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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