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Consumer groups fight AOL-Time Warner merger

Consumer advocacy groups file a petition with the Federal Communications Commission calling for major restrictions on the pending merger between the two companies.

Consumer advocacy groups have filed a petition with the Federal Communications Commission calling for major restrictions on the pending merger between America Online and Time Warner.

The groups requested that the FCC draft regulations forcing AOL Time Warner and AT&T to open their cable lines to rival Internet service providers. The petition also demands key divestitures involving AT&T's stake in Time Warner, Time Warner's Road Runner Internet cable holdings, and AOL's investment in DirecTV.

"Controlling both content and distribution, the company can design interfaces that capture and lock in customers, while they lock out competitors, except on terms and conditions that are set by the entity controlling the choke point," the petition said in reference to the AOL-Time Warner merger.

Many groups, including Internet and media competitors, also have expressed concern over the merger. Critics claim the combined company would favor its own content on AOL's Internet service, or shut out competitors from Time Warner's high-speed cable lines. Walt Disney, for example, has approached members of Congress to critically examine whether the proposed merger would exclude rival entertainment companies from reaching Internet consumers.

Today's petition marks the entry of major consumer groups into the debate over the deal. The consumer advocacy groups filing today's petition include Consumers Union, the publisher of Consumer Reports magazine; Center for Media Education; Consumer Federation of America; and Media Access Project.

"We need a legal obligation to provide nondiscriminatory access to any ISP," said Mark Cooper, research director for the Consumer Federation of America.

A Time Warner spokesman said the proposed merger will be good for consumers and offer them more choice.

"Our merger will deliver tremendous benefits to consumers, bringing people around the world more choice and more convenience, and accelerating the roll out of broadband services," said a Time Warner spokesman.

AOL was not immediately available for comment.

In addition to open cable access, consumer groups today called for an untangling of the often complex and crisscrossing financial relationships between AT&T, Time Warner and AOL. AT&T currently owns a 9 percent stake in Time Warner through its ownership of Liberty Media, Cooper said. In addition, AT&T will own roughly 26 percent of Time Warner Entertainment once its acquisition of cable operator MediaOne Group is completed.

SBC Communications today also called for wide divestitures as a condition of the deal.

"The FCC must examine and untangle the entire web of relationships this merger would create to ensure that an AOL-Time Warner-AT&T conglomerate is not allowed to stifle competition for Internet access and content," Sandra Wagner, SBC vice president for federal regulatory affairs said in a statement.

The debate over so-called open access raged in the cable and Internet industries much of last year. Consumer groups and ISPs want multiple providers allowed on cable's high-speed lines, while the cable operators and companies such as Excite@Home have balked.

The issue first was raised during AT&T's acquisition of Tele-Communications and later resurfaced during Ma Bell's proposed acquisition of MediaOne Group. Many of the same consumer groups filed complaints during those approval processes for the two cable mergers. The open access debate has since simmered, but a federal panel of appellate court judges is expected to make a ruling this year.

For their part, AOL and Time Warner in February issued a memorandum of understanding (MOU) stating their plans to open their cable lines to outside ISPs. The MOU outlined plans to allow consumers to subscribe to any non-AOL affiliated ISP supported on Time Warner's cable lines. The MOU also said AOL Time Warner would not place limits on how many ISPs can enter into agreements to offer broadband cable access on its network.

However, some congressional leaders have remained skeptical of the MOU's assurances. During a Senate Judiciary Committee meeting in February, committee chairman Orrin Hatch criticized the MOU as a "promotional document." The Utah Republican added that the MOU was developed without any input from competitive ISPs or consumer groups.

This is not the first time AOL has come under legal fire from concerned competitors. In February, lawyers filed a class-action lawsuit against AOL on behalf of 8 million customers, claiming the online service surreptitiously disables rival ISP connections.

In addition, former content partners have said AOL requires them to refuse all advertising from Internet service providers deemed competitors. As reported by CNET, at least two companies have ended long-standing distribution deals with AOL, alleging that the online giant bullies smaller businesses into accepting contractual limits involving competitive ISPs.

Today's move also comes on the heels of a complaint filed yesterday to the FCC by iCast and Tribal Voice over AOL's refusal to open its Instant Messaging network to competitive products. The companies were asking the FCC to consider their claims in the government's review of the AOL-Time Warner merger.