FTC rejects Liberty petition

It looks like Liberty Media Corp. won't get to buy more AOL Time Warner
Inc. stock or exercise control over the stock it already owns.

In a 5-0 decision, the Federal Trade Commission has rejected Liberty's
request that it be disentangled from conditions put on the merger of Time Warner
Inc. and Turner Broadcasting System Inc. in 1996.

Those conditions required Liberty to put the Time Warner stock it received as
part of the merger into a separate company. Only that company -- with a board
and directors verifiably independent of either Liberty or then-parent
Tele-Communications Inc. -- could vote the shares or acquire more, both of which
Liberty had sought to do in petitioning the FTC to set aside the order.

Liberty had argued that it should no longer be a party to the conditions
because it had been an independent company since August 2001, when it was spun
off from TCI successor AT&T Corp.

Liberty had been included because the FTC feared that the horizontal and
vertical alliances among Turner, Time Warner and TCI -- which owned both
big-league cable programmer Liberty and a piece of Time Warner -- would
"restrict competition among cable programmers."

Liberty contended that the split-off represented a break in the "linkage" and
a "change of fact."

The commission responded that for any change in the order based on a change
in fact, Liberty would have to demonstrate both that it had exited the market --
in this case that TCI and Liberty had severed their ties, which the FTC accepted
on its face -- and that it has "a present intention not to re-enter that
market." The FTC was not convinced of the latter.

Liberty did not address that issue in its initial petition and, when pressed
by the commission, responded in an April 30 letter that while it has no current
plans, "this fact is simply not relevant." The FTC disagreed.

In any event, the FTC said, there was no reason to believe that its
vertical-integration concerns about Liberty had changed.

"The commission concluded that Liberty's ownership interest in Time Warner
could reduce TCI's incentive to open up its systems to non-Time Warner
programming," the FTC said in its July 17 letter to Liberty. "Your petition has
provided no basis for concluding that similar ties between Liberty and other
cable systems would not produce this same distortion of incentives."

Mike Erickson, vice president, investor relations, for Liberty responded: "We
are evaluating the FTC's decision and, after such evaluation, will determine
what the next steps might be."

According to the FTC Competition Bureau's Roberta Baruch, those steps could
include appealing the decision or filing a new petition, without prejudice,
containing additional supporting arguments.

Liberty could, of course, also simply accept the decision.

John Eggerton

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.