Updated from 11:29 a.m. EST
Hours before a Senate hearing on their proposed merger,
said Tuesday that they would open their cable lines to other Internet service providers.
The two companies, who announced a $150 billion merger in January, said they had signed a memorandum of understanding creating a framework that would offer "open access" to Time Warner's broadband cable pipes.
At the Senate Judiciary Committee's hearing Tuesday, several senators questioned whether the deal would allow the combined company to unfairly dominate the Internet and the media industry, as well as invade consumers' privacy.
The companies' pledge could be a move to head off potential regulatory objections to the merger. Still, the committee's chairman, Orrin Hatch, Republican of Utah, questioned the value of the pledge, call it vague and not binding.
The "open access" fight has been a pivotal issue since AT&T
began a $120 billion spending spree to upgrade its cable lines into conduits for high-speed Internet connections, telephone service and video entertainment.
When AT&T acquired
in March 1999, it also inherited the cable company's contract requiring that all high-speed customers connect to the Web via ISP
. That contract expires in 2002, and AT&T said last year that the company would open its lines after that. Prior to the agreement with Time Warner, AOL had been a prime mover in the effort to force AT&T to open its lines.
Tuesday's announcement was short on specifics as to how the companies will handle Time Warner's exclusive distribution deal with
, a cable ISP in which Time Warner owns a stake. The companies said that while the memorandum is subject to Time Warner's current obligations, including Road Runner, Time Warner is "committed to providing a choice of ISPs as quickly as possible and will work with its partners to try to achieve that goal before its current obligations expire." The deal to carry Road Runner expires at the end of 2001.
Shares of Time Warner fell 1 7/16, or 1.7%, to close at 85 1/4 Tuesday. AOL's stock lost 1 11/16, or 2.8%, to close at 58 15/16.
Arthur Newman, analyst with
Schroder & Co.
, said the move by AOL/Time Warner to open up its lines was "a foregone conclusion."
"We believe the companies had to support open access to smooth merger approval," he said in a note he put out Tuesday.
AOL will probably use Tuesday's announcement to pressure other cable operators to give AOL access to their systems, Newman said, who added that issues such as pricing, technology and quality of service need to be settled. "In particular, if AOL-Time Warner intends to allow an unlimited number of ISPs on the system, it is not clear how it can manage bandwidth constraints and service quality."
Schroder rates both AOL and Time Warner a buy; the firm has not done any underwriting for either company.