As the companies attempt to get approval from U.S. and European regulators for AOL's planned acquisition of Time Warner, it seems likely that they'll have to sell businesses or pledge other changes to ease antitrust concerns. But only one of the possible conditions on the deal looks as if it would affect the operating results of the merged AOL-Time Warner, says one analyst.
It all comes down to the access that Internet service providers other than America Online will have to Time Warner's high-speed cable connections to the home, according to Mike Wallace, Internet analyst at
. That issue of whether unrelated ISPs will be able to sell their services over a cable company's broadband pipes is known as "open access" by noncable firms, "forced access" by cable companies and simply "cable access" by some people trying to stay neutral, such as
Federal Communications Commission
Chairman William Kennard.
AOL and Time Warner have already pledged to open their cable system to ISPs competing with AOL, but the details of the pledge that U.S. regulators want them to make isn't clear. Most analysis of the deal has assumed that the cable systems will eventually be so opened, and that AOL won't suffer from that, but could even benefit.
But Wallace raises the remote possibility that regulators such as the
Federal Trade Commission
won't let AOL offer high-speed service over Time Warner's cable systems until it can simultaneously enable access through competitors. "That would be a problem," says Wallace, because setting up the infrastructure for ISPs' cable access won't happen overnight. Should that be a condition for the deal, "that's something that would slow down what they planned," he says. Wallace says he couldn't estimate the effect of such a condition, which he says he'd be surprised to see imposed on the deal. Wallace has a strong buy on AOL, for which his firm hasn't done underwriting.
Other concessions that regulators might be more likely to impose wouldn't have such a negative effect on AOL Time Warner, Wallace says. Those could be that AOL would have to sell its stake in
, that Time Warner would have to back off its proposed joint venture with
, or that AOL would have to make its instant messaging system compatible with those of its rivals.
Instant messaging "on its own is not a huge revenue driver for the company right now," Wallace says. "That would hurt less from a financial standpoint."
The fact that the companies' shares haven't been hurt by the recent rumors of regulatory opposition suggests the deal still enjoys strong backing on
Wall Street. Monday afternoon, AOL was up 57 cents to $55.82, and Time Warner was up $1.75 to $80.50.