Cable elite watching AOL-Time Warner progress

In what would be the largest-ever corporate merger, Internet access giant AOL and Time Warner, a media and entertainment powerhouse, hope to combine to create a $350 billion company. The marriage would give AOL access to Time Warner's cable systems so it could deliver high-speed Internet access, among many other potential benefits.

But federal regulators are scrutinizing the proposed merger, and cable executives are watching the combination closely for clues to the regulatory climate and the future of their industry. Nearly a year after being proposed, the merger is a hot topic at the Western Cable 2000 show here, an annual cable industry convention.

"This is the largest ISP and the largest face on the Internet and one of the most senior and largest media companies. The government has a responsibility to review it," AT&T Broadband chief executive Dan Somers said during a panel discussion. "I don't think anything will come out of this to damage the merger, and it will be helpful in defining some of the long-term future of the industry."

The deal, if approved, would have broad implications not only over the cable industry, but over the entire communications sector.

Competitors such as AT&T, Comcast and Cox Communications will learn many lessons from the combination depending on the conditions federal regulators might impose on AOL and Time Warner--or on whether the deal is ultimately scrapped. One such potential condition, which would have implications across several industries, is the issue of "open access."

Many ISPs and consumer advocates are pushing for cable's Internet systems to be opened to multiple competing ISPs. Early deals such as Time Warner's recent pact with EarthLink, in which the media giant will offer EarthLink's high-speed Internet services over its cable systems, already are being viewed as templates for others in the industry to follow.

In addition, if after a few quarters of integration the AOL-Time Warner merger proves successful, it could be seen as a clear sign that combining content and network delivery systems is a sound strategy, despite the reservations of some cable operators such as AT&T.

So for a variety of reasons, the combination of AOL and Time Warner is on the minds of conference-goers here as executives try to forecast and shape the future of their industry--a future increasingly dictated by federal regulators and fewer players.

Some industry luminaries are fretting under the watchful eye of three different regulatory bodies, including the Federal Communications Commission, the Federal Trade Commission and the Department of Justice.

"There are just too many cooks in the kitchen," John Malone, chairman of Liberty Media Group, a major TV programming company, said on the panel. "We have to be careful that this review doesn't become so intense that commercial transactions become impossible."

Anti-regulatory cries are commonplace in the cable and communications industries, particularly at conventions such as this. But the cable industry--via megamergers such as AOL and Time Warner's and recent takeover binges by AT&T and Charter Communications--has opened itself to greater regulatory scrutiny.

Analysts, too, are wondering whether approval of the proposed AOL-Time Warner deal could drag on for months, causing uncertainty in the cable industry.

"This thing might be like the election," said Cynthia Brumfield, an industry analyst and author of the Broadband Intelligence newsletter. "It could be tied up with lawsuits and court cases."

Still, others say the AOL-Time Warner merger review is not holding the industry back as it awaits an outcome.

"We have so much to do, so much on our plate in terms of getting these new services out there quickly, that I don't think it's affecting us at all," said Spencer Kaitz, president of the California Cable Television Association. "It does create uncertainty. The agitation by ISPs and the FTC over multiple ISP services on our facilities before our facilities are even fully upgraded--that's a big problem, and it does frighten us."

FCC Chairman William Kennard and Oracle chief executive Larry Ellison, both scheduled to speak here Wednesday, did not attend.