One down for AOL, TW

Expected EC approval would be first step toward U.S. OK
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America Online and Time Warner this week are expected to clear the first of three obstacles now in the path of their $183 billion merger.

The European Commission is on track to approve the deal, after Time Warner agreed last week to drop plans to consummate a separate combination with the EMI Group. U.S. regulators also will begin the final phases of their reviews, as the Federal Trade Commission and the FCC both are expected to receive staff recommendations on the deal.

The FTC is expected to take the lead in setting cable open-access requirements and is likely to leave the instant-messaging issue to the FCC, which can use its broad authority to act in the "public interest" to get into areas where the government's power to step in is somewhat hazy. Both agencies are mulling whether to force the companies to cut financial ties to competitors AT & T and DirecTV.

The European Commission's pressure to kill the Time Warner/EMI deal alarmed two U.S. lawmakers, who, last Thursday, questioned whether the EC was motivated by "pan-European protectionism" rather than antitrust concerns. Sen. Mike DeWine (R-Ohio), chairman of the antitrust subcommittee, and Sen. Herb Kohl (D-Wis.), the panel's ranking Democrat, urged European Union Competition Commissioner Mario Monti to examine whether the organization should repeal a provision allowing the group to consider "social cohesion" in addition to antitrust concerns in merger reviews.

Joining EMI and Warner Music would have created an overwhelming presence in the European music-publishing business-three times larger than its nearest competitor.

Despite the lawmakers concerns, the toughest bargaining continues in the U.S., where the Federal Trade Commission and FCC continue negotiating the merger conditions' specific details.

Last week, AOL's critics pressed both agencies to go beyond measures that have been reported in press accounts.

Disney General Counsel Louis Meisinger told the House Telecommunications Subcommittee that Time Warner's proposed contract with Earthlink and other ISPs requiring them to turn over 75% of their monthly subscription fees and 25% of their ad revenue is the kind of unfair tactic consumers should expect if the government doesn't set specific limits on the company. "Anything less plays right into the hands of AOL-Time Warner," he said.

ICast chief executive Margaret Heffernan derided AOL's pledge to develop cross-company instant-messaging standards once it figures out how to protect users from junk and pornography e-mail. "That would be like believing the East German regime built the Berlin Wall to protect its citizens," she said.

Separately, the National Association of Broadcasters asked regulators not to limit open-access conditions to carriage of multiple ISPs, leaving out TV stations' demand that Time Warner end its practice of stripping broadcast electronic-program guides. NBC argued that Time Warner was reluctant to carry CNN competitor MSNBC until forced to by conditions imposed on the cable company's 1997 merger with Turner Broadcasting.

AOL and Time Warner officials accused Disney of abusing its participation in the merger-review process by circulating confidential merger documents to company officials. Disney said the leak was an accident, but the incident and other disclosures of confidential documents in the past two months are leading the FCC to pass a rule barring anyone with business before the commission from disclosing any restricting information.

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