America's Federal Trade Commission has voted unanimoulsy to approve the US$109 billion merger between America Online and Time Warner - with conditions.
The 5-0 decision represented the most significant regulatory hurdle yet to AOL and Time Warner in their prolonged attempt at approval for their business combination, one of the largest in corporate history.
Government regulators had been lobbied heavily by rivals such as Walt Disney, which contended that the merger would create an unfair media monopoly. The deal still faces review from the Federal Communications Commission.
"In the broad sense, our concern was that the merger of these two powerful companies would deny to competitors access to this amazing new broadband technology," Robert Pitofsky, chairman of the FTC, said in a statement. "This order is intended to ensure that this new medium, characterized by openness, diversity, and freedom, will not be closed down as a result of this merger."
The agreement was expressed as a consent order between the FTC and the companies. Under the terms of the deal, AOL Time Warner, as the combined company would be:
- forced to offer one rival broadband ISP access to its cable system before AOL can begin such a service, followed by at least two additional services with 90 days;
- prevented from disrupting the flow of content being served to consumers through rival ISPs and/or rival interactive TV services on its network; and
- required to offer AOL's digital subscriber line (DSL) services equally to subscribers in areas where Time Warner does and does not offer cable broadband service.
Analysts said AOL made significant trade-offs to get the merger approved.
The deal says the FTC and AOL negotiated in good faith and made a number of substantive concessions," said Jordan Rohan, an analyst at Wit SoundView.
The deal combines the world's largest ISP with the world's largest media company.
AOL has about 29 million subscribers and also runs instant messaging services and Netscape NetCenter.
Time Warner's cable network reaches 20 percent of cable homes in the United States, trailing only AT&T in its reach. It owns film and music studios, cable, and TV broadcasting properties HBO and CNN, and publishes Time and People magazines.
The companies had expected to close the merger in last month, but the FTC delayed its vote until AOL and Time Warner gave more firm assurances that they would open their cable network to rival Internet service providers.
In November, the companies inked a deal with ISP EarthLink Network largely viewed as a concession to the FTC for approval.
Last night, AOL formally offered the FTC additional terms on access and other issues in a bid to win approval, according to reports.
Now it's up to the FCC to vote on the merger. The roles of the two commissions are different, and their reviews are focusing on separate aspects of the merger.
The FTC put open access front and center in its review. The FCC will evaluate AOL's dominance in instant messaging, among other issues, sources said.
