Critical review

The proposed America Online/Time Warner merger violates the principles of an open marketplace by concentrating ownership in the cable television, broadband and narrowband Internet arenas. That is the message four consumer groups sent via petition last week to the FCC and the Federal Trade Commission.

The Consumers Union, the Consumer Federation of America, Media Access Project and the Center for Media Education called for the commissions to reject the proposed merger or at least impose strict restructuring conditions.

The crux of the groups' opposition lies in the potential ties between AOL, Time Warner and AT&T.

"AT&T, the largest cable company through the purchase of TCI and its proposed merger with MediaOne, is part of this web through a 25% ownership in Time Warner Entertainment, the subsidiary that controls the cable distribution system that Time Warner owns," said Gene Kimmelman, co-director of the Consumers Union.

The groups expressed concern over the enormous market the combined cable systems would create, together serving more than half of all cable customers in the country.

"We have asked the FCC to sever the ownership link between AOL, Time Warner and AT&T completely," Kimmelman said.

Three critical pieces create today's open communications network: an open network architecture built on transparent, end-to-end communication standards; an open-communications infrastructure; and the understanding that the government cannot interfere in communications, said Mark Cooper, research director for the Consumer Federation of America.

"The first two are in danger," Cooper said. "Every individual ISP is at the mercy of these companies, which own and control both the infrastructure and the network."

SBC Communications also filed a statement with the FCC claiming that merger approval would create a conglomerate that could seriously harm competition in the Internet access and broadband content markets.

In addition to the approximately 26% share of Time Warner Entertainment it stands to acquire through its acquisition of MediaOne, AT&T owns 9% of Time Warner through its ownership of Liberty Media. Once merged, AT&T/MediaOne and AOL/Time Warner would share control of cable broadband provider Road Runner, owning 50% and 40%, respectively, SBC officials said in a statement. Road Runner and Excite@Home - which together account for 70% of all current broadband subscribers - would be controlled by AOL/Time Warner/AT&T, SBC said.

The FCC also heard complaints from instant messaging providers Tribal Voice and iCast, which asked the commission to oppose the merger until AOL opens its Instant Messenger standards to competitors. Without government action, AOL's 90% control of the instant messaging market will dominate a technology that could rival e-mail and the telephone, the companies' representatives said.

One group, however, is giving AOL/Time Warner the benefit of the doubt. The OpenNET Coalition - which represents more than 900 ISPs in the fight for open access and counts AOL as a member - is encouraged by the memorandum of understanding signed by AOL and Time Warner earlier this year that commits both to opening their systems to competing ISPs.

But consumer groups are not as convinced. The memorandum doesn't state how many ISPs will get on the network, how ISPs can enforce their rights if they are discriminated against or what sort of access ISPs will get, Cooper said.