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Commentary: Will AOL Time Warner keep IM promises?

Gartner remains skeptical about how well the megacompany will keep its promises in the absence of clear government mandates.

By David Smith, Gartner Analyst

Mergers between Internet access providers and content providers--especially those with the size and market position of America Online and Time Warner--inevitably raise concerns about competition in the marketplace.

See news story:
AOL Time Warner could tap music, video wealth
AOL's instant messaging offers a case in point.

The AOL-Time Warner merger represents the largest "megaconsolidation" to date between content producers and Internet service providers. Gartner forecasts that, through 2003, most of the 200 largest worldwide content providers, including commercial publishers, will likely either merge or form strategic partnerships with vendors (most notably ISPs) that provide Internet access and content.

None of these mergers or partnerships will have close to the impact of the AOL-Time Warner deal by virtue of the unique position AOL held in the ISP and online service space, at least in the United States.

The main stumbling block to the deal was regulators' concern about preserving competition when the same vendor provides both Internet access and content. Time Warner and AOL tried to placate these fears in a series of concessions to win approval by the European Commission in October and by the Federal Trade Commission in December.

AOL agreed to cut all ties to Europe's largest media group, Bertelsmann, and Time Warner dropped a proposed merger with British music publisher EMI. In the United States, Time Warner struck agreements in November to share its high-speed cable network with cable-based ISPs EarthLink and Juno Online Services.

Promises to keep?
However, Gartner remains skeptical of how well AOL Time Warner will keep such promises in the absence of clear government mandates.

The main interest in Thursday's merger approval by the Federal Communications Commission was a mandate to open up AOL's popular service. This mandate, addressing instant messaging via cable lines, will help preserve choice in a technology of growing importance to both consumers and enterprise workers.

The FCC gave AOL Time Warner a number of options as a requirement before it can significantly enhance IM functions (e.g., with video). These options include the following:

• Compliance with, and promotion of, true IM standards,

• Deals with rival IM providers (a similar concept to the FTC's requirements for rival ISP access),

• A petition to convince regulators that opening up IM is not necessary.

The FCC's approval did not lay down such clear guidelines about AOL Time Warner's large cable network. The new Republican administration of President-elect George W. Bush will likely have a lighter regulatory touch and will likely further slow the process of opening up access to AOL Time Warner's cable channels, as well as cast a shadow of doubt on the strength of the mandate for opening IM.

Consumers should expect that in general, content providers will want to have the widest audience for their content and access providers will want to provide the greatest variety of content. However, business realities and competition will cause vendors to attempt to make some premium content available to subsets of consumers and will likely also cause disagreements and occasional disruptions of service.

The FCC's ruling has enhanced the prognosis for interoperable IM, but the change in administration is cause for less optimism about the longevity of this mandate.

(For related commentary on instant messengers for business use, see registration required.)

Entire contents, Copyright ? 2001 Gartner Group, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.