- The Washington Times - Tuesday, September 19, 2000

The European Commission has received a preliminary staff recommendation to block America Online Inc.'s proposed purchase of Time Warner Inc., sources close to the deal said, casting some doubt on the merger.

The European Commission's recommendation follows on the proposed WorldCom-Sprint merger, which was scuttled after the European regulators said they would block the deal. The U.S. Justice Department said it would block the telecommunications merger following the European Commission decision.

But the recommendation is a draft report.

Observers said any concern European regulators express over Sterling, Va.-based AOL's estimated $140 billion purchase of Time Warner could be mere posturing while negotiations continue.

"You can't tell if the deal is in jeopardy because they're in the middle of negotiations," PaineWebber media analyst Christopher Dixon said.

AOL spokeswoman Kathy McKiernan said the companies still expect to complete their union by fall.

"This is a normal part of the process with the EU. We are totally comfortable with where we are at this stage of the negotiations," she said.

Two weeks ago during closed hearings in Europe, AOL pledged to make unspecified concessions to win approval from European Union antitrust regulators, said the European Commission, the administrative division that sets policy for the 15-nation European Union. The commission's authority to rule in the case derives from the fact that AOL does extensive business in Britain and across Europe.

The European Union's concerns revolve around whether AOL-Time Warner would dominate the market for the delivery of music over the Internet and the emerging markets for on-line distribution of sports and entertainment. Part of that concern stems from Time Warner's decision to merge its music unit with music company EMI Group PLC.

The Federal Communications Commission and the Federal Trade Commission are examining the AOL-Time Warner deal in the United States.

The FCC declined comment yesterday.

The European Union could make its decision before the FCC or FTC, and a decision overseas to block the proposed deal could influence regulators here, analysts said.

AOL and Time Warner will continue to work with European regulators to earn their approval, said Scott Cleland, chief executive of the Precursor Group, a District of Columbia-based independent analyst group.

"Right now, AOL is aggressively trying to reach an accommodation with the EU," Mr. Cleland said. "You don't want a 'no' from the EU."

The European Union has until Oct. 24 to rule on the merger, and the FCC expects to complete its review by late October, while the FTC hasn't commented on its review.

The concerns of U.S. regulators differ from those of European regulators, making it not clear whether a decision by the European Union to block the merger means the FCC and FTC also would block the deal.

The FCC has expressed concern over open access letting competitive Internet service providers lease access to cable lines so they can market high-speed Internet access but that hasn't been a primary issue in Europe.

U.S. regulators also have questioned AOL about instant messaging. AOL, with 160 million registered instant-messaging users worldwide, has blocked competing services from tapping into its network of users. The company, the world's largest Internet service provider with more than 23 million subscribers, says it is concerned about privacy and security.

AOL announced its plan to buy Time Warner Jan. 10.

AOL closed yesterday on the New York Stock Exchange at $55.63, up 38 cents.

Time Warner closed yesterday on the New York Stock Exchange at $81.25, up $1.44.

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