AOL, Time Warner Stump for Merger

The chief executives of America Online Inc. and Time Warner Inc. defended their merger in Washington Thursday and attempted to convince federal regulators that the deal would accelerate broadband services in the U.S.

The FCC en banc hearing, a rare gathering of all five commissioners
to question witnesses, is utilized when the regulatory body needs to
carefully examine an issue that merits unusual scrutiny. Recent mergers of
several large telcom firms received the same review.

After establishing the federal agency’s jurisdiction to review the $150
billion merger, William Kennard, FCC chairman said he believes all parties
concerned want access to the broadband cable platform.

“I believe that the promise of the Internet is in its remarkable openness
it embodies,” Kennard said. “I am so concerned about this issue of access
to the cable broadband platform that debate today should not be able
attaining that end, but the means of how the promise of broadband Internet
access will be fulfilled, by regulatory or by market forces.”

Commissioner Harold Furchtgott-Roth repeated his position that the FCC does
not have the authority to review any merger beyond transfer applicable
license transfers. Deferring to the Department of Justice for merger review,
Furchtgott-Roth said the debate was an expensive opportunity for America
Online and Time Warner to beg for
regulatory approval of the deal.

During the hearing Steve Case, AOL chairman and chief executive officers
said the merger would benefit consumers and serve the public interest.

“What this merger will mean for our companies and consumers is that
together, AOL and Time Warner will build a company that will take the
Internet to the next level,” Case said.

“Our commitment to consumer choice and competition will help lead our
industry forward to a second Internet revolution reaching as many people as
possible as quickly as possible,” Case added. “The merger will drive
Internet development through competition, offer the greatest variety for
consumer choice, and build a truly global Internet community.”

“We will use our leadership to build a better world,” Case said.

Gerald Levin, Time Warner chairman and chief executive officer, said expanding
consumer choice is the heart of its corporate identity.

“The new networks we’ve developed have enriched peoples options for
programming,” Levin said, “and the billions of dollars we’ve spent on
building our cable network to carry more and more channels and break open
the television universe.”

“The public will benefit from the new company’s ability to offer diversity
in interactive television content, offer multiple ISP access over our Road Runner service, forcing other
cable operators to follow suit, and deliver broadband services that will
break down the digital divide,” Levine said. “The Internet is the
technology of human freedom.”

Levine told Kennard the merged company would work to open barriers to
cable access before the exclusive nature of its alliances expires in
18-months. He said the recently announced Ohio trials of shared cable
access should be ready for review by the end of the year.

Levine invited all ISPs to start making arrangements to carry its broadband
cable services now. He said Time Warner could make diversity happen faster
than [email protected] .
Levine added that a new agreement to provide cable broadband transport
would be made public soon.

“Multiple ISPs are necessary for our revenue growth in every market we
compete with digital subscriber line services,” Levine said.

Esther Dyson, EDvent

ure Holdings,
Inc.
and ICANN chairperson said
consumers can only exercise choice and force rivals to compete when they
are informed of their options.

Dyson said she supports the merger because AOL has a history of driving the
market and its Web content faces stiff competition.

“The role of the government should be to let this merger go forward, but to
raise concerns about what it will watch for to keep the Internet open,”
Dyson said.

At the same time, Dyson cautioned the FCC about AOL’s ability to direct
consumers toward favored of links of its advertiser’s makes for an
uninformed consumer.

Barry Nalebuff, , a professor at the Yale School of
Management, asked the FCC to level the regulatory playing field between
coax and copper broadband systems, noting that highly-regulated business
cost consumers more, while market forced keep pricing competitive.

“We see Time Warner trying to exit contracts it was happy to make two years
ago which we see today were not in their best interest nor the public
interest,” Nalebuff said. “I suggest we play closer attention to these
types of contracts. Contracts are a way to change the rules of the game,
that’s when we should be thinking about the consequences of that.”

There are many opponents to the AOL, Time Warner merger. The Walt Disney Co. and NBC fear that combining the largest
Internet service with Time Warner’s cable systems and a expansive content
library would allow a merged super-company to monopolize the burgeoning
broadband market.

Disney and NBC want federal regulators to require that AOL
and Time Warner split their operations into two companies, one to control
content and another to oversee cable systems.

AOL and Time Warner executives reject Disney’s and NBC’s fears arguing that
the companies are committed to carrying non-affiliated programming and
opening up the cable systems to other Internet service companies.

Consumer groups question the AOL’s commitment to open access for their Time
Warner acquired high-speed cable lines. The Consumer Project on Technology planed to
stage a protest in front of the FCC to highlight its concern that the
merged company will close the Internet.

AOL’s Case said it would not limit member’s Internet experience by
programming routers to prioritize its services over competitor’s content,
as the CPS alleged.

“AOL would never work to diminish our member’s Web experience,” Case said.

Mark N. Cooper, research director for the Consumer
Federation of America
, said unless the FCC provides
some guidance from the control tower, consumers are going to be stuck at
the gate.

“Absent sound FCC policy, the exclusive deals and proprietary barriers to
competition that are being imposed on the broadband Internet industry will
drive it further down an anti-competitive, anti-consumer path that falls
somewhere between the cable TV and airline industry models,” Cooper said.

Both Case and Levine cited market pressure and consumer demand as the dual
forces that would work to open competition among broadband service providers.

“Businesses are rushing to deploy wireless, satellite, and wired broadband
services in pursuit of opening new revenue streams,” Levine said. “All
these competing forces is good news for public interest.”

Jeffrey Chester, executive director of the Center for Media Education, said the new conglomerate would set for a closed, proprietary broadband delivery system and act as a gatekeeper to the Internet.

“If, as AOL’s Steve Case suggests, this merger signals the start of the
‘Internet Century,’ Chester said,

“Chairman Kennard and the FCC must set
the appropriate tone for that new era by ensuring the basic ground rules of
fair play and competition.”

Commissioner Gloria Trisani cued into the instant messaging debate,
criticizing AOL for its propriety service that has sparred with companies
like Tribal Voice, Inc. and MSN Internet over access to servers and users.

A litany of instant messaging firms insist that AOL’s actions to bar access
to its instant messaging services is an indication the firm would act in
the same manner to lock-up the broadband market, should the merger be
approved without restrictions.

Case said more than 40 companies provide similar services because of AOL’s
advances in instant messaging. He said the issue was troubling because AOL
is working with the Internet Engineering
Task Force
to permit server-to-server interoperability.

“AOL has demonstrated its dedication to making instant messaging systems
interoperable,” Case said. Microsoft
Corp.
launched its instant messaging 10-months ago
and they have 18 million users. AOL instant messaging is hardly a
non-competitive force.”

While the merger debate rages on, AOL and Time Warner made a solid case for
the FCC’s approval of the corporate marriage. What strings the federal
regulatory may attach to the deal remain to me seen.

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