Internet TV debate slows FCC vote on AOL-Time Warner

By Jeremy Pelofsky, InfoWorld |  Government

(REUTERS) -- The emerging interactive television market has become a last-minute point of debate as the Federal Communications Commission tries to wrap up consideration of America Online Inc.'s purchase of Time Warner Inc. , sources said on Wednesday.

There is still vigorous debate over how the agency will address the issue, if at all, but the agency hopes to rule on the merger in the coming days, sources familiar with the situation said.

AOL, the world's biggest Internet service, has launched an interactive television (ITV) product, AOLTV, and stands to hold a substantial share of the emerging market with the acquisition of Time Warner and access to its cable lines.

ITV essentially marries Internet features like e-mail and surfing with television, allowing consumers to communicate with each other while watching a show or to interact with programming or advertisements.

ITV relies on television and cable lines to achieve the data speed it needs -- speed far surpassing what typical telephone modems used to access the Internet and e-mail can offer.

The planned merger would bring together Time Warner's vast array of content such as magazines, movies, and cable stations and AOL's pool of 26 million customers to create the world's largest media company. Some rival content producers have worried the combined behemoth could discriminate against them.

To alleviate those concerns, the FCC has been considering whether to impose conditions on the merger directly or address the broader industry with rules relating to ITV.

Specifically, the FCC has been considering proposing rules that would prevent all ITV providers from discriminating against content from rival companies at the same time it issues its decision on the merger, sources familiar with the situation said.

However, the cable industry has urged the FCC not to go that far, suggesting instead that it simply open an inquiry into the matter, one source said. An FCC spokeswoman declined to comment.

"This is a market that hasn't even been established yet," said David Beckwith, a spokesman for the National Cable Television Association. "There is some interactive TV out there but not much and the vast majority of markets don't have it."

In giving its blessing to the proposed merger last month, the Federal Trade Commission already put limits on AOL and Time Warner that regard interactive television.

The FTC approved the combination after the companies agreed not to interfere with content passed along its systems, including interactive signals, triggers or other content AOL and Time Warner agreed to carry.

The FCC is on the verge of acting on the $84.3 billion combination, the final regulatory hurdle the two firms must clear before merging.

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