July 27, 2000 4:55 PM PDT

AOL, Time Warner pitch merger's worth to Congress

WASHINGTON--Top executives from merger partners America Online and Time Warner today worked to reassure federal telecommunications regulators that their union would not stifle access to the high-speed Internet.

AOL chief executive Steve Case and Time Warner chief executive Gerald Levin testified today before a complete panel at the Federal Communications Commission. Although the FCC does not have the power to prevent the company's merger, the commission held today's public forum to clarify some issues surrounding cable open access.

Critics have raised concerns that the combination of AOL and Time Warner would create a multimedia behemoth that could stifle competition in the high-speed, or broadband, Net market. Time Warner operates the nation's second-largest cable network along with several cable stations, including news network CNN and movie channel HBO.

Today Levin reassured regulators that the combined company will offer rival Internet service providers access to its sprawling cable networks.

"Any ISP that would like to come and negotiate with Time Warner, we are ready and open," Levin said.

Time Warner Cable has an exclusive contract with high-speed Net company Road Runner. Yet Levin today said the company is in the process of restructuring its deal to offer its subscribers other options for broadband Net access.

FCC officials remain skeptical, however, questioning the companies' claims. FCC Chairman William Kennard said the commission would continue to monitor the union until a definitive plan to allow rivals network access was developed.

Levin said much of the infrastructure to offer open access is in place, but he noted that there are still several technical hurdles to overcome. The companies are working with third-party software companies to develop a system to help distinguish one ISP's traffic and billing hours from another's, he said.

Time Warner has also begun testing a service to host multiple ISPs in Columbus, Ohio, but Levin wouldn't give a specific time frame for when the service would be completed.

He added that the company will "shortly make its first third-party agreement" with an outside ISP to share network access.

Some consumer groups see story: Mergers: How big is big enough? viewed the statements with a skeptical eye. Gene Kimmelman, co-director of the Washington office of Consumers Union, said pressure from regulators is the only reason AOL and Time Warner have taken steps to open their networks.

He also said that the combined AOL Time Warner is creating a platform that only the highest bidder could use.

"Now we have choice and multiplicity but under their terms and conditions," he said.

Additional complaints have come from media rivals led by Walt Disney. The company has asked regulators to "impose meaningful and enforceable conditions prior to any possible approval of the merger," and it has urged officials to split AOL Time Warner into two divisions in an effort to separate content from cable systems. On Tuesday, General Electric's NBC broadcast network joined Disney in its campaign.

Puppet masters: Who controls the Net Net rivals also worry that the combined companies will stifle innovation. The criticisms are especially fierce among Net companies involved in instant messaging.

Already, two coalitions have been created to persuade federal regulators to force AOL to open its instant messaging network as conditions of the merger's approval. Companies including Microsoft, Yahoo, Excite@Home and CMGI have already signed on to the efforts.

At today's hearing, AOL came under fire about its instant messaging services. Ross Bagully, CEO of Tribal Voice, which develops its own service, criticized AOL for dragging its heels in opening its network.

Under a flurry of questioning by commissioners, AOL's president of interactive services, Barry Schuler, said the company is building technology to allow its instant messaging servers to interoperate with outside servers. He said it would take about a year to build the technology and security to protect its consumers.

This is one of the first time frames AOL has given in its assurances of interoperability. However, FCC officials said it is unclear whether this issue falls in the You've got
Time Warner scope of their authority.

"It's not clear to me that it's a communications service," FCC commissioner Michael Powell said in an interview after the hearing. "It's not clear to me it's even merger specific."

 

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