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It’s finally done.


Thursday January 11 10:17 PM ET AOL Acquires Time Warner After FCC Approval

By Jeremy Pelofsky

WASHINGTON (Reuters) – Internet giant America Online Inc. on Thursday acquired cable and media conglomerate Time Warner Inc., becoming the world’s largest media company after winning conditional approval from the Federal Communications Commission.

Exactly a year and a day after the companies announced their historic marriage of old and new media, the five-member FCC unanimously agreed to let AOL and Time Warner go forward despite a dispute over what conditions to put on the companies.

However, the commissioners voted 3-2 to place restrictions on the new company’s advanced instant messaging system when it runs over Time Warner’s cable lines. They also voted to force further access to the cable pipeline by competing Internet services.

“These conditions are designed to protect the open competitive nature of the Internet,” FCC Chairman William Kennard said. “They protect consumers and avoid heavy-handed regulation by using a narrowly-tailored market opening approach.”

The FCC approval, after months of internal discussion at the agency, allowed the world’s biggest Internet services provider to close its $106.2 billion purchase of the media and cable conglomerate to create an unparalleled company spanning television programming, movies, magazines and cyberspace.

Time Warner has the second-largest collection of cable systems in the United States and an enormous publishing arm that includes Sports Illustrated and People magazines while AOL has close to 29 million Internet subscribers, including 2.6 million CompuServe members.

The two companies won antitrust approval from the Federal Trade Commission on Dec. 14 after agreeing to open cable television lines to several rival Internet service providers before launching AOL’s own service and allowing consumers a wide choice of content. THE NEW AOL TIME WARNER

The companies closed the deal late on Thursday and the new media and Internet behemoth will be called AOL Time Warner with headquarters in New York City. It will trade on the New York Stock Exchange under the symbol “AOL” .

Shares of AOL closed up $2.34 to $47.23 while shares of Time Warner shares rose $4.19 to $71.19.

“AOL Time Warner will lead the convergence of the media, entertainment, communications and Internet industries, and provide wide-ranging, innovative benefits for consumers,” Steve Case, chairman of the new company, said in a statement.

Prior to the combination, the companies had said they expected revenues of more than $40 billion in their first year, growing at 12 to 15 percent a year.

“We are hitting the ground running with a clear road map for creating value for our customers, business partners, shareholders and employees,” said Gerald Levin, chief executive officer of AOL Time Warner.

Although consumer groups had pressed hard for regulators to put strict limitations on the combination, one organization hailed Thursday’s action by the FCC as a step toward expanding consumer choice.

“What could have been a disaster for consumers now holds the potential to promote competition and consumer choice,” Gene Kimmelman, co-director of Consumers Union said in a statement. The companies had hoped for quick FCC approval once they got FTC clearance but communications regulators became locked in weeks of debate over details of its own set of conditions.

The conditions adopted did not appease all sides however. The two Republicans on the panel, Michael Powell and Harold Furchtgott-Roth, disagreed with attaching any conditions, while Democrat Gloria Tristani wanted tougher ones on instant messaging. CONDITIONS ON AOL TIME WARNER

If the new AOL Time Warner launches advanced instant messaging services like video conferencing across its high-speed cable pipeline, it will have to make it interoperable with rival instant messaging services, the FCC said.

But, the commission stopped short of forcing AOL to make its current popular instant messaging software that allows real-time chats via typed messages interoperate with that of rivals like Microsoft and ExciteAtHome .

“At the end of the day, I believe the record and the anti-competitive theory did not support mandating interoperability,” Powell said in a statement.

While Tristani pushed hard for the tougher condition she said ”voting in favor of the decision serves consumers better than lodging a dissent.”

The instant messaging conditions expire in five years but AOL Time Warner can petition the FCC earlier arguing that the conditions are no longer necessary because contracts with big competitors have been reached or an industry-wide standard for interoperability exists.

As for access for rival Internet service providers (ISPs) to the new company’s cable lines, which can offer consumers high-speed Internet service, the companies were required to allow consumers to have their pick of ISPs carried on the cable lines.

AOL Time Warner cannot pressure consumers to subscribe to its own Internet service and must allow the unaffiliated ISPs on thesystem to choose the content of their opening page. The rival ISPs can also have direct billing with their customers, according to the FCC.

Additionally, the FCC said it expects the new company to negotiate in good faith with small and regional ISPs as well as big ones. AOL Time Warner already has signed up EarthLink Inc., the No. 2 ISP in the United States, to offer its own Internet service.

Instead of subjecting AOL Time Warner to conditions on the nascent market of interactive television, the FCC said it will seek comment on the emerging technology.

However, the FTC antitrust authorities in its review of the deal prohibited the merged company from discriminating against content that passes through the systems provided by rivals like The Walt Disney Co.

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