America Online Joins Venture in Bid to Challenge Rival Microsoft : Computers: U.S. service signs letter of intent to cooperate with German telecom and media giants.

America Online joined forces with Germany’s biggest media and telecommunications companies Tuesday in a bid to head off the domination of cyberspace by Microsoft Corp.

America Online, the world’s largest on-line services company, signed letters of intent to cooperate in on-line services with Europe’s biggest telecommunications group, Deutsche Telekom, and German media giants Bertelsmann and Axel Springer Verlag.

If the alliance gets past the intense scrutiny of European antitrust watchdogs, it would pose a stiff challenge to the Microsoft Network, the Redmond, Wash.-based software company’s new but fast-growing on-line service, and the fledgling service Europe Online.

The Microsoft Network has signed up more than 500,000 subscribers since it was launched in August.

“Deutsche Telekom, Bertelsmann and Axel Springer Verlag are aiming to build a long-term strategic partnership in interactive on-line services,” the companies said. “Next to pure Internet service providers, the strongest competitor will be the software company Microsoft, which with its new operating system Windows 95 is about to dominate the on-line market.”

Bertelsmann, which owns 5% of America Online, would give its option for another 5% to Telekom, making it possible for the German phone giant to directly invest in the world’s biggest commercial on-line service.

Telekom will also take a stake in the German unit of the joint venture between Bertelsmann and America Online, dubbed AOL. The magazine Capital said Telekom will buy a third of the German AOL unit.

Bertelsmann said it “does not deny” the report, which said further that the 50-50 Bertelsmann and America Online venture would acquire a third of T-Online, Telekom’s commercial on-line service.

Springer, publisher of the mass daily Bild Zeitung, will take a stake in T-Online and in the German AOL venture.

In the European alliance, Telekom, which by far has the largest amount of German-language content of any on-line service, will be mainly responsible for commercial-oriented content and services. The Bertelsmann-AOL venture would focus more on the consumer market.

In an indication of the close scrutiny the deal will probably get from antitrust authorities, Germany’s Federal Cartel Office said the alliance must be thoroughly examined.

“None of these companies is a nobody,” a Cartel Office spokesman said.

A Deutsche Telekom spokesman said it was too soon to speculate about the alliance’s prospects.

“We are just at the beginning. We have a letter of intent but now we have to work out the fine points,” he said.