FCC gives conditional approval to AOL-Time Warner merger

The Federal Communications Commission gave conditional final approval to the merger of America Online and Time Warner, which will create the world's biggest media entertainment group, FCC chairman William Kennard announced.

Kennard said the approval, which came after weeks of negotiations, was effective January 11. But he warned that, "This link between these two giant companies, the number one and the number two cable operators in the country, raises some competitive concerns."

The Federal Trade Commission gave its approval to the merger last month, leaving the FCC as the last regulatory agency to review the case.

The transaction, worth 155 billion dollars at the time of the announcement, is now estimated at 127 billion-dollars based on current stock prices. It was approved last year by European regulators.

"This is a historic moment for consumers everywhere, and a tremendous step toward our goal of becoming the world's most respected and valued company," AOL Time Warner Chairman Steve Case said.

"AOL Time Warner will lead the convergence of the media, entertainment, communications and Internet industries, and provide wide-ranging, innovative benefits for consumers," he added.

The FCC announcement came after the markets closed, but shares for both companies posted gains Thursday: Time Warner gained 4.19 dollars to close at 71.19 dollars, while AOL rose 2.34 dollars to 47.23 dollars.

According to Kennard, the FCC examined concerns over the future of the instant messaging system, which AOL/Time Warner is likely to dominate, as well as competing broad-band Internet service providers' (ISPs) ability to access Time Warner's cable systems.

He said the FCC also took a hard look at the issue of interactive television but decided "not to impose specific conditions involving interactive television."

He warned, however, that, "The potential for discrimination in the interactive television marketplace bears watching and we have begun a proceeding to explore the need for the FCC's involvement in promoting competition in this developing service."

Under terms for the approval, AT and T, which has a 25 percent share in Time Warner, must divest itself of its interests in Time Warner Entertainment, the FCC ruled.

AT and T Corp and AOL/Time Warner are also prohibited from entering into any agreement under which any AOL/Time Warner ISPs would have exclusive high-speed Internet access to any AT and T cable system.

Other FCC provisos include:

- proof from AOL that it "interoperates" with competing instant messaging providers before it can offer video conferencing;

- protective measures by the FCC to ensure clients get "fair and open access" to Time Warner's cable system.

"The power of these players is immense and so is the potential for anti-competitive behavior. Therefore, I only voted to approve the merger because of the conditions we impose," Kennard added, citing AOL's current 26 million members worldwide.

"I am confident that by balancing both the benefits and the potential harms of this merger we have come up with a set of conditions that clearly furthers the public interest and will ensure that as we move into this new age of the Internet that the interest of consumers are protected," he added.

While the five-member commission gave unanimous approval, conditionally, to the merger, he noted that two commissioners had dissented "on the imposition of any conditions to our approval."

The deal had raised numerous objections from critics who claimed a merged AOL Time Warner would have too much control over Internet and cable television as well as the "content" delivered over the networks.

The new media powerhouse will control the largest share of US internet services (46 percent), entertainment (23 percent) and magazines (39 percent), and the second largest share of cable (19 percent) behind AT and T (23 percent), according to data provided by The Washington Post daily.