Federal Communications Commission staff members also have concluded the agency should press Time Warner (twx) to open its high-speed cable lines to competitors beyond the extent to which the companies already have consented, people briefed on the review said.
The FCC staff proposals are only a first step in the merger review, which will continue for another month before it goes to the full commission for a vote. While the proposals could change significantly, they show the initial thinking of regulators who could make or break the deal.
Much of the review has been focused on terms and conditions to address the agency's main concern: that the merging companies give rival Internet-service providers access to Time Warner's high-speed cable lines. The agency also is expected to take a first step Wednesday toward a national Internet "open access" policy that would apply to all high-speed cable-television operators, not just AOL (aol).
The proposals now on the table suggest FCC staff members are ready to recommend that the agency approve the $129 billion transaction, though with conditions that could reach beyond what AOL and Time Warner have said they would accept. The companies have said they intend to open their cable lines to competitors and will eventually open their instant-messaging services, but have fought some of the conditions now under consideration at the FCC and the Federal Trade Commission, which is conducting its own review.
Instant messaging raised red flags during the FTC's antitrust investigation, but agency officials are expected to defer to the FCC on the issue because AOL's dominance of the powerful new medium isn't changed by the companies' combination. The FCC has a broad "public interest" standard for approval of the transaction, while the FTC review is narrowly confined to antitrust enforcement.
Although the agencies' analyses are separate, the FTC and FCC have begun coordinating their efforts, people close to the reviews said.
A lawyer for the companies said "no deal-breakers" had emerged yet in discussions with the FCC. An AOL spokeswoman added that the company's assurances on open access for Internet providers to cable lines "go beyond anyone in the industry." On instant messaging, "we have said all along that we support open instant messaging so long as consumer privacy and security can be worked out."
Under one of the FCC staff proposals, AOL would have to open its instant-messaging service to users of other messaging services either six months after FCC approval of the merger or as soon as AOL enables the two separate instant-message services it now operates, AOL Instant Messenger and ICQ, to interact, whichever occurs first, people who have been briefed on the proposals said.
The proposal would allow users of AOL instant-message services and rival providers to exchange messages, which pop up instantly on a recipient's screen. Currently, users of AOL services can send messages only to other AOL users, and AOL excludes rival services, such as Microsoft Corp.'s (msft) Messenger. AOL's two services have 138 million total registered users, or 34 million average monthly users, data given to the FCC by AOL show.
FCC staff members are grappling with technical issues, including how AOL should be required to help potential rivals in the delivery of messages to AOL's customers by correlating user names with the Internet protocol address, a unique number that identifies individual computers on a network.
And in another recommendation that could draw opposition from AOL, the FCC staff also suggested rivals should have access to "presence detection," a powerful technology that lets the service provider -- and advertisers -- know whether a user is online and using what device, such as a mobile telephone or computer.
Instant messaging wasn't a major concern for the FCC early in the merger review, which focused on how to implement open access for cable lines and cross-ownership issues with AT&T Corp. (t). But after agency staffers studied the potential of instant messaging, they began a full investigation of the issue and asked to meet with AOL's smaller rivals.
Johnny Scarborough, a vice president with iCast Inc., an instant-messaging firm in Woburn, Mass., said the agency staff met twice with AOL rivals and asked detailed questions about interoperability, privacy and security. "They were very concerned, especially about how a merged AOL and Time Warner might strengthen their dominance in the future," he said.
The FCC's concern on instant messaging is fueled in part by doubts that the company will act quickly to open its services to rivals. In letters to the FCC and FTC Tuesday, Sen. John Kerry (D., Mass.) said that AOL had dragged its feet on developing interoperability standards and warned that the merged companies could dominate future instant messaging.
AOL (aol)The preliminary FCC proposals also would require AOL, Dulles, Va., and Time Warner, New York, not to discriminate against instant-message rivals or degrade their services.
Though no consensus has emerged, FCC staff members also are examining the tangled ownership ties between AOL, Time Warner and AT&T, and the future of Road Runner, a high-speed Internet-service provider part-owned by Time Warner and AT&T.
The FCC has given itself 180 days to finish its review. That means approval of the deal could come by mid-October, if the companies and the agency can agree on terms.
