Saturday, January 13, 2001
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Posted on: Saturday, January 13, 2001

Market wary of AOL Time Warner deal

Associated Press

Shares of the new AOL Time Warner Inc. began trading yesterday on the New York Stock Exchange, hours after the $106 billion deal between America Online Inc. and Time Warner Inc. was completed.

But investors were wary: AOL Time Warner, which trades under the "AOL" ticker, was down 76 cents, or 1.6 percent, to close at $46.47 yesterday on the New York Stock Exchange.

Competitors also were wary yesterday. By delaying a requirement that AOL Time Warner open its instant-messaging network to competitors, federal regulators are only strengthening a near-monopoly to consumers’ detriment, competitors said.

In approving America Online’s acquisition of Time Warner, the Federal Communications Commission gave the world’s leading Internet company serious wiggle room by setting a vague timetable on instant messaging interoperability.

That could allow AOL to expand its already huge advantage in a fast-growing market as instant messaging — which allows users to exchange text messages in real time — moves from the desktop computer to portable wireless devices.

Competitors say the FCC’s refusal to require instant messaging interoperability as an immediate condition for the merger will seriously restrict consumer choice of wireless devices that allow people to keep in touch from anywhere by tapping on miniature keyboards.

"It certainly doesn’t provide the customer any immediate benefit," said Alex-

ander Diamandis, vice president of marketing for New York-based Odigo, which has about 3 million instant messaging users, compared with almost 150 million connected through AOL.

A coalition of AOL competitors, including Microsoft and AT&T, said in a joint statement yesterday that the FCC’s decision ensures that "AOL’s stranglehold on (instant messaging) will remain intact for now, and consumers and competition will continue to suffer as a result."

The FCC said AOL may not offer any high-speed services, such as video streaming, over its instant messaging structure until it has first opened up the service to at least one competitor. Analysts say that could be a year or two away.

That condition doesn’t apply now or to what is likely the next frontier of instant messaging — the wireless market.

Late last year AOL unveiled its Mobile Communicator, a pager-like device with a tiny keyboard that allows users to zap instant messages without being tied to a computer screen.

Analysts expect AOL to move aggressively into the wireless market.

"If people like instant messaging at home at night on their PCs, then I expect they’ll love it wandering around town," said P. William Bane, a vice president with Mercer Management Consulting in Washington, D.C.

The one thing that could slow growth in wireless instant messaging, he said, is a recession combined with a pricey product. AOL currently charges $330 for the communicator, plus a $20-a-month subscription fee.

The company also has wireless partnerships with Sprint PCS and Psion, a London-based manufacturer of handheld computers.

AOL dominates instant messaging with its two distinct services, ICQ and AIM, which have almost 150 million users combined. The next closest competitor, Microsoft’s MSN service, has about 18 million users.

AOL’s competitors have said that customers of one service should be free to communicate with customers of a competitor, just as customers of different long-distance companies can call each other.

The FCC order "opens the door a crack. But we will use it, and others will use it to pry the door back for full interoperability," said Rob Balgley, president and CEO of Denver-based, which provides customized instant-message services to Internet service providers and corporate clients.

AOL has said it wants to be interoperable, but it has proceeded at a slower pace, citing concerns over security and privacy.

Critics say those concerns are a smokescreen so AOL can consolidate its market strength. Already two competitors, Tribal Voice and iCAST, have gone out of business.

Yesterday AOL spokeswoman Kathy McKiernan said none of the conditions imposed by the FCC will alter its timetable for making its instant-message services compatible with competitors.

In the past, AOL executives have suggested the necessary technology for interoperability could be completed by July or August. That would be followed by a testing period of undetermined length.

Still, FCC commissioners said they expect AOL to open its network. Commissioner Susan Ness said she expects that to occur within a few months.

"We want to have a specific timetable," said FCC Chairman William Kennard. "We want to make sure that this happens and we’re going to be watching.

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