FTC Drafts Case Against AOL-Time Warner Deal

Federal Trade Commission attorneys are preparing court documents to block America Online Inc.’s takeover of Time Warner Inc. as the two sides remain apart on the exact language of a guarantee allowing rivals access to the combined company’s high-speed Internet service, sources familiar with the talks said Friday.

The sources said both sides are digging in their heels as an Oct. 27 deadline approaches for the FTC to rule on whether it will approve the merger. An agreement is still possible, and the companies could ask for a delay to gain more negotiating time, as they have done previously.

But those familiar with how the FTC works said it would be a mistake to discount the prospect of litigation.

“Unless a firm settlement is in place, the government can be expected to go to trial so as not to be left unprepared or without a remedy,” said attorney Kevin Arquit, former director of the FTC’s Bureau of Competition, which is leading the merger review. “It’s not posturing. That’s what they would do.”

The FTC remains dissatisfied with the memorandum of understanding that AOL and Time Warner submitted to regulators on March 1, pledging to give rivals access to Time Warner’s cable lines for high-speed Internet service. The two sides are wrestling over the language of an open-access guarantee, sources said.

Opponents of the merger fear that consumer choice on the Internet will be restricted if AOL, the world’s dominant Internet service provider, is favored by Time Warner, the nation’s second-largest cable provider. Time Warner’s cable system reaches nearly a fifth of all U.S. cable subscribers.

FTC spokesman Eric London declined to comment on the matter. AOL, which won merger approval from the European Commission earlier this week, was upbeat about its talks with federal regulators.

“We are continuing to have constructive conversations with the FTC, and they are nearing an end,” said AOL spokeswoman Kathy McKiernan. “We are on track to close in the fall.”

Although the FTC is stepping up its potential legal case against the merger, that does not mean the deal is about to be shot down. The parties still are seeking an agreement, and when negotiating, the FTC typically prepares for litigation in the event of an impasse.