Green light for AOL-Time Warner merger

The Federal Communications Commission gives its stamp of approval to the £140bn marriage of the Internet and media giants, with some restrictions

The US' Federal Communications Commission (FCC) on Thursday approved the merger of America Online and Time Warner, effectively giving the companies a green light to complete their historic union.

FCC commissioner William Kennard announced Thursday that the agency approved the deal and imposed three additional restrictions beyond those already required by the Federal Trade Commission. The FCC conditions are "designed to protect the open, competitive nature of the Internet", Kennard said during a press conference.

The conditions apply to three specific areas: Internet access over high-speed cable lines, instant messaging via cable lines and ownership issues between AT&T and Time Warner.

The FCC vote to approve the merger was unanimous, although two of the five commissioners -- Harold W. Furchtgott-Roth and Michael K. Powell -- did not want to impose any conditions.

The merger will create a media and Internet giant with a market capitalization of about $205bn (£140bn).

Announced a year ago, the merger ran into unexpected delays as government regulators probed every aspect of the deal, in which the world's largest online service will take control of the world's largest media company and nation's No. 2 cable company. Critics of the acquisition, including business rivals and consumer groups, complained that the combination could restrict consumer access to content online and stifle competition in emerging services such as high-speed Internet access, interactive television and instant messaging.

In the end, AOL agreed to the concessions for the chance to create a company that could reshape the way consumers access the Internet, get their news, listen to music, read books, watch movies and communicate with each other in general.

European regulators signed off on the deal with few restrictions last year, although both companies took voluntary steps at that time to ward off a veto. Notably, Time Warner's Warner Music Group called off a proposed merger with record label EMI Recorded Music after the European Commission expressed concerns over the deal.

AOL, meanwhile, broke off its European joint ventures with German media powerhouse Bertelsmann.

The Federal Trade Commission approved the deal in December under a consent decree requiring the combined company to allow rivals to offer high-speed Internet access over Time Warner's cable systems. The arrangement will likely hasten the arrival of broadband service for consumers by encouraging other cable operators to follow suit.

Although there had been speculation that the FCC would not impose any restrictions, its decision bolsters the FTC's earlier decision on Net cable access and addresses concerns over instant messaging.

All about IM Instant messaging was among the most controversial elements of the FCC's review.

AOL owns the two largest IM services: AOL Instant Messenger and ICQ. Rivals such as Microsoft, Yahoo!, AT&T and Excite@Home have lobbied aggressively with federal regulators and congressional members to force AOL to open its IM network to competitors as a condition to approving the merger.

In mid-December, Microsoft chairman Bill Gates personally phoned three commissioners to urge the opening of instant messaging as a condition to the merger.

Critics say AOL's slowness in embracing interoperability has caused setbacks to other companies trying to grow their businesses. AOL has said it supports the development of an interoperable system for all IM networks but has cited privacy and security concerns as the reasons it's taking its time. Competitors have labelled that argument a "smoke screen."

Nevertheless, instant messaging remains a highly contentious issue. The technology, which allows people to exchange real-time text messages, is offered for free by many Internet giants. Many have viewed instant messaging as one beachhead in the fight for the computer desktop -- and a potential challenge to Microsoft's control of the operating system.

Given persistence, IM services are becoming beefed up with more features such as real-time stock quotes and links to free email services. And services such as Aimster have started combining file swapping with instant messaging.

The FTC won concessions involving Time Warner's cable operations that hold broad repercussions for the high-speed Internet market.

Among the restrictions In a deal widely praised by consumer advocates and competitors, AOL and Time Warner entered into a consent order subjecting the merged company to three conditions:

The company must offer one rival Internet service provider access to its cable network before AOL can launch its own service, and it must ink deals with at least two additional ISPs within 90 days; AOL Time Warner cannot disrupt the flow of content to consumers of rival ISPs or interactive TV services on its cable network; and AOL must offer its digital subscriber line (DSL) services to all of its subscribers.

The FTC will appoint a monitor trustee who will ensure elements of the order are not violated. The trustee will have the authority to present potential violations to the FTC, which can decide whether to take AOL Time Warner to federal court. The trustee can also act as a deal maker for AOL Time Warner to sign up ISP competitors.

News.com's Patrick Ross reported from Washington, and Evan Hansen reported from San Francisco. Jim Hu contributed from New York.

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