In a blockbuster deal, AOL said it would buy media giant Time Warner, forming a new company valued at $350 billion. The merger could raise antitrust concerns because of the potential effects on the development of cable Internet access and other broadband technologies.
AOL's ability to lock out ISP and content providers is a major reason why regulators should not approve the merger, said James Love, who heads Washington, D.C.-based Consumer Project on Technology. The consumer group is also concerned the merger could lead to a similar deal between Microsoft and AT&T, further eroding consumers' choice of Internet access and content.
In the wake of the deal, five shareholder suits were filed in the Delaware Court of Chancery against the two companies and Time Warner's board, according to Reuters.
In the lead complaint, Harriet Cohen, a Time Warner shareholder, said, "The merger and the consideration to be paid to class members is unconscionable and unfair and grossly inadequate."
For the most part, legal experts expect that, after serious scrutiny, the government will eventually approve the merger because the two companies largely occupy different markets. Which agency--the Justice Department or the Federal Trade Commission--will oversee the merger is uncertain, illustrating the growing problem government regulators face as disparate Internet and media giants link up.
It is unclear how long the FTC or the Justice Department might take to rule on the proposed merger. But some legal experts said Time Warner's acquisition of Turner Broadcasting is a good guide. The government, which will face some of the same issues reviewing the AOL-Time Warner deal, took about a year to approve the earlier merger.
The deal may also influence ongoing settlement talks in the Microsoft antitrust trial. Microsoft has long argued that the competitive landscape is changing. The argument was heard with vigor after AOL bought Netscape, and it is likely to come up again now that AOL is part of the largest merger to date.
The government's basic evaluation of the merger will be a straightforward look at the competitive landscape, said Bob Lande, a professor at the University of Baltimore School of Law.
"The first question is: 'Are there any businesses where they compete?' If the answer is no, you let it go," he said. "If there are businesses where they compete, then you look at market share. If the market share is low, you forget about it. If it's non-low, then you start asking if there are barriers to entry."
Lande said he foresees no long-term competitive problems resulting from the merger and expects the government will let the deal go forward. Worst case, he said, AOL and Time Warner might have to spin off a few companies, but even that is highly unlikely.
Where AOL and Time Warner may face the most scrutiny is over the ability to exclude competitors from high-speed Internet access lines. Fears may erupt, for instance, that AOL could become the exclusive Internet service provider for Time Warner's Road Runner high-speed Internet access service.
The argument is not new to Time Warner, which faced similar access issues when it acquired Turner Broadcasting, said Marc Schildkraut, a lawyer with Howrey & Simon in Washington, D.C.
Telephone companies and cable competitors complained that Time Warner could deny them access to Turner programming such as CNN. The FTC ruled that Time Warner must provide the programs at a fair price, Schildkraut said. On the other side, competitors such as MSNBC worried that Time Warner would not carry their programming.
Ironically, AOL has been one of the major backers of plans to open cable networks.
AOL and Time Warner today indicated they had no plans to lock competing ISPs out of Road Runner.
"AOL Time Warner is trying to take that off the table as a potential roadblock by saying they won't do that," said Bill Kovacic, a professor at George Washington University Law School. "Whether they will have to make that commitment a binding one is an interesting question, and it is the kind of question that would tend to rise here."
Another byproduct of the merger may be its effect on the Microsoft antitrust trial.
"The companies who the government has depicted as victims of Microsoft's behavior seem less vulnerable," Kovacic said. "It becomes hard to imagine anyone pushing AOL around. We're 10 days into the year 2000. What other information sector events will unfold by the end of the year?"
Kovacic predicted that Microsoft will be able to use the merger in ongoing settlement talks.
"It is a real dilemma for the government plaintiffs in the Microsoft case," he said. "In one sense, they can claim credit for lots of what's happened. But the very developments they set in motion in some ways get in the way of achieving some of the remedies they might think are appropriate."
Reuters contributed to this report.