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AOL-Time Warner Deal OK'd With Conditions
   Fox Market Wire
The new Internet frontier will merge with an old-school entertainment conglomerate as America Online and Time Warner — already giants in the fields of communications and entertainment — gained government approval for their $106 billion deal.

Pablo Martinez Monsivais/AP
Thursday: FCC Chairman William Kennard announces approval of the AOL-Time Warner merger.

But the Federal Communications Commission said the new AOL Time Warner must use its vast resources to give consumers more choices for Internet access, entertainment and communications. It set strict limits on the merger — the largest in U.S. history — to keep the behemoth from squashing its competition.

Conditions include the mandate that AOL make future generations of its popular Instant Messenger compatible with competing services offered by Microsoft, ExciteAtHome and AT&T.;

With the FCC nod, AOL and Time Warner crossed their last regulatory hurdle and swiftly moved to close the deal late Thursday — a year and a day after announcing the unprecedented combination of old and new media.

AOL Time Warner wasted no time in touting the benefits consumers could expect from the fusion of the nation's largest Internet provider and a media titan. Executives said the company would break new ground in emerging technologies such as digital music, high-speed Internet access and interactive television.

"Our brands, services and technologies already touch hundreds of millions of people," said Chairman Steve Case, whose former company AOL serves 26 million Internet subscribers. "We will embed the AOL Time Warner experience more deeply into their everyday lives."

Time Warner brings to Internet powerhouse AOL the cable networks CNN, HBO and the Cartoon Network; magazine titles such as Time, People and Sports Illustrated; and offers movies and other programming under its Warner Bros. labels. It has a vast system of cable lines, second only to AT&T; Corp.

New Chief Executive Officer Gerald Levin said the range of of media and entertainment that falls under the company's umbrella will "empower consumers in new and exciting ways."

But FCC Chairman William Kennard said the agency wasn't willing to rely on the companies' good intentions. Instead, the government set in place a series of conditions designed to define the company's role in offering growing services, while at the same time avoiding heavy-handed regulation of modern technology.

"It's all about preserving the open culture of the Internet," Kennard said at a press conference Friday. Kennard, a Democrat, also said he would resign from the agency now that the merger review is over. Republican Commissioner Michael Powell, son of Secretary of State-designate Colin Powell, is the leading contender to be nominated by President-elect Bush as the next FCC chairman.

Public interest groups cheered the merger decision. Gene Kimmelman of Consumers Union said the government had "transformed a merger that threatened competition into one that could actually expand consumers' choices for high-speed Internet and interactive TV services."

Opening Services to Competitors

The combined company will be required to make AOL's popular instant messaging service communicate with services offered by rivals. But that won't happen until instant messaging evolves to next-generation services offered over Time Warner cable lines. That could include two-way video teleconferencing or the sharing of music clips and other files between users.

Before AOL Time Warner can offer such advanced services, it must either implement an industrywide standard to make different services communicate with each other or enter contracts to show its system can operate with at least three rivals within six months.

Microsoft, ExciteAtHome and AT&T; had sought a broader condition forcing AOL to open its existing messaging service — the short, real-time text messages millions of consumers now use — to competitors.

The commission also fine-tuned requirements that antitrust regulators had put in place to protect consumer choice for high-speed Internet services. The Federal Trade Commission already had ordered AOL Time Warner to offer on its high-speed cable lines Internet providers other than AOL, such as EarthLink or Juno Online Services.

On Thursday, the FCC determined that consumers should be allowed to see their selected Internet provider as the first screen when they log on to their computers. That prohibits AOL from making its service the first screen and requiring consumers to open another link to get to their preferred provider.

The agency also required that AOL rivals carried on Time Warner's high-speed lines be allowed to directly bill their customers.

In yet another evolving market, that for interactive television, the commission did not impose any conditions on the companies directly. But it pledged to take a broader look at the whether to set rules for how interactive content is distributed. Interactive signals enable consumers to do things like look up information on a team while watching a sports game or click on a commercial to make a purchase.

The cable industry argues that the service is too new for the government to get involved.

European regulators cleared the deal in October, but not before pressuring Time Warner to withdraw a separate joint venture proposal with EMI Group of Britain, which would have reduced the number of major record companies in the world from five to four.

The Associated Press contributed to this report

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