Earth to TW
Internet access deal may propel AOL merger
The media giant said it signed a definitive agreement with independent Atlanta-based EarthLink to provide broadband services via Time Warner cable -- contingent on the AOL-Time Warner deal closing and on Time Warner cutting exclusive ties with high-speed service Road Runner.
Giant Time Warner cable has access to 20 million U.S. homes. It's currently not technologically able to offer more than one high-speed service. That will change but will require outlays of capital in the process. EarthLink sees itself up and running on Time Warner systems sometime in the second half of 2001.
EarthLink execs called the deal a breakthrough in the open access debate, and delighted EarthLink investors bid their stock up by nearly 17% to $8.34.
The Federal Trade Commission, which has been examining the merger, and AOL's smaller ISP rivals have worried that Time Warner could favor AOL on its cable systems and shut out competition. Time Warner and AOL had insisted they were committed to open access, but the FTC apparently wanted it in writing.
Time Warner said a self-imposed Nov. 30 deadline for the FTC to vote on the AOL-Time Warner combo has been pushed back two more weeks to allow the commission to review the EarthLink deal. That means the deal is likely to close in December or January, a bit later than expected. That may have weighed, on the partners' stock prices Monday as Time Warner shares fell 4.6% to $69.61 and AOL shares fell 5% to close at $47.09.
The Federal Communications Commission must approve the deal as well, but has stopped the clock, so to speak, until the FTC takes action.
The FTC has serious concerns about the merger and came close earlier this month to voting to go to court to block the deal after negotiations with AOL-Time Warner stalled. At the last minute, AOL and Time Warner said they wanted additional time to pursue the FTC-directed concession that they open up their cable lines to another major ISP.
Instant messaging is another concern, as is content. Competitors led by Walt Disney are concerned that Time Warner content will be privileged by a merged AOL-Time Warner, and they want reassurance that they will get equal access to AOL's 20 million subscribers.
Careful consideration
An FTC spokesman declined comment on the announcement. Another official close to the negotiations cautioned that federal regulators will carefully study the EarthLink deal but not give it an automatic greenlight.
And some are speculating that AOL and Time Warner want to wait out the undecided presidential race, since a victory by Republican contender George W. Bush could spell a more hands-off approach by federal regulators. The heads of the FTC and the FCC both serve at the discretion of the president.
Terms of the deal weren't announced. EarthLink noted that it will be in charge of setting its own price with its customers and said Time Warner Cable had promised to market and sell EarthLink services on a non-discriminatory basis. "We are confident we will get equal billing," said EarthLink CFO Lee Adrean.
Cable operators usually take a percentage -- sometimes as much as 65% -- of ISP fees. Analyst David Londoner of ABN AMRO Securities said that kind of a split would be a profitable arrangement for Time Warner.
