AOL, Time Warner Clear FCC Hurdle

"Because this merger is a marriage of old media and new media, content and conduit, it raised some new issues for policymakers," Kennard said Thursday.

In addition, the FCC took steps to protect the Internet service providers that will one day compete with AOL by offering high-speed service on Time Warner cables. The FCC said AOL Time Warner may not interfere in the billing relationship with the customers of a competing service provider or dictate the content of the first screen that customers view when signing on.

Two FCC commissioners, Harold W. Furchtgott-Roth and Michael K. Powell, voted against imposing any conditions at all on the merger.

For Kennard, the AOL Time Warner approval will be the last major action of his tenure. Earlier Thursday, Kennard presided over his final FCC monthly meeting. He is expected to be replaced by Powell, the son of Secretary of State-designate Colin L. Powell, once President-elect George W. Bush takes office.

Kennard and other Democratic commissioners were eager to complete the merger review before Jan. 20, when Bush takes office.

Though winning government approval proved difficult, analysts say the real challenge for AOL Time Warner lies ahead in the integration of two companies with sharply different cultures and a staggering 85,000 employees.

"The day after the merger closes, you have to start thinking about how to put these two companies together," said Morton Pierce, who chairs the mergers-and-acquisitions practice at law firm Dewey Ballantine in New York. "A hidden benefit of the extended regulatory process has been that executives have had a fair amount of time to think about these things."

The new company will be led by Time Warner Chairman Gerald Levin, 61, who will be chief executive, and Case, 42, who led AOL as it avoided disaster in the early days of the Internet.

AOL President Bob Pittman, who will be co-chief operating officer of AOL Time Warner, already has been encamped in Time Warner's New York office, where the merged company will be based. The two companies also have been cross-promoting each other's products. For example, AOL has been selling subscriptions to Time magazine, which in turn is inserting AOL software into its issues.

Merged Company Braces for Challenges

Workers at both companies have been bracing for possible layoffs as AOL Time Warner strives to cut costs to meet its earnings and growth projections for the merged company.

Another challenge is the slowing economy. CNN, the cable network owned by Time Warner, is reportedly close to slashing hundreds of jobs.

A shakeout in the dot-com world has slashed AOL's stock price by more than a third since the deal was announced, eroding much of the premium that was to be paid to Time Warner shareholders.

On Thursday, AOL stock closed at $47.23, up 5%, or $2.34 a share. Time Warner gained 6%, ending the day at $71.19. The FCC approval was announced after the markets closed.

Time Warner has had its own share of problems. Declining ad revenue caused the company to warn last month that earnings would be lower than expected.

Though analysts once predicted a wave of similar combinations of old-media and new-media companies, few rivals have so far followed in the footsteps of AOL Time Warner.

"This is a daunting task," said Scott Reamer, analyst at SG Cowen Securities. "There are going to be structural, strategic and financial challenges. But the benefits will outweigh the risks."