Rivals debate AOL/TW deal in FCC hearing

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Walt Disney Co.'s campaign to persuade the federal government to require a merged America Online/Time Warner to open its networks to competitors and Disney content got a high-profile review at the Federal Communications Commission last week.

But after 5 hours of hearings on AOL's proposed acquisition of Time Warner, executives close to the issue said it remained far from clear whether a majority of the commissioners would impose substantive conditions on the deal.

Steve Case, chairman-CEO of AOL, and Gerald Levin, chairman-CEO of Time Warner -- the hearing's lead witnesses -- told regulators they are committed to opening their broadband networks to at least some competing ISPs and will do so for competitive and business reasons, without government edict.

Among other things, the executives said open access is being compelled by the fact that phone companies are rolling out competitive broadband networks.

CONSUMER CHOICE

"For a cable operator not to energetically move to provide consumer choice, the cable system would lose out in the marketplace," said Mr. Levin.

Added Mr. Case, "We recognize that we have made a commitment and we're going to live up to that commitment."

But other witnesses -- including Disney, BellSouth Corp. and a variety of watchdog groups -- said there is no reason to trust that AOL/Time Warner will treat rivals fairly.

"Both AOL and Time Warner have demonstrated their propensity to abuse their bottlenecks and market strength," said Preston Padden, Disney exec VP-government relations.

Despite the commitments about ISP access, Time Warner has explicitly rejected calls by Disney and others to sign binding agreements to treat the programming and other content of competitors fairly.

Mr. Padden said that's a critical concern for Disney, particularly for new interactive fare.

But Richard Parsons, Time Warner president, told regulators that Disney had been seeking a commitment that would have "in effect" required Time Warner to discriminate in favor of Disney programming. "It is almost laughable," Mr. Parsons said.

`IT'S MONEY. THAT'S ALL IT IS'

"Is this a spillover of a business dispute dressed up as a public policy issue?" added Mr. Parsons. "I submit it is. It's money. That's all it is."

NBC also asked the FCC to guarantee open access after the network and Time Warner could not reach agreement about content issues.

"Our concern is that their pledges of open access are generalities," Rick Cotton, NBC exec VP-general counsel, said after the hearings. "When we ask for a specific commercial commitment, they refuse."

Observers also noted that AOL/Time Warner's voluntary commitment to offer "multiple" ISPs isn't the same as open access for all.

"It means the most favored nations will succeed," said Gene Kimmelman, co-director of the Consumers Union's Washington office. "It just will not be open competition at fair prices."

At the hearings, several commissioners -- including Chairman Bill Kennard -- suggested they are skeptical about some of the AOL and Time Warner claims. But Republican Commissioner Harold Furchtgott-Roth dismissed the whole hearing as a "public spectacle."

"This hearing does not add to our knowledge," Mr. Furchtgott-Roth said.

After the hearings, the Consumers Union's Mr. Kimmelman told reporters he believes the amicable tenor of the proceedings suggested that the FCC is "highly unlikely" to impose any substantive conditions on the deal.

DOING WHAT'S RIGHT

But Mr. Padden said Time Warner's essential pitch at the hearings was that regulators should trust the company to do what's right.

"If they [AOL/Time Warner] are promising open access and non-discrimination, how could it be a problem for the government to mandate that?" Mr. Padden said. "I don't think anybody is going to approve this merger relying solely on trust."

Mr. Halonen is Washington Bureau Chief at Electronic Media.

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