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FTC Approves AOL-Time Warner Merger

December 14, 2000

WASHINGTON (AP) _ Antitrust regulators gave approval Thursday to the $111 billion merger of America Online and Time Warner _ the largest media deal in U.S. history _ with safeguards to ensure Americans will have broad choices as the Internet evolves.

The union would bring CNN, HBO, Time magazine and Warner Bros. together with the online service used by 26 million consumers. The companies, which hope to complete the deal by early next year, await expected approval from the Federal Communications Commission.

On Thursday, the Federal Trade Commission voted 5-0 to approve the deal but also required concessions meant to prevent the combined business from using its size and reach to thwart competitors.

Without the consent decree, the combined companies could have withheld their content and services from rivals, FTC Chairman Robert Pitofsky said.

``Our concern here was with access, that these two powerful companies would create barriers that would injure competitors of Time Warner and competitors of AOL,″ he said at a news conference.

Agency officials feared the deal could stymie the development of Internet technology that has been characterized ``by openness, by diversity, by easy access and by freedom,″ Pitofsky said. ``If you don’t block anticompetitive arrangement early on, then it becomes impossible or too expensive later on to do anything about it.″

One leading concern involved consumer choice for Internet providers _ besides AOL _ delivered on Time Warner’s super fast cable lines.

Under the five-year order, the companies agreed to offer at least three Internet providers, along with AOL, within three months of offering service in a market. Already the companies have forged an agreement to offer AOL’s chief rival, EarthLink, on their cable Internet systems.

Pitofsky said he hopes this will set a blueprint for other industry players to follow. The companies agreed.

The ``commitment to consumer choice embodied in the FTC agreement will become a model for other cable systems throughout the country,″ AOL and Time Warner said in a joint statement.

The condition is meant to ensure consumers could select from a variety of Internet providers in the high-speed online world.

``It may not be the choice of hundreds of Internet providers that consumers have in the dial-up world, but it will certainly by greater than the one choice they have today on cable systems,″ said Dave Baker of EarthLink.

The National Cable Television Association, the industry’s lobby, asserted that the FTC’s action is specific to the merger and does not set a precedent for broad government intervention.

The settlement also contains key provisions that bar the companies from discriminating against Internet companies, besides AOL, that want to carry Time Warner’s popular content.

At the same time, AOL Time Warner cannot discriminate against content from other sources that it uses on its Internet systems or interactive television service.

``AOL and Time Warner thought they could take the Internet and interactive TV and become the sole gatekeeper,″ said public interest advocate Jeff Chester of the Center for Media Education. ``They can’t do that now.″

The conditions even won praise from outspoken merger critics such as The Walt Disney Co.

AOL also agreed to conditions to ensure it would not withhold its popular Internet service from other companies that offer high-speed Internet access over competing mediums, such as phone lines or satellite systems.

The consent order includes some agency oversight to ensure company compliance.

At the FCC, regulators are working to finish their examination by year’s end. Sources familiar with the FCC’s review say the companies have been working to address agency concerns about the ability of AOL’s instant messaging service to work with similar products offered by other companies.

The deal was initially worth about $165 billion when announced in January, the biggest U.S. merger at the time. Its value has shrunk, along with AOL’s stock price, over the past several months to $111 billion. It is still the largest media deal, dwarfing the $34.5 billion CBS-Viacom merger.

The biggest U.S. merger was Pfizer Inc.’s $116 billion acquisition of rival drug maker Warner-Lambert Co. earlier this year.

Shares of AOL were trading Thursday at $50, up $1.55, on the New York Stock Exchange. Shares of Time Warner were up Time Warner up $1.90 at $74.50 $1.56 to $74.16, also on the NYSE.


On the Net:

America Online corporate site: http://corp.aol.com

Time Warner: http://www.timewarner.com

Federal Trade Commission: http://www.ftc.gov

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