Consumer Groups Seek FCC Restructuring of AOL Time Warner and AT&T Media One

(April 26, 2000) Several consumer groups filed a petition with the FCC on April 26 seeking restructuring of the companies involved in the AOL Time Warner merger and the AT&T MediaOne merger.

The petition was filed by the Consumers Union, Center for Media Education, Consumer Federation of America, and Media Access Project. The four also held a press conference in Washington DC to denounce both mergers.

The petition was filed in the Federal Communications Commission's license transfer proceeding associated with the proposed merger of America Online and Time Warner. However, the petition also asks the FCC to impose conditions upon AT&T and MediaOne.

The Federal Trade Commission is the agency with statutory authority to conduct an antitrust merger review of the merger. The interest groups also filed a copy of their brief with the FTC.

The petition states that "the AOL Time Warner merger is inconsistent with the public interest and should be rejected or substantially restructured by the Federal Communications Commission (FCC)." [At page 4.]

"An emerging AT&T-AOL duopoly through the combination of AT&T/MediaOne plus AOL Time Warner has a pervasive impact across several markets and concentrate ownership in many different aspects of market structure." [At page 4.]

The petition requests that the AOL Time Warner merger be stopped by the FCC. However, as a practical matter, the FCC does not block mergers and other transactions (by denying the transfer of licenses); rather, it extracts concessions from the parties as conditions for approval. Accordingly, the consumer groups' petition seeks, in the alternative, that FCC impose certain conditions upon AOL and Time Warner, and AT&T and MediaOne. (AT&T and MediaOne are not a party to the proceeding.)

These conditions include "open access" and restructuring through divestitures. The petition states that,

"if the Commission nonetheless were to grant the applications in any form, it should, at the least, impose the same kind of requirement for "open access" to the parties’ cable systems as America Online, Inc. ("AOL") has asked to be imposed upon AT&T Corp. ("AT&T") The Commission should also require divestitures and/or structural safeguards, as discussed below.  Specifically, the Commission should:

a) require AOL to divest its interest in DirecTV’s ultimate parent, General Motors;

b) require Time Warner, Inc. to divest its interest in Road Runner, the second largest cable broadband ISP;

c) require AT&T and MediaOne Group, Inc. ("MediaOne") to divest their interests in Time Warner, Inc. and Time Warner Entertainment Co., LP ("TWE") respectively, or prohibit AOL and Time Warner from consummating the merger until AT&T and MediaOne divest these interests." [At page 2.]

"AOL Time Warner involves a complex web of cable and Internet properties that would be in a position to thwart competition in many markets across the country," said Gene Kimmelman, of the Consumers Union. "This merger links AOL with AT&T, making them the two largest cable companies in the United States controlling over half of America's cable lines and nearly half of the most-watched channels on cable TV. They would also control access to more than half of the narrowband Internet subscribers and three-quarters of the broadband Internet customers."

Kimmelman was joined at the press conference by Andrew Schwartzman (MAP), Mark Cooper (CFA), and Jeff Chester (CME).

Kimmelman and others stated that the purpose for seeking restructuring was to avoid "another Microsoft."

Schwartzman stated in response to a question that his group had been contacted by large ISPs which urged him to file this petition. However, he refused to identify any ISPs.

The group representatives were also asked whether companies using other technologies, such as DSL, were competition for this "duopoly". Kimmelman and Schwartzman responded that DSL is an inferior technology.

The petition was prepared by Harold Feld, Andrew Schwartzman, and Cheryl Leanza of the Media Access Project.