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

osed merger, Cooper warned officials to the dangers of a merger.

“In its recent filing at the FCC, America Online paints a rosy picture of
competition that will flow from its proposed merger,” Cooper said. “We see
a completely different landscape. The signs of actual and potential
anticompetitive problems are clear in the emerging market structure. When
Time Warner put Disney/ABC off the air at the start of a sweeps period, it
underscored the need for ‘open access’ and ‘open protocols.’ “

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