Kennard: AOL-Time Warner Is Encouraging


Washington -- America Online Inc.'s purchase of Time
Warner Inc. is an example of the marketplace bridging differences over access to
cable-data networks, instead of regulators doing so, Federal Communications Commissions
chairman William Kennard said last week.

"I think it's encouraging," Kennard said at
a press conference to announce his agenda for the year ahead. "The compact that was
reached between AT&T [Corp.] and MindSpring [Enterprises Inc.] and some of the
statements that we've seen around this AOL-Time Warner transaction are

Kennard spoke out for the first time nine days after the
announced deal, which was valued at $144 billion last Thursday.

AOL chairman and CEO Steve Case and Time Warner chairman
and CEO Gerald Levin last week committed to opening their cable networks to unaffiliated
Internet-service providers, hoping to quell the open-access furor that AOL ignited in

In December, AT&T and MindSpring sent Kennard a letter
that outlined open-access principles to which they had agreed.

"I have been saying since the very beginning of this
debate that the marketplace should work this out. We can't say today that this will
necessary happen, but the signs are encouraging," Kennard said.

Asked whether the AOL-Time Warner union would complicate
AT&T's $56.4 billion bid for MediaOne Group Inc., Kennard declined to discuss any
linkage between the deals. If both mergers are approved, AT&T and AOL will share
control of a limited partnership with 9.7 million cable subscribers.

"We don't even have a record on AOL-Time Warner
before," Kennard said. "Obviously, this transaction will raise some interesting
new issues that we haven't confronted before because it is a different kind of merger
than we've looked at."

Kennard added that he had no intention of acceding to
demands from consumer and public-interest groups that the FCC conduct an open-access

Also last week, Kennard, hoping to spur TV stations'
migration to digital, named digital-television compatibility with cable as one of his
goals in the year ahead.

In a speech last month, Kennard threatened to impose
compatibility standards if cable operators, broadcasters and TV-set makers fail to adopt
voluntary standards by April 1.

"We will be closely monitoring the industry's
progress in making digital television compatible with cable. This is going to be a very
important issue this year," he said last week.

Digital televisions currently on the market are
incompatible with cable systems because the sets lack digital interfaces and copyright

Although the National Cable Television Association and the
Consumer Electronics Association have agreed on standards, the CEA is refusing to build
the standard into all digital-TV sets, citing cost concerns.

Kennard is concerned that the absence of an agreement is
slowing TV stations' shift to digital. The FCC loaned every commercial TV station a
second channel free-of-charge to launch digital service, tying up billions of dollars in
spectrum until 2006 and probably beyond.

Kennard also said he expects the FCC to act on
AT&T's merger with MediaOne by the end of June.

He said he hoped to conclude by the end of March the
biennial review of the FCC's rules and regulations. One rule under review bans the
common ownership of cable systems and TV stations in the same market, but few expect the
agency to lift that restriction.

Kennard did not make any comments predicting FCC action on
digital must-carry rules or implementation of the Satellite Home Viewer Improvement Act,
which permits direct-broadcast satellite carriers to provide home dish owners with their
local TV signals.

In the past, Kennard said he hoped private-market deals
would lead to widespread cable carriage of digital-TV signals, and he promised to
aggressively enforce the new satellite-competition law.