FCC Set to Act Quickly on AOL-Time Warner
The Federal Communications Commission, whose broad powers over communications deals could sink or constrain America Online’s ambitious effort to acquire Time Warner, is set to give swift approval and impose only minor conditions on the deal.
The five members of the agency--some of whom worked closely with the Federal Trade Commission during its antitrust examination of AOL-Time Warner--are already studying a “complex” staff recommendation that calls on AOL to open up its instant-messaging systems to rivals.
“We expect to act expeditiously,” said FCC spokeswoman Michelle Russo.
It is unclear how far the recommendations go in prodding AOL, whose Instant Messenger and ICQ systems together have about 138 million registered users, but are not compatible with similar systems run by Microsoft Corp. and Yahoo Inc.
Under one preliminary FCC staff proposal developed during the summer, AOL would have to open its instant-messaging service to outsiders six months after FCC approval of the deal, or as soon as AOL developed a way for its two instant-messaging services to interact--whichever came first.
But that proposal was tabled after the agency suspended its review of the deal until the FTC acted. The FCC staff now is recommending that the agency simply monitor the instant-messaging market. That outlook could change as critics and opponents turn their lobbying efforts on the FCC in the coming weeks. AOL Chairman Steve Case visited the agency last week.
Neither FCC nor AOL officials would comment for the record. FCC commissioners could reject, modify or endorse the staff proposal. FCC approval would mark the final regulatory hurdle for AOL-Time Warner, whose deal has already been reviewed by antitrust authorities in Europe as well as the FTC.
Though little-known outside the largely youth and tech audience, instant messaging is viewed as a potentially lucrative franchise. The technology is like a modern version of the old telegraph machine--allowing users to exchange private chat messages in real time with friends and others connected to the Internet.
AOL and Time Warner are expected to integrate instant messaging with interactive TV--services that Merrill Lynch & Co. estimates could eventually deliver AOL profits of as much as $300 million a year.
AOL already has proved too powerful a rival for Andover, Mass.-based CMGI Inc., which earlier this month shut down its Tribal Voice instant-messaging service and a second related venture rather than compete with AOL, Microsoft and Yahoo.
The FCC’s reluctance to place broad restraints on AOL and Time Warner also could prove to be a big blow to AT&T; Corp., which is finishing up some FCC regulatory housekeeping stemming from its $54.7-billion purchase of MediaOne Group Inc., which owns a piece of Time Warner Entertainment.
The long-distance giant had hoped the FCC would use the AOL merger review to pressure Time Warner to give AT&T; better terms for selling off a 25% limited partnership interest in Time Warner Entertainment.
The FCC has ordered AT&T; to reduce its ownership of cable content to comply with federal limits.
Today, AT&T; is supposed to tell the FCC how it plans to accomplish that. The company must either shed 11% of its cable subscribers, sell off its Liberty Media Corp. unit and other programming interests, or end its Time Warner Entertainment partnership, which controls about 15% of the nation’s cable subscribers.
AT&T; is expected to offer to sell off Liberty Media to comply with the rules. But some critics say that doesn’t go far enough. They say AT&T; must also sell its interest in Time Warner Entertainment.
“If the FCC doesn’t force AT&T; to sell off TWE, we will sue,” said Andy Schwartzmann, executive director of Media Access Project, a communications watchdog group.
Many legal experts have questioned whether the FCC can broaden its sell-off requirement. They also doubt the agency has broad authority to regulate instant messaging, which is controlled by computer software that is not subject to federal licensing or regulation.
In addition, AOL and Time Warner have proved to be tough negotiators, industry sources said. The two companies repeatedly told the FCC that it was premature for the agency to interfere with the instant-messaging market or to put restraints on nascent interactive TV technology.
“AOL is saying, ‘Why should we be forced to open up a service that we pioneered?’ ” said Robert Hertzberg, an analyst at Jupiter Research. “AOL may not have found a big way to capitalize on instant messaging yet, but it doesn’t mean that they won’t. Any time you own a [popular technology], there’s an opportunity to monetize it. And AOL has proven brilliant at that.”
