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News > Technology
FCC mulls AOL-Time deal
September 13, 2000: 2:50 p.m. ET

Commissioner cites lack of authority over cable, messaging services
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NEW YORK (CNNfn) - The proposed $129 billion America Online purchase of Time Warner hit a snag Wednesday as the government tried to determine what proposals it will seek from the companies before it grants approval of the union.

An FCC spokesman told CNNfn.com that regulators would not comment directly about specific proposals under review, but admitted the agency is still in the process of deciding if it should impose conditions on the media powerhouses.

Earlier Wednesday, the Wall Street Journal cited FCC staffers involved in the review process who said regulatory approval centered around opening Instant Messaging and high-speed Internet cable line access to competitors.

The reported proposals outlined by the FCC are just the first step in the merger review process, with a final vote on approval of the mega-merger is not expected for another month.

The paper said the supposed conditions set by the FCC could go beyond what AOL and Time Warner have said they would be willing to accept, and the companies previously have fought some of the conditions already proposed by the FCC and the Federal Trade Commission. Time Warner is the parent company of CNNfn.com.

A lawyer representing AOL-Time Warner said that "no deal breakers" have surfaced in discussions with the FCC.

Difficult to impose conditions


FCC Commissioner Harold Furchtgott-Roth told reporters later Wednesday that he would find it difficult to impose conditions on the companies regarding IM and cable services.

"To the extent we don't regulate them in the first instance, it would be very peculiar, in my view, to begin regulating them as part of the license transfer," FCC Commissioner Furchtgott-Roth told reporters

Furchtgott-Roth said the FCC's process for giving special consideration to particular mergers should be guided by specific rules to ensure consistency, otherwise it would make it harder for other companies to understand what the rules are when contemplating transactions. 

"What is happening with AOL-Time Warner is we're contemplating rules for the first time in the context of the license transfer and what we're going to end up with, if we do that, is company specific rules," Furchtgott-Roth said.

The Instant Messaging stake


graphicThe FCC is concerned about AOL's dominance in the Instant Messaging arena, in which it controls 90 percent of the market, and allows only registered users to communicate over its network.

Competitors have criticized the Web powerhouse for not allowing open IM access for seamless communication, regardless of Internet service provider.

In July, a coalition of AOL rivals advocating open source technology for IM, called IMUnified, was formed. Members include Microsoft (MSFT: Research, Estimates), AT&T (T: Research, Estimates), Excite@Home (ATHM: Research, Estimates), Yahoo! (YHOO: Research, Estimates), Prodigy (PRGY: Research, Estimates),  Phone.com (PHCM: Research, Estimates), Odigo, Tribal Voice and iCast.  The group's mission is to provide instant messaging (IM) interoperability standards that will allow users to send messages to one another regardless of their IM provider.

AOL did submit a plan in June to open access to its IM system, but rivals claim the proposal was not far-reaching enough.

The FCC was so concerned about the IM issue that on Aug. 14, when it submitted a series of questions related to the merger, it asked AOL and Time Warner specifically about supposed comments made by company officials concerning Instant Messaging.

"Please explain [Time Warner Chairman Gerry] Levin's views of Instant Messaging as an asset of the merged company and why it would be the most valuable asset," the FCC requested, referring to remarks reportedly made by Levin during a financial analysts conference in June.

AOL and Time Warner's response to the FCC's request disputed the interpretation that Levin called IM the merged company's most valuable asset.

"Mr. Levin did not state that IM would be the most valuable or 'number one' asset. Mr. Levin agreed with [Morgan Stanley analyst] Mary Meeker that AOL's most valuable asset is its customer base for the flagship AOL ISP service [Internet service provider]. Mr. Levin then went on to describe IM as an unrecognized asset," the company said.

In late afternoon Wednesday trading, shares of AOL (AOL: Research, Estimates) fell 94 cents to $55.06, while Time Warner  (TWX: Research, Estimates)  declined 69 cents to $79.87.  Back to top

--Reuters contributed to this story

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