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FCC Approves AOL-Time Warner Merger

Aired January 12, 2001 - 10:07 a.m. ET


DARYN KAGAN, CNN ANCHOR: Joining us now to discuss the AOL-Time Warner merger and what it means to consumers: two of the men at the helm of this operation. Joining us from the New York Stock Exchange, where we saw them ring the opening bell about 35 minutes ago, we have chief executive officer Gerald Levin; and with him, co-chief operating officer Robert Pittman.

Gentlemen, good morning, thanks for joining us here.

For a moment, can we forget about the corporate bigwigs and the government officials that you've been dealing with over the last year or so, and talk to the average consumer, let's just say, in Kansas City. Why should they care about this merger, and how is it going to change the two screens -- their television screen and their computer screen?

Gerry, why don't you start.

GERALD LEVIN, AOL TIME WARNER CEO: Well, I'm delighted we're taking Kansas City; that's where my wife hails from.

What you're going to see, and let Bob describe it -- you're going to be able to do all these things that you've now become fascinated with on AOL. All of the communications, the transactions, the information -- that you're used to having your television set as something separate when you watch CNN.

All these things are going to come together now so that we have what we're calling convergence, in the ability to communicate, to conduct your daily life; and it doesn't matter where you are or what instrument you want to use -- Bob.

ROBERT PITTMAN, AOL TIME WARNER CO-COO: Yes, and I think what we're going to is that you'll get an array of almost everything you want in your life.

I heard you talking a little bit about, well, we block things -- AOL doesn't block things. You can get to anything you want; as a matter of fact, on the new versions of AOL, right up there you have a screen, you can put in any URL you want to...

KAGAN: Yes, but you do steer towards certain Web sites.

PITTMAN: Well, what we do is we try and find what people are looking for. And if we guess wrong, the consumer will leave us because we're a company that fundamentally believes the consumer is in charge and what we do must satisfy them. Otherwise we're kidding ourselves and we're not going to have a business.

So you'll often see us change stuff around; if something new emerges on the Web, we'll figure out how to get it in a more prominent position or how to promote more because we know people want to get there faster. And the key to AOL is making it easier for you, making it more intuitive.

Now, of course, what we're doing is reaching not only for the Time Warner brands, but for the other brands out there in the world so that the consumer can get to them online in an easy, time-efficient way. And I think that, by having the assets together with an AOL Time Warner allows us to develop this world much quicker and, obviously, drag the whole industry along with us because we have a whole array of partners.

And, as I said, we have an open world in which we allow every Web site to exist through AOL; so everybody benefits from this and, therefore, the consumer gets more of what they want, when they want it, where they want it.

LEVIN: You know, a couple of things, Daryn: First of all, the notion of interactive television has been a long time dream for many of us. Now, with this new company we're going to be able to deliver on that promise. The other really stunning statistic is that the AOL members, for example, are averaging about 65 minutes a day using their service. So it's really invested itself into the everyday lifestyle of the consumer.

PITTMAN: And I think, if you go back to, what is this for the consumer? We have this "tell me a story box," which is the TV, and you have this "manage my life" box, which is the PC. And what they're beginning to do is you're going to share some functionality across the two; not to change the heart of what these are, but to make each a little better.

KAGAN: Give us some insight as to why this took so long for this approval to go through. It was approved, but with restrictions; and one of those restrictions, you have to let other companies share in the instant messaging.

Bob, maybe you can give us an idea of why such a huge deal, such a huge merger came down as one of the sticking points -- a little box that goes in the corner of a computer screen. What is it about instant messaging that's so special?

LEVIN: Well, instant messaging -- and Bob will describe it -- is just a wonderful feature, not only for the AOL members, but it's generally available, really, to everybody on the Internet.

It took a year and a day because we wanted to have the time to really integrate the company; and, as a byproduct of that, it took, you know, the European Commission and the FTC and the FCC time to study this because I think we have to step back and recognize that this is not a traditional merger. There's something very profound about this, and I think the regulators really had to take a look at it from that point of view.

But the instant messaging condition, which came last night through the FCC really applies to advanced instant messaging, and it's something that we subscribe to.

PITTMAN: And I think, beyond that, a condition that wasn't there, which we're committed to, is making instant messaging widely available to everyone. We started doing this on our own about three or four years ago by offering AOL Instant Messenger for free to people who aren't AOL members. And then we took another step, which is we started offering it to our competitors to embed in their services so that we could link it all together. And now we might even -- if we can figure it out -- hopefully soon, allow people, through other devices and other ways of doing it, to link into the instant messaging system.

But the one criteria we care about is the consumer experience. We don't want to turn into a home of spam, junk mail, viruses; so we've got to make sure the security is there, otherwise our members, who pay us money and are very important to us, would be very upset.

KAGAN: You're concerned about them, but the FCC is concerned about other companies. Have you decided which other companies are going to get to share in instant messaging?

PITTMAN: Well, we already have deals with Apple, EarthLink, I think, Juno. If you're on the Web, you can just go to the site and pick up AOL Instant Messenger and no matter what service you use, you can use AOL Instant Messenger without having to subscribe to AOL.

So I think we've already done that on traditional instant messaging; we're committed to it. Are there more things we can do? Absolutely. Are we working on it? Absolutely. And as we get to advanced instant messaging, we fully intend to make it inter-operable. I think that's what the FCC was talking about. That's in our plan.

KAGAN: And a look into the future -- instant messaging -- this isn't just going to be cute little messages where you talk with your friends across the country; we're going to see, what -- music sharing and also video -- and possibilities endless on that?

LEVIN: Well, remember that instant messaging is really an exquisite form of communication. And I think you'll see a lot of it used internally in business; it can be used for customer service. There's also an important social use: if you could have teachers and students and parents all communicating so that there is a dialogue that doesn't currently exist. It has a lot of potential for our society.

KAGAN: And then, real quickly, on investors: when this deal was announced a year ago it was a $164 billion deal, now estimated at about $111, $112 billion deal. Why should people buy AOL stock now? LEVIN: Well, clearly, you know, we've seen where the market has gone during this period. We've put out a set of financial objectives that make this a global, large capitalization growth stock, a $40 billion revenue. But also (UNINTELLIGIBLE) approximately $11 billion, growing at 25 to 30 percent. There are very few companies in this world that can even match that kind of growth...

KAGAN: Gerry, got to cut you off there because we're going to have to start the FCC news conference. You'll probably want to stay plugged in and listen in.

LEVIN: We'll watch with you.

KAGAN: OK, you stay tuned with us.

Gerry Levin, Bob Pittman, heading up AOL Time Warner.

Let's listen to the FCC news conference on this very topic.

WILLIAM KENNARD, FCC CHAIRMAN: Wants to make sure that, as the phone network migrates to this exciting new place called the Internet, that some of the old competitive issues that we had to deal with in the telephone world, like monopoly domination, aren't replicated in the Internet space.

Anyone who knows anything about instant messaging knows that it is a very, very compelling technology, particularly for young people. Young people are using it to communicate; it's an augmentation to chat rooms and whatnot.

And imagine a world in which one company controlled all of the telephone numbers that people need to communicate with one another. Well, that is the danger if we don't allow a competitive marketplace for instant messaging. There's a danger if one company would be allowed to dominate that essential database, called the names and presence database, that people need to communicate with one another over instant messaging.

So we have imposed some very narrowly tailored, minimally intrusive conditions to make sure that as this technology grows and develops, it will develop in a competitive environment.

Specifically, with respect to instant messaging, we want to make sure that either the industry adopts an industry-wide standard for interoperability, something that AOL and Time Warner have told this commission that they plan to do, or if, failing that, that they enter into contracts with competitors in the instant-messaging world to ensure that they can talk to each other, that these databases are interoperable.

In reading some of the press coverage this morning, I noted that there was a little bit of confusion about when these particular conditions kick in. The trigger is when AOL Time Warner uses the cable assets to deploy what we call advanced instant messaging. That is, when they use things like streaming video over their broadband cable platform and marry that with instant messaging, that's when the conditions kick in. And, of course, if at that time AOL can prove to the agency that these conditions are no longer necessary, then they won't be applied.

The other area that the FCC acted in is the area of open access. As many of you know, the FTC approved this merger prior to the FCC, and they imposed some conditions in a consent decree on this open- access point. I want to be very clear that the FCC and the FTC worked very closely together on this merger. We had a very good, cooperative relationship. The FTC appropriately enforces the antitrust laws. The FCC has a different legal standard. So our conditions on open access deal with our view of what the public interest requires in this area.

And our principal concern is making sure that all broadband competitors, particularly ISPs that want to use cable systems to compete, will be able to do so, and that they will have access to the consumers and have a direct billing relationship. And so when consumers want to use an ISP that is not necessarily affiliated with Time Warner AOL, they'll be able to do so. If they want to contract with Earthlink or one of the other providers, we want to make sure they can do so.

Before I answer your questions, I want to, in particular, thank my colleagues on the commission. All of the five commissioners worked very hard on this transaction. We had a very robust debate and I think at the end of the day, our decision is much stronger for it. I also want to thank the key staff people who worked on this transaction, specifically, Deborah Lathen (ph), chief of our services bureau, Jerry Fallharber (ph), our chief economist, and Dave Farber (ph), our chief technologist.

I am very pleased that this transaction is now complete. I had announced earlier that at the completion of this transaction, I would announce my departure from the agency. Earlier today I sent formal resignation letters to the president and the vice president announcing that I will be stepping down from the commission a week from today, January 19. I have decided that although my term as a commissioner extends until the end of June of this year, I have decided that our work is completed here and it's time for me go.

With that, I'd be happy to accept any questions that you may have.

KAGAN: We have -- there we are. A little surprise there.

We were listening there to William Kennard, the head of the FCC talking about the merger of AOL and Time Warner, which has been approved, but approved with conditions, meaning that the new company, AOL Time Warner has to allow access to things like instant messaging and also allowing other ISPs -- something like EarthLink, you might use that -- if you want to access that through AOL -- you have to be able to do that.

Also William Kennard announcing that he is stepping down as head of the FCC. The wires -- and we're also getting word here at CNN that the next head of the FCC, appointed by the president-elect will be Michael Powell; happens to be the son of General Colin Powell.



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