Wedding Vows

AOL-Time Warner merger OK'd with conditions

America Online and Time Warner waited a year and a day to receive final approval for their $103.5 billion deal, but rivals will have to wait longer to find their niche in the world created by the nations biggest communications merger.

As if scripted by Hollywood, the marriage of past and future unfolded as Federal Communications Chairman William Kennard bade an emotional farewell before approving the deal that will long shape the communications cosmos. Now, AOL Time Warner begins working on a sequel as the industries of old media and new converge in an uncharted world.

"In a phrase, its Convergence Illustrated," Kennard said, referencing one of the titles that AOL will acquire.

While regulators sought to maintain an even playing field for Internet providers, cable companies and media rivals, they acknowledged that issues will continue to swirl.

"The conditions are designed to protect the open, competitive nature of the Internet, balanced with the need to protect the public from any one company becoming too big," Kennard said. "And they ensure that neither AOL Time Warner nor a government agency will pick winners and losers in this dynamic marketplace."

The deal won FCC approval after sharp differences arose between Democrats and Republicans on how many strings to attach. In the end, the Democrats 3-2 majority won out and major conditions were included.

With the last regulatory hurdle cleared, AOL Chief Executive Steve Case posted his message to the 26 million members of his companys online service. "We will embed the AOL Time Warner experience more deeply into their everyday lives," Case said.

How the new media giant achieves that will continue to challenge the FCC, which will operate under new leadership — likely under the guidance of current Commissioner Michael Powell, a Republican and son of Secretary of State designee Colin Powell. "The challenge is found in the fact that the mergers putative benefits and harms principally lie in the future, and will be realized, if at all, only after combining unique assets and offering innovative services," Michael Powell said after approving the deal.

Closely watched was how the FCC would treat instant messaging (IM). The FCC surprised some observers by not requiring AOL to open its messaging client, AOL Instant Messenger, to competitors immediately.

The FCC said, however, that before launching advanced IM services such as videoconferencing over cable networks, AOL must either be able to prove that it has implemented an industrywide standard for interoperability or show that it has a contract with a competitor.

AOL has consistently denied being the market leader in IM, and has said it will adopt industrywide standards only when it can prove they wont jeopardize members security and privacy.

The conditions essentially keep the timetable for interoperability in AOLs hands. "Some of the conditions of this merger provide the opportunity for AOL to continue their delaying tactics," said Alex Diamandis, vice president of alliance marketing at competitor Odigo. "Every day they can further delay interoperability, the stronger their network is and the tougher time other people have in attracting users."

Small Internet service providers (ISPs) were generally satisfied with other provisions the FCC handed down, designed to ensure fair play for unaffiliated broadband providers.

Time Warner and AOL negotiated an access deal with EarthLink, contingent on the merger closing. "This clears the way for us to offer the service," said Dave Baker, a vice president at EarthLink.

The FCC said AOL Time Warner must allow unaffiliated ISPs to be able to both control the first screen that consumers see and bill customers directly.

"The fact that we have control of our customers is very important," said Stephen Heins, director of marketing at NorthNet, a small ISP in Oshkosh, Wis., that has been fighting to gain access to AOL Time Warners network.

While Internet access and content won the lions share of attention, Powell pointed out that a budding new medium, interactive television, could also draw the regulatory spotlight. The FCC said it is beginning a separate inquiry into whether rules are needed to promote competition.

That idea is abhorrent to the cable industry. "To commence a rulemaking — one that could bind hundreds of companies that have nothing to do with this merger — is totally unwarranted by the facts," said Robert Sachs, president of the National Cable Television Association.

How intrusive the FCC will be on future issues is uncertain, though the new Bush administration is likely to take more of a hands-off approach.