Time Warner and AOL may have moved one step closer today to regulatory approval for their merger. Time Warner has signed a deal with ISP EarthLink to offer its broadband services over its cable lines. Without this, FTC approval wouldn't have happened. This move does draw out the proceedings even more, bringing up the possibility of more complaints from competitors, but that's a risk AOL and Time Warner will just have to take.
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Today's news that Time Warner (NYSE: TWX) will offer unaffiliated ISP EarthLink's (Nasdaq: ELNK) broadband Internet services over its cable lines, satisfying an FTC requirement, should alleviate some of the regulatory issues associated with the company's proposed merger with America Online (NYSE: AOL). Even so, AOL and Time Warner said they are extending the FTC review deadline two weeks beyond the already-delayed review deadline of November 30, nearly guaranteeing they will miss their target date for having the merger completed. Finally reaching agreement Incentive to get it done Time Warner did reach a preliminary pact earlier in the year with another ISP, third-ranked Juno (Nasdaq: JWEB). The FTC reportedly didn't like the deal, though, so Time Warner needed to finalize another in order for the approval process to move ahead. Details of the EarthLink deal weren't disclosed, beyond the fact that EarthLink plans to start offering its services to Time Warner's broadband customers in the second half of 2001. A slow step towards merger-dom AOL and Time Warner had hoped to have the merger done by December 21. Now, they are shooting for early next year at the latest. The longer the negotiations get drawn out, the more time there is for competitors of both AOL and Time Warner to come up with new objections to the deal, something neither company wants. But without a deal like today's, there'd be no possibility of a merger whatsoever. The time-related risk is one AOL and Time Warner will just have to take. Your Turn:
Time Warner and EarthLink, the nation's second-largest provider of Internet services, have been negotiating a deal since April. EarthLink executives have complained publicly several times about demands from Time Warner for percentages of the company's access and ad revenues, as well as Time Warner's insistence that it dictate prices for EarthLink's services over its lines. Even as late as last month, EarthLink's CEO said the latest deal offered to his company from Time Warner would cause EarthLink to "lose money on every customer."
Time Warner had a hefty incentive to find terms agreeable to EarthLink and get on with it. The company is being forced by regulators to end its deal early with ISP Road Runner, which has exclusive rights to Time Warner's cable lines through 2001. Also, without signing up at least one rival national ISP, Time Warner and AOL would have been prevented from completing their merger by the FTC. Further, sources close to the FTC talks say that AOL has agreed to wait to offer its broadband service over Time Warner's cable lines until a rival has been signed up.
If the merger between AOL and Time Warner doesn't end up happening, neither will the EarthLink deal. Regardless, for now, even though today's news is a step towards meeting the FTC's requirements, it won't speed things up. AOL and Time Warner requested that the FTC's review period be extended so that the commission can fully review the details of the deal. Should the FTC approve the merger, the FCC still has to.
Do you think today's news about EarthLink will satisfy regulators? When will the deal finally be completed? Talk about it on the Time Warner or AOL discussion boards.
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