America Online and Time Warner are done negotiating with the Feds, according to one source. The FTC will reportedly vote on, and approve, their merger next week. In spite of Microsoft's recent objections to the merger, I think the FTC should give the two patient companies the go-ahead.
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America Online (NYSE: AOL) and Time Warner (NYSE: TWX) have reportedly had enough. They're done conceding. They don't want to negotiate anymore. They want approval from the Federal Trade Commission (FTC) for their year-long quest to merge and they want it next week, please. Despite Microsoft's (Nasdaq: MSFT) saber rattling earlier this week, I think the FTC should go ahead and approve the merger. According to a Washington Post story from today, the two companies say they've done enough to mollify the FTC's regulatory concerns over "open access" and other issues. The FTC has reportedly said it'll vote on the merger next week -- possibly on Wednesday, but most likely on Thursday. The final hurdle would be Federal Communications Commission (FCC) approval, which shouldn't be a problem once the FTC approves. "Open access" concessions Microsoft started making noise with the commission earlier this week, according to The Wall Street Journal, saying Time Warner's deal with EarthLink shouldn't be satisfactory because it pits a much weaker competitor against AOL. Microsoft argued that the terms of the EarthLink deal should be better for consumers, and that the current deal doesn't really shore up competition. Of course, Microsoft attempted to sign a deal with Time Warner to offer its MN service, but the deal couldn't be completed in time, and Time Warner went with EarthLink instead. EarthLink, meanwhile, is the second-largest ISP in the country. EarthLink got much of what it wanted out of the deal, including control over its "start" page and the ability to bill its own customers. Customers will be offered EarthLink's broadband cable service cheaper than they'd pay for DL service. And EarthLink is already running a high-profile advertising campaign that will target AOL. Microsoft is pouting, and given the company's heated on-again, off-again relationship with AOL, this is no surprise. The EarthLink deal, and the deals Time Warner is negotiating with other providers (still including Microsoft, reportedly), do adequately address the "open access" issues. One significant impasse AOL and Time Warner have a lot at stake here. They've been patient as the regulatory process has dragged out this year. They've answered the primary concern that has plagued regulators, and their competition, all year -- "open access." The FTC and the FCC should get on with it and give them approval.
Last month, Time Warner met one of the commission's biggest demands when it secured a deal with the nation's second-largest Internet service provider (ISP), EarthLink (Nasdaq: ELNK). Time Warner agreed to offer EarthLink's broadband Internet services over its cable lines, therefore satisfying the commission's concern over "open access." Time Warner was supposed to sign up at least one competitive ISP before the FTC would offer approval and before AOL could use Time Warner's cable lines for its own service. Time Warner is reportedly negotiating with other ISPs to get similar deals.
One issue the two companies have refused to concede on, though, involves access to Time Warner's movies and music. The commission wanted Time Warner to offer its entertainment products to other ISPs on the same terms that it offered them to AOL. Both companies balked, arguing that they'd have little reason to even merge if that were required. Additionally, Time Warner noted that it only controls about 20% of the entertainment market -- hardly enough to raise antitrust concerns. The companies have said, though, that they have no plans to limit Time Warner's entertainment offerings to just AOL -- the terms are what the companies find objectionable.
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