AOL, TW Execs: Merger Won't Harm Competition

WASHINGTON (07/27/2000) - Top executives of America Online Inc. (AOL) and Time Warner Inc. spelled out arguments for combining the two companies in a hearing before the U.S. Federal Communications Commission (FCC) on Thursday, both men assuring the U.S. government regulators that competition and innovation will not suffer as a result of the merger.

AOL and Time Warner announced plans for a stock-swap merger valued at US$350 billion in January. The two companies are now in the process of convincing the FCC that the marriage should be blessed and that the combined entity, which would have annual revenue of more than $30 billion, would not tip the balance of power in the ISP (Internet service provider) or cable television markets.

Steve Case, chairman and chief executive officer of AOL, the world's largest ISP, and Gerald Levin, chairman and CEO of media giant Time Warner whose properties include a cable television network with a 12 percent market share, CNN (Cable News Network), HBO (Home Box Office) and Time magazine, said the merged company would speed the innovation of new technologies -- including the innovation of competitors.

"We think when you look at all the facts, you will conclude that the merger of AOL and Time Warner will benefit consumers and serve the public interest," Case told the five FCC commissioners. "We are confident that together AOL and Time Warner will build a company to help take the Internet to the next level, connecting, informing and entertaining people around the world as never before."

Rather than stymie competition, Case said the merged company would stimulate it. For example, he said programmers currently have little incentive to create interactive media for Internet distribution because there is no audience for it, and as long as there's no audience, ISPs have no incentive to demand content.

"The merger of AOL Time Warner would go a long way toward ending this chicken-and-egg problem," Case said. A new AOL service, AOL TV, could help to jump start a new industry with many competitors, and there are other areas, including finance, healthcare and online music distribution, where AOL and Time Warner combined could spark new innovations, he added.

Case and Levin also took pains to assure the FCC commissioners the merged company, to be called AOL Time Warner Inc., would be committed to opening Time Warner's cable system to multiple ISPs.

Case said AOL and Time Warner are "increasingly optimistic" about how soon the companies will be able to offer multiple ISPs -- as opposed to just the AOL broadband service -- on the Time Warner system, and the combined company will not discriminate against other ISPs.

"We are serious about our commitment to open access because we know it is good for our business and good for consumers," Case said.

The delay in providing open access is due to an exclusive contract that Time Warner has with the cable modem ISP RoadRunner that lasts through 2001 and the need for software to distinguish multiple ISPs on the network so that consumers are properly billed, Levin said.

FCC Chairman William Kennard said there would be continued skepticism about open access in the cable broadband market until it actually happens. He and Commissioner Gloria Tristani pressed Levin on when open access is likely occur, but the Time Warner CEO did not provide a definitive date.

Time Warner is negotiating with RoadRunner to shorten the length of the contract, Levin said. He also said software to distinguish multiple ISPs is due to be delivered by the end of the year. In addition, there will be an announcement soon on an affiliate ISP agreement that would "confirm the marketplace template for the arrangement," Levin added.

Kennard also asked whether in some markets the only choice for broadband Internet access would be AOL Time Warner's cable modem service.

Levin said that would not occur because DSL (digital subscriber line) Internet service is being widely deployed in almost every community Time Warner operates in. There is also competition from high-speed satellite and wireless Internet access providers, he said.

In recent months, Case said a lot of disinformation has been spread about how the merger would play out -- the most disturbing of which has concerned instant messaging. The AOL Instant Messenger (AIM) software can be downloaded for free, but it is not interoperable with all of the instant messaging software produced by other companies in the IM space. AOL has submitted a standard for interoperability to the Internet Engineering Task Force (IETF), but the company was criticized for dragging its feet on the standard. [See "AOL Submits Protocol for Open Instant Messaging," June 16.]Case said the standard AOL submitted is the only architecture plan for true interoperability, and the company is committed to moving forward with it. AOL was slow to submit its plan because the firm was concentrating on providing privacy protections and security, he added.

If the FCC required AOL to do all that it already has done in regards to instant messaging, it would be considered overreaching on the part of regulators, Case said.

"I think we should be applauded for what we've done," he said.

AOL, in Dulles, Virginia, is at +1-703-448-8700 or at http://www.aol.com/; Time Warner, in New York, is at +1-212-484-8000 or at http://www.timewarner.com/.

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