AOL-Time Warner merger must clear U.S. hurdle next

Despite being given conditional approval by the European Commission the merger of America Online Inc. with Time Warner Inc., still needs to pass regulatory approval in the United States.

The commission approved the deal Wednesday after AOL agreed to sever all structural links with German media group Bertelsmann AG [see story – European Commission gives AOL-Time Warner merger go-ahead].

Without a break from Bertelsmann, AOL Time Warner would have controlled the leading source of music publishing in Europe, as Bertelsmann and Time Warner together hold approximately one third of the European market in music publishing, the commission said in a statement. The commission also said it feared that “nothing would have prevented AOL from dominating the emerging market for Internet music delivery online.”

Similar concerns from a varied legion of interest groups, corporate competitors and federal regulators have held up approval in the United States. Several consumer groups lined up against the merger, filing a 115 page petition asking the U.S. Federal Communications Commission (FCC) to scrap the deal.

Testifying before congress in July, media and cable services companies, including Walt Disney Co. and BellSouth Corp., said AOL and Time Warner together would discriminate against other media competitors trying to reach consumers — be it with cable-television programming, interactive TV or broadband Internet — via the merged company’s cable services. Disney’s complaints came shortly after a highly publicized dispute led to Time Warner dropping ABC and other Disney-owned stations from its cable offerings for two days during ratings sweeps weeks.

Companies providing instant messaging services like Yahoo Inc. and Microsoft Corp. have also opposed the merger. The companies claim that AOL is stalling movement toward an interoperable standard between competing software and AOL Instant Messenger, considered the most popular service. AOL has said that questions of privacy and security have kept it from settling on an open standard. The U.S. Federal Trade Commission has pressed for a resolution to the instant messaging issue and has expressed concern over a potential cable monopoly growing from the merger, but has not formally moved to block the deal.

Regulators have also been concerned about AT&T Corp.’s 25.5 per cent stake in Time Warner Entertainment, acquired with AT&T’s purchase of MediaOne Group Inc. In the latest of several letters sent to the FCC, counsel for AOL and Time Warner argued that AT&T’s limited partnership stake is non-voting and non-controlling, that it “carries with it no management rights and no meaningful role.” The FCC made the letter public Tuesday.

AOL, in Dulles, Virginia, can be reached at Time Warner in New York can be reached at Bertelsmann, in G

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