WASHINGTON -- Somebody might make it difficult for America Online (AOL) to complete its acquisition of Time Warner (TWX) . But it's unlikely that somebody will be the Federal Communications Commission.
A hearing held Thursday on issues concerning the proposed acquisition was generally thought-provoking, often contentious and occasionally hilarious. But little in the five hours of testimony -- including that of AOL Chairman Steve Case and Time Warner Chairman Gerald Levin -- appeared to convince a majority of the five commissioners that they should take action to block or modify the deal which would create media behemoth
AOL Time Warner
Some of the concerns debated before the commission were longstanding media-merger issues. Would AOL Time Warner use its market power to strong-arm other media programmers, starting with merger critic
, which wants access to AOL Time Warner's cable customers? Would it give owners of competing cable and satellite systems access to in-house programming like
But the commission also had to deal with newer, thornier matters, such as the question of fairness in interactive TV, instant messaging and the issue known variously as "open access," "forced access" or, using a less-loaded term, "cable access" -- giving Internet service providers (ISPs) not affiliated with AOL Time Warner the opportunity to offer high-speed Internet access through its cable systems. These new lines of business concern markets that hardly exist, leaving the FCC with the question of how to ensure competition as they develop, if it indeed need bother doing anything at all.
Commissioners seemed well aware of the fact that they might end up trying to regulate a market that's not really there at all; as Commissioner Michael Powell put it, "The merger's great promise and possible danger rest principally in the future."
It didn't take long to get an idea of how far apart the commissioners were on some of the questions they faced, such as whether it was even appropriate for the FCC to be scrutinizing the deal at all, partly because the
Federal Trade Commission
is already examining whether the deal inhibits competition.
Oh, Now I Remember ...
Before even starting to ask questions of the assembled witnesses, two commissioners couldn't even agree whether the FCC had ever conducted a similar hearing regarding a telecommunications merger. Commissioner Harold Furchtgott-Roth insisted the FCC hadn't; Chairman William Kennard insisted that not only had the FCC done so for three prior deals, but also that Furchtgott-Roth had been there himself. Furchtgott-Roth said he didn't remember.
However, by the end of the hearing, Furchtgott-Roth remembered -- he
been there, and he apologized for his mistake. But he spent most of the meeting looking awfully grumpy, insisting that the FCC didn't have any business exploring all the new-media issues it has been examining. "This hearing does not add to our knowledge," he said. "It is a public spectacle."
Meanwhile, the other commissioners spent the hearing extracting various pledges from AOL and Time Warner regarding good behavior in their business practices.
On the forced/open/cable access issue, Levin said he hoped that by the end of the year Time Warner would be able to extricate itself from exclusivity contracts with its high-speed Internet access operation
that otherwise wouldn't allow for open access until the end of 2001. He also said that the company would "shortly" reach its first affiliation agreement with a third-party ISP that it hoped would serve as a template for other deals.
Elsewhere in the hearing, Case tried to soothe concerns that AOL might use its market power in instant messaging to start charging for what's been a free service. "It's highly likely it will stay free forever," Case said.
Time Warner President Richard Parsons weighed in on one of the concerns related to the melding of AOL's interactive services and Time Warner's cable TV programming. AOL Time Warner would not, he said, force other cable systems to carry interactive services from AOL as a condition of access to its traditional cable channels. "Unequivocally, we will not," Parsons said.
But no clear picture emerged as to whether the FCC favored regulation to address various concerns, or whether market forces, as AOL insisted, would serve as appropriate safeguards. And the regulatory picture was also clouded toward the end of the hearing by the unsettled issue of whether disagreements between, say, Disney and Time Warner over interactive TV reflected real public policy issues or whether they were simply squabbles over the terms of a business deal. "It's
! That's all it is," said Parsons.
What will the FCC end up doing? Not much, said one Washington veteran. "This agency has shown no interest in really doing anything meaningful in these mergers," said Gene Kimmelman, co-director of the Washington office of
Kimmmelman predicted that the FTC will find "enormous problems" with the merger, though he declined to predict what action it might take. "They
the FTC have shown a much stronger will to enforce the law than this agency has," he said, in a conversation before the hearing began.
So what was the purpose of Thursday's hearing? Kimmelman, who is on the opposite end of the intervention spectrum from Commissioner Furchtgott-Roth, agreed with him about showmanship in the proceedings. "I think this is just a public spectacle that will lead to no action," Kimmelman said.
Well, what action the FCC will take is still unknown. But he was certainly right about the spectacle part.