FTC to Broaden Investigation of Media Deal : Regulation: Agency seeks to determine whether a combined Time Warner-Turner would have too much control of cable market.

Urged on by telephone companies and consumer groups, the Federal Trade Commission is broadening its monthlong investigation of the proposed $7.5-billion merger of Time Warner Inc. and Turner Broadcasting System Inc.

Agency officials today will issue requests for extensive information not only to Time Warner and Turner Broadcasting but also to Tele-Communications Inc., the big cable operator that has a 21% stake in Turner.

The inquiries will be aimed at helping the FTC determine whether a combination of Time Warner and Turner would result in excessive control of the cable market because of the popular programming distributed by their vast cable franchises, which reach four out of every 10 U.S. households.

Turner has such cable networks as CNN, TNT, TBS and the Cartoon Network. Time Warner owns HBO and also is the second-largest cable company in the United States.

Experts say the requests could foreshadow a high-stakes bid by freshman FTC Chairman Robert Pitofsky to test his controversial antitrust theory that media mergers on the scale of Time Warner and Turner should be judged differently from other kinds of combinations.

“Because I think decentralization in the media is central to a democratic society, I think you might want to pay more attention to mergers in the book . . , magazine, newspaper or electronic media” industries, Pitofsky said in a recent interview.

“You still have to prove [a media mega-merger] illegal under antitrust law,” Pitofsky added. “I’m just saying you have to give it more careful review.”

Pitofsky, a former Georgetown University law professor who took over as FTC chairman in April, has signaled that he intends to conduct a rigorous review of the proposed merger. In the end, the agency could approve the merger, sue to block it or request that it be restructured to pass legal muster.

The FTC will most likely focus its closest scrutiny on the role played by TCI, whose 12 million cable subscribers make it the largest cable provider in the nation. Time Warner ranks second with 10 million subscribers.

Many industry observers now believe that the merger will have to undergo some restructuring, which could jeopardize the deal. John Malone, chief executive of TCI, in effect has veto power over any proposed changes in the agreement.

TCI has agreed to exchange its 21% interest in Time Warner for a 9% stake in the new merged company. The company further proposes to put its Time Warner shares in a voting trust controlled by Time Warner Chairman Gerald M. Levin in order to comply with a federal rule barring a single company from controlling cable systems that reach more than 30% of the U.S. market.

Nevertheless, telephone company representatives and consumer groups such as Consumers Union have complained to the FTC that new video entrants would be at a competitive disadvantage in an already heavily concentrated cable industry. They are especially concerned about a provision in the deal that grants TCI’s cable systems the right to receive Turner programming at a discount for up to 20 years.

Other cable companies also have criticized the arrangement as a sweetheart deal for TCI not available to other operators.

The discounts, which appear to be at odds with a federal cable law requiring that cable programming be sold on a non-discriminatory basis, would put new video rivals at a competitive disadvantage, critics complain.

“This is a potential way to get around the Cable Act,” said Gene Kimmelman, co-director of the Washington office of Consumers Union, who helped spearhead passage of the 1992 federal law toughening cable regulations.

“If Hughes [Communications] or a Bell company comes in and says to Turner, ‘I want the same price that Malone is getting,’ I think Turner will argue that they and Malone don’t have a straight programming deal,” Kimmelman explained. “I think they will argue that it was a special arrangement made as part of the sale of Turner assets to Time Warner and not a programming contract.”

Time Warner officials have argued that the arrangement with TCI is primarily a volume discount that benefits both parties.

But the TCI discount “doesn’t appear to be based simply on volume; it appears to be based on relationships--and that gives us some concern,” said Robert Barada, vice president of corporate strategies and development for Pacific Telesis Group’s video programming venture Tele-TV.

A TCI spokeswoman said her company remains “in support of the merger” but that it would not otherwise comment on the deal.

Time Warner officials could not be reached Wednesday.

A Turner spokesman would not comment, but released a statement saying the company remains “quite confident the deal will be approved.”

Most telephone companies are gearing up to transform their networks into lucrative video franchises where consumers can order movies and other video fare over phone lines. Some experts believe phone companies don’t actually want to stop the Turner-Time Warner merger altogether but simply want assurances from federal regulators that they will have access to programming.

“I think the telephone companies just want to build safeguards into the availability of content,” said William N. Deatherage, a telecommunications analyst for Bear Stearns & Co. Inc.

Deatherage noted that some phone companies have already formed alliances or joint ventures--Nynex with Viacom, MCI with News Corp.--so that if anyone tries to monopolize video programming, “they can fight fire with fire.”