The European Commission has announced the opening of a second-stage, in-depth investigation into the planned merger between AOL and Time Warner.
The merger would bring Time Warner, one of the world's largest recording and music publishing companies, together with AOL, the largest Internet access and service provider in the world.
The Commission opened the investigation after determining that it had "serious doubts" about the compatibility of this merger with the goal of fostering open competition in the European Union, particularly regarding the "gate-keeper" role that the merger would give AOL over the emerging online music distribution channel, the Commission said in a statement.
This refers to the potential ability of AOL, through its market reach and Web technology, to restrict access to online music distribution.
The Commission has four months in which to complete the in-depth investigation. During this period the concerned companies can come forward with remedies to allay the Commission's competition concerns.
At the end of the four-month period, the Commission has the power to either block, approve or require changes to the merger.
The companies notified their plans to the Commission in early May.
As the telecommunications, audio-visual and internet sectors converge, the Commission has become concerned that companies may leverage dominant positions in one sector into similar market share in another.
This concern is reflected for example in the Commission's in-depth investigation into the planned acquisition by Microsoft of Telewest.
According to a Commission statement, the main competition issue raised by the AOL/Time merger is the vertical integration of Time Warner content with AOL on-line services.
This situation is further complicated by the fact that AOL has recently entered into a joint promotion, distribution and sales agreement with Bertelsmann AG, the German music recording, publishing and broadcasting group.
This agreement brings about a considerable integration of the two companies' commercial activities.
The two ventures will give AOL preferential access to the leading sources of music publishing rights and music repertoire in most EU countries.
The Commission is therefore concerned that due to the strength of the music catalogue to which AOL will have access, the company will be able to dictate the technical standards for delivering music over the Internet and monopolise the music player software.
Regarding the Internet, the Commission found that AOL is the only Internet company with a presence in most EU countries.