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The very thought occurred to Microsoft, a company whose domination of the software business made it one of the world's most valuable entities--and the target of a federal antitrust suit. Yet even the Micro-monopolists went running to the FTC to complain. "I never had a problem with the merger," Disney chairman Michael Eisner insisted to TIME this fall. "I have a problem with the fact that there might be a single entity that decides what intellectual property goes into the house."
Eisner is, of course, the guy who led the charge against AOL Time Warner at the FTC. And ironically, his case would not have had nearly as much resonance if Time Warner had not committed what one of its own executives calls "the stupidest business decision of the year." On May 1, after months of wrangling with Disney over a new retransmission contract for Disney's ABC television stations, Time Warner Cable shut the network off its system in New York City, Houston and Los Angeles.
Newspaper editorials decried the move as Orwellian. From Disney and Microsoft to a lowly Internet service provider in Oshkosh, Wis., competitors began turning up the heat. Separately, press accounts of AOL's take-no-prisoners approach to its business partners made the Internet entrepreneurs seem as predatory as the cable guys. By this fall, even the American Civil Liberties Union was claiming that the new company could be dangerous.
From the start, Case and Levin not unreasonably insisted that open access was integral to their companies' success. Why would Time Warner, which controls 20% of the nation's cable subscribers, close off competitors' access to its cable resources and risk its own access to the other 80% of the market? But after the Disney debacle, that sort of logic carried no weight.
FTC chairman Robert Pitofsky now had a hand to play, a sudden and broad public mandate to go after both companies. "In January you couldn't have found a lawyer in Washington who would have questioned this deal," says Richard Parsons, Time Warner's president. "It turned into an unbelievable and frustrating course for us."
Initially, the concern was that Time Warner would give AOL preferential or exclusive access to its cable network. That would disadvantage other Internet service providers, all of whom are looking to cable as the most versatile broadband delivery alternative. Companies like Disney complained that in addition to limiting open access, the new company might restrict interactive TV (ITV) services over TW cable. Then a roster of instant-messaging companies charged that AOL was preventing any competitor's messages from penetrating AOL's proprietary IM architecture. By the fall, when AOL Time Warner had initially estimated they would close the deal, "the FTC was hitting us with a new issue every week," says an insider.
In the end, Pitofsky could claim victory in that the FTC had established a template for regulation in the Internet age and had avoided the risk of losing control over the deal had he decided to sue to block the merger and lost. The new company was forced to relinquish its advantage in high-speed Internet service by agreeing to a deal that gives equal access to EarthLink, its largest competitor.