The Antitrust Revolution: Economics, Competition, and Policy

By John E. Kwoka Jr.; Lawrence J. White | Go to book overview

CASE 18
Access and Network Effects in the
“New Economy”: AOL-Time Warner (2000)

Gerald R. Faulhaber


INTRODUCTION

On January 10, 2000, Steve Case, CEO of America Online (AOL), and Gerald Levin, CEO of Time Warner, announced the acquisition of Time Warner by AOL. This merger was unique in many respects; it was at that time the largest merger ever proposed and consummated, valued at the time at $183 billion; it also was the first merger of “old” and “new” media, and by far the most significant Internet-related merger to date. The Federal Trade Commission (FTC) approved the merger with conditions on December 14, 2000. The Federal Communications Commission (FCC) approved the merger with conditions on January 19, 2001.

The principal economic issues at the FTC were: (1) Should the merged firm be required to offer its cable broadband Internet channels to Internet service providers (ISP) other than AOL? (2) Would AOL's acquisition of cable properties reduce its interest in deploying its ISP over digital subscriber lines (DSL), a competitive technology to cable for broadband Inter

The author was Chief Economist at the Federal Communications Commission (FCC) from July 1,
2000, through June 29, 2001, during which time the FCC considered this merger and issued its
order approving it with conditions. The author wishes to thank various colleagues at the FCC, sem-
inar participants at the American Enterprise Institute, April 25, 2001; George Washington Univer-
sity Seminar, March 1, 2001; Antitrust Division of the Department of Justice, May 8, 2001; and at
the Corporate Control and Industry Structure in Global Communications Conference, London
Business School, May 15, 2001. I am particularly indebted to Professors Jeremy Bulow (Stanford
GSB) and William Rogerson (Northwestern) for extensive conversations regarding the analysis of
this merger at the FTC, where both of them were active participants in the process. The views ex-
pressed in this paper are those of the author only, and do not represent the views of the FCC or any
other party.

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