FCC OKs AOL, Time Warner Merger

As the sun was rising Friday morning, a new sign was already installed to show the world the name of the nation's newest -- and largest -- media company in three-foot brass letters.

The new business, to be called AOL Time Warner, unites the largest U.S. Internet provider — with 26 million subscribers — with the media titan that owns CNN, HBO, Sports Illustrated and Warner Bros.

The Federal Communications Commission (FCC) Thursday approved the $108 billion mega-merger of America Online Inc. and Time Warner Inc. with conditions.

William Kennard, the FCC Chairman who announced his resignation Friday after the deal became official, said the agency wasn't willing to rely on the companies' good intentions. It set a series of conditions in place designed to define the company's role in offering growing services while, at the same time, avoiding heavy-handed regulation of new technology.

The companies are being required to take modest steps to open AOL's widespread instant messaging service to rival providers over Time Warner's cable lines. That issue caused protracted debate at the FCC, even though approval long has been expected.

Antitrust regulators at the Federal Trade Commission (FTC) cleared the deal in December, but imposed broad restrictions to preserve consumer choice as the merged company gains a foothold in the markets for such services as high-speed Internet access.

"Our brands, services and technologies already touch hundreds of millions of people," said Chairman Steve Case. "We will embed the AOL Time Warner experience more deeply into their everyday lives."

Announced a year ago, the merger has passed muster with European and U.S. antitrust regulators. FCC approval had been widely expected after the FTC completed its exhaustive review last month.

But commissioners on the five-member FCC panel were seen to have differences over what conditions to attach to the deal. Some favored stronger conditions than the FCC staff proposed, while some wanted fewer restrictions.

In the end, the commission voted unanimously to approve the merger, but two commissioners dissented from attaching any conditions to the deal.

In the restrictions that were laid out, the FCC built on some of the conditions set by FCC on the issue of Internet access.

The FCC told AOL it will have to make its next generation of instant messaging services offered over Time Warner's cable lines available to competing systems. Those advanced services include video teleconferencing, the sharing of files or messaging over interactive television.

AOL rivals Microsoft, ExciteAtHome and AT&T had sought a broader condition forcing AOL to open its existing messaging service — the short, real-time text mesages millions of consumers now use — to all rivals. Commissioner Gloria Tristani had strongly backed this position.

The FCC also said it would take a closer look at ways to ensure cable companies will not steer viewers away from competitors in the emerging market for interactive television. Interactive signals enable consumers to do things like look up information on a team while watching a sports game.

The commission said it will consider whether cable companies must treat interactive programming offered by their competitors in the same as they treat regular programming carried on their systems.

Vital Stats
Click here to read profiles of the merger partners.
The alliance between Time Warner and AOL announced on Jan. 10, 2000, took the media and technology worlds by storm, bringing together a new corporate trailblazer with one of the most venerable names in entertainment.

The deal had alarmed some consumer groups, like Consumers Union and the Consumer Federation of America, who feared the merged companies could become a "giant media-Internet dictatorship." But Gene Kimmelman said afterwards that the government has transformed a merger that threatened competition into one that could actually expand consumers' choices for high speed internet and interactive TV services.

Time Warner owns the cable networks CNN, HBO, TNT, TBS and the Cartoon Network. Its publishing division, which includes Time, People and Sports Illustrated, is the largest magazine company in the United States. And the company has music, motion pictures and other programming under its Warner Bros. and other labels.

Time Warner also has access to about 21 million homes by operating the nation's second largest system of cable lines, after AT&T.

With huge distribution systems and an arsenal of content, the companies have an opportunity to explore new tie-ins between their businesses — such as using AOL's Internet service for Time Warner magazine subscriptions.

AOL's foray into interactive television service also is expected to get a boost by drawing on Time Warner's super-fast Web connections and its expansive library of content.

Time Warner Chairman Gerald Levin will be chief executive of the new business, while AOL chairman and CEO Steve Case will be chairman. The new enity will be based in New York with an operations center in Dulles, Va., the current headquarters for America Online. is a business partner with AOL, serving as the exclusive broadcast news provider for the AOL subscription service.

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