**FCC 01-11**

**Released: January 11, 2001**

**SUBJECT TO CONDITIONS, COMMISSION APPROVES**

**MERGER BETWEEN AMERICA ONLINE, INC. AND TIME WARNER, INC.**

The Commission today approved the joint application ("Application")[^1]
filed by America Online, Inc. ("AOL") and Time Warner Inc. ("Time
Warner") (collectively the "Applicants") for approval to transfer
control of certain licenses and authorizations to AOL Time Warner, Inc.,
a newly created company, subject to the conditions stated below.[^2] A
Memorandum Opinion and Order (the \"Order\") explaining in further
detail the Commission\'s reasoning and the conditions will be issued
shortly.

**INTERNET SERVICES**

Although the Commission found that the FTC consent decree with AOL Time
Warner would substantially ensure that unaffiliated ISPs are able to
offer their services over AOL Time Warner's cable system on
non-discriminatory terms and conditions, the Commission found that AOL
Time Warner might have insufficient incentives to enter contracts with
local or regional ISPs that are unaffiliated with AOL Time Warner. The
Commission noted that the FTC consent decree requires AOL Time Warner to
negotiate in good faith with any unaffiliated ISP seeking access to its
cable systems and, thus, reiterated that AOL Time Warner must engage
with local and regional ISPs in a good faith, nondiscriminatory manner.
The conditions set forth below regarding choice of ISPs, first screen,
billing, technical performance, and disclosure of contracts are
particularly relevant to the ability of smaller ISPs to negotiate
carriage arrangements on non-discriminatory terms and we expect that AOL
Time Warner will negotiate in good faith to reach contract provisions
that are consistent with the commercial viability of these entities. The
Internet access conditions that the Commission adopted with regard to
AOL Time Warner are as follows:[^3]

A. Choice of ISPs: AOL Time Warner shall not restrict the ability of any
current or prospective ISP customers to select and initiate service from
any unaffiliated ISP which, pursuant to a contract with AOL Time Warner,
has made its service available over AOL Time Warner's cable facilities
("Participating ISP"). AOL Time Warner must allow customers to select a
Participating ISP by a method that does not discriminate in favor of AOL
Time Warner's affiliates on the basis of affiliation. At a minimum, AOL
Time Warner must allow customers to obtain a list of Participating ISPs
by calling their local AOL Time Warner cable system and requesting such
a list. Whenever a customer requests a listing of Participating ISPs,
AOL Time Warner shall provide the list in a reasonable and timely
manner. Such list shall not discriminate in favor of AOL Time Warner's
affiliates on the basis of affiliation. AOL Time Warner may not prohibit
ISPs from marketing their services to AOL Time Warner cable
customers.[^4]

B. First Screen: AOL Time Warner must permit each Participating ISP to
determine the contents of its subscribers' first screen and may not
require a Participating ISP to include any content as a condition of
obtaining access to AOL Time Warner cable systems; provided that AOL
Time Warner and any Participating ISP may agree that the ISP will
include specified content or links on its first screen. AOL Time Warner
may not require any high-speed Internet access cable customer to go
through an affiliated ISP to reach any Participating ISP from which the
customer purchases service.

C. Billing: AOL Time Warner must permit each ISP to have a direct
billing arrangement with those high-speed Internet access subscribers to
whom the ISP sells service. AOL Time Warner may offer a billing service
to any Participating ISP, but may not require any ISP to purchase this
service as a condition of obtaining access.

D. Technical Performance: All contracts between AOL Time Warner and
unaffiliated ISPs for access to Time Warner's cable systems shall
contain a clause warranting that, to the extent AOL Time Warner provides
any Quality of Service mechanisms, caching services, technical support
customer services, multicasting capabilities, address management and
other technical functions of the cable system that affect customers'
experience with their ISP, AOL Time Warner must provide them in a manner
that does not discriminate in favor of AOL Time Warner's affiliated ISPs
on the basis of affiliation.

E. Rights to Disclose Contracts to the Commission: AOL Time Warner may
not enter into any contract with any ISP for connection with AOL Time
Warner's cable systems that prevents that ISP from disclosing the terms
of the contract to the Commission under the Commission's confidentiality
procedures.

F. Enforcement: With respect to any dispute concerning AOL Time Warner's
compliance with these conditions, the following procedures shall apply.
These procedures are designed to resolve any disputes within sixty (60)
days of the filing of the Complaint and to have them resolved by the
Chief, Cable Services Bureau ("Chief").

1\. No less than ten (10) business days before filing a complaint with
the Commission, the complainant shall notify AOL Time Warner of its
intention to file the complaint. This is intended to afford the parties
a final opportunity to resolve their dispute without resort to our
processes.

2.  Within twenty (20) days after public notice of the filing of the
    complaint, any interested party shall file an answer. Within
    ten (10) days after the filing of the answer, the complainant may
    file its reply. The complainant and AOL Time Warner shall each, with
    its first filing, furnish a detailed report, technical or otherwise,
    describing the conduct or events that are the subject of the filing.
    All filings shall be made with Commission Secretary and shall be
    concurrently served on the Chief.

3.  In resolving these filings, the Chief will apply the following
    principles: (a) the general pleading rules set forth in Parts 1 and
    76 of our rules will apply to the extent they are consistent with
    the specific requirements of the proceedings provided for
    herein; (b) complaints of misconduct by AOL shall be filed within
    one year of the occurrence of the alleged misconduct; (c) discovery
    shall be at the discretion of the Chief and may be requested by a
    party in one of its filings provided for above; and (d) the
    complainant shall bear the burden of proof in the proceeding it
    commences.

    The Chief shall sustain or dismiss the complaint within sixty (60)
    days of the filing of the complaint.

    **INSTANT MESSAGING**

    Given AOL Time Warner's likely domination of the potentially
    competitive business of new, IM-based services, especially advanced,
    IM-based high-speed services ("AIHS")[^5] applications such as
    videoconferencing, the Commission concluded that a condition to
    prevent that merger-specific harm was merited. AOL Time Warner may
    not offer an AIHS application that includes the transmission and
    reception, utilizing a names and presence directory ("NPD")[^6] over
    the Internet Protocol path of AOL Time Warner broadband facilities,
    of one- or two-way streaming video communication using NPD protocols
    -- including live images or tape -- that are new features,
    functions, and enhancements beyond those offered in current
    offerings such as AIM 4.1 or ICQ 2000b,[^7] unless and until AOL
    Time Warner has successfully demonstrated it has complied with one
    of the following grounds for relief.

    Grounds for Relief. Option One*.* AOL Time Warner may file a
    petition demonstrating that it has implemented a standard for
    server-to-server interoperability of NPD-based services[^8] that has
    been promulgated by the IETF or a widely recognized standard-setting
    body that is recognized as complying with National Institute of
    Standard Testing or Industry Standard Organization requirements for
    a standard setting body. At a minimum, AOL Time Warner must
    demonstrate that the adopted protocol makes available to another
    provider of NPD-based services such data in AOL Time Warner's NPD(s)
    as will enable the other provider's users to know the addresses of
    AOL Time Warner users and detect their presence online, to the same
    extent that AOL Time Warner's users know each others' addresses and
    detect each others' presence online. AOL Time Warner must also
    demonstrate that the protocol makes available to other IM providers
    any other information used by AOL Time Warner to implement and
    process transaction of AIHS services, to the extent allowed by law.
    The adopted standard shall also ensure that AOL Time Warner shall
    afford the same quality and speed in processing transactions to and
    from the other provider as it affords to its own transactions of the
    same type.[^9] Other than specifying server-to-server
    interoperability as described above, we do not set any technical
    criteria for interoperability.

    Option Two. AOL may file a petition demonstrating that it has
    entered into written contracts providing for server-to-server
    interoperability with significant, unaffiliated, actual or potential
    competing providers of NPD-based services offered to the
    public[^10][^11] AOL must execute the first such contract prior to
    offering the video AIHS service described above. After AOL Time
    Warner executes the first contract, an officer of AOL Time Warner
    shall certify to the Commission that it is prepared to promptly
    negotiate in good faith, with any other requesting provider of
    NPD-based services.[^12]

    Within 180 days of executing the first contract, AOL must
    demonstrate that it has entered into two additional contracts with
    significant, unaffiliated, actual or potential competing providers.
    The interoperability achieved under these contracts shall be
    identical to that described under Option 1 above with identical
    terms and conditions for technical interoperability. All parties to
    a contract shall agree not to alter the technical protocol without
    the consent of all parties providing interoperable IM services under
    these agreements. The contracts may contain different provisions for
    business considerations. AOL Time Warner must submit copies of these
    agreements for server-to-server interoperability into the record of
    this proceeding within 10 days of execution of such agreement. AOL
    Time Warner may redact any proprietary information or terms not
    related to technical interoperability.

    Option Three. AOL Time Warner may seek relief from the condition on
    offering AIHS video services by filing a petition demonstrating that
    imposition of the condition no longer serves the public interest,
    convenience and necessity because there has been a material change
    in circumstance, including new evidence that renders the condition
    on offering AIHS video services no longer necessary in the public
    interest, convenience, and necessity. If AOL Time Warner proffers
    market share information as evidence that the condition no longer is
    necessary in the public interest, convenience, and necessity, AOL
    Time Warner must demonstrate that it has not been a dominant
    provider of NPD services for at least four (4) consecutive months.

    Procedure for Submission of Petition to the Commission*.* To receive
    authorization to offer AIHS video services pursuant to Options 1-3
    above, AOL Time Warner shall submit a Petition to the Commission.
    The Petition shall be filed with the Secretary's office and shall
    contain the factual and legal bases demonstrating satisfaction of
    one of the three options set forth above. The Commission shall put
    the Petition out for Notice and Comment with a maximum of 30 days
    for receipt of such comments. Petitioner may submit a reply not more
    than 15 days after the closure of the comment period. Upon the
    timely filing of Petitioner's reply, the Petition, comments and
    reply shall be submitted to the Commission for disposition. The
    Commission shall issue its findings and conclusions not more than 60
    days after receipt of the matter. This timeline may be altered at
    the discretion of the Commission upon a timely submitted request of
    the Petitioner. The findings of the Commission shall be made upon
    clear and convincing evidence, and in the absence of such an
    evidentiary showing, the condition shall not be eliminated.

    Reporting Requirement. The Commission shall require AOL Time Warner
    to file a progress report with the Commission, 180 days after the
    release of the Order and every 180 days thereafter, describing in
    technical depth, the actions it has taken to achieve
    interoperability of its IM offerings[^13] and others\' IM offerings.
    Such reports will be placed on public notice for comment. Any
    confidential or proprietary information contained in the reports may
    be submitted to the Commission pursuant to the terms of the
    protective order in this proceeding.

    Enforcement. The Commission shall retain jurisdiction over the
    licensees or their successors for the purpose of enforcing the terms
    of this condition, for a period not to exceed five years. The terms
    of this condition shall be enforced pursuant to the Commission's
    powers under the Communication Act. Any party to the Order, or their
    successor in interest, may petition this Commission at any time for
    relief from the condition on offering AIHS video services imposed
    pursuant to the Order.

    In the event that any person wishes to bring to us a dispute about
    AOL's compliance with this condition, the Commission shall require
    that the following procedures be followed. These procedures are
    designed to resolve any disputes within sixty (60) days of the first
    filing. Within twenty (20) days after public notice is given of
    either the filing of a complaint or a showing by AOL Time Warner,
    any interested party shall file a response (AOL Time Warner's answer
    to the complaint, another person's response to AOL Time Warner's
    alleged showing). Within ten (10) days after the filing of the
    responses, the party that made the first filing may file its
    reply[^14][^15] The complainant and AOL Time Warner shall each, with
    its first filing, furnish a detailed report, technical or otherwise,
    describing the conduct or events that are the subject of the filing.
    All these filings shall be made with the Commission Secretary and
    shall be concurrently served on the Chief, Cable Service Bureau. The
    complaint or showing, as the case may be, shall be dismissed or
    sustained within sixty (60) days of its filing.

    Sunset. Five (5) years after the date of release of the Order, the
    condition set forth in the preceding paragraphs shall expire and
    shall not restrain AOL Time Warner from offering video AIHS.

    **INTERACTIVE TELEVISION SERVICES**

    The Commission announced that it will initiate a proceeding to seek
    comment on interactive television services.

    **OWNERSHIP INTEREST IN GENERAL MOTORS AND HUGHES ELECTRONICS**

    In response to arguments that AOL Time Warner's indirect ownership
    interest in DirecTV, Inc. might raise anticompetitive concerns by
    permitting a cable operator to own part of a DBS provider, the
    Commission ordered that the Applicants shall notify the Chiefs of
    the Commission\'s Cable Services Bureau and International Bureau, in
    writing, of any transactions that increase the Applicants\'
    ownership interest in General Motors Corporation and/or Hughes
    Electronics Corporation (the parent companies of DirecTV), no later
    than 30 days after the transaction.

    **CONTRACTUAL RELATIONSHIPS WITH AT&T**

    To mitigate the adverse effects of potential coordination, as a
    result of the merger, between AT&T and AOL Time Warner, the
    Commission imposed the following additional conditions:

    AOL Time Warner shall be prohibited from entering into any agreement
    with AT&T, tacit or otherwise, that gives any AOL Time Warner ISP
    exclusive access to any AT&T cable system for the purpose of
    offering high-speed Internet access service.

    AOL Time Warner shall be prohibited from entering into any agreement
    with AT&T, tacit or otherwise, that affects AT&T's ability to offer
    any rates, terms or conditions of access to ISPs that are not
    affiliated with AOL Time Warner.

    AOL Time Warner, by its General Counsel, shall certify to the
    Commission upon the merger's closing and annually thereafter that it
    is in compliance with the foregoing two conditions.

    **MISCELLANEOUS PROVISIONS**

    The Commission ordered that compliance with all conditions imposed
    in the Order is a non-severable condition of the grant of the
    Application.

    All references to AOL and Time Warner in the order shall also refer
    to their respective officers, directors, and employees, as well as
    to any affiliated companies, and their officers, directors, and
    employees, except as otherwise noted.

    The Commission denied the Petition to Deny filed by the Consumers
    Union, Consumer Federation of America, and Media Access Project, the
    Petition to Deny of Thomas Lewis Bonge, the Petitions to Condition
    filed by RCN Telecom Services and Gemstar, and all similar petitions
    except as otherwise discussed in this public notice.[^16]

    The Commission denied the motion to consolidate this proceeding with
    the AT&T-MediaOne license transfer proceeding, which was filed by
    the Consumers Union, Consumer Federation of America, and Media
    Access Project.

    **EFFECTIVE DATE OF THE MERGER APPROVAL**

    The Commission ordered that the grant of the approval of the
    Application with conditions is effective today, January 11, 2001.

    Action by the Commission on January 11, 2001, Commissioners
    Furchtgott-Roth and Powell, concurring in part and dissenting in
    part.

Media Contacts: Linda Paris (202) 418-7121

Michelle Russo (202) 418-2358

\--FCC\--

[^1]: Applications for Consent to the Transfer of Control of Licenses
    and Section 214 Licenses Time Warner, Inc., and America Online,
    Inc., Transferors, to AOL Time Warner, Inc., Transferee, CS Docket
    No. 00-30 (filed Feb. 11, 1999) ("Application").

[^2]: The Commission approved the Application and imposed the conditions
    pursuant to Sections 4(i) and (j), 214(a), 214(c), 303(r), 309, and
    310(d) of the Communications Act of 1934, as amended, 47 U.S.C. §§
    154(i), 154(j), 214(a), 214(c), 303(r), 309, 310(d).

    The Commission's approval of the Application includes authority for
    AOL Time Warner to acquire control of:

    a\) any authorization issued to Time Warner, its subsidiaries, or
    its affiliates during the Commission\'s consideration of the
    Application and the period required for consummation of the merger
    transaction following approval;

    b\) construction permits held by licensees involved in this transfer
    that matured into licenses during the Commission's consideration of
    the Application or that mature into licenses after closing of the
    merger transaction and that may have been omitted from the transfer
    of control Application; and

    c\) applications filed by such licensees and that are pending at the
    time of consummation of the proposed transfer of control.

[^3]: The conditions that follow are not intended to require AOL Time
    Warner to offer any ISP connection to its cable systems, but instead
    to ensure that if and when the merged firm does agree to offer ISP
    connection, it do so in conformity with the requirements we
    delineate herein.

[^4]: This provision ("Choice of ISPs") is not intended to restrict AOL
    Time Warner's ability to market its own products to prospective or
    current ISP customers.

[^5]: AIHS applications are defined in the order to be
    bandwidth-intensive and therefore applications that work best with
    high-speed Internet access. AIHS applications include time
    sensitive, "latency dependent" applications such as talking, game
    playing, and video conferencing.

[^6]: An essential input to an IM service is the service provider's NPD.
    The names and presence indication, as displayed on the sender's and
    recipient's buddy lists and screens, enable each to know the other's
    IM name and when he or she is online or available for communication
    or interaction. The actual NPD consists, first, of a database of the
    users' unique IM names and addresses and, second, of a "presence
    detection" function, which is the IM provider's knowledge, and its
    ability to inform others, that a certain user is online and
    therefore available to engage in instant messaging. Third, the NPD
    is more than simply a customer list. It is a working part of an
    electronic communications network for persons who have requested
    participation in the network and actually use the network to
    exchange communications in real time with other users.

    Each IM provider has its own NPD database, which constitutes the
    total universe of persons with whom that provider's users can engage
    in instant messaging.

[^7]: We explicitly exclude upgrades to AOL's current IM products that
    are not otherwise included in AIHS. We do not intend to include
    within AIHS streaming video communications not utilizing NPD
    protocols or applications that contain or are packaged with current
    IM.

[^8]: "Server to server" interoperability is interoperability in which a
    client interacts with other NPD-based services through its own
    server. Each server establishes communication with other servers,
    including those controlled by other providers of NPD-based services,
    to exchange presence information and names.

[^9]: We do not require the AOL Time Warner software to read and
    interpret all the data it receives or to make that data
    comprehensible to its users.

[^10]: ^.^

[^11]: A potential competitor is "an aggressive, well equipped and well
    financed company that is engaged in the same or related lines of
    commerce." *United States v. Falstaff Brewing Corp*., 410 U.S. 526,
    532 (1973). *See also* *United States v. Penn-Olin Chem. Co*., 378
    U.S. 158, 174 (1964). In this case, we expect that the potential
    provider would be a company that is capable of entering into an
    arms-length, commercially reasonable and mutually beneficial
    contract with AOL and is likely to become a significant competitor
    in the near term in providing NPD services.

[^12]: By "negotiate in good faith," we mean that AOL Time Warner: (1)
    may not refuse to negotiate with another IM provider regarding
    interoperability; (2) must appoint a negotiating representative with
    authority to bargain and conclude an agreement on interoperability;
    (3) must agree to meet at reasonable times and locations and may not
    act in a manner that would unduly delay the course of negotiations;
    (4) may not put forth a single, unilateral proposal that is not
    subject to negotiation; (5) in responding to an offer proposed by
    another IM provider, must provide considered reasons for rejecting
    any aspects of the other provider\'s offer or proposal; (6) may not
    enter into an agreement that requires the other IM provider to
    interoperate exclusively with AOL Time Warner or authorizes AOL Time
    Warner to deny interoperability to any other IM provider; and (7)
    must agree to execute a written agreement that sets forth the full
    agreement between AOL Time Warner and the other IM provider. We add
    the seventh requirement to ensure that there are no
    misunderstandings as to the obligations of the parties to the
    agreement. In addition, because good faith determinations must be
    grounded on particular facts, we will also examine whether, based on
    the totality of the circumstances, AOL Time Warner has bargained in
    good faith. If we find that AOL Time Warner has not bargained in
    good faith, we will instruct AOL Time Warner to restart negotiations
    with the aggrieved IM provider, but will not mandate that the
    parties reach agreement or enter into a contract on specific terms
    or conditions. *Cf.* *Implementation of the Satellite Home Viewer
    Improvement Act of 1999, Retransmission Consent Issues: Good Faith
    Negotiation and Exclusivity*, CS Docket No. 99‑363, First Report and
    Order, 15 FCC Rcd 5445 (2000).

[^13]: Within \"its IM offerings,\" we include the IM offered as part of
    AOL\'s basic proprietary Internet access service, AIM, ICQ, any IM
    that is sponsored by AOL Time Warner and is included in Road Runner,
    and any new IM-based service that uses the NPD that AOL uses for its
    IM.

[^14]: ^.^

[^15]: *Cf.* 47 C.F.R. § 76.7

[^16]: The Commission acted pursuant to Sections 4(i) and (j), 214(a),
    214(c), 309, and 310(d) of the Communications Act of 1934, as
    amended, 47 U.S.C. §§ 154(i), 154(j), 214(a), 214(c), 309, 310(d),