AOL Deal May Drag Into New Year

By David Connell

With the review of the America Online Time Warner merger destined to drag into the New Year, the focus of regulators is turning to new issues.

At the Federal Communications Commission, the debate among staffers appears to have moved from access for broadband content to opening up AOL’s Instant Message systems.

According to sources and documents filed at the commission, another concern is ensuring that interactive content can be distributed freely over Time Warner Cable’s wires.

While present IM technology may not appear to be linked to video content, some regulators and lawmakers say the two systems will be codependent in the future.

U.S. Rep. Ed Markey, D-Mass., lamented the potential for AOL Time Warner to dominate not only the IM market by closing its system, but also interactive television services, in a letter to FCC Chairman William Kennard.

"Lack of effective interoperability could allow AOL to leverage its IM dominance into other markets such as wireless services and interactive television," Markey said. "For instance, although AOL has stated it will not block the Advanced Television Enhancement Forum signals from rival video programmers, AOL has indicated its closed IM system will be an integral feature of its own interactive TV platform and may, in fact, become the exclusive IM service supported by AOL-TV."

He also expressed several other concerns with the merger, including those concerning privacy. Markey told Kennard that, under the Communications Act, AOL would be required to comply with the privacy laws that govern cable because it is "owned or controlled by, or under common ownership with, a cable operator."

Markey also urged the commission to force AOL Time Warner to comply with broad open access provisions that would cover interactive television services as well as multiple ISPs.

According to commission sources, the cable services bureau has already completed its report on the merger, suggesting the FCC impose conditions that would require the new company to make AOL’s advanced IM application compatible with at least one other IM provider.

However, the condition would only apply to advanced IM services, such as video-streaming and conferencing, that are delivered over Time Warner Cable.

Although the bureau has already completed its report and Commissioner Harold Furchtgott-Roth has reportedly signed off on it, commission sources said the merger would not be approved before the New Year.

AOL and Time Warner warned the FCC that if the merger was not approved by Jan. 1, the new company could face "significant" burdens and costs associated with filing partial-year state and local income tax returns and documents at the Security and Exchange Commission.

AOL has maintained that any interoperability requirement placed upon it would not guarantee that competing IM companies would open their systems as well, a presumption the IMUnified coalition strongly rejects.

"The members of IMUnified have worked to achieve interoperability among themselves and are anxious to interoperate, on a two-way basis, with AOL," the group, which includes AT&T, Microsoft and Yahoo!, told FCC staffers. "Unless the commission takes concrete steps to require AOL to become interoperable with third-party IM providers, the future of interoperability among any IM providers is in doubt."

In approving the merger, the Federal Trade Commission told AOL and Time Warner they could not interfere with interactive TV triggers, a provision the FCC may incorporate in its own review, sources say.