Internet Eases Pressure on Media Mergers

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Washington -- The Clinton Administration's top
merger-review chiefs last week signaled to Congress that the Internet explosion could
lessen the competitive impact of media mergers, but said they would not let deals go
through without close review.

Joel Klein, chief of the Justice Department's antitrust
division, and Robert Pitofsky, chairman of the Federal Trade Commission, told a Senate
subcommittee that large media mergers warrant close scrutiny, however, the Internet's
multimedia features and openness could counter fears of an information bottleneck.

"There are some major mergers going on in this
industry, but there is also innovation in the form of the Internet," Pitofsky told
the Senate Subcommittee on Antitrust, Business Rights and Competition. "Whether there
is more concentration right now or less concentration, I am not absolutely sure."

The subcommittee, headed by Sen. Mike DeWine (R-Ohio), is
not authorized to approve or disapprove mergers. But lawmakers often invite regulators to
hearings to share their concerns about the specific mergers that the agencies are
scouring.

Pitofsky said the FTC closely reviewed Time Warner Inc.'s
merger with Turner Broadcasting System Inc. That agency planned to block the deal unless
Time Warner agreed to carry a competitor to CNN and insulated the influence of
Tele-Communications Inc., which acquired a 9 percent stake in Time Warner by selling its
Turner shares.

"I am concerned about concentration in the
media," Pitofsky said. "We were concerned about it when we were reviewed Time
Warner-Turner-TCI about four or five years ago."

Pitofsky's agency has taken the lead in the government's
review of America Online Inc.'s planned $152.8 billion acquisition of Time Warner, the
largest media merger ever. Both companies have vowed to open their cable systems to
competing Internet-service providers and to permit unlimited video streaming, a potential
source of competition to cable.

"I do look at each of these mergers, especially the
mega-mergers, with heightened concern," Pitofsky said. "There is no question in
my mind that we should give these transactions a most careful review."

Appearing before the same panel, Klein was asked by Sen.
Herb Kohl (D-Wis.) whether he was concerned about "a very few companies controlling
the broadband delivery of the Internet."

In his response, Klein struck a hopeful note, echoing the
Federal Communications Commission's view that the broadband market is in a nascent stage
that is worth monitoring closely, but not ripe for regulation.

"It is very early in the process of broadband
rollout," Klein said.

Klein's division is reviewing AT&T Corp.'s proposed
$50.4 billion merger with MediaOne Group Inc., which would leave AT&T with stakes in
the two leading cable modem service providers: Excite@Home Corp. and Road Runner.

Cable modems could hold the key to breaking open local
phone markets, Klein said, providing consumers with a competitive choice in voice, data
services, and Internet access.

"It can bring you voice, it can bring you Internet
access and it can bring you data," he said. "If there are three or four pipes in
the digital transmission in broadband, we will see competition that we haven't seen in
these media."

Promoting access was central, according to Klein.
"Let's get lots of means of access," he said.

Asked to provide more merger information by the FCC, AOL
and Time Warner told the agency that anti-competitive concerns were misplaced.

AOL and Time Warner said their commitment to open access
would promote competition in the ISP market and that the momentum they have created would
likely prompt other cable operators to adopt the same policies.

"Indeed, the merging parties have been outspoken about
their expectation that other cable operators will follow their lead," the two
companies said.

The merger would spawn the creation of new products and
services that the companies could not develop under joint contract, they said. They
dismissed notions that AOL's 22 million subscribers, when combined with Time Warner's
500,000 Road Runner high-speed Internet customers, would lead to excessive concentration
in the Internet-access market.

"There simply are too many competing ISPs and too few
subscribers to the Road Runner service to create any significant effect," the
companies said.

AOL and Time Warner, which said they would not need waivers
from FCC rules to consummate their deal, said AOL's $1.5 billion investment in General
Motors Corp. -- the parent of DirecTV Inc., the leading direct-broadcast satellite rival
to cable -- was too small to warrant regulatory concerns.

"The investment was not intended to, and does not,
provide any opportunity for AOL or the merged entity to participate in DirecTV's video
programming operations," they said.

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