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GIGALAW.COM (http://www.GigaLaw.com) BREAKING NEWS:
FTC Approves AOL/Time Warner Merger with Conditions
Competitive Concerns Addressed Through Open Access and Interactive
Television Provisions, DSL Marketing Requirements
Full details will be provided in tomorrow's GigaLaw.com Daily News,
available on GigaLaw.com (http://www.GigaLaw.com)
(FTC Press Release) -- The Federal Trade Commission has accepted a
proposed consent order that would remedy the likely anticompetitive
effects of the proposed merger of America Online, Inc. ("AOL"), the
nation's largest Internet service provider ("ISP"), and Time Warner Inc.
("Time Warner"), a media conglomerate comprising a cable television system
servicing about 20 percent of U.S. cable households, and various
cable-programming networks, publishing and recording interests, and film
libraries.
Under the terms of the order, AOL Time Warner would be: required to open
its cable system to competitor ISPs; prohibited from interfering with
content passed along the bandwidth contracted for by non-affiliated ISPs
and from interfering with the ability of non-affiliated providers of
interactive TV services to interact with interactive signals, triggers or
content that AOL Time Warner has agreed to carry; prevented from
discriminating on the basis of affiliation in the transmission of content,
or from entering into exclusive arrangements with other cable companies
with respect to ISP services or interactive TV services; and required to
market and offer AOL's digital subscriber line ("DSL") services to
subscribers in Time Warner cable areas where affiliated cable broadband
service is available in the same manner and at the same retail pricing as
they do in those areas where affiliated cable broadband ISP service is not
available.
"In the broad sense, our concern was that the merger of these two powerful
companies would deny to competitors access to this amazing new broadband
technology," said Robert Pitofsky, Chairman of the FTC. "This order is
intended to ensure that this new medium, characterized by openness,
diversity and freedom, will not be closed down as a result of this
merger."
According to the Commission's complaint, the proposed transaction would
violate Section 7 of the Clayton Act, as amended, and Section 5 of the
Federal Trade Commission Act, as amended, by: lessening competition in the
residential broadband Internet access market; undermining AOL's incentive
to promote DSL broadband Internet service as an emerging alternative to
cable broadband; and restraining competition in the market for interactive
television ("ITV").
Under the proposed order, the Commission's antitrust concerns would be
resolved by: (1) requiring AOL Time Warner to make available to
subscribers at least one non-affiliated cable broadband ISP service on
Time Warner's cable system before AOL itself began offering service,
followed by two other non-affiliated ISPs within 90 days and a requirement
to negotiate in good faith with others after that; (2) prohibiting AOL
Time Warner from interfering with content passed along the bandwidth
contracted for by non-affiliated ISPs, or discriminating on the basis of
affiliation in the transmission of content that AOL Time Warner has
contracted to deliver to subscribers over their cable system, including
the transmission of interactive triggers or other content in conjunction
with ITV services; and (3) requiring AOL Time Warner to market and offer
AOL's DSL services to subscribers in Time Warner cable areas where
affiliated cable broadband service is available in the same manner and at
the same retail pricing as they do in those areas where affiliated cable
broadband ISP service is not available. The proposed consent order would
be effective for a term of five years.
Access Provisions
Before Time Warner can make AOL's broadband ISP service available in its
largest cable divisions, the competing ISP service offered by the second
largest ISP, Earthlink, must be made available to subscribers - i.e.,
ready for immediate use - in that cable division. The Earthlink agreement
has been reviewed and approved by the Commission. In addition, AOL Time
Warner cannot begin to advertise or promote AOL's broadband ISP service to
subscribers in that cable division until either Earthlink's service is
available to subscribers in that cable division, or Earthlink advertises
or promotes its service in that cable division, whichever occurs earlier.
This provision ensures that a competing ISP service is available to
subscribers in the largest Time Warner cable areas before AOL introduces
its cable broadband ISP service.
In addition to the agreement with Earthlink, within 90 days after making
AOL's broadband ISP service available to subscribers, Time Warner would be
required to enter into agreements with at least two other non-affiliated
ISPs to provide cable broadband ISP services in that Time Warner cable
division. The non-affiliated ISPs and Time Warner's agreements with them
must receive the prior approval of the Commission. If Time Warner fails to
enter into such agreements within this time period, the Commission may
appoint a trustee who will have the authority to enter into such
agreements on Time Warner's behalf. Again, these agreements must receive
the prior approval of the Commission. These agreements must be on terms
comparable to either the Earthlink ISP service agreement approved by the
Commission, or any agreement between AOL and another cable company to
provide AOL's cable broadband ISP service over the cable company's cable
system.
In Time Warner's smaller cable divisions, Time Warner would be required to
enter into agreements with at least three non-affiliated ISPs within 90
days after making AOL's broadband service available, subject to the prior
approval of the Commission. If Time Warner fails to enter into such
agreements within this timer period, the Commission may appoint a trustee
who will have the authority to enter into such agreements on Time Warner's
behalf on terms comparable to either any other agreement Time Warner has
entered into with an ISP or any agreement AOL has entered into with a
cable company.
Time Warner would be required to include in all alternative cable
broadband ISP service agreements submitted to the Commission for approval
a "most favored nation" clause requiring that, if AOL executes a cable
broadband ISP service agreement with another cable company, AOL Time
Warner must provide the Monitor Trustee with a copy of the cable company
agreement; give notice of the execution of the cable company agreement to
each non-affiliated ISPs that is a party to an alternative cable broadband
ISP service agreement approved by the Commission; and give the
non-affiliated ISPs an opportunity to opt in to the same rates and terms
secured by AOL in the cable company agreement.
Throughout its cable holdings, the proposed consent order would require
Time Warner to negotiate and enter into arms' length, commercial
agreements with any other non-affiliated ISP that seeks to provide cable
broadband ISP service on Time Warner's cable system. However, Time Warner
may decline to enter into such negotiations or agreements, or impose
rates, terms, or conditions, but only based on cable broadband capacity
constraints, other cable broadband technical limitations, or cable
broadband business considerations. It cannot refuse access on the grounds
that adding another ISP would decrease or potentially decrease subscribers
on AOL Time Warner's ISP.
The purpose of these provisions is to ensure that a full range of content
and services by non-affiliated ISPs is available to subscribers; prevent
discrimination by AOL Time Warner as to non-affiliated ISPs on the basis
of affiliation, which would interfere with the ability of the
non-affiliated ISP to provide a full range of content and services; and
remedy the lessening of competition in the market for broadband ISP
service as alleged in the Commission's complaint.
ITV and Other Internet Services
The proposed consent order also addresses concerns about potential
discriminatory treatment against non-affiliated ISPs in terms of the
content and Internet services delivered to subscribers. Time Warner would
be prohibited from interfering in any way with content passed along the
bandwidth contracted for and being used by non-affiliated ISPs in
compliance with their service agreements. The order also would prohibit
Time Warner from discriminating on the basis of affiliation in the
transmission or modification of content that Time Warner has contracted to
deliver to subscribers over its cable systems.
If requested by a non-affiliated ISP, Time Warner would be required to
provide the non-affiliated ISPs with the same point of connection within
Time Warner's cable divisions that Time Warner provides to affiliated
ISPs. This provision is intended to ensure that Time Warner does not
discriminate against non-affiliated ISPs by providing them with a
less-advantageous point of connection to its network than it provides to
AOL.
Time Warner may not interfere with the ability of a subscriber to use, in
conjunction with ITV services provided by a person not affiliated with AOL
Time Warner, interactive signals, triggers, or other content that AOL Time
Warner has agreed to carry. This means that if, for example, Time Warner
has agreed to transmit ITV signals or interactive triggers that AOL
subscribers can use, it cannot block transmission of such ITV signals or
triggers to subscribers using a competing ITV service. Second, AOL Time
Warner would be prohibited from entering into any agreement with any cable
company that would interfere with the ability of such cable company to
enter into agreements with any other ISP or provider of ITV services.
The proposed order also requires AOL Time Warner to provide the Commission
with notice of complaints it receives regarding its failure to provide
content to broadband ISPs, or its failure to carry a television
programmer's interactive signals, triggers, or content.
DSL
The proposed order would also require AOL to charge the same or a
comparable price for its DSL service to subscribers in Time Warner cable
areas where AOL cable broadband ISP service or RoadRunner is available as
AOL charges for its DSL service in areas in which neither AOL cable
broadband ISP service nor RoadRunner is available. However, AOL would be
permitted to charge different prices for its DSL service to the extent
such pricing differences reflect any actual differences in the costs of
DSL transmission services, in which case AOL Time Warner would have to
include a description of these cost differences in the reports they are
required to submit to the Commission.
Likewise, AOL would be required to market and promote its DSL services to
subscribers in Time Warner cable areas where AOL cable broadband ISP
service or RoadRunner is available at the same or comparable level and
manner as AOL markets and promotes DSL services to subscribers in areas in
which neither AOL cable broadband ISP service nor RoadRunner is available.
Further details will be provided in tomorrow's GigaLaw.com Daily News,
available on GigaLaw.com (http://www.GigaLaw.com)