81.39.

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