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FTC to vote on AOL Time Warner; FCC looms

The Federal Trade Commission is nearing a decision on the proposed merger between America Online and Time Warner, with a vote scheduled for Thursday morning.

The Federal Trade Commission is nearing a decision on the proposed merger between America Online and Time Warner, with a vote scheduled for Thursday morning.

That vote, however, could still be put off. The five-member commission has let previous tentative deadlines come and go in the merger review and may do so again.

Assuming the vote comes Thursday, the commission will either issue a consent agreement with major restrictions attached to the deal or decide to take AOL and Time Warner to court in an attempt to block the deal, according to one person familiar with the matter.

The FTC declined to comment on its plans.

In the merger review to date, the commission has primarily been concerned with how the combined company will run its cable operations, an issue that has already led AOL and Time Warner to concede to offer rival Internet service providers access to its high-speed network. It is unclear whether those steps have won over regulators or whether regulators will demand further concessions.

Bill Kovacic, a George Washington University School of Law professor and antitrust expert, said the deal appears to rest on the resolution of the open-access issue.

"The FTC will come away saying, 'We have achieved a first-of-its-kind mandate for access to the broadband, cable-based capability,'" he said. "And it is that achievement that the FTC will hold out as being an acceptable concession by the companies."

If the FTC approves the merger, the decision will mark the clearing of the biggest regulatory hurdle set before AOL and Time Warner--but the companies face another potential impasse with the Federal Communications Commission.

The FCC declined to comment on the merger review. In the past, it has said it will vote on the merger after the FTC's outcome. The two commissions have been sharing information, and the FCC has hinted that it has already lined up its case regarding the merger.

Instant messaging a key topic
The agency independently may pick up on areas of concern that the FTC decided not to examine, according to people close to the FCC. Instant messaging, the technology that lets people exchange real-time text messages, will likely be a key topic of concern in the FCC's review.

AOL owns the two largest instant messaging services: AOL Instant Messenger and ICQ. Competitors have aggressively lobbied the FCC to force AOL to open its instant messaging network as a condition to approving the merger.

The FTC has already dismissed instant messaging in its review because the service is free and thus poses few commercial threats. However, the FCC can influence instant messaging policy if it deems that AOL's market lead negatively affects consumers or violates telecommunications law.

No matter what happens, it's been a long, strange trip for AOL and Time Warner over the past year.

When announcing the blockbuster deal in January, company executives and some legal experts dismissed the possibility that regulators would try to block the deal because the two companies did not have overlapping businesses.

But the companies have been forced to make concessions as conditions for merger approval. European regulators forced AOL and Time Warner to sever all ties with German media giant Bertelsmann. AOL and Bertelsmann were 50-50 owners of AOL Europe and other Internet joint ventures.

European pressure also played a role in Time Warner's decision earlier this year to abandon its proposed $20 billion acquisition of EMI Recorded Music. The European Commission approved the proposed merger in October.

The FTC has also forced AOL and Time Warner to make concessions before bringing the merger proposal to a vote. The companies recently inked a deal to offer rival Internet service provider EarthLink on Time Warner's high-speed cable network, an agreement largely viewed as necessary to appease FTC regulators. The commission wants the companies to live up to their promise that the merged company will open its cable network to rival Internet access services.

AOL and Time Warner have said the deal will close by the end of 2000 or at the beginning of 2001. But even if the FTC approves the deal Thursday, the pending FCC approval could drag the process well into the new year.

"The biggest unknown here is how long the tug-of-war between the FCC is going to take," Kovacic said. "Are they going to let that go on for maybe a month, or are they going to say, 'We are going to entertain the debates for several months'?"