IP: FTC Approves AOL TW Merger

[Dave Farber <farber () cis upenn edu>]

> http://www.ftc.gov/opa/2000/12/aol.htm
> For Release: December 14, 2000
>
> FTC Approves AOL/Time Warner Merger with Conditions
>
> Competitive Concerns Addressed Through Open Access and Interactive
> Television Provisions, DSL Marketing Requirements
>
> 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.
>
> A summary of the consent agreement will be published in the Federal Register
> shortly. The agreement will be subject to public comment for 30 days, until
> January 16, 2001, after which the Commission will decide whether to make it
> final. Comments should be sent to the Federal Trade Commission, Office of
> the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.
>
> The Commission vote to accept the proposed consent order was 5-0.
> Commissioner Mozelle W. Thompson issued a statement concurring with the
> order.
>
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