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AOL-TW: The fire below

With the mergers of AT & T-MediaOne Group and Viacom-CBS all but assured, federal regulators are turning their attention to a deal that may make these mega-unions look easy: the combination of Internet-access king America Online and cable giant Time Warner.

It may seem odd to predict a bruising battle, given that a mere seven companies have commented officially to the FCC. Of those airing concerns publicly, the largest is SBC Communications.

Joining the $49 billion telecommunications conglomerate was a motley assortment of companies, including a cable overbuilder, a municipal utility, an electronic program-guide maker, online music purveyor and instant-message software maker-each with a huge grudge against AOL or Time Warner.

Also weighing in were consumer groups and a trade group for small cable systems.

But behind the scenes, major content providers such as Disney are pressing FCC and Federal Trade Commission officials to prevent AOL-Time Warner from getting so firm a hold on the broadband and cable worlds that the company would have undue power to dictate which content is readily accessible to consumers and to set industry prices.

Consumers Union and other public advocacy groups say they are privately being urged by the content makers to fight for conditions that would at least restrain the growing giant.

Most troubling to critics are the corporate ties to AT & T-MediaOne that would result. Opponents say the merger would lead to almost 60% of multichannel subscribers' being under the control of "conjoined" companies that will eventually have to split apart.

"We're trying to stop what will lead to a new Microsoft-type monopoly and avoid the pain and agony of breaking it up," said Media Access Project President Andrew Schwartzman.

Consumer groups and would-be competitors are clamoring for the FCC and the FTC-absent outright rejection-to force the new company to open its high-speed broadband lines to rivals, sever ties with AT & T-MediaOne and forbid Time Warner-linked cable networks from cutting off programming to rival cable systems.

The brunt of the review may fall on the antitrusters at the FTC. The FCC, which simply oversees telecommunications licenses, has no clear authority to restrict an Internet company with no direct control or any cable permits.

Although FCC officials share concerns about a merger of the world's largest Internet-service provider with the country's fourth-largest cable system and second-largest cable broadband network, the agency has no clear authority to impose the conditions demanded. AOL-Time Warner officials have promised a big legal fight if the agency tries to justify a move on its vague but broad authority to act "in the public interest."

Critics say the FCC should use the muscle that forced strict rules on Bell Atlantic-Nynex and SBC-Ameritech. FCC staffers say they are exploring that avenue.

"The commission's ability to impose conditions on a proposed merger which threatens to harm consumers is clear," wrote Internet provider and cable overbuilder RCN Telecom services.

Merger critics are demanding the following conditions:

  • AOL sells its stake in DirecTV to prevent favoritism in the satellite TV market.
  • Time Warner sheds its 45% stake in cable broadband provider, Road Runner.

  • AT & T's Liberty Media sells its 9% passive ownership in Time Warner Inc.
  • AT & T spins off its 25% share of Time Warner's cable subsidiary if divestiture is dropped from the AT & T-MediaOne deal.
  • Program access rules are tightened so AOL-Time Warner can't withhold local sports networks and other important programming from competitors.
  • The new company is barred from requiring carriage of AOL Internet services as a condition of access to cable programming.
  • Time Warner is prohibited from blocking transmission of competing on-screen program guides.

AOL officials dismiss suggestions that AOL-Time Warner poses a threat to consumers and deserves any conditions.