Gerald Levin, chief executive of AOL Time Warner, has announced he will retire earlier than expected when he turns 63 in May, naming current co-chief operating officer Richard Parsons as his successor.

Levin’s decision came as a shock to analysts, with some suggesting he may have named his replacement now to prevent tension growing between supporters of Parsons and those of Bob Pittman, the other co-chief operating officer and until recently considered Levin’s heir apparent.

Pittman will become sole chief operating officer, reporting to Parsons, while Steve Case – founder of AOL – will remain chairman. However, Pittman insisted he did not want the ceo’s job, and had not applied for it, though he admitted he had told Levin: “my ego will probably smart the day it’s announced.”

Parsons is regarded as one of the media mammoth’s finest diplomats and alliance-builders. Earlier this year, he turned down the Bush administration’s offer of a role as US trade representative in order to stay at AOL TW, where he is in charge of the music and film divisions as well as government relations and financial matters.

Although the group portrayed Levin’s retirement as a transition to a triumvirate of Case, Pittman and Parsons, some observers see it as sealing the dominance of the Time Warner wing of the company over AOL – the larger partner in the merger. Levin and Parsons worked together at TW before the merger and there is speculation that the bursting of the dotcom bubble leaves AOL having more to learn from its partner than vice versa.

Unsurprisingly, given his reported flair for diplomacy, this was not a view endorsed by Parsons: “This was always about both cultures taking the best from the different sides … There has been a lot of cross-pollination going both ways, but my designation as ceo doesn’t have anything to do with that.”

News sources: Financial Times; Wall Street Journal