AOL Time Warner Merger Under U.S. Senate Scrutiny

Yesterday, both U.S. Democratic and Republican Senators expressed serious reservations about the planned merger between media giants America Online, Inc. and Time Warner, Inc.

“It looks like you are going straight down the Microsoft route,” said Senator Fritz Hollings, a Democrat from South Carolina, according to published reports.

In the second congressional hearing on the proposed merger this week, U.S. Senate Commerce Committee members quizzed AOL’s chief executive Steve Case and Time Warner’s chairman Gerald Levin on a variety of issues ranging from online privacy to opening its chat services to competitors.

Heavy Burden Of Proof

Moreover, the serious consequences of such a mega-merger continued to be a recurring theme throughout the hearing as Senator Slade Gorton, a Republican from Washington, reportedly said the merger would require a heavy burden of proof that it wouldn’t lessen competition.

Unveiled in January, the monster deal would merge the world’s biggest online service with the biggest media company, giving AOL access to Time Warner’s vast media content, movie library and its cable assets. For its part, Times Warner acquires access to AOL’s 22-million strong subscriber base.

Many see the cable assets as the most critical part of the deal. Before the deal, AOL had been lobbying Congress for government intervention that would force telephone and cable companies to open their broadband pipes to other companies that lacked such capacity. Since the proposed merger was announced, numerous industry observers have openly wondered if AOL would now do an about face.

Still Wondering About Cable Open Access

But in a preemptive move reported in the E-Commerce Times earlier this week, AOL and Time Warner promised to open their cable television lines to other competing online services.

“The consumer really wants more choice than an AOL service on Time Warner systems,” Time Warner’s CEO Gerald Levin told senators yesterday.

Still, some senators questioned yesterday whether such a pledge would hold without a binding agreement.

Additionally, officials from AT&T, Excite@Home, MSN.com and others had sent a letter to Commerce Committee leaders earlier this week accusing AOL of blocking consumers of rival services from exchanging instant messages with AOL’s users.

The mounting problem for AOL and Time Warner seems to be that even though regulators and industry analysts predict the eventual approval of the merger, the mere size and power of such a company is a frightening specter to many industry experts and consumer advocates.

AOL Should Divest Holding

For instance, Gene Kimmelman, co-director of the Consumers Union, urged regulators to reject the merger until it’s significantly restructured, including requiring AOL to divest its holdings in satellite television provider DirecTV, which is owned by Hughes Electronics, a competitor of Time Warner.

In addition, one hearing panelist, Robert Lande, a law professor at the University of Baltimore and a visiting research scholar at the American Antitrust Institute, reportedly warned that the deal could trigger other similar ones that could lead to a “media oligopoly.”

At one point, the subject of consumer privacy over the Internet was brought up, when AOL’s CEO Steve Case was asked if there was a need for legislation to insure companies respected these rights.

Case replied that he although he wasn’t opposed to such an effort, “it would be better if companies could do it on their own.”