Consumer Groups Blast AOL-Time Warner Deal

WASHINGTON (04/26/2000) - Several consumer groups and Internet companies are calling on the federal government to block the pending merger of America Online Inc. (AOL) and Time Warner Inc. (TWX), or at least to scrutinize the two companies before approving the transaction.

Several consumer and media groups banded together to send a lengthy "petition to deny" to the Federal Communications Commission, asking it to block the merger, which was announced in January. Those groups, including the Consumer Federation of America and the Media Access Project, among others, say the merger would combine so many cable, Internet and media assets that a "dangerous new dimension" would be added to competition in the broadband Internet industry.

Time Warner spokesman Ed Adler says, "Our merger will deliver tremendous benefits to consumers, bringing people around the world more choice and more convenience, and accelerating the rollout of broadband services." AOL did not return telephone calls seeking comment, and the FCC declined to comment.

The consumer groups' concerns mirror those they raised at congressional hearings earlier this year. On Feb. 29, AOL and Time Warner published a nonbinding pledge to allow "open access" to the new company's broadband cable systems. Since AOL announced its merger with Time Warner, it has been forced to backpedal from its earlier stance as a champion of government-regulated "open access" to broadband systems.

In a statement, Mark Cooper of the CFA said, "Before AOL purchased a cable company, it claimed the cable industry had such a stranglehold on the emerging Internet that regulators need to impose nondiscriminatory open access rules for broadband transmission. The voluntary open access it has offered doesn't even come close."

The consumer groups argue that the merger would cement an "integrated duopoly" of broadband cable assets consisting of the new AOL Time Warner Inc. and AT&T Corp. (T) , which is hoping to acquire cable giant MediaOne Group (UMG) .

MediaOne owns a 25 percent stake in Time Warner's cable operation. The FCC is said to be preparing to demand that AT&T sell that stake, or spin off MediaOne's video programming holdings, as a condition for approval of the AT&T-MediaOne merger.

The FCC also has received public comments from several of AOL's competitors, including iCAST, an online entertainment company, and Tribal Voice, a communications firm. Both companies say AOL has aggressively blocked users of their Internet-based instant messaging software from communicating with users of AOL's own instant messaging software. But both companies stop short of calling on the FCC to block the AOL-Time Warner merger outright.

"In erecting this wall around its own customers, AOL is seeking to perpetuate its existing dominance of the IM market," iCAST said in its comments to the FCC. "The result of that dominance will be less consumer choice, less innovation and less competition."

The consumers groups and iCAST and Tribal Voice all intend to file private briefs with the Federal Trade Commission, which also is reviewing the merger.

An FTC spokesperson didn't return a telephone call seeking comment.

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