AOL, Time Warner Make Merger Case Before FCC

Today, Steve Case said that if AOL and Time Warner are allowed to merge, "We will use our leadership to build a better world." The hearing exposed divisions between FCC Chairman William Kennard and Commissioner Harold Furchtgott-Roth.

by Patricia Fusco
of internetnews.com

The chief executives of the much maligned America Online, Inc. and Time Warner, Inc. Thursday attempted to convince federal regulators that approving the deal would accelerate the deployment of broadband services in the U.S., not create a monopoly.

The FCC en banc hearing, a rare gathering of all five commissioners to question witnesses, is utilized when the regulatory body needs to carefully examine an issue that merits unusual scrutiny. Recent mergers of several large telcom mergers received the same type of full regulatory review.

After establishing the federal agency's jurisdiction to review the $150 billion merger, William Kennard, FCC chairman said he believes all parties concerned want access to the broadband cable platform.

"I believe that the promise of the Internet is in its remarkable openness it embodies," Kennard said. "I am so concerned about this issue of access to the cable broadband platform that debate today should not be able attaining that end, but the means of how the promise of broadband Internet access will be fulfilled, by regulatory or by market forces."

Dissenting opinion
Commissioner Harold Furchtgott-Roth repeated his position that the FCC does not have the authority to review any merger beyond transfer applicable license transfers. Deferring to the Department of Justice for merger review. Furchtgott-Roth said the debate was an expensive opportunity for America Online and Time Warner to beg for regulatory approval of the deal.

Arguing the freedom to innovate line
During the hearing, Steve Case, AOL's chairman and chief executive officer, said the merger would benefit consumers and serve the public interest.

"What this merger will mean for our companies and consumers is that, together, AOL and Time Warner will build a company that will take the Internet to the next level," Case said.

"Our commitment to consumer choice and competition will help lead our industry forward to a second Internet revolution reaching as many people as possible as quickly as possible," Case added. "The merger will drive Internet development through competition, offer the greatest variety for consumer choice, and build a truly global Internet community."

"We will use our leadership to build a better world," Case said.

Gerald Levin, Time Warner chairman and chief executive said expanding consumer choice is the heart of its corporate identity.

"The new networks we've developed have enriched peoples options for programming," Levin said, "and the billions of dollars we've spent on building our cable network to carry more and more channels and break open the television universe."

"The public will benefit from the new company's ability to offer diversity in interactive television content, offer multiple ISP access over our Road Runner service, forcing other cable operators to follow suit, and deliver broadband services that will break down the digital divide," Levine said. "The Internet is the technology of human freedom."

What do we want? Respect!
Levine told Kennard that the merged company would work to open barriers to cable access before the exclusive nature of its alliances expires in 18-months. He said the recently announced Ohio trials of shared cable access should be ready for review by the end of the year.

Levine invited all ISPs to start making arrangements to carry its broadband cable services now. He said Time Warner could make diversity happen faster than Excite@Home. Levine added that a new agreement to provide cable broadband transport would be made public soon.

"Multiple ISPs are necessary for our revenue growth in every market we compete with digital subscriber line services," Levine said.

When do we want it? Right now!
Esther Dyson, EDventure Holdings, Inc. and ICANN chairperson said consumers can only exercise choice and force rivals to compete when they are informed of their options.

Dyson said she supports the merger because AOL has a history of driving the market and its Web content faces stiff competition.

"The role of the government should be to let this merger go forward, but to raise concerns about what it will watch for to keep the Internet open," Dyson said.

At the same time, Dyson cautioned the FCC about AOL's ability to direct uninformed consumers toward favored links.

. . . and a level playing field
Prof. Barry Nalebuff, Yale School of Management asked that the FCC level the regulatory playing field between coax and copper broadband systems, noting that highly regulated business cost consumers more, while market forced keep pricing competitive.

"We see Time Warner trying to exit contracts it was happy to make two years ago which we see today were not in their best interest nor the public interest," Nalebuff said. "I suggest we play closer attention to these types of contracts. Contracts are a way to change the rules of the game, that's when we should be thinking about the consequences of that."

There are many opponents to the AOL, Time Warner merger. The Walt Disney Co. and NBC fear that combining the largest Internet service with Time Warner's cable systems and a expansive content library would allow a merged super-company to monopolize the burgeoning broadband market.

Disney and NBC want federal regulators to require that AOL and Time Warner split their operations into two companies, one to control content and another to oversee cable systems.

AOL and Time Warner executives reject Disney's and NBC's fears, arguing that the companies are committed to carrying non-affiliated programming and opening up the cable systems to other Internet service companies.

Consumer groups question AOL's commitment to open access for their Time Warner acquired high-speed cable lines. The Consumer Project on Technology planed to stage a protest in front of the FCC to highlight its concern that the merged company will close the Internet.

AOL's Case said it would not limit member's Internet experience by programming routers to prioritize its services over competitor's content, as the CPS alleged.

"AOL would never work to diminish our member's Web experience," Case said.

There will be a delay. . .
Dr. Mark N. Cooper, Consumer Federation of America research director, said unless the FCC provides some guidance from the control tower, consumers are going to be stuck at the gate.

"Absent sound FCC policy, the exclusive deals and proprietary barriers to competition that are being imposed on the broadband Internet industry will drive it further down an anti-competitive, anti-consumer path that falls somewhere between the cable TV and airline industry models," Cooper said.

Both Case and Levine cited market pressure and consumer demand as the dual forces that would work to open competition among broadband service providers.

"Businesses are rushing to deploy wireless, satellite, and wired broadband services in pursuit of opening new revenue streams," Levine said. "All these competing forces is good news for public interest."

Jeffrey Chester, the Center for Media Education executive director said the new conglomerate would set for a closed, proprietary broadband delivery system and act as a gatekeeper to the Internet.

"If, as AOL's Steve Case suggests, this merger signals the start of the 'Internet Century,' Chester said, "Chairman Kennard and the FCC must set the appropriate tone for that new era by ensuring the basic ground rules of fair play and competition."

Commissioner Gloria Trisani cued into the instant messaging debate, criticizing AOL for its propriety service that has sparred with companies like Tribal Voice, Inc. and MSN Internet over access to servers and users.

A litany of instant messaging firms insist that AOL's actions to bar access to its instant messaging services is an indication the firm would act in the same manner to lock-up the broadband market, should the merger be approved without restrictions.

Case said more than 40 companies provide similar services because of AOL's advances in instant messaging. He said the issue was troubling because AOL is working with the Internet Engineering Task Force to permit server-to-server interoperability.

"AOL has demonstrated its dedication to making instant messaging systems interoperable," Case said. Microsoft Corp. launched its instant messaging 10-months ago and they have 18 million users. AOL instant messaging is hardly a non-competitive force."

While the merger debate rages on, AOL and Time Warner made a solid case for the FCC's approval of the corporate marriage. What strings the federal regulatory may attach to the deal remain to me seen.

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