From Arrogance To Approval

Robert Schmidt

The Battles Behind The Scenes That Led To The Rules Restricting AOL Time Warner

This article adapted from the April issue of Brill's Content

Last fall America Online CEO Steve Case and Time Warner chairman Gerald Levin made their way to the office of Federal Trade commissioner Mozelle Thompson in Washington, D.C. It was the executives' first and only official session with Thompson, who had been assigned by Federal Trade Commission chairman Robert Pitofsky to shepherd the review of AOL and Time Warner's proposed merger through the agency. Along with four other commissioners, Thompson was to assess the deal for antitrust violations and ensure that the new company would not unfairly dominate the market or harm consumers.

The meeting was cordial, and Thompson was asking general questions when suddenly, as one person there recalls, Levin interrupted.

"The problem with you, Mr. Commissioner," he said, "is that you don't understand the Internet and how it works."

A staff lawyer gasped. Thompson, in fact, is one of the most knowledgeable FTC commissioners on Internet issues; he even taught a graduate class at Princeton University called "The Next Generation Internet Policy."

(Neither AOL Time Warner nor Levin would comment on the meeting.)

Levin's faux pas was typical of the companies' missteps as they navigated the regulatory process: It showed a surprising lack of understanding with whom they were dealing. The incident also spoke to a certain arrogance: From the day AOL and Time Warner announced their merger, in January 2000, they displayed absolute confidence that officials would easily approve it.

Yet, even after FCC approval came Dec. 14, the companies had one more hurdle to jump: the Federal Communications Commission. Because the FCC -- whose standard for approving the merger was that it be in the public interest -- worked closely with the FTC, the FCC's endorsement was nearly guaranteed. Still, it was not until Jan. 11, 2001, that AOL and Time Warner could legally combine their companies. The final approval came only after one of Washington's most brutal lobbying battles, one that drew combatants ranging from multinational competitors to provincial Internet startups to Beltway public interest lobbyists. And it came at the price of unprecedented restrictions on the powerful new company's operations.

Tough tactics

AOL Time Warner is the largest media company ever created. The merger married AOL's nearly 27 million online subscribers with Time Warner's content factory, which includes Warner Bros. movies, CNN, HBO, Warner Music Group, Time magazine and Sports Illustrated, to name a few. Time Warner's other big asset is cable television; the company services about 13 million cable subscribers (20% of U.S. cable households). Although the new company's reach is enormous, much of its power is still only speculative. The high-speed (broadband) Internet is in its infancy and used by few consumers. Cable seems to be the medium of the future for broadband, which is also offered via telephone lines (digital subscriber line or DSL), wireless technology and satellite. AOL Time Warner will surely also become a leader in the convergence of television and the Internet -- a platform called interactive television, which could change how news and entertainment are delivered -- and in instant messaging, which portends the meeting of the Internet and telephones.

AOL and Time Warner don't apologize for what they call tough negotiating, and some FTC staffers said that AOL and Time Warner conducted themselves professionally.

"I don't agree that they made missteps. I think it was a tough negotiation with talented lawyers," said Richard Parker, then-director of the FTC's Bureau of Competition.

For their part, AOL and Time Warner contend that they always were willing to make concessions.

But although AOL and Time Warner officials said they were confident about getting approval, their actions during the final week of FTC review showed how close the deal came to disintegrating. Washington-based public-interest lawyer Andrew Jay Schwartzman, who lobbied for government restrictions on the merger, said that AOL officials urged him and his cohorts to back off.

"They were calling us in a panic, [saying,] `You guys are pushing too hard; the whole thing is going to blow up; the Time Warner people are going to walk,'" Schwartzman recalled.

(An AOL Time Warner spokesman said he knew nothing about this conversation.)

For its part, the FTC prepared two separate press releases the day of the vote, one announcing the agreement and the other saying that the agency was suing AOL Time Warner.

The 5-0 FTC vote, said commissioner Thomas Leary, "could have gone the other way."

The fight surprised even veteran dealmakers, such as Time Warner president Richard Parsons -- now co-COO of the combined company -- along with Robert Pittman, who had helped guide Time Warner through two other contentious mergers.

In January, about a week after the deal closed, Parsons said what surprised him most was how many businesses crept into the process to challenge the proposal.

"We didn't anticipate that there would be this outpouring of complaints and objections," he said.

In the end, regulators imposed tough, far-reaching conditions, set to last five years. Most importantly, AOL Time Warner had to commit to "open access" -- allowing at least three competing Internet service providers (ISPs) onto its cable lines -- ideally ensuring a diversity of voices in this new medium. The company also agreed that AOL will not give up its DSL service in areas where Time Warner provides cable, and AOL will keep the same pricing it offers for DSL service in non-Time Warner Cable areas.

The agreement also forbids AOL Time Warner to discriminate against other ISPs' content, including interactive television, which flows through AOL Time Warner's cables.

Moreover, AOL Time Warner will be watched by a "monitor trustee," paid for by the company but supervised by the FTC. The trustee is Dale Hatfield, an academic with the University of Colorado at Boulder who worked at the FCC until the end of 2000. He can subject AOL Time Warner to a degree of scrutiny unprecedented for a media company. Competing businesses, public-interest advocates and consumers can complain to the trustee if they think the company is violating the agreement. An ISP that suspects AOL Time Warner is trying to drive up the fee for Internet connection can ask the trustee to look into the deal. A rival that believes AOL Time Warner is restricting access to competitive online content, perhaps by making it harder for a consumer to find, can ask the trustee to investigate. In short, a monitor will look over the shoulder of one company -- AOL Time Warner -- that competes with a host of other companies that have no such overseer.

Regulatory cloud

"A regulatory cloud was put over their head," said Gene Kimmelman, co-director of the Consumers Union.

AOL Time Warner executives said they will have no problem working with the monitor trustee, whose power, they contend, is limited.

Still, the conditions are even more notable because back in January 2000, when the merger was announced, Time Warner's Levin and AOL's Case told reporters that they expected few regulatory problems. The two companies didn't trigger standard antitrust concerns: They did not have overlapping businesses or dominate their respective markets -- mainly cable and content for Time Warner and the Internet for AOL. Throughout the merger review process, AOL and Time Warner maintained this posture, which may have been a mistake.

"They took a public position, a public PR war before they even started [the review process]," FTC commissioner Thompson said in February. "It's not an effective strategy to pursue over here."

The year-long battle royal reveals how money and influence work in Washington and how multibillion-dollar media corporations take to the halls of Congress and the private offices of the regulators to achieve the business goals that elude them in the free market.

The companies and groups that lobbied against the deal are among the top names in the communications business. And their lobbying often smacked of hypocrisy: Conglomerates that routinely fight regulation now implored regulators to impose restrictions on AOL Time Warner. Among the parties knocking on commissioners' doors were Microsoft, General Electric (NBC), Disney (ABC), BellSouth, Verizon Communications, SBC Communications, AT&T, RCN (Starpower) and a host of smaller ISPs from across the country. Public interest organizations worked openly on the campaign, including the American Civil Liberties Union, the Center for Media Education, the Media Access Project, the Consumer Federation of America and the Consumers Union. Many companies acted in private, fearing recrimination from AOL Time Warner; one of the biggest stealth objectors was Internet portal Yahoo!, which played a key role in persuading the FTC to restrict the merger. Executives such as Michael Eisner of Disney, Bill Gates of Microsoft, Sumner Redstone of Viacom (CBS), and Rupert Murdoch of News Corp. (Fox) followed the negotiations closely. Eisner, for example, met with FTC commissioners last summer. Gates, at the end of the FCC's review, called FCC chairman William Kennard and pleaded for the commission to require AOL to make its instant messaging system compatible with that of rivals. Barry Diller's USA Networks lobbied behind the scenes, as did Vivendi Universal (Universal Studios).

Everybody in the process was afraid. The content companies were scared AOL Time Warner's control of the cable pipes might keep content from consumers. Consumer groups feared the huge conglomerate would stifle the little guy. Regulators were afraid restrictions would be either heavy-handed or inconsequential because of the rapid changes occurring in the market "on Internet time." AOL Time Warner worried any conditions would limit its ability to compete.

Disney stunned

Disney's chief Washington lobbyist, Preston Padden, had his own brush with fear at about 6 a.m. Jan. 10, 2000. In the basement of his suburban-Washington home, Padden heard news of the merger while exercising on his NordicTrack.

"I lost my rhythm and just fell off, onto the floor," he recalled. "It was just a stunning announcement."

The new behemoth (by the end of the regulatory process, AOL Time Warner's value was $112 billion) would make even Disney seem small.

Still, Padden and his bosses at Disney had to be persuaded to challenge the merger. Disney -- which owns movie studios, ABC and ESPN, among other properties -- is the second-largest content company in the world, behind AOL Time Warner. But Disney also relies on Time Warner's cables to connect its television networks to viewers. Disney worried that cable companies would control Internet access as they had controlled cable programming and had been watching a spate of mergers in the cable industry for the past few years. AT&Ts acquisitions of Tele-Communications Inc. and MediaOne Group, two of the nation's larger cable operators, posed problems for Disney, but company executives didn't want to anger the cable companies by opposing the deals.

Open access

However, Disney considered AOL Time Warner, with its content business and Internet dominance, especially dangerous. Shortly after the merger was announced, Padden met with Disney's top executives in Los Angeles. His bosses endorsed his plan for a quiet lobbying campaign on Capitol Hill, at the FTC and the FCC to herald Disney's newfound concern for open access.

AOL had long supported open access. The company was one of the top financial supporters (paying $100,000 in annual dues) of a lobbying coalition called openNET, which had been pushing the issue on Capitol Hill for the past few years. As the country's biggest ISP, AOL also was worried about getting access to the cable pipes. AOL lobbyist George Vradenburg III had been urging Padden -- and Disney -- to join the group.

But once the proposed merger was announced -- and AOL effectively bought the cable lines -- that lobbying stopped. In what The Washington Post called a "stunning reversal," AOL shifted from asking for the government to mandate open access to insisting that the market would do a better job.

"We always hoped [open access] would come through the marketplace, rather than having to have government get involved," Case said at the press conference.

Levin agreed.

"We are going to take the open access issue out of Washington, out of city hall, to the marketplace," he said.

AOL and Time Warner went straight to Capitol Hill. Although Congress has no official role in the merger approval process, the Senate and the House influence public opinion by holding hearings and writing to the FTC and the FCC expressing either concern or support. Case, Levin and Time Warner president Parsons placed more than 50 "courtesy calls" to key senators and representatives, including the chairmen of the committees that would soon hold hearings. The executives also dispatched their lobbyists, including AOL's Vradenburg and now-retired Time Warner lobbyist Timothy Boggs to discuss any contentious questions that might be raised during the public hearings.

Trying to head off concerns about open access, AOL and Time Warner put out a "memorandum of understanding;" though not binding, it promised that the companies would open their cable lines to other ISPs. Hearings began in February and went smoothly.

The process was bumpier at the FCC, which had to decide whether to approve the transfer of cable and broadcast licenses from Time Warner to the new merged entity. The companies' first FCC filing was a 22-page document that barely addressed any of the serious issues, saying only that the merger would serve the public by speeding development of the Internet.

"The FCC went nuts, as they should have. It was a huge tactical error," said Andrew Jay Schwartzman, head of the Media Access Project.

At the FTC

Nor did the two companies make many friends at the FTC.

"It's rare that a company announces a merger and then goes to Capitol Hill before talking to the regulators," said commissioner Thompson.

What's more, he noted, the companies took an adversarial stance toward the FTC inquiry, much of which is initially merely fact-finding.

Some FTC officials and staff thought AOL and Time Warner were stonewalling, revealing as little information as possible. During the September meeting with AOL CEO Case and Time Warner chairman Levin, FTC commissioner Thompson recalled Case saying that interactive television "didn't exist."

(An AOL Time Warner spokesman refused to comment on conversations at this meeting.)

Thompson looked down at his desk, where he had a copy of eCompany Now magazine (a Time Warner publication), the cover line of which was "Interactive TV -- It Exists!"

PR blunder

On May 1, 2000, at 12:01 a.m. -- in a major business blunder -- Warner pulled ABC's television programming off its cable systems in seven markets, including New York, Los Angeles and Houston. The screen turned blue.

Moments later, another screen appeared that said, "Disney has taken ABC away from you."

Time Warner cut ABC because of a dispute over the price Time Warner Cable would have to pay to carry certain networks Disney owned. Disney, sensing that Time Warner couldn't afford to make waves while regulators were examining the merger, pressed for a deal on highly favorable terms.

In addition to asking Time Warner to pay much more than Time Warner thought it should, Disney wanted a provision that would require Time Warner not to favor its content over Disney's on the Internet and with interactive television. Without a new contract to replace the one that had just expired, Time Warner yanked ABC just as the May sweeps period, which Disney uses to set advertising rates, was starting.

The move was a PR fiasco. The mayor of New York and members of Congress castigated Time Warner. Suddenly, the word "monopoly" was being uttered on Capitol Hill.

Disney took out full-page newspaper ads that said: "Only an arrogant monopolist would drop its most popular channel to retaliate against ABC for raising questions about Time Warner's stranglehold over your television, cable and Internet access."

Padden began planning war. He had already scheduled meetings with The New York Times' editorial board and a deputy mayor of New York, and the next day, he dropped in on the editorial board of the New York Post. He and ABC president Robert Iger appeared on CNN, CNNfn, CNBC, ABC, CBS and NBC.

That night, Padden flew to Los Angeles, where he met with the Los Angeles Times, the Orange County Register and various cable franchising authorities. While Padden was talking to the Register's editorial board in the afternoon, someone handed him a note. Time Warner, during a live press conference, had announced it was putting ABC back on the air.

But the damage was done.

"Pulling the channel was a significant kick up," conceded Parsons. "It galvanized Disney to sort of lead the charge and legitimize all of this."

It became apparent to competing lobbyists in Washington that after the ABC blackout, AOL took greater control over the government relations work, relegating Time Warner to the background. As more members of Congress started to pay attention to the merger, Time Warner's lobbyists were nowhere to be seen. Instead, AOL's lobbyists started meeting with congressional staffers. Some were quick to point out that their company was not the one that had pulled the plug on Disney.

Secret meeting

On June 5, Preston Padden called a secret meeting at Howrey Simon Arnold & White, a high-powered firm of lawyers and lobbyists representing BellSouth and other Bell telephone companies, General Electric, RCN, USA Networks and representatives from a coalition of ISPs -- about 20 companies in all. There was also a smattering of public interest advocates who make their careers fighting corporate interests.

Despite the crowd, however, only four public interest groups and BellSouth agreed to join Disney in combating the merger. All who attended sympathized with Padden's arguments that AOL Time Warner would become the gatekeeper of the Internet, but many were afraid of taking on such a powerful conglomerate. While the opposition was building, AOL and Time Warner turned their attention to Europe.

The two companies were facing a deadline for getting their merger approved by the European Commission, the governing body of the European Union. The EU's concerns were different because they dealt only with AOL and Time Warner's much smaller European market share. The EU antitrust officials quickly homed in on the new company's potential to dominate online music sales. After almost five months of negotiations, the EU forced Time Warner to withdraw from a planned merger with music giant EMI Group, one of the world's largest music companies.

The two companies spun the EU's approval, which came Oct. 11, as a victory and a big step toward winning approval in the United States, but that was not quite the case. As AOL and Time Warner officials soon discovered, there was a firestorm waiting for them at home.

"We finally got out of Europe ... and in the fall turned to the FTC, [where our competitors] had built up quite a head of steam around this open access issue," said Parsons.

"The Video"

Christopher Curtin, Padden's chief lieutenant in the lobbying battle, spent most of his time in Washington, but for a three-week period in May, Curtin was bicoastal, masterminding a top-secret project Disney was creating to help win over members of Congress and the press. The idea was simple: How do you explain interactive television and the broadband Internet to important legislators who barely know how to turn on a computer?

The answer: Make a video. Curtin's project came to be known in Washington as "The Video."

With a script from a Disney screenwriter in Los Angeles, Curtin flew to New York, where the film was shot at ABC's studios. The company hired an actor to play the role of a television reporter, who walks the viewers through a litany of what a combined AOL Time Warner could do if allowed to dominate the market.

Disney blanketed Washington with the 10-minute "Consumer Choice in the Broadband Marketplace of Tomorrow." It plays like a hyped-up newsmagazine story, complete with on-air reporter, threatening music and flashy graphics. One scene shows AOL Time Warner making it impossible for viewers to participate in an interactive version of ABC's Who Wants to Be a Millionaire. Another scene notes that AOL Time Warner would have the power to slow access to competitors' Web sites. The video was sent to key congressional staffers in late July, but in one of the lobbying battle's odder twists, AOL received an advance copy of the video by mail, leaked, as Newsweek reported, by an ABC employee who identified himself as "Mickey."

The video was part of a much larger Capitol Hill lobbying campaign.

"We wanted to create a political environment in which the people at the FTC and FCC would feel safe and comfortable doing whatever they thought was the right thing," said Padden. "We wanted to take away any fear that if they acted to preserve competition that they would get in trouble on the Hill."

The opposition campaign also forced AOL and Time Warner to spend a lot more time on Capitol Hill answering Disney's charges and soliciting letters from members of Congress in support of the merger.

Political contributions also played a role in the lobbying efforts. For the 1999-2000 election cycle, AOL gave $1.7 million to candidates, up from $149,500 for the 1997-98 election cycle, according to the Center for Responsive Politics, a money and politics watchdog group. Though corporations, including Time Warner and Disney, make political contributions all the time, AOL's 1,037% increase is noteworthy when compared with Time Warner's 28% increase and Disney's 27% increase during the same time period.

Public interest

Not all lobbying is political arm-twisting. The Center for Media Education's Jeffrey Chester, a fast-talking '60s liberal and one-time independent film and television producer, told me how the opposition brought in an important philosophical element by enlisting Stanford law professor Lawrence Lessig. Lessig, a pioneering academic in the study of cyber law, "helped transform the dimensions of this issue; it was one of our tactics, to fight this out philosophically," Chester said. "I knew I couldn't win politically against AOL Time Warner; they have too much clout, too much money and too much power. We needed to frame [the debate]."

Chester had brought Lessig to Washington in late 1999 for a policy briefing on open access, meetings with various foundations and visits with the editorial boards of USA Today and The New York Times. Once the AOL Time Warner merger was announced, Chester brought him back to Washington in February 2000 to meet with FTC chairman Robert Pitofsky and with staff at the House and Senate antitrust subcommittees.

"We succeeded in getting people to see that the principle affected [by the merger] was a principle that affected innovation on the Internet in general," Lessig said. "It was not just Preston Padden's politics."

Lessig was able to link the issue of openness on the Internet to the success of the Internet economy. He brought an economic argument to members of the public-interest community, which had been fighting the merger because they were worried about the diversity of content -- which had little to do with the FTC's job of ensuring open markets for competition.

Lessig found FTC chairman Pitofsky sympathetic. After his February meeting, Lessig came back in August to talk to Pitofsky, and it was clear to Lessig that Pitofsky understood his arguments.

"I could see how every step of the way he got it, and he was just pushing to the next step," said Lessig.

Meanwhile, as the summer ended, the two sides were still far from a settlement. Much of the talks remained focused on open access. Parker was convinced he had a strong case in defense of some form of government regulation before the deal could be approved. Lawyers from AOL and Time Warner still believed they had the upper hand because there was almost no business overlap between the two companies -- which, they believed, meant they would win in court. The FTC, of course, thought otherwise, and the talks often devolved into posturing over who would make whom look bad in court.

"It was a very intense time from August on," said Parker, now in private practice.

When AOL and Time Warner finally met with the FTC commissioners, in September, commissioner Thomas Leary said he made it clear that he had serious questions about the deal.

AOL and Time Warner's initial strategy was essentially to say "Trust me."

Trust was not an option for the regulators, who still clearly remembered Time Warner's decision to pull ABC from its cable networks four months earlier.

An onerous deal

Stephen Heins, the director of marketing at a small ISP from Oshkosh, Wis., helped blow a hole in AOL and Time Warner's "trust me" approach. Heins' company, NorthNet, has 2,500 residential subscribers and 250 business customers. About five months before the merger was announced, Heins had met with Time Warner's regional office to negotiate a deal that would allow NorthNet to provide its Internet service over Time Warner's broadband cables.

Nothing happened.

Once the proposed merger was announced and AOL and Time Warner said they were committed to open access, Heins tried again. And again.

"The more they said and the less they did, the madder I got," said Heins.

As he stewed, Heins acquired an important document -- a term sheet Time Warner had sent to another small ISP that was trying to negotiate a deal to use the cable company's lines. The onerous terms of the deal -- Time Warner wanted 75% of the ISP's subscription revenue and 25% of its advertising and e-commerce revenue -- were explosive. The ISP was also required to make a $50,000 deposit to Time Warner and a minimum monthly payment of $30 for every one of Time Warner's subscribers who switched to the rival provider.

Heins knew that such a deal would drive ISPs out of business. The one problem, however, was that the small provider had signed a confidentiality agreement, barring it from revealing the terms of the deal.

For two months Heins thought about the agreement. He had gotten it from a friend, whom he did not want to implicate. But the lobbying battle over open access was heating up in Washington, and Heins knew that small ISPs could be ruined if the deal wasn't restricted. On Oct. 4, when he hand-delivered the term sheet to the FTC, Heins found a receptive audience. He met for four hours with staff attorneys and economists.

"It was a very eye-opening meeting for them," he said.

Partly because of the term sheet and partly because of AOL and Time Warner's intransigence, the FTC stance began to harden. With little progress in the negotiations, the FTC was forced to push back the September deadline. By the end of October, negotiators at AOL and Time Warner began to feel an agreement was within reach. They offered a deal, in which Time Warner would put another ISP on its network at the same time that it put on AOL.

In addition, within 90 days of that deal, AOL Time Warner would sign on two other ISPs.

But the FTC wanted AOL and Time Warner to actually sign a contract with a rival provider before getting approval. When commissioners met in early November, it was clear that they still had problems with the merger. The FTC voted to extend its review for three more weeks, and the decision motivated AOL and Time Warner.

"As we worked with the FTC, it became clearer and clearer that this was a key piece of the puzzle to solve," said Time Warner's Parsons. "We needed to kind of give those guys ironclad assurance there was going to be a paradigm or a format under which at least multiple ISPs would be on it."

During the summer, AOL had been negotiating carriage contracts with several ISPs, including EarthLink (the second-largest provider behind AOL), Juno Online Services and Microsoft's MSN. Part of the problem, as AOL and Time Warner saw it, was that none of the ISPs wanted to make a deal because they were all hoping AOL Time Warner would have to make even bigger concessions to get regulatory approval. No one, it seemed, wanted to be first.

But with the deadline approaching, AOL and Time Warner got serious. Eleven days after the November decision to extend the deadline, they reached a deal with EarthLink. According to press reports, the contract called for EarthLink to pay about 60% of its monthly high-speed subscriber fees as well as a portion of its e-commerce revenue to AOL Time Warner.

Now approval seemed close, but as AOL and Time Warner feared, as the FTC reviewed the EarthLink contract, an even more powerful presence emerged to lobby regulators: Microsoft. The FTC asked Microsoft to weigh in with comments on the EarthLink deal, and the company was happy to oblige. Spurred by the approaching deadline and wanting more restrictions on interactive television, the Bell phone companies, Disney and the public-interest groups returned to the FTC for a final attack, along with Yahoo!, a significant -- and clandestine -- player. Yahoo! privately pushed for conditions on open access and interactive television, according to people familiar with the last-minute lobbying.

(A Yahoo! lobbyist said reports of Yahoo!'s involvement were "inaccurate.")

AOL and Time Warner particularly fought efforts to impose restrictions on their content because they believed that such conditions violated their First Amendment rights. The FTC was worried AOL Time Warner would not make its content available to other ISPs. The two companies argued it would be foolish for them to give up markets where they could sell their products. The two sides were rapidly approaching another impasse

Concession made

On Dec. 13, the night before the FTC voted on the merger, AOL and Time Warner agreed to forward complaint letters written by ISPs to AOL Time Warner's general counsel.

According to FTC commissioners Leary and Thompson, this concession was essential to the two of them voting in favor of the deal. The next morning, the five commissioners voted to approve the merger.

At a press conference, Pitofsky praised the deal, noting: "This order provides that AOL Time Warner cannot interfere with the content of interactive television and cannot discriminate against competitors of Time Warner in any arbitrary way."

AOL Time Warner issued a statement saying that it was gratified the regulators had accepted the agreement, but it remained relatively quiet since it was still looking for FCC approval. That process would take another month -- again, longer than AOL Time Warner had anticipated. The FCC would impose a few more concessions before voting to approve the deal, the most important of which involved instant messaging; AOL Time Warner was ordered to open its instant messaging system to three competitors if it adds "advanced" services in the future. The agreement ordered the company to give competing ISPs control over the first screen users see when they go online; it also required AOL Time Warner to allow competing providers to bill their clients directly. On the issue of open access, the agreement prohibits AOL Time Warner from discriminating against other providers in the quality of service it gives them and requires AOL Time Warner to negotiate "in good faith" with rival service providers.

Most people, including executives at AOL Time Warner, the lobbyists who opposed the deal, and the regulators, believe that the concessions extracted by the FTC and the FCC will be good for consumers. Many think that AOL Time Warner's open-access agreement will likely become the de facto standard for the broadband market because the new company is the largest player.

"The old-fashioned cable and telephone model for information no longer applies to the Internet," said Thompson. "They will never get that genie back in the bottle."

Others are not so sure. Consumer activists and competing ISPs plan to keep a watchful eye on AOL Time Warner.

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