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AOL-TIME WARNER DEAL MEETS EUROPEAN RESISTANCE

European Commission Concerned
About AOL’s "Walled Garden"
America Online's pending acquisition of Time Warner has hit a hurdle in Europe.

According to The Wall Street Journal, European regulators delivered a confidential, 45-page document detailing the European Commission's objections. European officials and senior executives from both AOL and Time Warner are set to meet next week in a closed session in Brussels.

Declining to make a specific comment on the issues raised by the EC's 45-page document, and AOL spokeswoman did say, "We're confident we will satisfy the commission that the AOL-Time Warner merger poses no competitive problems in Europe."

The commission's largest concern is the online delivery of music, especially with the Warner Music Group-EMI merger also pending. But there is more to the EC's objection than just the delivery of music. The vertical integration of the combined companies, in which AOL and Time Warner "content" is wedded to AOL's digital distribution network, is causing some concern.

"The more content AOL acquires and the bigger its community of users," the commission said, "the less the reasons for a user to abandon AOL's walled garden, and the greater the reasons for potential Internet users to join AOL." It is the sinister "walled garden" image that the commission favors, warning that AOL's size and influence could easily deny customers access to content which "competes too aggressively with AOL."

The commission also expressed antitrust objections to the Warner-EMI deal on the grounds that "the critical mass of content coupled with AOL's Internet distribution strength in the U.S. will act as a magnet attracting further content to AOL's ‘online store.'"

Stateside, the AOL-TW deal is still under review by both the Federal Trade Commission and the Federal Communications Commission. While neither is expected to oppose the deal, they could apply conditions meant to protect competition.

Both the FTC and FCC reviews are expected to be complete by no later than mid-October. The EC is set to rule on the Warner-EMI merger Oct. 18, and on AOL-TW on Oct. 24.

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