FCC conditionally approves AOL-Time Warner deal

Before delivering the deal's final blessing, the US Federal Communications Commission took overt steps to make sure AOL-Time Warner does not use its combined strengths to dominate the evolving IM (instant messaging) market.

Specifically, the FCC said that before AOL Time Warner can begin tying together broadband technologies, such as streaming video and IM, the company must work more diligently to develop an industry-wide IM standard.

The FCC laid out its set of conditions just weeks after the US Federal Trade Commission came out with prescriptives designed to pry open AOL-Time Warner's cable infrastructure to competing ISPs.

FCC Chairman William Kennard said letting the merger go forward without specific IM constraints would prove one day to be the equivalent of allowing a single entity control of the nation's phone system.

"Imagine a world in which one company controlled all of the telephone numbers people needed to communicate," Kennard said at a press conference, where he also announced his resignation, effective January 19, as part of the transfer of power to the new Bush administration.

Kennard said IM's potential became apparent during the FCC's year-long review of the blockbuster merger. "I don't know when AOL-Time Warner will marry its cable and IM assets. But when they do, consumers will be protected," Kennard said.

But Michael Powell, a Republican FCC commissioner who is considered Kennard's likely successor, said the agency's IM conditions were based on the FCC's "own sweeping technical conclusion" about how fast IM applications will take off. Powell supports the merger but frowns on most of the government's conditions on the deal.

Largely a consumer-focused technology wildly popular among teens, IM technology is expected increasingly to find its place among corporate applications as well, said Navi Radjou, an analyst at Forrester Research.

Radjou described scenarios in which IM could be tied to operations on a manufacturing floor. In real time, people and even machines could use the technology to alert managers of process failures.

Now that the FCC has tied AOL's involvement in the development of an IM standard, the company will likely be more active in those efforts, Radjou said. "With FCC's directive, [AOL] is going to be pressured to really work with the other guys to develop a standard," he said.

Groups such as the Internet Engineering Task Force (IETF) have been working on an IM standard. But many industry watchers claim AOL has stood mostly on the sidelines of that effort. AOL has said it is reluctant to allow competitors such as Microsoft Corp. and Tribal Voice Inc. to use its infrastructure because of privacy, security, and spam concerns.

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