Time Warner, AOL Strike Deal With EarthLink

Under pressure from government regulators, merger partners America Online Inc. and Time Warner Inc. said Monday they have cut a deal with EarthLink--AOL’s chief rival--to deliver high-speed Internet access across Time Warner’s cable wires.

The contract, set to take effect next year, is considered pivotal to winning government approval for the AOL-Time Warner deal. The agreement also could serve as a model for other cable networks in leasing their wires to unaffiliated Internet companies.

FTC commissioners are expected to review the terms of the EarthLink contract and announce a decision on the merger by Dec. 11, extending the previously set Nov. 30 deadline.

AOL-Time Warner officials now say they might not complete the deal until January, slightly longer than expected and a year after it was first announced.

Worried that a combined AOL-Time Warner might monopolize the Internet, antitrust regulators at the Federal Trade Commission have been pushing the companies to agree to lease their high-speed cable lines to rival Internet service providers, or ISPs. Earlier this month, FTC commissioners said they would not approve the merger until they could review at least one model contract with a rival ISP to ensure that the terms and prices were fair.

“The FTC wanted us to do an upfront open-access deal, and this addresses that concern,” said Ed Adler, a Time Warner spokesman.

The FTC’s tougher-than-expected stance on the open-access issue helped propel negotiations between AOL-Time Warner and Atlanta-based EarthLink, which is the nation’s No. 2 ISP with 4.6 million subscribers. The companies began talking earlier this year, but negotiations hit a wall in the summer, after Time Warner outlined how much it would charge rival ISPs to access its lines.

EarthLink and other ISPs complained loudly that the proposed terms--including a demand for 75% of the ISP’s subscriber revenue and 25% of its advertising and e-commerce revenue--were prohibitively expensive.

Neither Time Warner nor EarthLink would comment Monday on the revised terms, leading some critics to wonder how the deal could become the industry model that the FTC is hoping to establish.

“We can’t have the future blueprint for broadband Internet access be a state secret,” said Jeff Chester, executive director at the Center for Media Education.

Small ISPs worried that they might not receive the same terms offered to EarthLink.

“My concern is that AOL might make a sweet deal with a big company like EarthLink and leave us little guys in the dust,” said Ray Williams, president of CyberZone, a 5,000-subscriber ISP in Wisconsin.

Both Chester and Williams said they hope the FTC releases the details of the EarthLink deal so rivals can review the terms.

A spokesman for the FTC did not return phone calls Monday.

EarthLink officials said they were satisfied that the contract will allow it to compete with AOL in delivering high-speed Internet access on Time Warner cable wires.

“We negotiated long and hard with Time Warner, and came out with an agreement that we think is good,” said Dave Baker, vice president of law and policy at EarthLink. He declined to disclose the terms.

It was unclear whether the agreement covers access to interactive television or set-top boxes. Adler stressed that it only covers Internet access. But Baker said the contract will permit EarthLink to offer services “on a variety of devices,” though he would not comment specifically on interactive television.

AOL officials said they plan to continue to negotiate with other ISPs, though they would not say how many other deals they are working on. Earlier this year, AOL reached a preliminary agreement with Juno Online.

On Wall Street, where there has been growing concern about the delays in closing the deal, AOL shares fell 5%, or $2.47 a share, to close at $47.09. Time Warner shares also fell nearly 5%, or $3.34 a share, closing at $69.61. Both trade on the New York Stock Exchange.

The deal gave EarthLink stock a boost, with shares up 17%, or $1.20 a share, closing at $8.34 on Nasdaq.