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AOL/Time Warner Merger Gets European Approval

More concerned with music than open Internet access, the European Commission on Wednesday conditionally approved America Online, Inc.'s $135 billion merger with Time Warner, Inc.

AOL's acquisition of Time Warner concerned EC officials, who saw the merger as a possible detriment to music distribution and paid-for-content Internet access. As a salve to commissioners, AOL agreed to remove Germany-based media giant Bertelsmann AG from its joint ventures in AOL Europe and AOL Compuserve in France.

Mario Monti, one of the 20 commissioners who made up the ruling body in the case, said the merger satisfies the commission's concerns over competition.

"The commission has a duty to prevent creation of dominant positions in all sectors, be they in the old or new economy," Monti said. "In a music market already characterized by a high degree on consolidation, the danger, which has been averted, was that by allowing AOL to team up effectively with three of the five majors the resulting integrated company could have dominated the on-line music distribution market and music players."

Broadband Internet access, the commission said in its statement, did not play a role in its decision as both companies had no broadband infrastructure in Europe. In a joint statement released by AOL and Time Warner shortly after the commission's announcement, the companies said they are on track to gain U.S. approval this fall.

"We are very pleased with today's approval of our merger by the European Commission, another important step forward in the approval process," the statement read.

How this affects the merger proposal in the U.S. remains to be seen. While music distribution was a major concern for European interests and the major stumbling block in the merger deal for AOL, keeping the Internet open is the only thing worrying American officials.

The Federal Trade Commission, the U.S. version of the EC, most likely will rule on AOL's acquisition of Time Warner, with strong input from the Federal Communications Commission.

AOL, the largest Internet service provider in the world with about 23 million subscribers, would have access to the largest cable network in the U.S., through Time Warner. It's a proposition that has critics more than a little worried.

"It's important to remember that the merger conditions were an appeasement for European competition concerns regarding content and was well within the scope of the European Commission," said Dr. Mark Cooper, director of research for the Consumer Federation of America. "The commission was concerned about what affected European consumers. It's exactly what the FTC should do when it reviews the merger; determine the concerns to American competition.

"How many cable systems in Europe are owned by Time Warner?" Cooper continued. "None, of course. It's something the FTC will need to look at and we've been pressing them, asking for non-discrimination for people who want access to Time Warner's cable."

To address those concerns, Time Warner officials moved to reassure officials it would open up cable access to competing ISPs, quickly signing an open access deal with Juno Online, Inc. earlier this year and opening the doors to others.

Details of the contract were slipped to the media, producing a furor. According to the ISPs, many of the restrictions in the contract would actually prevent them from offering cable Internet access. Some of the restrictions included Time Warner taking 75 percent of the revenues and controlling user policies and billing.

"Clearly, Time Warner dusted off one of their old cable TV contracts and passed it off to the ISPs," Cooper said. "They were quick to say it was just a starting point after the media found out about the contracts."

In a statement to the FCC, when it was holding hearings July 27 about the prop