Update: AOL-Time Warner Deal Wins Approval From European Regulators - TheStreet

Updated from 7:46 a.m. EDT

European antitrust regulators gave the go-ahead to

America Online's

(AOL)

proposed $135 billion acquisition of media giant

Time Warner

(TWX)

after the companies placated the European Commission's fears that it would dominate the nascent online music industry.

The approval marked the end of a four-month investigation of the deal by the EC, which gave its blessing after AOL agreed to sever ties with German media group

Bertelsmann

, Europe's largest media company.

AOL Europe

has two joint ventures, one which is a 50-50 venture with Bertelsmann and the other a link-up involving Bertelsmann and France's

Vivendi

.

Ending its relationship with Bertelsmann will prevent AOL from dominating the online music industry in Europe, one of the regulators' key concerns over the pending deal.

"Because of the structural links and some existing contractual arrangements with Bertelsmann, AOL-Time Warner would also have had preferred access to Bertelsmann content and, in particular, to its large music library," the EC said in a statement. "As a result AOL-Time Warner would have controlled the leading source of music publishing rights in Europe, where Time Warner and Bertelsmann together hold approximately one third of the market."

The deal also raised concerns about competition in the high-speed Internet access market, but the EC concluded that those fears were unfounded. Similar, the commission said it found no threat of the new entity dominating the market for paid content on the Internet, other than music, as Time Warner's video content does not have a large enough presence in Europe.

"The commission has a duty to prevent creation of dominant positions in all sectors, be they in the old or new economy," European Competition Commissioner Mario Monti said in a statement.

"The proposed undertakings will prevent AOL from having access to Europe's leading source of music publishing rights, thereby eliminating the risk of dominance in the emerging market for online delivery of music over the Internet and software-based music players," the EC said in a statement.

The deal still must pass muster with U.S. regulators, although gaining approval from the EC was seen as a crucial step.

The EC will appoint an independent panel to ensure that AOL and Bertelsmann exit their joint business operations.

Wednesday's announcement was unexpected, as the EC previously said it would release a decision on Oct. 24.

In recent weeks, Time Warner and

EMI Group

ditched plans, in the face of tough scrutiny from European regulators, for a

merger that would have created the world's largest music group. That decision was seen by analysts as an important step for gaining approval of the AOL-Time Warner deal.

America Online fell Wednesday regular trading down $2.36, or 4%, at $54.88, while Time Warner finished down $3.71, or $45, at $81.39.