AOL/Time Warner deal set to cruise through EU probe

Date: 20/01/2000

By Peter Chapman

AMERICA Online's planned €151-billion merger with US media giant Time Warner will not raise any significant competition concerns in the EU despite the size of the two companies' involved, according to industry analysts.

The prediction follows last week's confirmation that Competition Commissioner Mario Monti is certain to demand that the case be referred to EU anti-trust watchdogs for scrutiny.

The sheer size of the tie-up, which will bring together the US' largest Internet service provider with the owner of top brands such as Time magazine, CNN news and Warner films, has inevitably prompted speculation that it will face problems in winning approval from the EU's merger task force.

AOL's existing deals with other media firms such as Germany's Bertelsmann - its 50-50 partner in European Internet service provider AOL Europe - and France's Canal Plus have all raised eyebrows, amid fears that with Time Warner's huge portfolio of news, film and music, the new venture would control too much of the scarce content that is feeding the multi-media revolution.

EU lawyers also predict that the Commission's handling of the deal will set the tone for the expected flood of link-ups in the multimedia sector, with the creators of content joining forces with the network operators, television companies and technology firms which plan to deliver it to customers. "I think the case is ground-breaking because it goes into so many sectors," said merger law specialist Julie Nazerali.

She said the key issue for the firms involved would be how the Commission defines the 'relevant market' for their merger. If officials take the whole media sector as the relevant market, the deal is unlikely to present problems because there are so many competitors delivering and creating content for TV, radio, the Internet and the press.

However, lawyers believe that the Commission is likely to use a narrower definition of the market, such as the provision of content over the Internet, which would increase the deal's impact on competition. "It might decide to go for a very narrow market - and in my experience, that is what the merger task force does," said Nazerali. "Content is going to be king and Time Warner has so much content," said another EU lawyer who specialises in e-commerce and multimedia cases. "The Commission would be looking at how much this deal forecloses the market for that content."

Nevertheless, many Internet market analysts are already predicting the multimedia Goliath created by the merger is still small enough in Europe to be waved through within the initial one-month deadline which the Commission sets for preliminary investigations into mergers.

"We think this will be cleared at the first stage," said Mark Beilby, Internet analyst with Germany's Deutsche Bank. "I would be surprised if there were any problems on the European stage. The two companies do not have that much on the ground in the EU market. The ownership of the assets and the generation of the brands is in the US. What they have in Europe is just an extension of those brands."

He said Bertelsmann chief executive officer Thomas Middlehoff's decision to leave the board of AOL showed that the company was ready to loosen its ties with its partner, further increasing the likelihood that the deal would go through.

Commission officials are also playing down the prospect of the deal causing any problems, although they insist it will have to be probed by the institution. " We will absolutely definitely look at it," said competition spokesman Michael Tscherney. But he added: "We are not in any way excited about this deal. A mega deal on the Internet is very sexy, but people here will look at it with a cool head."