Merger mania: worlds collide

In the US the experiment is being conducted by AOL and Time Warner, which in January announced plans to merge into a giant with annual revenues of more than $US30 billion.

AOL Time Warner will, if the regulators permit, start life as a company with an existing customer population that includes 20 million AOL members, 2.2 million CompuServe members, 1 billion people with access to CNN, 35 million pay television subscribers and 120 million magazine readers.

Announcing the deal, Steve Case, chairman-elect of the new giant, said "America Online's mission is to make the Internet as central to people's lives as the telephone and television and even more valuable, and this is a once-in-a-lifetime opportunity to turn this promise into reality."

Understanding that readers may now be struggling with Case's premise that television is "valuable", move onto Jerry Levin's comments. Levin is the CEO-elect of AOL Time Warner and he pledged as follows: "The digital revolution has already begun to create unprecedented and instantaneous access to every form of media and to unleash immense possibilities for economic growth, human understanding and creative expression. AOL Time Warner will lead this transformation, improving the lives of consumers worldwide."

Note that Levin makes the subtle distinction about the ultimate beneficiaries: AOL Time Warner is not pledging to improve the life of its customers, or of humankind in general, but to improve the lives of consumers. This deal is axle grease for electronic shopping trolleys.

On a completely different scale, but perhaps more important to Australians in the medium term, is the proposed purchase of OzEmail's residential subscribers by Telstra.

At time of writing, the Australian Competition and Consumer Commission was deliberating the proposal. On its past record of knocking back deals which might augment the market shares of already dominant players in any sphere of Australian business, the prospect of the merger proceeding appear slim. But as it debates, the ACCC needs to recognise the merits of the proposal - that, longer term, Telstra must be prepared to compete with international giants such as AOL Time Warner if it wants to be a serious long-term Internet player.

Admittedly, if the ACCC grants approval to the scheme it will be delivering Telstra control of close to 50 per cent of Australia's current online population thanks to a combined Telstra/OzEmail subscriber list around the 900,000 mark. Compared to the AOLs of this world, though, 900,000 seems unremarkable. And it would still leave around 700 other ISPs offering Internet connections to Australians.

To compete internationally, Telstra needs more subscribers, which will help fund development of content and define Telstra as a worthy portal for third parties, which would then lure even more subscribers. On the content front there has been speculation that Fairfax might be snaffled up by Telstra. It is an interesting proposal, but buying Fairfax would leave Telstra a still largely parochial Internet player, offering parochial content to a parochial audience.

Something far more audacious would be required for Telstra to succeed internationally. It needs to ally itself with a News Corporation or similar vehicle with the global attraction of newspapers and movies and television. Rupert Murdoch immediately countered suggestions that News and Telstra might wed, saying that there would be no merger, immediately improving the odds of just such an alliance occurring sometime soon; if not with Telstra, then with another ISP.

For ordinary Australians who just want access to the Internet and their e-mail and to do a little browsing, the emergence of these super-ISPs might seem moderately alarming. Might not these big players be able to create a connection and content cartel to which consumers will be bound?

No, because there will continue to be competition, fierce and increasingly international competition, which might spawn a real benefit for local Internet users in that Telstra might finally be forced to offer internationally competitive rates for high speed Internet access, and to also improve its service levels.

These super-ISPs might well prove those clichés that content is king and big is beautiful. But they must also remember the emerging cliché, that in cyberspace competitors are just a click away.

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Beverley Head

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