Aol-Tw Faces Open Access, Divestitures

Television Digest with Consumer Electronics, Sept 11, 2000

AOL and Time Warner (TW) face likely imposition of open access mandates to gain federal regulatory approval of their merger this fall, cable industry observers said last week. They believe antitrust enforcers also may require TW to break its links to AT&T, including AT&T's minority stakes in TW and Time Warner Entertainment (TWE) subsidiary. They also said AOL could be forced to divest its $1.5 billion investment in DirecTV parent Hughes Electronics. Those expectations followed flurry of news reports that FTC staff attorneys were preparing to block AOL-TW deal unless companies agreed to open access mandates and other conditions.

Many industry observers said stories appeared to be part of campaign by FTC and FCC staffers to force AOL-TW's hand. Campaign comes after recent meetings between AOL and TW executives on one side and FTC and FCC

officials on other in which regulators spelled out their objections to merger and company executives balked. It also comes after European Commission (EC) officials outlined similar antitrust problems in confidential statement of objections. "It's called turning the heat up," Precursor Group CEO Scott Cleland said. "This is eyeball-to-eyeball time to see who blinks first."

As might be expected, biggest concern of regulators seemed to be holding AOL-TW to its commitment of carrying multiple ISPs on its high-speed cable lines, observers said. Although companies agreed to open up their lines to rival ISPs and TW signed carriage deal with Juno Online Services, regulators have asked how voluntary open access policy would be carried out, verified and enforced. "The FTC has raised serious issues," said Mark Cooper, research dir. of Consumer Federation of America, which wants open access mandates. "There's a lot of blood on the floor, but we are getting there."

Antitrust enforcers also appeared concerned about breaking remaining ties between AT&T and TW, nation's 2 leading MSOs. Observers saw regulators setting tough conditions on dealings between companies, virtually forcing AT&T to shed its separate minority stakes in TW and TWE. Antitrust officials already have taken that tack with Road Runner in AT&T-MediaOne deal, requiring AT&T to sell its inherited minority stake in high-speed cable ISP that TW co-owns. "The government wants them [AT&T and TW] to be competitors," Cleland said.

Spokesmen for both FTC and FCC declined comment on their separate but coordinated reviews of AOL-TW merger. But both indicated that their agencies still were on target to wrap up their reviews by mid-Oct. EC is aiming to complete its review by late Oct.

TW spokesman insisted that merger review was moving along smoothly. "Our conversations with the agencies reviewing our merger are proceeding well and have been constructive," he said. "We are on track to close in the fall." AOL officials concurred.

Despite some reports that Congress had been briefed on FTC's actions, leading members of House Telecom Subcommittee, which will hold hearing soon on merger, said they learned of staff conclusions from newspaper reports. "They have not been keeping us in the loop on this," said Ken Johnson, spokesman for Subcommittee Chmn. Tauzin (R-La.). He said if reports were meant to put added pressure on lawmakers to ask tough questions about competition issues at hearing, they hadn't succeeded: "All these arguments are pretty much yesterday's news... The FTC is not breaking any new ground." Spokesman for ranking Democrat Markey (Mass.) said FTC was "on the right track. They agree with us" on need for openness. He said he expected FTC findings to come up at upcoming hearing. ==================================================================