AOL/Time Warner merger approved

(Telephony) A year and a day after the deal was first announced, AOL and Time Warner received approval for their merger from the FCC. The deal, valued at about $106 billion, will create an unrivaled powerhouse of old and new media.

Much of the dirty work in the approval process had been accomplished by the Federal Trade Commission, which forced the applicants to accept open access to their cable systems.

The FCC, however, also added conditions for the approval, touching on some finer regulatory points of open access aimed at ensuring customer access to competing ISPs carried on the AOL/Time Warner’s network and limiting authority the merged company will have over these ISPs.

Though the regulatory guidelines for open access have been laid out, according to Time Warner Cable’s networking engineering vice president, Michael Adams, technical issues still exist, including back office systems, billing and provisioning.

In addition, a divided FCC put restrictions on the merged companies’ instant messaging (IM) services.

Commissioner Michael Powell, widely expected to become the FCC chairman under the Bush administration, was one of the dissenters, giving a hint to the tone of an FCC under his leadership. “[T]he Federal Trade Commission having reviewed the merger did not choose to condition IM, nor did the European Union merger authority. Yet according to the evolving analysis as it exists now, the FCC is undeterred and wherever the competitive analysis is obviously ailing, the holes are plugged by resorting to the venerable and amorphous ‘public interest’ standard,” he said in a statement.

Some FCC commissioners, however, feared that AOL, would completely monopolize the potentially competitive service and that the commission should place restrictions on the company.

To prevent this from happening, the FCC voted 3-2 along party lines to prevent the merged company from offering advanced IM services unless it met one of the three following conditions.

First, AOL/Time Warner may prove that it has implemented a promulgated standard for server-to-server interoperability that will allow their own and other providers’ IM users to detect and communicate with each other. Option two has AOL/Time Warner signing IM interoperability contracts with at least three competitors, with one contract actually executed, thereby proving good-faith negotiations. The final option would be for the merged company to prove that, because of a material change in circumstance, cross-carrier IM communications no longer serve the public interest, convenience and necessity.

According to Dave Nelson, senior industry analyst with Giga Information Group, AOL/Time Warner will most likely choose the second option. “I think AOL will try to maintain some level of control over time through contractual agreements.”

In a press release, Jerry Levin, who will head the merged company, expressed confidence that the companies will be able to take advantage of the deal’s synergies quickly. “AOL Time Warner's scale, scope and reach will enable us to capitalize on the digital revolution that is shaping global media, entertainment and communications on behalf of consumers worldwide,” he said. “With today's closing, all our planning and preparations over the past year start to pay off.”