FCC May Lift AOL Merger Proviso

Times Staff Writer

AOL Time Warner Inc. appears close to extricating itself from one of the key government-imposed conditions set down as part of the controversial 2001 merger that created the company.

A staff report by the Federal Communications Commission recommends lifting a restriction that prevents the America Online Internet unit from offering advanced services, such as videoconferencing, on its popular instant-messaging service in certain markets, according to FCC sources.

Chairman Michael K. Powell, who opposed the restriction as a commissioner in 2001, supports the staff recommendation, sources said. Powell has argued that the agency overstepped its authority in imposing the condition and put unnecessary regulation on a nascent technology.


It’s too early to tell whether Powell has the support of a commission majority, sources said.

At least one commissioner, Democrat Michael J. Copps, is questioning whether removing the restriction intended to prevent America Online from dominating new Internet services is in the public interest, sources said.

The agency’s self-imposed deadline to respond to AOL’s request that the condition be revoked expires Friday, but it’s doubtful that a vote will come this week, officials said.

Spokeswomen for the FCC and AOL Time Warner declined to comment Tuesday.

In April, AOL formally asked the FCC to kill the restriction, arguing that it stifles innovation and unfairly benefits its rivals.

Other leading instant-messaging companies, such as Microsoft Corp.’s MSN and Yahoo Inc., offer video streaming. AOL can’t offer similar services in certain markets unless it first makes its instant-messaging system operable with rival systems. AOL has repeatedly fought doing that, citing technological and security concerns. Critics say AOL simply wants to maintain its lock over instant messaging, which is one of its most-popular features.

With more than 50 million instant-messaging users, AOL is the dominant player. But in its filing with the FCC, the company argued that its lead is waning.


AOL’s market share of instant messaging has dropped from nearly 100% in 1999 to about 59%, while MSN and Yahoo have grown to 22% and 19%, respectively, data from Web researcher Media Metrix show.

The advanced-services issue was hotly debated during the approval process that attended the merger between Time Warner Inc. and America Online in 2000 and 2001. But it generated relatively little controversy this spring when the FCC sought comments on AOL’s request.

BellSouth Telecommunications Inc. was the only company to file a letter opposing the removal of the condition, arguing it would allow AOL to dominate budding services, such as selling music and video products on instant-messaging platforms.

Noting that AOL currently can offer video streaming as long as it makes its instant-messaging system interoperable, BellSouth said in its filing, “AOL now wants the FCC to hand it the ‘carrot’ and to throw away the ‘stick.’ AOL’s strategic decision to abandon interoperability should not be rewarded by removal of the condition.”

Troubled telecommunications giant MCI, a unit of WorldCom Inc., expressed support for AOL’s request, saying the FCC should keep its hands off Internet information systems, such as instant messaging.

Two University of Pennsylvania professors, Gerald R. Faulhaber and David J. Farber, urged the FCC to move cautiously, saying removal of the condition could stifle competition. They are former FCC staff members who helped craft the condition while at the agency in 2001.