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AOL Time Warner: The Next Monopoly?

Consumer groups petition FCC to block or restructure proposed merger.

By Nicole Maestri, PCWorld   

"We have nothing against these two companies," says Gene Kimmelman, codirector of Consumers Union, which leads the petition effort. But the firms have a history "that is in disregard of our nation's laws against concentration of ownership and monopolistic transactions," Kimmelman says.

The Consumers Union is joined in its concerns by the Center for Media Education, the Consumer Federation of American, and the Media Access Project. They contend the merged company would dominate television and Internet content, as well as broadband and narrowband Internet services.

The petition also warns of an "AT&T-AOL duopoly" that violates antitrust guidelines. If the FCC approves AT&T's pending acquisition of MediaOne Group, a cable company that owns a small part of Time Warner Entertainment, then AT&T and AOL Time Warner would control more than 50 percent of the cable lines in the country. This violates FCC rules prohibiting a single company from servicing more than 30 percent of cable households in the United States, the petitioners say.

They ask the FCC to require a number of structural changes and divestitures. Specifically, they suggest AOL divest its interest in DirecTV, a satellite provider; and that Time Warner sell off Road Runner, the second largest cable broadband Internet service provider.

Sever Overlapping Ties

The FCC should sever the "most dangerous ties," which are between AT&T and Time Warner, Kimmelman says. This means AT&T and MediaOne Group must end its interest in Time Warner Entertainment.

Unless the merger is restructured, the open network architecture and infrastructure of the Internet will be at the mercy of one large company, says Mark Cooper, director of research for the Consumer Federation of America. Consumers will pay more, and smaller Internet service providers will be shut out.

"Our greatest fear is that we could up with litigation like the Microsoft litigation" if the FCC does not act now, Kimmelman says.

But AOL says consumers will benefit from the merger.

"This merger will deliver tremendous benefits to consumers, bringing people around the world more choice and more convenience and accelerating the rollout for broadband services," says an AOL spokesperson.

"It's pro-competition and pro-consumer," agrees Michael Pandzik, the president and chief executive of National Cable Television Cooperative, which represents independent cable systems.

As long as the merged AOL Time Warner does not force tie-ins with its products and competing ISPs have access to data on the Time Warner cable system, the merger poses no problem, Pandzik says.

"The world is consolidating, and you can either consolidate and grow, or not and face competition," Pandzik says.

The merger, announced in January, is subject to review by both the FCC and the Federal Trade Commission. If approved, the deal will create the world's largest online access company, with revenue of more than $30 billion.