Europe Online prepares for merger investigation

Date: 13/06/1996

By Tim Jones

THE European Commission is poised to open a formal merger inquiry into the creation of the continent's first specialist online service.

Europe Online - created two years ago by publishers Burda and Pearson, US telephone giant AT&T, Meigher Communications and a collection of Luxembourg banks - finally notified the Commission of its plans at the end of last month.

Competition Commissioner Karel Van Miert had already begun looking into the venture on his own initiative last year - as well as into rival service AOL Bertelsmann Online Management - fearing that this emerging market would be foreclosed by strong publishing houses and telephone monopolies.

But now, that inquiry will be superseded by a formal merger investigation.

Ironically, a year later, natural market developments suggest he has less to worry about. “I do not think the market will be foreclosed,” says Europe Online's chief executive officer Jürgen Becker. “A vast market is developing and I think there will be sufficient business for at least three to five online services world-wide.”

At the moment, the main services on offer in Europe come from America Online, CompuServe and T-Online, but Microsoft Network and Europe Online are also coming into the market.

So far, Europe Online is the smallest of the services, with 30,000 customers and full provision of information in only Germany and the UK. The French service is close to starting while, in the Netherlands, it is about to launch a preview. All the services are in the relevant language and include local content, and all offer news, weather, business information, games and access to the Internet - the world's largest non-commercial online network linking three million computers and providing file transfer and electronic mail services.

Publishers, recognising the possibility that their profit growth from printed publications could be under attack, scrambled to get into the market by designing exclusive services.

'Proprietory' services were created. To access these on a personal computer, a customer needs a single piece of software via CD-ROM or diskette, but this will not allow access to another service.

This access question concerned the Commission, particularly after US federal investigators began looking into allegations from companies selling access software that it was difficult to get into the Microsoft Network.

The inquiry being carried out by DGIV, the Directorate-General for competition, into Europe Online's main rival centres on similar questions of access and exclusive publishing deals.

The creation of AOL Bertelsmann Online Management GmbH - a joint venture between America Online, Europe's biggest publisher Bertelsmann and Deutsche Telekom - has been under investigation since the autumn.

But Europe Online is now a very different animal from its main competitor following the exit of French publisher Matra-Hachette from the deal last year, altering the thrust of the Commission's inquiry into possible anti-competitive practices.

Like AOL, Europe Online had been intended as a proprietory service, but this was overly complex and the shareholders decided instead to publish directly on to the Internet. As this is the first Internet-based online service, a subscriber can use any access software, then type in the Europe Online address - thus answering one of the Commission's concerns.

When it opened its investigation last year, the Commission focused on 'exclusivity' - whether access to publications owned by the partners would be available at fair conditions to other online services and if anti-competitive agreements with other firms would be avoided.

“If you talk about Internet, using the word exclusivity does not make sense at all,” says Becker. “We do not work on an exclusive basis any more, so this has given some comfort to the Commission.”

Many market analysts believe this evolution is being reflected across the whole online sector.

Companies providing content for the services - in this case Pearson or Burda - are less interested in exclusive deals. Instead, they want to use every distribution channel

they can, including America Online or CompuServe.

The problem they have is that each of these services uses different programming languages. Publishing on a variety of services can be both costly and irritating, while the Internet has a standard language.

Nevertheless, none of these services prevents access to Europe Online since all their software packages include Internet access.

Going straight on to the Internet is an attractive alternative for content providers, although many customers are still baffled by the sheer size and complexity of the 'Net' and are keener to buy proprietory services at the moment. The possible shape of changes to come was seen with the announcement two weeks ago that CompuServe will join together with Microsoft to provide information on the Internet.

Once the merger inquiry is officially opened, the Commission will have a month to decide whether to clear it or launch a four-month detailed investigation.