Online link to be screened

Date: 10/04/1997

By Tim Jones

A MERGER between the world's two largest online services looks set to provide the European Commission with its greatest test yet as 'gatekeeper' to the information market.

If global leader America Online (AOL) does join forces with smaller rival CompuServe, as looks increasingly likely, it would be able to expand capacity and gain a stronger foothold in the underdeveloped European online market.

The EU's online market is half the size of its American counterpart, and is two years behind in terms of consumer interest and available products.

Competition Commissioner Karel van Miert will not react to the AOL-CompuServe link-up ahead of any formal announcement, but his officials have already made it clear that they would scour any agreement for the slightest sign of market foreclosure.

As self-styled gatekeeper, Van Miert wants to ensure that this new market is not taken over by companies already dominant in the media world or by those firms which own the online infrastructure.

Finding a legal basis for an investigation might, however, be problematic. The Commission has exclusive powers to investigate mergers when the combined sales revenue of the companies world-wide is 5 billion ecu or more and that of each firm is at least 250 million ecu within the Union itself.

Officials say that when it began an inquiry 16 months ago into the creation of AOL Bertelsmann Online Management GmbH, the Directorate-General for competition (DGIV) soon found that the turnover of the companies involved did not surpass the thresholds.

AOL-Bertelsmann provides a 'proprietory' service which is accessed by subscribers via exclusive software and now has 250,000 subscribers in Germany alone.

DGIV officials have kept the inquiry alive, but they will only be looking into an expected deal between AOL Bertelsmann Online and Deutsche Telekom (DT). They are concerned that DT, which holds a dominant position on the German market for online services through its T-Online offshoot, also controls the networks competing services must use.

At the moment, T-Online has 1.45 million subscribers compared with AOL's 300,000. If they were to join forces, the Commission fears their position would be unassailable.

DT is still expected to come into the alliance following the decision of publisher Axel Springer Verlag to buy a 10&percent; stake in the venture via holding company Videotel. Talks are still going on between DT and Bertelsmann, but no conclusions have yet been reached except for the fact that Pixapark, Germany's largest multimedia agency, will produce content for T-Online.

Once an agreement has been reached between Bertelsmann and DT, they will then talk to AOL.

The Commission will certainly be concerned about AOL's motives for buying H&R Block's CompuServe. For a start, AOL would at a stroke eliminate its biggest competitor, gaining a further 3 million subscribers in addition to the 8 million it already has while, in Europe, it would be able to tap into CompuServe's much bigger presence in the UK.

At the same time, Commissioners will be careful not to leave the field open to the US' third largest online player, Microsoft Network (MSN). The service, owned and backed by Bill Gates, has already been investigated in the US after allegations from CompuServe that Microsoft has made access to services other than MSN from Windows 95 too complex.

A key aim for AOL in buying CompuServe would be to expand the capacity of its service. Ever since the company offered unlimited access to the service at a flat rate of 17 ecu in December, it has been a victim of its own success.

Only last week, AOL had to settle a legal suit brought by irate subscribers who had been unable to get on to the service during February and March because of traffic jams. The company agreed to provide discounts and credits to customers who could not log-on to the system during the flat-rate months.

American anti-trust investigators will be looking for any impact on competition from the blending of the two services' technical specifications.

As was the case with the inquiry into the link-up between Boeing and McDonnell Douglas, the Europeans can be expected to take an even tougher line.