Charges against AOL won't stick: Analysts

Reshma Kapadia

NEW YORK: America Online Inc.'s domination of the instant messaging world has

drawn scrutiny by federal regulators who are considering the company's merger

with Time Warner Inc. But, analysts are skeptical that regulators will do much

to reduce their hold on the market.

Federal regulators are still examining the merger proposal for its potential

to limit competition and are expected to rule on the merger in October. In

addition, they are aiming to determine whether the combination might harm the

public interest.

AOL's rivals in instant messaging (IM) have drawn regulators' attention to

the issue, saying that AOL's resistance to open up its system to allow other IM

users to chat with AOL clients limits consumer choice.

Dulles, Va.-based AOL has said repeatedly it is committed to interoperability

as long as consumers' privacy and security can be protected.

The company's rivals contend that the merger, now valued at $116 billion,

will only exacerbate the choice issue, with some saying that the proposed merger

will also enable the bundling of Time Warner content with the AOL IM system's

delivery mechanism in the future.

"We've had continuing conversations (with regulators). Some of the

issues tend to revolve around what about the merger that exacerbates the

problem," said Tribal Voice Inc chief executive Ross Bagully, adding that

he is confident the regulators are concerned about the issue.

An AOL spokeswoman said the merger would have no impact on the IM issue,

adding that IM is a text-based feature that consumers use for quick

communications rather than as a conduit for more complex content.

However, industry analysts argue that IM will be an even more valuable asset

going forward because of its possibilities.

"The valuable asset here is this installed base of users and instant

messaging is evolving way beyond chat. It's getting to audio video sharing files

in a fashion like Napster (the song-swapping firm). AOL is in the best place to

leverage the technology," said Gartner Group research vice president Neil

MacDonald.

The Federal Communication Commission traditionally has jurisdiction over

telecommunications and broadcast, meaning it would likely not have regulatory

reach on the IM issue.

However, industry watchers wonder whether IM falls under their jurisdiction

if it is expected to be used for more complex content in the future. Meanwhile,

the Federal Trade Commission is more focused on anti-trust and public interest

issues.

Still, industry watchers have said regulators are unlikely to impose

conditions on the deal based on the IM issue.

"We don't believe the government is going to force AOL to open up IM as

a prerequisite for the merger," said Neil MacDonald. "They may be

using it as a leverage point to slow down the approval."

Newsletter publisher EDVentures Inc chairwoman Esther Dyson said she doubts

they will impose conditions on the deal regarding instant messaging. "I

think Levin has made a whole bunch of promises. They were careful not to promise

anything they couldn't deliver," Dyson said, referring to Time Warner CEO

Gerald Levin.

If AOL was not going to keep its promise, executives would not have told

regulators last month that it would be a year before developing the technical

parameters for interoperability, she said.

On the public interest front, some companies have said their customers have

called for interoperability.

"The top request from our customers for the instant messaging service is

interoperability. Users don't understand why they can't talk to AOL or

(Microsoft Corp.'s) MSN people so we get plenty of e-mails from users who wish

there was the ability to talk to all their friends," said Yahoo Messenger

senior producer Brian Park.

Yahoo Inc., which is far behind AOL in terms of users but still in the top

three IM services, has no plans of taking its feedback and escalating or sharing

it, Park added.

One way the FCC and FTC may be able to delve into the IM issue is to address

concerns raised by the National Association of the Deaf, which has asked the

regulators to open up IM — a service many of its members use in the same way

many use the telephone.

"The current lack of across-the-board instant messaging open access and

interoperability presents a very serious battle to access everyday aspects of

our lives, particularly the employment arena," the group said in a letter

to the FCC.

Despite their letter and some consumers' feedback, industry watchers said the

issue has lacked the type of public outcry from consumers that could sway the

regulators, but some rival IM companies are still optimistic that regulators

will act.

(C) Reuters Limited 2000.