Coalition Says Proposed AOL-Time Warner Merger Should Be Rejected

A coalition of consumer groups told the Federal Communications Commission on Wednesday that America Online Inc.’s proposed purchase of Time Warner Inc. should be rejected unless it is made more competitive.

Consumers Union, Consumer Federation of America, Media Access Project and Center for Media Education argued that the merger would diminish the number of voices available to the public, failing to meet the FCC requirement that the combination be in the public interest.

As proposed, the merger is “inconsistent with the public interest,” they said in a filing with the FCC.

A spokeswoman for AOL disagreed and said the merger “would deliver tremendous benefits to consumers, bringing people around the world more choice and more convenience in accelerating the roll-out of broadband services.”

The combined giant would own cable companies, Internet service providers, a movie studio, major recording labels, magazines such as Time and Fortune and more.

The consumer groups said the new company, which probably would compete with a similar behemoth owned by AT&T; Corp., would be able to capture a large market for movies and other content moved across the Internet.

But perhaps most significant, the consumer groups said, the combined AOL firm could set its own standards for basic utilities of the Internet age, including e-mail, instant messaging, buddy lists, calendar management and electronic programming guides.

“These interfaces are the sticky features that glue the customer to the service provider,” the groups said.

The consumer groups argued for universal standards rather than proprietary ones to help open the company to competition.

A number of companies and individuals have already complained that, in two instances, AOL designed software to exclude competitors. A group of consumers, not including any of the groups involved in the filing, has sued AOL in one of the cases.

The consumer groups argued Wednesday that AOL must be forced to open any cable systems it acquires to competing high-speed Internet service providers.

In February, AOL Chairman Steve Case and Time Warner Chairman Gerald Levin pledged to open their system to others.

FCC Chairman William Kennard welcomed their statement at the time, saying he “commend[ed] America Online and Time Warner for their leadership.”

But key senators questioned the value of the promise at a congressional hearing Feb. 29.

Senate Judiciary Committee Chairman Orrin Hatch (R-Utah) dismissed the promise as no more than a “promotional document” that lacked substance.

And when Sen. Dianne Feinstein (D-Calif.) asked whether the agreement for open access was legally binding. Time Warner’s Levin dismissed it as a “legal nicety” and told her that what mattered was his personal commitment.

An AOL spokeswoman said Wednesday that the pledge “addresses all of the key points in the open-access debate” and had persuaded several other cable companies to pledge their support for providing open access.

The consumer groups, arguing along the same lines as the senators, said regulators must put teeth into such pledges. Among other things, they said companies that believe they have been treated unfairly must be able to appeal the company’s actions.

The merger has several hurdles to clear. The Federal Trade Commission probably will act first, deciding whether the merger complies with antitrust laws. The FTC could require the merged firm to divest some of its properties to avoid dominating particular areas of the industry.

After that, the FCC will apply its own, broader public interest standards.