You've Got Scrutiny

SAN FRANCISCO (03/07/2000) - With federal regulators studying the proposed merger of America Online and Time Warner, AOL Chairman Steve Case and Time Warner chief Gerald Levin are spending a lot of time making their case on Capitol Hill.

Last week, the pair testified before two Senate committees, trying to quell fears that combining the companies would create a behemoth that would stymie Internet competition. The Federal Trade Commission and the Federal Communications Commission share regulatory oversight of the merger. The FCC is expected to take a hands-off approach, especially after the two companies last week released a carefully timed memorandum pledging their commitment to "open access" to Time Warner's broadband cable network for competing Internet service providers. (Before the merger was announced, AOL was a vocal supporter of requiring cable networks to give ISPs the right to offer services via cable networks. Many people expected the company to flip-flop on the issue with the planned Time Warner deal, given its extensive cable holdings.) The FTC's antitrust review of the merger is expected to go almost as smoothly.

The open-access question is the most likely sticking point - and it was the chief topic of the two hearings. While Congress has no formal role in reviewing the merger, lawmakers who are worried about it could pass legislation throwing up roadblocks - like an open-access mandate - for the new company.

Case and Levin tried to soothe lawmakers' fears that AOL Time Warner would - or even could - become an arbiter of Internet content and connectivity. Their testimony last week seemed designed to tug at congressional heartstrings. Levin pledged personal and moral commitments not only to open access, but also to issues like bridging the digital divide.

Case focused on explaining his shifting stance on open access. Before the merger was announced in January, Case was the self-described Paul Revere of mandated open access, championing federal legislation before congressional committees to force cable companies to let ISPs use their broadband networks.

AOL actively lobbied for such rules, retreating only after it decided to buy the opposition. Last week, Case was forced to backpedal. He told both Senate committees that he always preferred voluntary open access by the cable industry, and only if that didn't occur would a "light touch" of federal law be needed. Case pointed to the new memo as proof that the industry - namely Time Warner and its chief cable rival, AT&T - is committed to open access.

"What has happened in the last few weeks is a marketplace solution that goes far beyond what I talked about in this room a year ago," Case told the Senate Commerce, Science and Transportation Committee. He added that it would be "perfectly appropriate" for Congress to legislate open access if the new AOL Time Warner failed to live up to its promises.

Several senators on both committees were openly skeptical of the open-access pledge, which is not legally binding. "Given that this document lacks both enforceability and specificity, this committee remains to be convinced of its value beyond the boardroom and public relations office of AOL Time Warner," Sen. Orrin Hatch (R-Utah) said during Tuesday's Senate Judiciary Committee hearing. Despite lawmakers' probing questions last week - many of which Case and Levin artfully skirted - Congress is likely to believe their stirring vow of a "personal commitment" to open access, and their pledge not to give Time Warner's massive news and entertainment holdings undue preference on AOL's network.

There are two reasons for this. First, lawmakers' concern for consumers and competition is often trumped by an unwillingness to fix things without knowing whether they're broken. Second, Congress is likely to accept Case's invitation to keep a close eye on the new company - and weigh in later if necessary.

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