The US Federal Trade Commission unanimously accepted merger terms offered by America Online and Time Warner Thursday.
In the consent order proposed by AOL and Time Warner, and approved 5-0 by the FTC, the merged company would be required to open its cable system to competing Internet service providers, would be prohibited from interfering with content passed along its cable bandwidth by non-affiliated ISPs (Internet service providers), and prevented from entering into exclusive arrangements with other cable companies with respect to Internet services or interactive TV services, according to a statement on the FTC Web site.
"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, in the statement. "This order is intended to ensure that this new medium, characterised by openness, diversity and freedom, will not be closed down as a result of this merger."
AOL and Time Warner said in a joint statement that they are pleased with the FTC's approval, and that they "expect that their commitment to consumer choice embodied in the FTC agreement will become a model for other cable systems throughout the country."
The accord requires at least one AOL competitor to offer cable Internet service on a Time Warner-owned network before AOL can offer services on the same network. In most cases, Time Warner must open its networks to two or more competitors after AOL starts offering services. If technology allows it, as many as three other ISPs must be added after that. ISP Earthlink and Time Warner Cable signed an open-access agreement in November.
The FTC consent order specifically promotes development of DSL (Digital Subscriber Line) technology and access, requiring AOL-Time Warner to market and offer AOL's DSL services to subscribers at uniform prices, regardless of whether or not Time Warner cable Internet access is available in the same areas.
The consent order is in effect for five years. Terms of the deal between the FTC, AOL and Time Warner appear complex, according to industry observers.
"It's good that it's finally happening after a year, but it's making it look extremely complex all of a sudden," said Mark Snowden, a senior research analyst for media and entertainment at market research firm Gartner Group.
Details of the deal -- who gets access, where, when, and for how much -- are the key to the two companies' bargain, and should allay the fears of competitors and interest groups opposed to the merger, he said.
"It looks like some fairly rigorous terms given to AOL and Time Warner," Snowden said. "They're going to have to sign a certain number of agreements, so there's only going to be so much 'weaseling' at first. ...I think most of the companies that were trying to block it will say they got the best terms they could, and move on."
The Walt Disney Company -- which has opposed elements of the merger -- typified the corporate response.
"The unprecedented open access and nondiscrimination conditions imposed by the FTC today represent a huge victory for consumers and for competition," said Preston Padden, Disney's executive vice president for government relations. "With these safeguards in place, we congratulate AOL and Time Warner on their merger and wish them well."
Small ISPs had a more mixed reaction to the deal.
"Anything that happens to advance entertainment and services over IP (Internet Protocol) is good," said Jay Cox, director of Internet for NTELOS in Virginia. "On the negative side, in spite of all the concessions they have made, I'm very skeptical whether small ISPs, like us, will be able to compete. It looks like the deck has been stacked against the small (companies). It looks like they have agreed to allow large ISPs into their system."
Cox's position echoed those of smaller businesses and consumer groups about the merger, said Steven Harris, senior research analyst at market research International Data Corp (IDC).
"I think most people in the ISP industry would be very displeased to find AOL only has to have five ISPs (accessing their network). That could be a major problem for a lot of ISPs," he said. "From a government perspective, it may seem like enough, but I don't think it is. From an industry perspective, it's definitely not enough. ...I think consumer groups may be quite angry as well. I don't think most people are going to be happy about it."