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AOL Time Warner decision unanimous but not harmonious

The discord that has emerged among the Federal Communications Commission's five commissioners during their long review of the merger could provide the plot for a Warner Bros. cartoon, complete with brickbats.

WASHINGTON--The discord that has emerged among the Federal Communications Commission's five commissioners during their long review of the merger between America Online and Time Warner could provide the plot for a Warner Bros. cartoon, complete with brickbats.

Meta Group says the deal no longer makes sense and predicts that the newly merged company will break apart within two years.

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Thursday's merger approval split along party lines. In a press conference Friday, tensions between the commissioners--normally cloaked in diplomacy--broke into the open. Although all five commissioners signed off on the deal, the two Republican members vigorously criticized the Democratic majority's inclusion of conditions aimed at emerging instant messaging technology, spurring sharp rebuttals.

The agency required AOL Time Warner to open its IM networks to competitors, but only after it introduces new applications that take advantage of high-speed Internet connections, such as videoconferencing. The conditions do not affect AOL's current IM operations, where it holds a significant lead over competitors.

The schisms in the FCC are particularly telling, as the agency is entering a period of uncertainty. FCC Chairman William Kennard said Friday he had sent his resignation to President Clinton effective Jan. 19, which will leave an FCC with two Democrats and two Republicans until President-elect George W. Bush can get a new chairman in place.

FCC Commissioner Harold Furchtgott-Roth, a Republican, questioned the agency's authority to review the merger at all.

"There's no public interest concerns with instant messaging," Furchtgott-Roth said in an interview Friday, referring to a key condition the Democratic majority imposed on AOL Time Warner.

Firing back
"He's pure and simple wrong," Commissioner Susan Ness, a Democrat, fired back in a separate interview. "The FCC has a long history of cases" where the agency reviewed a merger under a broad public interest mandate "and they were all upheld by the courts."

She said the Democratic majority was only trying to regulate "merger-specific harms created by the joining of these two 800-pound gorillas."

Furchtgott-Roth's view reflects that of the new chairman of the House Commerce Committee, Billy Tauzin, R-La., which isn't surprising since Furchtgott-Roth was the chief economist for that committee before joining the agency.

At Friday's press conference, Kennard defended the FCC's merger review authority against challenges from Capitol Hill.

"Many argue that the FCC should not have the authority to look broadly at public interest concerns in these mergers," Kennard said. He complimented the job the antitrust reviewers did at the Federal Trade Commission but said that process isn't sufficient, because "if (the FCC) isn't here, some consumers wouldn't be protected."

Commissioner Michael Powell, the Republican son of Secretary of State-designate Colin Powell and the likely next chairman of the FCC, questioned the Democratic majority's imposition of IM conditions.

"The Commission mandates that AOL Time Warner must offer interoperability for a product that does not as yet exist--some sort of newfangled instant messaging product that it calls Advanced IM-based High-Speed Service, or AIHS," he said Thursday. "When a regulatory agency has to make up its own acronym to describe the product or service it intends to regulate, one should be concerned."

Kennard rejected that argument. "This is not a nonexistent industry; 140 million people are using instant messaging around the world," he said.

"All we're doing" with IM conditions, Kennard added, "is accepting AOL's statements that interoperability is a good thing, and we're going to hold them to that."

The FCC has not begun regulating the Internet, Kennard insisted. "There's a lot of confusion about what regulating the Internet means. (The FCC's conditions) are very narrowly tailored in a way that insures the industry works it out on its own," he argued. Regarding access for rival instant messengers and Internet service providers to cable networks, the FCC mandated talks at certain times but didn't set terms for any business agreements.

Removing conditions
Kennard and others elaborated Friday on ways AOL Time Warner could eventually be free of the FCC's conditions.

Each condition is based on the premise that the company is not cooperating AOL Time
Warner package fully with competitors. For instance, AOL Time Warner won't be permitted to launch advanced IM over its cable lines if its traditional IM isn't interoperable with at least one rival.

Kennard said that "if AOL can prove these conditions no longer apply" by showing it is interoperable, the restrictions will not limit its innovations.

Ness said she believed statements made by AOL executives that its IM services would be able to work with competing services this year.

Asked if AOL Time Warner might find itself overly burdened by regulations that are not being applied to its competitors, Kennard said: "We have to be somewhat flexible. If a company feels conditions are no longer warranted, they can always come back and ask for a waiver."

The FCC's open-access conditions, he said, are indefinite, unlike the FTC's requirements, which sunset in five years.

The next FCC
If Powell is elevated to chairman as expected, Bush will need to appoint a third Republican. Many believe that will be Texas Public Utilities Commission Chairman Pat Wood, although he is also being considered for the Federal Energy Regulatory Commission.

Bush will also need to make a decision regarding Ness' seat. Ness' term expired late last year, but she has stayed in office thanks to a recess appointment by Clinton. Ness has since been renominated by Clinton, but Bush has the right to choose his own Democrat for the post. A president makes all commission nominations, with the chairman belonging to his party and the four other seats evenly divided between parties.

For the next several months, the FCC likely will be evenly split with two Democrats and two Republicans, which could prove critical in some pending actions involving open access, third-generation wireless services, compensation schemes for telephone carriers, and other activities.

Kennard had been set to lose his chairmanship Jan. 20 but could have stayed through June as a commissioner. Instead, he said, "Our work is completed here." He said he will spend a few months as a fellow at the Aspen Institute and will focus more time on his 10-month-old child before committing to any future position.