CPT November 25, 1998 Statement on America Online (AOL) purchase of Netscape

FMI Jamie Love, love@cptech.org, 202.387.8030

Antitrust officials should oppose the AOL purchase of Netscape. Consider the following:

1. The browser market is highly concentrated. At present there are only two companies with significant market share, Microsoft and Netscape.
2. AOL and Microsoft both use highly proprietary internet interfaces. Both feature proprietary content, proprietary multimedia technology, favored links to Internet commerce, and monitoring of consumers for marketing purposes.
3. The major competitors to AOL and the Microsoft Network (MSN) are independent Internet Service Providers (ISPs).
4. At present, nearly all consumers use browser software owned by Microsoft or Netscape to access web pages.
5. If the merger takes place, the independent ISPs will be forced to acquire browser software from their two most significant competitors, AOL and the MSN.
6. Consumers will be harmed if Microsoft and AOL use their control over the browser software to migrate important new Internet functionality from open standards to proprietary technologies.
7. This would have the effect of marginalizing the value of the platform provided by independent ISPs and third party software developers.
8. Microsoft has signalled its interest in embracing and extending strategies that marginalize open Internet standards. AOL has already demonstrated a willingness to enter into arrangements with Microsoft if they promote AOL's business interests.

   AOL and Microsoft both have large and growing online services that compete directly against the independent ISPs. AOL and Microsoft both promote a much different vision for the Internet, based upon proprietary standards and content, intense commercialization, monitoring of customers, and ties to affiliated partners for electronic commerce. Many of the independent ISPs provide a different kind of service, typically a plain vanilla TCP connection to the Internet, with software that permits the consumer the ability to select content from any Web site.

   The proposed merger between AOL and Netscape threatens the future role of the independent ISPs. We are concerned that it has the potential to move the Internet away from open standards to the more proprietary approach favored by AOL and Microsoft.

   While Microsoft's anticompetitive actions have damaged Netscape, we do not condone the sale of Netscape to AOL. We would also object to the sale of Netscape to Microsoft.

   Under antitrust laws, mergers are illegal if they lessen competition in particular markets. We believe the merger will harm competition in the ISP market, by eliminating an important independent source of software needed by consumers who choose independent ISPs that compete against Microsoft and AOL in providing access to the Internet.

   We are also concerned about the impact of the merger on Netscape's commitment to supporting software that runs on Linux or other operating systems that compete with Windows. We would be concerned, for example, if AOL agreed to suppress Linux technology in order to obtain favorable locations on Microsoft's Windows desktop.

   After AOL files its Hart-Scott-Rodino filings with the FTC and the US Department of Justice (DOJ), we will urge the appropriate agency to stop the merger on the grounds that it will harm competition in the ISP market.

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