European Regulators Object to AOL-Time Warner Merger

European regulators have reached a preliminary conclusion that America Online Inc.’s proposed acquisition of Time Warner Inc. would create a dominant company that could hurt competition, according to a document reviewed by Reuters.

The European Commission has drafted a 45-page statement of objections that outlines the regulators’ concerns about the mega-merger. The document could be the opening salvo in negotiations to prevent the new entity from discriminating against rivals.

The EU has preliminarily determined that the merger, “would create a dominant position in the markets for online music delivery, music software, Internet dial-up access, broadband Internet access and integrated broadband content as a result of which effective competition would be significantly impeded in the common market,” the document said.

AOL and Time Warner officials will meet with European Commission’s competition department Wednesday and Thursday and try to convince the regulators that their objections are unfounded. Time Warner President Dick Parsons and Barry Schuler, AOL’s head of interactive services, will attend the closed-door meeting.

The EU objections could spell trouble for the two companies. In the last few years, U.S. competition agencies have coordinated closely with the EU, often reaching similar or complementary conclusions.

European regulators raised similar concerns about competition in the music industry as it considers the proposed joint venture between Time Warner’s music operations and EMI Group, according to a second statement of objections.

Among the EU’s biggest concerns with the AOL-Time Warner deal, now worth an estimated $132 billion, was the massive concentration of content the new company would have, ranging from publications and music to films and retail outlets.

The merging companies have pledged not to discriminate against competing content providers or Internet services and have signed a memorandum of understanding promising to provide competitors access to Time Warner’s cable systems.

Scott Cleland, an analyst at the Precursor Group, said that, although the EU’s objections are noteworthy, there are conditions and commitments that are enforceable by regulators and can mitigate many of the anti-competitive concerns.

AOL shares fell $1.19 to $57.75 and Time Warner lost $1.63 to $84.38, both on the New York Stock Exchange.