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Friday, 12 January, 2001, 16:30 GMT
Consumers and the media giant

The merger of AOL and Time Warner may have created a corporate giant with a stockmarket value in excess of $200bn, but there are worries that the combination of old and new media firms could harm consumers.

AOL's rivals, including Microsoft, Yahoo and Excite@Home, did their best to lobby US regulators and warn them that AOL Time Warner could have an unfair advantage.

And consumer groups feared that the creation of such a media behemoth could actually reduce consumer choice and drive up prices.

One commissioner at the Federal Communications Commission (FCC) did argue for more forceful conditions to be imposed upon AOL and Time Warner, out of fear that the merger would hurt consumers.

But the dissent from Gloria Tristani did not prevent her from voting along with the other commissioners to approve the merger.

Consumer benefit

Steve Case, the new chairman of the combined group, is upbeat, calling the merger a "historic moment for consumers everywhere".

And he adds: "Our brands, services and technologies already touch hundreds of millions of people. We will embed the AOL Time Warner experience more deeply into their everyday lives."

And customers of AOL and Time Warner can indeed expect a wider experience. Easier, possibly even cheaper access to content that right now resides exclusively with one or the other.

But consumer advocates argued that this was not good enough. AOL and Time Warner might offer their customers an embarrassment of riches, but they would be produced only by the two companies.

Gene Kimmelman, of the Consumers Union in the United States, says his organisation was "enormously concerned about possible harm to consumers", when the merger was announced a year ago.

We have a fundamental interest in making the internet a level playing field and the AOL merger goes against that

James Love
Consumer Project on Technology

Potentially, the deal could have shut out competitors - depriving consumers of choice - and ultimately drive up prices.

James Love, director of Ralph Nader's Consumer Project on Technology, is adamant that government officials should protect the internet from monopolies, such as a combined AOL and Time Warner.

"We have a fundamental interest in making the internet a level playing field and the AOL merger goes against that," he says.

Mr Love argues that AOL has too much concentration in the content market and could use its dominant position to unduly influence consumers.

For example, if an AOL customer wanted to order flowers off the internet, he or she would be directed to companies favoured by the internet service provider (ISP).

AOL would also have excessive control over advertising banners and pricing, he says.

FCC restrictions

To address these concerns, regulators like the FCC imposed a number of restrictions, focusing on three areas:

  • AOL Time Warner should allow consumers to choose their own ISP from among those carried on Time Warner's cable lines
  • The combined company must allow any participating ISP to determine the contents of its subscribers' first screen
  • The firm must let each ISP have control over its billing arrangements
  • AOL's next generation of instant messaging must be made accessible to competitors

The Consumers Union, says Mr Kimmelman, is now happy: "What could have been a disaster for consumers now holds the potential to promote competition and consumer choice."

Simon Wallis, a media analyst at WestLB Panmure, agrees.

It is quite a concession to give this technology away

Simon Wallis
WestLB Panmure

He believes that provision to allow competitors access to AOL's next-generation instant messaging network is significant.

"It is quite a concession to give this technology away," he says. "It is such a killer application for AOL and is massively popular in the US."

The messaging application allows users of AOL to chat with friends online. Notably, AOL's current version of instant messaging will not be opened up to rivals.

However, any new application that could carry videos, for example, is seen as very powerful.

Mr Wallis points out that the FCC obviously does not want AOL to have any kind of monopoly over messaging, in view of the other advantages it will reap from the merger with Time Warner.

"The content on the first screen is less important because internet users are getting more sophisticated these days and tend to choose their own home screen anyway," he adds.

Despite the FCC's ruling, Mr Wallis says that regulators need "to keep an eye" on the new company to make sure it abides by these restrictions.

A "wait and see" situation

Ralph Nader's Mr Love, however, maintains that "the right thing was to say no to the merger".

Other commentators are less extreme, but still hesitant on whether the restrictions will protect consumer interests.

James Harding, editor of the magazine Computer Active says: "It's a wait and see situation."

He adds, however, that the condition to allow other ISPs on Time Warner cable networks is good.

"AOL won't be able to lock consumers into their world," he says, referring to AOL's practice of funnelling surfers to its own pages, and trying to keep them inside this 'walled garden'.

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12 Jan 01 | Business
AOL and Time Warner unite
12 Jan 01 | Business
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