AOL/TW merger hits competing ISPs

AOL/TW merger hits competing ISPs

A year and one day after America Online (AOL) made known its surprise plans to buy Time Warner, federal regulators have given the merger the go-ahead, but not without conditions that affect Internet service providers (ISPs) and the companies that provide instant messaging (IM) technology.

Despite the conditions, US Federal Communications Commission chairman William Kennard said Friday in a press conference that the agency made a "precise and narrowly tailored" decision that does not signal an increase in government regulation of the Internet.

"This decision is ... confined to the unique facts," Kennard said at a news conference. "We focused specifically on the [potential] harms of these two companies coming together."

Kennard, who announced the agency's approval of the multibillion-dollar merger on Thursday, said the FCC wanted to provide protections for ISPs that are not affiliated with either AOL or Time Warner and it wanted to ensure that in the emerging IM area the industry will work out problems on its own.

Under the conditions, AOL Time Warner must ensure a number of things to competing ISPs, including control of the first screen that pops up on a consumer's computer, direct billing of unaffiliated ISPs' customers and an equal level of performance on AOL Time Warner's cable platform. The companies also must submit contracts between AOL Time Warner and unaffiliated ISPs to the FCC for review.

These measures are designed to make sure small and regional ISPs get access to AOL Time Warner's broadband cable platform, Kennard said.

"We recognise there may be instances in which ... small regional ISPs might not have the ability to negotiate with Time Warner and AOL," Kennard said. "We made sure Time Warner and AOL will have an obligation to reach out to small ISPs."

In setting the conditions that apply to IM, the FCC was concerned that AOL Time Warner could use Time Warner's cable networks to extend its current dominance in text-based IM into new "advanced" IM services that will include multimedia components such as videoconferencing.

The FCC also aims to ensure an open and competitive environment in the interoperability of databases that keep track of names and phone numbers that all IM players need access to in order to be able to communicate with each other.

The FCC will allow two ways for AOL Time Warner to comply with the conditions. It must either back an industry-wide standard on "server-to-server interoperability", or enter into contracts with IM competitors. If it chooses the latter, AOL Time Warner must have entered into at least one such contract at the time it enters the advanced IM business, followed by two more contracts with rivals 180 days later. This is designed to ensure there are at least three other players in the advanced IM market.

After Kennard announced the FCC's approval on Thursday, AOL and Time Warner officially closed their all-stock merger, which has a value in excess of $US100 billion.

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