Federal Trade Commission investigators have asked for documents and scheduled depositions with AOL (aol) and its competitors in instant messaging, as one of several issues under review in the deal, these people said. AOL's Instant Messenger and ICQ are among the most popular services on the Web, with millions of users sending more than a billion messages a day -- many of them young people who spend hours a day online.
AOL, based in Dulles, Va., has more than 150 million chatting accounts and, by some estimates, controls 90 percent of the instant messaging market. "It's the only reason I use America Online," says Taylor Caprio, a 20-year-old New Jersey college student. "One of my friends doesn't have it, and she's always out of the loop."
Because of AOL's wide lead, instant messaging has become one of the Net's most high-profile battlegrounds. The conflict is fueled by AOL's longstanding efforts to prevent competitors, including Microsoft Corp. (msft), from connecting their networks with ICQ and AOL Instant Messenger. Instant messaging is the rare market in which Microsoft finds itself the underdog.
Today, AOL Instant Messenger and ICQ are closed systems that allow only registered users to communicate with each other; AOL doesn't even allow AOL Instant Messenger and ICQ users to swap messages yet. Competitors charge that the scenario is rather like an AT&T Corp. long-distance customer being able to call only other AT&T customers.
"This is no different than e-mail, telephone or the postal service," says Ross Bagully, chief executive officer of Tribal Voice, a unit of Internet investment firm CMGI Inc. that has about 8 million users for its own instant messaging product. "We want to be able to communicate with everybody."
Still, the FTC's interest in instant messaging was unexpected, because the merger itself doesn't necessarily boost AOL's market share. But the combination of AOL's dominance with Time Warner's potential market power in broadband Internet services in the cities it serves raises possible antitrust concerns, people close to the case said.
The instant messaging market is only one of several possible antitrust issues raised by the huge merger. Federal antitrust investigators also are looking into what the merger means for competition in the digital delivery of music, for the development of broadband Internet services and for nondiscriminatory access by competitors to video programming, people close to the case said.
While the proposed deal faces extraordinary scrutiny -- by Congress, the FTC and the Federal Communications Commission -- few people familiar with the review expect it to be denied outright. But that approval could come with a series of conditions intended to protect competition, these people said.
It is possible that regulators could try to pry open the instant messaging market as a condition of approval, but any such decision is months away, people close to the case say. AOL officials said the antitrust inquiries were routine and don't mean that the FTC or FCC will impose conditions on the merger.
Much of instant messaging's popularity lies in the changing communications habits of Net-savvy consumers. While there is typically a delay between the moments when an e-mail message is sent and received, instant messaging permits near real-time conversations. Unlike e-mail senders, instant messengers can see whether their chatting partners are online by scanning personal "buddy lists."
These small but key differences have led to an explosion of online tete-a-tetes, especially among young people like Ms. Caprio, who are increasingly using instant messaging as a communications medium. Using a free Internet connection provided by her school, the College of New Jersey in Ewing, Ms. Caprio says she spends 12 hours a day logged onto AOL Instant Messenger.
Many predict instant messaging will take on added importance in the coming years, which they believe makes AOL's control of the market even more of an issue. AOL and other companies have talked about adding features to future products that will let stockbrokers, travel agents and others send commercial pitches to users with their consent. Instant messaging could also become an important communications feature in cellular phones and pagers, thanks to a growing range of partnerships AOL has with wireless companies.
Certainly, AOL's competitors are pressing for a hard look at AOL. "There is a fundamental issue here, that no company with this kind of market dominance should be able to erect barriers," said Margaret Heffernan, chief executive of iCast, a streaming media Internet company owned by CMGI. She worries that if AOL merges with Time Warner and the technology evolves to deliver content such as sports scores and news, a combined AOL-Time Warner would have enormous influence over what people see and hear.
For the past year, AOL's competitors have taken a guerrilla approach to hooking into AOL's chat networks. Microsoft and Tribal Voice last summer separately developed instant messaging products that, for a time, let their users send messages to AOL Instant Messenger users. AOL swiftly blocked attempts by Microsoft and Tribal Voice users to connect with its network, saying the actions could jeopardize the security of its users. AOL's defense, in turn, led to a months-long cat-and-mouse game where the other companies would create new schemes for connecting their users to AOL Instant Messenger and AOL would again block the attempts. Just this week, another competitor, Odigo Inc., which has 750,000 users of its own instant messaging product, was blocked by AOL.
To be sure, AOL largely created the instant messaging phenomenon with a feature known as Buddy Lists on the AOL service. Later, it expanded the chatting service by offering AOL Instant Messenger free of charge to users beyond AOL's millions of members. In 1998, AOL solidified its leadership by acquiring Mirabilis Ltd., an Israeli company that had a huge hit with ICQ.
America Online executives said yesterday that they fear unauthorized attempts to access the company's chat networks might make users vulnerable to unsolicited e-mail. George Vradenburg, AOL's senior vice president for global and strategic policy, said the company is working with an Internet standards group on the creation of technical specifications that will allow instant messaging systems to connect with each other.
Vradenburg added that AOL has struck agreements with a number of companies, including EarthLink Inc. and Novell Inc., that are offering versions of AOL Instant Messenger to their customers. "We are confident that this won't prove to be an issue at the FTC because of our efforts to extend instant messaging to consumers," he said.
The FTC's review is probably several months away from completion; the company says it expects to win approval this fall, probably by October. The FCC, which last week asked for data on instant messaging, is likely to act sometime after that.
Julia Angwin contributed to this article. WASHINGTON -- Federal antitrust enforcers are examining America Online Inc.'s dominance of popular instant messaging services as part of their review of AOL's $113 billion buyout of Time Warner Inc., lawyers and industry executives said.
Federal Trade Commission investigators have asked for documents and scheduled depositions with AOL (aol) and its competitors in instant messaging, as one of several issues under review in the deal, these people said. AOL's Instant Messenger and ICQ are among the most popular services on the Web, with millions of users sending more than a billion messages a day -- many of them young people who spend hours a day online.
AOL, based in Dulles, Va., has more than 150 million chatting accounts and, by some estimates, controls 90 percent of the instant messaging market. "It's the only reason I use America Online," says Taylor Caprio, a 20-year-old New Jersey college student. "One of my friends doesn't have it, and she's always out of the loop."
Because of AOL's wide lead, instant messaging has become one of the Net's most high-profile battlegrounds. The conflict is fueled by AOL's longstanding efforts to prevent competitors, including Microsoft Corp. (msft), from connecting their networks with ICQ and AOL Instant Messenger. Instant messaging is the rare market in which Microsoft finds itself the underdog.
Today, AOL Instant Messenger and ICQ are closed systems that allow only registered users to communicate with each other; AOL doesn't even allow AOL Instant Messenger and ICQ users to swap messages yet. Competitors charge that the scenario is rather like an AT&T Corp. long-distance customer being able to call only other AT&T customers.
"This is no different than e-mail, telephone or the postal service," says Ross Bagully, chief executive officer of Tribal Voice, a unit of Internet investment firm CMGI Inc. that has about 8 million users for its own instant messaging product. "We want to be able to communicate with everybody."
Still, the FTC's interest in instant messaging was unexpected, because the merger itself doesn't necessarily boost AOL's market share. But the combination of AOL's dominance with Time Warner's potential market power in broadband Internet services in the cities it serves raises possible antitrust concerns, people close to the case said.
The instant messaging market is only one of several possible antitrust issues raised by the huge merger. Federal antitrust investigators also are looking into what the merger means for competition in the digital delivery of music, for the development of broadband Internet services and for nondiscriminatory access by competitors to video programming, people close to the case said.
While the proposed deal faces extraordinary scrutiny -- by Congress, the FTC and the Federal Communications Commission -- few people familiar with the review expect it to be denied outright. But that approval could come with a series of conditions intended to protect competition, these people said.
It is possible that regulators could try to pry open the instant messaging market as a condition of approval, but any such decision is months away, people close to the case say. AOL officials said the antitrust inquiries were routine and don't mean that the FTC or FCC will impose conditions on the merger.
Much of instant messaging's popularity lies in the changing communications habits of Net-savvy consumers. While there is typically a delay between the moments when an e-mail message is sent and received, instant messaging permits near real-time conversations. Unlike e-mail senders, instant messengers can see whether their chatting partners are online by scanning personal "buddy lists."
These small but key differences have led to an explosion of online tete-a-tetes, especially among young people like Ms. Caprio, who are increasingly using instant messaging as a communications medium. Using a free Internet connection provided by her school, the College of New Jersey in Ewing, Ms. Caprio says she spends 12 hours a day logged onto AOL Instant Messenger.
Many predict instant messaging will take on added importance in the coming years, which they believe makes AOL's control of the market even more of an issue. AOL and other companies have talked about adding features to future products that will let stockbrokers, travel agents and others send commercial pitches to users with their consent. Instant messaging could also become an important communications feature in cellular phones and pagers, thanks to a growing range of partnerships AOL has with wireless companies.
Certainly, AOL's competitors are pressing for a hard look at AOL. "There is a fundamental issue here, that no company with this kind of market dominance should be able to erect barriers," said Margaret Heffernan, chief executive of iCast, a streaming media Internet company owned by CMGI. She worries that if AOL merges with Time Warner and the technology evolves to deliver content such as sports scores and news, a combined AOL-Time Warner would have enormous influence over what people see and hear.
For the past year, AOL's competitors have taken a guerrilla approach to hooking into AOL's chat networks. Microsoft and Tribal Voice last summer separately developed instant messaging products that, for a time, let their users send messages to AOL Instant Messenger users. AOL swiftly blocked attempts by Microsoft and Tribal Voice users to connect with its network, saying the actions could jeopardize the security of its users. AOL's defense, in turn, led to a months-long cat-and-mouse game where the other companies would create new schemes for connecting their users to AOL Instant Messenger and AOL would again block the attempts. Just this week, another competitor, Odigo Inc., which has 750,000 users of its own instant messaging product, was blocked by AOL.
To be sure, AOL largely created the instant messaging phenomenon with a feature known as Buddy Lists on the AOL service. Later, it expanded the chatting service by offering AOL Instant Messenger free of charge to users beyond AOL's millions of members. In 1998, AOL solidified its leadership by acquiring Mirabilis Ltd., an Israeli company that had a huge hit with ICQ.
America Online executives said yesterday that they fear unauthorized attempts to access the company's chat networks might make users vulnerable to unsolicited e-mail. George Vradenburg, AOL's senior vice president for global and strategic policy, said the company is working with an Internet standards group on the creation of technical specifications that will allow instant messaging systems to connect with each other.
Vradenburg added that AOL has struck agreements with a number of companies, including EarthLink Inc. and Novell Inc., that are offering versions of AOL Instant Messenger to their customers. "We are confident that this won't prove to be an issue at the FTC because of our efforts to extend instant messaging to consumers," he said.
The FTC's review is probably several months away from completion; the company says it expects to win approval this fall, probably by October. The FCC, which last week asked for data on instant messaging, is likely to act sometime after that.
Julia Angwin contributed to this article.
