November 20, 2000 9:45 AM PST

Time Warner teams with EarthLink, delays AOL merger review

Cable giant Time Warner has signed an agreement with EarthLink to share its high-speed cable network and will extend the federal review period for its multibillion-dollar merger with America Online by two weeks.


Gartner analyst Eric Palauek says that by creating an appearance of competition among cable-based Internet service providers, Time Warner's agreements with EarthLink and Juno Online Services increase the likelihood that the FTC will approve the Time Warner-America Online merger.

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Time Warner on Monday signed an agreement with Internet service provider EarthLink to offer EarthLink's high-speed Internet services over Time Warner's cable systems.

The agreement comes at a critical moment, as federal regulators continue to examine the proposed merger between Time Warner, the nation's second-largest cable operator, and America Online, the world's largest Internet company. A deal to carry EarthLink, an Internet service provider that competes with AOL, could appease regulators demanding that the combined company offer more choices for high-speed service over its cable network.

The Federal Trade Commission last week demanded that Time Warner offer third-party Internet service providers access to its high-speed networks as a condition for approval of its multibillion-dollar merger with Internet giant AOL.

Time Warner recently formed a similar deal with free ISP Juno Online Services.

Separately, Time Warner and AOL have extended the review period of their merger by the FTC by two weeks.

The companies now expect to close the megamerger, announced last January, by the end of the year or shortly after the start of 2001. The deadline for the merger-review period had been Nov. 30.

AOL and Time Warner said that they extended the review period to give the FTC time to consider the details of Monday?s cable agreement with EarthLink.

Under the deal with Atlanta-based EarthLink, Time Warner said it will offer EarthLink's high-speed Internet access, content, applications and features, including video streaming, to Time Warner cable network customers.

Hollow promises?
EarthLink, which with 4.6 million subscribers is the nation's second largest ISP, said it anticipates providing its broadband Internet services over Time Warner's systems by the second half of 2001.

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Time Warner teams with EarthLink
Garry Betty, EarthLink CEO
"Our partnership with EarthLink demonstrates our commitment to offer Time Warner Cable customers multiple choices in broadband ISPs," Glenn A. Britt, president of Time Warner Cable, said in a statement. "The agreement marks the most far-reaching alliance yet between a cable operator and an unaffiliated ISP."

Specific terms of the deal were not disclosed. The agreement is contingent upon approval from the FTC and the closing of the AOL-Time Warner merger.

Signing EarthLink gives AOL and Time Warner a means to show regulators that the combined company will allow third parties onto its coveted cable network. AOL and Time Warner have committed on paper to giving cable customers an option to choose a third-party ISP and have said that the combined company would not limit the number of ISPs on its network. But many critics in Washington claim the promises are hollow, leaving regulators to demand the companies live up to promises before the deal gets the green light.

The spotlight is You've got Time Warneron cable operators. A number of megamergers in the cable industry have caused concern among regulators and consumer advocates. Such huge deals include the one pending between Time Warner and AOL, as well as AT&T's acquisitions of cable giants TCI and MediaOne.

Despite Monday's agreement, relations between EarthLink and Time Warner Cable have been antagonistic. EarthLink in September engaged in a publicity battle when it criticized Time Warner Cable for offering deal terms that put third-party ISPs at a disadvantage. The terms at the time gave Time Warner Cable $30 to $35 out of the $40 monthly subscription fee, according to Ken Kiarash, an equity analyst at Buckingham Research Group, giving the ISP little incentive to strike a deal with the cable operator.

But to close Monday's deal, Time Warner Cable may have had to loosen its stringent deal terms. Both companies know that completing the deal is more important than ever.

"I'm almost certain they had to sweeten those terms to get this deal done," said Kiarash.

Meanwhile, consumer groups advocating the open access of cable lines to third parties expressed limited praise for the deal. While the deal marks a step in the right direction, a sense of urgency to complete it may have been more of a driving factor for the companies than living up to its promises.

"While it's good news, if the FTC hadn't had a gun to AOL-Time Warner's head, they never would've done this," said Jeffrey Chester, executive director at the Center for Media Education.

News.com's Sandeep Junnakar contributed to this report.

 

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