[]{#__RefHeading___Toc531753217 .anchor}Before the

[]{#__RefHeading___Toc531753218 .anchor}Federal Communications
Commission

[]{#__RefHeading___Toc531753219 .anchor}Washington, D.C. 20554

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| In the Matter of                 | * | CS Docket No. 00-30          |
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| Applications for Consent to the  | ) |                              |
| Transfer of Control of Licenses  | * |                              |
| and Section 214 Authorizations   | * |                              |
| by Time Warner Inc. and America  |   |                              |
| Online, Inc., Transferors, to    | * |                              |
| AOL Time Warner Inc., Transferee | * |                              |
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[]{#__RefHeading___Toc531753220 .anchor}MEMORANDUM OPINION AND ORDER

**Adopted: January 11, 2001** **Released:** **January 22, 2001\***

> By the Commission: Chairman Kennard, Commissioners Ness and Tristani
> issuing separate statements; Commissioners Furchtgott-Roth and Powell
> concurring in part, dissenting in part, and issuing separate
> statements.

**TABLE OF CONTENTS**

Before the [1](#__RefHeading___Toc531753217)

Federal Communications Commission [1](#__RefHeading___Toc531753218)

Washington, D.C. 20554 [1](#__RefHeading___Toc531753219)

MEMORANDUM OPINION AND ORDER [1](#__RefHeading___Toc531753220)

I. introduction [3](#introduction)

II\. PUBLIC INTEREST FRAMEWORK [9](#public-interest-framework)

III\. Background [12](#background)

A. The Applicants [12](#the-applicants)

B. Other Proceedings Relevant to the Application to Transfer Licenses.
[20](#other-proceedings-relevant-to-the-application-to-transfer-licenses.)

C. The Merger Transaction and the Application to Transfer Licenses
[21](#the-merger-transaction-and-the-application-to-transfer-licenses)

IV\. Analysis of Potential public interest harms
[22](#analysis-of-potential-public-interest-harms)

A. High-Speed Internet Access Services
[22](#high-speed-internet-access-services)

1\. Background [26](#background-1)

2\. Discussion [28](#discussion)

3\. Conditions [55](#conditions)

B. Instant Messaging and Advanced IM-Based High-Speed Services.
[57](#instant-messaging-and-advanced-im-based-high-speed-services.)

1\. Background [59](#background-2)

2\. Discussion [64](#discussion-1)

3\. Condition [81](#condition)

C. Video Programming [84](#video-programming)

1\. Electronic Programming Guides [84](#electronic-programming-guides)

2\. Broadcast Signal Carriage Issues
[87](#broadcast-signal-carriage-issues)

3\. Cable Horizontal Ownership Rules
[88](#cable-horizontal-ownership-rules)

D. Interactive Television Services
[90](#interactive-television-services)

1\. Background [91](#background-3)

2\. Discussion [97](#discussion-2)

E. Multichannel Video Programming Distribution
[101](#multichannel-video-programming-distribution)

1\. Common Ownership of DBS and Cable MVPDs
[102](#common-ownership-of-dbs-and-cable-mvpds)

2\. Program Access Issues [104](#program-access-issues)

F. COORDINATION WITH AT&T [106](#coordination-with-att)

1\. Background [107](#background-4)

2\. Discussion [112](#discussion-3)

G. Other Potential Public Interest Harms
[118](#other-potential-public-interest-harms)

V. ANalysis of potential public interest benefits
[120](#analysis-of-potential-public-interest-benefits)

A. The Evidence [122](#the-evidence)

B. Discussion [127](#discussion-4)

VI\. CONCLUSION [131](#conclusion)

VII\. ORDERING CLAUSES [132](#ordering-clauses)

APPENDIX A [136](#__RefHeading___Toc531753255)

Initial Comments [136](#initial-comments)

Reply Comments [136](#reply-comments)

Appendix B [137](#appendix-b)

CONFIDENTIAL APPENDIX [137](#confidential-appendix)

APPENDIX C [138](#appendix-c)

STATEMENT OF FCC CHAIRMAN WILLIAM E. KENNARD
[145](#__RefHeading___Toc531753261)

ON CONDITIONED APPROVAL OF AOL TIME WARNER MERGER
[145](#__RefHeading___Toc531753262)

SEPARATE STATEMENT OF COMMISSIONER SUSAN NESS
[147](#__RefHeading___Toc531753263)

*VIII.* *Cable Internet Access* [150](#cable-internet-access)

*IX.* *Interactive Television* [150](#interactive-television)

*X.* *Time Warner Entertainment and AT&T*
[150](#time-warner-entertainment-and-att)

*XI.* *Privacy* [151](#privacy)

[1.]{.smallcaps} I. [Framing the Internet Openness Problem Presented by
this Case]{.smallcaps}
[169](#i.-framing-the-internet-openness-problem-presented-by-this-case)

Appendix A: List of Timely Filed Comments

Appendix B: Confidential Appendix

Appendix C: List of Authorizations and Licenses

# introduction

1.  In this *Order*, we consider 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, pursuant to
    Sections 214(a) and 310(d) of the Communications Act of 1934, as
    amended ("Communications Act").[^2] The licenses to be transferred
    include the cable television relay service ("CARS") licenses that
    are essential to the operation of the cable systems currently owned
    by Time Warner, which are in several respects the critical asset
    involved in the combination of the two firms. To obtain approval,
    the Applicants must demonstrate that their proposed transaction will
    serve the public interest, convenience, and necessity.[^3] In this
    regard, we must weigh the potential public interest harms of the
    proposed merger against the potential public interest benefits to
    ensure that the Applicants have shown that, on balance, the benefits
    outweigh the harms.[^4]

2.  The proposed merger of AOL and Time Warner was, at the time of its
    announcement, the largest corporate merger in history.[^5] The
    combination is remarkable not only for its size, but also for the
    nature of the companies and the assets they control. The proposed
    merger has attracted substantial public interest and has come under
    scrutiny by several bodies other than this Commission, including the
    U.S. Congress, the Federal Trade Commission ("FTC"), and the
    European Commission. The unprecedented nature of the merger creates
    more than the normal potential for controversy and confusion both
    about the merits and about the role of the Commission's review.

3.  To minimize potential confusion, we begin with a summary overview of
    the foundation and context of our decision. We first describe the
    scope of the Commission's inquiry and its specific focus on
    potential consequences of approving the proposed transfers on the
    rules, policies and objectives of the Communications Act, and note
    several pervasive issues about whether and how those potential
    consequences should be addressed by this Commission in the context
    of reviewing license transfer applications. We then briefly note
    from the standpoint of the Communications Act the most significant
    aspects of the companies and assets that will combine if the
    transfers are approved. Having established this context, we describe
    the major issues that have been identified and will be discussed in
    the course of the decision.

4.  As the Commission has explained in prior merger orders, this
    Commission and the Federal Trade Commission each have independent
    authority to examine communications mergers, but the standards
    governing the Commission's review differ from the FTC's
    standards.[^6] The FTC must examine whether a merger will harm
    competition.[^7] The Commission's review encompasses an examination
    of anticompetitive effects but also evaluates, as explained in more
    detail below, the potential impact of the proposed transaction on
    the rules, policies and objectives of the Communications Act. [^8]
    Transactions that would violate the Act will be rejected.
    Transactions that would violate the Commission's rules may be
    allowed only if the Commission waives the rules in question.
    Transactions that do not violate the Act or the Commission's rules
    are examined to determine whether they would otherwise substantially
    impair or frustrate the enforcement of the Act or the objectives of
    the Act and whether the transaction would produce potential public
    interest benefits in furtherance of Communications Act policies.
    Among the major policies and objectives that may be affected by
    significant mergers are preserving and enhancing competition in
    related markets, ensuring a diversity of voices, and providing
    advanced telecommunications services to all Americans as quickly as
    possible. To gain approval, an applicant bears the burden of
    establishing that the potential for benefits to the public interest
    outweighs the potential for harms.

5.  The balancing of potential harms and benefits to the public interest
    is particularly appropriate in the context of reviewing license
    transfer applications that are associated with significant mergers
    because such mergers are likely to create potential for both good
    and ill. For example, the same concentration of assets that may
    support technological innovation by providing sufficient capital to
    take the necessary risks or by reducing transaction costs may also
    allow the merged entity to create or enhance barriers to entry by
    its competitors. As a result of this ambiguity, the outcome most
    favorable to the public interest, in terms of the policies and
    objectives of the Communications Act, is often best achieved by
    allowing the transfers, and thus the associated merger, to proceed
    (thus obtaining the positive benefits of the combination), but only
    subject to certain conditions, either voluntarily agreed to or
    imposed by the Commission under its statutory authority, designed to
    minimize the potential harms or increase the potential benefits.

6.  It is important to emphasize that the Commission's review focuses on
    the potential for harms and benefits to the policies and objectives
    of the Communications Act that flow from the proposed transaction
    --- i.e., harms and benefits that are "merger-specific." The
    Commission recognizes and discourages the temptation and tendency
    for parties to use the license transfer review proceeding as a forum
    to address or influence various disputes with one or the other of
    the applicants that have little if any relationship to the
    transaction or to the policies and objectives of the Communications
    Act.

7.  License transfer applications, even those associated with
    significant mergers, are adjudications focused on particular
    parties. Some have argued that the Commission should avoid in such
    proceedings addressing significant issues that also apply to parties
    in the same industry other than the applicants, and should deal with
    such industry-wide issues exclusively in rulemakings.[^9] They point
    out the potential unfairness of subjecting the license transfer
    applicants to a different standard that is not applicable to their
    competitors and contend that rulemakings may offer a better
    opportunity for public comment focused on the adoption of an
    industry-wide policy rather than on the facts of a particular
    merger. While recognizing the relative advantages of rulemakings in
    many circumstances, the Commission also recognizes the
    well-established principle that administrative agencies have
    discretion to proceed by either adjudication or rulemaking to decide
    such issues, and that the Commission must fulfill its responsibility
    in an adjudication to decide the issues presented by that case.[^10]
    In this case, the Commission is required to balance these
    considerations and resolve them with respect to several of the major
    issues presented by the facts, including one issue that is currently
    the subject of a notice of inquiry that may lead to a rulemaking
    proceeding.

8.  The proposed merger has been touted as a productive marriage of a
    new media giant with a traditional media giant. AOL has become one
    of the most significant forces in the Internet environment. It is
    the nation's and the world's largest Internet Service Provider
    ("ISP"), and serves about five times as many narrowband subscribers
    as its nearest competitor.[^11] AOL initially created and provided
    an online service, separate and apart from the Internet, which was
    designed to provide the benefits of connecting to a network of
    computers, including those of other AOL members and those of AOL
    itself, that provided collections of information on various
    subjects. AOL's online service was distinguished both by its
    emphasis on creating a format that was "user friendly" to persons
    not otherwise familiar with computer networking and by its
    aggressive marketing programs, which educated the general public as
    to the benefits and relative ease of connecting to a computer
    network. The development and increasing popularity of the World Wide
    Web eventually led AOL to adapt its service to include access to the
    broader Internet, transforming AOL into an ISP, and to allow access
    to AOL's online service over the Internet to persons who used other
    ISPs. At the same time, AOL has continued as an online service
    provider ("OSP") to provide a number of resources and services to
    members who pay a monthly fee. As the use of the Internet has grown
    in popularity, AOL has continued to attract the largest share of
    users. Moreover, as the commercial potential of the Internet has
    been recognized, the value of AOL's large subscriber base has been
    recognized, as has the value of AOL's ability to attract and hold
    its members to the services and information provided by AOL itself,
    as opposed to having them go to other sites on the World Wide
    Web.[^12] AOL's abilities to attract a large number of subscribers,
    to keep them primarily "inside" its own services, and to negotiate
    contracts with other businesses that take advantage of these
    abilities have provided a basis for a profitable business
    enterprise.

9.  Prior to the announcement of the proposed merger with Time Warner,
    AOL faced a threat to its continued success in the Internet
    environment as a narrowband ISP and OSP, posed by the anticipated
    migration of Internet users from narrowband access over ordinary
    telephone lines to high-speed access. The early leaders in providing
    high-speed Internet access have been cable television operators
    which, unlike telephone companies, are not common carriers.
    High-speed ISP service over cable systems is provided on an
    exclusive basis by companies owned in large part by the cable
    companies, and AOL had been unable to negotiate access to the cable
    systems on terms satisfactory to it. In response, AOL developed
    relationships with alternative providers of high-speed access,
    including high-speed Digital Subscriber Line ("DSL") service
    provided over telephone lines and satellite broadcasting service. In
    addition, AOL became the leading voice in a movement led by
    narrowband ISPs to compel cable operators to allow competing ISPs to
    provide high-speed access to the Internet over their cable
    systems.[^13]

10. AOL also has the largest share of subscribers to services known as
    instant messaging ("IM"), which allows subscribers to detect whether
    other identified subscribers are currently on-line (presence
    detection), and to send and receive messages to other subscribers in
    essentially "real" time. There are competing versions of instant
    messaging software and most, including those controlled by AOL, are
    offered without charge. It is anticipated that IM will become a
    significant platform for launching and supporting other applications
    that take advantage of the tools for presence detection and
    real-time communication. At present, with a few exceptions, the
    competing IM systems do not interoperate with one another---*i.e*.,
    a member of one such system cannot detect the presence of or send
    messages to a member of a competing system. Competing systems have
    attempted to interoperate with AOL's system without AOL's consent.
    While stating its commitment to the principle of interoperability,
    AOL has blocked these unauthorized efforts, citing concerns for
    security, privacy and performance of its own system. Finally, AOL
    has recently begun to provide interactive television services
    ("ITV") that combine traditional video programming features with
    web-based and other interactive features, viewed and used by
    consumers through their television sets.

11. Time Warner is a conglomerate of many of the most successful
    traditional media companies. It holds one of the world's largest
    content libraries, comprised of innumerable print, film, television
    programming, and music interests. Time Warner delivers this content
    through magazines, records and its cable holdings, the second
    largest in the nation. In recent years, Time Warner leaped into the
    new media world by creating, with other cable companies, Road
    Runner, the nation's second largest broadband ISP, which Time Warner
    controls. Most of Time Warner's cable systems are owned and operated
    by Time Warner Entertainment ("TWE"), a partnership in which Time
    Warner has a 75% stake. As a result of the merger of AT&T Corp.
    ("AT&T") and MediaOne, AT&T owns the remaining 25%. Thus Time Warner
    already represents a vertical integration of substantial programming
    (content) and distribution (conduit) assets.

12. This proposed merger at this particular point raises a number of
    issues with respect to the policies of the Communications Act that
    have generated intense public comment. The Internet is widely
    recognized as a major source of innovation and economic growth in
    recent years. The conditions which allowed that explosive growth and
    innovation to occur included substantial initial public investment
    and an architecture that encouraged innovation by reducing barriers
    to entry and ensuring competition on the merits. Competition among
    narrowband ISPs has been open because of the common carrier
    telephone network over which they offer their services. As already
    noted, the proposed merger has been motivated in large part by the
    anticipated migration of ISPs' customers from the regulated common
    carrier telephone network to broadband conduits, primarily cable
    systems, which are not common carriers. The policies of the
    Communications Act that are potentially implicated by this shift,
    and by this proposed merger, include the preference for competitive
    telecommunications markets, the existence of diverse platforms and
    providers, the promotion of innovation, and rapid deployment of
    advanced telecommunications services.

13. From a competition standpoint, vertical integration can create
    potential problems when the integrated company has market power at
    one or more of the levels of integration. Concerns about the
    integration of video programming content and the cable conduit are
    addressed in statutory provisions and Commission rules, such as the
    horizontal ownership cap and the channel occupancy rules.[^14] These
    provisions, however, do not necessarily apply to or resolve the
    similar concerns raised by the proposed merger with respect to the
    integration of the existing Time Warner combination of content and
    conduit with AOL's online services in the residential market. As
    Congress and this Commission have recognized, market power exists on
    the Time Warner side in the cable assets. On the AOL side, market
    power arguably exists both in AOL's position as the leading
    narrowband ISP and in AOL's instant messaging network.

14. A number of the comments reflect fears of the potential
    anticompetitive impacts that could flow from the unprecedented
    combination of assets that the merger represents. Our task in
    evaluating the comments is more difficult because of the rapid
    development of the technologies and products involved and the
    ambiguous nature of some of the merger's predicted impacts. For
    instance, several of the most controversial issues relating to the
    proposed merger involve products and markets that have only recently
    developed or that are only anticipated---and yet commenters urge
    that if some conditions are not placed on the merger at this point,
    harms will occur so rapidly that much more onerous intervention will
    be required to cure them later.

15. We recognize that there is a difference between intervention to
    preserve a level of competition that will allow a market to operate
    effectively and the kind of substantial regulatory intervention that
    is required to compensate in markets where sufficient competition is
    lacking. The 1996 Act reflects a clear preference that competitive
    markets, as opposed to regulated monopolies, be created and
    preserved as the mechanism for economic decision making. Mergers can
    reflect the healthy operation of competition, creating more
    efficient collections of assets; but they can also threaten its
    continued existence, eliminating competitors or creating
    opportunities to disadvantage rivals in anticompetitive ways. We are
    guided both by the desire to avoid intervention and the realization
    that some degree of timely intervention to preserve competition may
    avoid a later need for more onerous intervention to either regulate
    where competition has disappeared or to attempt to reintroduce
    competition once it has been eliminated.

16. We also recognize that the same consequences of a proposed merger
    that are beneficial in one sense may be harmful in another. For
    instance, combining assets may allow the merged firm to reduce
    transaction costs and offer new products; but if the merged firm has
    market power, these advantages may operate to consolidate that
    power.

17. In its review of the instant merger, the FTC found that the merger
    would harm competition in the residential Internet access
    marketplace and imposed conditions on the merging parties requiring
    them to afford access to Time Warner's cable plant to unaffiliated
    ISPs, requiring them not to discriminate against unaffiliated
    content under certain circumstances, requiring AOL Time Warner to
    market AOL's DSL services in the same manner and at the same retail
    price in Time Warner cable areas as in other areas, and to hold
    separate Road Runner, a cable ISP, from AOL's ISP service until AOL
    Time Warner offers an unaffiliated ISP on all AOL Time Warner cable
    systems.[^15]

18. After reviewing the comments filed in this proceeding,[^16] we find
    that, subject to certain conditions designed to mitigate
    merger-specific harms, and in light of the terms of the FTC Consent
    Agreement, the public interest benefits of the proposed merger
    outweigh the public interest harms. Among many issues raised by
    commenters, we focus particularly on four potential harms. First, we
    find that the proposed merger would give AOL Time Warner the ability
    and incentive to harm consumers in the residential high-speed
    Internet access services market by blocking unaffiliated ISPs'
    access to Time Warner cable facilities and by otherwise
    discriminating against unaffiliated ISPs in the rates, terms and
    conditions of access. To remedy this harm, this *Order* conditions
    approval of the merger on certain conditions relating to AOL Time
    Warner's contracts and negotiations with unaffiliated ISPs. Second,
    we find that the merger would make it more likely that AOL Time
    Warner would be able to solidify its dominance in the high-speed
    access market by obtaining preferential carriage rights for AOL on
    the facilities of other cable operators. We particularly find that
    the merger would harm the public interest by allowing for greater
    coordinated action between AOL Time Warner and AT&T in the provision
    of residential high-speed Internet access services. To remedy these
    harms, we impose a condition forbidding the merged firm from
    entering into contracts with AT&T that would give AOL exclusive
    carriage or preferential terms, conditions and prices. Third, we
    find that the proposed merger would enable AOL Time Warner to
    dominate the next generation of advanced IM-based applications. To
    remedy this harm, we impose a condition requiring AOL Time Warner,
    before it may offer an advanced IM-based application that includes
    streaming video, to provide interoperability between its NPD-based
    applications and those of other providers, or to show by clear and
    convincing evidence that circumstances have changed such that the
    public interest will no longer be served by an interoperability
    condition. Fourth, although we have concerns that the merger may
    give AOL Time Warner the ability and the incentive to discriminate
    against the interactive television ("ITV") services of unaffiliated
    video programming networks, we find that the terms of the FTC
    Consent Agreement will adequately protect the public interest by
    prohibiting certain types of discrimination and that it is not
    necessary for us to impose further conditions in this proceeding;
    however, we have initiated a Notice of Inquiry ("*ITV NOI*") to
    explore ITV issues in the market generally.[^17] Subject to the
    conditions described above, we find that the proposed merger will
    serve the public interest.

# PUBLIC INTEREST FRAMEWORK

19. Sections 214(a) and 310(d) of the Communications Act require the
    Commission to determine whether the Applicants have demonstrated
    that the public interest would be served by transferring control of
    AOL's and Time Warner's Commission license authorizations to AOL
    Time Warner.[^18] Our statutory mandate, confirmed by our precedent,
    requires that we weigh the potential public interest harms of the
    proposed transaction against the potential public interest benefits
    to ensure that the Applicants have demonstrated that, on balance,
    the merger serves the public interest and convenience.[^19] The
    Applicants bear the burden of proving that the transfer will advance
    the public interest.[^20]

20. In conducting its public interest inquiry, the Commission examines
    four overriding questions: (1) whether the transaction would result
    in a violation of the Communications Act or any other applicable
    statutory provision;[^21] (2) whether the transaction would result
    in a violation of the Commission's rules;[^22] (3) whether the
    transaction would substantially frustrate or impair the Commission's
    implementation or enforcement of the Communications Act and/or other
    related statutes, or would interfere with the objectives of the
    Communications Act and/or other related statutes;[^23] and (4)
    whether the transaction promises to yield affirmative public
    interest benefits.[^24]

21. The Commission's analysis of public interest benefits and harms
    includes, but is not limited to, an analysis of the potential
    competitive effects of the transaction, as informed by traditional
    antitrust principles.[^25] While an antitrust analysis, such as that
    undertaken by the Department of Justice or, in this case, the
    Federal Trade Commission, focuses solely on whether the effect of a
    proposed merger "may be substantially to lessen competition,"[^26]
    the Communications Act requires the Commission to make an
    independent public interest determination, which includes evaluating
    public interest benefits or harms of the merger's likely effect on
    future competition.[^27] To find that a merger is in the public
    interest, therefore, the Commission must "be convinced that it will
    enhance competition."[^28]

22. Our public interest evaluation necessarily encompasses the "broad
    aims of the Communications Act."[^29] These broad aims include,
    among other things, ensuring the existence of a nationwide
    communications service, available to everyone; implementation of
    Congress's pro-competitive, deregulatory national policy framework
    designed to open all telecommunications markets to competition; the
    preservation and advancement of universal service; and the
    acceleration of private sector deployment of advanced services.[^30]
    Our public interest analysis may also entail assessing whether the
    merger will affect the quality of telecommunications services or
    will result in the provision of new or additional services to
    consumers.[^31] Thus, apart from traditional antitrust concerns, we
    are required to consider, among other things, whether the proposed
    merger will further the statutory goals of "assur\[ing\] that cable
    communications provide and are encouraged to provide the widest
    possible diversity of information sources and services to the
    public,"[^32] and "promot\[ing\] competition in the delivery of
    diverse sources of video programming . . ."[^33]

23. The Supreme Court has found that decentralization of information
    production serves values that are central to the First Amendment.
    Indeed, the Court has repeatedly emphasized the Commission's duty
    and authority under the Communications Act to promote diversity and
    competition among media voices: It has long been a basic tenet of
    national communications policy that "the widest possible
    dissemination of information from diverse and antagonistic sources
    is essential to the welfare of the public."[^34] Accordingly, the
    Court had "no difficulty" in concluding that the Commission's
    interest in "promoting widespread dissemination of information from
    a multiplicity of sources" is "an important governmental
    interest."[^35]

24. Following passage of the 1996 Act, local telecommunications markets
    have been undergoing a transition to competitive markets. Therefore,
    a transaction may have predictable yet dramatic consequences for
    competition over time even if the immediate effect is more
    modest.[^36] When a transaction is likely to affect local
    communications markets, our statutory obligation requires us to
    assess future as well as current market conditions. In doing so, the
    Commission may rely on its specialized judgment and expertise to
    render informed predictions about future market conditions and the
    likelihood of success of individual market participants.[^37]

25. Where necessary, the Commission can attach conditions to a transfer
    of licenses and authorizations in order to ensure that the public
    interest is served by the transaction.[^38] Section 214(c) of the
    Communications Act authorizes the Commission to attach to the
    certificate "such terms and conditions as in its judgment the public
    convenience may require."[^39] Similarly, section 303(r) of the
    Communications Act authorizes the Commission to prescribe
    restrictions or conditions, not inconsistent with law, that may be
    necessary to carry out the provisions of the Act.[^40] Indeed,
    unlike the role of antitrust enforcement agencies, the Commission's
    public interest authority enables it to impose and enforce certain
    types of conditions that result in a merger yielding overall
    positive public interest benefits.[^41]

26. Where a license transfer applications shows that the merger would
    yield affirmative public interest benefits and would not violate the
    Communications Act or Commission rules, nor frustrate or undermine
    policies and enforcement of the Communications Act, there is no need
    for extensive review and expenditure of considerable resources by
    the Commission and interested parties.[^42] This is not the case
    with regard to this proposed transaction. We analyze the potential
    public interest harms and benefits of this proposed merger, absent
    conditions, in the next sections.

# Background

## The Applicants

27. ***AOL**.* AOL is divided into four operating groups, the
    Interactive Services Group, the Interactive Properties Group, the
    AOL International Group, and the Enterprise Solutions Group.[^43]
    These groups provide interactive service, Web brands, Internet
    technologies and electronic commerce ('e-commerce') services.[^44]
    For the twelve months ending June 30, 2000, AOL earned \$6.9 billion
    in revenues. Subscription services accounted for \$4.4 billion,
    advertising, commerce and other related services accounted for just
    under \$2 billion, and "Enterprise Solutions" accounted for the
    remaining \$500 million in revenues. AOL's net income for this
    period totaled \$1.2 billion. For the first quarter of its fiscal
    year 2001, AOL reported \$2.0 billion in revenue.[^45]

28. *Interactive Services.* The Interactive Services Group operates
    branded interactive services such as AOL's flagship ISP AOL Internet
    service. This fee-based service provides Internet access and
    specialized content to more than 26 million subscribers.[^46] AOL's
    ISP content includes news, entertainment, health, travel, sports,
    and finance information organized into "channels" from which
    subscribers can choose.[^47] Included among AOL's numerous corporate
    partners that provide it with content and advertising are American
    Airlines, Budget Rent-a-Car, Sesame Street, Toys-R-Us, Barnes and
    Noble, Amazon.com, Godiva Chocolatier, JC Penney, Wal-Mart, Coca
    Cola, Proctor and Gamble, Avon, and CBS News.[^48] A non-exhaustive
    list of additional features that the AOL service affords members
    includes e-mail, public bulletin boards, and the "Buddy List"
    feature (allowing members to discern whether fellow members are
    online simultaneously).[^49] The AOL ISP service also includes AOL
    Plus, AOL's broadband Internet access service and enhanced content.
    AOL also offers the CompuServe ISP service, which has 2.8 million
    subscribers worldwide.[^50]

29. An additional feature offered by AOL to its subscribers is IM.[^51]
    In its simplest form, IM enables the almost instantaneous exchange
    of short text messages over the Internet between a person ("the
    sender") and another person ("the recipient") chosen by the sender.
    AOL also offers IM software, known as AOL Instant Messenger ("AIM")
    to non-AOL subscribers free of charge.[^52] AOL has AIM co-branding
    arrangements with numerous companies, including Apple, BellSouth
    Mobility, DigitalWork.com, EarthLink Communications, Juno, IBM,
    Lycos, Motorola, Net2Phone, Nokia, Oxygen Media, RealNetworks, and
    TV Guide.[^53] AOL also owns another IM service, ICQ.[^54] AOL is,
    by far, the largest provider of IM.[^55]

30. The Interactive Services Group also oversees AOLTV, an advanced
    interactive television service. AOLTV enables subscribers to access
    AOL features, such as chat rooms, e-mail, and IM through an
    interface overlaid on their television screens.[^56] In addition,
    AOLTV offers interactive content and information tailored to the
    specific video programming being viewed.[^57] Selected retailers
    started selling AOLTV set-top boxes in June 2000.[^58] The boxes
    retail for \$200-300. In addition, consumers must pay a monthly
    subscription fee to receive the service.[^59] AOLTV services can
    also be purchased directly from AOLTV's website.[^60] AOL has plans
    to develop an AOLTV integrated cable set-top box,[^61] as well as an
    integrated DirecTV set-top box.[^62]

31. *Interactive Properties Group*. The Interactive Properties Group
    includes Digital City, MovieFone, Spinner, WINamp, and ICQ. Digital
    City provides Internet local content and community guides that
    include news, sports, weather and entertainment information, as well
    as an interactive forum.[^63] Digital City provides this information
    for 200 markets.[^64] According to AOL, Digital City averages 40
    million page views a week, and has 2,000 interactive marketing
    partners.[^65] AOL MovieFone is a movie guide and ticketing service
    customers can access either through a toll-free number or the
    MovieFone.com web site. Prior to the merger, AOL MovieFone had
    entered into advertising agreements with Time Warner film companies,
    Warner Bros. and New Line Cinema.[^66] Spinner is a web site that
    allows users to listen to music organized into channels, and to
    purchase the music directly through the web site.[^67] WINamp is a
    branded MP3 player that allows users to listen to and download
    music.[^68] The WINamp web site also hosts numerous Internet radio
    stations.[^69]

32. *AOL International Group*. The AOL International Group oversees the
    AOL and CompuServe services outside the United States.[^70] AOL and
    CompuServe offer their branded services through joint ventures or
    distribution arrangements in Australia, Austria, Canada, France,
    Germany, Japan, the Netherlands, Sweden, Switzerland, and the United
    Kingdom.[^71] America Online Latin America, Inc. is a leading Latin
    American Internet and interactive service provider.[^72] AOL owns
    approximately 80% of America Online Latin America.[^73]

33. *Enterprise Solutions Business Products and Services.* The Netscape
    Enterprise Group is the primary product group in AOL's Enterprise
    Solutions division.[^74] The Netscape Enterprise Group develops,
    markets, sells and supports a broad suite of enterprise software
    that consists of electronic commerce infrastructure and electronic
    commerce applications targeted primarily at corporate intranets and
    extranets, as well as the Internet.[^75] In November 1998, AOL
    entered into a strategic electronic commerce alliance with Sun
    MicroSystems, which is now referred to as the Sun-Netscape Alliance.
    The alliance builds and markets on a collaborative basis end-to-end
    electronic commerce solutions to help business partners and other
    companies put their businesses online.[^76]

34. *Ownership Interest in General Motors Corporation-Hughes Electronics
    Corporation.* In 1999, AOL invested \$1.5 billion in General Motors
    Corporation ("GM"), the parent company of Hughes Electronics
    Corporation ("Hughes"), to "accelerate the development of" Direct
    Broadcast Satellite ("DBS") "as a platform for the next generation
    of Internet services."[^77] This investment is in the form of GM's
    "Series H 6.25% Automatically Convertible Preference Stock."[^78]
    Hughes is the parent company of DirecTV, the country's largest DBS
    provider, and DirectPC, a high-speed satellite ISP.[^79]

35. *Telephony.* AOL has ownership stakes in two companies that offer
    telephony services, Talk.Com, Inc. and Net2Phone, Inc.[^80] AOL owns
    6.26% of Talk.com.[^81] Talk.com offers local telecommunications
    services, including outbound long-distance service, local service,
    inbound toll-free service, and dedicated data line services.[^82]
    Among its calling plans is AOL Long Distance, a plan offered
    exclusively to AOL members.[^83] AOL also owns 4.63% of Net2Phone's
    capital stock.[^84] AOL's ownership of this stock gives it 5.14% of
    the total voting power of the company.[^85] Net2Phone provides
    Internet telephony, a service that allows users to make low-cost
    telephone calls over the Internet.[^86] It also provides technology
    to integrate live voice capabilities into the Web.[^87]

36. ***Time Warner***. Time Warner is a worldwide media and
    entertainment company. It creates and distributes branded content
    through the business interests described in detail in this section.
    Time Warner reported overall 1999 revenues of \$27.3 billion, and
    operating income of \$7.3 billion.[^88]

37. *Cable Systems and MVPD Services*. Time Warner, the second largest
    cable provider in the country, serves 12.7 million subscribers
    through cable systems that pass approximately 21 million homes.[^89]
    Time Warner cable systems serve approximately 18.9 % of the 67
    million cable subscribers nationwide and 15.4% of the 82 million
    subscribers to multichannel video programming distribution ("MVPD")
    systems nationwide.[^90]

38. Time Warner's cable systems are held through three entities managed
    by Time Warner Cable: Time Warner Entertainment ("TWE"), Time Warner
    Entertainment -- Advance/Newhouse Partnership ("TWE-A/N"), and TWI
    Cable, Inc. ("TWI Cable").[^91] TWE is a limited partnership; Time
    Warner owns 74.5% of TWE. The remaining 25.5% is owned by AT&T as a
    result of its purchase of MediaOne Group, Inc.[^92] TWE serves
    approximately 4.2 million basic cable subscribers.[^93] TWI Cable,
    which serves approximately 1.8 million subscribers, is an indirect
    wholly-owned subsidiary of Time Warner.[^94] TWE-A/N is a general
    partnership owned by TWE, TWI Cable, and Advance/Newhouse
    Partnership.[^95] TWE-A/N serves approximately 6.7 cable million
    subscribers.[^96] Time Warner's partnership interest in TWE-A/N,
    held through TWE and TWI Cable, totals approximately 67%.[^97]

39. *Internet Services*. Time Warner controls Road Runner, a joint
    venture that provides high-speed Internet access and content
    optimized for broadband networks to more than 1.1 million
    subscribers,[^98] of whom more than 719,000 are served by Timer
    Warner Cable systems.[^99] Road Runner is available in cable systems
    passing more than 19.5 million homes.[^100] As of December 31, 1999,
    after conversion of all preferred interests, Road Runner was owned
    8.6% by TWI Cable, 20% by TWE, 26.3% by TWE-A/N, 25.1% by AT&T, and
    10% each by Microsoft and Compaq.[^101] Pursuant to a consent decree
    with the United States Department of Justice ("DOJ"), entered into
    as a condition of the AT&T-MediaOne merger,[^102] AT&T must divest
    its direct interest in Road Runner no later than December 31, 2001.
    Time Warner and AT&T recently announced a restructuring of Road
    Runner that is the first step in AT&T's divestiture of its interest
    in Road Runner in compliance with the DOJ Consent Decree. The
    restructuring is anticipated to be completed by April 2001.[^103]

40. *Video Programming Networks*. Time Warner holds interests in
    numerous national, international and regional programming
    networks.[^104] These interests are divided into three entities: TBS
    Entertainment, CNN News Group, and Home Box Office ("HBO"). TBS
    Entertainment and CNN News Group are each indirectly wholly owned by
    Time Warner. CNN News Group includes CNN, CNN Headline News, CNN/SI,
    and CNNfn.[^105] CNN, a 24-hour per day cable television news
    service, is available to more than 77 million U.S. MVPD
    subscribers.[^106] In 1999, CNN had nine of the ten highest-rated
    regularly scheduled basic cable news programs.[^107] TBS
    Entertainment includes TBS, TNT, Turner Classic Movies, Cartoon
    Network and Turner South.[^108] Three of TBS Entertainment's
    stations were among the five top-rated basic cable networks in
    1999.[^109] TBS and TNT each are available to over 75 million
    subscribers.[^110] Additionally, through wholly owned subsidiaries
    of TBS, Time Warner owns three Atlanta-based sports franchises: the
    Atlanta Braves of Major League Baseball, the Atlanta Hawks of the
    National Basketball Association, and the Atlanta Thrashers of the
    National Hockey League.[^111] HBO is wholly owned by TWE.[^112] HBO
    offers premium programming channels such as Home Box Office and
    Cinemax. These channels had almost 36 million subscribers in
    1999.[^113] In addition, Time Warner Cable operates 24-hour local
    news channels in New York City; Tampa Bay; Orlando; Rochester, New
    York; and Austin, Texas.[^114]

41. *Publishing Interests*. Time Warner's publishing division includes
    magazines, book publishing, book-of-the-month clubs, and interactive
    media sites. Time, Inc. publishes 36 magazines that reach
    approximately 200 million readers.[^115] These magazines include
    *Time*, *People*, *Sports Illustrated*, *Money*, and
    *Fortune*.[^116] Each of these magazines also has an affiliated
    website.[^117] In 1999, Time Warner magazines accounted for 22.6% of
    total advertising revenue in consumer magazines, as measured by the
    Publishers Information Bureau.[^118]

42. *Music*. Time Warner's music division, Warner Music Group ("WMG"),
    consists of interests in recorded music and music publishing.[^119]
    WMG includes record labels such as Atlantic, Elektra, Rhino, Sire,
    Warner Bros. Records, and Warner Music International.[^120] The
    Applicants have worked together to cross-promote WMG properties. A
    WMG subsidiary and AOL\'s Spinner.com, an Internet streaming music
    service, cross-promoted a recording earlier this year, and
    cross-promoted musicians on one of Spinner.com\'s channels.[^121]
    Maverick Recording Co., another WMG record label, and AOL have
    partnered to provide music and premiere recordings on AOL\'s
    Entertainment Channel and Spinner.com.[^122]

43. *Filmed Entertainment*. Time Warner's filmed entertainment
    businesses primarily consist of the production and distribution of
    films and television programming.[^123] Its component companies
    include Warner Bros. Pictures, New Line Cinema, Castle Rock, Warner
    Home Video, and Telepictures Productions. During 1999, Warner Bros.
    Pictures released 25 motion pictures for theatrical
    distribution.[^124] Through its other film lines, Time Warner
    released more than 20 additional films in 1999.[^125] Time Warner's
    television programming interests include ownership of a library
    containing 5,700 feature films, 32,000 television titles, 12,000
    animated titles, and 1,500 animated shorts.[^126] Warner Bros.
    Television ("WBTV") produces various primetime dramatic and comedy
    programming for major networks.[^127]

44. *The WB Television Network*. Time Warner is the majority owner of
    The WB Television Network ("The WB").[^128] The WB is a broadcast
    network that reaches 83% of all U.S. households.[^129] The WB
    broadcasts 13 hours of series programming per week; its children's
    network, Kids' WB!, airs 19 hours of programming per week.[^130]

45. *Telephony*. Time Warner provides both residential and business
    telephony services. Time Warner residential telephony service is
    offered by Time Warner Cable ("TWC"). TWC has offered
    circuit-switched service in Rochester, New York since 1994. TWC also
    provides residential telephony service in Portland, Maine to a
    limited number of its cable customers in that market.[^131] In
    February 1999, eleven months prior to the announcement of the
    intended AOL and Time Warner merger, Time Warner and AT&T signed a
    preliminary letter of intent for a cable telephony joint venture.
    While the joint venture has not yet been launched, Time Warner and
    AT&T continue to have ongoing discussions regarding the provision of
    residential telephony to Time Warner's cable subscribers.[^132] Time
    Warner and AT&T have also signed joint marketing agreements to
    provide incentives to individuals in Albany and Syracuse, New York
    to subscribe to both Time Warner cable service and AT&T long
    distance service.[^133] According to Time Warner, "AT&T and Time
    Warner Cable will offer other long distance and cable television
    incentives and will engage in \[additional\] joint telemarketing
    efforts."[^134] Finally, Time Warner, through its subsidiary Time
    Warner Connect, has received certification as a competitive local
    exchange carrier ("LEC"), allowing it to offer residential telephony
    in California, Florida, Ohio and Texas.[^135]

46. Time Warner serves businesses through Time Warner Telecom, Inc.
    ("TWT"), a facilities-based communications provider serving large
    businesses.[^136] TWT offers businesses "last mile" broadband
    connections for data, high-speed Internet, local voice and
    long-distance services.[^137] TWT is certified to offer
    telecommunications services in 21 metropolitan areas in 12
    states.[^138] As of December 31, 1999, TWT's network included almost
    8,900 route miles, 333,00 fiber miles and offered service to 5,566
    buildings.[^139] During 1999, TWT's investment in its communications
    networks exceeded \$556 million.[^140] TWT anticipated that it would
    commit approximately \$350 million in 2000 to fund its capital
    expenditures for current operating areas its expansion plans.[^141]

## Other Proceedings Relevant to the Application to Transfer Licenses.

47. *Federal Trade Commission Review*. In addition to Commission review,
    the proposed merger is subject to review by the FTC. The FTC
    recently approved the merger, subject to certain conditions.[^142]
    The FTC Consent Agreement requires, among other provisions discussed
    below: (1) that AOL Time Warner make available to subscribers at
    least one unaffiliated ISP on Time Warner's cable systems before AOL
    itself begins offering service; that AOL Time Warner allow two other
    unaffiliated ISPs onto its cable systems within 90 days after AOL's
    commencement of service; and that AOL Time Warner negotiate in good
    faith for non-discriminatory access to its cable systems with any
    ISPs requesting such access; (2) that AOL Time Warner not interfere
    with content passed along the bandwidth contracted for by
    unaffiliated ISPs, or discriminate on the basis of affiliation in
    the transmission of content that AOL Time Warner has contracted to
    deliver to subscribers over their cable systems; and (3) that AOL
    Time Warner market and offer AOL's DSL services in the same manner
    and at the same retail price in Time Warner cable areas where
    affiliated cable-based Internet access service *is* available, as in
    those areas where affiliated cable-based Internet access service is
    *not* available.[^143] The FTC also required, in a separate order,
    that AOL Time Warner hold separate Road Runner and AOL until such
    time that it offers over all of its cable properties an unaffiliated
    ISP.[^144]

48. *European Commission Review*. On October 11, 2000, the European
    Commission (the "EC") granted conditional approval to the
    Applicants' proposed merger.[^145] The EC's approval was conditioned
    upon AOL's agreement to sever all structural links between itself
    and the German multi-media company Bertelsmann AG.[^146] The EC did
    not address concerns with respect to the European market for
    residential high-speed Internet access, stating that the Applicants
    do not have a "broadband infrastructure in Europe."[^147]

49. *Local Franchising Authority Review*. As of September 14, 2000,
    Applicants had completed initial regulatory filings with
    approximately 1,150 local franchising authorities.[^148] Pursuant to
    Section 617 of the Communications Act, local franchising authorities
    with jurisdiction to review transfers or sales of cable systems have
    120 days from the date of Applicants' request for a franchise
    transfer to render a decision.[^149] As of September 14, the
    Applicants had received approval from, or did not need to receive
    approval from, communities covering approximately 99.63% of total
    subscribers served by Time Warner Cable.[^150] Three communities
    denied the request to transfer.[^151] Subsequently, one of these
    communities reconsidered and granted approval.[^152]

## The Merger Transaction and the Application to Transfer Licenses

50. *Proposed Transaction*. On January 10, 2000, AOL and Time Warner
    agreed to merge in a stock-for-stock transaction whereby each will
    become a wholly owned subsidiary of AOL Time Warner.[^153] Under the
    merger agreement, Time Warner and AOL stock will be converted into
    AOL Time Warner stock at fixed exchange ratios: Time Warner
    shareholders will receive 45% of the new corporation, and AOL
    shareholders will receive 55%, each on a fully diluted basis.[^154]
    Upon the merger's completion, ownership and control of all entities
    holding FCC licenses are to be transferred from Time Warner and AOL
    individually to the newly formed AOL Time Warner.[^155] Currently,
    Time Warner holds numerous Commission licenses associated with its
    cable television systems, broadcast stations, and telephony
    ventures.[^156]

51. The merger would join the nation's largest ISP, AOL, with the
    nation's second largest cable operator, Time Warner. The Applicants
    believe that the combined company will spur the development of
    residential broadband service, and bring next-generation multimedia
    content and powerful e-commerce applications to consumers.[^157] The
    Applicants also contend that their combination will create new
    opportunities for interactive entertainment, news, online services,
    music, publishing, and film distribution.[^158] The Applicants aver
    that their merger will lead to a solution to the "cable access"
    issue, and to the provision of multiple ISPs over the cable
    platform.[^159] In particular, AOL and Time Warner point to their
    Memorandum of Understanding Regarding Open Access Business Platforms
    (the "MOU"), into which the Applicants entered shortly after
    agreeing to merge, as a "turning point" in the effort to promote a
    "vigorously competitive marketplace for broadband Internet
    services."[^160]

# Analysis of Potential public interest harms

52. Parties opposing the merger have alleged that the combination of AOL
    and Time Warner will harm the public interest with respect to the
    provision of various services. We address below the effects of the
    merger on only those services that may be affected adversely by the
    merger, based on commenters' allegations and our own analysis.
    Specifically, we examine the merger's potential effects on (1)
    high-speed Internet access services, (2) services based on instant
    messaging, (3) interactive television services, (4) electronic
    programming guides, (5) carriage of television broadcast
    signals, (6) increased concentration among MVPDs, and (7)
    competition among MVPDs. In addition, we examine the merger's
    potential public interest harms in light of AOL Time Warner's
    ownership and contractual relationships with AT&T Corp.[^161]

## High-Speed Internet Access Services

53. In this section, we examine the effects of the proposed merger on
    competition in residential high-speed Internet access
    services.[^162] We again confront in the merger context whether to
    impose some conditions regarding access to the cable platform for
    unaffiliated ISPs seeking to provide these services. The Applicants
    have argued that (i) this case is indistinguishable from prior cases
    such as *AT&T-MediaOne* in which the Commission declined to require
    AT&T to open its cable networks to unaffiliated ISPs, and (ii)
    imposing an access condition here is inconsistent with the
    Commission's pending *Notice of Inquiry* on high-speed Internet
    access ("*Cable Access NOI*"),[^163] which explores the need for
    rules of general applicability. We disagree.

54. We find that the circumstances presented by these applications are
    dramatically different from those presented in our former cases, and
    compel a different result. AOL is by far the largest narrowband ISP
    and has been the leading advocate and supporter of the "open access"
    movement. The proposed merger represents a substantial shift in
    strategy for AOL and a dramatic change in the ISP/cable system
    landscape. AOL seeks to purchase the second largest cable system in
    the country and would obtain in the transaction programming assets
    that could give it even greater bargaining power to negotiate access
    to other cable systems. After the merger, AOL would have a unique
    concentration of assets (vast narrowband membership and the product
    that has created it, access to Time Warner cable systems, and
    extensive Time Warner content assets) that could well give it
    sufficient power to bargain its way onto all other platforms (indeed
    at preferential terms) without any change in government regulation.

55. None of the prior mergers involved a comparable combination of
    assets or a comparable potential impact on competition among
    broadband ISPs. Moreover, while the access issue affects the whole
    industry, as our *Cable Access NOI* indicates, this merger would
    place AOL Time Warner in a unique position that may justify
    conditions inapplicable to others.

56. As further elaborated below, we find that, absent mitigating
    conditions, the proposed merger would undermine competition in the
    provision of residential high-speed Internet access services. We
    find in particular that these services constitute a relevant product
    market distinguishable from residential narrowband Internet access
    services. We also find that the proposed merger would give AOL Time
    Warner both the ability and the incentive to discriminate against
    unaffiliated ISPs and alternative (non-cable) high-speed platforms
    within Time Warner cable territories, and to obtain exclusive or
    preferential carriage for its own Internet access services from
    other cable providers. As a result, the proposed merger would
    frustrate statutory goals and Commission policies designed to ensure
    that the American public has access to a diversity of information
    sources and to widely available advanced services.

57. We conclude, however, that these potential harms will be
    substantially averted by the terms of the FTC Consent
    Agreement.[^164] The FTC Consent Agreement requires, among other
    provisions discussed below, (1) that AOL Time Warner make available
    to subscribers at least one unaffiliated ISP on Time Warner's cable
    systems before AOL itself begins offering service; that AOL Time
    Warner allow two other unaffiliated ISPs onto its cable systems
    within 90 days after AOL's commencement of service; and that AOL
    Time Warner negotiate in good faith for non-discriminatory access to
    its cable systems with any ISPs requesting such access; (2) that AOL
    Time Warner not interfere with content passed along the bandwidth
    contracted for by unaffiliated ISPs, or discriminate on the basis of
    affiliation in the transmission of content that AOL Time Warner has
    contracted to deliver to subscribers over their cable systems;
    and (3) that AOL Time Warner market and offer AOL's DSL services in
    the same manner and at the same retail price in Time Warner cable
    areas where affiliated, cable-based Internet access service *is*
    available as in those areas where affiliated, cable-based Internet
    access service is *not* available.[^165] Because we conclude that
    the FTC Consent Agreement will not avert all the potential harms to
    the public interest that would result from the proposed merger, we
    impose certain additional conditions to ensure that AOL Time Warner
    does not disadvantage unaffiliated ISPs on its cable systems through
    several indirect means not squarely addressed by the FTC Consent
    Agreement.

58. The decisions we make in this proceeding do not necessarily portend
    any specific policy determinations in future proceedings, such as
    the *Cable Access NOI* or the *ITV NOI*,[^166] which will be based
    on the record in those proceedings. If the Commission were to
    determine in the context of those proceedings that rules of general
    applicability were warranted, this Order does not determine or
    prejudge whether the conditions we adopt here should apply
    industry-wide. The assessment of what types of generally applicable
    rules, if any, would be appropriate will flow from the record
    developed in those proceedings. Should those proceedings ultimately
    result in rules of general applicability or yield any findings on
    market definition contrary to our finding here, the Commission may
    revisit the merger conditions imposed in this section, either on its
    own motion or upon the Applicants' request.

59. Our authority to address the merger's impact on competition for
    high-speed Internet access services derives from our statutory duty
    to ensure that the proposed transaction serves the public
    interest.[^167] As discussed in Section II above, we conduct our
    public interest inquiry by determining, among other things, whether
    the proposed transaction would substantially frustrate or impair the
    Commission's implementation or enforcement of the Communications
    Act, or would interfere with the objectives of the Act or of other
    statutes.[^168] Several such objectives are relevant to our analysis
    here. First, in adopting the 1996 Act, Congress established a clear
    national policy to "promote the continued development of the
    Internet" and "to preserve the vibrant and competitive free market
    that presently exists for the Internet and other interactive
    computer services unfettered by Federal or State regulation."[^169]
    Concurrently, Congress charged the Commission with "encourag\[ing\]
    the deployment on a reasonable and timely basis of advanced
    telecommunications capability to all Americans."[^170] The principal
    purpose of such capability is to facilitate the use of advanced
    services, of which residential high-speed Internet access services
    are one kind.[^171] Finally, "it has long been a basic tenet of
    national communications policy that the widest possible
    dissemination of information from diverse and antagonistic sources
    is essential to the welfare of the public."[^172] This national
    policy to promote the public's access to a diversity of viewpoints
    from a multiplicity of sources finds expression in statutory law as
    well as in previous decisions of this Commission.[^173]

60. Our authority to review the impact of the proposed transaction on
    the public interest goes hand in hand with broad authority to attach
    conditions to the proposed transfer of lines and licenses to ensure
    that the transfer actually serves the public interest. Section
    303(r) of the Act authorizes the Commission to prescribe
    restrictions or conditions, not inconsistent with law, that may be
    necessary to carry out the provisions of the Act.[^174] Similarly,
    Section 214(c) of the Communications Act authorizes the Commission
    to attach to the certificate "such terms and conditions as in its
    judgment the public convenience and necessity may require."[^175]

61. We find that, absent mitigating conditions, the proposed transaction
    would interfere with each of the objectives discussed above. The
    merger would imperil the continued existence of a vibrant and
    competitive free market for development of the Internet because AOL
    Time Warner would have the ability and the incentive to discriminate
    against unaffiliated ISPs on its own cable platform, and to obtain
    exclusive carriage for its Internet access services on the networks
    of other cable providers.[^176] These outcomes would also thwart the
    deployment of advanced telecommunications capability to all
    Americans by limiting choice in the realm of residential high-speed
    Internet access services and, potentially, by threatening the
    survival of ISPs unaffiliated with AOL Time Warner as consumers
    migrate from narrowband to high-speed services.[^177] These outcomes
    would likewise diminish the public's ability to obtain information
    from diverse sources, as customers of the nation's second largest
    cable operator (AOL Time Warner) would have little choice but to
    access the Internet through service providers affiliated with that
    entity.[^178] Furthermore, as we discuss below, discrimination by
    AOL Time Warner against unaffiliated ISPs in the market for
    residential high-speed Internet access services would facilitate
    discrimination by that company in favor of its own broadband
    content, a result that could constrain consumers' access to the
    "widest possible" array of information over high-speed
    technology.[^179] If, in contrast, AOL Time Warner were obligated to
    carry multiple, unaffiliated ISPs over its network on
    non-discriminatory terms, those ISPs could serve as an alternative
    outlet for non-AOL Time Warner content, making it more likely that
    AOL Time Warner's affiliated ISPs would feature such content
    themselves to remain competitive. For all of these reasons, we
    conclude that our duty to ascertain that the proposed transaction
    serves the public interest requires us to condition our approval on
    the terms we describe below. We have narrowly tailored these terms
    to augment the terms in the FTC Consent Agreement, and to avoid
    duplication of those terms. Each of the conditions we impose is
    designed to ensure that the transaction does not interfere with the
    aforementioned statutory objectives.

### Background

62. Internet access services consist principally of connectivity to the
    Internet provided to end users.[^180] These end users may be
    residential consumers, businesses, content providers, or application
    providers. In this analysis, we focus on Internet access services
    provided to residential consumers.

63. The majority of residential and small business consumers who
    purchase Internet access services do so from ISPs offering
    relatively low-speed access (typically between 28 and 56 kilobits
    per second ("kbps")) over local telephony plant, otherwise known as
    "narrowband" (or "dial-up") service.[^181] Customers of these ISPs
    typically pay \$22 per month or less for unlimited usage.[^182]
    Major nationwide dial-up ISPs include AOL, AT&T's WorldNet, MSN, and
    EarthLink. LECs operating within their service territories, Erol's,
    and thousands of other ISPs offer service locally or
    regionally.[^183] High-speed (or "broadband") Internet access is
    available through several different technologies, including cable,
    digital subscriber line ("DSL"),[^184] fixed terrestrial wireless,
    and satellite.[^185] In general, high-speed access enables consumers
    to communicate over the Internet at speeds that are many times
    faster than the speeds offered through dial-up telephone
    connections. With high-speed Internet access, consumers can send and
    view content with little or no transmission delay, utilize
    sophisticated "real-time" applications, and take advantage of other
    high-bandwidth services.

64. Cable operators that provide high-speed Internet access services to
    their subscribers often do so by purchasing some components of such
    services from another company. In particular, a cable operator
    typically contracts with an Internet connectivity provider (such as
    Road Runner, Excite@Home, or High-Speed Access Corporation)[^186] to
    link its cable headend to the Internet, which entails providing
    routers, servers, and a dedicated Internet connection.[^187] The
    cable operator, in turn, generally retains responsibility for
    installing the modems upon which end users rely, for upgrades to the
    cable system plant, and for marketing. The cable operator and the
    Internet connectivity provider often divide billing and technical
    support functions. From the perspective of the consumer, these
    services form one product \-- residential high-speed Internet access
    service.

65. Presently, the majority of residential high-speed Internet users
    connect to the Internet via cable. The main competitor to cable in
    the market for residential high-speed Internet services is currently
    DSL, which LECs provide over existing telephone plant.[^188] As of
    November 2000, there were approximately 3 million customers in the
    United States accessing the Internet via cable[^189] and more than
    1.7 million accessing it via DSL lines.[^190] Although DSL
    subscriptions appear to be growing at a faster rate than cable
    Internet subscriptions,[^191] analysts differ as to whether and how
    quickly DSL will catch up with cable.[^192] Excite@Home and Road
    Runner are the two largest high-speed ISPs, serving a majority of
    all high-speed subscribers.[^193] The remaining subscribers are
    splintered among a handful of other cable operators that do not
    offer Internet access services through Road Runner or Excite@Home,
    and a number of DSL, fixed wireless, and direct broadcast satellite
    ("DBS") competitors.[^194]

66. Residential high-speed Internet access services are also provided
    through satellite technology, which employs a radio relay station in
    orbit above the earth to receive, amplify, and redirect signals.
    Satellite-based Internet access services are offered by DBS
    providers such as DirecTV, and may be offered within the next
    several years by low earth orbit ("LEO") satellites deployed by
    firms such as Teledesic. At present, satellite-based Internet access
    services can supply high-speed transmission only in the "downstream"
    direction, that is, from the Internet to the end user's home; the
    end user must use narrowband telephone lines for the "upstream"
    transmission of data from the home to the Internet.[^195] Although
    satellite providers are working to address this deficiency, two-way
    high-speed transmission facilitated by satellite may not be widely
    available for several years.[^196] As of today, DBS providers
    offering the "one-way" technology have captured only a very small
    share of the market for residential high-speed Internet access
    services.[^197]

67. Finally, residential high-speed Internet access services are also
    being offered \-- albeit on a much smaller scale as yet \-- through
    "fixed wireless" technologies, including local multipoint
    distribution systems ("LMDS") and multichannel multipoint
    distribution systems ("MMDS"). Fixed wireless technology typically
    employs microwave transmission facilities to transmit data to and
    from residential consumers. Although several firms have made
    significant investments to develop fixed wireless technology,
    high-speed Internet access services using such technology is not yet
    widely available to consumers, and may not be commercially deployed
    for use by residential consumers on a large scale in the immediate
    future.[^198]

### Discussion 

#### Relevant Markets

68. The possibility that AOL Time Warner would engage in anticompetitive
    conduct must be evaluated in the context of relevant markets. A
    relevant market is the smallest market \-- defined in terms of both
    the pertinent product and the pertinent geographical area \-- for
    which the elasticity of demand is sufficiently low that a firm
    supplying the entire market could profitably reduce output and
    elevate its price substantially over a sustained period of
    time.[^199] In defining the relevant market, it is useful to analyze
    whether the firm at issue could profitably impose a "small but
    significant and non-transitory" increase in price, *i.e.,* could
    raise prices without losing a significant portion of sales to
    competitors.[^200]

69. We begin by addressing whether high-speed Internet access services,
    as distinct from narrowband services, constitute the relevant
    product market in determining the effects of the proposed merger on
    the public interest.[^201] We conclude that they do.[^202] We find
    particularly significant the fact that high-speed Internet access
    services include features unavailable over narrowband, such as
    access to high-bandwidth content that is impractical over dial-up
    connections. Analysts agree that over time the Internet will become
    a more absorbing experience, in which dynamic content supplements
    and supplants static pages of information.[^203] Even at present,
    the experience of "surfing" the Internet is more immediate and
    efficient over high-speed connections, at which users can move
    between texts as if they were flipping pages of a book. Increasingly
    the Internet is also becoming a multimedia experience, complete with
    film and audio clips as well as other high-bandwidth applications.
    Full-screen video is already commonly available over the Internet,
    and other applications, such as video-on-demand, telemedicine,
    full-featured software applications, and distance learning are
    available or under development.[^204] Such applications so
    completely change the experience of using the Internet that the
    difference can be likened to the contrast between looking at a still
    photograph and watching a movie.[^205] The existence of high-speed
    transmission is necessary to spur development of such applications,
    and consumers with narrowband connectivity are unable to experience
    (or in some instances even access) such content in the manner
    intended, *i.e.*, rapidly and in real-time.[^206]

70. Another factor supporting our conclusion that high-speed Internet
    access services constitute a discrete market is the high consumer
    costs involved in switching to a high-speed platform. Consumers
    switching to high-speed service from dial-up (or between high-speed
    services) experience costs significantly higher than those involved
    in switching between dial-up providers. Switching between dial-up
    services typically entails a telephone call, a software download,
    and rarely, a one-time connection fee on the order of \$25.[^207] In
    contrast, switching from dial-up to high-speed service often entails
    several telephone calls, at least one installation visit from a
    high-speed service provider, and a fee on the order of several
    hundred dollars to cover the cost of the installation and a
    high-speed modem.[^208] Furthermore, switching to high-speed service
    may also necessitate upgrading the end user's PC to one with the
    requisite microprocessing capacity and an Ethernet port for cable
    modem attachment; such an upgrade may increase the cost of switching
    by a thousand dollars or more.[^209]

71. The record developed in *AT&T-MediaOne* also supports our definition
    of the relevant market for high-speed Internet access services. In
    that proceeding, numerous commenters raised the issue of market
    definition, and all who addressed the issue (other than AT&T and
    MediaOne) maintained that residential high-speed Internet access
    services constitute a market separate from narrowband
    services.[^210] The commenters cited the following reasons (among
    others):

-   High-speed Internet access services support all the content and
    applications that narrowband access services do, but also allow
    access to services that will never be technically feasible over
    narrowband.[^211]

```{=html}
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```
-   High-speed access services are "always on," a feature currently
    unavailable over narrowband access services.[^212]

```{=html}
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```
-   Preliminary quantitative studies indicate that narrowband and
    high-speed access services occupy separate markets.[^213]

These reasons corroborate our finding in this proceeding that a separate
market for high-speed Internet access services does exist.

72. We also find it noteworthy that AOL itself argued in the *AT&T-TCI*
    merger proceeding that high-speed Internet access services occupy a
    market separate from narrowband services, and that AOL does not
    contradict its earlier position here.[^214] AOL's comments in
    *AT&T-TCI* did not include a formal market definition, but they
    referred repeatedly to the merged firm's potential position as the
    "dominant provider of . . . broadband data transport"[^215] in the
    "nascent broadband marketplace."[^216] While AOL and Time Warner do
    not maintain in this proceeding that there is a separate market for
    high-speed Internet access services, they do not deny the existence
    of such a market.[^217]

73. Finally, we note that the Department of Justice ("DOJ"), analyzing
    the relevant market in the course of its review of the AT&T-MediaOne
    merger, found that high-speed Internet access services occupy a
    market separate from narrowband services. DOJ defined this separate
    market as one encompassing the "aggregation, promotion, and
    distribution of broadband" content and services;[^218] under its
    analysis, the market includes the transmission facilities used for
    distribution of broadband content and services, as well as portals
    that aggregate and market that content.[^219] DOJ further found that
    narrowband Internet service is not a substitute for broadband
    service, as "\[m\]uch of this broadband content will not be readily
    accessible or attractive to narrowband users, because of the much
    longer times that are needed to transmit the data through narrowband
    facilities."[^220]

74. The relevant geographic markets for residential high-speed Internet
    access services are local.[^221] That is, a consumer's choices are
    limited to those companies that offer high-speed Internet access
    services in his or her area, and the only way to obtain different
    choices is to move. While high-speed ISPs other than cable operators
    may offer service over different local areas (*e.g.*, DSL or
    wireless), or may offer service over much wider areas, even
    nationally (*e.g.*, satellite), a consumer's choices are dictated by
    what is offered in his or her locality.

#### Applicants' Roles in the Relevant Market

75. AOL is the largest provider of narrowband Internet access services
    in the United States and worldwide. The Company's flagship AOL
    service provides Internet access to more than 26 million subscribers
    around the globe. AOL also owns another ISP, CompuServe (acquired in
    1998), that serves more than 2.8 million customers.[^222] AOL is the
    only narrowband ISP with a double digit worldwide market share, and
    boasts a customer base nearly five times larger than its nearest
    competitor, EarthLink.[^223] Time Warner does not provide narrowband
    Internet service.

76. Time Warner owns the second largest cable network in the United
    States, one that serves approximately 13 million subscribers and
    passes nearly 21 million homes.[^224] When the Application was
    filed, 85 percent of its network already supported high-speed
    Internet access services, and Time Warner claimed that the remainder
    would do so by the end of 2000.[^225] Time Warner provides
    high-speed Internet access services to its cable customers through
    an exclusive contract with Road Runner, the nation's second largest
    provider of such services in the residential market.[^226] That
    contract expires in December 2001.[^227] Road Runner currently
    serves more than 1.1 million cable modem customers[^228] \-- more
    than 26 percent of all residential high-speed Internet access
    subscribers \-- of whom approximately 719,000, or 65 percent, reside
    in communities served by Time Warner cable systems.[^229]

77. Although the vast majority of AOL subscribers access the Internet by
    means of dial-up connections, the company has sought to provide
    high-speed Internet access services across a variety of
    platforms.[^230] AOL has agreements with several LECs to deliver its
    Internet service via DSL, and with DBS provider DirecTV to deliver
    its Internet service via DirecPC.[^231] The record demonstrates that
    AOL's efforts to date to migrate consumers to its high-speed service
    have yielded only modest results.[^232] AOL has previously been
    unsuccessful in gaining access to cable systems.[^233] This merger,
    however, would give AOL direct ownership of a high-speed cable
    network. Upon acquiring Time Warner cable systems, AOL would be in a
    position to use its established brand name and proven marketing
    acumen to migrate many of its narrowband customers to high-speed
    service,[^234] and to market AOL Internet access services to Time
    Warner cable subscribers.[^235] Thus, the merger would create the
    opportunity for AOL to use cross-promotional strategies and its
    control over Time Warner cable networks to add millions of
    subscribers to its high-speed service.[^236]

78. In acquiring Time Warner, AOL would obtain not only a vast network
    of cable systems, but also an enormous library of multimedia
    content. Time Warner and its content affiliates comprise the largest
    traditional media company in the world.[^237] This company owns four
    of the top fifteen video programming services (CNN, TNT, TBS,
    Cartoon Network) and the largest premium TV network (HBO).[^238]
    Time Warner also operates a broadcast network (The WB)[^239] and one
    of the largest movie and television studios (Warner Bros.).[^240]

79. Similarly, AOL is more than just an ISP. AOL owns many leading
    Internet brands and applications, including:

    • AOL Instant Messenger ("AIM") and AOL Buddy List services, and ICQ
    instant messaging service.[^241]

    • AOL.com and Netscape Netcenter, two leading Internet portals.
    AOL.com has nearly 32 million unique monthly visitors, while
    Netscape Netcenter has almost 20 million unique visitors.[^242] In
    any given month, nearly 77 percent of all Internet subscribers will
    visit an AOL site,[^243] with AOL members spending an average of 64
    minutes per day online.[^244]

    • Spinner and WINamp, leading Internet music properties with 42
    million customer relationships.[^245]

    • Digital City, the leading local online network, with more than
    five million unique visitors in May, 2000.[^246]

    • AOL MovieFone, the nation's largest online movie listing guide and
    ticketing service, which attracts 20 percent of all
    moviegoers.[^247]

    • MapQuest.com, which delivers more than 150 million maps and
    driving instructions each month.[^248]

    • Netscape Communicator client software, including the Netscape
    Navigator browser, claiming millions of users.

    It has been asserted that through its family of brands, AOL "now has
    an unduplicated reach of roughly 80 percent of all Internet users in
    the United States, by far the greatest on the Web."[^249]

#### Potential Public Interest Harms

80. Commenters raise a variety of competitive concerns stemming from the
    merged company's potential to control Internet transmission
    facilities, access, portals, content and applications. Generally
    speaking, these concerns may be summarized as follows: Unless
    appropriate restrictions are placed on the proposed merger, AOL Time
    Warner will have both the ability and the incentive to: (a)
    discriminate against unaffiliated ISPs on its own cable
    network;[^250] (b) facilitate discrimination against unaffiliated
    ISPs on other cable operators' networks by leveraging control over
    Time Warner video programming to obtain exclusive or preferential
    carriage rights for AOL's high-speed Internet access service on
    those networks;[^251] (c) limit consumers' access to the widest
    possible array of content on the Internet by denying unaffiliated
    content providers placement on AOL Time Warner's high-speed Internet
    access service and denying unaffiliated ISPs access to AOL Time
    Warner content;[^252] and (d) discriminate against alternative
    high-speed platforms by withholding AOL Internet access service from
    high-speed platforms that compete with cable.[^253] We address each
    of these concerns below.

81. As a threshold matter, we will address the argument that regardless
    of the magnitude of the harms, imposing conditions in this merger
    would be inconsistent with the Commission precedent in
    *AT&T-MediaOne* and the pending *Cable Access NOI*. The Applicants
    first contend that the Commission's merger review process is an
    inappropriate forum to determine whether AOL Time Warner should be
    required to negotiate non-discriminatory agreements with
    unaffiliated ISPs for access to its cable network.[^254] Instead,
    the Applicants argue, the Commission should address that question
    through a rulemaking proceeding that would set "open access" policy
    for the entire cable industry.[^255] We disagree. The Commission has
    a statutory duty to determine whether the proposed transaction would
    serve the public interest, and may not approve it absent such a
    finding.[^256] We cannot abdicate this duty on the basis of
    speculation that a future proceeding might be able to remedy harms
    to the public interest that we believe would result from a proposed
    merger. As we explain below, the unconditioned merger of AOL and
    Time Warner would create a company with a unique incentive and
    ability to thwart competition in the market for residential
    high-speed Internet access services \-- an outcome that would
    undermine important national policy objectives.[^257]

82. Furthermore, we are not convinced that a proceeding resulting from
    the *Cable Access NOI* could adequately redress the public interest
    harms that would result from the proposed transaction. First, should
    it be a rulemaking proceeding, such a proceeding is designed to
    formulate rules of general applicability, and therefore would not
    necessarily produce requirements containing the level of specificity
    needed to resolve the unique concerns that arise from this proposed
    merger. The marriage of AOL and Time Warner would wed the nation's
    leading ISP with its second largest cable provider and would thereby
    yield a company with unprecedented potential to dominate the market
    for residential high-speed Internet access services.[^258] The
    record demonstrates that the Applicants have already begun to
    contemplate using their combined potential in a manner that would
    render unaffiliated ISPs in that market unable to compete
    effectively.[^259]

83. We believe that in order to prevent these trends from accelerating
    after the merger, we must impose specific conditions on our approval
    \-- conditions that a rulemaking proceeding would be ill-suited to
    effectuate. Second, we believe that the conditions we impose must
    precede the merger itself in order to be effective. The record
    suggests that if AOL Time Warner were permitted to discriminate
    against unaffiliated ISPs in the terms and conditions of access to
    its cable network, many such ISPs would be unable to compete
    effectively, permitting the merged entity and its affiliated ISPs to
    attain a market-dominant position for residential high-speed
    Internet access services within one to two years.[^260]

84. Moreover, our approval of the AT&T-MediaOne merger without any
    condition pertaining to Internet access services was predicated in
    part on our perception that alternative high-speed platforms \--
    especially DSL \-- were rapidly gaining strength as viable
    competitors to cable, thereby mitigating the anticompetitive
    potential of the acquisition.[^261] We reasoned that AOL's
    aggressive support of DSL would no doubt serve as a powerful impetus
    for incumbent LECs to deploy DSL technology in residential
    markets.[^262] By giving AOL access to Time Warner's cable
    facilities and enhancing its ability to gain access to the
    facilities of AT&T and other cable operators, the merger would
    diminish AOL's reliance on DSL as a means of reaching
    subscribers[^263] and would give AOL Time Warner an incentive to
    steer subscribers away from DSL and toward cable in Time Warner
    service areas.[^264] In addition, the record in this proceeding
    demonstrates that the availability of DSL in Time Warner service
    areas may not be sufficiently widespread to constrain the merged
    firm in the market for residential high-speed Internet access
    services, at least in the short term.[^265] For these reasons we
    reject the arguments that the Commission may not redress potential
    harms in the market for residential high-speed Internet access
    services.

##### Potential Discrimination Against Unaffiliated ISPs on AOL Time Warner's Cable Network

85. Several commenters contend that a combined AOL Time Warner would
    engage in anticompetitive behavior in an attempt to dominate the
    market for residential high-speed Internet access services.[^266] In
    particular, commenters express concern that AOL Time Warner would
    discriminate against unaffiliated ISPs by refusing to carry them on
    its cable network; by offering them carriage on unfavorable terms
    that would render it impossible for them to remain in business; by
    limiting their online features and functionalities; and by degrading
    their quality of service.[^267] Numerous parties to this proceeding
    advocate the imposition of an "open access" condition on the merging
    parties.[^268] We note at the outset that, judging from the record
    in this proceeding, these commenters' concerns are persuasive. We
    conclude, however, that they are substantially addressed by the
    terms of the FTC Consent Agreement. As the FTC Consent Agreement may
    not entirely mitigate AOL Time Warner's ability to discriminate
    against unaffiliated ISPs on its cable network through indirect
    means, we impose certain additional conditions on the proposed
    transaction to avert that result. We conclude that these conditions
    are necessary to ensure that the proposed merger does not result in
    harms to the public interest that would outweigh its potential
    public interest benefits.

86. Our conclusion that conduct restrictions are necessary to address
    the potential harms described above rests on two findings: (i) that
    the merged company would have the incentive to discriminate against
    unaffiliated ISPs on its cable network and (ii) that it would have
    ability to do so in a manner that would undermine competition in the
    relevant market. We begin by noting that AOL itself has argued in
    other contexts that a vertically integrated cable operator offering
    high-speed Internet access services would have precisely such
    incentive and ability.[^269] Our findings, however, do not depend on
    AOL's prior observations. The record in this proceeding points to
    several factors that would give the merged firm an incentive to
    discriminate. AOL, with 26 million narrowband subscribers, has a
    manifest incentive to migrate those subscribers to high-speed
    Internet access services as an ever-greater proportion of Internet
    content falls into the "broadband" category.[^270] AOL has a
    complementary incentive to ensure that as its subscribers switch to
    high-speed access services, they remain customers of AOL (or one of
    its affiliates) and do not select a competing high-speed ISP.
    Excluding unaffiliated ISPs from the merged company's cable network,
    or discriminating against them in more subtle ways, would help
    achieve that objective. AOL Time Warner would also have an incentive
    to discriminate against unaffiliated ISPs for an additional,
    independent reason: the natural inclination to maximize the value of
    its cable network by converting its captive base of Time Warner
    cable customers into customers of ISPs affiliated with the merged
    firm.[^271] This objective, too, would be facilitated by
    discriminating against unaffiliated ISPs with respect to carriage on
    AOL Time Warner cable networks.[^272]

87. We also find that AOL Time Warner would have the ability to
    discriminate against unaffiliated ISPs. This is well-documented in
    the record. As earlier mentioned, the proposed transaction would
    give the merged company ownership of the nation's second largest
    cable network. Such ownership would enable AOL Time Warner to deny
    unaffiliated ISPs carriage on this network at will.[^273] Due to the
    size of the network and its dominance in the geographic areas to
    which it extends, AOL Time Warner's ownership rights would also
    empower the merged company to deal with unaffiliated ISPs requesting
    carriage by offering them "take it or leave it" agreements based on
    terms that would render it difficult if not impossible for these
    ISPs to provide service over cable profitably.[^274] And of course,
    AOL Time Warner's physical control over the network would allow it
    to limit the online features and functionalities of unaffiliated
    ISPs or to degrade their quality of service, conceivably in ways
    that would escape easy detection.[^275]

88. Finally, we note that the proposed merger would strengthen AOL Time
    Warner's ability to discriminate against unaffiliated ISPs on its
    cable network by bringing AOL and Road Runner under common
    ownership.[^276] Road Runner is the nation's second largest
    high-speed ISP.[^277] The elimination of potential competition
    between AOL and Road Runner in the market for residential high-speed
    Internet access services would significantly enhance AOL Time
    Warner's power in this market. And by adding to the merged firm's
    lead in subscribership for residential high-speed Internet access
    services, it would diminish AOL Time Warner's incentive to adopt an
    "open access" regime with respect to its cable network.[^278]

89. The Applicants maintain that, far from having an incentive to
    discriminate against unaffiliated ISPs, a combined AOL Time Warner
    would have an incentive to permit these ISPs to interconnect with
    its cable network so as to encourage the adoption of "open access"
    policies by other cable providers.[^279] AOL Time Warner would need
    to promote the adoption of such policies, the Applicants maintain,
    in order to ensure the availability of AOL Internet services on
    other cable platforms. Time Warner's cable network currently serves
    less than 20% of all cable subscribers nationwide \-- a figure
    which, arguably, underscores how dependent AOL Time Warner would be
    on other cable providers for access rights.[^280]

90. Notwithstanding the Applicants' reasoning, we are not convinced that
    AOL Time Warner would need to refrain from discriminating against
    unaffiliated ISPs on its own cable platform in order to secure
    carriage for AOL Internet services on the platforms of other cable
    providers. We find it implausible that AOL Time Warner \-- with the
    leading brand among ISPs as well as the largest library of
    proprietary content in the world at its disposal \-- would be unable
    to leverage these resources and others to obtain carriage for AOL
    Internet services on the facilities of unaffiliated cable operators.
    Despite AOL's previous difficulties in obtaining access to cable
    lines, the addition of Time Warner's content and other resources
    greatly increases the merged company's leverage in this area. And we
    are equally certain that the merged firm would be able to obtain
    such carriage regardless of whether it were to discriminate against
    unaffiliated ISPs on its own platform. Accordingly, we reject
    Applicants' contention that AOL Time Warner would not discriminate
    because of a putative need to support industry-wide "open access"
    policies.

91. The Applicants' primary response to commenters' contentions that the
    merged firm would discriminate against unaffiliated ISPs on its
    cable network is that AOL and Time Warner have issued a joint
    Memorandum of Understanding (the "MOU") voluntarily committing
    themselves to negotiate commercial agreements under which
    unaffiliated ISPs may connect with Time Warner's cable network on a
    non-discriminatory basis.[^281] Applicants contend that adherence to
    the MOU should not become a condition of merger approval.[^282] They
    assert that a government mandate regarding ISP access would be
    wholly inappropriate and, in any event, should be considered (if at
    all) only in a proceeding of general applicability such as the
    *Cable Access NOI*.[^283]

92. We find that if unaffiliated ISPs were permitted to offer their
    services over AOL Time Warner's cable network on non-discriminatory
    terms and conditions*,* the merger's potential to undermine
    competition in the relevant market would be mitigated.[^284]
    Unaffiliated ISPs in areas served by AOL Time Warner's cable network
    would have the opportunity to compete fairly on price and quality,
    and residential consumers in these areas would be able to choose a
    high-speed ISP based on the best combination of those
    characteristics. Market forces, not control of a bottleneck
    facility, would determine the firms that would succeed in the
    relevant market, thereby enhancing efficiency and consumer welfare.

93. However, we are not convinced that the MOU alone will achieve these
    goals and mitigate the potential harms to competition that we have
    described. Broadly speaking, our concerns are twofold. First, even
    if it were legally enforceable, the MOU by itself would fail to
    offer unaffiliated ISPs adequate protection against discrimination
    by a merged AOL Time Warner. Second, the MOU on its own is not
    legally enforceable, and reports regarding the terms of access that
    Time Warner has proposed to certain unaffiliated ISPs cast doubt on
    the company's commitment to implement the principles underlying the
    MOU in a manner that would avert the merger's potential deleterious
    effects on the relevant market. We discuss each of these concerns in
    turn.

94. Although the MOU represents a commendable statement of principles,
    it does not address several specific areas in which unaffiliated
    ISPs connecting to Time Warner cable networks could be treated less
    favorably than affiliated ISPs. For example, it seems likely that in
    many cases, Time Warner cable subscribers who desired cable-based
    high-speed Internet access services would call Time Warner with
    their initial inquiries. Such inquiries would give Time Warner the
    opportunity to steer prospective customers toward affiliated ISPs
    (such as AOL, CompuServe, or Road Runner), a practice the MOU does
    nothing to prohibit. The MOU also leaves unaffiliated ISPs
    vulnerable to discrimination by AOL Time Warner in other facets of
    their business. In particular, it does not prohibit AOL Time Warner
    from requiring unaffiliated ISPs to display an AOL Time Warner
    "brand" or "presence" on the customer's first screen as a condition
    of carriage; does not prohibit AOL Time Warner from disadvantaging
    unaffiliated ISPs by offering them logistically unfavorable
    connection points; and does not prohibit AOL Time Warner from
    restricting the features and functionalities available to
    unaffiliated ISPs in several technical areas (such as caching
    capability; multicasting; address management; and interaction with
    customer premises equipment). Perhaps most importantly in light of
    the subtle, technically sophisticated ways in which the merged
    entity might disfavor non-affiliates, the MOU does not provide a
    mechanism through which unaffiliated ISPs could verify that they
    were being treated in a non-discriminatory manner \-- for example, a
    mechanism giving ISPs or a neutral arbitrator a right to review
    confidential agreements between AOL Time Warner and affiliated ISPs,
    as well as data on AOL Time Warner's actual network operations.

95. Even if the MOU did not contain these vulnerabilities, we would
    still be concerned about the proposed merger's potential to harm
    competition in the market for residential high-speed Internet access
    services. That is because the MOU is not legally enforceable, and
    reports regarding the terms of carriage that Time Warner has
    proposed to certain unaffiliated ISPs raise doubt regarding the
    company's commitment to implement the principles underlying the MOU
    on a voluntary basis and in a manner that would avert the merger's
    harmful effects. According to these reports, Time Warner's proposals
    to unaffiliated ISPs have conditioned access to Time Warner's cable
    network on (i) a co-branding presence on the top half of the ISP's
    home page featuring links to Time Warner content and services; (ii)
    Time Warner's right to terminate the ISP's carriage if the ISP fails
    to meet subscription targets set by Time Warner; (iii) Time Warner's
    right to set the total price for Internet access paid by the ISP's
    customer; and (iv) a fee consisting of 75 percent of the ISP's
    subscription revenues, 25 percent of the ISP's cable-access
    advertising, web-hosting, and e-commerce revenues, a \$50,000
    up-front deposit, and a minimum monthly payment of \$30 for each
    customer that switches from an ISP affiliated with Time Warner to
    the unaffiliated ISP.[^285] Time Warner contends that these
    conditions are not unreasonable and merely replicate the business
    model that governs its provision of cable service.[^286] Time Warner
    points out, for example, that it already sets the price for video
    programming supplied to consumers even though much of the
    programming is supplied by unaffiliated entitities.[^287] Likewise,
    it shares advertising revenues with video programmers in the form of
    local advertising "spots" that programmers reserve for Time Warner's
    use.[^288] Notwithstanding Time Warner's explanation of these
    provisions, we believe that these conditions conflict with the
    principles of non-discrimination and "open access" underlying the
    MOU. Particularly troubling are the pricing conditions. As we
    discuss in the Confidential Appendix, these conditions may well
    prevent unaffiliated ISPs from profitably offering service over AOL
    Time Warner's systems.[^289] To the extent that they do so, the
    conditions flatly contradict the most basic commitment of the MOU,
    namely that "Consumers will not be required to purchase service from
    an ISP that is affiliated with AOL Time Warner in order to enjoy
    high-speed Internet access services over AOL Time Warner cable
    systems."[^290]

96. Although we conclude that the MOU by itself constitutes an
    insufficient safeguard against potential discrimination by AOL Time
    Warner against unaffiliated ISPs on its cable network, we believe
    that FTC Consent Agreement will substantially mitigate the risk of
    such discrimination. That decree requires, among other things, that
    AOL Time Warner open its cable systems on a non-discriminatory basis
    to at least three unaffiliated ISPs \-- the first of which,
    EarthLink, must begin offering service on Time Warner's cable
    systems before AOL itself may do so; and the latter two, which
    remain as-yet undetermined, must have secured agreements to offer
    service on Time Warner's cable systems within 90 days of the time
    that AOL itself commences service on those systems.[^291] The FTC
    Consent Agreement further stipulates that the FTC pre-approve the
    agreements between AOL Time Warner and each of the three
    unaffiliated ISPs to be granted immediate access to Time Warner
    cable systems, and that the agreements themselves include detailed
    safeguards protecting these ISPs against discrimination by AOL Time
    Warner on the basis of affiliation.[^292] Additionally, the FTC
    Consent Agreement requires AOL Time Warner to negotiate in good
    faith, and enter into arms' length commercial agreements, with any
    other unaffiliated ISPs seeking access to its cable systems; and it
    forbids AOL Time Warner from declining to negotiate or enter such
    agreements, or from imposing terms and conditions in such
    agreements, based on ISPs' non-affiliation with the merged
    firm.[^293] The FTC Consent Agreement also requires AOL Time Warner
    to provide any unaffiliated ISP on its cable system with the same
    point of connection to its cable network that the merged firm
    provides to affiliated ISPs, should an unaffiliated ISP request
    access to that connection point.[^294]

97. We are convinced that the foregoing requirements will substantially
    ensure that unaffiliated ISPs are able to offer their services over
    AOL Time Warner's cable system on non-discriminatory terms and
    conditions. However, we are concerned that AOL Time Warner will have
    insufficient incentives to enter contracts with local or regional
    ISPs that are unaffiliated with the merged firm. We note that the
    FTC Consent Agreement requires AOL Time Warner to negotiate in good
    faith with any unaffiliated ISP seeking access to its cable systems.
    Therefore, we reiterate here that AOL Time Warner must engage with
    local and regional ISPs in a good faith, non-discriminatory
    manner.[^295] The requirements we discuss 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.

98. In addition, the record in this proceeding reveals several indirect
    means through which the merged firm could afford preferential
    treatment based on affiliation to ISPs on its cable systems that are
    not expressly proscribed by the FTC Consent Agreement. In
    particular, commenters have expressed concern that AOL Time Warner
    would condition access to its cable systems on an ISP's placement of
    Time Warner content on its first screen.[^296] Commenters have also
    expressed concern that AOL Time Warner would preclude ISPs on its
    cable systems from establishing direct billing relationships with
    subscribers, even when those ISPs were responsible for acquiring the
    subscribers in the first place.[^297] These measures, even if
    imposed in a facially neutral manner on affiliated and unaffiliated
    ISPs, would in fact disadvantage unaffiliated ISPs alone: affiliated
    ISPs would suffer neither from placement of Time Warner content on
    their first screen nor from the absence of a direct billing
    relationship with subscribers, as any revenue they "lost" from these
    measures would be made up by the parent company. Accordingly, we
    will impose narrowly tailored conditions, described below, to
    prevent AOL Time Warner from disadvantaging unaffiliated ISPs on its
    cable systems through such indirect means.

99. Commenters have also expressed concern that AOL Time Warner would
    discriminate against unaffiliated ISPs on its cable network in the
    technical performance it affords to these ISPs.[^298] In particular,
    commenters fear that AOL Time Warner would provide unaffiliated ISPs
    with inferior Quality of Service mechanisms, caching capability,
    technical support, multicasting capability, address management, and
    other technical functionality of the cable system that affects
    customers' experience with their ISP. Although we believe that the
    FTC Consent Agreement would prohibit AOL Time Warner from entering
    into contract terms that discriminated on the basis of affiliation
    with respect to technical performance, we note that the decree does
    not explicitly forbid AOL Time Warner from actually providing
    inferior technical performance to unaffiliated ISPs where no
    contract term governs. We are convinced that discrimination against
    unaffiliated ISPs with respect to technical performance would be
    sufficiently harmful to such ISPs that a remedy is warranted.
    Accordingly, we will impose a condition requiring AOL Time Warner,
    in all contracts with unaffiliated ISPs for access to its cable
    networks, to warrant that it will not discriminate on the basis of
    affiliation with respect to technical performance.

100. Finally, we also impose two additional conditions. First, we will
     prohibit AOL Time Warner from restricting the ability of current or
     prospective customers to select and initiate service from any
     unaffiliated ISP that has contracted for access to the merged
     firm's cable systems; and we will require AOL Time Warner to
     provide customers who contact Time Warner cable representatives
     seeking Internet access services with a neutral means of selecting
     an ISP (that is, a means that does not discriminate in favor of
     affiliated ISPs on the basis of affiliation). Second, we will
     prohibit AOL Time Warner from entering into any contract with an
     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. Both
     conditions, we conclude, are necessary to fully effectuate the
     commitment to non-discriminatory treatment of unaffiliated ISPs
     that the Applicants have undertaken in the MOU and that the FTC
     Consent Agreement substantially accomplishes.

##### Potential Discrimination Against Unaffiliated ISPs on non-AOL Time Warner Cable Networks

101. ACA, in its initial comments, expressed concern that the proposed
     merger would give AOL Time Warner the incentive and the ability to
     require other cable operators to carry AOL's Internet access
     services as a condition of obtaining Time Warner video
     programming.[^299] ACA sought a commitment from the Applicants that
     they would not engage in such tactics.[^300] Subsequently, Time
     Warner representatives stated at the Commission's en banc hearing
     in this proceeding that the merged firm would not condition access
     to its programming on carriage of AOL.[^301] ACA then released a
     statement indicating its satisfaction with the Applicants'
     pledge.[^302]

102. While we commend Time Warner for its representations at the en banc
     hearing, we remain concerned that the merger would give AOL Time
     Warner the incentive to seek exclusive or preferential carriage
     rights for AOL on non-Time Warner cable systems. The merged company
     would have an incentive to pursue such arrangements wherever
     preferential carriage rights were essential to the success of its
     entry strategy for AOL Plus, or wherever it encountered difficulty
     obtaining carriage rights altogether.[^303] If the merged firm's
     efforts on behalf of AOL were to induce anticompetitive behavior by
     other cable operators regarding carriage of non-AOL Time Warner
     ISPs, the public interest would clearly be harmed.[^304]

103. We find it unnecessary to address AOL Time Warner's ability to
     obtain exclusive or preferential carriage rights for AOL, however,
     because we are satisfied that the FTC Consent Agreement adequately
     addresses the potential harm with which we are concerned. In
     particular, the decree prohibits AOL Time Warner from entering into
     any agreement with a cable provider that would interfere with the
     cable provider's ability to enter into an agreement with another
     ISP.[^305] This provision will prevent AOL Time Warner from
     entering agreements with other cable providers that would restrict
     the rates, terms, or conditions of service that these providers
     could offer to ISPs competing with AOL.

##### Potential Harms to Diversity of Internet Content

104. Several commenters, notably Disney and NBC, argue that a merged AOL
     Time Warner could utilize its control over high-speed distribution
     to favor its affiliated content and to discriminate against
     unaffiliated content providers,[^306] thus limiting the public's
     access to a diversity of information sources.[^307] According to
     the commenters, such discrimination could be accomplished through
     router technology in a way that would be undetectable to consumers.
     For example, routers could be programmed to provide high bit rates
     and superior customer performance for AOL Time Warner channels,
     programs and services, and slower bit rates and inferior customer
     performance for content provided by unaffiliated sources.[^308] In
     addition, Disney asserts that AOL, as a condition for purchasing
     placement on the AOL website, requires that content providers
     disable hyperlinks to unaffiliated websites (including other areas
     of the content providers' own web sites), and requires a commitment
     that no more than a set percentage of traffic at a site within the
     AOL network can be "diverted," via links, to sites outside the AOL
     network.[^309] If these claims are valid, the merger could harm
     consumers by enhancing AOL Time Warner's incentive and ability to
     limit access to Internet content not affiliated with the merged
     company.

105. The Applicants assert that their primary economic incentive is to
     increase subscribership by distributing the widest possible variety
     of content to the widest possible audience, and that therefore they
     have no incentive to discriminate against unaffiliated content
     providers.[^310] With respect to Disney's argument in particular,
     the Applicants emphasize that AOL does not restrict a user's
     ability to reach any site on the World Wide Web by typing in a
     URL.[^311]

106. The record in this proceeding provides some evidence that AOL
     already seeks to limit its members' access to unaffiliated content
     on the World Wide Web. For example, AOL requires that content
     appearing on AOL websites have only a limited number of hyperlinks
     to unaffiliated content.[^312] Furthermore, while it is true that
     AOL users can access unaffiliated content by typing the URL for any
     site on the World Wide Web into the AOL browser, a user must know
     the correct URL in order to complete that operation, and must take
     the time to do so \-- factors which, Disney and NBC maintain, make
     typing a URL an inadequate substitute for clicking a
     hyperlink.[^313]

107. Nevertheless, we decline to impose the remedial conditions proposed
     by Disney and NBC, for two reasons. First, as we discuss below, we
     believe that if unaffiliated ISPs receive non-discriminatory access
     to Time Warner cable systems \-- a result effectuated by the FTC
     Consent Agreement, and reinforced by certain conditions we impose
     in this proceeding \-- the merged firm's incentive and ability to
     withhold unaffiliated content from its subscribers will be
     substantially mitigated. Second and relatedly, the FTC Consent
     Agreement explicitly forbids AOL Time Warner from interfering in
     any way with content passed through Time Warner cable conduits
     being used by unaffiliated ISPs that have contracted for access to
     them.[^314] These provisions ensure that unaffiliated ISPs on Time
     Warner's cable systems will have unimpeded access to unaffiliated
     content should they choose to provide it \-- thus effectively
     ensuring that Time Warner cable subscribers will have access to
     such content as well.

108. Other commenters, especially BellSouth and SBC, argue that a
     combined AOL Time Warner would have both the incentive and the
     ability to discriminate against alternative, non-cable platforms
     for high-speed Internet service (such as DSL) by withholding
     valuable affiliated content from ISPs that utilize these
     alternative platforms, especially in areas served by Time Warner
     cable systems.[^315] Were the combined company to discriminate in
     this manner, these commenters allege, competing ISPs (as well as
     competing high-speed platforms) would be placed at a disadvantage,
     thereby limiting consumers' ability to choose among varied and
     diverse sources of broadband Internet content.[^316]

109. The Applicants maintain in response that their commitment to
     maximizing subscribership means that AOL Time Warner would
     distribute its own affiliated content on all high-speed Internet
     platforms, including DSL, satellite, and wireless.[^317]

110. The record in this proceeding demonstrates that the Applicants
     contemplate giving some popular Time Warner programming and content
     exclusive placement on AOL websites.[^318] It further demonstrates
     that the Applicants contemplate moving certain Time Warner content
     from unaffiliated portals to AOL's portal.[^319] The merger would
     certainly enhance AOL's ability to secure exclusive contracts for
     Time Warner content, and AOL would have an incentive to grant such
     exclusivity due to the competitive advantage it would gain by
     offering popular content on an exclusive basis. Although there are
     thousands of content sources on the World Wide Web, Internet users
     look to a relatively limited number of sources to access that
     content.[^320] This proposition is demonstrated by the dominance of
     a small number of major portals (led by AOL) in terms of Internet
     traffic.[^321]

111. Notwithstanding the likelihood that the proposed merger would lead
     to AOL's securing exclusive or preferential access to some Time
     Warner content, we find the record insufficient to justify a
     requirement of "equal access" to such content. In particular, we
     are not persuaded that AOL's ability to obtain exclusive or
     preferential access to such content in the wake of the merger would
     harm the public interest in a manner sufficiently grave to warrant
     the remedy commenters seek, which is far-reaching.

112. Finally, we believe that the AOL Time Warner's incentive and
     ability to engage in Internet "content discrimination" will be
     largely mitigated if unaffiliated ISPs are given non-discriminatory
     access to Time Warner's cable systems, as the FTC Consent Agreement
     requires. Were AOL Time Warner to withhold desirable unaffiliated
     content from subscribers to its affiliated ISPs (as Disney and NBC
     fear), these subscribers would be able to select an alternative,
     unaffiliated ISP on Time Warner's cable network without incurring
     substantial switching costs. And were AOL Time Warner to withhold
     desirable affiliated content from subscribers to unaffiliated ISPs
     on competing platforms (as BellSouth and SBC fear), it would
     sacrifice a potentially significant source of revenue. Therefore,
     we find that commenters' concerns with respect to potential
     "content discrimination" are adequately addressed by the provisions
     in the FTC Consent Agreement and this Order ensuring that
     unaffiliated ISPs receive non-discriminatory access to Time Warner
     cable systems.

##### Potential Harms to Unaffiliated Broadband Platforms 

113. Commenters claim that the proposed merger would impair the
     viability of DSL as a competitive alternative to cable for the
     delivery of residential high-speed Internet access services.[^322]
     Based on the record in this proceeding, we do not believe that the
     merger would threaten the continued existence of DSL. We do find,
     however, that the merger could undermine the availability of
     residential high-speed Internet access services over DSL by
     creating an incentive for AOL Time Warner to steer cable customers
     seeking Internet access in Time Warner service areas to the cable
     platform. Nonetheless, we are satisfied that this outcome will be
     averted by the requirements of the FTC Consent Agreement.

114. Cable operators have been early leaders in deploying residential
     high-speed Internet access services. Cable's early rollout
     encouraged deployment of alternative platforms; as the Commission
     has observed, the expansion of DSL in the past two years by
     incumbent LECs "is primarily a reaction to other companies' entry
     into broadband."[^323] As of November 2000, cable retained a
     substantial edge over DSL as measured by the number of residential
     subscribers to each platform.[^324]

115. AOL currently markets its high-speed Internet access service ("AOL
     Plus") over DSL through non-exclusive strategic alliances with SBC
     (including Ameritech) as well as Bell Atlantic and GTE (both now
     components of Verizon Communications).[^325] Taken together, AOL's
     agreements with these companies give it an almost nationwide DSL
     footprint.[^326] AOL's effort to obtain such a nationwide DSL
     footprint has been credited with making DSL highly competitive with
     cable due to the attractiveness of AOL's content.[^327]

116. Thus far, AOL has been unable to offer AOL Plus over cable, though
     the company has sought a presence on that platform through
     negotiations with cable companies and its past advocacy of "open
     access."[^328] The merger would enable AOL to offer its high-speed
     Internet access services to Time Warner's nearly 13 million cable
     subscribers as soon as Time Warner's exclusive contract with Road
     Runner expires.[^329] AOL's access to this customer base would not
     be significantly slowed by technical obstacles, as eighty-five
     percent of Time Warner's cable plant has already been upgraded to
     two-way, 750 MHz hybrid fiber/coaxial (HFC) networks.[^330] AOL has
     indicated that it would offer AOL Plus to Time Warner cable
     customers at the earliest possible juncture.[^331]

117. Because the proposed transaction would give AOL ownership of a
     cable network, the merged firm could maximize its profits by
     maximizing the number of Time Warner cable subscribers receiving
     AOL's residential high-speed Internet access services over Time
     Warner's cable facilities instead of DSL. This conclusion follows
     from the simple fact that customers in Time Warner service areas
     who received AOL's high-speed Internet access services over cable
     would pay the merged firm for Internet access, for content, and for
     transmission, whereas customers in the same service areas who
     received AOL's services over DSL would pay the merged firm only for
     the first two components.[^332] Every customer in a Time Warner
     service area who elected to receive AOL's high-speed Internet
     access services over DSL instead of cable, in other words, would
     cost the merged firm one stream of revenue.

118. For this reason, commenters fear that AOL \-- which played an
     important role in promoting DSL before the proposed merger \--
     would "withdraw support" from that platform post-merger and steer
     customers who could receive its high-speed Internet access services
     over either DSL or cable to the latter.[^333] AOL could withdraw
     its support from DSL in a number of ways. Most dramatically, it
     could refuse to offer AOL Plus over DSL altogether. Alternatively,
     as SBC contends, AOL could restrict the availability of AOL Plus
     over DSL to geographic markets where that service could not be
     delivered over Time Warner's cable facilities.[^334] If it sought a
     more subtle means to withdraw support from DSL, AOL could continue
     to offer its Internet access services over that platform, but do so
     at higher prices or on less favorable terms than would be available
     over Time Warner cable.

119. In response to commenters' concerns, AOL asserts that it intends to
     offer its residential high-speed Internet access services across
     all platforms, in keeping with its "AOL Anywhere" strategy.[^335]
     AOL Chairman Steve Case stated at the en banc hearing in this
     proceeding that it is "in \[AOL Time Warner's\] interest to work as
     forcefully as we can to establish arrangements with all the cable
     companies to deploy cable broadband, as well as \[with\] all the
     DSL companies, satellite companies, \[and\] wireless companies, so
     we really have a national footprint, with a tapestry of broadband
     solutions."[^336] AOL claims that it must provide its services over
     as many distribution platforms as possible in order to reach the
     greatest number of consumers;[^337] maximizing the number of
     consumers that view AOL content, the company maintains, will
     increase subscription revenue, advertising revenue and revenue from
     e-commerce transactions.[^338] AOL further contends that if it
     failed to offer AOL Plus on multiple broadband platforms within
     Time Warner service areas, consumers would likely subscribe to an
     ISP other than AOL in lieu of being forced onto cable.[^339] The
     Applicants observe that within Time Warner franchise areas, "a
     substantial percentage of consumers" do not subscribe to cable, and
     that refusing to offer AOL Plus over alternative platforms could
     foreclose AOL from signing up these potential subscribers.[^340]

120. Although the record supports AOL's general commitment to offering
     its services over DSL, we nonetheless conclude that the merged firm
     would have a clear economic incentive to favor cable as its
     platform of choice with respect to customers in Time Warner service
     areas who could obtain residential high-speed Internet access
     services over either conduit.[^341] The record does not support a
     conclusion that AOL Time Warner would discriminate against DSL by
     refusing to offer high-speed Internet access services over that
     platform altogether. On the contrary, as the Applicants' aver, it
     would be consonant with AOL Time Warner's economic interest to
     offer such services over DSL in order to reach as many "eyeballs"
     as possible.[^342] However, the merged firm's incentive to offer
     "AOL Anywhere" would not negate its incentive to steer customers to
     the platform the Applicants would own where customers could choose
     that platform.

121. If AOL Time Warner acted upon this latter incentive and withdrew
     its full-fledged support from the DSL platform in Time Warner cable
     service areas, the result would be to retard the growth of DSL as a
     competitor to cable.[^343] We believe such a result would be
     against the public interest. Robust competition between cable and
     DSL platforms is important to "promote the continued development of
     the Internet,"[^344] to "preserve the vibrant and competitive free
     market that presently exists for the Internet and other interactive
     computer services,"[^345] and to "encourage the deployment on a
     reasonable and timely basis of advanced telecommunications
     capability to all Americans."[^346] We are convinced that a
     decision by AOL Time Warner to withdraw support from DSL \-- even
     if it were limited to Time Warner cable service areas, and even if
     its ultimate effect were only to slow DSL's continued growth \--
     would amount to a public interest harm.

122. Nonetheless, we are satisfied that this harm will be adequately
     ameliorated by the requirements in the FTC Consent Agreement. As
     earlier mentioned, these requirements, augmented by the conditions
     we impose in this proceeding, will allow unaffiliated ISPs to offer
     residential high-speed Internet access services over Time Warner
     cable on a non-discriminatory basis. With unaffiliated ISPs able to
     market their services over AOL Time Warner's cable platform as well
     as DSL, the merged firm will have an incentive to offer its
     Internet access services over DSL in order to provide prospective
     customers with the same range of conduit options its competitors
     do. AOL Time Warner will likewise have an incentive to offer its
     Internet access services over DSL in order to replace ISP customers
     lost to unaffiliated ISPs on its cable platform.

123. The FTC Consent Agreement also addresses the possibility that AOL
     Time Warner will withdraw support from DSL in Time Warner cable
     service areas more directly: by requiring the merged firm to market
     its Internet access service over DSL in the same manner and at the
     same retail price in Time Warner service areas where AOL or
     affiliated ISP service *is* available over cable as in Time Warner
     service areas where AOL or affiliated ISP service is *not*
     available over cable.[^347] These requirements effectively forbid
     AOL Time Warner from steering customers toward the cable platform
     in Time Warner cable service areas, and ensure that the merged
     firm's support for DSL service will not vary where cable and DSL
     platforms compete head to head.

124. We are not persuaded that further requested remedies are
     appropriate. Memphis, Light, Gas and Water Division ("MLG&W") and
     Memphis Networx (jointly referred to as "Memphis Commenters") ask
     the Commission to condition its license transfer approval on the
     Applicants taking a "neutral stance to the entry of
     facilities-based network providers in areas in which Time Warner
     provides telecommunications and cable services."[^348] MLG&W is a
     division of the City of Memphis, Tennessee, that supplies
     electricity, natural gas and water to approximately 400,000
     customers.[^349] Through a joint venture with a third party, MLG&W
     formed Memphis Networx to build a physical network that will
     provide, among other things, residential high-speed Internet access
     services.[^350] The Memphis Commenters allege that Time Warner,
     which holds the cable franchise in Memphis, has sought to prevent
     Memphis Networx from building its competitive network, and has
     "gone to extraordinary lengths to protect its dominant position in
     the Memphis broadband market."[^351] The Applicants respond that
     Time Warner's concerns about Memphis Networx's proposed network
     predate the proposed merger, and would be unaffected by a
     combination of the firms.[^352] Time Warner also argues that its
     concerns about Memphis Networx's proposed network are legitimate,
     and that to the extent the Memphis Commenters object to the manner
     in which Time Warner has acted upon its concerns, such objections
     should be addressed to local decision-makers.[^353]

125. MLG&W's undertaking may promote competition for high-speed Internet
     access services and facilitate the deployment of these services to
     under-served areas.[^354] Nevertheless, the Memphis Commenters have
     not demonstrated that Time Warner's opposition to their plan is
     anticompetitive or unlawful. They have also failed to demonstrate
     that the proposed merger would increase the likelihood of
     anticompetitive or unlawful behavior by the Applicants. As we have
     previously noted, where a "merger is not the cause of . . . \[a\]
     competitive threat . . . the . . . license transfer proceeding is
     not the appropriate forum" to address the issue.[^355]

### Conditions 

126. Commenters argue that the MOU is insufficient to prevent the
     proposed merger from harming the public interest because it is
     unenforceable and vague with respect to how the principle of
     non-discrimination will be implemented.[^356] Although we commend
     the Applicants for proffering the MOU, as we have earlier explained
     we agree with the commenters that the MOU by itself affords
     insufficient protection against the potential harms to the public
     interest that could result from the proposed merger.[^357] The FTC
     Consent Agreement, on the other hand, substantially addresses these
     harms, as we have already described. The conditions we impose below
     are narrowly tailored to augment that decree by preventing AOL Time
     Warner from utilizing certain indirect means to disadvantage
     unaffiliated ISPs on its cable systems due to their lack of
     affiliation.

     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
     shall 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 shall
     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.[^358] Such list shall not discriminate in favor of AOL Time
     Warner's affiliates on the basis of affiliation. AOL Time Warner
     shall not prohibit ISPs from marketing their services to AOL Time
     Warner cable customers.[^359]

     B. *First Screen*: AOL Time Warner shall permit each Participating
     ISP to determine the contents of its subscribers' first screen and
     shall 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.[^360] AOL Time Warner shall 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 shall 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 shall 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 shall 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 shall 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 shall apply the following
     principles: (a) The general pleading rules set forth in Parts 1 and
     76 of our rules shall apply to the extent they are consistent with
     the specific requirements of the proceedings provided for
     herein;[^361] (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. [^362]

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

127. We conclude that these requirements, in conjunction with the FTC
     Consent Agreement, adequately address the potential harms to the
     public interest raised by the proposed merger.[^363] If and when
     the Commission adopts any rules of general applicability concerning
     ISPs' access to cable system facilities, any such rules will apply
     to AOL Time Warner to the extent they do not conflict with the
     conditions set forth herein.[^364] AOL Time Warner may file a
     petition at any time after the issuance of such rules, or after the
     issuance of any Commission finding on market definition that is
     contrary to the findings set forth herein, seeking modification or
     termination of these conditions. The Commission may, on its own
     motion, modify or terminate the conditions set forth above at any
     time if it finds such requirements are no longer necessary to
     mitigate or prevent potential public interest harms.[^365]

## Instant Messaging and Advanced IM-Based High-Speed Services. 

128. In this section we analyze Instant Messaging ("IM"), new IM-based
     services, and advanced IM-based high-speed services ("AIHS")[^366]
     from the perspective of our well-settled statutory obligations.
     Based on the following analysis, and to ensure the public interest
     as set forth in 47 U.S.C. §§ 230(b) and 157 and elsewhere in the
     Communications Act is protected, we impose conditions on the merged
     parties.

129. We conclude the market in text-based instant messaging is
     characterized by strong "network effects," *i.e.*, a service's
     value increases substantially with the addition of new users with
     whom other users can communicate, and that AOL, by any measure
     described in the record, is the dominant IM provider in America. We
     further find AOL has consistently resisted interoperability with
     other non-licensed IM providers.[^367] AOL's market dominance in
     text-based messaging, coupled with the network effects and its
     resistance to interoperability, establishes a very high barrier to
     entry for competitors that contravenes the public interest in open
     and interoperable communications systems, the development of the
     Internet, consumer choice, competition and innovation.[^368] We
     also find that a Names and Presence Database ("NPD") is currently
     an essential input for the development and deployment of many, if
     not most, future high-speed Internet-based services that rely on
     real-time delivery and interaction.

130. Given these findings, the combination of Time Warner's high-speed
     information transmission assets and its programming content with
     AOL's current IM market dominance, substantially increases the
     probability that AOL's dominance in the narrowband text-messaging
     world will persist in the world of high-speed interactive services.
     For these reasons, we impose conditions to ensure that the factors
     described in paragraph 129 above regarding narrowband
     text-messaging will not be reproduced and compounded by this
     merger.

131. We find that the public interest is served by interoperability
     among NPD-based services, first and foremost because
     interoperability will bring concrete and significant improvements
     to all consumers. With interoperability, communication between
     users that was inconvenient becomes convenient, communication that
     was impossible becomes possible, and new entrants are enabled to
     bring their innovations and creativity promptly to the largest
     possible number of users. Interoperability of NPD-based services
     will open new possibilities for communication for persons who are
     deaf or hard of hearing, persons with speech and/or learning
     disabilities, persons with cognitive limitations, and others for
     whom voice communication is problematic -- who may come to rely on
     IM as a basic means of communication. They will be able not only to
     use new services, but also to interact with the perhaps 150 million
     users of IM all over the world. These improvements, in turn, will
     make these services more valuable to previously uninterested
     persons, drawing them to become users.[^369] As we explain in
     detail below, the network effects of the business, instead of
     entrenching the largest incumbent, will work to the benefit of all
     users. The rewards of success in the marketplace will go to the
     provider who offers the most value to consumers rather than
     automatically to the first provider who amassed a large body of
     users. Alternately, if a single provider achieves dominance by
     relying on network effects and refusing to interoperate, actual and
     potential competing providers will be driven from and kept out of
     the market, resulting in a loss in competition, innovation, and
     consumer welfare. Interoperability would also continue the
     long-standing tradition of the Internet being open and
     interoperable. In sum, interoperability will benefit consumers and
     be in the public interest because (i) it enables each user to
     communicate with the largest number of other users through one
     source, thus maximizing efficiency; (ii) it leads to more product
     and service choices and convenience for users; (iii) it leads to
     more competition, thus avoiding the need for regulation; and (iv)
     it leads to more innovation.

132. We begin with a description of current and anticipated Instant
     Messaging and NPD-based services and of our authority to examine
     the impact of the proposed merger on these services in reviewing
     the applications in this case. We then explain the \"network
     effects\" characteristics of these services, and the conditions
     under which an unregulated market is and is not likely to lead to
     interoperability among competing providers. We then find that the
     proposed merger would give AOL Time Warner substantial, and perhaps
     insurmountable, advantages in providing advanced IM-based services
     over the high-speed Internet platform.

133. While we recognize a number of factors that signal caution here,
     including the relative novelty of the services and the need to
     resolve security and privacy concerns, we must also weigh the
     danger of inaction where the window of opportunity to preserve
     competition and protect the other policies of the Communications
     Act may be narrow because the markets are changing rapidly. On
     balance, we find it appropriate to impose a narrow condition
     specifically tailored to address the potential harm to
     Communications Act objectives created by the combination of assets
     that will be permitted by granting the pending license transfer
     applications.

### Background

134. IM, in its simplest form, enables the almost instantaneous exchange
     of short, private, individualized text messages over the Internet
     between two users who are online simultaneously and are either in a
     "chat room"[^370] or on each other's "buddy lists."[^371] Each
     Internet user may maintain a "buddy list" consisting of the IM
     names of the other users with whom he or she may wish to
     communicate via IM. A user may have several IM names or identities,
     such as one for work and another for business. Typically, when a
     user turns on her Internet access service, a box appears on the
     screen containing the names of those users who are on her buddy
     list and are also online.

135. A typical exchange begins when a user ("the sender") sees from her
     buddy list that another user ("the recipient") is online. The
     sender then brings up the IM box on her computer screen, types the
     recipient's IM name, types a message ("Hi, how are you this
     morning?"), and then clicks "Send" or an analogous command that
     sends the message to the recipient over the Internet. An instant
     later, the sender's IM name and message appear on the recipient's
     Internet screen and the recipient may reply. The general purpose
     and effect of IM is to allow almost instantaneous communication
     between two persons, each of whom sees the other's IM name on her
     screen and also sees that the other is online. IM enables them to
     communicate by exchanging personalized text messages privately and
     with a degree of informality and immediacy much like that of a
     face-to-face conversation or telephone call. Because IM messages
     are in text and are typically short, the speed (or "latency")
     demands of the service are relatively modest and well within the
     narrowband "best efforts" Internet of today.

136. IM is especially beneficial to persons who are deaf or hard of
     hearing, persons with speech and/or learning disabilities, persons
     with cognitive limitations, and persons for whom voice
     communication is otherwise problematic. As a mass medium for the
     almost instantaneous exchange of text messages, as opposed to voice
     messages, IM can be as useful to these persons as telephone service
     is to persons who do not have such limitations.[^372]

137. Following AOL's pioneering efforts, IM became a mass market product
     in the late 1990s.[^373] In the short time since then, IM has
     mushroomed into a highly popular service, with an estimated 150
     million users worldwide on AOL's IM services alone.[^374] More than
     30 million individuals use IM at least once a month, and AOL
     transmits almost five times as many IMs a day as it does
     e-mails.[^375] From all appearances, the market is nowhere near
     saturation.

138. An essential input[^376] to an IM service is the provider's
     NPD.[^377] 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.
     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. 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 it to exchange communications in
     real time with other users.

139. Each IM provider has its own NPD, which constitutes the total
     universe of persons with whom that provider's users can engage in
     instant messaging. Until recently, IM providers did not share
     access to their NPDs with other providers. Some providers are
     starting to do so. Such sharing makes possible "interoperability,"
     which is the ability of users of one IM service to engage in
     instant messaging with users of another IM service.

140. Many new services and applications based on "simple text" IM are
     being developed.[^378] A few companies, including AOL, are already
     providing them to their IM users.[^379] Many experienced industry
     observers believe that these new services, including AIHS, will be
     popular.[^380]

141. The new IM-based services include sending, along with a text
     message, attachments such as documents; using IM as a way to access
     shopping, personal homepages, and calendars;[^381] using presence
     detection as a trigger to perform "intelligent agent" functions
     such as selective message routing and instant alerts, automatic
     responses, filtering out unwanted messages,[^382] sending
     individual users advertising, and time-sensitive personalized
     information such as news bulletins on pre-chosen subjects,[^383]
     stock quotes, and travel arrangements;[^384] and ordinary web
     surfing.[^385] Some of these new services are appearing on wireless
     devices such as cellphones and Personal Digital Assistants such as
     "Palm Pilots" and "Pocket PCs."[^386] These new services are also
     expected to be included in interactive television to allow, among
     other things, text chatting (for example, among faraway friends
     watching the same football game), obtaining information (for
     example, getting the statistics of a football player who has just
     come on the field) and shopping on the Internet (for example, for a
     team mascot or some other souvenir of a football game).[^387]

142. Some of these new IM-based services \-- and perhaps the most
     important ones in the long term \-- are bandwidth-intensive and
     therefore will work best with high-speed Internet access. These
     AIHS include time-sensitive, "latency-dependent" applications such
     as talking (*e.g.*, a Talk Feature that enables users to engage in
     live conversation online and is included in AIM 4.1), game-playing
     (*e.g.*, features in AOL's New Windows AIM 4.3,[^388] buddies
     jointly 'playing along' with popular quiz shows such as Jeopardy!
     or Who Wants to Be a Millionaire?, or enacting their own versions
     of those shows online, independent of television broadcasts), and
     buddies sending each other brief music and video clips.

143. Even more bandwidth-intensive will be video conferencing via
     IM,[^389] which at least one study group predicts will be a major
     success in the marketplace.[^390] Also, many kinds of streaming
     video broadband content will likely be delivered via IM to both
     home and business users in forms such as long video entertainment
     and business documents in video form.[^391] Finally, AIHS on
     interactive television could include IM chat buddies jointly seeing
     streaming video highlights of a football player's best plays.[^392]

144. Quality of Service ("QoS") will be especially important for
     AIHS.[^393] This is because delivering AIHS, compared to simple
     text IM, is relatively complicated and susceptible to degradation;
     and because slow or choppy delivery can degrade the value of an
     AIHS seriously or totally.

145. Despite the quantum leap that all these new services represent
     beyond IM, they are like IM in one respect. That is, a provider of
     AIHS depends on its NPD as much as a provider of IM does.[^394]
     Absent interoperability, an AIHS provider's database of users'
     names is the total universe with whom one user can swap video
     clips, engage in video conferencing, and so on.

### Discussion

146. *Authority.* *The Public Interest.* We are obligated under the
     Communications Act to ensure that the transfer of control of Time
     Warner's cable licenses serves the public interest.[^395] We
     determine the public interest with reference to the policies and
     goals of the Communications Act and related statutes. Thus, as
     stated in Section II, Public Interest Framework, we examine whether
     a transaction would substantially frustrate the Commission's
     implementation or enforcement of, or interfere with the objectives
     of, the Communications Act or related statutes. Accordingly, in
     conducting our public interest analysis, we do not examine those
     issues that are not communications-related.[^396] But where an
     issue may be said to be fairly related to the policies and goals
     set forth in the Communications Act and related statutes, as is the
     effect of the merger of AOL and Time Warner on advanced IM
     services, we are required to satisfy ourselves that the public
     interest would be served by our approval of the transaction before
     us.

147. Our authority to examine the public interest effects associated
     with the combination of AOL's NPD and Time Warner's assets and to
     place any necessary conditions on our approval of the transfer of
     Time Warner's licenses rests on several statutory grounds. Sections
     214(a) and 310(d) of the Communications Act require the Commission
     to determine whether the Applicants have demonstrated that the
     public interest would be served by transferring control over Time
     Warner's licenses and authorizations.[^397] Further, we have broad
     authority to attach conditions to a transfer of lines and licenses
     to ensure that the public interest is served by the transaction.
     Section 303(r) of the Act authorizes the Commission to prescribe
     restrictions or conditions, not inconsistent with law, that may be
     necessary to carry out the provisions of the Act.[^398] Similarly,
     Section 214(c) of the Communications Act authorizes the Commission
     to attach to the certificate "such terms and conditions as in its
     judgment the public convenience and necessity may require."[^399]

148. Moreover, IM, new IM-based services (including AIHS in particular),
     and AOL's NPD are subject to our jurisdiction under Title I of the
     Communications Act.[^400] Our jurisdiction flows from at least
     three sections of the Communications Act. Section 1 of the
     Communications Act established the Commission \"\[f\]or the purpose
     of regulating interstate and foreign commerce in communication by
     wire and radio so as to make available, so far as possible, to all
     the people of the United States . . . adequate facilities at
     reasonable charges . . . .\"[^401] Similarly, Section 2 gives us
     jurisdiction over \"all interstate and foreign communication by
     wire or radio\" and \"all persons engaged within the United States
     in such communication . . .\"[^402] Finally, Section 3 defines
     \"communication by wire\" and \"communication by radio\" as
     including \"the transmission . . . of writing, signs, signals,
     pictures and sounds of all kinds . . . including all
     instrumentalities, facilities, apparatus, and services (among other
     things, the receipt, forwarding, and delivery of communications)
     incidental to such transmission.\" [^403] We find that IM and AIHS
     fall well within Section 3's definitions of radio and wire
     communication, as does the NPD as an instrumentality, facility,
     apparatus, or service incidental to the IM and AIHS. Accordingly,
     the Commission has Title I jurisdiction over IM and AIHS
     services.[^404] This being clear, we need not classify IM and AIHS
     as information services, cable services, or telecommunications
     services (as some allege) -- the Commission has subject matter
     jurisdiction over them.

149. While several commenters agree that the Commission has "clear
     jurisdiction" to impose conditions on IM here, citing, *inter
     alia*, Sections 1, 2, 230(b)(2), 310(d), and 256, and Title VI of
     the Communications Act,[^405] AOL argues that there is no such
     jurisdictional nexus.[^406] AOL's argument, despite its
     jurisdictional phraseology, amounts to a claim that its position on
     the merits is correct, namely that the IM business is competitive
     and the IM issues raised in this proceeding are not
     merger-specific. As we find below, however, the IM business is not
     competitive, and AOL's acquisition of Time Warner's content, cable
     assets and control of Road Runner will be contrary to the public
     interest.

150. In deciding whether the transfer of control of the licenses and
     authorizations at issue here is in the public interest, as
     discussed above in Section II, we consider, *inter alia*, whether
     the merger would interfere with the policies and objectives of the
     Communications Act. Several policies and objectives are implicated
     by this merger. First, in enacting the Telecommunications Act of
     1996,[^407] Congress established a clear national policy that
     competition leading to deregulation, rather than continued
     regulation of dominant firms, shall be the preferred means for
     protecting consumers.[^408] Further, to promote the policies of the
     Communications Act, we may "plan in advance of foreseeable events
     instead of waiting to react to them."[^409] We may therefore
     examine and place conditions on a merger to ensure that it will not
     impede the development of future competition but will, in fact,
     enhance competition.[^410] Congress expressed its preference for
     similar policies with respect to the Internet. Section 230(b) of
     the Communications Act provides that it is a policy of the United
     States "to promote the continued development of the Internet and
     other interactive computer services and other interactive media"
     and "to preserve the vibrant and competitive free market that
     presently exists for Internet and other interactive computer
     services, unfettered by Federal or State regulation."[^411]
     Finally, Congress has charged the Commission with "encouraging the
     deployment on a reasonable and timely basis of advanced
     telecommunications capability to all Americans."[^412]

151. Several commenters argue that we may impose conditions on IM
     services to remedy anticompetitive harms, and that doing so would
     be consistent with our prior decision in *WorldCom-MCI.*[^413] In
     *WorldCom-MCI*, we held that because the merger raised
     anticompetitive concerns regarding the Internet backbone service
     market, it was necessary for the Commission to review the
     applicants' proposed divestiture of one of their Internet backbone
     services to ensure that those anticompetitive concerns were met,
     even though the applicants did not need our "approval" to complete
     that divestiture.[^414] AOL finds the analogy to Internet backbone
     service to be inapposite, claiming that IM is not a facility or
     transmission service that the Commission regulates, but an
     information service that the Commission has chosen not to
     regulate.[^415] Those commenters who seek to impose a condition on
     IM or AIHS also cite Section 230(b) of the Communications Act as
     support.[^416] We agree, in part because our decision in
     *WorldCom-MCI*[^417] supports our examining this merger to ensure
     that it does not have an anticompetitive effect on the provision of
     AIHS. The fact that we have chosen not to subject IM and AIHS to
     traditional regulation does not mean that the merger's effects on
     these services escapes our inquiry.[^418] In fact, exactly the
     opposite is true. Because we have jurisdiction over IM and AIHS
     but, mindful of Congress's intent, have chosen not to regulate
     them, it is all the more important that we ensure that this merger
     does not cause any anticompetitive harms with regard to these
     services. Only in this way can we "preserve the vibrant and
     competitive free market that presently exists for Internet and
     other interactive computer services" and ensure that competition,
     rather than regulation, protects consumers.

152. *Relevant Markets.* After reviewing all the parties' submissions
     and making our own analysis of the businesses in question and
     relevant economic principles, we find that the area of our concern
     is "NPD services" -- interactive communication services which, as
     we described above, depend on an NPD for real time communication
     between and among users. Today, the principal services of this type
     are IM, the emerging new IM-based services, and AIHS in particular.
     In the following paragraphs, we find that the database of names and
     the presence detection ability of an NPD cause services that depend
     on an NPD to be characterized by strong network effects. These and
     other aspects of NPD services cause them to have few, if any,
     substitutes.[^419] We further recognize that IM services are
     evolving rapidly, and we expect that this evolution will continue
     as more home users come to use high-speed platforms for Internet
     access.[^420] A more precise definition of the relevant market is
     not necessary here, where the Commission can accurately assess the
     competitive impact of the merger without such a detailed
     analysis.[^421]

153. *General Characteristics of NPD Services.* *Network Effects.*
     Certain services, such as telephone services, become more
     attractive to customers as more customers use them, a phenomenon
     called "network effects." Network effects tend to be strongest in
     businesses whose main output or product is access to other persons,
     as is the case with telephone service.

154. Often, in businesses with strong network effects, each of several
     providers creates its own network that is potentially incompatible
     with the others'. If each of the networks is of roughly equal size,
     then no provider dominates the market and each has an incentive to
     interoperate \-- to make its service compatible \-- with the
     others. In such an equilibrium, interoperability gives each
     provider's users access to a larger universe of other users and
     that makes each service more valuable to its users.[^422] This
     equilibrium leads to effective competition and benefits consumers.

155. A different outcome, and one less beneficial for consumers, can
     also occur in markets with strong network effects. If one provider
     achieves a larger market share, either through superior performance
     or a first mover advantage,[^423] then it may not have an incentive
     to interoperate. If that provider wants to dominate the market, it
     can adopt a strategy of refusing to interoperate with the other,
     smaller providers. This, compared to a strategy of interoperation,
     will make its service less valuable and will hurt its users. But
     while these ill effects will be relatively slight, because the
     users will still be able to reach most other users, refusing to
     interoperate will hurt the smaller providers and their users
     greatly, because their users will not be able to reach most other
     users. The largest provider's refusal to interoperate will lead to
     users switching to it from the smaller providers, which will
     further swell the dominant provider's NPD and shrink the smaller
     ones'.[^424] This will continue until the largest provider's
     network is the dominant one, perhaps yielding the provider monopoly
     control of the market. From that point onwards, the dominant
     network remains dominant, not necessarily because it charges the
     lowest prices, offers the best quality, or innovates fastest with
     the features that customers want most, but simply because in the
     past it gained the most users.[^425]

156. Where there is no interoperability, the network effects of a
     service can be mitigated if competing providers or users of another
     service can provide an "adapter." An adapter is a facility or
     activity that enables users of one service to benefit, in full or
     in part, from the network effects of another.[^426] The absence of
     an adapter can lead to inconvenience and inefficiency. For example,
     in the early 20th century, a telephone subscriber who wanted access
     to every other telephone subscriber had to establish accounts with
     several telephone companies, have several telephones and telephone
     directories, and perhaps consult the directories each time he
     wanted to call someone to find out which system(s) that person
     subscribed to. Most consumers preferred that all telephone systems
     be interconnected and unified.[^427] These conditions led to
     monopoly and, ultimately, federal and state regulation.

157. The dominant provider of a service with network effects can exploit
     its dominant position as it offers new services that also have
     network effects. The provider can do so by making its new service
     compatible with its existing one ("backward compatibility"). This
     extends the network effects of the existing service into the new
     business and helps to migrate the provider's users from its
     existing service to the new one. Backward compatibility is
     efficient to the extent that it allows users to benefit from both
     the features of the new service and the network effects of the old
     service. If, however, it occurs where there is no interoperability,
     then backward compatibility can serve to lengthen and widen the
     dominant provider's power, to the harm of consumers and efficiency.
     The actual, or even potential, introduction of new backward
     compatible services by the largest provider can also stifle
     innovation, as potential entrants will be unlikely to invest in new
     services, knowing the disadvantage that they have in competing with
     the largest provider.

158. *Findings About NPD Services.* We find that NPD services exhibit
     strong network effects. Our first basis for this finding is simply
     that IM strongly fits the above definition of a business that is
     characterized by network effects. If an NPD service has only one
     user, the service is useless to her because she is the only user in
     the NPD and there is no one with whom to engage in instant
     messaging. When a second user joins the service, NPD grows and the
     IM service based on it becomes useful.[^428] Each additional user
     makes the NPD larger and the IM service based on it more useful to
     both its existing users and to potential users. Most users of IM
     want to be able to compose their buddy lists from, and/or engage in
     IM with, the largest number of other users. Therefore, when
     choosing between rival IM services, a typical new user will place
     the greatest value on the service with the largest NPD (and
     therefore the most users) and will choose that service. In all
     these hypothetical situations, the underlying value (or lack of
     value) in an IM service resides in the NPD.

159. Second, many observers agree that IM services exhibit strong
     network effects.[^429] Third, although AOL's filings before us
     almost deny that there are any network effects in IM, or that any
     such effects benefit only AOL,[^430] its promotions attempt to
     attract new users by proclaiming how many millions of registered IM
     users it already has. Specifically, the top paragraph of its own
     web page for AIM 4.1 entices users with "\[f\]ind out what [over 64
     million people]{.underline} already know, . . ." (underlining in
     original).[^431] Accordingly, we find that NPD services are
     characterized by strong network effects.

160. We find that AOL is by far the leading provider of IM today. Many
     commentators have concluded that it dominates IM.[^432] AOL was the
     first company to successfully market IM to the mass market and thus
     gained a significant first mover advantage. According to all
     observers, AOL has a mass of users \-- and, therefore, an NPD \--
     that is several times larger than any other provider's and is
     larger than all other providers' combined.[^433] And AOL's presence
     in IM is still growing.[^434] Furthermore, small IM providers have
     recently exited the market.[^435]

161. Independent companies have recognized the strength of AOL\'s IM by
     signing deals with AOL. These include both Sprint and AT&T agreeing
     to make AOL\'s IM available to their wireless customers[^436] and
     Sears agreeing to use instant messaging to connect Sears customers
     with Sears customer service representatives.[^437] EarthLink, a
     major direct competitor of AOL in the ISP business, has continued a
     licensing arrangement with AOL. EarthLink would be expected to
     compete with AOL in IM if that were possible. Finally, the
     continuing strength of AOL\'s IM has been recognized by a number of
     independent analysts.[^438] All this evidence strengthens our
     conviction that AOL's possession of by far the largest NPD confers
     great power on it.

162. AOL disagrees with the commenters who contend that it dominates IM.
     For example, AOL points to entry into the IM business by other
     providers and appears to claim that it does not benefit from
     network effects.[^439] We disagree. New entry may indicate
     competition, especially in a stable, mature business. IM is not
     such a business, however, and new entry into IM may also be
     explained by factors other than healthy competition. The smaller
     providers may be able to attract customers in a fast-growing market
     in which they offer extraordinary promotional inducements,[^440]
     may plan to succeed by targeting niche groups[^441] or may be
     concentrating on very sophisticated features and functions.[^442]
     Because their offerings are unlikely to tempt a significant number
     of mass market users, however, they do not challenge AOL directly
     or significantly. Further, entry into IM may have been induced,
     despite network effects, by the prospect of interoperability with
     AOL. This prospect has been created by industry efforts; by
     expectations of governmental action by this Commission, the Federal
     Trade Commission, and/or Congress;[^443] and by AOL's own public
     statements pledging to help achieve interoperability.[^444] These
     factors may induce entry especially by those who believe that they
     will have advantages post-interoperability stemming from unique
     features and functions.

163. From among all entrants into the IM business, AOL points especially
     to Microsoft as a significant rival. AOL claims that Microsoft's
     presence, and especially its recent growth in the market,
     demonstrates that AOL does not dominates IM. AOL points to
     Microsoft integrating its IM product into its Windows desktop and
     to Microsoft's strength in desktop applications generally.[^445] We
     note that Microsoft is a potentially formidable competitor.
     However, Microsoft has not always been able to leverage its control
     of the Windows desktop into dominance of other applications.[^446]
     In addition, in IM today, AOL benefits from network effects and
     first mover advantages; and, as we discuss below, the proposed
     merger would give AOL significant, additional advantages over
     Microsoft, Yahoo!, and smaller IM providers. And even if
     Microsoft's NPD did grow to rival AOL's, the result would be merely
     a duopoly, not the healthy competition that exists today in
     electronic mail and that we hope will exist in new IM-based
     services and AIHS in particular.[^447]

164. AOL also claims that any incompatibilities between its and other IM
     providers' NPDs are mitigated by an existing adapter for IM, namely
     that an IM user may use several IM services simultaneously,[^448]
     and that millions of users do so.[^449] AOL argues, therefore, that
     there are no barriers to entry into IM.[^450] We disagree. We find
     the ability of users to use several IM services is not a substitute
     for interoperability. Using several IM services (and, therefore,
     several NPDs) entails much inconvenience. A user must download
     several kinds of IM software; must register and maintain accounts,
     unique names, and passwords with several IM providers; must use
     each one enough to become comfortable with its 'look and feel';
     must keep several buddy lists and remember which buddies are on
     which IM service (and with what names); and must keep several IM
     sessions open simultaneously. Even then, three-way communications
     are impossible unless all participants use the same service.
     Indeed, in light of these inconveniences, the fact that millions of
     people use more than one IM service (especially AOL and one or more
     other services) indicates not easy adaptation but the great value
     that users put on being able to communicate with more, rather than
     fewer, people.[^451] Maintaining multiple accounts, each with its
     own IM software, will be especially burdensome in hand-held
     devices. They have less storage capacity than desktop personal
     computers.[^452] In addition, we understand that wireless carriers
     may choose one software (*e.g.*, AOL's) and make use of others
     impossible. Lack of choice of IM services in hand-held devices will
     particularly hurt persons with hearing, speech, and other
     disabilities, to whom IM via hand-held devices can be as important
     as telephones and face-to-face conversations are to persons who do
     not have hearing limitations. In sum, we find that the ability to
     use several IM services and NPDs does not effectively mitigate the
     network effects that favor AOL's NPD.

165. AOL further contends that it does not dominate IM because it is
     possible for users to move in a coordinated group from one IM
     service to another. We find this not only inconvenient, but in most
     cases impossible as a practical matter. Only if those who propose
     to move have precisely the same buddy lists is this solution
     possible. Most likely, one user's buddy list does not correspond
     perfectly with his or her buddies' lists, in which case moving
     requires that at least some of one's buddies be left behind.[^453]
     Accordingly, we find that no adapter exists to mitigate the network
     effects of AOL's NPD.

166. AOL claims that entry into IM would be easy for any company with a
     customer list, especially a customer list as full as, for example,
     that of Sears or American Express. Again, we disagree. As we noted
     above, an NPD for IM must be a working part of an electronic
     communications network. Even the lengthy list of an interactive web
     service firm such as Amazon, E-Bay, Napster and Real Player would
     only be the starting raw material for entry into IM. Any of these
     would-be entrants would need to master a new business \--
     real-time, two-way, consumer-to-consumer interactive service. A
     would-be entrant would also need to launch a major marketing
     campaign to interest its customers in using its IM. Then millions
     of those customers would need to accept the invitation, download
     software into a personal computer or other interactive device, pick
     an IM name and find their buddies on the same service. From the
     entrant's original customer list, tens of millions of customers
     would need to finish all these steps for the resulting IM NPD to
     rival AOL's. We find that there are few companies that could
     seriously attempt such entry, and that even they would find many
     obstacles to successful entry.

167. Finally, it might be thought that in the rapidly changing
     technology of the Internet, even network effects and AOL's present
     position in the market would not prevent successful entry by IM
     providers other than AOL, that a new breakthrough technology might
     become available and would be superior enough to AOL's service to
     overcome the network effects flowing from its NPD, and cause users
     to shift *en masse* away from AOL. In some "serial monopoly"
     markets, one standard dominates a market for a time and is then
     overtaken by a new standard.[^454] We see no evidence at this time,
     however, of such a new breakthrough technology strong enough to
     overtake AOL's NPD. AOL has pointed us to no such evidence. On the
     contrary, the evidence indicates that NPD technology is the best
     protocol for providing address and presence information for
     interactive services.

168. *AOL's Resistance to Interoperability.* AOL has consistently
     resisted interoperability of IM services. In 1999, various non-AOL
     IM providers repeatedly attempted to gain access to AOL's
     proprietary and/or AIM NPD in order to interoperate with AOL, and
     were blocked by AOL.[^455]

169. AOL has stated that it will seek interoperability, but has
     participated little in industry consultations aimed at
     industry-wide interoperability.[^456] According to several
     observers, AOL has dragged its feet in these consultations.[^457]
     Objective evidence supports this view.[^458] The body through which
     the consultations were occurring, the Internet Engineering Task
     Force (IETF), found that AOL's proposal lacked specificity, and
     began pursuing several other proposals.[^459] Recently, the IETF
     suspended its efforts, stating that no consensus about how to
     effect interoperability could be reached.[^460] At the en banc
     hearing in this proceeding, AOL opined that interoperability could
     only be achieved after lengthy industry deliberations and has
     stated that a technical standard could be achieved by July 2001,
     after which testing would begin.[^461] As noted below, we will
     require AOL to file a progress report with the Commission every 180
     days with regard to the actions it has taken towards
     interoperability.

170. AOL claims that it has been stymied in its attempts to provide
     interoperability by its desire to protect the privacy and security
     of its customers.[^462] Other IM providers allege that they already
     have security and privacy procedures that are at least as great as
     AOL's.[^463] We find AOL's claim unconvincing. AOL has given us no
     details about its concerns, or how it currently protects its users.
     While it may be that AOL desires eventually to create an
     interoperable product that protects subscribers' privacy and
     security, privacy and security are matters that can be negotiated
     and resolved promptly, not pretexts for delaying interoperability
     unnecessarily.[^464] Microsoft and Yahoo! express no such disabling
     anxieties about privacy and security, even though they, like AOL,
     have reputations, goodwill, and customer bases to protect, and the
     technical expertise to distinguish serious and real problems from
     imaginary and minor ones. Microsoft and Yahoo!, not to mention many
     other IM providers, have as much incentive as AOL to implement
     interoperability with adequate protections for users' privacy and
     security. Security concerns do not appear to be the only reason
     that AOL has resisted interoperability.

171. *AOL's Use of Backward Compatibility.* AOL's new IM-based services
     in AIM 4.1 include a Talk Feature. In introducing AIM 4.1, AOL is
     taking advantage of backward compatibility by making its new
     features compatible with its IM service.[^465] AOL does this by
     using the same NPD, the one it originally built for IM, for these
     new features. In this way, a user of AIM 4.1 who has high-speed
     Internet access service is not only able to engage in AIHS
     exchanges with other users of AIM 4.1, but is also able to continue
     to engage in IM with the much larger body of AOL's IM users who
     continue to use narrowband Internet access service. AOL is also
     using its base of IM users as a springboard for launching its AIHS.
     Recently, in introducing AOL Instant Messenger 4.3, AOL's web page
     warns that "\[i\]n order to take advantage of some of the newest
     AIM features, both you and your buddies must upgrade to AIM 4.3. .
     . . If your buddy's software is older, they may not be able to
     talk, share files, or take advantage of other new features. Send an
     instant message to your buddies today to let then know about AIM
     4.3."[^466]

172. We find it likely that AOL will, when presented with other, similar
     opportunities, continue to take advantage of backward compatibility
     as it rolls out new AIHS. Users of its new high-speed services will
     be able to use AOL's IM to communicate with its existing customer
     base. In addition, narrowband IM users may be able to adopt these
     new high-speed services, which will enable them to communicate with
     their users, albeit with relatively low quality. The Talk Feature
     of AIM 4.1 is a good example of such a feature. It can be used by
     narrowband customers, but quality is higher for high-speed
     customers. This difference will be more evident for features that
     require yet more bandwidth, such as videoconferencing.

173. Backward compatibility will have at least two benefits for AOL.
     First, it will enable it to offer new services tailored to
     high-speed customers without losing the network effects of the NPD
     that it developed in narrowband IM services. That is, AOL will be
     able to take the value inherent in its IM NPD and leverage it into
     its new AIHS. For example, users of AOL's AIHS will, because of the
     availability of AOL's NPD, be able to send streaming video messages
     to more other users, and will be able to receive them from more
     other users, than users of any other AIHS. AOL users will be able
     to video chat with more buddies, will be able to go web surfing via
     streaming video with more other users, will be able to hold larger
     business meetings with documents displayed via streaming video, and
     will be more likely to quickly compose large groups for these and
     other uses of streaming video.

174. Second, the benefits of providing backward compatible AIHS may lead
     other actual or potential providers of competitive but incompatible
     AIHS to conclude that it will be difficult, if not impossible, to
     successfully compete with AOL for customers.[^467] Thus, AOL's user
     base and NPD in IM gives it a unique first mover advantage into
     AIHS. We find that, with the advantages that backward compatibility
     will give it, AOL will be more able to dominate AIHS, or may be
     likely to dominate AIHS, not necessarily on the merits of its
     service, but because of the network effects inherited and leveraged
     from the NPD it built up in the IM business.

175. *Anticompetitive Effects of the Proposed Merger.* As already
     discussed, AOL is by far the largest IM provider, by virtue of its
     uniquely large NPD, and therefore has a strong incentive to resist
     and delay interoperating with other IM providers' NPDs. Without
     interoperability, users may choose AOL's IM simply because it has
     the largest NPD and not because it offers the best value or is most
     attractive for some other meritorious reason. This puts a damper on
     competition and innovation, whether or not the network effects are
     so strong that they cannot likely be overcome (*e.g*., by a highly
     superior product offered by a competitor). AOL is in fact strongly
     resisting interoperability, thus taking advantage of the network
     effects of its NPD in competing with other providers. As a
     consequence, all consumers and the public interest are being
     disserved. Actual and potential competition among IM providers is
     hampered.

176. We conclude that AOL, through the proposed merger, will gain
     control over many significant assets owned by Time Warner and that
     these assets will make AOL Time Warner more able or more likely to
     dominate AIHS than it would otherwise be.[^468] AOL Time Warner may
     well be in a position of unassailable dominance in AIHS as a result
     of the proposed merger.

177. One, but by no means the only, relevant asset is the cable
     television systems owned by Time Warner. These systems are now
     being used to provide high-speed Internet access. A second asset
     that AOL will acquire in the proposed merger is Time Warner's
     contractual relations with the approximately 13 million cable
     television households in this country that those systems
     serve.[^469]

178. A third relevant Time Warner asset is Road Runner, a major
     high-speed ISP, and a fourth is Road Runner's contractual relations
     with its subscriber base, which recently passed 1.1 million.[^470]
     Road Runner is now the exclusive high-speed ISP on Time Warner
     cable systems.[^471] In addition, approximately 40 percent of Road
     Runner's customers are on cable television systems other than Time
     Warner's that have agreed to make Road Runner their exclusive
     high-speed ISP through 2001.[^472] These latter cable television
     systems serve more than five million households.[^473] Thus, by
     acquiring Time Warner, AOL has gained access to nearly 20 million
     households who are or will be enabled for residential high-speed
     Internet access and to whom AOL Time Warner may now market
     AIHS.[^474] Road Runner does not now include an IM service in its
     home page offering, but it is reasonable to expect it to have one
     and for that to be AOL's NPD.[^475]

179. AOL will also acquire other relevant Time Warner assets, such as
     the significant content owned by Time Warner. This includes the
     stories and photographs in Time Warner's magazines, such as Time
     and Sports Illustrated; the news, sports programs and other
     information in video form available through CNN; and its extensive
     library of movies, television shows, popular music, and animated
     entertainment. This content will be useful to certain of AOL's new
     AIHS, in particular sending individual users television-based news
     stories on pre-selected subjects and allowing users to send each
     other Time Warner-owned animation, movie and television excerpts,
     and music. The video assets in particular are well suited for AIHS.
     AOL's ownership of Time Warner will allow it to make this mass of
     content available quickly to users of AOL's AIHS.[^476] This
     content will have already been created, so the cost of providing a
     copy of it (*e.g.*, a video clip from CNN or a story from Time
     Magazine) to AOL will be, as a practical matter, zero. The savings
     resulting from this kind of vertical merger will thus be increased
     beyond their normal levels.[^477]

180. The combination of these assets will likely give AOL Time Warner
     another first mover advantage in AIHS.[^478] In contrast, other
     AIHS providers, if they have any access to Time Warner's systems,
     services, and content, will need to negotiate individual contracts
     for that access and will have to pay for it. They will need
     negotiations with, and payments to, other content owners, also, to
     bring comparable AIHS to their users. Given the size and scope of
     Time Warner's assets, many contracts and much time would be needed
     to make an equivalent AIHS offering.

181. In sum, although Time Warner's valuable content, conduits,
     prominent high-speed ISP, and ready-made customer base will enable
     the merged firm to provide more services to AOL's IM customers,
     this combination will also make it much easier for AOL Time Warner
     to leverage the network effects of AOL's NPD into AIHS. The
     Applicants appear to be pointing to this very phenomenon as a
     benefit of their proposed merger when they state that they "plan to
     create and deliver to consumers easily accessible interactive
     services -- mixing and fusing content and communication elements --
     that today are only in their infancy or are not yet on the drawing
     board."[^479]

182. The proposed merger will also give AOL the opportunity and
     incentive to impair the performance of its rivals' AIHS. Other AIHS
     providers will provide their services over Time Warner cable
     systems and Road Runner. The proposed merger will put AOL in
     control of those assets. The merger will thus give AOL the
     opportunity to control the quality of service that its competitors
     receive.[^480] For example, AOL Time Warner will be able to make
     its own users' video conferencing transmissions quick and clear and
     those of competitors slow and choppy.[^481] AOL Time Warner will
     have the incentive to engage in such conduct because it will
     discourage consumers from using competitors' AIHS and will draw
     them instead to AOL Time Warner's.[^482] Such conduct would be
     particularly destructive to competition in AIHS because, as we have
     noted, QoS will be especially important in those services.

183. There is precedent for such misconduct. Companies in communications
     markets have been known to acquire scarce facilities that their
     competitors need and to deny the competitors equal or reasonable
     access to those facilities, and thus to give themselves
     anticompetitive advantages or monopolies.[^483] AOL in particular
     has a history of denying its IM competitors *any* access to its
     NPD.

184. We find the situation in AIHS different from that which, in our
     ruling on the merger of AT&T and Media One, led us to conclude that
     concern for the future of competition in various broadband services
     would be premature and that it would be prudent to refrain from
     action.[^484] There, we addressed the entire residential high-speed
     Internet access business. Here, our attention has been sharply
     focused on AIHS, the NPD assets at its core, and the particular
     abilities and incentives in AIHS of the two specific parties to
     this proposed merger. Seeing a foreseeable and likely danger to
     competition in AIHS, we can act promptly and with confidence. This
     danger leads us to protect the possible emergence of a competitive
     market and not to wait for more traditional antitrust remedies,
     which may not be used until harm is done and may take years to
     undo.

185. With a dominant position in the AIHS business, AOL Time Warner
     would be likely to charge higher prices than it otherwise would to
     end users, content providers, and/or advertisers.[^485] AOL's
     domination may also result in less innovation in new IM-based
     services, and AIHS in particular, than there otherwise would be. We
     find such harm both more likely as a result of the proposed merger
     than it would otherwise be, and contrary to the public interest.
     Accordingly, we find that the proposed merger will significantly
     enhance AOL Time Warner's ability and incentive to leverage the
     network effects of AOL's NPD, from its IM service, into new
     IM-based services including AIHS, thereby making it more able or
     likely to dominate those services and to effectively foreclose the
     emergence of a competitive market. We see no benefits from AOL Time
     Warner's domination that will outweigh these harms.

186. AOL implies that we should address these issues in a rulemaking
     that would apply to all providers of IM and new IM-based
     services.[^486] The concerns we have described above flow,
     specifically and exclusively, from AOL's role, and not from any
     other company's, in services that depend on an NPD after the
     proposed merger. Further, our concerns are time-sensitive, focusing
     as they do on current events in the emerging business of new
     interactive services. By the time a rulemaking ended, the
     domination by AOL Time Warner that we today find likely might well
     have been achieved and be beyond correction by marketplace forces.
     Regulation of AOL Time Warner's offerings might be necessary. Too
     often in the history of communications, interoperation has required
     detailed government mandate and decades of supervision,[^487] and
     dominant firms' entry into new markets has required case-by-case
     permission after intense scrutiny.[^488] We assiduously seek to
     avoid those outcomes here, and we earnestly hope that our
     light-handed, market-opening condition will lead to
     interoperability without further government action.

187. *Interoperability.* We find that the anticompetitive dangers
     discussed above would be mitigated if there were interoperability
     between AOL's new IM-based services and those of other companies.
     This would permit a user of an AOL service and a user of another
     service to talk, play games, engage in video conferencing, *etc.*,
     with each other as easily as each exchanges instant text messages
     today with other users of the service to which he or she
     subscribes. If there were interoperability of new IM-based
     services, AOL would be less able to leverage its leading position
     in IM services into those new services.

188. To prevent AOL Time Warner, as a result of the proposed merger,
     from becoming more able or likely to dominate AIHS, we impose a
     prophylactic condition. Because the domination that concerns us
     would be made likely by the combination of AOL's and Time Warner's
     assets, we reject AOL's argument that its dispute with other IM
     providers about interoperability preceded and is therefore
     immaterial to the proposed merger.[^489] We have also considered
     carefully AOL's other cautions against intervention in the market,
     but we find them unconvincing. AIHS are novel services, but we and
     many others believe that they will be significant in the near
     future. If they are not, our intervention will cause little, if
     any, harm to consumers or efficiency. If, as AOL predicts,
     Microsoft and Yahoo! effectively challenge AOL in IM and/or AOL
     Time Warner in AIHS, then AOL will have an incentive to achieve
     interoperability and our condition will not come into operation.
     The risk of our not intervening now, however, is to risk the
     emergence of a significant new business needing regulation, a
     result we and Congress wish to avoid especially on the Internet and
     interactive services. For the reasons stated above, we cannot be
     certain that new entry, even by the likes of Microsoft and Yahoo!,
     will discipline AOL Time Warner in AIHS. Finally, we are not
     convinced that AOL's expressions of concern with security and
     privacy justify giving free rein to its resistance to
     interoperability.

189. Accordingly, we are imposing a condition that is precisely and
     narrowly aimed at preventing the specific harm that the proposed
     merger will cause. It is also directed at serving the broader
     public interest in encouraging entry, competition, innovation, the
     broader deployment of new services, the lowest possible transaction
     costs for consumers, and necessary protection of persons with
     disabilities. Our condition is balanced because it contains ways
     for AOL to show that, due to events we do not anticipate, the
     condition is no longer necessary. Our condition gives AOL
     incentives that it does not now have to interoperate and thus to
     benefit consumers, efficiency and the public interest. Our
     condition also gives other IM and AIHS providers incentives to
     enter and remain in the business that they do not now have.

190. As set forth below, our condition gives AOL an incentive to
     interoperate by forbidding it from providing streaming video AIHS
     applications until it interoperates. Our condition focuses on
     streaming video AIHS applications, for several reasons. First, AOL
     is not offering them as part of its IM today. Second, as we define
     them below, we believe that the scope of video AIHS applications is
     relatively clear. If our condition focused on AIHS applications
     that included "talking" or "game-playing," which AOL appears to be
     providing now to some extent, there might be difficulty in
     detecting when AOL had made an advancement with these services.
     Third, AOL will be able to provide streaming video AIHS
     applications for the first time on the facilities of Time Warner
     that are coming under AOL's control as a result of the proposed
     merger. We believe that it is in these applications that AOL would
     be positioned to gain the greatest anti-competitive advantage as a
     result of the proposed merger, by combining its NPD with the assets
     of Time Warner.

### Condition

192. AOL Time Warner's likely domination of the potentially competitive
     business of new, IM-based services, especially AIHS applications
     such as videoconferencing, requires that we impose a condition to
     prevent that merger-specific harm.[^490] AOL Time Warner may not
     offer an AIHS application that includes the transmission and
     reception, utilizing an NPD 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 4.3 or ICQ
     2000b,[^491] unless and until AOL Time Warner has successfully
     demonstrated it has complied with one of the following grounds for
     relief.

193. *Grounds for Relief. Option One.* AOL Time Warner may file a
     petition demonstrating that it has implemented[^492] a standard for
     server-to-server interoperability of NPD-based services[^493] that
     has been promulgated by the IETF or a widely recognized
     standard-setting body that is recognized as complying with National
     Institute of Standards and Technology or International Organization
     for Standardization 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 transactions of AIHS
     services, to the extent allowed by law.[^494] 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.[^495] Other than specifying server-to-server interoperability
     as described above, we do not set any technical criteria for
     interoperability.

194. *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.[^496] 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.[^497]

195. 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 One 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.

196. *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.

197. *Procedure for Submission of Petition to the Commission.* To
     receive authorization to offer AIHS video services pursuant to
     Options One through Three 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.

198. *Reporting Requirement.* We also require that AOL Time Warner file
     a progress report with the Commission, 180 days after the release
     of this *Order* and every 180 days thereafter, describing in
     technical depth, the actions it has taken to achieve
     interoperability of its IM offerings[^498] 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.

199. *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 this *Order*.

200. In the event that any person wishes to bring to us a dispute about
     AOL's compliance with our condition, we 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.[^499] 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
     Services Bureau.[^500] The complaint or showing, as the case may
     be, shall be dismissed or sustained within sixty (60) days of its
     filing.

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

## Video Programming

202. In this section, we consider the proposed merger's impact on video
     programming sold by program networks to MVPDs, who then deliver the
     networks via their distribution systems to their subscribers'
     television sets. MVPDs include cable, DBS, multichannel multipoint
     distribution services ("MMDS"), and satellite master antenna
     television ("SMATV") providers.[^501]

203. Companies that own programming networks produce their own
     programming and/or acquire programming produced by others, then
     package this programming for sale to MVPDs. As discussed above,
     Time Warner has ownership interests in a large number of
     programming networks, such as CNN, TBS, HBO, Comedy Central and
     Court TV, among others.

204. We examine below whether the merger will create public interest
     harms with respect to electronic programming guides ("EPGs"), the
     carriage of analog and digital video signals, or AOL Time Warner's
     post-merger ownership interest in DirecTV, the nation's largest DBS
     provider. We conclude that the merger will not result in a
     violation of the Communication's Act or Commission rules, nor will
     it interfere with our implementation of the Communications Act or
     the Commission's policy objectives. Accordingly, we reject
     commenters' requests that we impose conditions related to video
     programming.

### Electronic Programming Guides

205. EPGs are on-screen directories of programming delivered through
     various means, including cable plant, telephone lines, and
     over-the-air broadcast signals. Original-generation EPGs are not
     interactive, but rather continually scroll programming listings.
     These EPGs are generally delivered as discrete video programming
     channels. Newer, interactive EPGs, however, allow users to sort and
     search programming, give program descriptions, provide reminders of
     upcoming programming, and take users to programming they select.
     Interactive EPGs can be transmitted via the Vertical Blanking
     Interval ("VBI")[^502] of analog channels, or may be transmitted as
     standalone digital data streams. The purchasers of EPGs are MVPDs
     such as cable and DBS operators, and, potentially, through set-top
     boxes, individual consumers.[^503] The sellers of EPGs are EPG
     companies.[^504] Gemstar, the current market leader in the
     provision of EPGs, has contracted with AT&T for provision of EPGs
     on AT&T cable systems.[^505] Gemstar also has an agreement with AOL
     to provide electronic program guide functions for AOLTV.[^506]

206. Gemstar argues that, although it has no complaint regarding AOL,
     Time Warner has engaged in anticompetitive conduct by blocking
     subscriber access to Gemstar's Guide Plus+ EPG.[^507] The "Guide
     Plus+" EPG conveys programming information to consumers without a
     monthly service charge and without the need for set top boxes or
     other devices.[^508] According to Gemstar, Guide Plus+ works only
     when the television can receive updated programming information
     transmitted via the vertical blanking interval of local television
     broadcast stations.[^509] Gemstar states that Time Warner strips
     out the EPG data in the VBI, rendering Guide Plus+ useless to many
     potential consumers.[^510] Prior to the start of this proceeding,
     Gemstar filed a petition for special relief with the Commission
     regarding Time Warner's actions.[^511] Gemstar states that it is
     taking the additional step of filing in this proceeding because it
     believes Time Warner's past conduct with respect to Gemstar
     illustrates Time Warner's lack of commitment to open access for
     content, including EPGs.[^512] As a result, Gemstar asks that the
     Commission impose conditions on the merger to ensure that Time
     Warner will keep its systems open to competitive content and
     service providers.[^513]

207. In response to Gemstar's comments, the Applicants state that this
     merger is not the appropriate forum to litigate EPG issues.[^514]
     The Applicants assert that the special relief proceeding initiated
     by Gemstar is the proper place to issue a determination on the EPG
     dispute.[^515]

208. Gemstar has not shown that the merger is likely to create or
     exacerbate competitive harm. Its dispute with Time Warner predates
     the merger announcement. Moreover, Gemstar's arguments are being
     fully considered in the context of its petition for special relief
     asking that Time Warner cease stripping out the Guide Plus+ data,
     and we find that it would be inappropriate to address them
     here.[^516] We therefore decline Gemstar's additional request for
     conditions on the proposed AOL Time Warner merger. Furthermore, we
     note that the Commission has committed to "monitor developments
     with respect to the availability of electronic programming guides
     to determine whether any action is appropriate in the
     future."[^517] Finally, the Commission has requested comment in a
     pending rulemaking proceeding on "whether any rules are necessary
     to ensure fair competition between EPGs controlled by cable
     operators and those that are controlled by broadcasters."[^518]

### Broadcast Signal Carriage Issues

209. The National Association of Broadcasters ("NAB") and other
     broadcast groups are concerned about the impact of the proposed
     merger on Time Warner's carriage of analog and digital television
     signals.[^519] Specifically, NAB urges the Commission to prohibit
     AOL Time Warner from blocking access to any part of a broadcast
     signal that consumers could receive free over-the-air, such as
     electronic program guide information.[^520] NAB also requests that
     the Commission require AOL Time Warner to carry the digital
     broadcast signals of local television stations on its upgraded
     cable systems.[^521] In response, the National Cable Television
     Association ("NCTA") asserts that the issues raised by NAB are not
     merger-specific, but rather apply to all cable operators.[^522]
     Time Warner states that it has negotiated retransmission consent
     agreements providing for carriage of both analog and digital
     signals with each of the four major television networks (ABC, CBS,
     FOX, and NBC).[^523] According to Time Warner, these agreements
     also serve as templates for stations affiliated with, but not owned
     by, any of the four television networks.[^524]

210. The record does not indicate that the merger will create or enhance
     AOL Time Warner's ability or incentive to refuse carriage of
     broadcasters' signals. We cannot conclude, therefore, that the
     merger would create any public interest harm in this regard.
     Moreover, the issues raised by the broadcasters are already under
     consideration in pending Commission proceedings of general
     applicability. The conditional requirements suggested by NAB should
     be addressed in those proceedings, and not within the confines of
     the merger analysis. As NCTA points out, the issues raised by the
     broadcasters affect all cable operators and not only Time Warner.
     We arrived at a similar conclusion in the AT&T-TCI merger,[^525]
     where NAB also requested digital broadcast signal carriage as a
     merger condition. We find no reason to depart from Commission
     precedent in this case. Insofar as NAB's concerns about the
     carriage of all components of the free analog broadcast signal are
     directed at EPG data carried on the broadcaster's VBI, we note that
     this particular matter will be addressed in the Gemstar special
     relief proceeding, where the issues have been fully briefed and
     discussed.[^526] The carriage of digital broadcast signals by Time
     Warner and other cable operators is being considered in a pending
     rulemaking proceeding specifically addressing digital must-carry
     issues.[^527] The conclusions we reach in that docket will, of
     course, apply to Time Warner as well as all other cable operators.
     Accordingly, we reject commenters' requests that we impose remedial
     conditions on AOL Time Warner in this proceeding.

### Cable Horizontal Ownership Rules

211. Commenters assert that AOL's indirect ownership interest in
     DirecTV, coupled with Time Warner's cable holdings, would give the
     merged entity excessive purchasing power in the video programming
     market such that it could harm video programmers and MVPD
     competitors.[^528] We analyze below the potential harm that the
     merger may cause in the video programming market. We examine
     specifically the question whether the merger would violate the
     Commission's cable horizontal ownership rules,[^529] which we
     adopted pursuant to a statutory directive.[^530] We find that AOL's
     ownership interest in GM does not violate our horizontal ownership
     rules or the statute, nor does it frustrate the implementation of
     the Communications Act's goals.

212. In 1999, AOL made a \$1.5 billion investment in General Motors
     Corporation ("GM") in exchange for 2,669,633 shares of a type of GM
     Preference Stock ("Preference Stock").[^531] General Motors
     invested this money in its wholly owned subsidiary, Hughes
     Electronics Corporation ("Hughes"), which in turn wholly owns
     DirecTV, a direct broadcast satellite ("DBS") company that provides
     multichannel video programming to approximately 8.3 million
     consumers nationwide.[^532] Several commenters argue that AOL's
     investment in GM gives AOL the ability to influence DirecTV and
     DirecTV's video programming purchasing decisions.[^533] Given that
     Time Warner is the second largest cable operator in the nation,
     these commenters argue that the proposed merger would increase the
     merged firm's size as a multichannel video distribution provider
     ("MVPD"). Commenters contend that this larger, combined MVPD would
     have excessive purchasing power over suppliers of video
     programming, thereby harming suppliers of video programming and
     MVPD competitors of AOL Time Warner seeking access to the
     programming.[^534] Accordingly, the commenters request that the
     Commission require AOL to divest its interest in GM as a merger
     condition.[^535]

213. In Section 613(f)(1)(A) of the Communication Act, as amended,
     Congress directed the Commission to place limits on a cable
     operator's size.[^536] Congress was concerned that concentration in
     the cable industry could pose "barriers to entry for new
     programmers and a reduction in the number of media voices to
     consumers."[^537] Therefore, Congress directed the Commission to
     establish a horizontal ownership limit that would prevent a large
     cable operator from using its size to harm video programmers and
     MVPD competitors by virtue of its purchasing power.[^538] Pursuant
     to this directive, the Commission promulgated a rule limiting a
     cable operator to 30% of the nation's MVPD subscribers.[^539] The
     30% limit takes into account the ability of a cable operator
     "either because of its size . . . or because of joint actions by a
     group of operators of sufficient size" to unfairly impede the flow
     of programming from the video programmer to the consumer.[^540]

214. The Commission established rules (the "attribution rules") that
     determine whether a cable operator has sufficient influence or
     control over an MVPD such that the MVPD's subscribers should count
     towards the cable operator's 30% limit.[^541] Under these rules,
     AOL's Preference Stock is not attributable because nonvoting equity
     is not attributable unless the nonvoting equity is worth more than
     33% of the total assets of the MVPD, which is not the case
     here.[^542] The only possible attribution rule that could be
     invoked here is one that is triggered when a cable operator holds
     5% or more of the MVPD's voting equity.[^543] However, even if
     AOL's Preference Stock were converted to voting equity, it would
     constitute approximately 1.76% of GM's voting equity, well below
     the 5% voting equity threshold.[^544] Thus, under our attribution
     rules, AOL does not have an interest in GM and its subsidiary
     DirecTV which would *de jure* deem AOL to have influence and
     control over DirecTV and its purchasing decisions.

215. Nevertheless, RCN argues that the Commission should examine the
     totality of the circumstances of the AOL and DirecTV relationship
     to determine whether AOL has the actual ability to influence or
     control DirecTV.[^545] In our order establishing the attribution
     rules, we declined "to examine contract language on a case-by-case
     basis to determine whether the contract gives one of the parties
     thereto an attributable interest."[^546] However, the Commission
     reserved discretion to review unique cases where "there is
     substantial evidence that the combined interests held are so
     extensive that they raise an issue of significant influence."[^547]
     We do not find that this case presents unique facts that would
     merit such a review.

216. RCN argues that AOL's investment in GM has led to a high degree of
     cooperation, including the launch of AOLTV for DirecTV and an
     integrated AOLTV-DirecTV set-top box.[^548] We also note that AOL
     and DirecTV have a number of other contracts relating to DirecTV,
     DirecPC and AOL's ISP services.[^549] Nonetheless, our review of
     these contracts does not reveal that they confer on AOL significant
     influence over DirecTV's video programming activities. Therefore,
     we reject the arguments of commenters that AOL's ownership interest
     in GM will enable the merged firm to harm video program suppliers
     and MVPD competitors seeking access to these suppliers.

## Interactive Television Services 

217. In this section we consider whether the merger will harm consumers
     or competition with respect to the provision of interactive
     television ("ITV") services in Time Warner's cable system service
     areas. Two objectives of the Communications Act appear to be
     relevant to the provision of ITV services. First, the Commission
     has the responsibility to ensure that cable communications provide
     the "widest possible diversity of information sources and services
     to the public."[^550] Second, the Commission is charged with
     ensuring the rapid, private deployment of advanced services.[^551]
     As discussed in our analysis of public interest benefits,[^552] AOL
     and Time Warner bring together assets that could engender a
     successful launch of ITV. AOL is the world's largest aggregator of
     Internet content and interactive services, and Time Warner is the
     nation's second largest cable operator and owner of a significant
     number of the nation's most popular cable programming
     networks.[^553]

218. We examine below whether the merged entity will have the ability
     and the incentive to engage in behavior that would likely cause
     public interest harms with respect to ITV. We find that AOL Time
     Warner would have the potential ability to use its combined control
     of cable system facilities, video programming and the AOLTV service
     to discriminate against unaffiliated video programming networks in
     the provision of ITV services. We also find that AOL Time Warner
     may have incentives to engage in such discriminatory behavior.
     Nevertheless, even if AOL Time Warner were to discriminate, it
     appears that the terms of the FTC Consent Agreement[^554] will, at
     present, substantially address concerns about the availability of
     alternatives for the distribution of unaffiliated video programming
     networks' ITV services. Therefore, we conclude that discrimination
     by the merged entity is not likely to cause a public interest harm
     that warrants denial of the merger or the imposition of conditions
     that do not apply industry-wide. Though we are unpersuaded a case
     has been presented on this record of merger-specific harm, we do
     believe important questions have been raised that warrant further
     examination in a proceeding of general applicability. In the *ITV
     NOI*, we will consider whether industry-wide rules are needed to
     address any impediments to the development of ITV services and
     markets.[^555]

### Background

#### The Components of ITV Service

219. Given the infancy of this market and the limited record before us,
     it would be imprudent to endorse a comprehensive definition of ITV
     services. At present, however, such services appear to include
     EPGs,[^556] content that permits the viewer to interact with the
     video signal ("interactive content"), time shifting, and the
     overlay of communications services (chat, e-mail and instant
     messaging) functionality onto video programming provided by a
     programming network (such as TBS or AMC).[^557] Based on this
     record, it appears that three components[^558] are necessary for
     the delivery of high-speed ITV services to consumers:

220. \(1\) a transmission system (preferably broadband) for the delivery
     of the video signal and interactive content ("transmission
     system"),

221. \(2\) an Internet connection with sufficient bandwidth to provide a
     suitable interactive experience, with limited latency and optimal
     synchroneity ("Internet connection"), and

222. \(3\) a processing capability (*e.g*., a stand-alone set-top box
     ("ITV-STB"), such as those used by WebTV or AOLTV, or a box
     integrated with the cable or DBS set-top box, that can respond to
     interactive triggers, integrate video and enhanced content, and
     display the integrated product on a television screen.[^559]

223. *Transmission System*. It appears that cable facilities provide the
     optimal platform for the delivery of ITV services. The cable
     pipeline can permit interactive content to be delivered to the
     viewer with the video signal, thereby ensuring that the video
     programming and the interactive content achieve a high level of
     synchroneity when blended in the ITV-STB for television viewing.

224. A video programming network may send two types of interactive
     content with its video signal, the so-called "trigger" of
     interactive content and interactive content itself, both of which
     could be based on the ATVEF protocol or any other protocol.[^560]
     The "trigger" can appear as an icon on a viewer's television screen
     and alerts the viewer to the availability of interactive content.
     When a viewer clicks on the trigger, the trigger requests the
     interactive content. When the interactive content is sent with the
     video signal, the trigger causes a compatible ITV set-top box to
     display the interactive content on the television set.[^561]

225. A high level of synchroneity is necessary for certain forms of
     interactivity. For example, synchroneity would be important if
     secondary audio, such as a referee's voice, were to be delivered
     with the video signal to a viewer watching a sporting event. By
     sending the interactive content with the video signal of the
     television program, a cable operator ensures that the ITV set-top
     box is able to blend the television program and the interactive
     content seamlessly, without the level of latency associated with
     interactive content delivered via the Internet.

226. *Internet Connection*. Although synchroneity and latency
     difficulties can be avoided by sending some interactive content
     with the video signal, the amount of interactive content that may
     be delivered with the video signal might be limited by the video
     pipeline's bandwidth or capacity. Under these circumstances, where
     the interactive content requires a large amount of bandwidth (or
     subscriber-specific content), the ATVEF trigger carried with the
     video signal would direct the ITV-STB to obtain interactive content
     from the Internet. However, because the ATVEF (or similar)
     interactive content would be delivered via the Internet and not via
     the video signal, the video programming and the interactive content
     would have a lesser degree of synchroneity. Therefore, a high-speed
     two-way Internet connection, such as a DSL or cable Internet
     connection, appears necessary in order to provide large capacity
     interactive content to the viewer with minimum latency. While a
     narrowband Internet connection, *i.e*., a dial-up telephone
     connection, could enable an interactive experience, it cannot
     currently provide the speed and bandwidth that broadband paths
     would provide.

227. *The ITV Set-Top Box*. An ITV set-top box is the third necessary
     component for ITV services. The ITV set-top box activates
     interactive content sent with the video signal and blends it with
     the video program signal for display on the television set. As
     noted above, an ITV subscriber may also direct the ITV set-top box
     to obtain additional interactive content (from the Internet) that
     is designed to accompany the television program viewed by the
     subscriber.

#### AOLTV

228. AOL offers ITV services via its AOLTV set-top boxes. The AOLTV
     service provides interactive television programming in conjunction
     with video programming to create interactive television channels.
     AOLTV services also currently include an EPG and most features of
     AOL's ISP service, such as limited Web browsing, e-mail, IM, and
     chat. AOL has deployed its AOLTV set-top boxes in several U.S.
     cities, including Phoenix, Sacramento and Baltimore, for sale
     through Circuit City and other retailers.[^562] To receive the
     service, consumers in these cities must purchase an AOLTV set-top
     box and subscribe to AOLTV at a rate of \$14.95 per month for
     current AOL ISP subscribers or \$24.95 per month for AOLTV
     customers that do not subscribe to the AOL ISP service.[^563] The
     subscriber need not purchase the AOL ISP service (or any ISP
     service) in order to receive AOLTV because the interactive set-top
     box interfaces with the Internet directly using standard Internet
     Protocol ("IP").

229. At present, the AOLTV service can be provided to both cable and
     DirecTV subscribers, but utilizes only a narrowband telephone
     connection to the Internet. The current AOLTV box is not integrated
     into a cable or DBS set-top box. Instead, the current AOLTV box
     receives video programming from a separate cable or DBS set-top
     box, and receives two-way narrowband interactive services via a
     telephone line. The AOLTV box then blends the interactive content
     and the video programming for viewing on the subscriber's
     television set. At this time, the interactive triggers, the
     customer's request for interactivity and further interactive
     content are transported to the subscriber's television through the
     AOLTV set-top box's connection to the Internet.

230. AOL intends to upgrade its AOLTV service to a high-speed Internet
     platform, using cable modems, DSL, and DBS.[^564] As a preliminary
     step, AOL may continue to employ a stand-alone ITV-STB that
     connects to a cable or DBS set-top box that contains a high-speed
     cable modem, DSL line, or high speed DBS Internet connection.[^565]
     AOL states that it will complete this upgrade by integrating AOLTV
     functionality into DBS set-top boxes that contain high-speed
     Internet connections.[^566] AOL has had preliminary discussions to
     incorporate its AOLTV software into the Time Warner cable set-top
     box, and AOL and DirecTV have entered into an agreement in which
     Hughes will manufacture a set top box that integrates DirecTV and
     AOLTV.[^567] In addition, the Applicants state that AOLTV will
     incorporate additional features such as personal video recording
     capability and more advanced interactive programming, including
     services that would enable video programmers to use and customize
     AOLTV features such as chat for special television events.[^568]

#### Other ITV Services and ITV Companies

231. ITV services can be offered directly to consumers by the ITV
     service provider (such as AOLTV or WebTV) or through a partnership
     between a transport provider (such as a cable or DBS operator) and
     an ITV provider (such as WorldGate). When ITV services are offered
     directly to consumers, typically consumers must purchase a set-top
     box and then contract with an ITV provider for service. When ITV
     services are offered through partnerships between transport
     providers and ITV providers, often ITV components are integrated
     into the transport provider's set-top box, and the service is
     offered in addition to the transport provider's existing video
     services. These services are then marketed by the transport
     provider as a premium offering supplemental to its existing array
     of services. ITV providers may, in turn, rely on partnerships with
     other vendors for certain components of the ITV product. AOL, for
     example, contracts with Philips Electronics to build its ITV-STB
     and licenses software for the ITV-STB from Liberate.[^569]

232. At this early and fluid stage of the ITV market, there are a
     growing number of firms that now provide or plan to provide ITV
     service. The types of ITV services offered and the business models
     used by these companies vary widely. For purposes of our analysis,
     it is useful to examine a non-exhaustive sampling of existing ITV
     services and business models.

233. *ITV Providers.* Microsoft Corp. has approximately one million
     users subscribing to its WebTV product.[^570] WebTV provides e-mail
     and Internet access, and also enables interactivity with certain
     television programs. At present, WebTV customers must buy a
     separate ITV-STB for use in conjunction with the box of their
     selected MVPD provider, though plans exist to integrate WebTV
     directly into MVPD set-top boxes. For example, EchoStar's Dish
     Network set-top boxes will include WebTV Plus, which will provide
     additional features such as on-line banking, shopping, and video
     programming storage.[^571] In addition, Microsoft, Thompson RCA,
     and DirecTV announced plans to jointly create an integrated set top
     box and service that will combine DirecTV satellite service and a
     new version of WebTV called Ultimate TV.[^572] The Ultimate TV
     product will include personal video recording, picture-in-picture
     viewing and the ability to watch one program while recording
     another.[^573] Microsoft states that it will also offer two-way
     satellite service that allows downloading and uploading as rapidly
     as cable modems or DSL.[^574]

234. As an ITV service provider, Microsoft has also established business
     relationships with several cable MSOs and interactive software
     providers. In 1997, Microsoft purchased an 11.5% interest in
     Comcast Communications,[^575] and in 1999 it entered into an
     agreement to supply the software for 7.5 million of AT&T's planned
     10 million ITV-STBs, although technical trials have since been
     delayed.[^576] Microsoft recently acquired Peach Networks, Ltd.,
     which manufactures software for cable headends that enables more
     advanced programming to run on existing set-top boxes.[^577]
     Microsoft has also entered into a relationship with Wink
     Communications, a provider of interactivity with video programming
     and advertising.[^578] Microsoft recently announced plans to
     incorporate its Microsoft TV software into Whistler, the next
     version of the Windows 2000 operating system.[^579] Under the new
     plan, TV signals and interactive programming would be received via
     a personal computer that runs the Whistler operating system, using
     a television set as the monitor.[^580]

235. WorldGate Communications provides ITV service through a cable
     set-top box,[^581] and offers ITV subscribers access to the
     Internet, e-mail and other interactive services.[^582] WorldGate
     serves homes using the facilities of several cable MVPDs, including
     AT&T, Comcast and Charter Communications.[^583] As of summer 2000,
     15,000 consumers subscribed to the WorldGate ITV service.[^584]

236. *ITV Services Provided by MVPDs.* Cable and satellite MVPDs are
     also positioning themselves to introduce their own ITV services.
     Cox Communications has partnered with Excite@Home to launch a trial
     ITV product in San Diego in late 2000.[^585] The Cox-branded
     service will provide video-on-demand, Web browsing and
     e-mail.[^586] AT&T also plans to offer ITV in partnership with
     Excite@Home.[^587] BellSouth announced in August that it would use
     Liberate to deliver ITV applications to some of its customers in
     the Southeast.[^588]

237. *Other ITV Services.* The Applicants state that TiVo and RePLAY,
     providers of personal video recording service ("PVR"),[^589] Wink
     and RespondTV (e-commerce providers), and EPG provider Gemstar all
     offer elements of ITV service.[^590] We note that AOL holds an
     ownership interest in TiVo, and Time Warner holds an interest in
     RePLAY, another PVR service.[^591]

### Discussion

#### Relevant Markets

238. At a global level, the developing ITV market appears to have two
     broad segments that may constitute separate markets. The first
     segment is ITV programming. The second is ITV distribution and
     retail. The ITV programming segment includes interactive content
     provided by video programming networks to accompany their video
     signals. ITV distribution involves the aggregation of interactive
     video content and other inputs in the provision of ITV
     services.[^592] As discussed in greater detail above, AOL is an
     aggregator and distributor of ITV inputs, and has begun a
     nationwide rollout of its AOLTV product. Time Warner owns cable
     facilities that can be used to deliver advanced ITV services to
     consumers. AOL and Time Warner will become a vertically integrated
     provider of ITV services in Time Warner's cable territories.[^593]

#### Harm to Competition

239. Commenters allege that the merged firm would have the ability to
     discriminate against unaffiliated programming networks.[^594] AOL
     Time Warner could, according to commenters, discriminate against
     unaffiliated video programming networks by denying them access (or
     degrading their access vis-à-vis affiliated video programming
     networks) to one or all three delivery components of ITV: the cable
     video pipeline, the merged entity's ITV-STB, and the cable Internet
     connection.[^595] We recognize the possibility of the alleged harm.
     However, we are of the view that a merger-specific condition is
     unwarranted given the terms of the FTC Consent Agreement and that
     any industry-wide intervention requires (1) a greater examination
     of the potentially conflicting incentives for favoring one's own
     programming to the detriment of competitors, and for offering as
     much interactive programming as possible; and (2) a fuller
     exploration of the technical ability and manner of potential
     discrimination.

240. Disney argues that conditions must be placed on Commission approval
     of the merger[^596] to prevent AOL Time Warner from using its
     control over the cable video pipeline, the ITV-STB, and the
     broadband Internet connection to discriminate against the
     interactive content of unaffiliated video programming networks in
     the following ways:[^597]

-   excluding unaffiliated interactive content and services,[^598]

-   transmitting its affiliated content at faster rates,[^599]

-   manipulating communications between competing content providers and
    customers,

-   limiting unaffiliated ITV services providers from caching data
    locally,[^600]

-   favoring its own content on navigation systems and links (with more
    convenient consumer interfaces for its own content),[^601]

-   building its own links to merchant Internet sites that conflict with
    an unaffiliated video programming network's advertisers,[^602]

-   making unaffiliated video programming less attractive and/or
    accessible to consumers,[^603]

-   imposing charges for each interactive commercial transaction,[^604]

-   restricting an unaffiliated video programming network's advertising
    on interactive channels so that it would not interfere with
    exclusive contracts that AOL Time Warner has with its
    advertisers,[^605] and

-   developing AOLTV controlled interactive advertising that undermines
    unaffiliated content providers' advertising.[^606]

241. The record in this proceeding demonstrates that AOL Time Warner
     intends to integrate the cable set-top box with the AOLTV box and a
     high speed Internet connection and that AOL and Time Warner are
     well aware that control over the set-top box would enable the
     merged firm to favor its own content.[^607] In addition, we agree
     with Dr. Haseltine's findings that AOL Time Warner could use
     equipment at the cable headend in order to discriminate.[^608]
     While AOL and Time Warner do not dispute Disney's allegations that
     they have the technical ability to use the three components -- Time
     Warner's video pipeline and broadband Internet connection and
     AOLTV's set-top box -- in the manner alleged, they argue that they
     have no incentive to do so.[^609] Based on this record, it appears
     that the merged entity would have conflicting incentives.
     Applicants assert that the merged entity has the incentive to carry
     as much interactive programming as possible so that AOLTV will be
     attractive to consumers.[^610] AOL Time Warner states that its AOL
     ITV-STB will activate the ATVEF interactive content of unaffiliated
     video programming networks, without any agreement with or payment
     to AOL, so that AOLTV subscribers may view unaffiliated interactive
     content.[^611]

242. However, the record also contains evidence that AOL has a history
     of negotiating exclusionary deals once it is in its economic
     interest to do so.[^612] AOL may cease its current practice of
     carrying interactive content of unaffiliated programmers without
     AOLTV carriage agreements once it has achieved some level of
     success in the marketplace. We note that if AOLTV becomes
     successful, it may be less dependent on the interactive content of
     unaffiliated video programming networks and therefore may be in a
     position to discriminate against them in the terms, conditions and
     prices for carriage on AOLTV.[^613] At the same time, unaffiliated
     video programming networks will likely become more dependent on
     interactive television commerce revenue. Some analysts predict that
     while video programmers' revenues from traditional advertising will
     decline over the next few years, lost revenue will be replaced by
     new revenue from interactive television commerce.[^614] Moreover,
     AOL and Time Warner have stated that their MOU does not obligate
     them to provide access to the cable broadband platform for ITV
     uses.[^615]

243. We believe that, at the present time, the terms of the FTC Consent
     Agreement will substantially mitigate any potential public interest
     harm that may arise from discrimination by AOL Time Warner with
     regard to ITV content or service. The FTC has ordered that AOL Time
     Warner not discriminate in the transmission and carriage of
     content[^616] that it has agreed to carry, and has forbidden AOL
     Time Warner from blocking or otherwise interfering with interactive
     content transmitted by an unaffiliated ISP.[^617] Thus, it would
     appear that unaffiliated video programming networks could utilize
     alternatives to AOLTV for distribution of their interactive
     content. For example, even if AOL Time Warner refused to carry an
     unaffiliated video programmer's interactive content with its video
     signal,[^618] the video programmer could seek to deliver its
     interactive content via an unaffiliated ISP on AOL Time Warner's
     cable system. Further, the FTC Consent Agreement would prohibit AOL
     Time Warner from blocking subscribers' access to any interactive
     content that is carried on the AOL Time Warner facilities and thus
     would enable subscribers to access such content as part of an ITV
     service provided by an unaffiliated entity.[^619] If unaffiliated
     video networks have alternatives to the video pipeline for the
     provision of competitive interactive services to consumers
     (comparable to a cable-affiliated ITV provider that has access to a
     video pipeline), then AOL Time Warner's refusal to carry
     interactive content with the video signal would not appear to harm
     the public interest. Therefore, in light of the FTC's actions, we
     disagree with Disney that the Commission should impose a merger
     condition with respect to unaffiliated video programming networks
     and interactive content providers that does not apply
     industry-wide.

244. We note that Disney has provided evidence that suggests that
     alternatives to the cable video path may not ultimately provide
     competitive outlets for the provision of ITV services.[^620] We
     find that it is necessary to develop a more complete record in this
     regard to determine whether rules of general applicability are
     needed to promote competition and diversity in the provision of ITV
     services. Our *ITV NOI* will explore further what types of services
     should be defined as ITV, what types of ITV business models will
     prevail, how ITV services will be delivered, and whether there are
     competitive alternatives to a cable operator's affiliated ITV
     provider for the provision of ITV services.[^621]

## Multichannel Video Programming Distribution

245. In this section we examine the merger's potential effects on the
     video services provided by multichannel video programming
     distributors ("MVPDs").[^622] MVPDs include cable operators, direct
     broadcast satellite providers ("DBS"), multichannel multipoint
     distribution services ("MMDS"), and satellite master antenna
     television ("SMATV") providers.[^623] In *AT&T-TCI*, we concluded
     that the relevant geographic market for MVPD service is
     local.[^624] One or more MVPD providers furnish MVPD services in
     local franchise areas. Only one cable operator serves most
     franchise areas. In a limited number of franchise areas, a second
     cable operator (an "overbuilder") or MMDS operator also offers
     service. SMATV providers generally offer service in any setting in
     which a public right-of-way is not crossed, but do not provide
     competition throughout a local franchise area. DBS providers also
     distribute MVPD services and are available nationwide to consumers
     with an unobstructed southern view.

246. Time Warner is the dominant provider of multichannel video
     programming services in those local markets in which it operates
     franchised cable systems. America Online does not directly operate
     any company providing MVPD service, but does have an ownership
     interest in DBS operator DirecTV's corporate parent, Hughes.

247. We examine below specific allegations of harm to MVPDs arising from
     the combination of Time Warner's cable systems with AOL's ownership
     interest in DirecTV, as well as concerns about MVPDs' access to
     Time Warner video programming post-merger.[^625] We conclude that
     the merger will not present any public interest harms affecting
     MVPD services.

### Common Ownership of DBS and Cable MVPDs

248. As discussed in Section IV.C.3 above, AOL paid GM \$1.5 billion for
     2,669,663 shares of non-voting GM Preference Stock that tracks the
     performance of Hughes, GM's wholly owned subsidiary.[^626] If AOL
     converted its GM Preference stock into GM voting equity, AOL would
     hold approximately 1.76% of GM's voting equity.[^627] GM's wholly
     owned subsidiary DirecTV, the nation's largest DBS provider, served
     8.3 million MVPD customers nationwide as of March, 2000.[^628]
     Commenters argue that the merged firm's ownership interests in both
     DirecTV and Time Warner will enable the merged firm to harm
     competition between DBS and cable MVPDs.[^629] Consumers Union
     asserts that the merged firm will harm the ability of DirecTV to
     compete with cable.[^630] Although the Commission does not have a
     rule barring cross-ownership of both a DBS and cable MVPD, RCN
     argues that the Commission has the discretion to address any
     competitive harms caused by such cross-ownership on a case by case
     basis.[^631] Consumers Union and ACA request that the Commission
     order AOL to divest its interest in GM, DirecTV's parent, as a
     condition of the merger.[^632]

249. With respect to the merged firm's ownership interest in GM, we find
     that the proposed merger will not violate the Communications Act or
     any Commission rules, nor will it frustrate the implementation of
     the Communications Act or its goals. We conclude that the merger
     will not result in public interest harms regarding competition
     between DBS and cable.

250. Although legislation introduced in the Senate proposed a cable/DBS
     cross-ownership ban in the 1992 Cable Act, the House and Senate
     Conference decided that it was premature to adopt such a ban at
     that time.[^633] The conferees stated that they expected "the
     Commission to exercise its existing authority to adopt such
     limitations should it be determined that such limitations would
     serve the public interest."[^634] The Commission subsequently
     decided that "its authority to approve transfers of control of
     licenses would enable it to address any competitive concerns raised
     by subsequent proposals by cable affiliated entities to acquire DBS
     spectrum."[^635] In 1998, the Commission initiated a rulemaking
     seeking comment whether the Commission should adopt DBS ownership
     rules, including DBS cross-ownership rules with cable
     operators.[^636] This rulemaking is still pending. In the meantime,
     we examine "specific competition and public interest concerns
     related to DBS ownership on a case-by-case basis."[^637]

251. In this case, we find that the merged entity's indirect interest in
     DirecTV does not rise to the level of ownership that ordinarily
     triggers scrutiny by the Commission. Therefore, we need not examine
     whether the common ownership of both a DBS and a cable MVPD
     provider raises public interest concerns. We agree with the
     Applicants that AOL does not have an interest in DirecTV's parent,
     GM, that confers on AOL the ability to influence or control DirecTV
     such that AOL should be deemed the "owner" of DirecTV for the
     purposes of a DBS/cable competitive analysis.[^638] As noted above,
     the Commission does not have ownership or attribution rules that
     apply to satellite spectrum ownership. Under our various other
     ownership rules, the Commission has generally found that a voting
     equity interest of 5% or more is required to confer influence or
     control on the interest holder in order to deem the interest holder
     an "owner" for purposes of the applicable rule.[^639] As discussed
     above, AOL holds nonvoting equity in DirecTV's parent that, if
     converted, would constitute less than 2% of the voting equity of
     GM. Thus, we would not treat AOL as an owner for purposes of our
     other ownership rules, and the commenters have made no credible
     arguments why AOL's less than 2% voting equity interest should be
     treated differently under these circumstances. Because the record
     does not demonstrate that AOL has the ability to influence or
     control DirecTV, we need not examine further whether this merger
     poses potential harms to competition between DBS and cable.

252. Nevertheless, if the merged firm increases its ownership interest
     in Hughes and/or GM, we reserve discretion to decide whether the
     increased ownership interest poses a threat to DBS/cable
     competition. Accordingly, as a condition of this merger, we will
     require the Applicants to notify the Commission in writing of any
     transactions that increase the Applicants ownership interest in
     Hughes and/or GM, within 30 days of the transaction.[^640]

### Program Access Issues

253. Commenters allege that the merger would harm unaffiliated MVPDs,
     and assert that the Commission should remedy this potential harm by
     expanding the scope and application of its program access rules to
     cover terrestrially delivered video programming and contracts
     between cable operators and unaffiliated programmers.[^641] These
     rules are designed to prevent vertically integrated programming
     suppliers from favoring affiliated cable operators over
     unaffiliated MVPDs in the sale of satellite-delivered programming.
     The record does not support a finding that the merger would enable
     or increase the likelihood of harm to competing MVPDs with respect
     to the sale of video programming. Accordingly, we find it
     unnecessary to impose remedial conditions.

254. The program access rules apply to cable operators and programming
     vendors affiliated with cable operators that deliver video
     programming via satellite to a cable operator.[^642] The Commission
     adopted these rules pursuant to Section 628 of the Communications
     Act,[^643] through which Congress sought to minimize the incentive
     and ability of vertically integrated programming suppliers to favor
     affiliated cable operators over nonaffiliated cable operators or
     other MVPDs in the sale of satellite cable and satellite broadcast
     programming.[^644] Among other restrictions, the rules prohibit any
     cable operator that has an attributable interest[^645] in a
     satellite cable programming vendor from improperly influencing the
     decisions of the vendor with respect to the sale or delivery,
     including prices, terms, and conditions of sale or delivery, of
     satellite cable programming or satellite broadcast programming to
     any unaffiliated MVPD.[^646] The rules also prohibit vertically
     integrated satellite programming distributors from discriminating
     in the prices or terms and conditions of sale of
     satellite-delivered programming to cable operators and other
     MVPDs.[^647] Additionally, cable operators generally are prohibited
     from entering into exclusive distribution arrangements with
     affiliated programming vendors.[^648]

255. RCN contends that Time Warner has "migrated" affiliated programming
     from satellite to terrestrial delivery so that it will not be
     required to give competing MVPDs access to this programming. RCN
     argues that AOL Time Warner's ability to shield terrestrially
     delivered affiliated programming, such as local news or sports
     programming, from the program access rules will substantially
     impair its ability, and that of other MVPDs, to compete.[^649] SBC
     echoes these sentiments in its comments.[^650] RCN also expresses
     concern about the Applicants' potential power as a purchaser of
     video programming, and further suggests that the combined entity's
     forays into interactive TV, and its ownership stake in DirecTV's
     parent Hughes, would exacerbate its market power, allowing it to
     exercise substantial power in the programming marketplace.[^651]
     RCN contends that this power, in turn, might lead unaffiliated
     programmers to discriminate against RCN and other overbuilders by
     offering the Applicants exclusive contracts or preferential
     treatment.

256. To remedy these alleged problems, RCN first proposes a merger
     condition that would require the Applicants to provide programming
     to other MVPD competitors "without reference to its mode of
     delivery."[^652] Similarly, SBC asks that the Commission condition
     the merger on AOL Time Warner's agreement to comply with the
     program access rules, "regardless of the technology used to
     distribute its content at the wholesale level."[^653] Second, RCN
     requests that we require AOL Time Warner to comply with the program
     access rules "without the requirement of vertical
     integration."[^654] Such a condition would prevent the Applicants
     from entering into exclusive arrangements with unaffiliated
     programmers. Digital Access, another cable overbuilder, seeks the
     same condition, based on its inability to obtain sports programming
     from the Midwest Sports Channel, which has an exclusive contract
     with Time Warner Cable in the Milwaukee, Wisconsin market.[^655]
     AOL and Time Warner oppose these conditions, arguing both that the
     proposed conditions are inconsistent with existing statutory
     language, and that they are unrelated to the merger.[^656]

257. There is no record evidence suggesting that the merger would either
     create or enhance the ability or incentive of AOL Time Warner to
     prevent competing MVPDs from gaining access to Time Warner's video
     programming through the migration of such programming from
     satellite to terrestrial delivery.[^657] Thus we cannot conclude
     that competing MVPDs will suffer any harm in this context.
     Accordingly, we decline these commenters' invitation to apply the
     program access rules or equivalent restrictions to terrestrially
     delivered programming distributed by the merged company.[^658] We
     also reject RCN's proposal that we apply our program access rules
     to AOL Time Warner's dealings with unaffiliated programmers. Again,
     there is no evidence suggesting that the merged firm's incentive or
     ability to enter into exclusive contracts with unaffiliated video
     programmers would be greater than Time Warner's current ability to
     do so. While we are cognizant of the harm that exclusive contracts
     can cause overbuilders in local markets, we cannot conclude that
     the merger will harm competing MVPDs seeking to purchase non-Time
     Warner video programming.

## COORDINATION WITH AT&T

258. In this section we consider whether the merger would increase the
     likelihood of coordinated action by AOL Time Warner and AT&T that
     would harm the public interest. We conclude that it would. We have
     already found that the merger would enable AOL Time Warner to
     obtain preferential access on both Time Warner and non-AOL Time
     Warner cable systems to provide AOL's residential high-speed
     Internet access services.[^659] We find that among all non-AOL Time
     Warner cable operators, AT&T, the nation's largest cable operator,
     would be particularly likely to afford preferential access rights
     to AOL as a result of the merger. Because AT&T is the nation's
     largest cable operator, such preferential treatment for AOL would
     exacerbate the harms to competition for residential Internet access
     service that would result from the merger.

259. Although commenters request that in this proceeding we order AT&T's
     structural separation from Time Warner, we need not address this
     issue because AT&T has already elected to divest its interest in
     TWE.[^660] Notwithstanding AT&T's withdrawal from TWE, there still
     exists the possibility of anticompetitive coordination between AT&T
     and AOL Time Warner. We conclude that the adverse effects of
     potential coordination between AT&T and AOL Time Warner as a result
     of the merger would be sufficiently mitigated by a condition that
     prohibits AOL Time Warner from entering into exclusive contracts
     with AT&T for access by AOL Time Warner's affiliated ISPs and that
     further prohibits AOL Time Warner from interfering with AT&T's
     ability to offer other ISPs any rates, terms, or conditions of
     service that AT&T and an ISP find mutually agreeable.

### Background

260. AT&T holds attributable ownership interests in cable systems,
     including its interest in TWE, that serve approximately 51.3% of
     the nation's cable subscribers.[^661] Through Liberty Media Group
     ("Liberty Media") and other holdings, AT&T also is a major supplier
     of video programming.[^662] In addition, AT&T controls Excite@Home,
     the nation's largest broadband ISP.[^663] Excite@Home serves
     approximately 1.15 million subscribers over both AT&T cable systems
     and over cable systems owned by other cable companies.[^664] AT&T
     has an exclusive contract with Excite@Home that expires June
     30, 2002. Once the contract expires, AT&T can choose whether to
     afford other ISPs access to its cable plant in competition with
     Excite@Home, as well as the terms and conditions of such
     access.[^665] On October 25, 2000, AT&T announced that it would
     restructure each of its major units into four separate,
     publicly-held companies traded as a common stock or tracking
     stock.[^666] AT&T Broadband, the unit responsible for broadband
     services, including MVPD, pay TV and high-speed Internet access
     services, will assume ownership of Excite@Home.[^667] AT&T also
     offers local telephone service over its cable systems, and has
     sought to provide local telephone service over other cable systems.
     As a result of its merger with MediaOne, AT&T acquired a 34.67%
     direct interest in Road Runner, the nation's second largest
     broadband ISP, and a 25.5% interest in TWE.[^668] Time Warner owns
     the remaining 74.49% of TWE.

261. TWE owns or operates Time Warner's cable systems, which serve
     approximately 12.7 million, or 18.9% of the nation's cable
     subscribers.[^669] TWE is also a major producer of video
     programming and controls Road Runner.[^670] Time Warner controls
     the day-to-day management of the TWE cable systems and the other
     TWE assets.[^671] AT&T currently has no right to participate in
     day-to-day management of TWE.[^672] According to AT&T, however, its
     ownership interest in TWE does confer rights to vote on specified
     "Participant Matters," and gives it veto power over, among other
     things, any merger involving TWE, the sale or transfer of more than
     ten percent of TWE's assets, the expansion of TWE into new lines of
     business and the transfer or sale of TWE assets.[^673] Time Warner
     enjoys the same voting rights.

262. As a result of its acquisition of MediaOne and MediaOne's interest
     in Road Runner, AT&T presently is subject to a DOJ consent decree.
     In the complaint accompanying the Consent Decree, DOJ alleged that
     the substantial ownership interest AT&T was acquiring in Road
     Runner would facilitate collusion and coordination between
     Excite@Home and Road Runner.[^674] The DOJ Consent Decree therefore
     requires AT&T to divest its interest in Road Runner on or before
     December 31, 2001, restricts AT&T's role in the management and
     governance of Road Runner prior to divestiture, and prevents AT&T
     from entering into certain agreements with Time Warner (and AOL
     Time Warner after the merger) with regard to Residential Broadband
     Service without the approval of DOJ.[^675]

263. On December 18, 2000, AT&T and Time Warner announced that they
     would dissolve the Road Runner joint venture as required by the DOJ
     Consent Decree, turning over operations of Road Runner to Time
     Warner (and America Online after the merger).[^676] The
     restructuring of Road Runner also would end Road Runner exclusivity
     on Time Warner's cable platform, permitting further opportunity for
     consumer choice of ISPs on Time Warner's cable platform.[^677]

264. AT&T is also subject to a "video condition," imposed as a condition
     of the Commission's approval of AT&T's merger with MediaOne, that
     AT&T either: (i) divest its ownership interest in TWE; (ii) divest
     or reduce its interest in Liberty Media and other video programming
     companies such that AT&T terminates its involvement in TWE's video
     programming activities pursuant to the limited partnership
     exemption[^678] and the officers/directors attribution waiver
     provisions of the cable ownership attribution rules; or (iii)
     divest its ownership interest in certain non-TWE cable systems.
     AT&T was required to make an unambiguous election of one of the
     three options by December 15, 2000, six months after the
     consummation of the AT&T-MediaOne merger, and must comply with this
     election by May 19, 2001. We also stated that until AT&T complies
     with the divestiture condition, its participation in TWE is further
     limited by certain other Commission-imposed restrictions. [^679]

265. Pursuant to the *AT&T-MediaOne* *Order*, on December 15, 2000, AT&T
     notified the Commission that it would divest its interest in
     Liberty Media if it obtains a favorable tax ruling,[^680] and that
     otherwise it would divest its interest in TWE.[^681] On December
     18, 2000, the Cable Services Bureau requested clarification of
     AT&T's December 15 letter which, by making the Liberty Media
     divestiture contingent upon a favorable tax ruling, did "not appear
     to make a single election" as required by the *AT&T-MediaOne*
     *Order*.[^682] On December 21, 2000, after considering AT&T's
     response to the Bureau's request for clarification, the Commission
     issued an order ruling that AT&T had not complied with the
     provisions of the *AT&T-MediaOne Order* that required AT&T to
     "unambiguously elect a single compliance option."[^683] In the
     *December 21 Order*, we ruled that it was "AT&T's intent to elect .
     . . the divestiture of TWE . . ." and we determined to "treat
     AT&T's election as choosing that option only."[^684]

### Discussion

266. Several commenters argue that the merger will create what one
     describes as a "sprawling conglomerate of interests"[^685] between
     AT&T and AOL Time Warner that would confer upon the companies the
     ability and incentive to use their combined dominance in the
     Internet access market, and other unspecified product markets, to
     discriminate against unaffiliated companies.[^686] Commenters also
     allege that AOL Time Warner would be able to leverage its power in
     video programming, broadband content and portal services to
     solidify this dominance.[^687] They argue that AT&T's and AOL Time
     Warner's ownership interest in TWE will give AT&T and AOL Time
     Warner the incentive to refrain from competing with each other in
     areas of MVPD, Internet and IM services.[^688] Consumers Union, for
     example, argues that "AOL Time Warner would clearly have the
     incentive to use its leverage to induce AT&T to drop its efforts to
     push for compatibility/interoperability/access to AOL's IM
     customers."[^689] Similarly, Consumers Union believes "AOL could
     use TWE leverage to foreclose rival portals like Yahoo,"
     encouraging AT&T to favor AOL as a portal over rivals, and adds
     that AOL would encourage AT&T to give preferential treatment to AOL
     Time Warner music distribution services.[^690] Next, Consumers
     Union contends that "AOL could use the TWE leverage to impede
     'head-to-head' competition between AT&T and AOL in, for example,
     the provision of interactive television offerings by agreeing to
     common platforms that further their collective interests.[^691] To
     remedy the alleged harms, these commenters ask that we require AOL
     Time Warner to not discriminate against unaffiliated Internet
     access providers, to provide open access to its cable systems for
     unaffiliated ISPs, to sever its cross-ownership ties with AT&T
     through TWE and Time Warner Inc., and to sever all contractual ties
     and joint ventures with AT&T. [^692]

267. We find that the merger increases the likelihood of coordinated
     action by AOL Time Warner and AT&T to discriminate in favor of
     AOL's ISP service. The proposed merger will increase AOL Time
     Warner's incentive and ability to obtain agreements with AT&T to
     favor AOL Time Warner's ISPs to the detriment of AOL Time Warner's
     competitors.[^693] AT&T could give preferential treatment to AOL's
     ISP by refusing carriage to competing ISPs, by providing AOL better
     price or non-price terms of service if AT&T does carry competing
     ISPs, or by limiting the functionalities or features available to
     competing ISPs.[^694] For example, AT&T could, as Consumers Union
     contends, circumscribe the availability of capacity or connection
     points for non-favored ISPs.[^695]

268. Accordingly, because we conclude below that the benefits of the
     merger do not outweigh its harms,[^696] we find it necessary to
     impose remedial conditions that will prevent the potential harm
     arising from possible post-merger coordination between AT&T and AOL
     Time Warner. This conduct remedy, in combination with our
     conditions prohibiting AOL Time Warner from discriminating against
     unaffiliated ISPs on its own cable systems, as well as the
     conditions we imposed in our *AT&T-MediaOne Order,* conditions
     imposed by DOJ in its AT&T-MediaOne Consent Decree, and existing
     antitrust laws, will prevent any public interest harms that might
     arise from coordination between AOL Time Warner and AT&T as a
     result of the merger.

269. We find that other alleged harms that might arise from the
     possibility of coordinated action between AT&T and AOL Time Warner,
     such as coordination in MVPD and video programming services and
     coordination between Excite@Home and Road Runner,[^697] existed
     before the proposed merger, and there is insufficient evidence that
     the merger would increase the likelihood or magnitude of those
     harms. Moreover, those harms have already been addressed by the
     Commission and DOJ in their respective reviews of the AT&T-MediaOne
     merger.[^698] Other harms, such as potential agreements not to
     compete in IM or ITV services, would be addressed by existing
     antitrust laws.[^699] Thus, we do not believe any additional
     remedies are warranted.

270. We find that in three respects the merger will increase the
     likelihood of discrimination by AT&T in favor of AOL.[^700]
     Although we agree with the Applicants that the merger of AOL and
     Time Warner creates no new corporate link between AT&T and Time
     Warner,[^701] we nevertheless conclude that AT&T's existing
     ownership interests in TWE, and its rights afforded over
     "Participant Matters," such as any merger involving TWE, could be
     used as leverage to gain favorable ISP access.[^702] For example,
     in exchange for voting with AT&T on a particular Participant
     Matter, AOL Time Warner could require AT&T to afford AOL
     preferential rights of access to AT&T's cable systems. In addition,
     as AT&T points out, because AOL Time Warner would retain veto
     rights over important TWE partnership decisions, AOL Time Warner
     could wield strategic influence over AT&T and use this power if
     AT&T deviated from any tacit or agreed upon preferential treatment
     for affiliated ISPs.[^703] Thus, although we agree with the
     Applicants that these ownership interests existed pre-merger, we
     are persuaded that these corporate provisions could be used to
     enforce post-merger cooperation.[^704] AT&T's election to divest
     TWE in compliance with the *AT&T-MediaOne* *Order* will, once it is
     effectuated, eliminate this possibility. We note, however, that
     AT&T is not required to divest TWE until May 19, 2001.[^705] Our
     conduct remedy, which prohibits AOL Time Warner from seeking or
     accepting exclusive or preferential treatment from AT&T, will
     eliminate AOL Time Warner's incentive and ability to engage in any
     such conduct before AT&T divests TWE.[^706]

271. Second, AOL Time Warner could delay or otherwise seek to frustrate
     AT&T's plans to sell its interest in TWE in connection with AT&T's
     election to divest TWE.[^707] AT&T states that Time Warner is
     already effectively blocking AT&T's attempts to sell its TWE
     interest by refusing to provide AT&T with financial information
     AT&T deems necessary.[^708] AOL Time Warner could use these or
     other tactics as leverage to gain preferential ISP access rights on
     AT&T's cable systems. Our conduct remedy will prevent this result.

272. Third, since at least February, 1999,[^709] AT&T has sought access
     to Time Warner's cable systems to offer Time Warner's cable
     customers local telephone service, but has so far been unsuccessful
     in its negotiations with Time Warner.[^710] As a result of the
     merger, however, we find that it is more likely that AT&T will
     obtain a telephony deal from the merged firm if it chooses to
     pursue this strategy. The merger will increase the incentive for
     AOL Time Warner to negotiate with AT&T because AT&T holds the key
     to AOL's access to the facilities of the nation's largest cable
     operator.[^711] AOL clearly desires access to AT&T's cable systems
     in order to provide ISP service.[^712] In exchange for giving AT&T
     telephony access to TWE cable systems, an outcome that may in fact
     benefit the public interest, AOL Time Warner could obtain
     preferential treatment for AOL's ISP service on AT&T's cable
     systems, an outcome that would harm the public interest. AT&T's
     divestiture of TWE will not forestall this outcome. Our conduct
     remedy is therefore necessary to prevent it.

273. Under the condition we are adopting to address the potential harm
     described above, AOL Time Warner shall be prohibited from entering
     into any agreement with AT&T that gives AOL or any other AOL Time
     Warner ISP exclusive carriage rights on AT&T's cable systems.
     Further, AOL Time Warner may not enter into any agreement with AT&T
     the purpose of which is to limit in any way AT&T's ability to enter
     agreements with a non-AOL Time Warner ISP.[^713] For example, AOL
     Time Warner may not enter into an agreement with AT&T that would
     give AOL preferential rights to use a particular system resource,
     such that AT&T would not be free to offer the same rights to
     another ISP. AOL Time Warner, through its General Counsel, must
     certify upon the merger's closing and annually thereafter that it
     is in compliance with this condition.

274. In combination with the other conditions we adopt in this Order,
     the conditions we adopted in *AT&T-MediaOne*, the conditions
     adopted by the DOJ in its AT&T-MediaOne Consent Decree, and
     existing antitrust laws, the conduct remedy we adopt here will
     remedy any potential harm that might arise from the merger in the
     form of coordination between AT&T and AOL Time Warner. This conduct
     remedy will address in a direct manner any potential harm due to
     coordination between AT&T and AOL Time Warner that would affect
     competition for high-speed residential Internet access service. We
     conclude that this condition will prevent AOL Time Warner from
     using any leverage it might gain against AT&T as a result of the
     merger to induce AT&T to favor AOL and disfavor other ISPs seeking
     access to AT&T's cable systems. Thus, AOL Time Warner will not be
     permitted to use its control of TWE , or any other merger
     asset,[^714] to induce AT&T to give AOL preferential carriage
     rights as a condition of AOL Time Warner's agreement to vote in
     AT&T's favor on any TWE Participant Matter, to improve any offer to
     purchase AT&T's TWE interest, or to enter a telephony deal with
     AT&T. Nor may AOL Time Warner for any other reason or in any other
     manner enter into any agreement with AT&T that is designed to
     afford AOL preferential access to AT&T's cable systems or to
     otherwise disadvantage AOL's competitors with respect to access to
     AT&T's cable systems. Thus, the condition will also prevent any
     agreements between AOL Time Warner and AT&T that may arise as a
     result of the merger from any unforeseen motivation by AT&T to
     disfavor AOL's competitors.

275. Several commenters requested that we require AT&T and Time Warner
     to sever all corporate and contractual relationships, including
     AT&T's interest in TWE.[^715] Because AT&T recently elected to
     divest TWE, effective May 19, 2001, in compliance with the
     Commission's order in *AT&T-MediaOne*, we need not address this
     issue. AT&T requests that we condition this merger by requiring AOL
     and Time Warner to submit to binding arbitration if AT&T and AOL
     Time Warner fail to reach agreement on the price for AT&T's
     interest in TWE.[^716] AT&T argues that the Commission could
     provide the appropriate incentive to AOL Time Warner to complete
     AT&T's divestiture of the TWE partnership by requiring as a
     condition of its approval of the AOL-Time Warner merger that, in
     the event AT&T and AOL Time Warner fail to reach agreement on the
     price Time Warner will pay for AT&T's interest by a certain date,
     the matter will be submitted to binding arbitration pursuant to a
     customary appraisal process.[^717] AT&T also requests that the
     Commission require that AOL Time Warner enter a "definitive
     agreement to effect disposition of AT&T's TWE interest at the
     arbitrated price, before the compliance date set" in the
     *AT&T-MediaOne Order*.[^718]

276. AT&T contends that the imposition of arbitration requirements also
     would prevent the potential harms to competition that commenters
     have alleged. AT&T claims that "\[i\]f AOL and AT&T were to become
     partners in TWE, their shared ownership and incentives could . . .
     lead to unilateral conduct that would produce the same outcome that
     consumer advocates have suggested would result from joint
     action."[^719] For example, apparently adopting Consumers Union's
     arguments, AT&T states that because of Time Warner's control over
     TWE, Time Warner "could use the TWE leverage to impede competition
     where AOL and AT&T compete 'head-to-head' or plan to do so."[^720]
     For example, AT&T notes that "\[p\]ost-merger AOL could let AT&T
     know that a condition for agreeing to restructure TWE would be for
     AT&T to drop its rival interactive TV platform."[^721] AT&T also
     argues that "AOL would clearly prefer less rather than more
     broadband competition from AT&T and, as a consequence of the merger
     with Time Warner, could gain the means to achieve that goal."[^722]

277. We find it disturbing that AT&T would recite a litany of
     anticompetitive actions it might pursue, including agreements not
     to compete, if the Commission fails to adopt a merger condition
     that would improve AT&T's prospects of obtaining a favorable price
     from Time Warner for the sale of the TWE assets AT&T has elected to
     divest to comply with our order in *AT&T-MediaOne*. We disagree
     with AT&T that the Commission should use this merger proceeding to
     facilitate AT&T's compliance with obligations the Commission
     imposed in a separate merger proceeding.[^723] While we are
     concerned about the possibility that AT&T and AOL Time Warner would
     engage in collusive behavior as a result of this merger, we believe
     our conduct remedy will address any potential public interest harms
     that might arise from conduct that is not otherwise prohibited by
     law or that is not remedied by AT&T's divestiture of TWE pursuant
     to its December 15, 2000 election.[^724]

## Other Potential Public Interest Harms

278. *Protection of Subscriber Privacy.* Congressman Markey notes that
     privacy of personal information is increasingly becoming a concern
     of consumers using the Internet.[^725] He states that cable
     operators, such as Time Warner, have a statutory obligation under
     Section 631 of the Communications Act to protect personal
     information gathered from subscribers.[^726] He further states that
     the obligation applies not just to information obtained through a
     customer's use of a cable service, but to a customer's use of any
     wire or radio communications service provided using any of the
     cable system's facilities.[^727] Congressman Markey asks that we
     assure ourselves that AOL Time Warner will comply with the
     requirements of Section 631 after the merger.[^728]

279. Section 631 of the Communications Act provides that at the time a
     cable operator enters into an agreement to provide any cable
     service "or other service" to a subscriber, and annually
     thereafter, the cable operator shall inform the subscriber of,
     among other items, the nature of personally identifiable
     information the cable operator will be collecting, the nature of
     the use of the information, and the nature and purpose of any
     disclosures of that information.[^729] The statute further provides
     that, with limited exceptions, a cable operator may not use the
     cable system to collect personally identifiable information nor may
     the cable operator disclose personally identifiable information
     without the prior written or electronic consent of the
     subscriber.[^730] As Congressman Markey notes, the statute defines
     "other service" to include any wire or radio communication service
     provided using any of the facilities of a cable operator that are
     used in the provision of cable service.

280. We agree with Congressman Markey that consumers have become
     increasingly concerned about the unauthorized use and disclosure of
     personal information gathered about them, especially with regard to
     information collected while they are using the Internet. By
     enacting Section 631, Congress directed cable operators, including
     affiliates,[^731] to protect the privacy of their subscribers.
     Although Section 631's terms are enforced by the courts, and not by
     the Commission,[^732] AOL Time Warner's future compliance with
     Section 631 is part of our examination of AOL Time Warner's
     qualifications to control the licenses at issue.[^733] Accordingly,
     as a condition of our approval, we require AOL Time Warner, by its
     General Counsel, to certify to the Commission, by filing a copy of
     the certification with the Secretary's Office, on the merger's
     closing and annually thereafter, that AOL Time Warner is and will
     remain in compliance with Section 631 of the Communications Act.

281. *Premature Control by AOL.* RCN Telecom Services, Inc. ("RCN")
     requests that we delay approval of the merger to investigate
     whether AOL had assumed premature control of Time Warner.[^734]
     RCN\'s request is based on a Washington Post article that reported
     that a senior AOL official had begun the process of \"knitting
     together\" AOL and Time Warner. AOL responds that RCN offers no
     evidence that an AOL official has assumed control over Time
     Warner\'s daily operations or policy determinations, or that an AOL
     official or any other AOL employee in any way dominates the
     management of Time Warner\'s corporate affairs and licensed
     facilities.[^735] Rather, according to AOL, an AOL senior official
     \"simply has participated, along with other AOL and Time Warner
     officials, in the parties\' collective efforts \-- wholly
     consistent with applicable law \-- to achieve a smooth integration
     of the two companies after closing.\"[^736] We find that the record
     is devoid of specific allegations of fact that establish a prima
     facie case of de facto transfer of control that would warrant
     delaying our approval of the merger with conditions or initiating
     an investigation. We therefore deny RCN's request.

# ANalysis of potential public interest benefits

282. In addition to assessing the potential public interest harms of
     this merger, we must consider whether the merger will produce
     public interest benefits.[^737] The proposed transaction is deemed
     in the public interest if the identifiable potential public
     interest benefits outweigh any potential public interest
     harms.[^738]

283. Our analysis of public interest benefits focuses on demonstrable
     and verifiable benefits to consumers that could not be achieved but
     for the merger.[^739] Merger-specific benefits may include
     beneficial conditions either proffered by the Applicants or imposed
     by the Commission.[^740] At a minimum, our public interest test
     requires that the merger not interfere with the objectives of the
     Communications Act.[^741]

284. We find that the Applicants have demonstrated that the merger will
     result in benefits, but the nature and degree of these benefits are
     not sufficient to outweigh the potential harms that would result
     from the merger absent conditions. The conditions we impose, in
     conjunction with those imposed by the FTC Consent Agreement, will
     mitigate the potential harms, and allow us to conclude that, on
     balance, the benefits will outweigh any remaining potential harms.

285. The Applicants claim the merger will produce affirmative public
     interest benefits in the following four areas:

-   access by unaffiliated ISPs to cable broadband networks ("cable
    access");[^742]

-   accelerated deployment of broadband content and broadband
    technologies;[^743]

-   accelerated transformation of traditional media products to digital
    platforms;[^744] and

-   expedited development and deployment of new service offerings, some
    of which, the parties maintain, are yet to be developed.[^745]

286. The Applicants have produced limited third-party documentation
     supporting these claims of affirmative public interest
     benefits.[^746] For the most part, the Applicants have provided
     narrative descriptions and affidavits from business persons
     explaining the synergies likely to result from joining these two
     companies and the merged company's potential to provide affirmative
     public interest benefits.[^747] The evidence offered by the
     Applicants is described below. Our findings follow.

## The Evidence

287. *Cable Access.* As evidence of their commitment to a marketplace
     solution to cable access, the Applicants have submitted a
     Memorandum of Understanding ("MOU") between AOL and Time
     Warner.[^748] As described in more detail in Section IV.A., above,
     the MOU provides that multiple ISPs would be permitted to serve
     consumers over Time Warner cable systems without consumers having
     to also purchase AOL Time Warner ISP services.[^749] In addition,
     the MOU provides that there will be no fixed limit on the number of
     unaffiliated ISPs selected by Time Warner cable systems (except as
     mandated by technical limitations),[^750] and that AOL and Time
     Warner will consider ISPs of national, regional, and local
     scope.[^751]

288. The Applicants assert that their MOU represents a shift within the
     industry towards a marketplace solution to cable access.[^752] The
     Applicants believe the MOU is significant not only because
     compliance with its terms will bring choice to consumers where none
     existed before, but also because it creates momentum for similar
     action throughout the cable industry.[^753] The Applicants cite
     Wall Street financial analysts that agree the MOU will encourage
     other major cable operators to open their networks to unaffiliated
     ISPs.[^754]

289. *Accelerated Deployment of Broadband Technologies and Content.* The
     Applicants claim that the merger will accelerate the deployment of
     cable and alternative broadband technologies, as well as the
     development of broadband content. The Applicants assert that the
     development of broadband content and conduit are mutually
     reinforcing occurrences. They state that many potential content
     providers have hesitated to roll out broadband applications in the
     absence of assurance that a platform for their services would be
     available, while facilities providers have been similarly skeptical
     about the advantages of investing in broadband technology prior to
     the development of broadband content.[^755]

290. The Applicants assert that the merger will accelerate the
     deployment of broadband technologies by several years.[^756] First,
     the Applicants contend that the merger is likely to accelerate the
     pace of deployment of Time Warner's cable broadband Internet access
     services.[^757] Time Warner submits that rolling out high-speed
     Internet services is more complex and requires a greater
     undertaking than the roll-out of other new services.[^758] They
     believe that the merger will result in the deployment of more
     resources for marketing and consumer connection functions, thus
     hastening the ability of consumers to obtain high-speed Internet
     service.[^759] As evidence, the Applicants have provided the
     Commission with confidential pre-and post-merger facilities
     deployment plans for Time Warner and information regarding
     potential operating synergies for both parties.[^760] As further
     evidence, the Applicants note that the financial community believes
     the merger will accelerate cable broadband Internet access
     deployment.[^761]

291. Second, the Applicants assert that the merger will serve to
     accelerate deployment of alternative broadband technologies. The
     Applicants note that AOL, in keeping with its "AOL Anywhere"
     business strategy, has sought, and will continue to seek, a
     nationwide footprint for its ISP services, utilizing multiple
     broadband technologies.[^762] AOL asserts that to maximize
     revenues, it must continue to pursue as many broadband delivery
     options as possible to reach every potential customer, both within
     and outside Time Warner's local cable franchise areas.[^763] As
     evidence of its commitment to further the development of a wide
     range of broadband technologies, AOL points to its \$1.5 billion
     investment in Hughes parent GM, and its numerous deals with DSL and
     wireless equipment manufacturers.[^764] AOL does not claim that the
     merger is the only way to accomplish the goals of AOL Anywhere.
     However, AOL does indicate that after the merger, AOL will continue
     to pursue its AOL Anywhere strategy and that Time Warner will
     enable AOL to further these goals. Neither AOL nor Time Warner
     provide concrete examples of how the merger will serve to assist
     AOL in its AOL Anywhere strategy other than to say that a merger
     between Time Warner and AOL will enable AOL to provide its ISP
     service over cable.[^765] AOL claims that this is particularly
     significant because prior to the proposed merger, AOL had been
     unable to strike an agreement with any cable operator.[^766]

292. AOL also asserts that its commitment to the cable broadband
     platform in and of itself will spur development of competing
     platforms.[^767] AOL asserts that the Commission itself has
     recognized this pattern, "understanding that competition among
     rival technologies is one of the primary focuses that drives
     deployment of broadband services."[^768]

293. Finally, the Applicants argue that their commitment to maximizing
     diversity of content and consumer choice on the Internet will
     further promote deployment of broadband conduit and vice
     versa.[^769] The Applicants state that it is well understood that
     consumer interest in innovative and enticing online offerings will
     inevitably have a direct positive impact on broadband penetration
     and deployment across platforms.[^770] They state that they intend
     to provide their customers the broadest possible array of appealing
     content, regardless of the source.[^771] Furthermore, the
     Applicants argue that the merged entity's introduction of widely
     appealing broadband offerings will motivate providers of other
     broadband technologies and services to deploy and market their own
     content and services more widely in order to compete with the
     merged entity.[^772]

294. *Accelerated Transition of Traditional Media Products to Digital
     Platforms.* The Applicants contend that the merged entity will
     accelerate the transition of established media offerings to digital
     platforms.[^773] In their filings with the SEC, the Applicants note
     that one factor motivating the merger is the existence of "cost
     efficiencies in launching and operating interactive extensions of
     Time Warner brands."[^774] They claim that the merged company will
     bring together experience, incentives, and resources that can help
     lead the integration of traditional media with online interactive
     media.[^775] As evidence, the Applicants cite financial analyst
     reports asserting that the merged entity can quickly respond to and
     inspire "rapidly morphing user habits as users reexamine their
     daily activities through 'Internet-enabled glasses."[^776]

295. *Accelerated Deployment of New Services*: The Applicants claim that
     a major benefit of the merger will be the merged entity's ability
     to develop and promote new interactive services. They maintain that
     this combination of complementary assets will create "the first
     company prepared to compete on the Internet," due to the lowered
     risk to the combined companies in deploying new products and
     services as well as increased operating efficiencies and
     complementary expertise.[^777] New services to be offered include
     developing services such as video-on-demand, interactive
     television, video streaming, online music distribution and
     purchasing, IP telephony, and numerous yet-to-be developed
     services.[^778] The Applicants state that while detailed business
     plans have not been finalized, plans are being developed in light
     of the merged entity's coordinated strengths and potential to offer
     such services.[^779]

296. As evidence, the Applicants cite to financial community reports,
     stating that the merged company will be "well positioned to pursue
     and expedite personalized jukeboxes, news clipping services, voice
     activated web surfing, Internet enabled voice communications,
     downloadable music, personalized video services, and virtual
     communities centered around off-line magazines."[^780] In addition,
     the same analyst notes that "the new company will be
     well-positioned to define and create yet-to-be imagined new
     businesses which \[will\] evolve as technologies are introduced and
     as the Internet continues to develop."[^781]

297. As evidence of the merger's ability to hasten the online music
     revolution, Applicants cite to financial analyst and trade press
     recognition of the merged entity's ability and expertise.[^782]
     While the Recording Industry Association of America ("RIAA") did
     not file comments in this proceeding, Applicants cite to a public
     statement made by RIAA President Hilary Rosen that the merger
     "brings together a tremendous wealth of music assets and a group of
     people who have mastered the art of making things simple on the
     Internet."[^783] One financial analyst states, "AOL Time Warner is
     poised to have a substantial, positive effect on overcoming the
     technical and financial complexity that has hindered the
     development of downloadable music." [^784]

298. In addition, the Applicants state that the unique combination of
     AOL and Time Warner assets could permit the merged firm to create a
     successful, robust ITV product where others have failed. According
     to the Applicants, "with the merger's promotion of competitive
     broadband development, the prospects for an enhanced,
     next-generation AOLTV that could even more seamlessly and robustly
     integrate Internet and video services become more
     foreseeable."[^785] The Applicants state that a "merged AOL Time
     Warner will be able to significantly enhance the just-launched
     AOLTV service and thereby turbo-charge an entire industry" and that
     "\[t\]he new company can work to develop all facets of interactive
     television---including both the platform and new interactive
     content applications---with a breadth of common purpose unlikely to
     be matched even in the best joint venture."[^786]

299. As evidence, the Applicants quote several industry analysts
     addressing AOL's expertise in the provisioning of Internet access
     services, and Time Warner's expertise in developing and
     distributing content, including a report stating that "one of the
     strengths of the combined entity will be its ability to develop and
     promote new interactive services."[^787] Another analyst asserts
     that "\[a\]s the interrelationship between and the evolution of new
     media and old media is established in the form of AOLTV, we believe
     the wisdom of merging AOL and Time Warner will become increasingly
     evident and obvious."[^788] The Applicants further note that at
     least one analyst agrees that the merged entity "is in a better
     position than either entity separately to drive the revolution of
     interactive services to the next level -- breaking the convergence
     logjams that, in many sectors of the media and communications
     industries, are inhibiting growth of the medium."[^789]

300. *Merger vs. Joint Ventures.* The Applicants contend that joint
     venture agreements and other contractual arrangements would not
     produce the same efficiencies as will the merger. The Applicants
     claim that a joint venture would be much less efficient than full
     integration and maintain that it is impractical and unprecedented
     for the parties to try to negotiate a series of joint ventures to
     cover the far-reaching scope of this merger.[^790]

301. *Commenters' Position on Merger Benefits.* According to the
     Applicants, commenters do not dispute that the merger will hasten
     the development of new broadband services,[^791] and furthermore,
     some commenters concede that the merger provides "social
     benefits."[^792]

302. A review of the record reveals that while several commenters find
     certain public interest benefits possible, most believe these
     benefits would result only if the Commission conditions its
     approval of the license transfers on specific requirements. For
     example, Memphis Networx does not request a denial of the merger,
     but believes the Commission should require that the Applicants
     commit to taking a neutral stance with respect to the entry of
     facilities-based network providers in Time Warner service
     areas.[^793] Such commitments, they say, would provide concrete
     support for a Commission finding that the proposed merger is
     consistent with the public interest.[^794] In its initial comments,
     ACA expressed concern that the merged entity would require small
     cable operators to carry AOL service in order to receive Time
     Warner programming.[^795] In its reply comments, ACA sought a
     commitment from the Applicants that they would not engage in such
     tactics, while at the same time recognizing the potential of the
     merger to create "boundless opportunities for new consumer
     services."[^796] After Time Warner representatives stated, at the
     Commission's en banc hearing in this proceeding, that the merged
     entity would not tie or condition access to its programming on
     carriage of AOL service, ACA released a statement voicing its
     support for the merger.[^797] BellSouth asserts that
     notwithstanding the anticompetitive potential, the merger could
     advance the public interest, provided the Commission implements
     certain safeguards.[^798] Finally, Sinclair Broadcasting argues
     that the merger has the potential to promote the development and
     delivery of new products and services, but not without the
     appropriate safeguards.[^799]

## Discussion

303. *Cable Access.* The Applicants\' MOU represents a commendable
     commitment to the principle of multiple access and offers a
     starting point from which a marketplace solution can proceed.[^800]
     The Applicants have offered evidence that in the wake of their MOU,
     other cable operators are considering allowing multiple ISPs to
     provide service over their systems.[^801] Nevertheless, as
     discussed in Section IV.A., *supra*, the MOU is not sufficient to
     avert the merger's potential deleterious effects. Moreover, we are
     not convinced that the MOU alone will induce other cable operators
     to open their networks in a manner that would meaningfully benefit
     the market for high-speed Internet services. The Applicants admit
     that there are significant details surrounding the implementation
     of a multiple ISP approach that are unresolved.[^802] Although the
     FTC's Consent Agreement substantially mitigates these harms, we
     remain concerned that the merged firm could indirectly disadvantage
     unaffiliated ISPs, especially, local and regional ISPs, through
     means that are not squarely addressed by the Consent Agreement.
     Thus, while the terms of the Consent Agreement would clearly
     enhance the merger's potential public interest benefits, we cannot
     conclude that the merger will result in unqualified public interest
     benefits with respect to the provision of Internet access by
     multiple ISPs over cable facilities without imposing the conditions
     set forth in Section IV.A., *supra.*.

304. *Accelerated Deployment of Broadband Technologies and Content.* We
     recognize that AOL currently has many agreements with non-cable
     broadband service providers. For example, AOL currently has
     non-exclusive strategic alliances with DSL providers SBC (including
     SBC-owned Ameritech), and with both components of the newly formed
     Verizon Communications, Bell Atlantic and GTE.[^803] While AOL
     could, on its own, pursue a strategy of "AOL Anywhere," by
     independently advancing subscription to all broadband technologies,
     AOL's acquisition of Time Warner may aid Time Warner in the rollout
     of its high-speed Internet service offering by enabling Time Warner
     to more rapidly assemble the inputs it needs to increase the rate
     of deployment.[^804] However, because Time Warner already offers
     high-speed Internet access in a significant number of its franchise
     areas, this presents only a modest potential public interest
     benefit.

305. To the extent that AOL's investment in cable broadband stimulates
     outside investment in alternative technologies, we acknowledge the
     potential for the merger to provide consumers the added benefit of
     expedited broadband rollout generally. Financial analysts agree
     that investment in one broadband technology tends to stimulate
     investment in competing technologies.[^805] The Cable Services
     Bureau has also recognized this fact. At the request of the
     Commission Chairman, the Cable Services Bureau convened a series of
     meetings in 1999 to study the state of the broadband industry and
     identify any potential market failures. In its Report to the
     Chairman, the Bureau found that there was little disagreement among
     the panelists that cable investment inherently spurs investment in
     DSL and vice versa.[^806] However, it is impossible for us to
     predict the magnitude of the potential impact.

306. Finally, to the extent that the merger advances alternative
     broadband technologies and thus broadband deployment generally, we
     would expect such a result to stimulate the development of
     broadband content. However, we cannot conclude that the merger will
     advance the quantity and quality of broadband content because, as
     we indicate in section IV.A. above, the merger itself threatens to
     reduce competition among high-speed ISPs.[^807]

307. *Accelerated Transformation of Traditional Media Products to
     Digital Platforms.* We find that the merged entity will have the
     resources to implement its proposed plan for accelerating the
     transformation of traditional media products to digital platforms.
     AOL has proven successful at making online content appealing to
     consumers, especially those who are not computer experts. Time
     Warner, on the other hand, has been relatively unsuccessful at
     migrating its traditional media products to digital platforms. For
     example, Pathfinder was Time Warner's attempt to aggregate its name
     brand content into one, convenient Web portal. However, Time Warner
     later abandoned Pathfinder in hopes of finding a better strategy to
     market its traditional media products.[^808] Similarly, Time Warner
     attempted in 1994 to launch an interactive television service
     called "Full Service Network" in Orlando, Florida. Because Full
     Service Network was too costly to maintain, Time Warner abandoned
     the project.[^809] Given the histories of each of these companies
     independently, we find that the addition of AOL's expertise in
     making content commercially acceptable to consumers over the
     Internet could very well advance the migration of Time Warner's
     name brand content to digital interactive platforms.

308. *Accelerated Deployment of New Services.* While we have no reason
     to doubt that the Applicants have every economic incentive to
     provide consumers with a wide array of new services, we also have
     no way of determining the level to which consumers will benefit in
     this regard because consumers have not yet had the opportunity to
     express demand for as-yet-unavailable products. In particular, we
     recognize the potential for the merged firm to expedite Time
     Warner's deployment of IP telephony and to allow Internet video
     streaming. With respect to IP telephony, we believe that Time
     Warner's technologically advanced cable systems and AOL's expertise
     in Internet-based applications, as well as AOL's investment in IP
     telephony provider Net2Phone, together provide promise for this
     developing technology.[^810] With respect to Internet video
     streaming, we recognize that the Applicants have pledged to allow
     unaffiliated ISPs to "provide video streaming" to consumers over
     Time Warner cable systems.[^811] Our assessment of these benefits
     is tempered, however, by the prospect that AOL's network effects
     advantage in the IM market will position the merged firm to
     foreclose competition, and thereby diminish innovation and consumer
     choice, with respect to real-time, interactive broadband services
     that rely on NPDs.[^812] Thus, while we believe the merger would
     stimulate the development of such services and thereby produce some
     public interest benefit, we cannot conclude that it would stimulate
     competition or innovation with respect to such services.

309. We also recognize the potential for the merger to advance the
     deployment of new services such as online music distribution, ITV,
     and video-on-demand. For example, as we noted earlier, AOL and Time
     Warner bring together significant assets that the merged firm could
     use to launch a successful interactive television product.[^813]
     The Applicants' unique combination of assets presents the
     possibility that the merged firm will successfully deploy a more
     comprehensive and highly-advanced ITV product to consumers than was
     offered in the past. The cable broadband platform in particular may
     offer ITV providers and consumers advantages over its DSL and
     satellite distribution networks.[^814] AOLTV delivered over Time
     Warner's cable broadband pipeline could serve to ensure the success
     of a new generation of ITV services. Against a backdrop of limited
     ITV success, the deployment of this new product, if successful,
     could further the statutory goal of promoting the deployment of
     advanced services.[^815] Moreover, provided the merged firm does
     not limit its distribution of unaffiliated interactive content for
     the purpose of favoring its own content, AOLTV could also benefit
     the public by giving viewers access to a greater diversity of
     information services.[^816] While the parties could most certainly
     develop ITV and other new products on their own, the combination of
     differing areas of expertise and the diminished risks associated
     with a more broad-based merged entity will potentially allow these
     products to be more fully developed, and may allow ITV to reach the
     market sooner than would otherwise occur.

310. *Merger vs. Joint Ventures.* Having found that the combination of
     AOL's and Time Warner's assets will offer some public interest
     benefits, we next consider whether those benefits could be achieved
     through a series of joint ventures or other contractual
     arrangements. The Applicants enumerate, and we recognize, the
     difficulties involved in establishing a series of joint ventures to
     accomplish a diverse set of goals. Because the intent underlying
     the merger is not to develop or deploy a single product or service,
     we agree that it would be difficult for the parties to successfully
     negotiate a series of contracts or joint venture arrangements that
     would account for the series of multimedia ventures contemplated by
     the transaction. We agree with the Applicants that negotiating
     individual joint venture agreements for each separate endeavor
     would involve delays and inefficiencies inherent in establishing
     the formal relationship necessitated by agreements among
     independent, publicly traded companies. As we noted in
     *AT&T-MediaOne*: "the services to be covered by \[a series of\]
     joint venture\[s\], in light of dynamic and rapidly evolving
     technology and market developments, would make 'arms-length
     negotiations arduous.'"[^817] We also note here that AOL's merger
     with Time Warner will create an alignment of the parties' economic
     interests that will reduce the areas of friction between the two
     companies and facilitate the development of new services.[^818]

311. We agree with the Applicants that "because there is no way to
     predict precisely what technologies and services will develop and
     be demanded by consumers in the future, it would be difficult, if
     not impossible to forecast the appropriate parameters of a limited
     contractual relationship."[^819] Furthermore, we agree that AOL and
     Time Warner offer complementary strengths. For example, we note
     that Time Warner's Pathfinder portal, which aggregated the
     company's numerous popular content brands, failed to achieve
     widespread commercial success. Time Warner's attempt to establish
     interactive television services was similarly unsuccessful.
     Conversely, we observe that AOL has unique expertise in content
     distribution, as evidenced by its successful distribution of its
     AOL ISP.

312. Finally, we agree with the Applicants that a merged entity with the
     resources of AOL and Time Warner would be able to take on
     substantial additional risk in the development and rollout of new
     services. AOL states that "a merger offer\[s\] the only way for AOL
     and Time Warner to fully integrate their operations and allow the
     merged entity to set aside considerations concerning individual
     lines of business to concentrate on the good of the whole."[^820]

313. *Conclusion.* We recognize that were they not to merge, AOL and
     Time Warner acting independently or in contractual arrangements
     with each other or other service providers could likely achieve
     some of the same public benefits promised by the merger. We are not
     persuaded that the proposed merger is the only means to assure
     advancement of these benefits. Nevertheless, we recognize that this
     merger has the potential to further several of the Commission's
     goals and therefore produce some public interest benefits. Among
     them are the deployment of a wide range of broadband technologies
     to all consumers. As described above, we believe this merger allows
     for the direct stimulation of the cable broadband market and the
     probable indirect stimulation of investment in alternative
     broadband technologies. While it is impossible for us to predict
     the magnitude of the potential benefit the merger may bring to the
     deployment of alternative broadband platforms, we acknowledge that
     the merged entity will to some extent allow Time Warner to more
     rapidly complete its rollout of high-speed services, and in turn
     encourage competitors to do the same. We also recognize that the
     Applicants' MOU and the FTC Consent Agreement have given the
     industry a starting point by which to discuss the meaningful
     advancement of multiple ISP access. Additionally, we believe that
     the merger will accelerate the transformation of traditional media
     products to digital platforms, aiding the development of advanced
     services.

314. These potential public interest benefits, however, do not outweigh
     the serious potential public interest harms we have identified
     above. For example, while the merger may well stimulate the
     development and deployment of new services, if the merger in fact
     diminishes competition and consumer choice with respect to advanced
     "IM-based" services and residential high-speed Internet access
     service, as we predict, then the merger's potential stimulation of
     the development of new services will not guarantee that consumers
     will benefit from innovation, price competition, or diversity of
     choices with respect to these services. Finally, these potential
     harms threaten to diminish consumers' access to the widest possible
     array of information and information sources.

315. Accordingly, we find it necessary to impose remedial conditions to
     mitigate the merger's potential harms and in order to ensure that
     consumers enjoy the benefits the merger promises to offer. The
     conditions we are imposing to mitigate the merger's potential harms
     enable us to conclude that, on balance, the potential public
     interest benefits offered by the merger will outweigh the merger's
     potential public interest harms.

# CONCLUSION

316. Given the conditions we are imposing to mitigate the merger's
     potential harms, together with the conditions imposed by the FTC in
     its Consent Agreement and Order To Hold Separate, we conclude that,
     on balance, the potential public benefits offered by the merger
     outweigh any harms that would not be remedied by these conditions.
     Accordingly, we find that approval of the license transfer
     applications subject to the conditions discussed herein will serve
     the public interest, convenience, and necessity.

# ORDERING CLAUSES

317. Accordingly, having reviewed the Application and the record in this
     matter, IT IS ORDERED, 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),
     that the Application filed by America Online, Inc. and Time Warner
     Inc., Inc. IS GRANTED subject to the conditions stated below.[^821]

318. IT IS FURTHER ORDERED, 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),
     that the above grant shall include authority for AOL Time Warner
     Inc. 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.

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319. IT IS FURTHER ORDERED that 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").

320. IT IS FURTHER ORDERED that AOL Time Warner shall 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 shall 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[^822]
     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 shall not prohibit ISPs
     from marketing their services to AOL Time Warner cable
     customers.[^823]

321. IT IS FURTHER ORDERED that AOL Time Warner shall permit each
     Participating ISP to determine the contents of its subscribers'
     first screen[^824] and shall 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 shall 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.

322. IT IS FURTHER ORDERED that AOL Time Warner shall 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 shall not
     require any ISP to purchase this service as a condition of
     obtaining access.

323. IT IS FURTHER ORDERED that 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 shall provide them in a manner that does not
     discriminate in favor of AOL Time Warner's affiliated ISPs on the
     basis of affiliation.

324. IT IS FURTHER ORDERED that AOL Time Warner shall 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.

325. IT IS FURTHER ORDERED that complaints or petitions regarding
     conditions regarding high-speed Internet services shall be filed
     and adjudicated pursuant to the provisions of Section IV.A of this
     *Order*.

326. IT IS FURTHER ORDERED that AOL Time Warner[^825] shall not offer an
     AIHS application that includes the transmission and reception,
     utilizing an NPD over the Internet Protocol path of AOL Time Warner
     broadband facilities, of one- or two-way streaming video
     communication using IM protocols -- including live images, tape or
     animation -- that are new features, functions, and enhancements
     beyond those offered in AIM 4.3 or ICQ 2000b,[^826] until AOL Time
     Warner satisfies one of three options (the "IM condition").[^827]
     The three options are: (1) AOL Time Warner may show that it has
     implemented a standard for server-to-server interoperability of
     NPD-based services that has been promulgated by the IETF or a
     widely recognized standard-setting body; (2) AOL may show that it
     has entered into a written contract providing for server-to-server
     interoperability with a significant, unaffiliated, actual or
     potential competing provider of NPD-based services offered to the
     public; after AOL Time Warner has entered this contract, an officer
     of AOL Time Warner shall certify to the Commission that it is
     prepared to promptly enter into negotiations, in good faith, with
     any other requesting provider of NPD-based services; within 180
     days after entering this first contract, AOL Time Warner must enter
     two additional contracts with significant, unaffiliated, actual or
     potential competing providers of NPD-based services offered to the
     public; (3) AOL Time Warner may seek relief from this condition by
     showing that the imposition of the condition no longer serves the
     public interest, convenience or necessity because there has been a
     material change in circumstance.

327. IT IS FURTHER ORDERED that if AOL Time Warner seeks relief from the
     IM condition pursuant to one of the three options listed in the
     preceding paragraph, it shall submit a petition to the Commission
     seeking findings and conclusions that one of the three options has
     been met.[^828] 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. If the
     Commission finds that one of the three options has been met, then
     AOL Time Warner may offer video AIHS services.

328. IT IS FURTHER ORDERED that AOL Time Warner shall file a progress
     report with the Commission, 180 days after the release of this
     *Order* and every 180 days thereafter, describing in technical
     depth, the actions it has taken to achieve interoperability of its
     IM offerings and others' offerings. Such reports will be placed on
     public notice for comment.

329. IT IS FURTHER ORDERED that complaints or petitions regarding the IM
     condition shall be filed and adjudicated pursuant to the provisions
     of Section IV.B of this *Order*.

330. IT IS FURTHER ORDERED that five (5) years after the date of release
     of this *Order*, the condition set forth in the preceding
     paragraphs 325 through 328 shall expire and shall not restrain AOL
     Time Warner from offering video AIHS.

331. IT IS FURTHER 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, no later than 30 days after
     the transaction.

332. IT IS FURTHER ORDERED that AOL Time Warner shall be prohibited from
     entering into any agreement with AT&T Corp., 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.

333. IT IS FURTHER ORDERED that 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.

334. IT IS FURTHER ORDERED that 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
     provisions in paragraphs 331 and 332 above.

335. IT IS FURTHER ORDERED that compliance with all conditions imposed
     herein is a non-severable condition of the grant of the
     Application.

336. IT IS FURTHER ORDERED that all references to AOL, Time Warner, and
     AOL Time Warner in this *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.

337. IT IS FURTHER ORDERED, 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),
     that the Petition to Deny filed by the Consumers Union, Consumer
     Federation of America, Media Access Project and Center for Media
     Education, the Petition to Deny of Thomas Lewis Bonge, the
     Petitions to Condition filed by RCN Telecom Services and Gemstar,
     and all similar petitions ARE DENIED.

338. IT IS FURTHER ORDERED that the motion to consolidate filed by the
     Consumers Union, Consumer Federation of America, and Center for
     Media Education, IS DENIED.

339. IT IS FURTHER ORDERED that this Memorandum Opinion and Order SHALL
     BE EFFECTIVE on January 11, 2001,[^829] in accordance with Section
     1.103 of the Commission\'s rules, 47 C.F.R. § 1.103.

FEDERAL COMMUNICATIONS COMMISSION

Magalie Roman Salas

Secretary

#  {#section .unnumbered}

[]{#__RefHeading___Toc531753255 .anchor}APPENDIX A

List of Timely Filed Comments

^\*^ Denotes that the commenter filed a Petition To Deny

#  {#section-1 .unnumbered}

# Initial Comments {#initial-comments .unnumbered}

American Cable Association ("ACA")

^\*^ Consumers Union, Consumer Federation of America, Media Access
Project, and Center for Media Education ("Consumers Union")

Gemstar International Group, Ltd. and Gemstar Development Corp.
("Gemstar")

City of Houston City Council Members: Bert Keller, John E. Castillo,
Annise D. Parker, Carroll G. Robinson, Rob Todd ("Houston City Council
Members")

iCAST Corporation ("iCast")

Memphis Light, Gas & Water Division ("MLG&W")

Memphis Networx, LLC ("Memphis Networx")

SBC Communications ("SBC")

RCN Telecom ("RCN")

Tribal Voice ("Tribal Voice")

#  {#section-2 .unnumbered}

# Reply Comments {#reply-comments .unnumbered}

America Online, Inc. and Time Warner Inc. ("Applicants")

American Cable Association ("ACA")

Association for Maximum Service Television, Inc. ("MSTV")

BellSouth Corporation ("BellSouth")

Freedom Broadcasting, Inc. ("Freedom")

iCAST Corporation and Tribal Voice ("iCast and Tribal Voice")

Emy Tseng, Kamal Latham, Chen Hao, and Armand Ciccarelli ("MIT/Harvard
Students")

RCN Telecom ("RCN")

Sinclair Broadcast Group, Inc. ("Sinclair")

State of Connecticut, Office of the Attorney General ("Connecticut
Attorney General")

Town of Cary, North Carolina ("Town of Cary")

The Walt Disney Company ("Disney")

#  {#section-3 .unnumbered}

# Appendix B {#appendix-b .unnumbered}

# CONFIDENTIAL APPENDIX {#confidential-appendix .unnumbered}

**CONFIDENTIAL AND UNDER SEAL**

**SUBJECT TO PROTECTIVE ORDER**

**IN CS DOCKET NO. 00-30**

#  APPENDIX C {#appendix-c .unnumbered}

340. List of Authorizations and Licenses

The approval for transfer of control of Time Warner's and AOL's
authorizations and licenses to AOL Time Warner includes the Commission
authorizations and licenses listed below. Additional applications may
have been filed during the pendency of the applications for transfer of
control that may be the subject of future public notices. Further, AOL
and Time Warner have acquired or disposed of licenses during the
pendency of this proceeding. Applications for transfer of these licenses
will also be addressed in future public notices. The call signs of the
stations involved are included below for reference only.

**Domestic Fixed Satellite Service (Part 25)**

Cable News Network LP, LLLP

SES-T/C-20000211-00219

E2001

E890835

E861053

E880870

E890577

E890834

E890836

E900975

E930204

E940420

E940421

E940422

E950363

E970490

E990281

E990282

Turner Teleport, Inc.

SES-T/C-20000211-00225

KA58

Time Warner Entertainment-Advance/Newhouse Partnership

SES-T/C-20000211-00226

E990035

E990041

Turner Broadcasting System, Inc.

SES-T/C-20000211-00228

E920013

E980173

E980181

Time Warner Entertainment Company, L.P.

SES-T/C-20000211-00229

E4063

E910207

E930421

E930422

**International Section 214** **(Part 63)**

ITC-T/C-2000211-00069 Time Warner Telecom Inc.

ITC-T/C-20000211-00230 Time Warner Connect of San Antonio, Inc.

**Television Broadcast Station (Part 73)**

BTCCT-200211AAD WTBS(TV) SuperStation, Inc.

CH. 17 Atlanta, GA

FAC ID 64033

**Low Power Television (Part 74)**

BTCTTL-20000211AAE W34AX Time Warner Entertainment-

FAC ID 64636 Advance/Newhouse Partnership

Henderson, NC

**Cable Television Relay Services (Part 78)**

Cablevision Industries, Inc.

CAR-50596-09 WHZ-685 Fishkill, NY

CAR-50597-09 WHZ-239 Lloyd, NY

CAR-50598-09 WHZ-502 West Point, NY

CAR-50599-09 WAD-241 Wurtsboro, NY

Century Venture Corporation

CAR-50600-09 WHZ-810 Brunswick, GA

CAR-50601-09 WLY-436 Jekyll Island, GA

CAR-50602-09 WHZ-971 Owensboro, KY

CAR-50603-09 WAW-505 Brookfield, WI

CAR-50604-09 WGZ-277 Wauwatosa, WI

CNN America, Inc.

CAR-50605-09 WHZ-931 Oakland, CA

Florida Cablevision Management Corp.

CAR-50606-09 WLY-604 Golden Gate, FL

Kansas City Cable Partners

CAR-50607-09 WLY-353 Ft. Leavenworth, KS

CAR-50608-09 WHZ-921 Leavenworth, KS

CAR-50609-09 WGW-207 Independence, MO

CAR-50610-09 WAE-602 Kansas City, MO

CAR-50611-09 WGW-219 Kansas City, MO

CAR-50612-09 WGW-220 Kansas City, MO

KBL Cablesystems of Minneapolis, Inc.

CAR-50613-09 WHZ-238 Eden Prairie, MN

KBL Cablesystems of the Southwest, Inc.

CAR-50614-09 WHZ-244 Minneapolis, MN

Massachusetts Cablevision Systems Limited Partnership

CAR-50615-09 WAL-427 Bellevue, OH

CAR-50616-09 WAY-894 Galion, OH

CAR-50617-09 WBB-813 Upper Sandusky, OH

Paragon Communications

CAR-50618-09 WHZ-373 Carson, CA

CAR-50619-09 WGZ-435 Mars Hill, ME

CAR-50620-09 WGV-525 Fishkill, NY

CAR-50621-09 KN-5098 Manhattan, NY

CAR-50622-09 WHW-60 Manhattan, NY

CAR-50623-09 WAF-665 New Windsor, NY

Staten Island Cable, LLC

CAR-50624-09 WHZ-455 Elizabeth, NJ

Texas Cable Partners, L.P.

CAR-50625-09 WHZ-504 Alton, TX

CAR-50626-09 KYZ-22 Bandera, TX

CAR-50627-09 WMC-696 Beaumont, TX

CAR-50628-09 WHZ-677 Commerce, TX

CAR-50629-09 WGI-758 Eagle Pass, TX

CAR-50630-09 WHZ-780 El Paso, TX

CAR-50631-09 WJI-36 El Paso, TX

CAR-50632-09 WLY-483 Ft. Bliss, TX

CAR-50633-09 WGI-756 Farias Ranch, TX

CAR-50634-09 KOD-36 Harlingen, TX

CAR-50635-09 KA-80625 Houston, TX

CAR-50636-09 KYX-62 Loma Vista, TX

CAR-50637-09 WGI-757 Moore, TX

CAR-50638-09 WHZ-869 One North, TX

CAR-50639-09 KYX-61 Pearsall, TX

CAR-50640-09 KOD-31 Pharr, TX

CAR-50641-09 WAF-861 Port Isabel, TX

CAR-50642-09 WBH-846 Port Neches, TX

CAR-50643-09 KOD-35 Weslaco, TX

CAR-50644-09 WGI-755 Winter Haven, TX

Time Warner Cable of Southeastern Wisconsin, L.P.

> CAR-50645-09 WLY-245 Brown Deer, WI

CAR-50646-09 WHZ-447 Milwaukee, WI

CAR-50647-09 WGZ-421 S. Milwaukee, WI

Time Warner Entertainment Company L.P.

CAR-50648-09 WBM-740 EMS-Lanai, HI

CAR-50649-09 WAE-470 Glenwood, HI

CAR-50650-09 WAX-743 Glenwood, HI

CAR-50651-09 WAB-577 Haleakala Mtn., HI

CAR-50652-09 WHZ-819 Hana, HI

CAR-50653-09 WLY-683 Hawaii Kai, HI

CAR-50654-09 WLY-240 Hawaii Kai, HI

CAR-50655-09 WAE-478 Hilo, HI

CAR-50656-09 WBM-744 Hilo, HI

CAR-50657-09 KA-80614 Honolulu, HI

CAR-50658-09 WGV-848 Kahului, HI

CAR-50659-09 WHZ-876 Kahului, HI

CAR-50660-09 WAV-644 Kaupulehu, HI

CAR-50661-09 WAN-954 Kaupulehu Lava Flow, HI

CAR-50662-09 WLY-248 Kihei, HI

CAR-50663-09 WLY-713 Lahaina, HI

CAR-50664-09 WLY-684 Lanai City, HI

CAR-50665-09 WAN-953 Mahukona, HI

CAR-50666-09 WBD-613 Mauna Kapu Peak, HI

CAR-50667-09 KA-80615 Mauna Kapu Peak, HI

CAR-50668-09 WAB-578 Maunaka Mtn., HI

CAR-50669-09 WLY-402 Meyers Ranch, HI

CAR-50670-09 WLY-415 Mililani, HI

CAR-50671-09 WLY-409 Olinda, HI

CAR-50672-09 WLY-678 Puu Kolii, HI

CAR-50673-09 WLY-685 Puu Nana, HI

CAR-50674-09 WBM-738 Puu Nana, HI

CAR-50675-09 WBM-742 Puu Nianiau, HI

> CAR-50676-09 WHZ-617 Waimalu, HI

CAR-50677-09 WBD-612 Waipahu, HI

CAR-50678-09 WHZ-728 Brazil, IN

CAR-50679-09 WRC-25 Chanute, KS

CAR-50680-09 WRC-23 Garnett, KS

CAR-50681-09 WLY-703 Independence, KS

CAR-50682-09 WRC-24 Iola, KS

CAR-50683-09 KZW-67 Neodesha, KS

CAR-50684-09 WBL-521 Thrall, KS

CAR-50685-09 WBK-510 Saco, ME

CAR-50686-09 WAS-288 Sanford, ME

CAR-50687-09 WLY-479 Columbus, NE

CAR-50688-09 WAB-572 Wynantskill, NY

CAR-50689-09 WHZ-633 Bazetta, OH

CAR-50690-09 WAY-890 Columbus, OH

CAR-50691-09 WHZ-408 Lima, OH

CAR-50692-09 WHZ-587 Marysville, OH

CAR-50693-09 WAY-903 New Albany, OH

CAR-50694-09 WHZ-437 Ottawa, OH

CAR-50695-09 WHZ-406 Richwood, OH

CAR-50696-09 WHZ-545 Troy, OH

CAR-50697-09 WLY-471 Youngstown, OH

CAR-50698-09 WGK-594 Burlington, WI

Time Warner Entertainment-Advance/Newhouse Partnership

CAR-50699-09 WHZ-982 Clearwater, FL

CAR-50700-09 KA-80616 Clearwater, FL

CAR-50701-09 WLY-462 Deland, FL

CAR-50702-09 WHZ-784 Lakeland, FL

CAR-50703-09 WHZ-785 Lakeland, FL

CAR-50704-09 KD-55011 Orlando, FL

CAR-50705-09 WHZ-396 Palm Harbor, FL

CAR-50706-09 WGZ-487 Pinellas Park, FL

CAR-50707-09 WHZ-652 St. Petersburg, FL

CAR-50708-09 KD-55009 Tampa, FL

CAR-50709-09 WLY-330 Barada, NE

CAR-50710-09 WLY-331 Octavia, NE

CAR-50711-09 WHZ-882 Camden, NY

CAR-50712-09 WLY-554 Crown Point, NY

CAR-50713-09 WGK-590 Glens Falls, NY

CAR-50714-09 WAN-337 Lake George, NY

CAR-50715-09 KB-60127 Rochester, NY

CAR-50716-09 KD-55003 Rochester, NY

CAR-50717-09 WAF-786 Sidney, NY

CAR-50718-09 WLY-235 Atlantic, NC

CAR-50719-09 WLY-509 Beaufort, NC

CAR-50720-09 WBF-574 Burgaw, NC

CAR-50721-09 WGJ-890 Butner, NC

CAR-50722-09 WAJ-761 Fayetteville, NC

CAR-50723-09 WLY-333 Fayetteville, NC

CAR-50724-09 WLY-246 Garner, NC

CAR-50725-09 WHZ-394 Havelock, NC

CAR-50726-09 WHZ-430 Lizard Lick, NC

CAR-50727-09 WHZ-395 Morehead City, NC

CAR-50728-09 WLY-646 Pembroke, NC

CAR-50729-09 WLY-429 Raleigh, NC

CAR-50730-09 WAX-279 Red Springs, NC

CAR-50731-09 WAE-564 Supply, NC

CAR-50732-09 WHZ-774 Wilmington, NC

CAR-50733-09 WDH-701 Florence, SC

CAR-50734-09 WGV-822 Sumter, SC

CAR-50735-09 KA-80624 Austin, TX

CAR-50736-09 KD-55017 Austin, TX

CAR-50737-09 WBY-600 Austin, TX

CAR-50738-09 WAH-212 Bluegrove, TX

CAR-50739-09 WAH-213 Crafton, TX

CAR-50740-09 WLY-367 Elroy, TX

CAR-50741-09 WSV-58 Flat, TX

CAR-50742-09 WHZ-585 Grenada Hills, TX

CAR-50743-09 WHZ-339 Lukenbach, TX

CAR-50744-09 WSV-56 McGregor, TX

CAR-50745-09 WAH-228 Vashti, TX

CAR-50746-09 WCJ-907 West Lake Hills, TX

TWI Cable Inc.

CAR-50747-09 WGV-526 New Riegel, OH

TWI Summit Cable, Inc.

CAR-50748-09 WHZ-548 Banning, CA

CAR-50749-09 WLY-451 Beaumont, CA

CAR-50750-09 WLY-306 Cathedral City, CA

CAR-50751-09 KD-55002 Palm Desert, CA

CAR-50752- 09 WLY-449 Whitewater, CA

CAR-50753-09 WHZ-547 Whitewater, CA

CAR-50754-09 WGZ-470 Palm Desert, CA

[CARS Transfers to be effected in the future (pending application and
public notice)]{.underline}

Time Warner Entertainment Company, LP

WLY-720 Mauna Lani, HI

WLY-726 Wailuku, HI

WAB-572 Wynantskill, NY

Texas Cable Partners, LP

WGZ-450 Escobas, TX

WGZ-451 Horseshoe Ranch, TX

WGZ-452 Benavides, TX

WGZ-264 Realitos, TX

WJT-43 Corpus Christi, TX

The Wireless Telecommunications Bureau is processing 41 applications to
transfer control of approximately 400 licenses:

**Private Land Mobile Radio Services (Part 90)**

File \# Lead Call Sign

Alert Cable TV Inc 0000302063 KYK615

Alert Cable TV of Oklahoma Inc 0000302074 KWS691

Alert Cable TV of South Carolina Inc 0000302077 KFI554

America Online, Inc. 0000302103 KNNW816

American Television and Communications

Corporation 0000302198 KXL770

Cablevision Industries Inc 0000302444 KNGX578

Cablevision Industries, Limited Partnership 0000302460 KNHJ962

Cablevision Industries of Alabama Inc 0000302488 KYD420

CAT Holdings LLC 0000301862 KRU795

Century Venture Corporation 0000302539 KZE460

Community CATV Corp 0000303479 WRJ952

Dorchester Cablevision Inc 0000303483 WSK244

Erie Telecommunications, Inc 0000303486 KNCA620

Fairclark Cable TV Inc 0000303492 KQI872

Florida Cablevision Management Corp 0000303506 KNDR433

Home Box Office 0000303522 KB51583

HBO Studio Productions 0000303600 WPLP425

Kansas City Cable Partners 0000304203 WRU681

KBL Multnomah Cablesystems LP 0000304757 WNLJ857

KBL Portland Cablesystems LP 0000305899 WYJ623

Massachusetts Cablevision Industries Inc 0000305900 WNZV590

Massachusetts Cablevision Systems LP 0000305901 KYC473

Paragon Communications 0000305902 KBE579

Texas Cable Partners, LP 0000305904 KTF476

Time Warner Cable of Avalon LP 0000305908 WPMF361

Time Warner Entertainment Company LP 0000301876 KEA342

Time Warner Entertainment-

Advance/Newhouse Partnership 0000301895 KFM714

Time Warner Entertainment-

Advance/Newhouse Partnership 0000301830 WPFZ212

Time Warner Inc. 0000305897 KNAX816

Turner Broadcasting System Inc. 0000305909 WNXV224

TWFanch-one Co. 0000301815 WQP536

TWI Cable Inc 0000305910 KNHA621

TWI Summit Cable Inc 0000305911 WNDP983

Warner Bros 0000305912 WPLD733

West Valley Cablevision Industries, Inc 0000305913 WNSH254

**Fixed Microwave Services (Part 101)**

Private Operational Fixed Point-to-Point Microwave

File \# Lead Call Sign

CNN America Inc 0000084755 WNES530

Superstation Inc 0000084751 WNEL539

Texas Cable Partners, LP 0000084765 WNEW367

Time Warner Entertainment-

Advance/Newhouse Partnership 0000084762 WNER856

Common Carrier Fixed Point to Point Microwave

File \# Lead Call Sign

American Television and

Communications Corporation 0000084776 KPR32

Texas Cable Partners, LP 0000084753 KLH77

[]{#__RefHeading___Toc531753261 .anchor}STATEMENT OF FCC CHAIRMAN
WILLIAM E. KENNARD

[]{#__RefHeading___Toc531753262 .anchor}ON CONDITIONED APPROVAL OF AOL
TIME WARNER MERGER

Our conditioned approval of the AOL Time Warner merger is significant
not only for the size of the merger we approve today, but also for its
scope. AOL Time Warner is a marriage of old media and new media, content
and conduit, 20^th^ century know-how and 21^st^ century vision. In a
phrase, it's "Convergence Illustrated."

I took a hard, careful look at this merger to make sure that this
historic marriage would benefit consumers. I balanced the need to
protect the public from the danger that any one company will be able to
dominate the marketplace against the need to guard against intrusive
regulation that could stifle investment and innovation.

The conditions we impose today are forward-looking and fair. They
preserve the openness of the Internet. They protect consumers and avoid
heavy-handed regulation by using a narrowly-tailored market opening
approach. And they ensure that neither AOL Time Warner nor a government
agency will pick winners and losers in this dynamic marketplace.

I have long been concerned about bottlenecksbottlenecks that could
stifle competition and innovation. So in reviewing this merger, I was
particularly concerned about the future of the instant messaging
platform, the ability of competing broadband ISPs to access Time
Warner's cable systems, and the potential for discrimination in the
interactive television space.

We don't rely on good intentions. We require AOL to interoperate with
competing instant messaging (IM) providers before it can offer
videoconferencing and other streaming video over IM. This condition
guards against AOL's ability to leverage its existing dominance in
current IM into the broadband IM marketplace. In order to ensure fair
and open access to Time Warner's cable system, we augment the FTC
conditions by imposing specific protections against
discriminationprotections that will be particularly critical for
smaller ISPs. We also hold AT&T to its commitment to divest its interest
in Time Warner Entertainment and impose additional conduct restrictions
to protect consumers. Finally, the potential for discrimination in the
interactive television marketplace bears watching and we have begun a
proceeding to explore the need for the FCC's involvement in promoting
competition in this developing service.

When I look at this merger, the potential benefits I see are the ability
to roll out technologies faster and farther, the potential for
significant innovation in new services and technologies. But, those
benefits could be the proverbial silver lining. AOL and Time Warner each
possess significant market power in their respective spheres. AOL is the
leading Internet service provider with over 26 million members
worldwide, and it continues to grow. In fact, AOL has gained almost six
million members in just the last year. Time Warner is the nation's
second largest cable television company with ties to AT&T, the nation's
largest cable operator and owns one of the most popular video content
libraries in the world.

The power of these players is immense and so is the potential for
anti-competitive behavior. Therefore, I only voted to approve this
merger because of the conditions we impose.

With the merger of AOL and Time Warner, we are seeing the creation of a
new platform for communications based on the Internet. Our challenge is
to make sure that consumers get the full benefits of this new world
technology without importing the dangers of monopoly and bottlenecks
from the old world. We have met this challenge.

[]{#__RefHeading___Toc531753263 .anchor}SEPARATE STATEMENT OF
COMMISSIONER SUSAN NESS

Re: Applications for Consent to the Transfer of Control of Licenses and
Section 214 Authorizations by Time Warner Inc. and America Online, Inc.,
Transferors, to AOL Time Warner Inc., Transferee

The marriage of America Online (AOL), the world's largest Internet
service provider (ISP), and Time Warner, the second largest American
cable operator and a global content provider, creates not only the
largest merger in U.S. history, but also one of the most novel and
complex this agency has ever faced. It represents the convergence of old
and new media. The energy and synergy derived from this combination have
the potential to provide consumers with a wealth of innovative new
products and services. If unchecked, however, this corporate union also
has the potential to exploit its considerable market power to stymie
competition by restricting the flow of competing goods and services over
its broadband facilities. For this reason, I voted to approve the
transfer of Time Warner's communications licenses with conditions. I
would not have supported it otherwise.

The merger presents several novel issues for FCC consideration. Four
such issues were raised in challenges to the grant of the transfer of
control of applications filed by AOL and Time Warner. Commenters urged
us to:

-   Intervene to require AOL, the dominant provider of instant messaging
    (IM), to make its IM service interoperable with competing IM
    offerings;

-   Examine whether the vertical combination of a major cable operator
    with the largest ISP necessitated our intervention to pry open the
    Time Warner systems to other ISPs, even though we had rejected such
    remedies;[^830]

-   Intervene to protect competing content providers wishing to offer
    interactive television services over Time Warner cable facilities --
    novel services that are still nascent and not commercially
    available; and, finally,

-   Reexamine whether the joint ownership of Time Warner Entertainment
    by AOL Time Warner and AT&T poses an unacceptable risk that the two
    joint venture partners would conspire to discriminate against other
    programming and service providers.

While we believe that we have jurisdiction to explore each of these
matters, we limited our actions to address specific harms caused or
exacerbated by the merger of the applicants. Moreover, we crafted
remedies that were merger-specific \-- designed to address only
merger-related harms.

***Instant Messaging***

Instant messaging is a relatively new, Internet-based service that
provides presence detection and real-time communication capabilities to
subscribers. I believe consumers overwhelmingly want competing IM
services to be interoperable. I do, too. The Internet has thrived upon
principles of openness and connectivity. With interoperability,
consumers would have real-time access to more individuals and to
competitive services. Thus, I have strongly and repeatedly encouraged
AOL and the other industry players to work together to achieve
interoperability as expeditiously as possible.

There is abundant evidence on the record that AOL, which developed the
IM product, is the dominant provider of that service. In my view,
however, it has earned that position for dial-up service through
innovation and hard work. And most significantly for the purposes of
this proceeding, regardless of the public interest in interoperability,
it earned that position outside of the context of this merger.

There are other major players competing aggressively against AOL to
attract IM customers. These competitors include Microsoft, which has
bundled its IM service with its operating system. There is even disputed
evidence in the record that Microsoft and others recently have *gained*,
not *lost*, market share in their pursuit of IM subscribers. Moreover,
users of IM represent a small percentage of online consumers, suggesting
that the market is far from saturated. There is nothing to prevent large
user groups, such as employment-based entities, from switching *en
masse* from one IM provider to another if more attractive terms are
offered. Thus, while our decision concludes that AOL is a dominant
provider, it appropriately stops short of finding that the market has
"tipped" in AOL's favor.[^831] We need not find that the market has
tipped, however, in order to address potential harm to consumers that
could result from the merger of AOL's dominant IM presence with Time
Warner's assets.

AOL claims that it seeks interoperability, yet it appears to have
resisted efforts to create an industry-wide standard. Indeed, its
contributions to an industry-wide standards body were disappointing at
best. At our *en banc* hearing on the merger, however, AOL reaffirmed
its commitment to interoperability, and testified that it expected to
have a workable technical standard by July 2001, and the standard then
would have to be tested. It explained that any standard must take into
account AOL's need to protect the security of its network and the
privacy of its subscribers.

I take AOL at its word that it will have a standard ready by July \--
presumably one that addresses its privacy and security concerns. Thus, I
supported a requirement that AOL submit a detailed report to the
Commission every six months on the actions it has taken to achieve
interoperability in IM. By AOL's own testimony, the first
interoperability report to be submitted under this Order should include
a technologically detailed description of a successful IM
interoperability protocol or standard. The Internet and technology
community at large will be able to evaluate the accuracy and
thoroughness of AOL Time Warner's assertions when the report is placed
on public notice. Should we conclude that AOL is not moving
expeditiously toward interoperability, we then can decide whether
further steps in a proceeding of general applicability are warranted.

While I do not believe that AOL has moved as rapidly as it could to
resolve its privacy and security concerns, I do not discredit these
issues entirely. It is reasonable for a company that features itself as
a protected community to be cautious about outside contamination. AOL
Chairman Steve Case correctly observes that the e-mail system is riddled
with security and privacy problems. Nevertheless, it has been alleged
that AOL's IM products also suffer from security and privacy problems
today.

We wisely decline to require interoperability on AOL's existing dial-up
IM service because such relief would not be merger specific. Without
interoperability, however, AOL should not be allowed to leverage its
market power in the dial-up IM market into the broadband market using
Time Warner's content and facilities. Our restriction is based upon
combining AOL's names and presence database (NPD) with Time Warner's
broadband facilities. Thus, if AOL wishes to offer streaming video
through IM using its NPD, it first will have to open that database to
other IM providers.

Many argue that NPD is at the heart of future real-time broadband
services, such as streaming video and video conferencing. Assertions by
several Internet and technology companies led me to conclude that the
development of communications services within the FCC's jurisdiction
would be affected by the combination of the NPD and broadband
infrastructure.

Given the potential for abuse of market power and the importance of the
services at issue, I supported imposing conditions if they were merger
specific and minimally intrusive to achieve the public interest goal of
interoperability. The conditions meet those requirements. They are
incentive based. We do not reach into AOL's current IM offerings or
establish through the heavy hand of regulation an interoperability
protocol. Rather, we create an incentive for AOL to achieve
interoperability on its own terms. By allowing AOL to meet this
condition by entering into interoperability agreements with three
significant providers, we have enabled AOL contractually to address its
privacy and security concerns.

In addition, our condition reflects an understanding that technology is
constantly evolving. The Commission cannot presume to know what will
come next. A popular service or technology today, such as IM, may become
irrelevant tomorrow, if another technology captures the hearts and minds
of the Internet public. Thus, we permit AOL to avoid mandatory
interoperability if it can demonstrate that the market has changed
dramatically and the NPD no longer is at the core of new services.

I am realistic about the scope of our narrowly tailored conditions on
AOL Time Warner, and recognize that the restriction may be of limited
consequence. The triggering factor may never be deployed. Nonetheless,
our message is clear and I fully expect the merged company to live up to
its representations to allow other providers to interoperate with its IM
product.

Our actions to address the IM interoperability concerns raised by
members of the Internet and information services community likely will
be cited in the future whenever the Commission is called upon to
consider Internet service offerings. I caution advocates against using
this decision to justify invasive regulation of the Internet. Far from
opening a Pandora's box of "information service" regulation, our action
establishes that the Commission will act in a merger only when essential
to preserve the openness and connectivity of the Internet and only when
the issue is merger specific. Moreover, in the rare instance where
intervention is necessary, the narrow scope of our conditions
demonstrates that such action must be minimally intrusive,
technologically neutral, and market-based.

# *Cable Internet Access*

The combination of AOL's dominant narrowband ISP service with the second
largest cable operator in the nation presented the clearest threat to
competitive markets posed by this merger. Our sister agency, the Federal
Trade Commission (FTC), took sweeping action to open AOL Time Warner's
cable infrastructure to competing Internet service providers.[^832] I am
pleased that the actions taken by the FTC and this Commission were
complementary and avoided inconsistent requirements. I have long
supported inter-agency coordination as a way to expedite merger review.

The FTC used its antitrust and enforcement expertise to devise
restrictions that address broad, anti-competitive behavior. We used our
technological expertise to address specific concerns created by the
merger combination, including first screen access and quality of service
issues. We also require AOL Time Warner to negotiate in good faith with
local and regional ISPs so that a diversity of ISPs might have an
opportunity to serve cable subscribers. These conditions operate in
concert with those imposed by the FTC.

Our conditions are appropriately merger specific. I agree with recent
industry assessments[^833] that the uniqueness of this transaction
counsels against importing our analysis and conclusions in this
proceeding into our separate Notice of Inquiry on cable access.[^834]

# *Interactive Television*

Many content providers urged this agency to impose conditions on AOL
Time Warner to prevent it from exercising its control over the cable
infrastructure to impair competing interactive television services. The
advent of these services is still hypothetical and we were called upon
to make assumptions about where the market is heading. We wisely
declined to take action in this Order, recognizing that the issues
raised have implications for the industry as a whole and are more
appropriately explored in a Notice of Inquiry. While the Commission and
the public should remain watchful as these issues develop, we must tread
cautiously and not leave the impression that we are on the verge of
pouncing on a nascent industry by imposing a detailed regulatory regime.

# *Time Warner Entertainment and AT&T*

While we are concerned about the potential for abuse by the partnership
of the first and second largest cable MSOs in Time Warner Entertainment,
we decline to take action in this merger review to require AOL Time
Warner to resolve its divestiture discussions with AT&T. I therefore
urge Time Warner to negotiate in good faith in any discussions with AT&T
regarding the latter's disposition of its 25% minority stake in TWE.

# *Privacy*

While occupying only a few short paragraphs of our 150-page Order,
consumer privacy is an issue that increasingly concerns me. I wish to
emphasize the importance I attach to this aspect of our Order. We
require AOL Time Warner to regularly certify to the Commission its
compliance with the Communications Act's cable subscriber privacy
provision.[^835] While this section by its own terms is enforceable in
federal district court, rather than at the Commission, we should regard
it as an expression of Congressional concern for cable subscribers'
privacy. Under this provision, cable operators must give a subscriber
adequate notice that her personally identifiable information is being
used,[^836] and secure her consent for such use.[^837]

AOL itself raised privacy concerns with respect to IM interoperability.
AOL Time Warner is well situated to be at the forefront of protecting
consumer privacy as we enter a new era of communications. I hope this
will be reflected in its section 631 certifications.

***Conclusion***

Media convergence -- long awaited -- clearly has arrived with the
approval of the AOL Time Warner merger. From many quarters of industry
and the public, we heard concerns regarding the ability, the incentive,
and the propensity of this powerful combination to thwart competition.
Our response in this merger has been limited, yet purposeful. The ball
now is in AOL Time Warner's court to demonstrate by its actions its
willingness to allow all to compete fully and fairly in the broadband
marketplace for the benefit of the American consumer.

FURCHTGOTT-ROTH SUPPORTS MERGER,

BUT DECRIES REVIEW PROCESS AS "BROKEN"

**Statement of Commissioner Harold W. Furchtgott-Roth,**

**Concurring in Part and Dissenting in Part**

In re Applications for Consent to the Transfer of Control of Licenses
and

Section 214 Authorizations by Time Warner and America Online, Inc.,
Transferors, to AOL Time Warner, Inc., Transferee, Memorandum Opinion
and Order

Because the proposed transfer of radio licenses from Time Warner to the
new, combined entity does not raise any compliance issues under any
relevant statutory provisions or our numerous regulations, I find the
transfer clearly to be in the public interest. I therefore concur in the
grant of the license transfer applications.

I cannot subscribe to any of the other aspects of this Order, however.
My general views on the proper scope of the Federal Communications
Commission's role in the mergers of communications entities are well
documented.[^838] To summarize, I believe that our job under the plain
language of the Communications Act is to approve the transfer of radio
licenses, not to pass on mergers. The approval of such transfers should
depend upon compliance with extant regulations and applicable statutory
provisions, not open-ended analysis of the entities' businesses.

Unfortunately, the Commission in this Order continues to engage in just
this sort of "merger" review. The overwhelming bulk of this document has
little, if anything, to do with the proposed transferee's use of the
CARS licenses that are the jurisdictional object of this proceeding.
Instead, the Order focuses on the transferee's various lines of internet
business, including instant messaging and interactive television. And it
analyzes those business activities to see whether the entities' future
conduct might "impair or frustrate the objectives" of the Act. At the
end of the day, the Commission has speculated about as yet undeveloped
facts that are only tangentially related to license usage, and then
applied to that conjecture a standard of review that is virtually
unknowable *ex ante.* As I have said before,[^839] this approach is
fundamentally flawed.

I am also troubled by a particular aspect of this proceeding: the
coordination of efforts by this agency and the Federal Trade Commission
(FTC). To be sure, federal agencies may \-- indeed, sometimes should \--
communicate with each other about official government business. What it
should not do, however, is to engage in such communication in a way that
is not transparent and predictable.

Apparently, the FCC and the FTC shared deliberative documents with each
other \-- presumably for the purpose of coordinating their efforts \--
throughout the course of each agencies' proceedings. This interaction
was not made public, which makes it difficult for interested commenters
and even the parties themselves to track important developments in the
decisionmaking process. Furthermore, at the outset of this adjudication,
the applicants had no notice of the extent or nature of the
intergovernmental coordination that ultimately ensued. That is because
we lack consistent, predictable procedures for working with other
agencies on mergers; such work is done on a purely *ad hoc* basis,
depending on the personal inclination of individual officials. The
approval process would be more fair to the applicants, and also more
efficient for the FCC staff, if the scope of the working relationships
between this agency and other relevant entities were defined in advance.

Of course, if this Commission had not tied its review to that of the
FTC's in the first place, no such coordination would ever have been
necessary. That is to say, if our review of the license transfer
applications were limited to compliance with extant FCC regulations and
the Communications Act, there would be no problem of duplication with
the FTC, since it has no jurisdiction over those provisions of the law.
We would be free to process applications in a timely fashion, fully
independent of any action taken by the FTC.

For the foregoing reasons, I concur in the grant of the applications,
but dissent from the remainder of the Order, including the conditions
imposed upon its approval.

\# \# \#

For more information regarding this release please contact Bryan
Tramont, Press Liaison, Office of Commissioner Furchtgott-Roth at
202-418-2000.

**STATEMENT OF COMMISSIONER MICHAEL K. POWELL,**

**CONCURRING IN PART AND DISSENTING IN PART**

*Re: Memorandum Opinion and Order, Applications for Consent to the
Transfer of Control of Licenses by Time Warner Inc. and America Online,
Inc., Transferors, to AOL Time Warner, Inc., Transferee (CS Docket No.
00-30)*

The merger before us is one of the most significant in history. It
promises to open a new chapter in communications, combining a host of
assets and expertise that will likely bring new products and services to
consumers. As one would expect, the very same things that engender
excitement and promise with this combination also raise anxiety and
trepidation among competitors that the market will be dominated by this
new entity, to the detriment of competition and consumers.

The merger is also unique because it is difficult to review using
traditional metrics. The greatest public benefits as well as the
putative harms lie principally in the future, thus making any analysis
somewhat speculative and amorphous. Our challenge is to base a decision
soundly on evidence that presently exists, on an understanding of the
business dynamics of an Internet-centered market, on a grasp of past
experiences and on reasonable (and carefully limited) assumptions about
the future. This is no easy task, but the key is not to let our
imaginations run away with us, given the absence of strong evidentiary
moorings.

Unfortunately, in this *Order,* we do take excessive counsel of our
fears, or, more accurately, the fears of AOL Time Warner\'s competitors.
Therefore, I concur in approval of this merger but dissent in several
respects.[^840] I write separately to underscore the following points:
(1) that our license transfer process continues to pull the Commission
away from its core responsibilities and competencies; (2) that the
anticompetitive analysis used to support the Instant Messaging (IM)
condition is flawed; and (3) that the sweeping declaration that IM
interoperability is somehow intrinsic to the public interest is not
based soundly on the record, but is simply the sentiment of the
Majority. Such a far-reaching judgment, if merited at all, should be
reached only through a more comprehensive regulatory proceeding with the
notice and comment procedures set out in the Administrative Procedures
Act.

I.  THE LICENSE TRANSFER PROCESS IS STRAYING FROM THE COMMISSION'S
    MISSION.

I have had many previous occasions to discuss our approach to license
transfers (*i.e.,* mergers) and have expressed some concerns about it,
focusing primarily on our tendency to adopt conditions that were
divorced from the perceived harms.[^841] In contrast, I would like to
compliment the drafters of this *Order* (primarily, our hardworking
Cable Services Bureau staff) for making a valiant attempt to identify
specific harms and crafting conditions in response to them. Regrettably,
in places, the final product strays considerably from this limited
approach.

Our review process has two fundamental problems. *First,* it is
increasingly morphing the FCC into an antitrust authority, duplicating
the analysis of other more competent authorities. Of course, we have
independent authority to review these combinations, but we have wide
latitude to decide how searching and how broad such a review need be and
I believe we have moved much too far into the domain of other government
institutions, namely the Antitrust Division of the Department of Justice
and the Federal Trade Commission.

*Second,* we increasingly use these reviews as substitutes for
regulatory process. I believe we are losing focus on our institutional
charge. I am of the view that the FCC\'s focus should be on compliance
with the current regulatory regime and a forward-looking focus on the
appropriate regulatory treatment of the industry *as* *a whole*. In
contrast, the antitrust authorities' focus is squarely on the
merger-specific anticompetitive harms of a given combination and not on
regulation. Increasingly, this distinction is blurring. I find that the
Commission is willing to pursue broad-reaching industry-wide regulatory
questions in the context of an adjudicatory proceeding, the record of
which is limited to the facts solely involving the applicants. Our
merger "conditions" more often look like rules, reflecting judgments
that, if true, affect the entire industry and not just the parties. As
such, they should be entertained, if at all, in a broader-based
proceeding. The IM condition imposed in this order is an ideal example
of this drift.

II. THE MAJORITY'S ANTICOMPETITIVE ANALYSIS FOR INSTANT MESSAGING IS
    FLAWED.

The discussion supporting the IM condition, which would require
interoperability if the applicants provide video-oriented advanced,
IM-based, high-speed services ("video AIHS"), reveals what a melange our
review has become. On the one hand, it is a classic (though flawed)
anticompetitive analysis, in which the Commission justifies an IM
condition based on AOL's dominance in the IM market. Yet the analysis
frequently wobbles, trying to cure shortcomings by resorting to grand
declarations that IM interoperability is somehow intrinsic to the public
interest---a breathtakingly broad pronouncement that crashes through the
confines of this particular merger, with broad implications for all
communications and Internet services.

The decision to impose an IM condition rests, in part, on the conclusion
that AOL enjoys virtually insurmountable market power in the existing IM
market and will leverage that power into the next generation of IM-based
products. I find the anticompetitive analysis on which this conclusion
based unpersuasive and, indeed, flawed.

A.  No Traditional Indicia of Market Power

> 1\. No Clear Market Definition

It is the elemental step in a competitive merger review to define the
market---both in terms of the product and the geographic scope. Defining
the scope of the market is essential for measuring market power. It is
the metric used for determining the number of competitors and is the
denominator used for calculating the merging parties' share of the
market and subsequently its market power. It is the foundation of a
well-grounded analysis.

With respect to IM, however, the *Order* does not cleanly define the
market, presumably because the analysis vainly tries to anticipate harms
relating to a loose collection of largely hypothetical, not-yet-existent
services. Indeed, it eschews the need to define the market with any
precision.[^842] A sound competitive analysis cannot proceed without
some attempt to pin down the market, even where, or perhaps especially
where, services are new and novel and share characteristics with many
other products and services. This foundational discussion is absent from
this *Order*, and would likely prove fatal if an antitrust authority
tried to bring such a case in court.

> 2\. Inconclusive Market Share Data

Admittedly, the *Order* tosses around some impressive market-share
numbers in an attempt to demonstrate, or at least to give a feel for the
idea, that AOL is dominant. The *Order* concedes, however, that there is
no solid accepted basis for measuring IM users. It is difficult to
compare one company\'s market share to another\'s given the lack of
uniform criteria. The numbers cited are largely those proffered by the
proponents of a condition mandating interoperability for text-based
IM---a condition that even the Majority is unwilling to impose.

The most objective data on the record is a study by Media Metrix,
recognized as the world leader in the measurement of Internet and
digital media use.[^843] Tellingly, the study shows very substantial
growth by the two largest competitors of AOL (*i.e.,* Microsoft and
Yahoo!) as compared to slowing growth for the AOL service. Moreover, the
study reports that, combined, Microsoft and Yahoo! have nearly the same
market share as AOL. This study, though arguably the best objective
evidence of market share, market trends and market power is barely
mentioned in the *Order*.[^844]

> B. Classic Tipping is Unsubstantiated

In the absence of sound market definitions and market data, the Majority
turns to a more theoretical construct to show that AOL may be in a
position of "unassailable dominance." [^845] The Majority essentially
employs a market "tipping" analysis in an effort to make this case,
attempting to demonstrate that the IM market has nearly tipped, or will
tip when AOL combines with Time Warner. The Majority avers, however,
that it expresses no opinion on whether its conclusions can be read as a
finding the market has tipped. Tipping analysis is emerging as a tool to
examine markets that exhibit strong network effects and can be employed
to consider the anticompetitive dangers with respect to IM. However,
theory is only predictive and must yield when the facts stubbornly belie
the theory. That is the case with IM.

A market is said to tip when consumers find the largest provider of the
real or virtual network so much more valuable that consumers
increasingly select that provider and increasingly abandon all other
providers.[^846] Thus, in theory, tipped markets can lead to one
provider rapidly surfing these network effects to a point that
competitors are unable, no matter how efficient or innovative, to
compete effectively with the market leader. Under these circumstances,
the benefits to consumers of joining or not leaving the dominant
provider\'s network so far outweigh the benefits of using rival networks
that consumers increasingly choose the dominant provider and
increasingly avoid rival providers. Not all markets exhibiting strong
network effects will tip, however.[^847]

Had the Majority persuasively demonstrated that the IM market had
tipped, and that AOL Time Warner would assuredly dominate the market for
any future IM-based services, an IM condition might be warranted.
Instead, the Majority takes a middling course---using tipping analysis
to find that AOL Time Warner may well be in a position of "unassailable
dominance,\"[^848] while trying to avoid concluding the market has in
fact "tipped."[^849] Whatever the semantics of its conclusions, the
Majority's market tipping analysis is a critical analytical underpinning
for the IM condition.[^850] Thus, I believe it worth some extended
discussion.

Tipping is a very interesting theoretical phenomenon regarding network
markets and has been the source of much discussion in antitrust
literature. Despite its appeal, however, there is little consensus on
how to measure when a market has tipped, and at what point government
intervention is warranted. Tipping theory is at once seductive and
elegant, perhaps too much so. My concern here is that it can be used to
justify premature, unwarranted government intervention, even where there
are counter-indications that the market will remain competitive on its
own, as I believe is the case here.[^851]

Many of the accepted indicia of a tipped market---and, indeed, of market
power generally---are just not present in the IM market, despite AOL's
large market-share. I detail some of these factors to underscore the
weakness of the Majority\'s market assessment:

**No sign of competitor collapse.** Network effects can be both positive
and negative. That is, while a company might grow subscribers, market
share, and market leadership quickly, network effects can also combine
to destroy other companies just as rapidly. In fact, if a market has
tipped one would normally expect to see exponential growth by the leader
and a precipitous fall off by its competitors.[^852] Here, we see the
opposite; although AOL\'s customer base has continued to grow, AOL\'s
competitors have been growing at a much faster rate.[^853] Indeed,
although AOL essentially created the market for IM only a few years ago,
competitors have garnered a sizeable portion of the market in
considerably less time.[^854] Many of AOL\'s competitors have surpassed
AOL with respect to IM innovation and have joined the battle by bringing
their own unique assets to bear.[^855] Microsoft is integrating its
product into the world\'s leading browser as well as its successful
Hotmail e-mail service. Yahoo! has created an applet called Yahoo!
Companion that attaches to the browser and has made it a part of its My
Yahoo! services, the leading Internet portal with a very substantial
subscriber base.

**Very low barriers to entry.** The *Order* takes the view that AOL\'s
Names and Presence Directory (NPD) technology is an essential input and
that AOL has an insurmountable lead by virtue of its large NPD. While I
agree an NPD is an essential input (indeed, this may be nothing more
than another way to describe what IM is), I am at a loss to see why AOL
has an insurmountable advantage, seeing that other providers can easily
develop or acquire the key assets. Names and Presence Directory
technology is not particularly sophisticated to develop or acquire. The
record does not suggest the technology is difficult to reproduce or that
AOL has any control of the technology through intellectual property
rights. Many competitors seem to be able to develop and employ products
using the technology without much trouble.

The *Order* essentially argues that the NPD is not simply a database of
users. Yet if the presence detection functionality is easily acquired,
then the only missing ingredient is simply a large user base to take
advantage of the network effects. Many Internet providers have access to
large databases. Microsoft and Yahoo! have very large subscriber bases,
as does Citibank and Amazon.com, among others. I see no reason, for
example, why Citibank could not offer IM services to all its customers
to have real-time customer support for its members. Or, why Amazon could
not offer an IM product to its base of users to facilitate discussions
with fans of Robert Ludlum\'s books. Or, why an IM provider could not
market its products to distinct communities of users, such as colleges
and universities. The IM product has any number of creative and
innovative uses, depending on what network, base of users, or
communities you attach it to.

Underlying the Majority\'s analysis is the clear view that IM is the new
phone system---that it will be a mass market, public network (like the
public switched telephone network), allowing anyone to talk to anyone. I
am not convinced that this is the proper conception of the service, as
IM\'s most compelling and sustained use may be to serve as a tool for
intimate communications with a well-defined, limited community (rather
than with everyone in the world), or as an adjunct to some other product
or service. Further, unlike the Majority, I find it cavalier to conclude
or even suggest that IM is *the* essential platform for real-time
interactive services. There are many technologies vying as solutions for
real-time interactive service and our endorsement of one is naïve. Sure,
it could turn out that the Majority has guessed correctly, but I would
remind them that even the surest bets for the \"next big thing\"
(*i.e.,* the technology that will be most popular) have missed the
mark.[^856]

**Nascent Market.** AOL created this market and, until recently, has had
it to itself. Other providers have only entered in the last year. There
remains huge growth potential for the entire market. AOL does not have a
high percentage of a mature market, it just has the most customers in a
new and growing market. Depending on the size that the IM market
ultimately becomes, AOL could be overtaken, without any competitor
winning a substantial portion of existing AOL customers. Indeed, the
fervor with which AOL\'s competitors have pursued the imposition of IM
conditions would seem to suggest a very large and lucrative market for
IM, rather than one whose growth stagnates at or near the size of AOL\'s
current customer base. Moreover, there is great potential for
competitors to add features and functions to compete with AOL and win
these customers. The network effects, which are not isolated to AOL Time
Warner, provide the possibility for strong competitive growth as well if
a competitor can put together a base of users.

**Consumers not locked-in.** Usually, with markets that are believed to
have tipped, you find a lock-in of subscribers. That is, it is very
difficult to get them to switch to competing services. Here, however,
one finds very few of the traditional lock-in problems:

[No cost to acquisition]{.underline}. If a consumer invests a
substantial amount of money in a product or service, he may be unwilling
to abandon that investment lightly. Similarly, if the process of
acquiring a product or service is laborious or costly in terms of time,
a consumer may be less willing to go through the same process to switch
products or providers. IM costs nothing and is easily downloaded onto
any computer with an Internet connection. Virtually no investment in
time or money is required to acquire IM from any provider.

[No learning curve]{.underline}. Another lock-in effect is present when
a user must invest a lot of time in learning how to use a product. A
consumer is not easily convinced to switch to another product if he must
start over and learn a new system. Economists sometimes call this \"path
dependence.\" [^857] The classic example is the \"QWERTY\" standard
typewriter keyboard. This keyboard was reportedly designed purposely to
be inefficient in order to prevent users from typing so rapidly that
they jammed the typing mechanism. Having learned to use this
\"inefficient\" keyboard, however, few people want to learn to type
again, in an entirely new way. Thus, they are \"locked in\" to using the
keyboard they have already learned to use. Here, despite the *Order\'s*
suggestions to the contrary, there is no real dispute that any of the IM
products can be downloaded and used within a matter of minutes, without
any significant training. Thus, this ease of access and mastery ensures
that users are not locked in to any given IM product based on any steep
learning curve.

[No incompatibility]{.underline}. A customer might not wish to switch to
a competitor\'s product if it would be incompatible with her system. For
example, one who owned a Microsoft Windows-based PC, could not switch to
an Apple operating system without purchasing an entirely new computer,
because of the incompatibility. Here, all IM products can be run on the
same machine, and at the same time. Users can run both products and talk
quite easily with two networks of people. Perhaps a teenager speaks with
her close friends on one service and her soccer teammates on another,
and her parents on still another. Indeed, there is evidence that people
use multiple IM services purposely and see benefit in operating in this
fashion, rather than insisting that IM work like a telephone, that
allows anyone to call into you using one platform.[^858]

[Losing your buddies]{.underline}. The theory of tipping in the *Order*
makes much of the fact that a user would have to re-enter his buddy
lists and get his buddies to change products in order to switch
services. Specifically, the *Order* hypothesizes that the burden of
switching IM services will be insurmountable because that would require
a user to get his AOL buddies to switch to the new service, even though
those buddies may have their own unique buddies that also currently use
AOL. This is true, but I find the onerousness of this exaggerated.
Fundamentally, I do not accept that IM is necessarily the equivalent of
the public switched telephone network and that a user is compelled to
stay with the network that has the most users. I think IM is more of an
intimate communications tool, in which people maintain fairly discrete
lists of buddies to whom they wish to speak. The record contains no
evidence that the average user possesses buddy lists so large it would
be prohibitive to move them or re-enter their names. A simple message
from a user to her friends, imploring them to change, may be relatively
easy and effective.

> C. The Majority's Novel Behavioral Theory

The Majority\'s behavioral theory is a vain and circular attempt to
compensate for the weak evidence to support their IM condition.
Undeterred that traditional tipping analysis is undermined by the
factual record, the Majority conjures up a new behavioral theory, that
rests entirely on the supposition that because AOL has not, to date,
been willing to interoperate with its competitors, that itself is proof
that AOL has nearly insurmountable market power. A carrier it seems
should always prefer to interoperate with other providers in order to
extend its reach and increase the value of its network. If a provider
refuses to interoperate, the theory goes, the *only* explanation is that
the provider believes that the market has tipped in its favor and that
it need not interoperate with other providers. Therefore, since AOL has
yet to interoperate, one can conclude that it believes the market has
tipped (or is impermissibly dominated by AOL). Besides this theory
having the leathery taste of bootstrap, it is undermined by the record:

*First*, it is an over-statement to say AOL has refused to interoperate.
It has maintained both publicly and in this proceeding that it wishes to
and will interoperate once it can tackle a number of concerns in
developing a standard.[^859] I recognize that such a statement could be
self-serving, and the Commission is entitled not to credit AOL\'s
sincerity. But I have problems with a theory that rests so heavily on a
leading provider\'s refusal to interoperate as a basis for concluding
the market has nearly tipped or is dominated by that provider, where the
provider is not, in fact, refusing to interoperate under any
circumstances. I am not prepared to read so much into AOL's less than
fulsome participation in the Internet Engineering Task Force (IETF) for
the relatively short period that effort has been underway, nor can I
place that much weight on AOL blocking companies that entered their
servers without consent or negotiation.

*Second*, the behavioral theory assumes that market dominance is the
sole reason a provider would not interoperate with its competitors. A
provider may be able, however, to enhance the value of its network in
other ways than by granting non-subscribers access to its network.
Moreover, a provider may not be able to afford the cost of expansion or
maintenance of a larger network. Its business plan may call for a more
private or intimate network, with higher quality, reliability and
privacy and not a mass market telephone-like model. Who knows? But it is
hard to accept the notion that market tipping is the primary reason that
AOL would decide not to interoperate.

Indeed, AOL itself proffers a different reason for why it has yet to
interoperate with other providers and that is privacy and security
concerns.[^860] AOL has a business model according to which it sells
"community." In facilitating that community, it places a premium on
protecting the consumer\'s experience and privacy.[^861] Surely,
increasing unwanted exposure of its subscribers to unwanted IM contact
from others is not necessarily nefarious. Additionally, it does appear
that some security issues do in fact presently exist, which is one
reason the Commission was not comfortable with mandating immediate
interoperability with other providers.[^862] Lending some support to
AOL's argument that it does not interoperate with other providers for
reasons other than its desire to maintain market dominance over its
competitors is the fact that AOL has not integrated its own IM product
(AIM) with ICQ, so that they could interoperate.

*Third*, the behavioral theory also assumes that all the non-dominant
providers will wish to interoperate. We have gotten ever-changing
representations of the degree to which such providers do interoperate,
but it is clear that for a substantial part of the relevant period,
AOL's competitors have not interoperated themselves and, to this day,
the two largest competing IM services, Microsoft and Yahoo!, do not
interoperate, nor do some other members of the IM Unified coalition.
This suggests there are issues to be worked out before they
interconnect, and/or that the Majority's behavioral theory is less than
perfect in its predictive value.

In sum, though creative, the behavioral theory espoused here does not
explain away the tangible evidence, discussed above, that contravenes
the conclusions reached in the *Order.*

> E. The IM Condition Itself

The IM condition is minor and not fairly derived from the analysis. The
Majority has chosen to require interoperability of some future IM video
product. The only problem is that these products, in large measure, do
not yet exist, and thus there is not a market, let alone a market
monopolist. Without a clear product, we cannot define a product market,
nor can we assess the competitiveness of that market. Moreover, this
product may or may not develop in the marketplace. The product may or
may not be developed by AOL. I believe in innovation markets and
sometimes cautiously accept protecting such markets through government
intervention. In this case, however, I lack any confidence that we know
how IM will evolve, or if identifiable harm will result.

It is no answer to say that our action does no harm and may do good. Our
actions may very well affect innovation, by restricting AOL\'s
incentives to innovate, and by favoring competitors, who can innovate
without interoperating with AOL, thus restricting AOL in a market for
future services. Under the Majority\'s hasty establishment of
interoperability as being in the public interest for AOL alone, other
players can develop new products without any regulatory restraints,
while an effective competitor remains shackled. Rather than preserving a
competitive market, we may do nothing more than tip the market to
another player. To impose a condition at this stage without incurring
these risks would take a wizard---I guess a Wizard of AIHS!

I believe video AIHS has been crafted by the Majority in an attempt to
manufacture merger specificity where there is none. The anticompetitive
analysis runs to the existing IM product. AOL alone operates IM and it
did so when Time Warner was just a glint in its eye. Normally, what this
should mean is that a condition on the merger is unwarranted.
Undeterred, the Majority proceeds with a condition by inventing a
product that requires assets from both the merging parties. Video AIHS,
a product baked with ingredients from Time Warner -- a little content, a
little cable broadband -- and presto you have a heretofore unseen IM
Video product and your merger specificity problem is solved. "Behold,
the great and powerful AIHS! "

III\. IT IS INAPPROPRIATE TO ESTABLISH INTEROPERABILITY AS A REGULATORY
PARADIGM IN THIS PROCEEDING.

A.  A Misguided Regulatory Leap Into the Internet Space

This *Order* bends over backwards to give the impression that we are not
regulating the Internet by imposing a condition on IM. Even more clever,
it asserts that this condition will avert the need to regulate, because
it purportedly will kick open a robust competitive landscape and thereby
avoid intervention later to tackle the effects of a dominant provider.

Perhaps. But all the qualifications in the world cannot escape the fact
that this agency is asserting and *exercising* jurisdiction over a
service and product that springs directly from the Internet, and the
imposition of a condition, no matter how modest, is a regulatory act.

The *Order* asserts that the Commission has jurisdiction under Title I
of the Communications Act. That Title does give this agency very broad
authority over communications services, which easily encompasses much of
the activity that takes place on the Internet. Indeed, without more,
Title I could be interpreted as empowering the Commission to regulate
chat rooms, e-mail services, peer-to-peer services such as Napster, and
even the Internet browser market.

With regard to Internet-like services, the fact that we have always had
Title I authority has not meant it was prudent to exercise it. Indeed,
from the earliest days, the Commission has carefully drawn a distinction
between communications services that it defined as \"basic\" or
\"telecommunication services\" and \"enhanced\" or \"information
services.\"[^863] The distinction was made as a matter of policy, not
power, to limit or avoid regulation and to rely on competition for
innovative information services, while regulating as common carriers the
providers of basic or telecommunications services. This distinction took
on greater import with the rise of the Internet, which was seen as the
mother of all \"information services.\" In addition, this distinction is
the basis for a parade of pronouncements by members of this very
Commission, that we do not, will not and shall not regulate the
Internet.[^864]

I have long been of the view that the telecommunications/information
services distinction is, in the long run, untenable.[^865] Digital,
packet-based technologies will increasingly blur and obliterate the
ability to make any rational distinction between the transmission of
information and the information itself. Therefore, I am not critical of
looking for ways to step beyond the distinction. I do, however,
criticize the Majority for taking that step and thereby walking away
from decades-long policies of declining to regulate services in this
jurisdictional category, without any meaningful explanation, or even
consideration of this significant turnabout. Rather, the Majority
asserts that IM fits within a category under our jurisdiction, and
lightly dismisses the need to discuss the nature of the service without
conceding the traditional deregulatory implication of this
categorization. The result is a regulatory foray across a border
consistently held to be inviolate. This step is a very big one and
should not be made in such a breezy manner and in the context of an
adjudication, particularly to impose such a minor and questionable
condition that rests on such a questionable evidentiary basis.

Taking the analysis and the remedy together, it is evident that the real
driving force behind this condition is a preference by the Majority for
interoperability as the market paradigm for IM services, indeed, perhaps
for all Internet-based communications. The Majority declares that the
public interest standard somehow compels interoperability, yet have no
basis for that finding in the statute or the record. More startling, the
Commission, with no particular technical, or business competence
declares that elements of IM make up an "essential input for the
development and deployment of many, if not most, future high-speed
internet-based services that rely on real-time delivery and
interaction."[^866]

There may be a case for asserting our jurisdiction over IM services, and
then finding that they must interoperate as a matter of law, though I
doubt it. But such a grand conclusion should only be reached after very
careful and thoughtful deliberations and full comment by a wide range of
interested parties, which can only be achieved in a rulemaking
proceeding. The record here and the limited comment are woefully
insufficient for considering and anticipating the reverberations of our
conclusions. This merger, involving only two members of the industry is
not an appropriate vehicle for taking our authority where the Majority
does today.

B. Achieving Interoperability Through Market Forces

Even assuming the merits of interoperability, which may be substantial,
there is still a very central question: whether interoperability can
only be achieved by government-intervention, or whether market forces
will produce the desired result. I am concerned that in new and
innovative markets, the government will be too easily seduced to
intervene prematurely, given the initial excitement and promise (if not
hype) of innovative offerings, the rapid pace of change in the market,
and competitors' natural anxiety (if not panic).

Increasingly, the variables of digitalization, broadband and the
Internet are combining to spurn entirely new products and services for
communications. These innovation markets are marked by the fact that
they are in their infancy and present challenges to understanding them.
For example, there is usually scant experience with the new markets that
these forces are just now spawning. The products in these markets may be
technically novel, making it difficult to comprehend, and easy to
exaggerate, or underestimate, their significance or the ability to offer
competing services. And business models, business relationships and
terms and conditions for the market have yet to form fully. In short,
there is typically a period of extensive experimentation in developing
markets. During this period, the lucky innovator will always be racing
to take advantage of having created the market and to gain and maintain
market leadership. Competitors, likewise, often will be struggling to
respond to a new threat. Increasingly, one of their responses, even in
the largely unregulated Internet realm, is to seek the assistance of the
government either to intervene directly and impede the market leader, or
to use the threat of regulation as business leverage with that player.

Given the infancy and necessarily speculative nature of these markets,
it is easy to be seduced into believing that an ounce of early
government intervention will prevent these markets from catching an
anticompetitive cold. This view emphasizes how quickly a provider can
gain market share and market dominance. Yet it is often overlooked that
in the network effect, innovation environment players often fall and die
a fiery death just as easily as they ascend (see the 2000 NASDAQ
market), and the government should be careful not to let its imagination
run away with it.

That said, the more important question, even when there is some general
agreement about an operating or market paradigm such as interoperability
or open standards, is whether the terms and conditions for those regimes
are better developed in the market through negotiation and market
responses, or by a regulator. Given the experience of
"regulatorily-derived" terms and conditions (its plodding process, its
high regulatory costs, its risk of distorting efficient development, its
political compromises), rarely should we leap to regulatory approaches
without compelling circumstances and strong confidence that the
conditions are clearly absent for market resolution through competition,
business negotiation and innovation. Moreover, it is hubris to believe
that regulators can (better than businesses) craft the optimal terms and
conditions to govern the fundamental rules for market operation,
particularly where innovation is at a premium and new and novel
technologies are at stake. The beauty of market mechanisms has always
been that the give and take among competitors and consumers produces an
optimal set of terms and conditions. To say that these mechanisms will
not work with respect to video AIHS before we even know what these
services will comprise seems to indulge regulators\' fears, not to
mention our eagerness to \"look tough\" at the expense of sober
reflection on the inconclusive record before us.

The concern with premature intervention is also great where viable
business models are still being explored. The Internet is a wonderful
space, but producers are still struggling mightily to find services and
approaches that will allow them to prosper. I am concerned about the
government labeling aspects of market activity as anticompetitive before
we even have a fix on the elements of a viable business. Notions such as
proprietary assets and exclusivity can surely rise to anticompetitive
levels, but they also are often the keys to profitability and viable
business that allow producers to serve consumers effectively. The
struggle for brand protection and strong copyright protections in the
Internet space by established businesses is animated by that very same
sort of concern.

Regulatory intervention can also divert companies from efforts in the
marketplace to battles in the halls of government. When the government
appoints itself referee, it provides a venue to which competitors can
run to gain market leverage, and to appeal even the most minor market
disputes. This puts the government in the game on an ongoing basis. I
think companies and regulators delude themselves into believing a
regulator can act surgically---a sharp quick cut---and then stay out.
One searches past experiences in vain for such an example, and I am
skeptical of our skill with the knife.

For these many reasons, I cannot support the Majority\'s decision to
impose an IM condition based on this record.

> **SEPARATE STATEMENT OF COMMISSIONER GLORIA TRISTANI**
>
> *Re: Applications for Consent to the Transfer of Control of Licenses
> and Section 214 Authorizations by Time Warner Inc. and America Online,
> Inc., Transferors, to AOL Time Warner Inc., Transferee*

I voted to approve the license transfers involved in the AOL and Time
Warner merger because the conditions imposed to serve the public
interest were the best that could be achieved under the circumstances,
and tipped the balance narrowly in favor of approval. I urged my
colleagues to adopt open-code interoperability as a fundamental
component of the public interest in the Internet communications era. I
believe that interest compelled the merged company to achieve, and
publish, interoperability protocols by a date certain.[^867] I write
separately to distinguish the outcome for which I cast my vote, from the
policy of Internet openness I urged.

### I. [Framing the Internet Openness Problem Presented by this Case]{.smallcaps}

> But if I bought a radio and found that it accessed only certain
> stations and not others, I'd be upset. I suppose I could have a half
> dozen radios, one for each set of stations. It makes no more sense to
> have a half dozen computers or different operating systems or browsers
> for Web access. This is not just impractical; it fragments the Web,
> making it cease to be universal.[^868]

What began as an inquiry into the blocking of text-based instant
messages[^869] ("IM") sent to AOL customers, became instead an inquiry
into whether the migration of this business practice, and the
proprietary code upon which it depends, to Time Warner's cable platform,
would contravene the public interest in an open, interoperable Internet.
We concluded the evidence in the record demonstrated AOL's business
practice of controlling the flow of information to and from its
customers would create unacceptable bottlenecks in the broadband world
of high speed, interactive communications services.

AOL's use of proprietary code to filter out both unwanted incoming and
outgoing messages confronted this agency with a new digital-era problem:
communications infrastructure control that is no longer limited to
opening or closing access to physical networks. The marriage of cable
network hardware with the proprietary protocols necessary to access the
virtual network of listeners and speakers using the Internet provides
the possibility of complete control over a consumer's incoming receipt
of content and outgoing speech. Because the record disclosed this code
is an essential input for the future development of many, if not most,
new IM-based services, and these new services will require cable modem
access to the broadband pipe provided by the Time Warner network, the
extent of the *future* threat was readily cognizable.[^870] This
Commission has not previously confronted a situation where a corporate
consolidation squarely presented a commercial party's refusal to allow
its system to interoperate with its competitors thereby distorting a
worldwide pathway of communication.

A.  **Factual Background of the Parties' Physical and Virtual Networks**

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1.  *The Physical Network Assets*[^871]

Time Warner, the second largest cable provider in the country, serves
12.7 million subscribers through cable systems that pass approximately
21 million homes and serves approximately 18.9 % of the 67 million cable
subscribers nationwide. Time Warner also offers Internet access over its
cable systems through Road Runner, a joint venture that provides
high-speed Internet access and content optimized for broadband networks
to more than 1.1 million subscribers. Time Warner serves businesses
through Time Warner Telecom, Inc. ("TWT"), a facilities-based
communications provider serving large businesses. TWT offers businesses
"last mile" broadband connections for data, high-speed Internet, local
voice and long-distance services. TWT is certified to offer
telecommunications services in 21 metropolitan areas in 12 states.

2.  *The Virtual Network Assets*[^872]

AOL is the world's largest Internet Service Provider ("ISP"), and serves
about five times as many narrowband subscribers as its nearest
competitor. AOL's large subscriber base and its ability to attract and
hold its members to the services and information provided by AOL itself,
as opposed to having them go to other sites on the World Wide Web, is
highly valued.[^873]

Instant messaging, in its current form, enables the almost instantaneous
exchange of short, private, individualized text messages over the
Internet between two users each of whom is on the other's "buddy list."
AOL has an estimated 150 million users worldwide on its IM
services.[^874] More than 30 million individuals use IM at least once a
month, and AOL transmits almost five times as many IMs a day as it does
e-mails.[^875]

An essential input[^876] to an IM service is the provider's Names and
Presence Database or "NPD."[^877] The names and presence detection
information enables users to know other users are online or available
and permits messages to be addressed and delivered. The actual NPD
consists of two parts. First, it is a database of the users' unique IM
names and addresses and, second, it has a "presence detection" function.
Presence detection is the IM provider's knowledge, and its ability to
inform others, that a particular user is online and the bandwidth
capacity of that user. This also signals that the user is available to
engage in instant information exchange.

The NPD is the asset that allows a virtual communications network for
persons who have requested participation in the network to exchange
communications in real time with other users. Use of an NPD, together
with the high bandwidth infrastructure provided by the cable network,
will transform the Internet experience by replacing today's static pages
of information with dynamic and interactive content.[^878] The Report
and Order characterized these new applications and services as advanced
IM-based high-speed services ("AIHS").[^879] It is these services that
were the focus of the interoperability condition.

B. **The Instant Messaging Market has "Tipped" Towards an AOL Monopoly**

The market in text-based instant messaging is characterized by strong
"network effects," *i.e.*, a service's value increases substantially
with the addition of new users with whom other users can communicate.
AOL, by any measure described in the record, is the dominant IM provider
in America. It was also uncontested that AOL has consistently resisted
interoperability with other non-licensed IM providers.[^880] AOL's
market dominance in text-based messaging, coupled with the network
effects and its resistance to interoperability, has established a very
high barrier to entry for competitors that contravenes the public
interest in open and interoperable communications systems.

Recent literature suggests that near monopoly outcomes in markets
exhibiting strong network effects are "tipped markets."[^881] Here, we
declined to opine "whether the factual conclusions \[regarding
text-based instant messaging\] in this *Order* can be characterized as
amounting to a tipped market or not."[^882] However, in 1999, various
non-AOL IM providers repeatedly attempted to gain access to AOL's NPD in
order to pass messages between customers of AOL and other services. AOL
blocked these attempts.[^883] At the *en banc* hearing in this
proceeding in July 2000, AOL's representatives said that protocols that
allowed the messages to flow freely could not be achieved until July
2001 at the earliest.[^884] AOL's competitors contended AOL could have
ceased blocking competitor's messages immediately and achieved open
protocols for interoperability in less time.[^885] AOL's stark refusal
to interoperate with its competitors, and the timeline for achieving
interoperability cited at the *en banc* hearing, represented an apparent
change in strategy.[^886] The most reasonable inference was *AOL's
strategy switch from openness to blocking* *was a business decision
rather than one based on technical concerns*.[^887]

If AOL's competitors, taken together, represented marketshare close to
AOL's size, an equilibrium would have existed that would have made
interoperability the most effective business strategy for all competing
services because interoperability would have provided access to the
maximum number of people. Each service would thereby be more useful and
valuable because its users could have accessed more people. However, if
one of the interoperating providers wanted to dominate the market, it
could close its network and adopt a strategy of refusing to
interoperate. Such a business practice would seem to make its service
less valuable and hurt its users by cutting them off from the bigger,
interoperating network of users. But, if the provider refusing to
interoperate had a big enough share of the market *prior* to refusing to
interoperate, any loss in value or harm to its business would be
relatively slight because its customers would still be able to reach
most other users. And when it closed its network to the clients of the
smaller providers, the refusal to interoperate would result in
defections from the smaller services to the dominant one. This would
further swell the dominant provider's NPD and shrink the smaller ones.
Without interoperability no smaller provider could catch up to the
largest one.

This is precisely the business strategy that a premerger AOL undertook.
Under these conditions AOL's strategy of refusing to interoperate was
profitable because the incentive to switch to the largest provider could
hardly be resisted. The economic and antitrust literature generally
acknowledge that the only motive for a provider to close its network and
refuse to interoperate is to cause the market to tip in its favor. After
the point of tipping has been passed, the largest network will continue
to grow at the expense of the smaller networks until it is the dominant
network, perhaps possessing monopoly control. From that point forward,
the dominant network remains dominant, not necessarily because it
charges the lowest prices, offers the best quality, or offers innovative
features that customers want, but simply because in the past it gained
the most users.[^888]

This is not merely sharp business practice\--it contravenes well-settled
federal communications policy that is equally applicable to a *virtual*
communications pathway as to a *physical* one. As the Supreme Court said
many years ago,

> The First Amendment\'s command that government not impede the freedom
> of speech does not disable the government from taking steps to ensure
> that private interests not restrict, through physical control of a
> critical pathway of communication, the free flow of information and
> ideas.[^889]

A premerger AOL demonstrated both the ability and the economic incentive
to exploit its proprietary protocols and its large subscriber base to
position itself as an informational gatekeeper. Based on the foregoing,
and in particular on AOL's change from a policy of interoperability and
openness to blocking incoming and outgoing communications, I would have
concluded the narrowband IM market had tipped.[^890] Because the "tipped
market" will more likely than not persist in the broadband space, the
record called for a mandate compelling meaningful Internet openness in
the broadband space by a date certain.[^891] The principle of openness I
urged here, has been elegantly expressed elsewhere:

> Competition should be the policy. And code that enables competition
> should be the rule.[^892]

The new company's control over both the network served by Time Warner's
cable plant and the code-based NPD applications of AOL, when combined
with the aforementioned business practices, established it will possess
*virtual* *and physical* bottlenecks in the new world of high speed
services. New applications that require real time functionality will
require an NPD to work, thus an NPD encased in a proprietary-code shell
means the owner controls a virtual bottleneck analogous to the cable
operator's control over its physical network. This Agency's history and
Congressional directives in the 1996 Act compelled us to closely
scrutinize and ultimately reject such an outcome.[^893]

**II. [An Open and Interoperable Internet Serves the Public
Interest]{.smallcaps}**

> Incompatibility between computers had always been a huge pain. . . .
> .the real world of high energy physics was one of incompatible
> networks, disk formats, data formats, and character-encoding schemes,
> which made any attempt to transfer information between computers
> generally impossible. The computers simply could not communicate with
> each other. The Web's existence would mark the end of an era of
> frustration.[^894]

Widely regarded as the creator of the Internet, Tim Berners-Lee has
repeatedly stressed the Internet's openness and interoperability as its
principal feature and virtue. From its inception the Internet was
designed to avoid the interoperability problem that we confronted in
this case.[^895] Like the legacy industry examples used by Mr.
Berners-Lee, the Internet is a communications network; unlike the
communications networks before it however, the Internet depends on both
physical interconnection and code-based interoperability.

A.  **Interoperability Furthers Competition and is Consistent with
    Congressional Objectives of an Open and Vibrant Internet**

Several extant congressional objectives support an open and vibrant
Internet. First, Congress established a clear national policy to
"promote the continued development of the Internet" and "to preserve the
vibrant and competitive free market that presently exists for the
Internet and other interactive computer services unfettered by Federal
or State regulation."[^896] Concurrently, Congress charged the
Commission with "encourag\[ing\] the deployment on a reasonable and
timely basis of advanced telecommunications capability to all
Americans."[^897] Deployment of such capability facilitates the use of
advanced services, of which residential high-speed Internet access
services are one kind.[^898]

In addition to explicit provisions regarding high-speed services and the
Internet, concerns about the integration of video programming content
and the cable conduit are contained in statutory provisions and
Commission rules, such as the horizontal ownership cap and the channel
occupancy rules.[^899] Thus, apart from a competition analysis, the
public interest impact of combining AOL's virtual, code-based network
assets as described above, with the extensive cable and content assets
of Time Warner compels a policy that considers *inter alia,* "cable
communications provide and are encouraged to provide the widest possible
diversity of information sources and services to the public,"[^900] and
"promot\[ing\] competition in the delivery of diverse sources of video
programming."[^901]

Finally, the Supreme Court has repeatedly emphasized the Commission's
duty and authority to promote diversity and competition among media
voices: "It has long been a basic tenet of national communications
policy" that "the widest possible dissemination of information from
diverse and antagonistic sources is essential to the welfare of the
public."[^902] The Commission's interest in "promoting widespread
dissemination of information from a multiplicity of sources" is "an
important governmental interest."[^903]

**B. The Condition Imposed in this Case Seeks to Preserve Internet
Openness and Serves the Policies Favoring Competition**

The *Report and Order* bars the merged company from offering a new
service that utilizes both AOL's NPD *and* Time Warner's cable assets
until it has achieved interoperability with at least some of its
competitors.[^904] Thus, the outcome most threatening to the free flow
of information and consumer choice, where the tipped market in the text
based instant messaging world migrates to the broadband world of
high-speed services, would appear to be mitigated if not avoided. But,
the best public interest outcome, maintaining the openness that has
characterized the Internet since its inception, was not guaranteed. The
condition, rather than ensuring the best outcome, instead sought to
avoid the worst. It is in this sense that my approach differed from my
colleagues.

First, under the bar-the-worst-approach, the new company may decline to
offer the new service that triggers the requirement that they achieve
interoperability. Under this scenario there is no interoperability and
little, if any, public interest benefit arising from the condition.

Second, if the merged company chooses to offer the new service, they may
do so by entering into contracts with no less than three competitors who
offer NPD-based services. This outcome achieves *contractual
interoperability rather than code-based interoperability*. In other
words, if the competitors agree to use the merged company's proprietary
code, they actually expand the market-domination of this code rather
than *interoperate* with that code. This is not open interoperability
like that which makes email work today. To the extent applications
running on AOL's proprietary protocols proliferate, the applications
consumers desire will likely be bound in some way to AOL and its
contractors. If these protocols are proprietary and closed, the
competitive landscape of the Internet world might soon look like the
competitive landscape of the software operating system world.[^905]
Because the Internet is a critical pathway for information
dissemination, this outcome would foreshadow precisely the kind of
improper private control of communications infrastructure the Supreme
Court has repeatedly rejected.[^906]

Third, the merged company may offer the new, high-speed service using
its combined assets if it achieves server to server interoperability
using a public, published protocol that bears the approval of
appropriate international standard setting bodies. This is the outcome
that best serves the public interest in open communications systems,
provides consumers with the maximum number of choices and most
completely deconstructs the "tipped market" that favors anti-competitive
business practices. It is the only outcome in the *Order* that ensures
interoperability based on open, non-proprietary code.

I supported the overall scheme adopted in the *Report and Order*, in
part, because it also set forth several policy features applicable in
future mergers. First, we soundly rejected private, corporate control of
the Internet protocol pathway. Second, we rejected the facile assumption
that business practices based on proprietary code that create
informational bottlenecks on the Internet somehow serve the public
interest. Third, the merged company must achieve interoperability at the
time it seeks to utilize its combined assets, and not before. This
avoided a ham-handed result (not unknown in general rulemakings in the
world of converged technologies) that would be inconsistent with our
obligation to carefully tie the condition to the facts of the
case.[^907] Fourth, if the commercial realities in the converging
broadband space discussed in this record have materially changed, and
clear and convincing evidence establishes the public interest in
maintaining the bar on the new service offering has thereby dissipated,
relief from the terms of the Order is a fair outcome for consumers and
the parties.

III. **[Conclusion]{.smallcaps}**

Ensuring the continued viability of an open, interoperable Internet does
not constitute "regulation" in the traditional sense.[^908] Ensuring
interoperability, far from regulating the Internet, actually blocks *de
facto* regulation of the Internet by a private corporation through a
combination of a cable bottleneck, proprietary code, network effects and
the high consumer cost of switching to a competing service.
Interoperability combats centralized control of speech and ultimately,
severely restricts both government and corporate power to control the
speech transmitted on the Internet. Arguing against interoperability in
this case is akin to arguing against the pro-competitive,
interconnection policies the FCC has historically pursued and that are
present in the requirements in the 1996 Act.[^909]

The rise of the commercial Internet, as this case demonstrates, does not
confound application of the existing federal policies that require
interconnection and interoperability of communications systems. In fact,
ensuring code-based interoperability goes hand in hand with the
Commission's fundamental obligation to ensure that our communications
infrastructure serves the public interest, assists the development of
the Internet, and sparks competition and innovation. The mandate that
such systems serve the public interest, in the context of this case,
compelled action to ensure that the Internet remains open and vibrant.
Here, we took the initial steps towards preserving that openness. Only
time will tell whether these efforts will be sufficient.

[^1]: ^\*^ The Commission on January 19, 2001 approved the final version
    of this Memorandum Opinion and Order.

    ^?^ 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, 2000) ("Application").

[^2]: 47 U.S.C. §§ 214(a), 310(d). AOL and Time Warner now independently
    control the licenses and authorizations at issue.

[^3]: *See* 47 U.S.C. §§ 214(a), 310(d). *See also Applications For
    Consent To The Transfer Of Control Of Licenses and Section 214
    Authorizations From MediaOne Group, Inc., Transferor, To AT&T Corp.,
    Transferee*, CS Docket No. 99-251, Memorandum Option and Order
    (*"AT&T-MediaOne Order")*, 15 FCC Rcd 9816, 9817 ¶ 1 (2000);
    *Applications of Ameritech Corp., Transferor, and SBC Communications
    Inc., Transferee, for Consent To Transfer Control of Corporations
    Holding Commission Licenses and Lines Pursuant to Sections 214 and
    310(d) of the Communications Act and Parts 5, 22, 24, 25, 63, 90,
    95, and 101 of the Commission's Rules,* CC Docket No. 98-141,
    Memorandum Opinion and Order ("*SBC-Ameritech Order*"), 14 FCC Rcd
    14712, 14736 ¶ 46 (1999), *rev'd in part on other grounds* *sub
    nom.* Assoc. of Communications Enterprises v. FCC, No. 99-1441, 2001
    WL 20519 (D.C. Cir. Jan. 9, 2001); *Application of WorldCom, Inc.
    and MCI Communications Corporation for Transfer of Control of MCI
    Communications Corporation to WorldCom, Inc*., CC Docket No. 97-211,
    Memorandum Opinion and Order ("*WorldCom-MCI Order*"), 13 FCC Rcd
    18025, 18026-27, 18030-32 ¶¶ 1, 8-10 (1998); *Applications of NYNEX
    Corp. Transferor, and Bell Atlantic Corp. Transferee, for Consent to
    Transfer Control of NYNEX Corp. and Its Subsidiaries*, File No.
    NSD-L-96-10, Memorandum Opinion and Order ("*Bell Atlantic-NYNEX
    Order*"), 12 FCC Rcd 19985, 19987, 20000-04 ¶¶ 2, 29-32 (1997).

[^4]: *SBC-Ameritech Order*, 14 FCC Rcd at 14736 ¶ 46; *WorldCom-MCI
    Order*, 13 FCC Rcd at 18031-32 ¶ 10.

[^5]: *See, e.g.,* *AOL and Time Warner In Record \$350 Billion Merger*,
    [Comm. Daily]{.smallcaps}, Jan. 11, 2000, at 1; Steven Burke, *AOL,
    Time Warner Merger: A New Model For Partnerships*, [CMP's
    TechWeb]{.smallcaps}, Jan. 10, 2000, at
    http://www.techweb.com/wire/finance/story/INV2000010S0008; Paul
    Kagan Assoc., Inc., *AOL: You've Got Time Warner*, Kagan,
    [Broadband,]{.smallcaps} Jan. 10, 2000.

[^6]: *Cf.* *AT&T-MediaOne Order*, 15 FCC Rcd at 9811 ¶ 10 (comparing
    FCC standards to those employed by Department of Justice);
    *Applications of AT&T Corp. and Tele-Communications, Inc. for
    Transfer of Control of Tele-Communications, Inc. to AT&T Corp.*, CC
    Docket No. 98-178, Memorandum Opinion and Order ("*AT&T-TCI
    Order*"), 14 FCC Rcd 3160, 3168-69 ¶ 14 (1999) (same).

[^7]: *See* 15 U.S.C. § 18.

[^8]: *See* Section II, *infra* (Public Interest Framework).

[^9]: *See* Applicants' Reply Comments at 53.

[^10]: *See* *Policies and Rules for Alternative Incentive Based
    Regulation of Comsat Corp.*, IB Docket No. 98-60, Report and Order,
    14 FCC Rcd 3065, 3079 ¶ 38 (1999) (citing *SEC v. Chenery Corp.*,
    332 U.S. 194, 201-03 (1947)).

[^11]: "Narrowband" Internet service is provided over modems that
    connect computers to the Internet over traditional telephone lines,
    which currently allow the transfer of data at speeds of up to 56
    kbps.

[^12]: Some have referred to the effect of AOL's techniques to keep its
    subscribers within its own services as a "walled garden." AOL's
    subscribers spend approximately 85% of their time within this walled
    garden rather than leaving to explore the remainder of the Internet.
    *See* Holly Becker, *America Online*, Lehman Brothers, June 29, 2000
    at 35 ("Lehman Brothers June 29 Report"), cited by Ex Parte Comments
    of Disney at 14-15, transmitted by letter from Lawrence R. Sidman,
    Verner, Lipfert, Berhard, McPherson & Hand, to Magalie Roman Salas,
    Secretary, FCC, dated July 25, 2000.

[^13]: *See In the Matter of Application for Consent to the Transfer of
    Licenses and Section 214 Authorizations from MediaOne Group, Inc.,
    Transferor, to AT&T Corp., Transferee*, CS Docket No. 99-251, AOL
    Comments at 12-17; *In the Matter of Application for Consent to the
    Transfer of Licenses and Section 214 Authorizations from
    Tele-Communications, Inc, Transferor, to AT&T Corp., Transferee*, CS
    Docket No. 98-178, AOL Comments at 30-39.

[^14]: *See, e.g.*, 47 U.S.C. §§ 533(f), 548; 47 C.F.R. §§ 76.503,
    76.504, 76.1000-76.1004; *AT&T-MediaOne Order*, 15 FCC Rcd at 9835 ¶
    38.

[^15]: *In the Matter of America Online, Inc. and Time Warner Inc.¸* FTC
    Docket No. C-3989, Agreement Containing Consent Orders; Decision and
    Order, 2000 WL 1843019 (FTC) (proposed Dec. 14, 2000) ("FTC Consent
    Agreement").

[^16]: *See* Appendix A for a list of commenters in this proceeding.

[^17]: *See Nondiscrimination in the Distribution of Interactive
    Television Services Over Cable*, CS Docket No. 01-7, Notice of
    Inquiry ("*ITV NOI*"), FCC 01-15 (rel. Jan. 19, 2001).

[^18]: 47 U.S.C. §§ 214(a), 303(r), 310(d). *See* *WorldCom-MCI Order*,
    13 FCC Rcd at 18030 ¶ 8 (1998)*; Bell Atlantic-NYNEX* Order*,* 12
    FCC Rcd at 20000 ¶ 29.

[^19]: *SBC-Ameritech Order*, 14 FCC Rcd at 14736 ¶ 46; *WorldCom-MCI
    Order*, 13 FCC Rcd at 18031 ¶ 10.

[^20]: *AT&T-TCI Order*, 14 FCC Rcd at 3169-70 ¶ 15 (1999);
    *WorldCom-MCI Order*, 13 FCC Rcd at 18031 ¶ 10 n.33 (citing 47
    U.S.C. §309(e) (burdens of proceeding and proof rest with the
    applicant.)).

[^21]: *AT&T-MediaOne Order*, 15 FCC Rcd at 9820-21 ¶ 9; *SBC-Ameritech
    Order*, 14 FCC Rcd at 14737 ¶ 48.

[^22]: *Id.*

[^23]: *Id.*

[^24]: *Id.*

[^25]: Although the Commission's analysis of competitive effects is
    informed by antitrust principles and judicial standards of evidence,
    it is not governed by them, which allows the Commission to arrive at
    a different assessment of likely competitive benefits or harms than
    antitrust agencies may find based solely on antitrust laws. *See FCC
    v. RCA Communications,* 346 U.S. 86, 96-97 (1953) ("To restrict the
    Commission's action to cases in which tangible evidence appropriate
    for judicial determination is available would disregard a major
    reason for the creation of administrative agencies, better equipped
    as they are for weighing intangibles by specialization, by insight
    gained through experience, and by more flexible procedure.") *See
    also* *WorldCom-MCI Order,* 13 FCC Rcd at 18034 ¶ 13 (*citing RCA
    Communications,* 346 U.S. at 94; *United States v. FCC*, 653 F.2d
    72, 81082 (D.C. Cir. 1980) (*en banc*) (The Commission's
    "determination about the proper role of competitive forces in an
    industry must therefore be based, not exclusively on the letter of
    the antitrust laws, but also on the 'special considerations' of the
    particular industry."); *Teleprompter-Group W*, 87 FCC 2d 531
    (1981), *aff'd on recon.,* 89 FCC 2d 417 (1982) (Commission
    independently reviewed the competitive effects of a proposed
    merger); *Equipment Distributors' Coalition, Inc., v. FCC,* 824 F.2d
    937, 947-48 (1^st^ Cir. 1993) (public interest standard does not
    require agency to "analyze proposed mergers under the same standards
    that the Department of Justice . . . must apply.).

[^26]: 15 U.S.C. § 18.

[^27]: *See WorldCom-MCI Order,* 13 FCC Rcd at 18032-33 ¶¶ 12-13; *Bell
    Atlantic-NYNEX Order*, 12 FCC Rcd at 19987 ¶ 2.

[^28]: *Bell Atlantic-NYNEX Order,* 12 FCC Rcd at 19987 ¶ 2.

[^29]: *AT&T-TCI Order*, 14 FCC Rcd at 3168-69 ¶ 14; *WorldCom-MCI
    Order*, 13 FCC Rcd at 18030-31 ¶ 9.

[^30]: *WorldCom-MCI Order*, 13 FCC Rcd at 1830-31¶ 9.

[^31]: *See, e.g., id.*

[^32]: 47 U.S.C. § 521(4).

[^33]: 47 U.S.C. § 523(a).

[^34]: *Turner Broadcasting System, Inc. v. FCC*, 512 U.S. 622, 663
    (1994) (*quoting United States v. Midwest Video Corp.*, 406 U.S.
    649, 668 n.27 (1972)).

[^35]: *Turner Broadcasting*, 512 U.S. at 663. *See also Review of the
    Commission's Regulations Governing Television Broadcasting:
    Television Satellite Stations Review of Policy and Rules*, 14 FCC
    Rcd 12903, 12910-12916 (1999). *See also Red Lion Broadcasting Co.
    v. FCC*, 395 U.S. 367, 390 (1969) ("It is the purpose of the First
    Amendment to preserve an uninhibited marketplace of ideas in which
    truth will ultimately prevail, rather than to countenance
    monopolization of that market, whether it be by the Government
    itself of a private licensee."); *Turner Broadcasting,* 512 U.S. at
    657 ("\[T\]he potential for abuse of this private power over a
    central avenue of communication cannot be overlooked. The First
    Amendment's command that government not impede the freedom of speech
    does not disable the government from taking steps to ensure that
    private interests not restrict, through physical control of a
    critical pathway of communication, the free flow of information and
    ideas.").

[^36]: *WorldCom-MCI Order*, 15 FCC Rcd at 9822 ¶ 12; *SBC-Ameritech
    Order,* 14 FCC Rcd at 3170 ¶ 51.

[^37]: *Id*.

[^38]: *See* 47 C.F.R. § 1.10; *WorldCom-MCI Order*, 13 FCC Rcd at
    18031-32 ¶ 10.

[^39]: 47 U.S.C. § 214(c). *See WorldCom-MCI Order,* 13 FCC Rcd at
    18031-32 ¶ 10; *Bell Atlantic-NYNEX Order*, 12 FCC Rcd at 20002 ¶ 30
    n.59 (*citing Atlantic Tele-Network, Inc. v. FCC*, 59 F.3d 1384,
    1389-90 (D.C. Cir. 1995).

[^40]: 47 U.S.C. § 303(5). *See WorldCom-MCI Order,* 13 FCC Rcd at 18032
    ¶ 10 n.36 (*citing FCC v. Nat'l Citizens Comm. for Broadcasting*,
    436 U.S. 775 (1978) (broadcast-newspaper cross-ownership rules
    properly adopted pursuant to section 303(r)); *U.S. v. Southwestern
    Cable Co.,* 392 U.S. 157, 178 (1968) (section 303(r) powers permit
    Commission to order cable company not to carry broadcast signal
    beyond station's primary market); *United Video, Inc. v. FCC,* 890
    F.2d 1173, 1182-83 (D.C. Cir. 1989) (syndicated exclusivity rules
    adopted pursuant to section 303(r) authority).

[^41]: *See WorldCom-MCI Order,* 13 FCC Rcd at 18034-35 ¶ 14.

[^42]: *AT&T-TCI Order,* 14 FCC Rcd at 3170 ¶ 16.

[^43]: *See* Supplemental Information to Applications filed by AOL and
    Time Warner on Mar. 21, 2000 ("Applicants' March 21 Supplemental
    Information") at 8; *see also* America Online, Inc., *Form 10-Q For
    the Quarterly Period Ended Mar. 31, 2000,* at 4.

[^44]: Application at 2.

[^45]: America Online, Inc., *America Online Reports Record-Breaking
    Results For FY2001 First Quarter In Net Income, Total Revenues,
    Ad/Commerce And Membership* (press release), Oct. 18, 2000.

[^46]: America Online, Inc., *AOL Membership Surpasses 26 Million
    Milestone* (press release), Dec. 12, 2000.

[^47]: Applicants' March 21 Supplemental Information at 4.

[^48]: *See* America Online, Inc., *Who We Are,* at
    http://corp.aol.com/whoweare/partners.html (visited Nov. 28, 2000).

[^49]: America Online, Inc., *Form 10-K for Year Ended* *June 30, 1999,*
    at 3 ("AOL 1999 10-K").

[^50]: America Online, Inc., *AOL Gears Up For Holiday Shopping Blitz
    With Best Partners, Most Convenient Tools, And Industry's Leading
    E-Commerce Performance* (press release), Nov. 15, 2000.

[^51]: AOL 1999 10-K, at 3.

[^52]: The Interactive Services Group also houses AOL's Netscape
    Netcenter Web portal, and the AOL.com Web Portal, both of which are
    available to non-AOL members. *Id.*

[^53]: America Online, Inc., *America Online And Satyam Infoway Enter
    Into Agreement To Offer Co-Branded Version Of AOL Instant Messenger
    Service* (press release), July 12, 2000.

[^54]: AOL obtained ICQ when it bought Mirabilis for \$287 million in
    June, 1998. *See* Bernhard Warner, *I Seek Revenue ? Chat App Goes
    Portal*, [The Standard]{.smallcaps}, Feb. 22, 1999, at
    http://www.industrystandard.net/article/
    display/0%2C1151%2C3586%2C00.html (visited Aug. 24, 2000).

[^55]: *See* Section IV.B, *infra*. (Instant Messaging and Advanced
    IM-Based High-Speed Services)

[^56]: Applicants' March 21 Supplemental Information at 5.

[^57]: *Id.*

[^58]: America Online, Inc., *America Online Launches AOL-TV -- The
    First Interactive Television Service for the Mass Market* (press
    release), June 19, 2000.

[^59]: AOL Members pay \$14.95 per month for service, while non-members
    must pay \$24.95 monthly. *See* America Online, Inc., at
    http://www.aoltv.com (visited Nov. 28, 2000).

[^60]: *See* America Online, Inc., at http://store.aolshopdirect.com
    (visited Nov. 28, 2000).

[^61]: Reshma Kapadia, *AOLTV To Take to the Air Monday*,
    [Zdnet]{.smallcaps}, June 16, 2000, at
    http://www.zdnet.com/zdnn/stories/news/0,4586,2589185,00.html
    (visited Aug. 21, 2000).

[^62]: America Online, Inc., *America Online, Inc., Announces Key AOL TV
    Partnerships* (press release), May 11, 1999.

[^63]: AOL 1999 10-K at 4.

[^64]: America Online, Inc., *AOL's Digital City Personalized E-Letter
    Hits 1 Million Mark* (press release), Sept. 6, 2000.

[^65]: America Online, Inc., *AOL Digital City Kicks Off Major Expansion
    to Widen Lead in Fast-Growing Local Online Market* (press release),
    Mar. 21, 2000.

[^66]: AOL Time Warner Inc., *Form S-4 Registration Statement* (filed
    Feb. 11, 2000) at 125.

[^67]: AOL 1999 10-K at 4.

[^68]: *Id.*

[^69]: *Id.*

[^70]: *Id*.

[^71]: *Id*.

[^72]: America Online, Inc., *AOL Latin America Information: Frequently
    Asked Questions*, at http://corp.aol.com/ir/aol&latin-faq.html?
    (visited Aug. 24, 2000).

[^73]: *Id*.

[^74]: AOL 1999 10-K at 5.

[^75]: AOL 1999 10-K at 5.

[^76]: *Id.*

[^77]: Applicants' March 21 Supplemental Information at 11.

[^78]: Applicants' March 21 Supplemental Information at 12. *See*
    *General Motors Corporation, SEC Form 8-K* (filed Aug. 23, 1999) at
    Appendix D at Section 3(j).

[^79]: DBS operators provide programming via satellite to subscribers
    that own or lease small-diameter receiving dishes.

[^80]: *Response to June 9, 2000, Request for Further Information In the
    Matter of Applications of America Online, Inc. and Time Warner Inc.
    for Transfers of Control, CS Docket No. 00-30*, Attachment (June 26,
    2000) ("Applicants' First Response") at 27, transmitted by letter
    from Peter Ross, Esq., Wiley, Rein and Fielding, Counsel for AOL,
    and Arthur Harding, Esq., Fleischman and Walsh, L.L.P., Counsel for
    Time Warner, to Royce Dickens, Deputy Chief, Policy and Rules
    Division, FCC Cable Services Bureau, dated June 26, 2000.

[^81]: *Id.*

[^82]: *Id.*

[^83]: Talk.Com, Inc., at http://www.talk.com/ (visited Aug. 23, 2000).

[^84]: Applicants' First Response at 30.

[^85]: Applicants' First Response at 31. As of August 11, 2000, AT&T had
    a 32% economic interest in Net2Phone, and a 39% voting stake in the
    company. *See* Net2Phone, Inc., *AT&T Completes Net2Phone
    Investment* (press release), Aug. 11, 2000.

[^86]: Applicants' First Response at 30.

[^87]: *Id.*

[^88]: *See* Time Warner Inc., *Time Warner Businesses Report Record
    1999 and Fourth Quarter Results* (press release), Feb. 2, 2000.

[^89]: Applicants' March 21 Supplemental Information at 8.

[^90]: MVPDs include cable, DBS, multichannel multipoint distribution
    services ("MMDS"), and satellite master antenna television ("SMATV")
    providers. *See Annual Assessment of the Status of Competition in
    Markets for the Delivery of Video Programming*, CS Docket No.
    99-230, Sixth Annual Report ("*1999 Competition Report*"), 15 FCC
    Rcd 978, 980 ¶ 3 (generally describing the various types of MVPDs).
    MMDS providers offer programming via microwave facilities (the
    service is often referred to as \"wireless cable service\"). SMATV
    operators, also known as \"private cable operators,\" also
    frequently use microwave facilities to transmit programming to
    subscribers without crossing rights-of-way. SMATV subscribers
    usually reside in multiple dwelling units ("MDUs"). *1999
    Competition Report,* 15 FCC Rcd at 1090 Tbl. C-1.

[^91]: Applicants' March 21 Supplemental Information at 28.

[^92]: Paul Kagan Assoc., Inc., *10-Year Cable TV Industry Projections*,
    Cable TV Investor, June 19, 2000, at 15; *see also AT&T-MediaOne
    Order*, 15 FCC Rcd at 9816 ¶ 4. As a non-severable condition of the
    Commission's grant of AT&T's acquisition of MediaOne, AT&T must
    either a) divest its interest in TWE; b) terminate its involvement
    in TWE's video programming activities; or c) divest its interests in
    other cable systems, such that it will have attributable ownership
    interests in cable systems serving no more than 30% of MVPD
    subscribers nationwide by May 19, 2001. *Id.* On December 15, 2000,
    AT&T notified the Commission of its intention to divest either its
    programming assets or its interest in TWE. For a further discussion
    of AT&T's compliance election, *see* Section IV.F., *infra*,
    (Coordination with AT&T).

[^93]: *Id*. at 8.

[^94]: Applicants' March 21 Supplemental Information at 9.

[^95]: *Id.* at 9.

[^96]: *Id.* at 8.

[^97]: *Id.* at 9.

[^98]: Road Runner Corp., *Road Runner Sets Record Third Quarter* (press
    release), Oct. 16, 2000.

[^99]: Kinetic Strategies, Inc., *Cable Modem Market Stats &
    Projections*, [Cable DataCom News]{.smallcaps}, Nov. 8, 2000, at
    http://CableDatacomNews.com/cmic/cmic16.html (visited Dec. 28,
    2000).

[^100]: Road Runner Corp., *Road Runner Sets Record Third Quarter*
    (press release), Oct. 16, 2000.

[^101]: Time Warner Inc., *Filing 10-K for the Year Ended Dec. 31, 1999*
    (Mar. 30, 1999) ("Time Warner 1999 10-K") at I-19. AT&T acquired its
    25.1% interest in Road Runner when it merged with MediaOne. *See
    AT&T-MediaOne Order*, 15 FCC Rcd at 9819-20 ¶ 5.

[^102]: *See United States v. AT&T Corp. and MediaOne Group, Inc.,* Case
    No. 1:00CV01176, Complaint and Proposed Final Judgment (D.D.C.,
    filed May 25, 2000) ("DOJ Consent Decree"). The DOJ Consent Decree
    does not affect AT&T's indirect interest in Road Runner through its
    ownership in TWE.

[^103]: AT&T Corp., *Road Runner Joint Venture To Be Dissolved* (press
    release), Dec. 18, 2000. *See also* Time Warner Inc., *Time Warner
    To Increase Road Runner Ownership and Manage Its Operations* (press
    release), Dec. 18, 2000.

[^104]: Application at 4.

[^105]: Applicants' March 21 Supplemental Information at 9.

[^106]: Time Warner 1999 10-K at I-4.

[^107]: Time Warner Inc., *C**able Networks,* at
    http://www.timewarner.com/about/cablenets (visited Aug. 18, 2000).

[^108]: *Id.*

[^109]: *See* Time Warner Inc., *Cable Networks,* at
    http://www.timewarner.com/about/cablenets/turnerent/index.html
    (visited Aug. 18, 2000).

[^110]: Time Warner 1999 10-K at I-3.

[^111]: Time Warner 1999 10-K at I-6.

[^112]: Applicants' March 21 Supplemental Information at 9.

[^113]: *See* Time Warner Inc., *Cable Networks,* at
    http://www.timewarner.com/about/cablenets/hbo/index.html (visited
    Aug. 18, 2000). HBO also owns a 50% interest in Comedy Central, a
    basic cable television service, available in 62 million homes, and,
    through TWE, Time Warner also has a 50% interest in Court TV, which
    is available in approximately 37.5 million homes.^?^

[^114]: Time Warner 1999 10-K at I-20.

[^115]: *Id.*

[^116]: *S**ee* Time Warner Inc., *Publishing: Time, Inc.,* at
    http://www.timewarner.com/corp/about/publishing/
    timeinc/compbrandprod.html (visited Aug. 18, 2000).

[^117]: *See* Time Warner Inc., *Public Archive,* at
    http://www.timewarner.com/corp/about/
    pubarchive/websites.html#publishing (visited Aug. 21, 2000).

[^118]: Time Warner 1999 10-K at I-7.

[^119]: Applicants' March 21 Supplemental Information at 8.

[^120]: *Id.*

[^121]: America Online, Inc., *Warner Bros. Records and AOL's
    Spinner.com Present Faith Hill Live Online!* (press release), Mar.
    2, 2000.

[^122]: America Online, Inc., *Alanis Morissette Sets Precedent With
    Worldwide Debut of New Video Exclusively Online* (press release),
    June 25, 1999; America Online, Inc., *AOL, Inc.'s Spinner.com
    Announces World Premiere of Maverick Records' Meshell Ndegocello's
    Latest Single* (press release), Aug. 11, 1999.

[^123]: Applicants' March 21 Supplemental Information at 8.

[^124]: Time Warner 1999 10-K at I-13.

[^125]: *Id.* at I-13.

[^126]: *Id.* at I-13.

[^127]: *Id.* at I-14.

[^128]: *Id.* at I-16. Tribune Broadcasting holds a 22.25% interest in
    The WB, and key employees of The WB hold an 11% interest in the
    network.

[^129]: *Id.* at I-15.

[^130]: *Id.* at I-15-16.

[^131]: Applicants' First Response at 22.

[^132]: *Id.*

[^133]: *Id*. at 14. *See also* Time Warner Inc., *AT&T and Time Warner
    Cable Announce Joint Marketing Agreement* (press release), Mar. 8,
    2000.

[^134]: *Id.*

[^135]: *Id.*

[^136]: Applicants' First Response at 23. Time Warner owns 47.85% of the
    equity in TWT, and 66.86% of TWT's voting power. *See* *id.* at 23,
    26.

[^137]: Applicants' First Response at 23.

[^138]: *I**d.* at 26.

[^139]: *Id.* at 24.

[^140]: *Id.* at 24.

[^141]: *Id.*

[^142]: *See* FTC Consent Agreement and Federal Trade Commission Office
    of Public Affairs, *FTC Approves AOL/Time Warner Merger with
    Conditions* (press release), Dec. 14, 2000 (describing FTC action).
    (FTC Press Release)

[^143]: *Id.* at 2.

[^144]: Federal Trade Commission, *Order To Hold Separate in the Matter
    of America Online, Inc., and Time Warner Inc.*, Docket No. C-3989,
    rel. Dec. 14, 2000.

[^145]: European Commission, *Commission Gives Conditional Approval to
    AOL/Time Warner Merger* (press release), Oct. 11, 2000.

[^146]: *Id*.

[^147]: *Id*.

[^148]: Letter from Arthur Harding, Wiley, Rein and Fielding, Counsel
    for Time Warner Inc., to Magalie Roman Salas, Secretary, FCC, dated
    Sept. 14, 2000 ("Harding Sept. 14 Letter").

[^149]: 47 U.S.C. § 537; 47 C.F.R. § 76.502.

[^150]: Harding Sept. 14 Letter.

[^151]: *Id.*

[^152]: Letter from Arthur Harding, Wiley, Rein and Fielding, Counsel
    for Time Warner Inc., to Magalie Roman Salas, Secretary, FCC, dated
    Dec. 5, 2000 ("Harding Dec. 5 Letter"). Cary, North Carolina and
    Biddeford, Maine are the communities that denied the transfer. *Id.*
    In addition, one community that had not granted approval as of Sept.
    14, 2000 subsequently granted its consent. *Id.*

[^153]: Time Warner Inc., *America Online and Time Warner Will Merge*
    (press release), Jan. 10, 2000; *see also* Application at 4-5.

[^154]: Application at 5*.*

[^155]: Application at 4-5. *See* Application at Attachment 1, for a
    full listing of licenses held by AOL and Time Warner.

[^156]: Time Warner's cable systems hold more than 150 Cable Television
    Relay Service (CARS) Licenses. *See* Application at Appendix 1. CARS
    licenses are used "for the transmission of television and related
    audio signals . . . and cablecasting from the point of reception to
    a terminal point from which the signals are distributed to the
    public by cable." *See* 47 C.F.R. § 78.1. Thus, CARS licenses can be
    an integral part of a cable system's plant, allowing the cable
    system to distribute cable programming to its entire service
    regardless of certain physical obstacles to transmission. Time
    Warner subsidiaries also hold six licenses under section 214 of the
    Communications Act. The licenses permit the holders to provide
    "common carrier services between the United States . . . and a
    foreign point." *See* 47 C.F.R. § 63.18. AOL holds five land mobile
    wireless licenses. Application at Attachment 1.

[^157]: Application at 9.

[^158]: *Id.* at 11.

[^159]: *Id.* at 14.

[^160]: Applicants' March 21 Supplemental Information at 23.

[^161]: The City of Daytona Beach raises certain concerns about local
    franchise matters that we do not address because they are not
    merger-specific. *See* Letter from Richard F. Quigley, Assistant
    Manager for Support/Technology Services, City of Daytona Beach, to
    Magalie Roman Salas, Secretary, FCC, dated Aug. 18, 2000 ("Daytona
    Beach Aug. 18 Ex Parte"), at 7 (advocating a merger condition
    requiring AOL Time Warner to set aside channel capacity and
    facilities for public access, educational and government ("PEG")
    channels).

[^162]: We describe these services more fully below.

[^163]: *See* *Inquiry Concerning High-Speed Access to the Internet Over
    Cable and Other Facilities,* GN Docket No. 00-185, Notice of Inquiry
    ("*Cable Access Notice of Inquiry*" or "*Cable Access NOI*"), FCC
    00-355 (rel. Sept. 28, 2000).

[^164]: *See* FTC Consent Agreement; FTC Press Release.

[^165]: FTC Press Release at 2.

[^166]: *See* Section IV.D, *infra* (Interactive Television Services).

[^167]: 47 U.S.C. § 214(a), § 310(d); *see also* *id.* § 303(r).

[^168]: *AT&T-MediaOne Order*, 15 FCC Rcd at 9820-21 ¶ 9. In conducting
    our public interest inquiry, we also examine whether the proposed
    transaction would result in a violation of the Communications Act or
    any other applicable statutory provision, and whether it would
    result in a violation of the Commission's rules. *Id.* The record
    does not indicate that the proposed transaction would result in any
    such violations with respect to residential high speed Internet
    access services.

[^169]: 47 U.S.C. § 230(b)(1)-(2).

[^170]: *Id.* § 157 nt.; *see also id.* § 1 (FCC was created "so as to
    make available, so far as possible, to all people of the United
    States . . . a rapid, efficient, Nationwide, and world-wide wire and
    radio communication service with adequate facilities at reasonable
    charges"). Congress defined "advanced telecommunications capability"
    as "high-speed, switched, broadband telecommunications capability."
    47 U.S.C. § 157 nt.

[^171]: *See, e.g.*, *Second Inquiry Concerning the Deployment of
    Advanced Telecommunications Capability Pursuant to Section 706 of
    the Telecommunications Act of 1996*, CC Docket No. 98-146, Second
    Report, FCC 00-290 (rel. Aug. 21, 2000) at ¶ 3 ("*Second 706
    Report*") (noting that "\[w\]ith advanced telecommunications
    capability consumers can take advantage of advanced services that
    allow residential and business consumers to create and access
    content, sophisticated applications, and high-bandwidth services").

[^172]: *Turner Broadcasting System, Inc. v. FCC*, 512 U.S. 622, 663
    (1994) (internal quotation marks omitted).

[^173]: *See, e.g.*, 47 U.S.C. § 257(b) (noting that one of the
    "policies and purposes" of the Communications Act is to "favor\[ \]
    diversity of media voices"); *id.* § 521 nt (codifying findings and
    policy underlying Cable Television Consumer Protection and
    Competition Act of 1992) ("There is a substantial governmental and
    First Amendment interest in promoting a diversity of views provided
    through multiple technology media."); *AT&T-MediaOne Order*, 15 FCC
    Rcd at 9818-20 ¶¶ 3-5 (considering proposed merger's effects on
    "diversity and competition" in video programming and its effects on
    "openness and diversity of broadband Internet content"). We note
    that we are not here determining the proper legal classification of
    Internet services provided by cable operators. *See* *Cable Access
    NOI* (soliciting comments on proper legal classification of such
    services). Our determination not to address that issue in this
    proceeding is consistent with our determination not to do so in
    *AT&T-MediaOne*. *See* *AT&T-MediaOne Order*, 15 FCC Rcd at 9872 ¶
    126.

[^174]: 47 U.S.C. § 303(r).

[^175]: *Id.* § 214(c).

[^176]: Discrimination by AOL Time Warner against unaffiliated ISPs on
    the merged company's cable platform could take the form of an
    outright refusal to carry such ISPs, or it might occur more subtly
    \-- for example, by degrading unaffiliated ISPs' quality of service,
    limiting their features and functionalities, or discriminating
    against them in terms and conditions of access. AOL Time Warner
    could also facilitate discrimination against unaffiliated ISPs on
    the platforms of other cable operators by using its leverage over
    video programming to obtain (via explicit contract or tacit
    agreement) exclusive or preferential treatment for AOL Internet
    access services that would be denied to its competitors.

[^177]: *See* Letter from Stephen Heins, Director of Marketing,
    NorthNet, to Robert Pitofsky, Chairman, FTC, and William E. Kennard,
    Chairman, FCC, dated Oct. 10, 2000 ("NorthNet Oct. 10 Ex Parte") at
    7 (noting that "\[m\]any independent ISPs have concluded that
    the\[\] terms \[proposed by Time Warner\] present no reasonable
    basis for independent ISPs to compete on a commercially viable
    basis," and concluding that "\[b\]y offering terms that are totally
    unacceptable, Time Warner keeps its network effectively closed");
    Letter from Earl W. Comstock, Esq., Sher & Blackwell, Counsel for
    EarthLink, to Magalie Roman Salas, Secretary, FCC, dated Oct. 18,
    2000 ("EarthLink Oct. 18 Ex Parte") at 1 (arguing that the terms of
    Time Warner's recent proposals "would make the arrangements
    economically infeasible for ISPs not affiliated by ownership with
    the applicants").

[^178]: More subtle discrimination by AOL Time Warner would also narrow
    the public's access to information from diverse sources, though in
    more subtle ways: AOL Time Warner's cable customers would have a
    "choice" between using affiliated ISPs on the one hand or
    unaffiliated ISPs relegated to offering an inferior product on the
    other.

[^179]: Discrimination by AOL Time Warner against unaffiliated ISPs with
    respect to carriage on the company's cable network would facilitate
    discrimination by AOL Time Warner in favor of its own broadband
    content by enabling the merged firm to exclude non-AOL Time Warner
    content from its Internet access services without facing competitive
    pressure from other ISPs on the same cable network who would
    presumably supply non-AOL Time Warner content.

[^180]: We refer to "Internet access services," in the plural, to
    reflect the fact that such services offer differing speeds of
    access; technical performance; price; availability of customer
    support; and extent of content. Our use of the term "Internet access
    services" is meant to encompass services provided not only by ISPs,
    but also by so-called online service providers ("OSPs"), such as
    AOL, which combine content with Internet access services.

[^181]: While the fastest of narrowband modems have the theoretical
    capability to support 56 kbps downstream, Commission regulations
    limit narrowband modems to 53 kbps.

[^182]: *See* *ISP Buyer's Guide: Dial-Up ISPs*, [CNET
    Internet,]{.smallcaps} at
    http://home.cnet.com/internet/0-3762-7-2518427.html?tag=st.int.3762-7-2518426txt.3762-7-251842
    (visited Dec. 5, 2000).

[^183]: NorthNet indicates that there are "7,000 or so ISP's throughout
    the United States." *See* NorthNet Oct. 10 Ex Parte at 1.

[^184]: Generally, unless we state otherwise, our references to "DSL"
    throughout this Order refer to asymmetric DSL ("aDSL"). Asymmetric
    DSL is the most common variant of DSL used by residential customers,
    and is available at various speeds ranging up to 6.1 mbps downstream
    and 640 kbps upstream. *See Second 706 Report*, FCC 00-290 at ¶ 36;
    *id.* at ¶ 47. Presently, at lowest cost, aDSL service usually
    provides transmission at 384-640 kbps downstream and 90-128 kbps
    upstream.

[^185]: The Commission's *Second 706 Report* contains a detailed
    description of high-speed Internet access *via* various
    technologies. The characteristics of the services offered via these
    respective technologies may vary. *See generally* *Second 706
    Report*. The *Report* defines "high-speed" services as "those
    services with over 200 kbps capability in at least one direction."
    *Id*. at 8. It distinguishes such services from "advanced services,"
    which it defines as the "subset" of high speed services "capable of
    200 kbps or greater transmission in *both* directions." *Id.*
    (emphasis in original).

[^186]: We note that Excite@Home and Road Runner also function as
    high-speed ISPs.

[^187]: A cable headend is "the origination point for signals in the
    cable system. It has parabolic or other appropriately shaped
    antennas for receiving satellite-delivered program signals,
    high-gain directional antennas for receiving distant TV broadcast
    signals, directional antennas for receiving local signals, machines
    for playback of taped programming and commercial insertion, and
    studios for local origination and community access programming."
    Walter Ciciora et al., [Modern Cable Television
    Technology]{.smallcaps} 12 (1999). The headend also houses all
    equipment for connection of the cable system to the Internet. *Id.*

[^188]: With the addition of certain electronics to the telephone line,
    carriers can transform the copper loop that already provides voice
    service into a conduit for high-speed data traffic.

[^189]: Kinetic Strategies, Inc., *Cable Modem Market Stats &
    Projections*, [Cable Datacom News,]{.smallcaps} Nov. 8, 2000, at
    http://www.cabledatacomnews.com/cmic/cmic16.html (visited Nov. 14,
    2000).

[^190]: TeleChoice, Inc., *TeleChoice DSL Deployment Summary -- Updated
    11/13/00*, at http://www.xdsl.com/content
    /resources/deployment_info.asp (visited Nov. 14, 2000). Of these
    customers, approximately 67%, or 1,160,000, are residential. We note
    that the Commission has undertaken a semi-annual data collection
    concerning high-speed Internet access subscribers. *See* Federal
    Communications Commission, *High-Speed Services for Internet Access:
    Subscribership as of June 30, 2000*, at
    http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/hspd1000.pdf.
    The foregoing report found one million DSL subscribers and 2.2
    million cable modem subscribers as of June 30, 2000. We use other
    publicly available sources here because they are more recent.

[^191]: *Second 706 Report*, FCC 00-290 at ¶¶ 191-96. In the past 18
    months, numerous companies have made substantial investments in DSL.
    For example, SBC Corp. has announced plans to invest \$6 billion in
    an infrastructure deployment throughout its 13-state region in order
    to make DSL available to nearly 77 million homes. *See* SBC
    Communications, Inc., *SBC Set to Trial DSL Neighborhood Broadband
    Gateways* (press release), Aug. 23, 2000; SBC Communications, Inc.,
    *SBC Launches \$6 billion Broadband Initiative* (press release),
    Oct. 18, 1999.

[^192]: *See* Confidential Appendix IV-A-1, Note 1.

[^193]: Excite@Home has approximately 1.7 million subscribers in the
    United States. *See*
    http://www.corporate-ir.net/ireye/ir_site.zhtml?ticker=ATHM&script=410&layout=-6&item_id=131059
    (visited Nov. 14, 2000). RoadRunner has 1.1 million subscribers in
    the United States. *See* Road Runner Corp., *Road Runner Sets Record
    Third Quarter* (press release), Oct. 16, 2000.

[^194]: *See* Kinetic Strategies, Inc., *Commercial Cable Modem Launches
    in North America*, [Cable Datacom News]{.smallcaps}, at
    http://CableDatacomNews.com/cmic/cmic7.html (visited Nov. 14, 2000)
    (listing cable high-speed Internet launch locations and ISPs).
    Examples of other ISPs serving cable subscribers include the ISP
    Channel and Adelphia PowerLink serving Adelphia customers, and High
    Speed Access serving Charter customers.

[^195]: One company, StarBand, in partnership with Microsoft and
    Gilat-to-Home, offers two-way satellite transmission for Internet
    access, but the speeds generally do not reach or exceed 200 kbps in
    both directions except during off-peak hours (midnight to six in the
    morning). Conversation with StarBand Customer Service, Dec. 4, 2000
    at 1-877-827-4290; *see also* http://www.starband.com (visited Dec.
    4, 2000).

[^196]: *But see* Peter S. Goodman, *Dishing Up a New Link to the
    Internet*, [Wash. Post,]{.smallcaps} Nov. 6, 2000, at A1 (reporting
    inception of two-way high-speed service by Starband/Gilat-to-Home).

[^197]: *Second 706 Report*, FCC 00-290 at ¶ 111.

[^198]: The most significant firms in upperband fixed wireless services
    are Teligent, Inc. and Winstar Communications Inc., which target
    business (not residential) customers. The most significant firms in
    lowerband MMDS fixed wireless services are WorldCom and Sprint.
    *Second 706 Report*, FCC 00-290 at ¶¶ 42-55, 107-10.

[^199]: William M. Landes & Richard A. Posner, *Market Power in
    Antitrust Cases*, 94 [Harv. L. Rev.]{.smallcaps} 937 (1981).

[^200]: *See generally* Horizontal Merger Guidelines Issued by the U.S.
    Department of Justice and the Federal Trade Commission, 57 Fed. Reg.
    41,552 (dated Apr. 2, 1992, as revised Apr. 8, 1997).

[^201]: Although the record in this proceeding does not reflect much
    debate over this question, it has engendered considerable
    disagreement in other recent proceedings before the Commission.
    *See, e.g.*, *AT&T-MediaOne Order*, 15 FCC Rcd at 9866 ¶ 116 (noting
    "rigorous debate on the record" regarding whether a separate market
    exists for residential high-speed Internet access service).

[^202]: As we explain further below, our finding in this proceeding that
    residential high-speed Internet access services constitute a product
    market distinct from narrowband services will not restrict the
    Commission's ability to consider market definition questions that
    may arise in the context of the *Notice of Inquiry* concerning
    high-speed Internet service or any other future Commission
    proceeding. As we have previously noted, "\[a\]n individual
    proceeding in which the Commission defines relevant product and
    geographic markets, such as a proposed license transfer, may present
    facts pointing to narrower or broader product markets" than those
    defined in a proceeding that does not focus on license transfers.
    *In the Matter of Implementation of Section 6002(b) of the Omnibus
    Budget Reconciliation Act of 1993*, FCC 00-29 (Aug. 18, 2000)
    ("Fifth Annual CMRS Competition Report") at 3 n.4. Moreover, we
    recognize that the exercise of defining relevant markets is
    inherently dynamic, reflecting ongoing changes in the costs of
    providing various services and in the tastes and preferences of
    consumers. It would be particularly appropriate to revisit issues of
    market definition in a period of rapid technological change and
    service convergence, as the factual predicates underlying a market
    definition in one proceeding may no longer be valid at the time of
    another proceeding.

    Separately, we note that the FTC, in its analysis of the proposed
    merger, concludes that a relevant input market consisting of ISP
    purchases of high-speed data transmission services also exists.
    *See* Federal Trade Commission, *In the Matter of America Online,
    Inc. and Time Warner Inc.*, Docket No. C-3989 ("FTC Complaint") at
    3, 5, 6. We find that any concerns we share with respect to this
    market are adequately addressed in our analysis of the consumer
    market for high-speed Internet access services, which is usually
    supplied using these transmission services as an input.

[^203]: *See, e.g.*, George Gilder, [Telecosm: How Infinite Bandwidth
    Will Revolutionize Our World]{.smallcaps} 252 (2000); Francois Bar
    et al., *Access and Innovation Policy for the Third-Generation
    Internet*, [Telecommunications Policy]{.smallcaps}, July-Aug. 2000,
    at 7; Carol Wilson, *Broadband: Get Ready for the Gale*, ZDNN, June
    26, 1999, at
    http://www.zdnet.com/zdnn/stories/news/0,4586,2281301,00.html
    (visited Nov. 14, 2000).

[^204]: *See* RealNetworks, Inc., *Full Screen Video with RealPlayer
    Plus 5.0, G2, 7, and 8*, at
    http://service.real.com/fullscreen/default.html (visited Nov. 14,
    2000) (full screen video); Pixelon, Inc., at http://www.pixelon.com
    (visited Nov. 14, 2000) (same); Infovalue Computing, Inc., at
    http://www.infovalue.com (visited Nov. 14, 2000) (video-on-demand
    applications); University of Virginia, at
    http://www.telemed.virginia.edu/ (visited Nov. 14, 2000)
    (telemedicine); Arizona State University, *ASU Distance Learning
    Technology*, at http://www-distlearn.pp.asu.edu (visited Nov. 14,
    2000) (distance learning).

[^205]: Indeed, narrowband users cannot watch television- or
    film-quality video clips via the Internet unless they download such
    clips in their entirety in advance before playing them, a process
    that is prohibitively time-consuming over narrowband connections for
    all but the shortest clips. Users with high-speed Internet access,
    in contrast, can obtain "streaming" software that enables them to
    view television- and film-quality video clips with little or no
    delay after clicking on an appropriate link.

[^206]: *See, e.g.*, Dain Rauscher Wessels, *Bullish on Broadband,* June
    8, 2000, at 22; Kathy Kincade, *Top 10 Telemedicine Programs for
    1999: Experience Pays Off*, [Telehealth Magazine]{.smallcaps}, at
    http://www/telehealthmedmag.com (visited May 19, 2000).

[^207]: *See,e.g.,* EarthLink, Inc., at http://www.earthlink.net/join
    (visited Nov. 14, 2000). EarthLink normally charges a \$25 set-up
    fee, but that fee is waived if the customer signs up over the
    Internet.

[^208]: *See* *Second 706 Report*, FCC 00-290 at App. C., ¶ 10 & nn. 2,
    8; *see also* Deja.com, Inc., *Bell South: User Reviews*, at
    http://www. deja.com/products/at_a_glance/glance.xp?PDID=8378
    (visited Nov. 14, 2000) (describing difficulties such as numerous
    installation visits and customer service telephone calls, neither of
    which guaranteed full and successful installation); United States
    General Accounting Office, *Telecommunications: Technological and
    Regulatory Factors Affecting Consumer Choice of Internet Providers*,
    GAO-01-93, Oct. 2000, at 18 (indicating that both DSL and cable
    modem service require a higher price than dial-up Internet access
    service, and that DSL involves additional installation fees);
    Excite@Home, Inc., at http://www.home.com/xfooter/pricing.html
    (visited Dec. 4, 2000) (indicating that Excite@Home costs between
    \$39.95 and \$44.95 per month, dial-up costs between \$14.95 and
    \$21.95, and DSL costs between \$39.95 and \$189.96 (with additional
    ISP charges); but including the cost of a second phone line in
    calculating cost of dial-up service); Road Runner Corp., at
    http://rrcorp.central.rr.com/hso/explore_pricing.asp (visited Dec.
    4, 2000) (indicating similar monthly fees); Verizon Communications,
    Inc., at http://www.bell-atl.com/infospeed/more_info/pricing.html
    (visited Dec. 4, 2000) (indicating that Verizon offers DSL service
    starting at \$39.95 per month with no installation or equipment
    charges if the customer self-installs the service, and a \$120.00
    installation charge if a technician visit is required).

[^209]: *See* Walter S. Mossberg, *Those in the Market for a PC: Heed
    the Fall Buyer\'s Guide*, Oct. 19, 2000, at
    http://ptech.wsj.com./archive/ptech-20001019.html (visited Jan. 2,
    2001) (noting that high-speed connections typically require an
    Ethernet port). Some consumers with older computers may need to
    upgrade their computers in order to meet the minimum technical
    requirements for high-speed access service. For instance, ZDNET
    reports that, "The basic requirements for a system to work with
    today's cable modems are either a PC with at least a 66 Mhz 486
    processor or a Macintosh with at least a 68040 processor, and 16 Mb
    of memory. Of course performance will improve with faster processors
    and more RAM on either platform. The Road Runner service recommends
    32 Mb of RAM and a 166 Mhz Pentium or 250 Mhz PowerMac."
    [Zdnet]{.smallcaps}, *What You Need and Getting Connected*, at
    http://www.zdnet.com/zdhelp/stories/main/0,5594,2278598-4,00.html
    (visited Dec. 4, 2000). Technical requirements for DSL are similar.
    *See id.*

[^210]: *Applications for Consent to Transfer of Licenses and Section
    214 Authorizations from MediaOne Group, Inc., Transferor, to AT&T
    Corp., Transferee*, CC Docket No. 99-251, Bell Atlantic Comments at
    28-34; *id.*, GTE Comments at 14-29; *id.*, MCI Comments at 9;
    *id.*, U S West Comments at 14-15; *id.*, *Declaration of Rubinfield
    and Sidak* (Attachment to GTE Comments) at 11. *But see* *id.*, AT&T
    Reply Comments at 69, 71-75 (arguing that high-speed and narrowband
    Internet access services constitute part of the same market).

[^211]: *Id.*, Bell Atlantic Comments at 30; *id.*, GTE Comments at
    14-18 & Appendix B at 11 (*Declaration of Rubinfeld and Sidak*);
    *id.*, U S West Comments at 14-15.

[^212]: *Id.*, Bell Atlantic Comments at 30; *id.*, GTE Comments at 14.

[^213]: *Id.*, *Declaration of Rubinfeld and Sidak* (Attachment to GTE
    Comments) at 8 (citing *Declaration of Professor Jerry A. Hausman*
    at ¶¶ 4-10 (Attachment to Comments of America Online, Inc., *in*
    *Applications for Consent to the Transfer of Licenses and Section
    214 Authorizations from Tele-Communications, Inc., Transferor, to
    AT&T Corp., Transferee*, CS Dkt. No. 98-178)); *see also* Hal R.
    Varian, *Estimating the Demand for Bandwidth*, Aug. 1999, at
    http://www.sims.berkeley.edu/\~hal/Papers /wtp/wtp.pdf.

[^214]: *Applications for Consent to the Transfer of Licenses and
    Section 214 Authorizations from Tele-Communications, Inc.,
    Transferor, to AT&T Corp., Transfere*e, Comments of America Online,
    *passim*.

[^215]: *Id.* at 16.

[^216]: *Id.* at 32.

[^217]: The Applicants contend that regardless whether the relevant
    market is defined to include narrowband and broadband Internet
    access services or broadband Internet access services alone, the
    proposed merger would not undermine competition. *See* Applicants'
    Reply Comments at 21-23.

[^218]: DOJ Consent Decree at ¶ 25 (Competitive Impact Statement).

[^219]: *Id.* at ¶¶ 25-27.

[^220]: *Id.* at ¶ 22.

[^221]: We note that the FTC, in the complaint underlying its order
    approving the AOL-Time Warner merger, identified the relevant
    geographic markets as "Time Warner cable service areas and the
    United States." FTC Complaint at 5. We construe the FTC's reference
    to the "United States" to denote non-Time Warner, local cable
    service areas throughout the United States, and we therefore
    perceive no inconsistency between the FTC's delimitation of the
    relevant geographic markets and our own. We further note that both
    the FTC's definition of the relevant geographic markets and ours
    recognize that the competitive effects of the merger will differ
    between Time Warner cable service areas and other service areas.

[^222]: *See* America Online, Inc., *AOL Gears Up For Holiday Shopping
    Blitz With Best Partners, Most Convenient Tools, And Industry's
    Leading E-Commerce Performance* (press release), Nov. 15, 2000.

[^223]: *See* Internet.com Corporation, *Top US ISPs by Subscriber*, at
    http://www.isp-planet.com/research/rankings_usa. html (visited Nov.
    15, 2000). We note that submissions of Disney and EarthLink contend
    that AOL's worldwide market share is as high as 50 percent. *See*
    Written Ex Parte Filing of The Walt Disney Company (July 25, 2000)
    ("Disney July 25 Ex Parte"), transmitted by letter from Lawrence R.
    Sidman et al., Esq., Verner, Liipfert, Bernhard, McPherson & Hand,
    Counsel for The Walt Disney Company, to Magalie Roman Salas,
    Secretary, FCC, dated July 25, 2000, at 15 (citing Yankee Group,
    *AOL Time Warner in the Context of Consumer Online Migration*
    (2000)); EarthLink Oct. 18 Ex Parte at 2. For an explanation of
    Disney's market share calculation, *see* Letter from Marsha J.
    McBride, Vice President Government Relations, The Walt Disney
    Company, to Magalie Roman Salas, Secretary, FCC, dated Nov. 27, 2000
    ("Disney Nov. 27 Ex Parte") at 2.

[^224]: Applicants' March 21 Supplemental Information at 8.

[^225]: Time Warner Inc., *Time Warner Cable, Overview*, at
    http://www.timewarner.com/corp/about/cablesys/index.html (visited
    July 31, 2000).

[^226]: Road Runner is a joint venture among Time Warner, affiliates of
    MediaOne Group, Inc., Microsoft Corp., Compaq Corp. and the
    Advance/Newhouse Partnership. Time Warner currently holds a 40
    percent ownership stake in Road Runner; however, in a press release
    issued on December 18, 2000, Time Warner announced that it would
    increase this stake and manage Road Runner's operations. *See* Time
    Warner Inc., *Time Warner To Increase Road Runner Ownership and
    Manage its Operations* (press release), Dec. 18, 2000 ("Time Warner
    Dec. 18 Press Release"). The restructuring is intended to satisfy
    the Consent Decree obtained by the United States Department of
    Justice against AT&T Corp., requiring that MediaOne (recently
    acquired by AT&T) divest its ownership interest in Road Runner on or
    before December 31, 2000. *See* DOJ Consent Decree; *see also* Time
    Warner Dec. 18 Press Release (noting that the "Road Runner
    restructuring . . . result\[s\] from a Consent Decree between AT&T
    and the Department of Justice in connection with AT&T's acquisition
    of MediaOne Group"). Time Warner's move to increase its ownership
    stake in Road Runner \-- which will be completed by April 2001 \--
    will also end the arrangement providing Road Runner with exclusive
    carriage on Time Warner cable systems. *See* Time Dec. 18 Warner
    Press Release.

[^227]: As mentioned in the preceding note, however, Time Warner's
    announced restructuring of Road Runner would end the exclusive
    contract between the two entities by April, 2001. *See* Time Warner
    Press Release.

[^228]: Road Runner Corp., *Road Runner Sets Record Third Quarter*
    (press release), Oct. 16, 2000.

[^229]: *See* Kinetic Strategies, Inc., *Cable Modem Market States &
    Projections*, [Cable Datacom News]{.smallcaps}, Nov. 8, 2000, at
    http://cabledatacomnews.com/cmic/cmic16.html (visited Nov. 14,
    2000).

[^230]: AOL has formed a "strategic alliance" with Hughes Electronic
    Corp. to make its high-speed Internet service ("AOL-Plus") available
    via the DirectPC satellite Internet network. In addition, AOL has
    formed such alliances with several DSL providers, including SBC
    Communications, Inc., Bell Atlantic (now called Verizon) and GTE
    (since acquired by Bell Atlantic and now part of Verizon). Finally,
    AOL has announced agreements with Sprint PCS, Nokia, Motorola,
    Research in Motion, BellSouth and Arch Communications to make AOL's
    Internet services available through wireless devices. Applicants'
    March 21 Supplemental Information at 17-18; *see also* Confidential
    Appendix IV-D-3.

[^231]: AOL's high-speed product is called "AOL Plus," and provides
    subscribers with enhanced content including video, games, music and
    online shopping features. *See* Applicants' March 21 Supplemental
    Information at Attachment 1.

[^232]: *See* Confidential Appendix IV-A-2, Note 1.

[^233]: *See* *id.* Note 2.

[^234]: *See, e.g.*, Sanford C. Bernstein & Co., Inc. and McKinsey &
    Co., Inc., *Broadband! A Joint Industry Study*, Jan. 2000,
    ("Bernstein and McKinsey \-- Broadband!") at 24 ("AOL counts fully
    half of the current online subscribers as its customers, giving it
    the opportunity to shift many customers from slow- to high-speed
    service. This is particularly significant in light of our survey
    finding . . . that the heaviest users of the Internet are also the
    most interested in high-speed service. AOL's customers average
    nearly one hour a day online, twice as much as the average online
    household. This supports the AOL claim that AOL's dial-up
    subscribers can be easily migrated to a high-speed platform."); *see
    also* Confidential Appendix IV-A-2, Note 3.

[^235]: An estimated 8 million Time Warner cable subscribers do not
    subscribe to AOL. Tom Wolzien and Ray Haddad, *AOL/Time Warner:
    Finding the First \$1 billion or so in Synergies*, Bernstein
    Research, Apr. 2000, at 10. Bernstein also estimates that 85% of AOL
    subscribers are cable subscribers. *Id.* Other sources indicate
    that, as of November 2000, there were approximately 4.16 million
    residential high-speed Internet access services subscribers. (This
    figure includes only cable and DSL subscribers; the number of fixed
    wireless and satellite residential subscribers is quite small. All
    cable high-speed Internet service subscribers are treated as
    residential, but, following industry estimates, only 67% of DSL
    subscribers are counted as residential.) *See* Kinetic Strategies,
    Inc., *Cable Modem Market Stats and Projections*, [Cable Datacom
    News]{.smallcaps}, Nov. 8, 2000, at
    http://CableDatacomNews.com/cmic/cmic16.html (visited Nov. 14, 2000)
    (providing cable subscription estimates); TeleChoice, Inc.,
    *TeleChoice DSL Deployment Summary -- Updated 11/13/00*, at
    http://www.xdsl.com/content/resources/deployment_info.asp (visited
    Nov. 14, 2000) (providing DSL subscription estimates).

[^236]: In addition, following the merger, AOL Time Warner would have
    access to 1.1 million Road Runner subscribers, which amounts to
    approximately 26% of the approximately 4.16 million residential
    high-speed Internet access services subscribers. *See* Road Runner
    Corp., *Road Runner Sets record Third Quarter* (press release), Oct.
    16 2000. If AOL were to gain access to AT&T's high-speed
    subscribers, *see* Confidential Appendix IV-A-2, Note 4, its reach
    would increase to almost 48% of residential high-speed subscribers.
    *See* Kinetic Strategies, Inc., *Cable Modem Market Stats &
    Projections*, [Cable Datacom News,]{.smallcaps} Nov. 8, 2000, at
    http://www.cabledatacomnews. com/cmic/cmic16.html (visited Nov. 14,
    2000). These numbers may actually understate AOL's post-merger
    market power, however, because the markets in question are local,
    not national. The record demonstrates that a very high percentage of
    homes passed by data-ready Time Warner cable systems do not also
    have access to DSL. *See* Confidential Appendix IV-A-1, Note 1.

[^237]: *See* Time Warner Inc., *Time Warner 1999 Fact Book*, at
    http://www.timewarner.com/corp/about/ pubarchive/factbook/1999fb.pdf
    (visited July 31, 2000).

[^238]: *AOL Time Warner: World's First Internet-Age Media and
    Communications Company*, [Bus. Wire]{.smallcaps}, Jan. 10, 2000.

[^239]: David Lieberman, *Inside the AOL Media Giant*, [USA
    Today]{.smallcaps}, Jan. 11, 2000, at 1A.

[^240]: *Media Owner's Index, Time Warner*, [Columbia Journalism
    Rev.]{.smallcaps}, at http://www.cjr.org/owners/time-warner.asp
    (visited July 31, 2000). Time Warner also owns significant print
    media, including Time Magazine, People, Sports Illustrated, Fortune
    and some twenty-eight other magazines. *See* Application at 4.

[^241]: See Section IV.B., *infra* (Instant Messaging and Advanced
    IM-Based High-Speed Services), for a detailed analysis of AOL's IM
    service.

[^242]: *AOL, Time Warner Merger -- Road to Convergence,* [Bus.
    Wire]{.smallcaps}, Jan. 10, 2000.

[^243]: Media Metrix, *Media Metrix Releases the Top 50 Web and Digital
    Media Properties For June 2000 and Reveals Number One Web Sites
    Within New Categories* (press release), July 20, 2000.

[^244]: America Online, Inc., *Data Points*, at
    http://www.corp.AOL.com/press/press_datapoints.html (visited Jan.
    16, 2001).

[^245]: *Id*..

[^246]: *Lehman Brothers June 29 Report* at 41.

[^247]: America Online, Inc., *Data Points*, at
    http://www.corp.AOL.com/press/press_datapoints.html (visited Jan.
    16, 2001)*.*

[^248]: *Lehman Brothers June 29 Report* at 45.

[^249]: *Lehman Brothers June 29 Report* at 22.

[^250]: *See, e.g.*, SBC Comments at 1, 19-22; Consumers Union Comments
    at 31-32; BellSouth Reply Comments at 14; EarthLink Oct. 18 Ex Parte
    at 1; Letter from Stephen Heins, Director of Marketing, NorthNet, to
    James Bird, Senior Counsel, FCC, dated Oct. 20, 2000 ("NorthNet Oct.
    20 Ex Parte") at 2; NorthNet Oct. 10 Ex Parte at 3-5; Consumers
    Union Reply Comments at 8-12; Letter from David Gusky, Executive
    Vice President, Telecommunications Resellers Association, to William
    E. Kennard, Chairman, FCC, dated April 11, 2000 ("TRA Apr. 11 Ex
    Parte") at 2.

[^251]: *See* ACA Comments at 4-5, 11-12.

[^252]: *See, e.g.*, Disney Reply Comments at 11-14; Letter from
    Lawrence R. Sidman, Esq., Verner, Liipfert, Bernhard, McPherson &
    Hand, Counsel for The Walt Disney Company, to Magalie Roman Salas,
    Secretary, FCC, dated July 11, 2000 ("Disney July 11 Ex Parte") at
    1; BellSouth Reply Comments at 15; Consumers Union Comments at
    31-32; Letter from Henry Bauman et al., Legal Department, National
    Association of Broadcasters, to William E. Kennard, Chairman, FCC,
    dated May 19, 2000 ("NAB May 11 Ex Parte") at 1-3; Letter from
    Sandra L. Wagner, Vice President, Federal Regulatory Affairs, SBC
    Telecommunications, Inc., to Magalie Roman Salas, Secretary, FCC,
    dated May 5, 2000 ("SBC May 5 Ex Parte") at 3.

[^253]: *See* SBC Comments at 19-22; *see also* Consumers Union Comments
    at 28-29 (arguing that proposed merger would lead AOL to withdraw
    support from DSL platform).

[^254]: *See, e.g.*, Letter from Peter D. Ross, Esq. Wiley, Rein &
    Fielding, Counsel for America Online, to Magalie Roman Salas,
    Secretary, FCC, dated Sept. 20, 2000 ("Applicants' Sept. 19 Ex
    Parte") at 1-2.

[^255]: *See, e.g.*, *id*. As earlier mentioned, the Commission recently
    took the first step toward such a rulemaking proceeding when it
    issued its *Cable Access NOI*.

[^256]: *See* Section II, *supra* (Public Interest Framework); *see
    also* 47 U.S.C. § 214(a); *id*. § 310(d); *id.* § 303(r).

[^257]: These policy objectives include the promotion of a competitive
    free market for Internet services, *see* 47 U.S.C. § 230(b)(1)-(2),
    the deployment on a reasonable and timely basis of advanced
    telecommunications capability to all Americans, *see* *id.* § 157
    nt., and the widest possible dissemination of information from
    diverse and antagonistic sources to the American public, *see Turner
    Broadcasting System, Inc. v. FCC*, 512 U.S. 622, 663 (1994).

[^258]: We note that this proposed merger would create a combined entity
    with both the incentive and the ability to quickly foreclose
    competition in the market for residential high-speed Internet access
    services by obtaining favorable treatment on cable systems owned by
    Time Warner, AT&T, and other cable operators. AOL's enormous base of
    existing narrowband customers and its proven marketing acumen would
    be combined with preferential access to Time Warner cable systems
    and, in all likelihood, to the facilities of AT&T and other cable
    operators. Such a combination would likely enable AOL to rapidly
    assemble a strong base of subscribers to its high-speed Internet
    access services. Although the AT&T-MediaOne merger presented the
    possibility that Excite@Home and Road Runner, the nation's two
    largest broadband ISPs, could theoretically foreclose competition
    for high-speed Internet access services through post-merger
    coordination, the DOJ Consent Decree required AT&T to divest its
    interest in Road Runner to prevent coordination between these two
    ISPs.

[^259]: *See* Confidential Appendix IV-A-2, Notes 5 and 6.

[^260]: *See* *id.*; *see also* NorthNet Oct. 10 Ex Parte at 7 ("There
    is no intention or possibility of allowing competitors onto \[Time
    Warner cable networks\] on \[Time Warner's proposed\] terms. By
    offering terms that are totally unacceptable, Time Warner keeps its
    network effectively closed."); EarthLink Oct. 18 Ex Parte at 1 (Time
    Warner's proposed conditions make interconnection "economically
    infeasible" for unaffiliated ISPs).

[^261]: *AT&T-MediaOne Order*, 15 FCC Rcd at 9866-68 *¶* 116-19; *id.*
    at 9871*¶* 123. The Applicants raise this point in an October 5,
    2000 *ex parte* letter, in which they point to Commission findings
    that there is significant actual and potential competition from
    alternative high-speed Internet access providers and unaffiliated
    ISPs, and that, in the AT&T-MediaOne merger, we relied on AT&T's and
    MediaOne's promise to open their platform. The Applicants further
    contend that competition in this market has increased, that AOL and
    Time Warner have committed to "open access" to Time Warner cable
    systems, and that the DOJ Consent Decree in *AT&T-MediaOne*, by
    requiring AT&T's divestiture of Road Runner, prevents a decrease in
    consumer choice of ISPs. *See* Letter from Peter D. Ross, Esq.,
    Wiley, Rein & Fielding, Counsel for America Online, and Arthur H.
    Harding, Esq., Fleischman and Walsh, L.L.P., Counsel for Time
    Warner, to Deborah Lathen, Chief, Cable Services Bureau, FCC, dated
    Oct. 5, 2000 ("Applicants Oct. 5 Ex Parte"). As we explain in this
    section, we find that this merger presents fundamentally different
    issues and potential harms than those in *AT&T-MediaOne*.

[^262]: *See AT&T-MediaOne Order*, 15 FCC Rcd at 9867-68 ¶ 117 and
    accompanying notes.

[^263]: We recognize, however, that AOL will continue to have an
    incentive to market its service over DSL in pursuit of its AOL
    Anywhere strategy.

[^264]: *See* Section IV.A.2.c.(iv), *infra* (High-Speed Internet Access
    Services). Although the Commission's recently issued Second Annual
    Report on the Deployment of Advanced Services indicates that DSL
    subscribership has grown significantly in the past year and is
    likely to rival cable modem subscribership in the next three to five
    years, *see* *Second 706 Report*, FCC 00-290 at 79 ¶ 191, our
    analysis in this proceeding must take into account the likelihood
    that the proposed merger would catapult AOL into a dominant position
    in the market for residential high-speed Internet access services
    before DSL or other broadband alternatives are widely available to
    consumers. Although AOL cannot provide service on Time Warner's
    cable facilities until Time Warner's exclusive arrangement with Road
    Runner expires or terminates, a press release issued by Time Warner
    on December 18, 2000, indicates that Time Warner expects to
    terminate the exclusivity arrangement by April 2001. *See* Time
    Warner Inc., *Time Warner to Increase Road Runner Ownership and
    Manage its Operations* (press release), Dec. 18, 2000.

[^265]: Such detailed data were not available in the AT&T-MediaOne
    proceeding.

[^266]: *See, e.g.*, SBC Comments at 1, 19-22; Consumers Union Comments
    at 31-32; BellSouth Reply Comments at 14; EarthLink Oct. 18 Ex Parte
    at 1; NorthNet Oct. 20 Ex Parte at 2; NorthNet Oct. 10 Ex Parte at
    3-5; Consumers Union Reply Comments at 8-12; TRA Apr. 11 Ex Parte at
    2.

[^267]: *See, e.g.*, NorthNet Oct. 10 Ex Parte at 2-7; EarthLink Oct. 18
    Ex Parte at 1.

[^268]: *See, e.g.*, Memphis Networx Comments at 7-9; SBC Comments at
    35-36; Letter from Emy Tseng et al., on behalf of students from the
    Massachusetts Institute of Technology and Harvard University, to
    Magalie Roman Salas, Secretary, FCC, dated May 1, 2000 ("MIT-Harvard
    Students May 1 Ex Parte"), at 2-3; Letter from Elliot Noss,
    President and CEO, Tucows, Inc., to Magalie Roman Salas, Secretary,
    FCC, dated July 31, 2000, at 2; BellSouth Comments at 22-23; Letter
    from Rob Todd, Member, Houston City Council, to Magalie Roman Salas,
    Secretary, FCC, dated May 10, 2000 ("Houston City Council May 10 Ex
    Parte"), at 1; NorthNet Oct. 10 Ex Parte at 2-7; EarthLink Oct. 18
    Ex Parte at 1; Daytona Beach Aug. 18 Ex Parte at 7; Letter from
    Douglas L. Young, Executive Director of Business Development, HJN
    Telecom, Inc., dated Nov. 22, 2000 ("HJN Nov. 22 Ex Parte"), at 3;
    Petition of City of Hawthorne, California et al., for Special Relief
    (Sept. 29, 2000) ("California Cities' Sept. 29 Petition") at 1-2,
    transmitted by letter from William M. Marticovena, Esq., Rutan &
    Tucker, to FCC, dated Sept. 28, 2000.

[^269]: *See* *Joint Applications of AT&T Corp. and Tele-Communications,
    Inc. for Transfer of Control to AT&T of Licenses and Authorizations
    Held by TCI and Its Affiliates or Subsidiaries,* CS Docket No.
    98-178 (October 29, 1998), Comments of America Online, Inc.,
    *passim*.

[^270]: Virtually every projection for Internet access subscribers shows
    a decline in narrowband subscribership and growth in broadband
    subscribership over time. *See, e.g*., Cable Services Bureau,
    *Broadband Today: A Staff Report to William E. Kennard, Chairman,
    Federal Communications Commission*, Oct. 1999 ("Broadband Today"),
    at Appendix A. Thus, AOL would have to increase its broadband
    presence as the number of its narrowband subscribers drops merely to
    maintain its current market position. Some of the potential
    implications of closed high-speed Internet access networks are
    discussed in Earl W. Comstock & John W. Butler, *Access Denied: The
    FCC's Failure to Implement Open Access to Cable As Required By the
    Communications Act*, 8 [CommLaw Conspectus]{.smallcaps} 5 (2000).

[^271]: As an initial matter, the merged company would have this
    incentive because it would receive two revenue streams (ISP service
    and transmission) from subscribers to its affiliated ISP service,
    but only one revenue stream (transmission) from subscribers to
    unaffiliated ISPs.

[^272]: *Cf.* *Time Warner Entertainment Co. v. United States*, 211 F.3d
    1313, 1322 (D.C. Cir. 2000) (reasoning that Congress's concern that
    "cable operators have the incentive and ability to favor their
    affiliated programmers" is "well grounded in the evidence and a bit
    of economic common sense") (internal quotation marks and citation
    omitted).

[^273]: At present, neither the 1996 Act nor Commission rules would
    prevent AOL Time Warner from denying unaffiliated ISPs carriage on
    its cable network at its discretion. As earlier mentioned, the
    Commission recently initiated a *Notice of Inquiry* inviting comment
    on, among other matters, whether cable operators should be obligated
    to provide "open access" to ISPs requesting interconnection with
    their cable networks. *See* *Cable Access NOI*.

[^274]: For further discussion, see Confidential Appendix IV-A-2, Notes
    5 and 6. This problem is exacerbated by the fact that DSL, the
    primary competitor to cable for residential high-speed Internet
    access services, is not available to many households at present. One
    analyst estimates that less than 50% of households have access to
    DSL due to distance and network limitations. *See* Bernstein and
    McKinsey \-- Broadband! at 9. Another analyst estimates that, "By
    year end 2000, we expect that total DSL service will be available to
    more than 50% of all telephone lines." Dain Rauscher Wessels,
    *Bullish on Broadband*, Jun. 8, 2000, at 59.

[^275]: Disney Reply Comments at 12-14. Disney further discussed and
    expanded upon this point in later ex parte filings, especially in
    regard to the return path for interactive television. *See*
    Supplemental Memorandum of The Walt Disney Company Prepared by Eric
    Haseltine, Ph.D. (Sept. 25., 2000), transmitted by letter from
    Marsha J. McBride,Vice President for Government Relations, The Walt
    Disney Company, to Magalie Roman Salas, Secretary, FCC, dated
    September 26, 2000 ("Disney Sept. 26 Ex Parte at Haseltine Memo");
    Ex Parte Submission of The Walt Disney Company: Deployment of
    Interactive Television Technology and Return Path Discrimination
    (Oct. 25, 2000) ("Disney Oct. 25 Ex Parte") at 4-5, transmitted by
    letter from Lawrence R. Sidman et al., Esq., Verner, Liipfert,
    Bernhard, McPherson & Hand, Counsel for The Walt Disney Company, to
    FCC, dated Oct. 25, 2000. The Disney Oct. 25 Ex Parte filing
    indicates that cable modem equipment in the headend can be used to
    "delay or completely delete unaffiliated content" using capabilities
    included in the cable industry's DOCSIS 1.1 Specification. Disney
    Oct. 25 Ex Parte at 5. The filing quotes Cisco Systems, a supplier
    of such technology, as putting "absolute control" over the delivery
    of content in the hands of the cable operator. *Id*., quoting *Cisco
    Systems White Paper, Controlling Your Network -- A Must for Cable
    Operators* at 3 (1999); *see also* Consumers Union Comments at
    105-07.

[^276]: *See* Confidential Appendix IV-A-2, Note 7. Under the terms of
    an Order to Hold Separate issued by the FTC in conjunction with the
    FTC Consent Agreement, the merged firm must operate AOL and Road
    Runner in a separate and independent manner until AOL itself gains
    access to Time Warner cable systems. *See* FTC Order to Hold
    Separate at 5. AOL, in turn, is barred by the FTC Consent Agreement
    itself from accessing Time Warner cable systems until EarthLink has
    obtained such access. *See* FTC Consent Agreement at II.A-B. The
    combined effect of the FTC Order to Hold Separate and the FTC
    Consent Agreement is to prevent the merged firm from integrating AOL
    and Road Runner until it has begun to open its cable systems to
    unaffiliated ISPs. Once it has done so, however, it is free to
    integrate the two ISPs.

[^277]: *See* Internet.com Corporation, *Top US ISPs by Subscriber*, at
    http://www.isp-planet.com/research/ rankings_usa.html (visited Nov.
    15, 2000). This web site contains a list of all ISPs in the country.
    Road Runner is the number two high-speed ISP listed (after
    Excite@Home), and ranks number thirteen overall. *See id*.

[^278]: To the extent AOL Time Warner would have any incentive to adopt
    an "open access" regime with respect to its cable network, such an
    incentive would be based on the merged firm's desire to attract the
    business of unaffiliated ISPs dominant in certain niches within the
    residential high-speed Internet access market. The greater AOL Time
    Warner's own dominance across those niches, the lesser its incentive
    to permit unaffiliated ISPs to interconnect with its network.

[^279]: *See* Applicants' March 21 Supplemental Information at 24;
    Applicants' Reply Comments at 5, 11.

[^280]: *See* Paul Kagan Assocs., Inc., *Top Cable System Operators as
    of March 2000*, Cable TV Investor, June 9, 2000, at 11.

[^281]: Memorandum of Understanding Between Time Warner Inc. and America
    Online, Inc. Regarding Open Access Business Practices (Feb. 29,
    2000) ("MOU") at 1-2. The MOU expresses the Applicants' commitment
    to:

    • Form an agreement "as quickly as possible" to provide high-speed
    AOL service on Time Warner cable systems; that agreement will be
    used as a model for agreements with other ISPs.

    • Negotiate commercial agreements with unaffiliated ISPs so that
    consumers need not purchase service from affiliated ISPs. There will
    be no fixed limit on the number of ISPs using Time Warner cable
    systems; however, that number may be limited based on considerations
    of quality of service and technical limitations.

    • Actively encourage other cable operators to provide consumers with
    a choice of high-speed ISPs.

    • Not discriminate on the basis of whether an ISP is affiliated with
    AOL Time Warner. While the economic arrangements between Time Warner
    and connecting ISPs may differ depending on a number of factors
    (such as the speed, marketing commitments, and the nature and tier
    of service that unaffiliated ISPs may desire), variations in the
    economic arrangements (and in ISP traffic) will not be based on
    affiliation or non-affiliation.

    • Not block or limit video streaming.

    • Allow ISPs to connect to Time Warner cable systems without
    purchasing high-speed backbone transport from AOL Time Warner.

    • Offer ISPs "the choice to partner with" AOL Time Warner on a
    national, regional or local basis, without "red-lining."

    • Allow both the cable operator and the ISP the opportunity for a
    direct relationship with the consumer. Both the cable operator and
    the ISP will be allowed to market and sell high-speed service
    directly to customers; if the cable operator sells high-speed
    Internet access services to the customer, the cable operator will be
    responsible for billing and collection; if the ISP sells its service
    to the customer, the ISP will be responsible for billing and
    collection if the ISP so chooses.

    *Id*.

[^282]: *See* Applicants' Reply Comments at 16-18, 29-30; Applicants'
    Sept. 19 Ex Parte at 1-2.

[^283]: *See* Applicants' Sept. 19 Ex Parte at 1-2.

[^284]: Such a non-discrimination requirement would not prevent AOL Time
    Warner from facilitating discrimination against unaffiliated ISPs on
    the networks of other cable operators by obtaining exclusive or
    preferential deals for access by its own Internet services to other
    operators' networks. We address this potential harm below.

[^285]: *See* Letter from Stephen Heins, Director of Marketing,
    NorthNet, to Magalie Roman Salas, Secretary, FCC, dated Oct. 6, 2000
    (containing Term Sheet proposal of Time Warner to NorthNet
    ("NorthNet Term Sheet")); Confidential Appendix IV-A-2, Notes 5 and
    8; *see also* Brian Williams & Jim Wagner, *Cable Contracts Belie
    Time Warner Assurances*, [InternetNews]{.smallcaps}, Oct. 2, 2000;
    Cathy Yang, *ISPs to AOL Time Warner: You Call This Open Access?*,
    [Business Week]{.smallcaps}, Sept. 29, 2000.

[^286]: *See* Letter from Arthur H. Harding, Esq., Fleischman and Walsh,
    L.L.P., Counsel for Time Warner Inc., to Magalie Roman Salas,
    Secretary, FCC, dated Oct. 30, 2000 (Time Warner Oct. 30 Ex Parte)
    at 1-2.

[^287]: *See id.*

[^288]: *See id.*

[^289]: *See* Confidential Appendix IV-A-2, Notes 5 & 6.

[^290]: MOU at 1 ¶ 2.

[^291]: FTC Consent Agreement at II.A-D; FTC Press Release at 2-3.

[^292]: In particular, the FTC Consent Agreement mandates that the
    agreements between AOL Time Warner and each of the three
    unaffiliated ISPs include a "most favored nation" clause requiring
    that if AOL executes an agreement with another cable provider for
    carriage of AOL, the unaffiliated ISP be given an opportunity to
    "opt in" to the same rates and terms secured by AOL in its agreement
    with the other cable provider. FTC Consent Agreement at II.C.1; FTC
    Press Release at 3. The FTC Consent Agreement also requires that the
    agreements between AOL Time Warner and each of the three
    unaffiliated ISPs include requirements that AOL Time Warner provide
    the same levels of service and network flow data to the unaffiliated
    ISPs as it does to its affiliated ISPs. FTC Consent Agreement at
    II.C.2-3.

[^293]: FTC Consent Agreement at II.E; FTC Press Release at 3.

[^294]: FTC Consent Agreement at III.B; FTC Press Release at 4.

[^295]: *See* note Error: Reference source not found, *infra*.

[^296]: *See, e.g.*, NorthNet Oct. 10 Ex Parte at 4; *see also* Disney
    Reply Comments at 14. *But see* Applicants' Responses to Written FCC
    Questions Dated August 25, 2000 Concerning the February 29, 2000
    Memorandum of Understanding and Multiple ISP Access ("Applicants'
    Aug. 25 MOU Responses") at 13, transmitted by letter from Craig A.
    Gilley, Esq., Fleischman and Walsh, L.L.P., Counsel for Time Warner
    Inc., to Magalie Roman Salas, Secretary, FCC, dated Sept. 6., 2000.

[^297]: *See, e.g.*, EarthLink Oct. 18 Ex Parte at 2; *cf.* NorthNet
    Oct. 10 Ex Parte at 4 (discussing efforts by Time Warner cable to
    assert control over customer relationship in negotiations with
    unaffiliated ISPs for access to Time Warner cable systems). *But
    see* Applicants' Aug. 25 MOU Responses at 15 (promising that "each
    ISP offered on \[Time Warner cable\] systems will have the
    opportunity to establish direct billing relationships with
    customers").

[^298]: *See, e.g.*, Disney Reply Comments at 12-13; NorthNet Oct. 10 Ex
    Parte at 5-7; *see also* Letter from Richard Cotton, Executive Vice
    President and General Counsel, and Diane Zipursky, Vice President,
    Washington Law and Policy, National Broadcasting Company, Inc., to
    Magalie Roman Salas, Secretary, FCC, dated July 24, 2000 ("NBC July
    24 Ex Parte") at 3-6 (discussing means of technological
    discrimination available to cable providers). One commenter also
    complains that installing AOL\'s software (versions 5.0 and 6.0)
    alters users\' computer settings, preventing or impeding them from
    accessing other ISPs. Letter from Kenneth F. Yates, Esq., Yates and
    Schneider, to Magalie Roman Salas, Secretary, FCC, dated Dec. 26,
    2000, at 1-2. Yates, writing on behalf of a class of competing ISPs
    that have filed a class-action law suit against AOL regarding this
    issue, claims that AOL is acting anticompetitively by writing its
    software in the aforementioned manner. Yates requests that we
    require AOL to modify its software to avoid automatically changing a
    user's default dial-up number. *See id.* at 3. However, Yates does
    not allege that the proposed merger would affect in any way AOL\'s
    incentives with regard to how it writes its dial-up software.
    Additionally, as noted, the allegations regarding AOL's dial-up
    software are the subject of pending litigation. For these reasons,
    we do not believe that this proceeding is the appropriate forum to
    resolve concerns about AOL's dial-up service, and we decline to
    impose the requested merger condition.

[^299]: ACA Comments at 1-2.

[^300]: *Id.;* ACA Reply Comments at 5.

[^301]: *See* Testimony of Richard D. Parsons, President, Time Warner
    Inc., FCC En Banc Hearing**,** CS Docket No. 00-30 (July 27, 2000),
    Tr. at 178-79 ("Parsons En Banc Testimony"). In response to
    Commissioner Tristani's question as to whether AOL Time Warner would
    require carriage of AOL services as a condition of access to Time
    Warner programming, Mr. Parsons replied, "We will not. We will not
    tie them together in that way. We had thought . . . we were clear in
    our previous submissions. Obviously, we weren't. . . \[but\] we're
    being unequivocal now. We will not tie them." *Id.*; *see also*
    Applicants' Reply Comments at 44-46 (stating that it would not be in
    Time Warner's best interest to limit the reach of its programming by
    tying it to carriage of AOL; other programming in the marketplace
    would then replace Time Warner's programming).

[^302]: ACA, *American Cable Association Backs Time Warner/AOL Merger*
    (press release), July 27, 2000.

[^303]: *Cf.* Confidential Appendix IV-A-1, Note 1; *id.* IV-A-2, Note
    2.

[^304]: We are mindful that efforts by AOL Time Warner to obtain
    carriage for the merged company's ISP on the networks of other cable
    providers would not necessarily be harmful to the public interest.
    Indeed, such efforts could facilitate the deployment of advanced
    telecommunications capability to all Americans and promote the
    existence of a diversity of information sources in cyberspace. As
    such, these efforts could benefit the public interest, so long as
    they did not induce anticompetitive behavior by other cable
    providers.

[^305]: FTC Consent Agreement at III.E.

[^306]: By "unaffiliated content providers," we mean content providers
    in which the merged firm has no ownership interest or contractual
    relationship.

[^307]: Disney Reply Comments at 2; NBC July 24 Ex Parte at 5-6; Letter
    from Henry L. Bauman et al., Legal Department, National Association
    of Broadcasters, to William E. Kennard, Chairman, FCC, dated May 19,
    2000 ("NAB May 19 Ex Parte"), at 2-3. On May 10, 2000, Senators Mike
    DeWine and Herb Kohl sent a letter to FCC Chairman William Kennard
    and FTC Chairman Robert Pitofsky expressing similar concerns. In
    addition, several individuals who use AOL and Road Runner filed
    comments objecting to alleged instances of censorship by these ISPs.
    *See* Petition To Deny of Thomas Lewis Bonge, dated Sept. 15, 2000
    ("Bonge Petition"), at 10-13 (claiming that Road Runner deleted as
    unauthorized commercial speech petitioner's chat room posting
    referencing an Internet music site), transmitted by letter from
    Thomas Lewis Bonge to FCC, dated Sept. 15, 2000; Letter from James
    D. Russell, Ph.D., to Magalie Roman Salas, Secretary, FCC, dated
    Aug. 22, 2000 ("Russell Letter") at 1-2 (claiming that AOL deleted
    as hate speech certain postings concerning Vice Presidential
    candidate Joseph Lieberman); Letter from Frank Messman to Magalie
    Roman Salas, Secretary, FCC, dated Aug. 24, 2000 ("Messman Letter")
    at 1 (same). These commenters also allege that Road Runner and AOL
    have cancelled the accounts of users who posted messages deemed
    unacceptable by the ISPs. *See* Bonge Petition at 11-12; Russell
    Letter at 1-2; Messman Letter at 1. They ask the Commission to
    prohibit AOL Time Warner from restricting ISP users' speech. While
    we recognize the importance of citizens' ability to freely
    communicate with each other, this proceeding is not the appropriate
    forum for the resolution of the complex legal and policy questions
    that these commenters present. The aforementioned commenters have
    not alleged that the merger will in any way affect AOL's or Road
    Runner's ability or incentive to regulate users' speech.
    Accordingly, we do not address these issues further in this
    proceeding, and we reject the aforementioned commenters' proposed
    merger conditions.

[^308]: *See* Disney Reply Comments at 12-14; Disney Oct. 25 Ex Parte at
    4-5; Consumers Union Comments at 105-07.

[^309]: Disney July 25 Ex Parte at 19.

[^310]: Applicants' Reply Comments, *passim.*

[^311]: Applicants' Reply Comments at 2, 36-40.

[^312]: *See* Disney July 25 Ex Parte at 19. Disney states that "AOL
    consistently demands that companies purchasing space on the AOL
    website desist from including links to websites outside the walled
    garden . . . . At times, AOL requires a commitment that no more than
    a set percentage of traffic at a site within the AOL network can be
    'diverted' from there via links to sites outside the AOL Network."
    *Id.*

[^313]: NBC contends that a merged company could steer consumers to
    affiliated content by "only providing direct links to affiliated
    programming, and even by downgrading the speed with which consumers
    can access certain web sites." NBC July 24 Ex Parte at 6; *see also*
    Disney July 25 Ex Parte at 19.

[^314]: FTC Consent Agreement at III.A; FTC Press Release at 4.

[^315]: SBC Comments at 19-22; BellSouth Reply Comments at 14-18.

[^316]: SBC Comments at 19-22; BellSouth Reply Comments at 14-18.

[^317]: Applicants' Reply Comments, *passim.*

[^318]: *See* Confidential Appendix IV-A-2, Note 9.

[^319]: *Id.*

[^320]: BellSouth Reply Comments at 9.

[^321]: Internet traffic for the top 50 digital media and web
    properties, measured in terms of "unique visitors" per month, is
    tracked by Media Metrix at
    http://www.mediametrix.com/home.jsp?language=us.

[^322]: *See, e.g.*, SBC Comments at 21-22; BellSouth Reply Comments at
    15, 21-22; Consumers Union Comments at 33.

[^323]: *Implementation of the Local Competition Provisions of the
    Telecommunications Act of 1996*, CC Docket No.-96-98, *Third Report
    and Order and Fourth Further Notice of Proposed Rulemaking*, 15 FCC
    Rcd at 3696, 3840 n.642 (1999). In the past two years, numerous
    companies have made substantial investments in DSL. For example, SBC
    Corp. has announced its intention to invest \$6 billion in an
    infrastructure deployment throughout its 13 state region, in order
    to make DSL available to nearly 77 million homes. SBC
    Communications, Inc., *SBC Set to Trial DSL Neighborhood Broadband
    Gateways* (press release), Aug. 23, 2000; *see also* SBC
    Communications, Inc., *SBC Launches \$6 billion Broadband
    Initiative* (press release), Oct. 18, 1999.

[^324]: As of November 2000, there were an estimated 3 million
    residential cable modem customers in the United States compared with
    approximately 1,160,000 residential DSL subscribers. *See* Kinetic
    Strategies, Inc., *Cable Modem Market Stats & Projections*, [Cable
    Datacom News,]{.smallcaps} Nov. 8, 2000, at
    http://www.cabledatacomnews.com/cmic/ cmic16.html (visited Nov. 14,
    2000); *see also* TeleChoice, Inc., *TeleChoice DSL Deployment
    Summary -- Updated 11/13/00*, at http://www.xdsl.com/content
    /resources/deployment_info.asp (visited Nov. 14, 2000).

[^325]: Applicants' March 21 Supplemental Information at 17.

[^326]: Applicants' Third Response at 11-12 & ex.3.16; *see also*
    Confidential Appendix IV-A-2, Notes 1 and 10.

[^327]: *See* Consumers Union Comments at 27-28 (citing Nico DeTourn,
    *Industry News: AT&T Reaches Out,* [The Motley Fool's Internet
    Report]{.smallcaps}, July 10, 1999, at 10). Additionally, in
    *AT&T-MediaOne*, we noted that ISPs lacking direct access to provide
    broadband services over cable systems were entering into alliances
    with alternative broadband providers, thereby accelerating the
    deployment of these technologies. *AT&T-MediaOne Order*, 15 FCC Rcd
    at 9867-68 ¶ 117.

[^328]: Applicants' March 21 Supplemental Information at 30 (citing AOL
    Time Warner Filing S-4, Feb. 11, 2000 at 37); *see also* Applicants'
    Second Response at 13; Kinetic Strategies, Inc., *America Online's
    Broadband Coup*, [Cable Datacom News]{.smallcaps}, at
    http://www.cabledatacomnews.com/ best_of/bocdnl10.html (visited Aug.
    14, 2000); Confidential Appendix IV-A-2, Note 2; *see also*
    *Applications for Consent to Transfer of Licenses and Section 214
    Authorizations from MediaOne Group, Inc., Transferor, to AT&T Corp.,
    Transferee*, CC Docket No. 99-251, AOL Comments at 12-17 (comments
    of AOL in previous merger supporting government-mandated "open
    access" to cable systems); *Applications for Consent to the Transfer
    of Licenses and Section 214 Authorizations from Tele-Communications,
    Inc., Transferor, to AT&T Corp., Transferee*, CS Dkt. No. 98-178,
    AOL Comments at 30-39 (same).

[^329]: Kinetic Strategies, Inc., *America Online's Broadband Coup*,
    [Cable Datacom News]{.smallcaps}, at http://www.cable
    datacomnews.com/best_of/bocdnl10.html (visited Aug. 14, 2000).
    According to a press release issued by Time Warner on December 18,
    2000, the exclusivity arrangement between Time Warner and Road
    Runner will be terminated by April, 2001. *See* Time Warner Dec. 18
    Press Release.

[^330]: Time Warner Inc., *Time Warner Cable, Overview*, at
    http://www.timewarner.com/corp/about/cablesys/index. html (visited
    July 31, 2000).

[^331]: *See* Confidential Appendix IV-A-2, Note 11.

[^332]: SBC Comments at 21.

[^333]: *Id*. at 20. SBC claims that the proposed merger would give AOL
    "a strong incentive generally to favor cable over DSL or satellite
    throughout the country"; it claims that "the incentive will be
    overwhelming in all geographic markets where AOL/Time Warner is
    itself the local provider of cable service." *Id*. at 20-21.

[^334]: *Id.*

[^335]: Applicants' March 21 Supplemental Information at 18.

[^336]: Testimony of Steve Case, Chairman and CEO, America Online, Inc.,
    FCC En Banc Hearing, CS Docket No. 00-3- (July 27, 2000), Tr. at 43
    ("Case En Banc Testimony").

[^337]: Applicants' Second Response at 10-11; *id.* at 13 ("A merged AOL
    Time Warner will continue the same strategy of seeking to make the
    AOL ISP service available over as many platforms as possible.").

[^338]: Applicants' March 21 Supplemental Information at 17; *see also*
    Jeff Camp et al., *The Broadband Report: Reaping What You Sow: ROI
    in the Broadband Market,* Morgan Stanley Dean Witter, May 2000, at
    57 ("We expect that AOL Time Warner will offer to sell content over
    DSL and satellite systems, as well as cable.").

[^339]: Applicants' Second Response at 11.

[^340]: Applicants' March 21 Supplemental Information at 19.

[^341]: Should the Applicants enter into an agreement with AT&T to be
    the favored or exclusive ISP over AT&T cable systems, additional
    incentives would be created which could encourage the Applicants to
    steer customers to the cable platform rather than DSL. *See*
    Confidential Appendix IV-A-2, Note 4.

[^342]: *See* Applicants Sept. 19 Ex Parte at 2.

[^343]: We do not find that this would cause a specifically quantifiable
    level of harm to DSL. As noted above, numerous incumbent and
    competitive LECs have invested heavily in DSL. These include
    companies with whom AOL has ongoing contracts to market high-speed
    service, and those without agreements with AOL, and it is not clear
    that these companies will pull back from aggressively promoting DSL.
    However, as we note, we do believe that by favoring the cable
    platform, AOL Time Warner could hinder DSL's growth to some extent.

[^344]: 47 U.S.C. § 230(b)(1).

[^345]: *Id.* § 230(b)(2).

[^346]: 47 U.S.C. § 157 nt.

[^347]: FTC Consent Agreement at IV.A-B; FTC Press Release at 4.

[^348]: Memphis Networx Comments at 7.

[^349]: MLG&W Comments at 3.

[^350]: *Id*. at 3.

[^351]: *Id.* at 3; *see also* Memphis Networx Comments at 3.

[^352]: Applicants' Reply Comments at 52.

[^353]: *Id.*

[^354]: In addition to creating an alternative platform, one of Memphis
    Networx's corporate goals is closing the digital divide by providing
    residential high-speed Internet access to under-served consumers,
    particularly in rural areas and central cities. MLG&W Comments at 5.

[^355]: *See AT&T-MediaOne Order*, 15 FCC Rcd at 9878-79 ¶ 143.

[^356]: SBC Comments at 20; BellSouth Reply Comments at 22-23.

[^357]: At least one competitive ISP has claimed that the MOU is not
    being implemented as promised. A spokesman for EarthLink recently
    said that Time Warner has offered such unfriendly terms for access
    to its cable plant that it is "difficult, if not impossible" for
    competing ISPs to enter the cable access market. Specifically,
    EarthLink alleged that Time Warner requires unfair revenue sharing,
    requires a substantive presence on the ISP's start page, and does
    not allow unaffiliated ISPs full access to their customers for
    billing and other purposes. [Comm. Daily]{.smallcaps} (Sept. 29,
    2000). *See also* Aaron Pressman, *Lost Lessons at Time Warner*,
    [The Standard]{.smallcaps}, Sept. 29, 2000,
    http://www.thestandard.com/article/display/0,1151,18993,00.html?nl=dnt
    (visited Sept., 2000). EarthLink has since entered an agreement with
    AOL Time Warner for access to the latter's cable networks.

[^358]: The use of "AOL Time Warner" in this sentence refers to the
    division of AOL Time Warner that operates its cable systems.

[^359]: 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.

[^360]: For purposes of this paragraph, the "first screen" is the screen
    that comes up first when the user initiates interaction with his or
    her ISP, for example by clicking on the ISP's desktop icon or
    accessing the ISP via the World Wide Web.

[^361]: 47 C.F.R. pts. 1, 76.

[^362]: *See* *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, 5477-83 (2000).

[^363]: In particular, we decline to mandate "open access" to AOL Time
    Warner's cable systems or to require that the merged firm divest
    itself of Road Runner, as requested by Consumers Union and other
    commenters. *See* Consumers Union Comments at 157; *see also*
    BellSouth Reply Comments at 22-23 (requesting that Commission
    condition merger approval on "open access" requirement); SBC
    Comments at 29, 32, 35-36 (requesting that Commission condition
    merger approval on "open access" requirement and divestiture of Road
    Runner).

[^364]: In the event of any conflict between these conditions and any
    rules of general applicability the Commission may promulgate, these
    conditions will govern unless otherwise specified by the Commission.

[^365]: The conditions set forth above 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 ISPs such connection, it does so in conformity with the
    requirements we delineate herein.

[^366]: IM-based services are relatively new but have shown enormous
    growth in popularity in recent years. Their key characteristics are
    the capabilities to detect whether other users of the system (whose
    names are kept in a Names and Presence Database) are present online
    and to exchange messages with them in real time. These features,
    besides being useful in their own right, are predicted to have vast
    potential as a "platform" for the development of additional
    applications in the future, particularly as users obtain high-speed
    Internet access.

[^367]: Users of AOL's IM service cannot currently send or receive
    messages to or from those who use other IM services \-- *i.e*., the
    services are not "interoperable." AOL contends its historical
    resistance to interoperability is rooted in its belief that it
    currently cannot adequately protect its customers' privacy and
    security. *See infra* para. 170*.*

[^368]: Recent literature suggests that near monopoly outcomes in
    markets exhibiting strong network effects are "tipped markets."
    *See, e.g.,* Andrew Watson, *Predatory Pricing in the Software
    Industry*, 23 [Rutgers L. Rec]{.smallcaps}. 1 (1998) (*citing* David
    S. Evans and Richard Schmalensee, *A Guide to the Antitrust
    Economics of Networks*, 10 [S]{.smallcaps}pring
    [Antitrust]{.smallcaps} 36, 36-37 (1996)). Because our public
    interest authority is informed by market analysis but not determined
    by it, we express no opinion whether the factual conclusions in this
    *Order* can be characterized as amounting to a tipped market or not.

[^369]: *See* Jim Hu, *AOL's Lead in Instant Messaging Arena Dwindles*,
    [CNET News.com,]{.smallcaps} Nov. 16, 2000 ("Instant messaging
    proponents claim the technology could be as pervasive and
    influential as the telephone if a common communication standard is
    established."), attached to Letter from Peter D. Ross, Esq., Wiley,
    Rein & Fielding, Counsel for AOL, to Magalie Roman Salas, Secretary,
    FCC, dated Nov. 17, 2000 ("AOL Nov. 17 Ex Parte").

[^370]: Typical "chat rooms" are groups of persons who have joined a
    group because of a common interest and who are online at the same
    time. Each person in a room may send a text message, which almost
    immediately appears on the screens of all persons in the room.
    Usually, ISPs limit the number of persons in a chat room at the same
    time in order to keep that chat manageable. IM, in the context of a
    chat room, occurs when one person in it wishes to exchange text
    messages with another person in it, but privately and without the
    others in the chat room.

[^371]: Tribal Voice Comments at 2.

[^372]: Testimony of Ross Bagully, President and CEO, Tribal Voice, FCC
    En Banc Hearing, CS Docket No. 00-30 (July 27, 2000) ("Bagully En
    Banc Testimony"), Tr. at 151 ("\[T\]here are 28 million deaf and
    hearing impaired American citizens who rely on instant messaging
    services, much like most of us use the telephone, . . ."); Letter
    from Nancy J. Bloch, Executive Director, National Association of the
    Deaf, to William E. Kennard, Chairman, FCC, dated July 26, 2000.

[^373]: Letter from George Vradenburg III, Senior Vice President, Global
    and Strategic Policy, AOL, to Deborah Lathen, Chief, Cable Services
    Bureau, FCC, dated Sept. 29, 2000, at 3 ("AOL Sept. 29 Ex Parte").

[^374]: Some observers put the total number of registered IM service
    users under AOL's control at over 150 million. Tribal Voice Comments
    at 1-2 (120 million); Julia Angwin, *Instant Messaging Services at
    AOL Quietly Linked*, [Wall St. J]{.smallcaps}., Oct. 26, 2000*,* at
    B-1, B-4 (138 million); Jim Lynch, *Instant Messaging Roundup,*
    MSNBC Technology, Aug. 18, 2000, at
    http://www.msnbc.com/news/447786.asp (visited Aug. 28, 2000) (more
    than 150 million users); Nick Wingfield, *Changing Chat,* [Wall St.
    J.]{.smallcaps}, Sept. 18, 2000, at R-28 (154 million registered
    users).

[^375]: *IM Interoperability: The Need for Minimum Safeguards* at 2,
    White Paper filed herein ("First IM White Paper") under Letter from
    Ross Bagully, President and CEO, Tribal Voice, and Margaret
    Heffernan, President and CEO, iCast, to Magalie Roman Salas,
    Secretary, FCC, dated Sept. 5, 2000 ("Tribal Voice and iCast Sept. 5
    Ex Parte"); Nick Wingfield*, Changing Chat*, [Wall St.
    J.]{.smallcaps}, Sept. 18, 2000, at R-28.

[^376]: An essential input is a component of a service or product
    without which the service or product cannot be created and provided
    to others. For example, a channel tuner is an essential input to a
    television set and a compressor is an essential input to a
    refrigerator.

[^377]: *See, e.g.*, Letter from Karen B. Possner, Vice President --
    Strategic Policy, BellSouth Corp., to Magalie Roman Salas,
    Secretary, FCC, dated Oct. 10, 2000, Attachment (BellSouth's Views
    on the Effect of the Proposed America Online-Time Warner Merger on
    Instant Messaging and Related Capabilities) at 1.

[^378]: Confidential Appendix IV-B-1, Note 1.

[^379]: AOL provides IM in basically three ways. First, it includes IM
    in its basic proprietary Internet access service. Second, AOL
    Instant Messenger, or "AIM," is available at no charge to
    subscribers to other Internet access services. Third, AOL acquired
    an IM company called ICQ, which it has kept separate from its other
    services. *See* Confidential Appendix IV-B-1, Note 2.

[^380]: *See* Jim Hu, *AOL's Lead in Instant Messaging Arena Dwindles*,
    [CNET News.com,]{.smallcaps} Nov. 16, 2000 ("Instant messaging
    proponents claim the technology could be as pervasive and
    influential as the telephone if a common communication standard is
    established."), attached to AOL Nov. 17 Ex Parte; Louise Rosen, *Why
    IM Matters So Much,* [Upside Today]{.smallcaps}, Sept. 19, 2000, at
    http://www.upside.com/Ebiz/39c289380.html (visited Sept. 19, 2000)
    ("IM can drive up a site's traffic and brand awareness. It will be
    an important feature of interactive television; it . . . can add
    real-time customer services to a site."). *See* Confidential
    Appendix IV-B-1, Note 3.

[^381]: iCast Comments n.5; Tribal Voice Comments at 2; Disney July 25
    Ex Parte at 21-22; Ariana Eunjung Cha, *AOL Unmoved in Software
    Dispute*, [Wash. Post]{.smallcaps}, Aug. 24, 2000, at A-1, -14; Jim
    Lynch, *Instant Messaging Roundup*, MSNBC Technology, Aug. 18, 2000,
    at http://www.msnbc.com/news/447786.asp (visited Aug. 28, 2000).

[^382]: eWeek, Dennis Fisher, Small Talk Goes Big Bucks, ZDNet, at
    http://www.zdnet.com/eweek/stories/ general/0,1101,2631584.00.html
    (visited Oct. 30, 2000).

[^383]: *See,* *e.g.*, Tribal Voice Comments at 6-7; iCast Comments at 8
    and nn.17-18; America Online, Inc., *America Online and Time Warner
    Announce New Content and Promotional Agreements* (press release),
    Feb. 16, 2000 (visited Aug. 1, 2000) (ICQ and "CNN Interactive will
    develop a co-branded news offering to be distributed through . . .
    the ICQ client.").

[^384]: iCast Comments at 8 and nn.17-18. The presence detection aspect
    of IM would enable an IM provider, for example, to send the latest
    news to an IM user who has just come online or to advise a user with
    a ticket on a 7 o'clock flight that a seat on a 6 o'clock flight has
    just become available and can be reserved if the user replies within
    the next minute. *See, e.g.*, Randall E. Stross, *America\'s Bad
    Call: We\'re Way Behind Others When It Comes to Web Phones*[, U.S.
    News & World Rep.]{.smallcaps}, Sept. 4, 2000, at 2000 WL 7718658
    ("Japanese 'Web phones,' like high-speed PCs, appear always on and
    offer a daily cartoon, weather reports, horoscopes, train schedules,
    bank account information, and stock quotes . . . . Japan Airlines
    already sells 20,000 tickets a month on the service, a feat enabled
    by designers who figured out ways to let users get to schedules in
    two clicks. By contrast, an American punching a Web phone needs
    seven \[clicks\] just to get a flight number").

[^385]: *See* Barbara Darrow, *Instant Messaging Market in Flux*,
    [TechWeb]{.smallcaps}, Dec. 5, 2000, at
    http://www.techweb.com/wire/story/TWB200011204S0018 (visited Dec. 5,
    2000) ("a group of buddies can cruise websites together"); William
    Whyman, *Instant Messaging: the Next Web Killer App?,* Precursor
    Group, July 31, 2000.

[^386]: *See, e.g.*, Irene M. Kunii, *Look Who's Going Courting in
    Japan*, [Business Week]{.smallcaps}, Aug. 7, 2000, at 2000 WL
    24484561 ("The speculation is that AOL content could be available on
    i-mode phones if a deal is reached, possibly in August. . . .
    \[AOL\] sees wireless gadgets overtaking the PC as the most popular
    way to access the Net in the coming years. . . . AOL has developed
    unique services that could be transplanted to the wireless Net, such
    as instant messaging, which could be used as a locator device in the
    future. It could enable delivery of AOL\'s international content to
    i-mode users, . . . ."). In addition, IM will be available via
    wireless devices. *See, e.g.,* Neil Irwin, *AOL Debuts E-Mail/IM
    Pager,* [Washtech.com]{.smallcaps}, Dec. 1, 2000, at
    http://washtech.com/news/media/5560-1.html (visited Dec. 1, 2000);
    *New Media*, [Comm. Daily]{.smallcaps}, Oct. [20, 2000
    ("]{.smallcaps}Sprint PCS unveiled plans to make AOL Instant
    Messenger available on its Internet‑enabled phones, providing
    text‑to‑text messaging service, nearly 2 days after AT&T Wireless
    announced similar plans for short‑message service . . .
    Announcements mark first forays by U.S. carriers into instant
    text‑messaging on wireless phones, service that has seen
    particularly rapid growth in Asia and Europe.").

[^387]: *See also* Letter from Margaret Heffernan, President and CEO,
    iCast, to Magalie Roman Salas, Secretary, FCC, dated Oct. 10, 2000
    ("iCast Oct. 10 Ex Parte"), Attachment (Testimony of Ms. Heffernan
    before the House Subcommittee on Telecommunications, Trade and
    Consumer Protection, Oct. 6, 2000) at 2 ("Heffernan House
    Testimony"); Letter from Margaret Heffernan, President and CEO,
    iCast, to Magalie Roman Salas, Secretary, FCC, dated Oct. 5, 2000
    ("iCast Oct. 5 Ex Parte"), Attachment (Instant Messaging Is an
    Important Platform for Both Current and Next Generation Internet
    Applications) ("Instant Messaging Is an Important Platform")
    *passim*; Louise Rosen, *Why IM Matters So Much,* [Upside
    Today]{.smallcaps}, Sept. 19, 2000, at
    http://www.upside.com/Ebiz/39c289380.html (visited Sept. 19, 2000);
    Holly Becker and Kevin Sullivan, *America Online,* Lehman Brothers
    June 29 Report, at 42.

[^388]: America Online, Inc., *AOL Instant Messenger, New Windows AIM
    4.3 -- Available Now*, at http://www.aol.com/aim/home.html, (visited
    Nov. 17, 2000) ("Play online games against your AIM Buddies");
    Letter from Peter D. Ross, Esq., Wiley, Rein & Fielding, counsel for
    AOL, to Magalie Roman Salas, Secretary, FCC, dated Oct. 19, 2000
    ("AOL Oct. 19 Ex Parte"), Attachment (Microsoft "Windows Me" web
    page ("With MSN Messenger Service in Windows Me, you can: . . .
    Invite a friend to play a DirectPlay® game directly from within MSN
    messenger Service.")).

[^389]: AOL Oct. 19 Ex Parte, Attachment (Microsoft "Windows Me" web
    page ("With MSN Messenger Service in Windows Me, you can: . . . Go
    instantly from a text chat to a video conversation with NewMeeting®
    3.1.")); Stephanie Sanborn, *Novell Updates Instantme, Net
    Publisher*[, InfoWorld Daily News,]{.smallcaps} Aug. 1, 2000, at
    2000 WL 22975572 ("Available as a free download on Aug. 4, instantme
    2.0 . . . includes the option of extending IM communications with
    audio and video IM technology from CuSeeMe Networks. . . . The
    inclusion of audio and video IM technology will give businesses
    users the chance to 'do a quick video conference' on a
    point-to-point basis, Gailey said."); *Instant Messaging Is an
    Important Platform* at 1 ("IM is a natural platform for . . .
    video-based conferencing . . ."), Attachment to iCast Oct. 5 Ex
    Parte. *See also* Kate Gerwig, *Akamai Targets Content Delivery At
    Business Users*, [CMP Techweb,]{.smallcaps} June [7,
    2000,]{.smallcaps} at 2000 WL 2666827 ("Akamai\'s conference casting
    pairs traditional telephony with Internet-based streaming media
    technology to deliver what is designed to be a more cost-effective
    way to provide audio and video conferencing. . . . The service also
    has features such as on-demand replay, instant messaging, and
    polling, which are not available in traditional audio or video
    conference calls."); Steve Gillmor and Jeff Angus*, Exchange 2000
    Finally Delivers Collaboration*, [Information Week]{.smallcaps},
    Dec. 13, 1999, at 1999 WL 21900099 ("The addition of a spectrum of
    collaborative features may be the most important change in the new
    Exchange. . . . Beta 3 has instant messaging and real-time data and
    video conferencing services that can be deployed across the
    intranet."); Instant Messaging Is an Important Platform at 2 ("Lotus
    and Novell . . . also plan to add . . . video . . . versions thereby
    allowing business to hold meetings with multiple people instant
    messaging each other."), Attachment to iCast Oct. 5 Ex Parte.

[^390]: *Some 28 Pct of World Mobile Subscribers Seen Using 3G Services
    by 2010 -- Study,* [AFX News]{.smallcaps}, Oct. 11, 2000,
    ("\[A\]ccording to a study published online today by the UMTS
    Forum\[,\] . . . six service categories that will generate the
    majority of revenues in 3G\'s early years . . . include . . . access
    to multimedia instant messaging services . . . and 'rich voice'
    services such as video conferencing and voice over IP.").

[^391]: *See* Instant Messaging Is an Important Platform at 1 ("IM is a
    natural platform for . . . video-related services and applications .
    . ."), 2 ("as broadband technology is more widely deployed, 'video'
    services could also, in a competitive market, be expected to be
    available over the IM platform." (footnote omitted)), Attachment to
    iCast Oct. 5 Ex Parte; Louise Rosen, *Why IM Matters So Much*,
    [Upside Today]{.smallcaps}, Sept. 19, 2000, at
    http://www.upside.com/Ebiz/39c289380.html (visited Sept. 19, 2000)
    ("So what does the future hold for IM? . . . \[S\]treaming media . .
    . "); William Whyman, *Instant Messaging: the Next Web Killer App?,*
    Precursor Group, July 31, 2000 (IM "can support . . . the ability to
    drag and drop video . . . files"); First IM White Paper at 2,
    Attachment to Tribal Voice and iCast Sept. 5 Ex Parte; Letter from
    Johnny Scarborough, Jr., Vice President, Advanced Technology, iCast,
    to Magalie Roman Salas, Secretary, FCC, dated July 25, 2000,
    Untitled Attachment at 5 ("IM enables richer communication . . .
    video, file sharing") and 7 ("Tomorrow . . . Content licensing
    (music, news, video)") ("iCast July 25 Ex Parte").

[^392]: AOL itself is promoting many kinds of streaming video,
    especially on high-speed platforms (xDSL, high-speed cable modems,
    *etc*.), as part of its latest and upcoming offerings of Internet
    access. The offerings include IM, although AOL is not specifically
    touting streaming video in connection with it. *See, e.g., AOL and
    RealNetworks Announce Strategic Agreement to Deliver Streaming
    Digital Media Through AOL Services*[, New MediaMusic.com Headlines
    Today,]{.smallcaps} July 13, 2000, at http://www.newmedia . . .
    71300.html ("high-quality streaming digital media," "compelling
    audio and VHS video quality") (visited Dec. 27, 2000); John Townley,
    *AOL Plus Provides Enhanced Streaming Broadband*, [InternetNews --
    ISP News, A]{.smallcaps}pril 4, 2000, at
    http://www.internetnews.com/isp-news/article/0,,8_333621,00.html
    (streaming video news coverage from Fox News and Sports, "streaming,
    dynamic mapping images from weather.com," streaming video sports
    highlights, "streaming market analysis and video wrap-ups") (visited
    Dec. 27, 2000); John Townley, *AOL to Deploy Akamai Servers*,
    [InternetNews -- Streaming Media News, F]{.smallcaps}eb. 16, 2000,
    at http://www.newmediamusic.com/ps/real_aol_71300.html ("large audio
    and video streaming events") (visited Dec. 7, 2000).

[^393]: "QoS" refers to all indicia of quality in interconnection and
    access arrangements, including: the good faith with which they are
    described, offered and made available by their possessor (in this
    case, AOL Time Warner); their technical capacity and functionality;
    their reliability; their performance characteristics, including
    security from any change in content or display; any price; and the
    promptness of their installation, maintenance, repair, and
    disconnection.

[^394]: An NPD used for AIHS could also perform functions not needed in
    IM, such as advising a user wanting a video conference with another
    user about the other user's video conferencing equipment and whether
    their equipment is compatible.

[^395]: 47 U.S.C. § 310(d).

[^396]: For example, while in a merger of two taxi companies, we might
    be required to approve the transfer of control of various radio
    licenses, in making our decision we would not examine the effect of
    the merger on taxi service to the public. That task is for others.

[^397]: 47 U.S.C. §§ 214(a) and 310(d).

[^398]: 47 U.S.C. § 303(r).

[^399]: 47 U.S.C. § 214(c).

[^400]: 47 U.S.C. §§ 151 *et seq.*

[^401]: 47 U.S.C. § 151.

[^402]: 47 U.S.C. § 152.

[^403]: 47 U.S.C. § 153.

[^404]: *Cf.* *Implementation of Sections 255 and 251(a)(2) of the
    Communications Act of 1934, as Enacted by the Telecommunications Act
    of 1996; Access to Telecommunications Service, Telecommunications
    Equipment and Customer Premises Equipment by Persons with
    Disabilities*, WT Dkt. No. 96-198, Report and Order and Further
    Notice of Inquiry, FCC 99-181, ¶¶ 96-98 (rel. Sept. 29, 1999).

[^405]: *See, e.g.,* Tribal Voice and iCast Sept. 5 Ex Parte, at 22-27,
    29-33; iCast Oct. 10 Ex Parte at 1-7. These commenters further claim
    that the Commission's ancillary jurisdiction authority also provides
    grounds for imposing a condition on IM interoperability. Tribal
    Voice and iCast Sept. 5 Ex Parte at 27-29.

[^406]: AOL Sept. 29 Ex Parte. iCast replies that AOL's submission, when
    read carefully, does not dispute the Commission's jurisdiction to
    impose IM-related conditions. Rather, according to iCast, AOL's
    arguments consist of reasons why the Commission should choose not to
    exercise such jurisdiction in this instance \-- reasons that iCast
    strongly disputes*.* iCast Oct. 10 Ex Parte, at 1.

[^407]: Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat.
    56.

[^408]: Joint Statement of Managers, S. Conf. Rep. No. 104-230 at 1
    (1996).

[^409]: *See United States v. Southwestern Cable Co.*, 392 U.S. 157, 177
    (1968), *quoting Amendment of Subpart L, Part 11 to Adopt Rules &
    Regulations to Govern the Grant of Authorizations in the Business
    Radio Service for Microwave Stations to Relay Television Signals to
    Community Antenna Systems*, First Report and Order, 38 FCC 683, 701
    (1965).

[^410]: *See WorldCom-MCI Order*, 13 FCC Rcd at 18034-35 ¶ 14; *Bell
    Atlantic-NYNEX Order*, 12 FCC Rcd at 19987 ¶2.

[^411]: 47 U.S.C. § 230(b)(1), (2). *See also Access Charge Reform;
    Price Cap Performance Review for Local Exchange Carriers; Transport
    Rate Structure and Pricing; End User Common Line Charges*, First
    Report and Order, 12 FCC Rcd 15982, 16133 ¶ 344 (1997).

[^412]: Section 706 of the Telecommunications Act of 1996, Pub. L.
    104-104, Title VII, § 706, 110 Stat. 153, set forth at 47 U.S.C. §
    157 nt.

[^413]: *WorldCom-MCI Order*, 13 FCC Rcd at 18103-04 ¶ 142.

[^414]: *Id.* at 18104 n.381.

[^415]: AOL Sept. 29 Ex Parte, at 16.

[^416]: Tribal Voice and iCast Sept. 5 Ex Parte at 29-33; iCast Oct. 10
    Ex Parte at 5-6.

[^417]: *WorldCom-MCI Order*, 13 FCC Rcd at 18103-04 ¶ 142.

[^418]: By "traditional regulation," we mean ongoing scrutiny, intense
    in the case of dominant providers, of entry and exit, prices, and
    service offerings and quality.

[^419]: For example, in an IM chat in a Civil War chat room between
    "Johnny Reb" and "Yankee Doodle Dandy," those two individuals may
    not know each other's names and telephone numbers. Each may have
    come into contact with the other simply by being simultaneously in
    the Civil War chat room. Therefore, the "conversation" they conduct
    via instant messaging would probably not have occurred on the
    telephone network.

[^420]: Since the early 1980\'s at very least, economists and antitrust
    practitioners have recognized the existence of \"innovation
    markets\" in which identifiable firms engage in research and
    development on new products that are intended to appeal to the same
    buyers. It may even be that none of these emerging products have
    been created. *See, e.g.*, Daniel Rubinfeld, *Competition,
    Innovation, and Antitrust Enforcement in Dynamic Network
    Industries*, March 24, 1998, Speech at Software Publishers' Ass'n;
    Christine A. Varney, *Why Innovation Market Analysis Makes Sense*,
    March 15, 1995, Speech at Antitrust 1995 Conference, at 1995 WL
    112078; Richard J. Gilbert and Steven C. Sunshine, *Incorporating
    Dynamic Efficiency Concerns in Merger Analysis: The Use of
    Innovation Markets*, 65 [Antitrust L. J]{.smallcaps}. 569 (1995).

[^421]: *See AT&T-TCI Order,* 14 FCC Rcd 3160, 3205 ¶ 92 (1999);
    *AT&T-MediaOne Order,* 15 FCC Rcd at 9866 ¶ 116. *See also* FCC v.
    RCA Commun. Inc., 346 U.S. 86, 96-97 (1953) (FCC not required to
    base its public interest analysis on the type of "tangible evidence
    appropriate for judicial determination," but is permitted to rely on
    its expertise to make predictive judgments).

[^422]: If any one provider decided not to interoperate, then its users
    would find themselves cut off from the majority of other users. They
    would quickly defect to another provider who did interoperate,
    thereby gaining access to all users other than those on the
    non-interoperating service. The holdout service would quickly lose
    all its users or be forced to change its decision and interoperate.
    Thus, in this situation it is not profitable for any provider to
    refuse to interoperate.

[^423]: A first mover advantage is an advantage that may accrue to the
    first firm to introduce a new service, such as low marketing costs
    resulting from a lack of rivals[.]{.smallcaps} Dennis W. Carlton and
    Jeffrey M. Perloff, [Modern Industrial Organization]{.smallcaps} at
    113 (1994).

[^424]: Of course, unique features that are especially attractive to
    small groups of users may win them away from the service that is
    most popular. For example, a small closed service may be preferable
    to users who desire greater privacy and security. Other factors may
    also make other small services preferable to small groups of users.

[^425]: Ultimately, new technology may overcome the dominant provider's
    power, as the telephone did to the telegraph and airplanes and
    automobiles did to railroads. Many years can pass, however, before a
    new technology appears with enough advantages to overcome the
    entrenched one. That technology, too, may be deployed by the
    dominant incumbent, who will deploy it slower than a new entrant
    would. Finally, some technologies persist for very long times, such
    as the QWERTY keyboard.

[^426]: For example, when three different speeds were in use for
    phonographic records (33 1/3, 45, and 78 rpms), one adapter was a
    record player that could operate at all three speeds. Another was
    the small plastic disks that fitted in the wide holes at the center
    of 45 rpm records and made them useable on record players that had
    thin spindles.

[^427]: Milton Mueller, Jr., [Universal Service: Competition,
    Interconnection, and Monopoly in the Making of the American
    Telephone System]{.smallcaps} at 134 ("More often than not, voters,
    city councils, and statewide referenda weighed in on the side of
    universal service and consolidation."), 136-45 (1997).

[^428]: IM, in this respect, is like the telephone, of which AT&T once
    said: "A telephone \-- without a connection at the other end of the
    line -- is not even a toy or a scientific instrument. It is one of
    the most useless things in the world. Its value depends on the
    connection with the other telephone -- and increases with the number
    of connections." AT&T Corp., *Annual Report for the Year Ending Dec.
    31, 1908,* at 21.

[^429]: E.S. Browning and Greg Ip, *Six Key Myths That Led the Boom In
    Tech Stocks*, [Asian Wall St. J]{.smallcaps}., Oct. 17, 2000, at
    2000 WL-WSJA 23750599; Dan Carney and Catherine Yang, *Is AOL's
    Instant Messaging an Unfair Advantage?*, [Business
    Week,]{.smallcaps} July 3, 2000, at 2000 WL 7827524; Matt Carolan,
    *IMUnified Good, Government Bad*[, Interactive Week from
    ZDWire,]{.smallcaps} July 25, 2000, at 2000 WL 4067383; Alan Murray,
    *Changing Code: For Policy Makers, Microsoft Suggests a Need to
    Recast Models*, [Wall St. J.,]{.smallcaps} June 9, 2000, at 2000
    WL-WSJ 3032437; William Whyman, *Instant Messaging: the Next Web
    Killer App?,* Precursor Group, July 31, 2000 ("AOL's IM is a closed
    service using proprietary protocols. With dominant market share this
    creates huge network effects.").

[^430]: AOL Sept. 29 Ex Parte at 1.

[^431]: AOL, *New AIM 4.1 Available Now*, at http://www.aol.com/aim/
    (visited Oct. 11, 2000). *See* Confidential Appendix IV-B-2, Note 1.

[^432]: *See, e.g*., Julia Angwin, *Instant Messaging Services at AOL
    Quietly Linked*, [Wall St. J]{.smallcaps}., Oct. 26, 2000*,* at B-1
    (referring to "AOL's dominance of instant-messaging technology");
    Louise Rosen, *Why IM Matters So Much,* [Upside Today]{.smallcaps},
    Sept. 19, 2000, at http://www.upside.com/Ebiz/39c289380.html
    (visited Sept. 19, 2000 (AOL "vastly outnumbering its competitors\'
    numbers"); Nick Wingfield*, Changing Chat*, [Wall St.
    J.]{.smallcaps}, Sept. 18, 2000, at R-28 (in IM, AOL "has become the
    undisputed heavyweight"), B-38 (referring to "AOL's domination of
    the market" for IM); Prepared Testimony of Preston R. Padden,
    Executive Vice President of Government Relations, The Walt Disney
    Co., at 3 ("a near monopoly in Instant Messaging"), FCC En Banc
    Hearing, CS Docket No. 00-30 (July 27, 2000).

[^433]: *See, e.g.*, Letter from Peter D. Ross, Esq., Wiley Rein and
    Fielding, Counsel for AOL, to Ms. Deborah Lathen, Chief, Cable
    Services Bureau, FCC, dated Dec. 9, 2000, Attachments *passim.*

    In a market characterized by strong network effects, a provider with
    a market share X times the size of another will, in fact, have more
    than X times the power of the other. In such markets, a
    participant's relative strength may be measured not so much by its
    market share (N) as by N^2^ in the case of one-to-one messaging and
    by 2^N^ in the case of group communications such as chat rooms and
    IM groups.

[^434]: AOL Nov. 17 Ex Parte, Attachment (Growth in Unique Visitors to
    Instant Messaging Services 2000).

[^435]: Jim Hu, *AOL's Lead in Instant Messaging Arena Dwindles*, [CNET
    News.com,]{.smallcaps} Nov. 16, 2000 (describing "the
    [now-defunct]{.underline} CMGI-owned companies iCast and Tribal
    Voice") (emphasis in original), attached to AOL Nov. 17 Ex Parte.

[^436]: *See, e.g.*, Irene M. Kunii, *Look Who's Going Courting in
    Japan*, [Business Week]{.smallcaps}, Aug. 7, 2000, at 2000 WL
    24484561; Neil Irwin, *AOL Debuts E-Mail/IM Pager,*
    [Washtech.com]{.smallcaps}, Dec. 1, 2000, at
    http://washtech.com/news/media/5560-1.html (visited Dec. 1, 2000);
    *New Media*, [Commun. Daily]{.smallcaps}, Oct. [20,
    2000.]{.smallcaps} *See also* America Online, Inc., *Open IM
    Architecture Design*, at http://aim.aol.com/openim, visited June 19,
    2000 (licensees of AOL include Lotus, Lycos, EarthLink, and other
    ISPs).

[^437]: *See, e.g.*, Michael Brick, *AOL, Sears Form Alliance*,
    [TheStreet.com]{.smallcaps}, March 14, 2000, at
    http://www.thestreet.com/pf/brknews/internet/900219.html (visited
    Dec. 13, 2000). By contrast, Yahoo! has been able to interest
    relatively few wireless providers in adopting its IM. *See, e.g.*,
    *New Interactive Wireless Service from Motient Fortified With Yahoo!
    Now Available to Consumers Nationwide Via www.elinkhere.com*, [PR
    Newswire, N]{.smallcaps}ov[. 9, 2000.]{.smallcaps}

[^438]: Julia Angwin, *Instant Messaging Services at AOL Quietly
    Linked*, *Linked*, [Wall St. J]{.smallcaps}., Oct. 26, 2000*,* at
    B-1; Jim Lynch, *Instant Messaging Roundup,* MSNBC Technology, Aug.
    18, 2000, at http://www.msnbc.com/news/447786.asp (visited Aug. 28,
    2000); Nick Wingfield, *Changing Chat,* [Wall St. J.]{.smallcaps},
    Sept. 18, 2000, at R-28; Louise Rosen, *Why IM Matters So Much,*
    [Upside Today]{.smallcaps}, Sept. 19, 2000, at
    http://www.upside.com/Ebiz/39c289380.html (visited Sept. 19, 2000).

[^439]: AOL Sept. 29 Ex Parte at 1.

[^440]: *See* Letter from William L. Fishman, Esq., Swidler Berlin
    Shereff Friedman, LLP, counsel for RCN Telecom Services, Inc., to
    Magalie Roman Salas, Secretary, FCC, dated Dec. 21, 2000, at 3. See
    *also* Confidential Appendix IV-B-2, Note 2.

[^441]: Letter from Margaret Heffernan, President and CEO, iCast, and
    Shai Buber, President, Odigo Ltd., to Magalie Roman Salas,
    Secretary, FCC, dated Oct. 25, 2000, at n.2 ("iCast and Odigo Oct.
    25 Ex Parte").

[^442]: *See* iCast Comments at 6; Tribal Voice Comments at 6-7
    (alleging that services other than AOL's have better features and
    are more innovative). The President and CEO of iCast claims that an
    AOL employee told her that iCast's "application was really cool."
    Heffernan House Testimony at 2, Attachment to iCast Oct. 10 Ex
    Parte. *See also* Jim Lynch*, Instant Messaging Roundup*, MSNBC
    Technology, Aug. 18, 2000, at http://www.msnbc.com/news/447786.asp
    (visited Aug. 28, 2000), comparing several IM services based on
    their features, appearance, ease of use, and other aspects. *See*
    Confidential Appendix IV-B-2, Note 3.

[^443]: iCast and Odigo Oct. 25 Ex Parte at 2.

[^444]: Heffernan House Testimony at 2 ("we were hopeful that AOL would
    allow us to be interoperable . . ."), Attachment to iCast Oct. 10 Ex
    Parte.

[^445]: AOL Oct. 19 Ex Parte at 3.

[^446]: *See*, *e.g.*, Dean Takahashi, *Zap! Bop! It's Web Comics*,
    [Asian Wall St. J.]{.smallcaps} at 24 (Apr. 28, 2000), available at
    2000 WL-WSJA 2938872; Bob Trott, *Microsoft Views AOL-Time Warner
    Deal as Confirmation of Its Own Strategy*, [Network World
    Fusion]{.smallcaps} (Jan. 12, 2000); Steven Manes, *Information
    Isn't Everything*, [InformationWeek]{.smallcaps} (May 26, 1997),
    available at 1997 WL 7602548.

[^447]: We find similarly unattractive the prospect of a tight oligopoly
    of three IM providers (AOL, Microsoft, and Yahoo!) predicted by AOL.
    *See* Oct. 19 Ex Parte and the Attachments thereto.

[^448]: AOL Sept. 29 Ex Parte at 3, 5-6.

[^449]: AOL Oct. 19 Ex Parte at 2-3 and attached charts and diagrams.

[^450]: *See, e.g.*, Letter, from Peter D. Ross, Esq., Wiley, Rein &
    Fielding, Counsel for AOL, to Magalie Roman Salas, Secretary, FCC,
    Sept. 19, 2000, at 4 ("barriers to entry simply do not exist') ("AOL
    Sept. 19 Ex Parte").

[^451]: *See* Letter from Erin M. Egan, Esq., Covington & Burling,
    Counsel for Microsoft Corp., to Magalie Roman Salas, Secretary, FCC,
    dated Nov. 20, 2000, at 1-2 ("Microsoft Nov. 20 Ex Parte").

[^452]: Letter from David Lawson, Esq., Counsel for AT&T, to Magalie
    Roman Salas, Secretary, FCC, dated Nov. 22, 2000, at 2 ("AT&T Nov.
    22 Ex Parte").

[^453]: *See* Confidential Appendix IV-B-2, Note 4. *See also* AT&T Nov.
    22 Ex Parte at 2.

[^454]: *See, e.g.*, Stan J. Liebowitz and Stephen E. Margolis,
    [Winners, Losers and Microsoft]{.smallcaps} at 10-11, 137 (1999).

[^455]: iCast Comments at 1; Disney July 25 Ex Parte at 27-28; Aaron
    Pressman, *Microsoft Messenger Finds Its Voice* at 2, [The
    Standard,]{.smallcaps} July 20, 2000, at
    http://thestandard.com/article/display/0,1151,16984,00.html?nl+dnt
    (visited July 21, 2000). We know of no attempt to gain access to
    AOL's NPD for ICQ.

[^456]: *See* IMUnified, *Mission Statement*, at
    http://www.imunified.org/ (visited Aug. 11, 2000), concerning
    IMUnified, a recently formed coalition of technology and instant
    messaging companies. They plan to make each others' services
    interoperable and "will strive to implement open standards-based
    interoperability for instant messaging as these protocols emerge
    from the IETF standardization process." Founding members include
    AT&T, Excite@Home, iCast, Microsoft, Odigo, Tribal Voice and Yahoo!.
    They announced in late July that "we will publish specifications
    that will enable functional interoperability among IMUnified
    members' instant messaging services and that we will implement
    during the fall timeframe." IMUnified, *Roundtable Q&A: Industry
    Leaders Discuss Goals of New IMUnified Coalition*, at
    http://www.microsoft.com/presspass/features/2000/jul00/07-25imUnified.asp
    (visited Aug. 11, 2000). *See also* Ariana Eunjung Cha, *AOL Unmoved
    in Software Dispute,* [Wash. Post]{.smallcaps}, Aug. 24, 2000, at
    A-1, -14; Jim Lynch, *Instant Messaging Roundup*, MSNBC Technology,
    Aug. 18, 2000, at http://www.msnbc.com/news/447786.asp (visited Aug.
    28, 2000).

[^457]: iCast Comments at 5, 10; Letter from Ross Bagully, President and
    CEO, Tribal Voice, to Magalie Roman Salas, Secretary, FCC, dated
    Aug. 8, 2000, at 1-2 ("Tribal Voice Aug. 8 Ex Parte"); Industry
    White Paper on AOL's Submissions to the IETF & the FCC ("Second IM
    White Paper") at 11 n.19, 14, Attachment to Letter from Ross
    Bagully, President and CEO, Tribal Voice, to Magalie Roman Salas,
    Secretary, FCC, dated July 21, 2000 ("Tribal Voice July 21 Ex
    Parte"). Several observers appear to find AOL's original
    participation in IETF less than enthusiastic. Carolyn Duffy Marsan,
    *AOL Out of Instant Messaging Standard Bake-Off*, Network World
    Fusion News, Aug. 7, 2000, at
    http://www.newfusion.com/cgi-bin/mailto/x.cgi (visited Aug. 15,
    2000); Network World, Front News Briefs, *AOL Touts Instant
    Messaging Standard,* [Network World,]{.smallcaps} June 19, 2000, at
    2000 WL 9435687 ("After a year of dragging its feet on instant
    messaging interoperability, AOL . . ."); Lawrence J, Magid, *Instant
    Messaging Users Victims as Giants Do Battle*, [Los Angeles
    Times,]{.smallcaps} Aug. 23, 1999, at C-1, at 1999 WL 2189129 ("IETF
    has yet to receive AOL\'s instant messaging protocols, said Vijay
    Saraswat, co-chair of the IETF\'s Instant Messaging and Presence
    Protocol committee. 'In terms of moving the whole process forward,
    it would be significantly helpful to have AOL\'s protocols
    published, but different companies choose to participate in
    different ways,' Saraswat said"); Charles Cooper, *The Messaging
    Muddle: End the Bickering*, [ZDNet News, Aug. 4, 1999,]{.smallcaps}
    at 1999 WL 14537884 [("]{.smallcaps}The IETF, which has been working
    towards hashing out a consensus on messaging protocols, received
    encouraging news last week when AOL said it would participate in a
    working group charged with drafting the outlines of a universal
    messaging protocol. . . . AOL could accelerate the process by next
    publishing its existing Instant Messaging protocols. That suggestion
    has so far gone nowhere[, . . .").]{.smallcaps}

[^458]: Between August 1999 and October 2000, industry members exchanged
    thousands of electronic mails about IM interoperability through the
    IETF. Only eight were by AOL. Heffernan House Testimony at 5,
    Attachment to iCast Oct. 10 Ex Parte.

[^459]: *See also* Carolyn Duffy Marsan, *AOL Out of Instant Messaging
    Standard Bake-Off*, Network World Fusion News, Aug. 7, 2000, at
    http://www.newfusion.com/cgi-bin/mailto/x.cgi (visited Aug. 15,
    2000) ("AOL's last-minute submission was a general framework for
    instant messaging interoperability rather than a full-fledged
    protocol, so it was not chosen for further consideration.").

[^460]: Dennis Fisher, *A New Tack for IM Protocol*, [eWEEK from
    ZDWire]{.smallcaps}, Oct. 22, 2000, at 2000 WL 18179376. It is
    largely for this reason that we choose a remedy other than the ones,
    emphasizing industry standard setting through the IETF, advocated by
    IMUnified and its members. *See, e.g.*, Microsoft Nov. 20 Ex Parte
    at 2.

[^461]: FCC En Banc Hearing, CS Docket No. 00-30 (July 27, 2000), Tr. at
    167-68: Chairman Kennard: ". . . You\'ve said that you want
    \[interoperability\] to happen and that you can do it. Could you
    tell us for the record when it will get done?" Mr. Schuler: "Well,
    we can tell you for the record that there are two pieces to the
    puzzle. One piece of the puzzle is building the technology that will
    allow our servers to interoperate with other services and
    incorporate all the controls that allow us to protect our consumers.
    We think that\'s about a 12‑month job. . . ." Chairman Kennard:
    "Twelve months from today." Mr. Schuler: "We are working at it right
    now. But there\'s another issue --" Chairman Kennard: "Is that a
    yes?" Mr. Schuler: Well, yes. Twelve months from today." Chairman
    Kennard: Twelve months from today." Mr. Schuler: "But let me
    clarify. That\'s 12 months to do the technology. There is another
    issue that\'s important, . . . . the hackers and spammers are out
    there figuring out how to break it. . . . \[T\]here has to be a
    period of quality assurance, a period of us testing the system and
    assuring that . . . . you\'ve built the most unbreakable system
    possible." We do not necessarily agree with AOL that achieving
    interoperability will require such a lengthy time. *See* *also*
    Confidential Appendix IV-B-2, Note 5; Tribal Voice Aug. 8 Ex Parte
    at 1-2.

[^462]: *Compare* Case En Banc Testimony, Tr. at 29-30, *and* Schuler En
    Banc Testimony, Tr. at 164-65, *with* Bagully En Banc Testimony, Tr.
    at 154. *See also* AOL Sept. 19 Ex Parte at 4; American Online,
    Inc., *Open IM Architecture Design*, at http://aim.aol.com/openim,
    visited June 19, 2000 ("\[W\]e have resisted efforts by our
    competitors to impose a 'quick fix' system that would jeopardize our
    members' privacy and security.").

[^463]: iCast July 25 Ex Parte, Attachment at 11-13.

[^464]: *See* Tribal Voice July 21 Ex Parte, Attachment (Second IM White
    Paper) at 7-11.

[^465]: *See* Bernstein and McKinsey \-- Broadband! at 24 (". . . AOL
    counts fully half of the current online subscribers as its
    customers, giving it the opportunity to shift many customers from
    slow- to high-speed service. ").

[^466]: America Online, Inc., *AOL Instant Messenger 4.3*, at
    http://www.aol.com/aim40/html (visited Nov. 17, 2000). Slightly
    earlier, in announcing its AIM 4.1, AOL encouraged users to
    "\[s\]end an instant message to your buddies today to let them know
    about AIM 4.1!" America Online, Inc., *AOL Instant Messenger 4.1*,
    at http://www.aol.com/aim/aim40.html (visited Oct. 11, 2000).

[^467]: *See* AT&T Nov. 22 Ex Parte at 2-3.

[^468]: We do not here challenge how AOL achieved its dominance of IM
    service, or its deployment of AIHS as stand-alone services. Indeed,
    we have engaged in numerous proceedings to encourage the deployment
    of new and innovative services to all Americans, and we welcome the
    introduction of AIHS and any increased demand for high-speed
    services and connections that may result from the introduction of
    AIHS.

[^469]: *Time Warner Cable Joins PowerUP to Provide High Speed Access to
    Bridge the Digital Divide: New Partnership Helps Underserved Youth
    Succeed in the Digital Age*, [Business Wire]{.smallcaps}, Oct. 19,
    2000.

[^470]: Road Runner Corp., *Road Runner Sets Record Third Quarter*
    (press release), Oct. 16, 2000.

[^471]: Time Warner has announced that this exclusivity will end in
    April 2001. AT&T Corp., *Road Runner Joint Venture To Be Dissolved*
    (press release), Dec. 18, 2000. *See also* Time Warner Inc., *Time
    Warner To Increase Road Runner Ownership and Manage Its Operations*
    (press release), Dec. 18, 2000.

[^472]: *See, e.g.*, Rebecca Cantwell, *DOJ Waves Road Runner Away From
    AT&T*, [Interactive Week from ZDWire,]{.smallcaps} June 5, 2000, at
    2000 WL 4066715 (Road Runner is exclusive high-speed provider to
    Media One).

[^473]: Recently, MediaOne alone was estimated to have 5 million cable
    service customers. Kelly Pate*, CSG Systems Stock Dives Amid Dispute
    with AT&T*, [Denver Post,]{.smallcaps} Sept. 29, 2000, at 2000 WL
    25829548.

[^474]: *Road Runner Goal One Million*, [Television Digest,]{.smallcaps}
    March 13, 2000, at 2000 WL 8644906 (in March 2000, new Road Runner
    President's "plan calls for offering Road Runner to at least another
    10 million cable homes this year, which would make it available in
    more than 25 million homes, over 80% of combined Time
    Warner-MediaOne universe.").

[^475]: *See* Confidential Appendix IV-B-2, Note 6. The FTC's Order to
    Hold Separate will prevent such an offering until AOL Time Warner
    offers an unaffiliated ISP on each of its cable systems. *Order To
    Hold Separate.*

    To the extent that the almost twenty million Time Warner and Road
    Runner households already subscribe to one of AOL's narrowband IM
    services, the backward compatibility of AOL Time Warner's AIHS can
    make the latter services' attractions apparent sooner than they
    otherwise would be.

[^476]: AT&T Nov. 22 Ex Parte at 2.

[^477]: See Letter from Dr. Frederick R. Warren-Boulton, Microeconomic
    Consulting and Research Assocs., Inc., consultant for AT&T, to
    Magalie Roman Salas, Secretary, FCC, dated Dec. 5, 2000, at 2. *See
    also* Michael H. Riordan and Steven C. Salop, *Evaluating Vertical
    Mergers: A Post-Chicago Approach*, 63 [Antitrust L.J]{.smallcaps}.
    513, 526-27 (1995) ("Eliminating Double Markup of Costs. When both
    the input and output markets are imperfectly competitive, output
    prices are increased above the competitive level and possibly even
    above the monopoly level, as marginal input costs are marked up
    twice, once by the input supplier and once by the output producer.
    Under these circumstances, when the integrated firm can efficiently
    supply inputs to itself, a vertical merger of a firm with a supplier
    of a variable input can reduce output prices by eliminating one of
    the two markups.").

[^478]: AOL Time Warner's first mover advantage will make more difficult
    the task facing deployers of any new "breakthrough technology."

[^479]: Applicant's Second Response at 17.

[^480]: The existence of high-speed services that compete with
    cable-based high-speed services, such as xDSL, may not dissuade AOL
    from such conduct in IM. AOL's present position in IM and its likely
    dominance of AIHS derive in large part from its NPD and will be felt
    on all high-speed "last miles." xDSL and other high-speed
    alternatives to cable will not discipline, and may even extend, the
    anticompetitive potential of AOL's NPD.

[^481]: A promotional paper by Cisco Systems states that, with its
    network equipment, "\[s\]ervice providers can 'up the ante' by
    giving customers guaranteed and differentiated services through
    IP-based QoS product." Cisco Systems, *White Paper: Cisco's Packet
    over SONET/SDH (POS) Technology Support; Mission Accomplished* at 4,
    at http://www.cisco.com/warp/public/cc/pd/rt/12000/tech/posdh_wp.htm
    (visited Oct. 10, 2000).

[^482]: Because we expect the basic technology of AOL's new IM-based
    services to be similar to others', AOL Time Warner will likely have
    more of an incentive to discriminate against the latter than it
    would if their services were sharply differentiated and if each
    appealed to different customers. In the latter event, AOL Time
    Warner's incentive would more likely be to make all the
    differentiated services function well. *See* Confidential Appendix
    IV-B-2, Note 7.

[^483]: *See generally* United States v. AT&T, 524 F. Supp. 1336 (D.D.C.
    1981) (detailing the discrimination of the Bell System local
    telephone companies against its competitors in terminal equipment,
    long distance, and other products and services for which access to
    local lines was necessary). Similar concerns also underlie the
    provisions concerning "program access" by cable television companies
    (Communications Act § 628, 47 U.S.C. § 548) and Bell re-entry into
    interexchange service (Communications Act §§ 271-72, 47 U.S.C.
    §§271-72). *See also* James W. Olson and Lawrence J. Spiwak, *Can
    Short-Term Limits on Strategic Vertical Restraints Improve Long-Term
    Cable Industry Market Performance?*, 13 [Cardozo Arts & Ent.
    L.]{.smallcaps}J. 283 (1995).

[^484]: *AT&T-MediaOne Order,* 15 FCC Rcd at 9871 ¶ 123 ("Given the
    nascent condition of the broadband industry and the foregoing
    promises of competition, we find it premature to conclude that the
    proposed merger poses a sufficient threat to competition and
    diversity in the provision of broadband Internet services, content,
    applications, or architecture to justify denial of the merger or the
    imposition of conditions to supplement the Justice Department\'s
    proposed consent decree.").

[^485]: *See, e.g.*, Heffernan House Testimony at 3 ("By declining to
    allow IM interoperability and allowing rival interactive TV
    providers to use AOL IM only upon payment of substantial license
    fees (or not licensed at all), AOL would substantially raise rival
    interactive TV providers' costs."), Attachment to iCast Oct. 10 Ex
    Parte.

[^486]: *See* AOL Sept. 19 Ex Parte at 5.

[^487]: *See, e.g.*, AT&T Corp., *Annual Report for the Year Ending Dec.
    31, 1913,* at 24-26 (1914) (the "Kingsbury Commitment," in which
    AT&T committed to interconnect its long distance lines with
    independent telephone companies under certain conditions), *cited
    in* Milton Mueller, Jr., [Universal Service: Competition,
    Interconnection, and Monopoly in the Making of the American
    Telephone System]{.smallcaps} at 130 n.1 (1997); *Bell System Tariff
    Offerings of Local Distribution Facilities for Use by Other Common
    Carriers; and Letter of Chief, Common Carrier Bureau, Dated October
    19, 1973, to Laurence E. Harris, Vice President, MCI
    Telecommunications Corp*., Docket No. 19896, Decision, 46 FCC2d 413
    (1974), *affirmed, Bell Tel. Co. v. FCC*, 503 F.2d 1250 (3^rd^ Cir.
    1974), *cert. denied*, 422 U.S. 1026 (1975) (regulating
    interconnection between dominant carriers and new entrant private
    line carriers); United States v. AT&T, 552 F. Supp. 131, 227 (D.D.C.
    1982), *affirmed*, 460 U.S. 1001 (1983) (requiring Bell local
    companies to offer long distance carriers other than AT&T
    interconnection equal to that offered to AT&T); *Interconnection
    Between Local Exchange Carriers and Commercial Mobile Radio Service
    Providers; Equal Access and Interconnection Obligations Pertaining
    to Commercial Mobile Radio Service Providers,* CC Docket Nos. 94-54
    and 95-185, Notice of Proposed Rulemaking, 11 FCC Rcd 5020 (1996)
    (one of many proceedings regulating interconnection of dominant
    wireline carriers and relatively small mobile wireless carriers);
    Communications Act § 251, 47 U.S.C. § 251 (detailed regulation of
    interconnection between dominant incumbent local exchange carriers
    and new entrant competitive local exchange carriers).

[^488]: Examples are wireline telephone companies' entry into cellular
    service (*see, e.g.,* Rogers Radio Commun. Serv., Inc. v. FCC, 593
    F.2d 1225 (D.C.Cir. 1978); MCI Cellular Tel. Co. v. FCC, 738 F.2d
    1322 (D.C. Cir. 1984)) and enhanced services (*see, e.g.*,
    California v. FCC, 905 F.2d 1217 (9th Cir, 1990), 39 F.3d 919 (9th
    Cir. 1994), *cert. denied*, 514 U.S. 1090 (1995); and Bell incumbent
    local exchange carrier entry into in-region interexchange service
    (47 U.S.C. §§ 271-72).

[^489]: Applicants' Reply Comments at 47-49.

[^490]: In "AOL Time Warner," we include the separate pre-merger
    companies and the post-merger company.

[^491]: 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.

[^492]: By "implemented," we mean both the creation and deployment of
    the interoperable application.

[^493]: "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.

[^494]: The other provider must afford the same capabilities to AOL.

[^495]: 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.

[^496]: 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.

[^497]: 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).

[^498]: 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.

[^499]: *Cf.* 47 C.F.R. § 76.7

[^500]: *See* para. 126F, *supra.*

[^501]: *See 1999 Competition Report*, 15 FCC Rcd at 980 ¶ 3 (generally
    describing the various types of MVPDs) (Section 628(g) of the
    Communications Act, 47 U.S.C. § 548(g), requires the Commission to
    report annually to Congress on the status of competition in markets
    for the delivery of video programming). DBS operators provide
    programming via satellite to subscribers that own or lease
    small-diameter receiving dishes. MMDS providers offer programming
    via microwave facilities (the service is often referred to as
    "wireless cable service"). SMATV operators, also known as "private
    cable operators," also frequently use microwave facilities to
    transmit programming to subscribers without crossing public
    rights-of-way. SMATV subscribers usually reside in multiple dwelling
    units ("MDUs").

[^502]: Newton's Telecom Dictionary (11^th^ Ed. 1996) defines the VBI
    as:

    > The interval between television frames in which the picture is
    > blanked to enable the trace (which "paints" the screen) to return
    > to the upper left hand corner of the screen, from where the trace
    > starts, once again to paint a new screen.

    This time period is the equivalent of 21 scanning lines. The VBI is
    used to transmit data to organize the television picture, as well as
    other data. Line 21 of the VBI is reserved for distribution of
    closed captioning information. *See* *Closed Captioning and Video
    Description of Video Programming*, *Implementation of Section 305 of
    the Telecommunications Act of 1996, Video Programming
    Accessibility*, Report, MM Docket No. 95-176, 11 FCC Rcd 19214
    (1996).

[^503]: Some set-top boxes and television sets will have EPGs embedded
    within them.

[^504]: In addition, some ITV providers may provide interactive EPGs as
    part of their ITV service. EPG companies include Gemstar, WorldGate
    (who provides "TV Gateway" for WorldGate subscribers) and Liberate
    Tribune.

[^505]: We note that on July 11, 2000, Gemstar and TV Guide, Inc.
    announced the completion of their merger, in which TV Guide, Inc.
    will become a wholly owned subsidiary of Gemstar. TV Guide, Inc*.,
    Gemstar International Group Limited and TV Guide, Inc. Announce
    Completion of Their Merger* (press release) July 11, 2000. In
    addition, in October 2000, News Corp. increased its ownership
    interest in Gemstar-TV Guide to 43% by acquiring AT&T's Liberty
    Media Group's 21% ownership interest. As part of this same
    transaction, AT&T's Liberty Media Group will increase its ownership
    interest in News Corp. to 18% from 8%. Ronald Grover, *What Does
    John Malone Really Want?,* [Business Week]{.smallcaps}, Oct. 9,
    2000, at 1.

[^506]: TV Guide, Inc., *Gemstar International Group Limited and TV
    Guide, Inc. Announce Completion of Their Merger* (press release),
    July 11, 2000.

[^507]: Gemstar Comments at 3.

[^508]: *Id.*

[^509]: *Id.*

[^510]: *Id.* Time Warner stated recently that it has ceased this
    practice (s*ee* letter from Marc Apfelbaum, Senior Vice President
    and General Counsel, Time Warner Cable, to Stephen Weiswasser,
    Executive Vice President and General Counsel, Gemstar Development
    Corp, dated June 15, 2000). However, we note that Gemstar indicates
    that Time Warner's current decision to refrain from stripping EPG
    data does not alleviate its overall concerns, characterizing Time
    Warner's actions as "a temporary cease fire." *See* Letter from
    Gerald J. Waldron and Jennifer A. Johnson, Counsel for Gemstar-TV
    Guide International, Inc., to Magalie Roman Salas, Secretary, FCC,
    dated January 4, 2001.

[^511]: *See In re Petition for Special Relief of Gemstar*, CSR-5528-Z
    (filed Mar. 16, 2000).

[^512]: Gemstar Comments at 4.

[^513]: *Id*. at 7. *See also* NAB May 19 Ex Parte at 2-3; NAB Oct. 2 Ex
    Parte at 1-3.

[^514]: Applicants' Reply Comments at 52.

[^515]: *Id.* at 53. *See also* Letter from Daniel L. Brenner, National
    Cable Television Association ("NCTA") to William E. Kennard,
    Chairman, FCC, dated May 36, 2000 ("NCTA May 26 Ex Parte"),
    transmitted by letter from Daniel L. Brenner to Magalie Roman Salas,
    Secretary, FCC, dated May 26, 2000.

[^516]: *See In re Petition for Special Relief of Gemstar*, CSR-5528-Z
    (filed March 16, 2000). Gemstar states that it incorporates, by
    reference, its comments from the special relief proceeding regarding
    Time Warner's refusal to carry EPG-related data in the vertical
    blanking interval of a television broadcast signal. In that
    proceeding, Gemstar argued the following points: (1) Time Warner's
    actions violate the Commission's rules and policies requiring
    mandatory carriage of all program-related material accompanying a
    broadcast signal that has must carry rights; (2) Time Warner is
    impeding the retail availability of competing navigation devices;
    and (3) Time Warner's actions are contrary to other Commission rules
    and policies. The Commission is also currently engaged in a
    proceeding to review the effectiveness of the navigation devices
    rules and to consider whether any changes are necessary*. See
    Implementation of Section 304 of the Telecommunications Act of 1996,
    Commercial Availability of Navigation Devices*, CS Docket No. 97-80,
    Further Notice of Proposed Rulemaking and Declaratory Ruling, FCC
    00-341 (rel. Sept. 18, 2000). *See also* *In re Carriage of the
    Transmission of Digital Television Broadcast Stations*, CS Docket
    No. 98-120, Notice of Proposed Rulemaking, 13 FCC Rcd 15092, 15129 ¶
    82 (1998).

[^517]: *Implementation of Section 304 of the Telecommunications Act of
    1996, Commercial Availability of Navigation Devices*, CS Docket No.
    97-80, Report and Order ("*Navigation Devices Order*"), 13 FCC Rcd
    14775, 14820 ¶ 116 (1998).

[^518]: *In re Carriage of the Transmission of Digital Television
    Broadcast Stations*, CS Docket No. 98-120, Notice of Proposed
    Rulemaking, 13 FCC Rcd. 15092, 15129 ¶ 82 (1998).

[^519]: *See* NAB May 19 Ex Parte at 1-6; MSTV Reply Comments at 1-2;
    Sinclair Comments; Disney Reply Comments at 18-19; Disney July 25 Ex
    Parte at 35-37; Freedom Broadcasting Reply Comments.

[^520]: NAB May 19 Ex Parte at 2; MSTV Reply Comments at 2; Disney Reply
    Comments at 18-19*.* We note that MSTV, Disney, and Sinclair have
    requested similar conditions as part of the merger approval process.
    *See* MSTV Reply Comments at 1 (requesting conditions that would
    prohibit AOL Time Warner from "discriminating against the
    programming, navigation devices and other services delivered through
    the broadcast signal for free"); Disney Reply Comments at 19
    (requesting a condition that requires AOL Time Warner to "pass
    through unaltered all the free bits of broadcasters"); Sinclair
    Comments at 2 ("The Commission should prohibit AOL Time Warner from
    degrading or blocking subscriber access to any part of the digital
    broadcast signal that could be received free over-the-air.").

[^521]: NAB states that the Applicants' request for approval of the
    merger based on assertions that the combined entity will speed the
    construction of digital broadband platforms provides a separate
    basis for the Commission to require carriage of digital broadcast
    signals on its systems. *See* NAB May 19 Ex Parte at 5. *See also*
    MSTV Reply Comments at 6 ("specific and enforceable conditions must
    be placed on AOL Time Warner to protect the public's access to all
    of the digital offerings broadcast stations would deliver to
    consumers free of charge.").

[^522]: *See* NCTA May 26 Letter at 2.

[^523]: *See* Applicants' First Response at 6.

[^524]: Time Warner adds that, in fact, negotiations with other major
    television group owners are underway. *Id.*

[^525]: *See AT&T-TCI Order,* 15 FCC Rcd at 3183 ¶ 43.

[^526]: *See In re Petition for Special Relief of Gemstar*, CSR-5528-Z
    (filed March 16, 2000). *See also* *Navigation Devices Order*, 13
    FCC Rcd at 14820 ¶ 116.

[^527]: *See* *In re Carriage of the Transmission of Digital Television
    Broadcast Stations*, CS Docket No. 98-120, Notice of Proposed
    Rulemaking, 13 FCC Rcd 15092, 15129 ¶ 82 (1998). We note that
    Sinclair also argues that the Commission should ensure that
    consumers have access to free over-the-air digital broadcast signals
    via antennas and that the Commission should adopt the COFDM digital
    broadcast standard. Sinclair Comments at 3. We find that these
    matters are not linked in any way to either the merger or the
    broadcast carriage issues generally presented by the parties. These
    matters are more appropriately dealt with in the Commission's
    periodic review of the digital television transition. *See In the
    Matter of Review of the Commission's Rules and Policies Affecting
    the Conversion to Digital Television*, Notice of Proposed
    Rulemaking, MM Docket No. 00-39, FCC 00-83 (rel. Mar. 8, 2000).

[^528]: *See* ACA Comments at 1.

[^529]: 47 C.F.R. § 76.503.

[^530]: *See* Section 613(f)(1)(A) of the Communication Act of 1934, as
    amended; Cable Television Consumer Protection and Competition Act of
    1992 § 11(c); 47 U.S.C. § 533(f)(1)(A).

[^531]: *See* Applicants' March 21 Supplemental Information at 11-12
    n.15.

[^532]: *See* *Id.* at 10-11.

[^533]: *See, e.g.*, RCN Comments at 6-7.

[^534]: *See* RCN Comments at 6-8; ACA Comments at 13-14; Consumers
    Union Comments at 157.

[^535]: *See* ACA Comments at 13-14; Consumers Union Comments at 157;
    Consumers Union Reply Comments at 6.

[^536]: *See* 47 U.S.C. § 533(f)(1)(A).

[^537]: Cable Act § 2(a)(4); 47 U.S.C. § 521 note.

[^538]: *See* 47 U.S.C. § 533(f)(2)(A)&(B).

[^539]: *See* 47 C.F.R. § 76.503.

[^540]: *See In re Implementation of Section 11(c) of the Cable
    Television Consumer Protection and Competition Act of 1992:
    Horizontal Ownership Limits*, MM Docket No. 92-264, Third Report and
    Order ("*Horizontal Third Report and Order*"), 14 FCC Rcd 19098,
    19114-19116 ¶¶ 39-43 (1999).

[^541]: *See* 47 C.F.R. § 76.503 n.2.

[^542]: *See* 47 C.F.R. § 76.503 n.2; 47 C.F.R. § 76.501 n.2(i).

[^543]: *See* 47 C.F.R. § 76.503 n.2; 47 C.F.R. § 76.501 n.2(a).

[^544]: *See* Applicants' March 21 Supplemental Information at 14.

[^545]: RCN Comments at 7 n.25.

[^546]: *See In re Implementation of the Cable Television Consumer
    Protection and Competition Act of 1992; Implementation of Cable
    Reform Act Provisions of the Telecommunications Act of 1996: Review
    of the Commission's Cable Attribution Rules*, CS Docket Nos. 98-82,
    96-85, Report and Order ("*Attribution Order*"), 14 FCC Rcd 19014,
    19050 ¶ 92 (1999) ("\[A\] bright-line . . . test is superior to a
    case-by-case analysis because it permits the planning of financial
    transactions and minimizes regulatory costs.").

[^547]: *Id.* at 19050-51 ¶ 92.

[^548]: RCN Comments at 6-7.

[^549]: *See* Confidential Appendix at Section IV-C-1.

[^550]: *See* 47 U.S.C. § 521(4) (purpose of Title VI, "Cable
    Communications," of the Act is to "assure that cable communications
    provide and are encouraged to provide the widest possible diversity
    of information sources and services to the public"); 47 U.S.C. §§
    532(a), (g) ("diversity of information sources"); *see also Turner
    Broadcasting System, Inc. v. FCC*, 512 U.S. 622, 663 (1994) (quoting
    *United States v. Midwest Video Corp.*, 406 U.S. 649, 668 n.27
    (1972)); *Review of the Commission's Regulations Governing
    Television Broadcasting, Television Satellite Stations Review of
    Policy and Rules*, MM Docket No. 91-221, MM Docket No. 87-8, Report
    and Order, 14 FCC Rcd 12903, 12910-12916 (1999); *Red Lion
    Broadcasting Co. v. FCC*, 395 U.S. 367, 390 (1969) ("It is the
    purpose of the First Amendment to preserve an uninhibited
    marketplace of ideas in which truth will ultimately prevail, rather
    than to countenance monopolization of that market, whether it be by
    the Government itself or a private licensee."); *Turner
    Broadcasting,* 512 U.S. at 657 (emphasizing that "\[t\]he potential
    for abuse of this private power over a central avenue of
    communication cannot be overlooked. The First Amendment's command
    that government not impede the freedom of speech does not disable
    the government from taking steps to ensure that private interests
    not restrict, through physical control of a critical pathway of
    communication, the free flow of information and ideas."). We also
    note that IM Unified argues that the Commission has jurisdiction
    over ITV because it is a "cable service." *See* Tribal Voice and
    iCast Sept. 5 Letter at 31. Because we do not impose any conditions
    with regard to ITV, we need not resolve here the question of our
    authority to do so. However, we address this issue in our *ITV NOI*
    proceeding. *See ITV NOI*, FCC 01-15.

[^551]: *See* *AT&T-MediaOne Order*, 15 FCC Rcd at 9821 ¶ 11;
    *WorldCom-MCI Order*, 13 FCC Rcd at 18030-3 ¶ 9; *see also* 47 U.S.C
    §§ 254; Telecommunications Act of 1996 ("1996 Act"), Pub.L. 104-104,
    Title VII, § 706, Feb. 8, 1996, 110 Stat. 153, reproduced in the
    notes under 47 U.S.C. § 157; 1996 Act Preamble.

[^552]: *See* Section V, *infra*. (Analysis of Potential Public Interest
    Benefits).

[^553]: Time Warner owns three of the five most highly rated cable
    programming networks, as well as the largest news (CNN) and pay
    networks (HBO). Time Warner also has significant publishing, music,
    movie and broadcasting holdings.

[^554]: *See* FTC Consent Agreement.

[^555]: *See ITV NOI*, FCC 01-15.

[^556]: We discuss the provision of EPG services separately, above.
    Original-generation EPG are not interactive, but rather continually
    scroll programming listings. Newer, interactive EPGs, however, allow
    users to sort and search programming, give program descriptions,
    provide reminders of upcoming programming, and transport users to
    programming they select.

[^557]: The *ITV NOI* will explore ITV services in more detail. For
    purposes of this *Order*, we define ITV services to include all of
    these services.

[^558]: *The ITV NOI* will explore these components more closely.

[^559]: Cable operators and DBS providers traditionally have supplied
    set-top boxes to their subscribers, typically on a leased basis, in
    order that their subscribers may view video programming. A
    stand-alone ITV-STB will not, by itself, enable a cable subscriber
    to view video programming. As discussed below, the first deployment
    of AOLTV involves a stand-alone ITV-STB that must be connected to a
    cable or DBS set-top box in order to receive video programming. The
    ITV-STB then blends the video programming with interactive
    programming that the ITV-STB receives from a connection to the
    Internet, which is currently a narrowband dial-up connection.
    Next-generation ITV-STB boxes, the focus of our analysis, will be
    integrated with the cable or DBS set-top box so that a consumer
    utilizes a single box to receive both video programming and
    interactive content, rather than two separate boxes.

[^560]: The Advanced Television Enhancement Forum ("ATVEF") has made
    significant progress in standardizing protocols for the delivery of
    ITV information via the video signal. When we refer to the ATVEF
    standard herein, we intend to include other such standards that may
    be used as ITV technology develops. The ATVEF Enhanced Content
    Specification is a standard that defines a common set of
    requirements for the creation, transport, and delivery of
    interactive television. ATVEF is a cross-industry group comprised of
    the major computer companies, television programmers, technical
    platform providers, broadcasters, and transport providers. *See*
    http:\\\\www.atvef.com. The ATVEF content specifications provide
    creators of enhanced television content with a mandatory minimum
    format that will be supported by ATVEF-compliant receivers such as
    televisions or set-top boxes. By conforming to the ATVEF
    specifications, a content provider will be able to provide enhanced
    television services to the maximum number of receivers. A content
    provider who chooses to create enhanced content that falls outside
    of the ATVEF specification must work in conjunction with the
    manufacturer of the target receiver to enable the additional
    enhancements. Some European countries have deployed DVB-MHP, another
    form of ITV. DVB (the umbrella organization of all companies taking
    part in the launching of digital TV in Europe) developed the
    "Multimedia Home Platform" (MHP). MHP defines a protocol that
    content providers can use to develop interactive applications. The
    protocol also gives manufacturers the ability to build a universal
    set-top-box that is compatible with a wide array of video
    interactive services.

    For analog video signals, the ATVEF interactive content is
    transmitted in the VBI. For digital video signals, the ATVEF
    interactive content is transmitted in digital form in the MPEG
    digital video stream. MPEG will be discussed more fully in the *ITV
    NOI*.

[^561]: In the alternative, the interactive content might be stored on
    the Internet, in which case the trigger would direct the ITV set-top
    box to retrieve the content from the Internet and display it on the
    television set.

[^562]: America Online, Inc., *AOL Launches AOLTV* (press release), June
    19, 2000, at 1.

[^563]: Mindy Charski, *AOL Announces Interactive TV for Eight Cities*,
    [ZDNet News]{.smallcaps}, June 19, 2000 at http:\\\\www.zdnet.com
    (visited Oct. 2, 2000). The AOLTV set-top box retails for \$249.00.
    *Id*.

[^564]: Applicants' Second Response at 5.

[^565]: *Id*. *See also* Ex Parte Comments of Applicants' (Aug. 25,
    2000) ("Applicants' Aug. 25 Letter"), Attachment at 2, transmitted
    by letter from Peter D. Ross on behalf of AOL and Time Warner to
    Magalie Roman Salas, Secretary, FCC, dated Aug. 25, 2000.

[^566]: Applicants' Second Response at 5, 8. *See also* Ex Parte
    Comments of Applicants' (Aug. 22, 2000) ("Applicants' Aug. 22
    Letter") at 8, transmitted by letter from Peter D. Ross on behalf of
    AOL and Time Warner to Magalie Roman Salas, Secretary, FCC, dated
    Aug. 22, 2000.

[^567]: Applicants' Second Response at 8; Bob Sullivan, *Broadband from
    the Sky Tries Again*, [ZDNet News]{.smallcaps}, Aug. 26, 2000 at
    http://www.zdnet.com (visited Aug. 29, 2000). *See also*
    Confidential Appendix IV-C-1, Note 1.

[^568]: Applicants' Second Response at 5.

[^569]: Patricia Fusco*, AOL Gunning for WebTV*,
    [Internet.com]{.smallcaps}, June 16, 2000, at
    http://www.internet.com (visited June 19, 2000).

[^570]: Ex Parte Comments of Disney, Attachment (Aug. 16, 2000) ("Myers
    Group Report") at ¶ 30, transmitted by letter from Preston R.
    Padden, Executive Vice President, Government Relations, Disney, to
    Magalie Roman Salas Secretary, FCC, dated Aug. 16, 2000.

[^571]: *Id*.

[^572]: Stephanie Miles, *Microsoft Partners on Interactive TV Project*,
    [CNET News.com]{.smallcaps}, June 12, 2000, at
    http://www.news.cnet.com (visited Aug. 29, 2000).

[^573]: *Id*.

[^574]: Bob Sullivan, *Broadband from the Sky Tries Again*, [ZDNet
    News]{.smallcaps}, Aug. 26, 2000, at http://www.zdnet.com (visited
    Aug. 29, 2000).

[^575]: Howard Wolinsky, *Interactive TV Revisited*, [Upside
    Today]{.smallcaps}, July 25, 2000, at http://www.upside.com (visited
    July 26, 2000) ("Wolinsky Article").

[^576]: Technical trials of the AT&T ITV product have been postponed
    from the planned summer 2000 launch. No alternative date has been
    announced for the launch. *AT&T Considers MS Set-Top Alternatives*,
    [ZDNet News]{.smallcaps}, Aug. 29, 2000, at http://www.zdnet.com
    (visited Aug. 29, 2000).

[^577]: Wolinsky Article; David Iler*, Interactive-TV Firms Play Merger
    Game*, [Multichannel News Online]{.smallcaps}, May 1, 2000, at
    http:\\\\www.multichannel.com (visited Sept. 29, 2000).

[^578]: Wolinsky Article.

[^579]: Stephanie Miles, *Will* *Microsoft's Next OS Run Your TV?*,
    [CNET News.com]{.smallcaps}, Sept. 5, 2000, at
    http://www.news.cnet.com (visited Sept. 6, 2000).

[^580]: *Id*.

[^581]: Myers Group Report at 31. Rebecca Cantwell, *Interactive TV
    Takes a Variety of Shapes*, [ZDNet News]{.smallcaps}: [Inter@ctive
    Week]{.smallcaps}, July 9, 2000, at http://www.zdnet.com (visited
    Sept. 29, 2000)("Cantwell Article").

[^582]: WorldGate Communications, Inc., at
    http://www.wgate.com\\how\\how.html (visited Nov. 30, 2000).
    WorldGate Communications, Inc. announced plans to add RespondTV's
    enhanced television applications to the WorldGate ITV product.
    WorldGate Communications, Inc., *RespondTV to Support Enhanced
    Interactive Television Content Through WorldGate's Interactive TV
    Platform* (press release), Oct. 24, 2000.

[^583]: Cantwell Article; *see also* WorldGate Communications, Inc.,
    *WorldGate Reports Record Third Quarter Results* (press release),
    Nov. 2, 2000; WorldGate Communications, Inc., *AT&T Broadband and
    WorldGate Announce Interactive Television Deployment in Three
    Cities* (press release), Nov. 6, 2000.

[^584]: Cantwell Article. WorldGate plans to offer service to 115,000
    homes in Pennsylvania in 2001 through an agreement with cable
    operator Blue Ridge Communications. *Id*. In addition, in November
    2000, AT&T Broadband and WorldGate announced that the companies
    began offering WorldGate's interactive television service in Cedar
    Falls and Waterloo, Iowa, and will next offer service in Tacoma,
    Washington. WorldGate Communications, Inc., *AT&T Broadband and
    WorldGate Announce Interactive Television Deployment in Three
    Cities* (press release), Nov. 6, 2000.

[^585]: Cantwell Article; AtHome Corp., *Cox Communications Signs
    Agreement With Excite@ Home For The Development of Advanced TV
    Services* (press release), Dec. 16, 1999.

[^586]: Cox Communications, Inc., *Cox Communications Updates Investors
    on Successful Delivery of Advanced Broadband Communications
    Services* (press release), June 1, 2000; Cantwell Article.

[^587]: In August 2000, AT&T announced that it will increase its
    economic interest in Excite@Home from 24% to 38%, and will increase
    its voting interest from 56% to 79%. *Excite@HomeAnnounces New Board
    and Completion of Partner Distribution Agreement, AT&T Assumes 74
    Percent Voting Stake*, [PR Newswire]{.smallcaps}, Aug. 28, 2000, at
    http://www.prnewswire.com (visited Aug. 30, 2000); AT&T Corp., *AT&T
    Updates SEC Filing on* Excite@Home (press release), Jan. 12, 2001.
    Excite@Home and AT&T stated that they would work together "to
    deliver services to consumers via advanced TV." As noted above, AT&T
    entered into an agreement in June 2000 with Microsoft to provide
    interactive television software for 7.5 million of AT&T's planned 10
    million Motorola-manufactured ITV set top boxes, though planned
    technical trials have since been delayed. In September 2000, AT&T
    announced it will use interactive television software from Liberate
    (also the software provider for AOLTV) for trials, planned for late
    2000, of Motorola-manufactured ITV set-top boxes. *AT&T To Use
    Liberate Interactive TV Software*, [ZDNet News]{.smallcaps}, Sept.
    21, 2000, at http://www.zdnet.com (visited Sept. 24, 2000). Motorola
    has a 5.4% stake in OpenTV Corp., another interactive television
    software manufacturer. *Motorola Ups OpenTV Stake*, [Multichannel
    News Online]{.smallcaps}, Sept. 18, 2000, at
    http://www.multichannel.com (visited Sept. 24, 2000). OpenTV
    announced that TeleCruz Technology, Inc., will license OpenTV
    software for chips that can be integrated directly into television
    sets to enable browsing similar to WebTV; OpenTV also plans to make
    its software available for PCs and cellular phones. David Iler,
    *OpenTV Deal Bypasses Box*, [Multichannel News Online]{.smallcaps},
    Sept. 11, 2000, at http://www.multichannel.com (visited Sept. 24,
    2000).

[^588]: Jeff Baumgartner, *Liberate, OpenTV Could Make Gains on
    Microsoft's Turf*, [Multichannel News Online]{.smallcaps}, Sept. 4,
    2000, at http://www.multichannel.com (visited Sept. 6, 2000).

[^589]: A PVR can pause, rewind, and perform slow motion and instant
    replay of a live program, thereby allowing a viewer to watch earlier
    portions of a program while later portions of the program are still
    being broadcast. A PVR can be used with a service that provides an
    onscreen programming guide service through a telephone connection.
    This technology can be used to create a personal menu that records
    in accordance with a viewer's television preferences.

[^590]: Ex Parte Comments of Applicants' (Sept. 29, 2000) ("Applicants'
    Sept. 29 ITV Letter") at 3, transmitted by letter from Peter D. Ross
    on behalf of AOL and Time Warner to Magalie Roman Salas, Secretary,
    FCC, dated Sept. 29, 2000.

[^591]: Applicants' Second Response at 29. "On July 14, 2000, AOL and
    TiVo announced a three-year strategic agreement and equity
    investment whereby AOL acquired slightly over 1% interest in TiVo."
    *Id.* Time Warner Inc., *Form 10-K for the Year-ended 1999 (filed as
    amended Mar. 30, 2000)*, at I-26. "As of March 1, 2000, investments
    made by \[Time Warner\] in digital media include ... ReplayTV ..."
    *Id.*

[^592]: At this time, we do not find it necessary to further distinguish
    among these ITV inputs, aside from EPGs, which we discuss below in
    Section IV-C-1., *supra* (Electronic Programming Guides). In
    particular, we find no reason to distinguish between markets for
    aggregation of narrowband and broadband ITV content given overlaps
    in the range of services.

[^593]: The *ITV NOI* will explore further the geographic scope of the
    market for ITV services.

[^594]: Disney July 25 Ex Parte at 1-6, 61-71; NBC July 24 Ex Parte at
    1-10.

[^595]: Disney Reply at 12-15; Ex Parte Comments of Disney, Attachment
    (Sept. 25, 2000), ("Disney Sept. 25 Memorandum") transmitted by
    letter from Marsha McBride, Vice-President, Government Relations,
    Disney, to Magalie Roman Salas, Secretary, FCC, dated Sept. 26,
    2000.

[^596]: Disney argues that the Commission should require AOL Time Warner
    to separate its content from distribution as a condition to approval
    of the merger. Disney July 25 Ex Parte at 6. Disney asserts that if
    the Commission does not require such separation, the Commission
    should, at a minimum, require enforceable, non-discriminatory
    treatment of unaffiliated content and interactive service providers.
    Disney Reply Comments at 15; Disney July 25 Ex Parte at 6. *See
    also* NAB May 19 Ex Parte at 2-4; NAB Oct. 2 Ex Parte at 2; Sinclair
    Reply Comments at 1 ("Sinclair urges the Commission to condition the
    AOL/Time Warner merger on the companies' divestiture of all
    content," or to impose nondiscrimination requirements that prohibit
    the merged company from "degrading or blocking customer access to
    any part of the digital broadcast signals carried on its
    infrastructure that could be received by its customers free over the
    air."); MSTV Reply Comments at 1 (the Commission should impose
    conditions that "strictly prohibit AOL Time Warner from
    discriminating against the programming, navigation devices and other
    services delivered through the broadcast signal for free."). In
    addition to a "catch-all" prohibition against discrimination, Disney
    argues that the Commission should impose a series of specific, but
    not exhaustive, prohibitions of practices that would otherwise allow
    AOLTV to discriminate against unaffiliated content providers. Disney
    states that these would include prohibitions against: refusals to
    deal; discrimination in prices, terms or conditions of carriage;
    discriminatory presentation of information or displays on
    navigational devices or electronic program guides for purposes of
    enabling subscribers to select program or content offerings;
    discrimination with respect to downstream traffic; discrimination on
    the return path for interactive television services; discrimination
    that undermines interactive advertising opportunities;
    discrimination in set-top box design and architecture that fills up
    memory with affiliated content before loading unaffiliated content;
    and discrimination in caching practices. Finally, Disney recommends
    that the Commission use arbitration procedures to enforce these
    safeguards. Disney July 25 Ex Parte at 82-85.

[^597]: We note that prior to the merger, Time Warner already had the
    ability to discriminate against unaffiliated video programming
    networks by not carrying their interactive content on the video
    pipeline or the broadband Internet connection. The merger does not
    alter Time Warner's ability in this regard. However, the merger
    might encourage Time Warner to carry unaffiliated video programming
    content to its new affiliated AOLTV because, as discussed below, it
    is arguable that AOLTV will need as much interactive content as
    possible to successfully launch its ITV product.

[^598]: Disney July 25 Ex Parte at 44.

[^599]: *Id*.

[^600]: *Id*. "Caching" is the technique of storing frequently accessed
    content in fast memory (*e.g*., RAM) in order to speed access to
    those files by eliminating delays and costs associated with
    reverting to the original source for the information. An ISP engages
    in caching when it downloads a copy of Internet content onto its own
    server, from which it can thereafter supply its subscribers'
    repeated demands for this content.

[^601]: *Id*.

[^602]: *Id.*

[^603]: Disney July 25 Ex Parte at 44; Ex Parte Comments of Disney,
    Attachment (Sept. 5, 2000) ("Disney Sept. 5 Memorandum") at 11,
    transmitted by letter from Marsha McBride, Vice-President,
    Government Relations, Disney, to Magalie Roman Salas, Secretary,
    FCC, dated Sept. 14, 2000; NBC July 24 Ex Parte at 5-6.

[^604]: Disney Sept. 5 Memorandum at 11.

[^605]: Disney July 25 Ex Parte at 44.

[^606]: *Id*.

[^607]: *See* Applicant's Second Response at 5, 8; Confidential App.
    IV-D-1, Note 1.

[^608]: Ex Parte Comments of Disney, Attachment (Oct. 25, 2000)
    ("Declaration of Eric C. Haseltine") at 1-2, transmitted by letter
    to Lawrence R. Sidman, Counsel for Disney, to Magalie Roman Salas,
    Secretary, FCC, dated Oct. 25, 2000.

[^609]: *See* Applicants' Sept. 29 ITV Letter.

[^610]: Applicants' Sept. 29 ITV Letter at 5 ("\[t\]here is no advantage
    in denying consumers access to a full array of content sources. AOL
    and Time Warner's surest route to failure in interactive television
    would be to restrict or degrade consumers' access to a true
    diversity of interactive content and service offerings.").

[^611]: Applicants' Sept. 29 ITV Letter at 5.

[^612]: *See* Confidential Appendix. IV-D-1, Notes 1 and 2.

[^613]: NAB notes that in *Time Warner Entertainment Co., L.P. v. U.S*.,
    211 F.3d 1313 (D.C. Cir. 2000), the court, when reviewing the
    channel occupancy limits of the Cable Television Consumer Protection
    and Competition Act of 1992, Pub. L. No. 102-385, 106 Stat. 1460 (47
    U.S.C. § 533(f)(1)(B)), stated that "\[Time Warner\] does not deny
    that a cable operator has an incentive to favor its affiliated
    programmers; where the two forces are in conflict, the operator may,
    as a rational profit-maximizer, compromise the consumers'
    interests." NAB Oct. 2 Ex Parte at 2.

[^614]: Disney Oct. 25 Ex Parte at n. 37; Myers Group Report at 13
    (predicting that advertising revenues from interactive television,
    including e-commerce and subscription fees, will reach \$20 billion
    by 2005).

[^615]: *See* Ex Parte Comments of Applicants (Sept. 6, 2000)
    ("Applicants' Sept. 6 Letter") at 12, transmitted by letter from
    Craig A. Gilley, Fleishman & Walsh, to Magalie Roman Salas,
    Secretary, FCC, dated Sept. 6, 2000. *See also* Confidential
    Appendix IV-D-1, Note 3.

[^616]: The *FTC Consent Agreement* construes the term "content" to
    include interactive signals and interactive triggers. *See FTC
    Consent Agreement* Section I.R. (defining content as "data packets
    carrying information including, but not limited to, links, video,
    audio, text, e-mail, message, interactive signals, and interactive
    triggers.").

[^617]: *See FTC Consent Agreement* Section III.A. ("Respondents shall
    not interfere . . . with Content passed in either direction along
    the Bandwidth contracted for and being used by any non-affiliated
    ISP in compliance with the Non-affiliated ISP's agreement with
    Respondents.").

[^618]: *See* Disney Sept. 25 Memorandum at 3-4; Ex Parte Comments of
    Disney (Sept. 14, 2000) ("Disney Sept. 14 Ex Parte") at 2-3,
    transmitted by letter from Marsha McBride, Vice-President,
    Government Relations, Disney, to Magalie Roman Salas, Secretary,
    FCC, dated Sept. 14, 2000.

[^619]: *FTC Consent Agreement* Section III.C. ("Respondents shall not
    interfere with the ability of a Subscriber to use, in conjunction
    with ITV services provided by a Person that is not Affiliated with
    Respondent, interactive signals, triggers, or other Content that
    Respondents have agreed to carry.").

[^620]: *See, e.g*., Disney July 25 Ex Parte at 34-36; Disney Reply
    Comments at 8; Myers Group Report at 39. We note that the Applicants
    argue that existing broadband alternatives, such as DSL, are
    equivalent to a cable Internet connection. Applicants' Sept. 29 ITV
    Letter at 8. However, such alternatives may not currently be able to
    support ITV services comparable to those that can be provided using
    a cable Internet connection.

[^621]: *See ITV NOI*, FCC 01-15.

[^622]: *See* 47 U.S.C. § 522(13) (defining MVPD as "a person, such as,
    but not limited to, a cable operator, a multichannel multipoint
    distribution service, a direct broadcast satellite service, or a
    television receive-only satellite program distributor, who makes
    available for purchase, by subscribers or customers, multiple
    channels of video programming").

[^623]: *See AT&T-TCI Order*, 14 FCC Rcd at 3172-73 ¶ 21. DBS operators
    provide programming via satellite to subscribers that own or lease
    small-diameter receiving dishes. MMDS providers offer programming
    via microwave facilities (the service is often referred to as
    "wireless cable service"). SMATV operators, also known as 'private
    cable operators," also frequently use microwave facilities to
    transmit programming to subscribers. SMATV subscribers usually
    reside in multiple dwelling units. *Id.*

[^624]: *AT&T-TCI Order*, 14 FCC Rcd at 3172-73 ¶ 21.

[^625]: We note that Everest Connections Corp. ("Everest"), a broadband
    cable overbuilder, in a late filed comment in this proceeding,
    states that leading set-top box and cable equipment manufacturers
    claim that they cannot provide their products to companies, like
    Everest, that intend to operate MVPD systems in competition with
    Time Warner cable systems. These manufacturers, according to
    Everest, will provide equipment to Everest only if it agrees that it
    will not use the equipment to compete with Time Warner. Everest
    Comments at 1-3. Everest asks that the Commission condition the
    merger on a requirement that Time Warner not prohibit equipment
    vendors from supplying equipment to Time Warner's MVPD competitors.
    Everest Comments at 5-7. If Everest's allegations are accurate, Time
    Warner's actions are disturbing because they apparently are impeding
    consumers' ability to purchase competing MVPD services.
    Nevertheless, Everest has not sufficiently established how the
    merger would affect Time Warner's behavior in this regard. Moreover,
    Everest does not allege that Time Warner is violating any Commission
    rule or provision of the Communications Act. Hence, we cannot
    conclude that Time Warner's alleged behavior constitutes a
    merger-specific public interest harm.

[^626]: *See* Applicants' March 21 Supplemental Information at 11-12
    n.15.

[^627]: *Id.* at 14.

[^628]: *Id.* at 12

[^629]: Consumers Union Comments at 35; ACA Comments at 12-14.

[^630]: Consumers Union Comments at 35.

[^631]: RCN Comments at 6 (citing *In re Policies for the Direct
    Broadcast Satellite Service*, IB Docket No. 98-21, Notice of
    Proposed Rulemaking ("*DBS NPRM*"), 13 FCC Rcd 6907, 6939 ¶¶ 56, 58
    (1998)).

[^632]: Consumers Union Comments at 157; ACA Comments at 13-14.

[^633]: H.R. Conf. Rep. No. 102-862, 102d Cong., 2d Sess. (1992).

[^634]: H.R. Conf. Rep. No. 102-862, 102d Cong., 2d Sess. (1992).

[^635]: *See DBS NPRM*, 13 FCC Rcd at 6938 ¶ 56.

[^636]: *See id.* at 6939 ¶ 58 n.132.

[^637]: *See id.* at 6939 ¶ 58.

[^638]: *See* Applicants' March 21 Supplemental Information at 12-14.

[^639]: *See, e.g.,* 47 C.F.R. § 76.501 n.2(a) (cable/broadcast station
    cross-ownership rule); 47 C.F.R. 76.503 n.2 (cable horizontal
    ownership rule); 47 C.F.R. § 73.3555 n.2(a) (broadcast multiple
    ownership rules); 47 C.F.R. § 21.912 n.1(a) (cable/MMDS
    cross-ownership rule).

[^640]: *Cf. In re AMRC Application for Authority to Construct, Launch,
    and Operate*, File Nos. 72-SAT-AMEND-97, 10/11-DSS-P-9312/15/92,
    26/27-DSS-LA-931/15/93, 83/84-SAT-AMEND-953/10/95, 72-SAT-AMEND-97,
    Order and Authorization, 13 FCC Rcd 8829, 8842 ¶ 27 (1997)
    (requiring WorldSpace to seek Commission approval prior to
    exercising options to purchase additional shares of ARMC); *In re
    KaStar*, File Nos. SAT-T/C-19990629-00071, SAT-T/C-19990629-00072,
    Memorandum Opinion and Order, 15 FCC Rcd 1615, 1620, 1622 ¶¶ 13, 21
    (1999) (requiring licensee to notify the Commission of transactions
    involving the sale of its shares by certain parties).

[^641]: 47 C.F.R. §§ 76.1000-76.1004. The terms "terrestrially
    delivered" and "satellite delivered" refer to the delivery of
    programming to a cable system headend.

[^642]: 47 C.F.R. §§ 76.1000-76.1004; *see also AT&T-MediaOne Order*, 15
    FCC Rcd at 9852-55 ¶¶ 77-83.

[^643]: 47 U.S.C. § 548.

[^644]: 1992 Cable Act § 2(a)(5).

[^645]: The attribution of corporate interests for purposes of the
    program access rules is determined under sections 76.501 and
    76.1000(b) of the Commission\'s rules. *See* 47 C.F.R. §§ 76.501
    n.2., 76.1000(b).

[^646]: 47 C.F.R. § 76.1002(a).

[^647]: 47 C.F.R. § 76.1002(b). This restriction is subject to certain
    limited exceptions. *Id.*

[^648]: 47 C.F.R. § 76.1002(c). Relief may be granted pursuant to a
    Commission determination that specific exclusive arrangements are in
    the public interest. 47 C.F.R. § 76.1002(c)(4). In addition,
    exclusive arrangements entered into prior to June 1, 1990, are
    \"grandfathered,\" or exempt from the exclusivity prohibition,
    provided they were not extended or renewed after October 5, 1992. 47
    C.F.R. § 76.1002(e).

[^649]: RCN Comments at 13.

[^650]: SBC Comments at 38.

[^651]: RCN Comments at 12.

[^652]: *Id.* at 13.

[^653]: SBC Comments at 38.

[^654]: RCN Comments at 13.

[^655]: Letter from Samuel W. Morris, Jr., Senior Vice President --
    General Counsel, Digital Access, Inc. to Magalie Roman Salas,
    Secretary, FCC, dated October 17, 2000 at 1-2, transmitted by letter
    from William Fishman, Swidler Berlin Shereff Friedman, to Magalie
    Roman Salas, Secretary, FCC, dated Oct. 17, 2000.

[^656]: Applicants' Reply Comments at 49.

[^657]: In Section IV.A., *supra*, (High-Speed Internet Access Services)
    we address AOL Time Warner's potential ability and incentive to use
    its control of popular video programming networks to obtain
    favorable rights of access by AOL on the facilities of non-AOL Time
    Warner cable systems.

[^658]: *See* *Implementation of the Cable Television Consumer
    Protection and Competition Act of 1992, Petition for Rulemaking of
    Ameritech New Media, Inc. Regarding the Development of Competition
    and Diversity in Video Programming Distribution and Carriage*, CS
    Docket No. 97-248, Memorandum Opinion and Order and Notice of
    Proposed Rulemaking ("*Program Access Order*"), 12 FCC Rcd 22840,
    22861 (1997). As we stated in the *Program Access Order*, there are
    no indications at this time that terrestrial delivery of programming
    formerly delivered by satellite is a significant competitive
    problem. See also *DirecTV, Inc. v. Comcast Corp., Application for
    Review of Orders of the Cable Services Bureau Denying Program Access
    Complaints*, Memorandum Opinion and Order, CSR 5244-P (rel. Nov. 20,
    2000) ¶ 12.

[^659]: *See* Section IV.A., *supra*. (High-Speed Internet Access
    Services)

[^660]: *See* SBC Comments at 30-32; BellSouth Reply Comments at 18-19;
    Consumers Union Comments at 2-7; 157.

[^661]: These numbers are calculated according to our attribution rules.
    *See* 47 C.F.R. § 76.503 notes. *AT&T-MediaOne Order*, 15 FCC Rcd at
    9819 ¶ 3. Absent TWE, AT&T serves 34.6% of the nation's cable
    subscribers and 26.5% of the nation's MVPD subscribers. 15 FCC Rcd
    at 9836-37 ¶ 42. TWE serves 18.9% of the nation's cables
    subscribers. To avoid double counting, this TWE subscriber figure
    does not include 1,416,000 subscribers that AT&T and TWE jointly
    serve through a joint partnership agreement. *See also AT&T-MediaOne
    Order* 15 FCC Rcd at 9823 ¶ 14 (stating that AT&T has 18,959,000
    subscribers prior to its merger with MediaOne); *id.* at 15 FCC Rcd
    at 9824 ¶ 17 (stating that total U.S. subscribers equal 67.1
    million; *id.* at 9829-30 ¶ 26 note 95 (stating that MediaOne had
    5,000,000 subscribers prior to its merger with AT&T, and that Time
    Warner subscribers attributable to MediaOne include both TWE and
    Time Warner Inc. subscribers); *id.* at 9833 ¶ 32 (stating that AT&T
    will sell a certain number of subscribers, later determined to be
    750,000, to Comcast upon consummation of its merger with MediaOne).
    The cable horizontal ownership rule limits a cable operator to 30%
    of the nation's MVPD subscribers. *See* 47 C.F.R. § 76.503.

[^662]: Liberty Media also holds an ownership interest in Time Warner
    Inc. that amounts to approximately 9% of the non-voting equity and
    less than one percent of the voting equity in Time Warner Inc. *See
    AT&T-MediaOne Order*, 15 FCC Rcd at 9825 ¶ 19.

[^663]: AT&T holds a 74% voting interest in Excite@Home. Other entities
    holding an ownership interest in Excite@Home include Comcast Corp.,
    Cox Communications, Inc., Cablevision Systems Corp., and Shaw
    Cablesystems Ltd. *AT&T-MediaOne Order*, 15 FCC Rcd at 9826 ¶ 21
    n.64.

[^664]: *See* Patricia Fusco, *Top 12 ISPs by Subscriber*,
    [Internetnews.com]{.smallcaps}, at
    http://www.isp-planet.com/research/isp_071000.html (no date). Both
    Road Runner and Excite@Home are, by contract, the exclusive ISPs of
    the cable operators they serve, until December, 2001, and June,
    2002, respectively. *See* *AT&T-MediaOne*, 15 FCC Rcd at 9869 ¶ 120.
    Time Warner has announced, however, that its exclusivity with Road
    Runner will end in April 2001. *See* Time Warner Inc., *Time Warner
    to Increase Road Runner Ownership and Manage its Operations* (press
    release), Dec. 18, 2000.

[^665]: For example, currently AT&T and its cable affiliates have an
    arrangement to feature the Excite@Home ISP on their cable Internet
    service exclusively until June 30, 2002, and on a preferred basis
    until 2008. *See* SBC Comments at 9; *AT&T-MediaOne* *Order*, 15 FCC
    Rcd at 9869 ¶ 120; *see also* AT&T Corp., *Eight ISPs Join AT&T
    Broadband Choice Trial* (press release), Nov. 1, 2000 (stating that
    AT&T has begun offering on a trial basis to a limited number of
    customers ISP choice for high-speed, always-on cable Internet
    service over a hybrid fiber-coaxial network); *Applications for
    Consent to the Transfer of Control of Licenses and Section 214
    Authorizations from MediaOne Group, Inc., to AT&T Corp., CS Docket
    No. 99-251,* Letter from James W. Cicconi, General Counsel, AT&T, to
    William Kennard, Chairman, FCC, dated Dec. 6, 1999 (in which AT&T
    committed to provide unaffiliated ISPs access to its cable systems
    following the expiration of its exclusive arrangement with
    Excite@Home in 2002, and affirmed its commitment to "openness"),
    transmitted by letter from Joan Marsh, Director, Federal Government
    Affairs, AT&T, to Magalie Roman Salas, Secretary, FCC, dated Dec. 7,
    1999.

[^666]: The four units will include AT&T Broadband, which operates
    AT&T's cable systems; AT&T Business, which provides business
    communications and networking services; AT&T Consumer, which
    provides pre-paid calling cards, "stand alone residential long
    distance," and residential dial-up Internet access service; and AT&T
    Wireless. Each of the four new companies will continue to bundle
    each other's services through inter-company agreements. AT&T Corp.,
    *AT&T To Create Family of Four New Companies* (press release), Oct.
    25, 2000.

[^667]: AT&T plans to conduct an initial public offering for stock that
    will track the performance of the Broadband unit during the summer
    of 2001. AT&T Corp., *AT&T To Create Family of Four New Companies*
    (press release), Oct. 25, 2000.

[^668]: *See* *AT&T-MediaOne Order*, 15 FCC Rcd at 9831 ¶ 28.

[^669]: *See AT&T-MediaOne Order*, 15 FCC Rcd at 9836-37 ¶ 42 n.145.

[^670]: AT&T therefore has both a direct and, through TWE, an indirect
    interest in Road Runner and in the production of video content.

[^671]: *See* *Applications for Consent to the Transfer of Control of
    Licenses from MediaOne Group, Inc. to AT&T Corp.*, CS Docket No.
    99-251, Letter from Betsy J. Brady, Esq., Vice President Federal
    Government Affairs, AT&T to To-Quyen Truong, Associate Chief, Cable
    Services Bureau, dated Nov. 24, 1999, at 2, 9-15, *see also* Letter
    from Peter D. Ross, Counsel for America Online, Inc., and Arthur H.
    Harding, Counsel for Time Warner Inc., to Deborah Lathen, Chief
    Cable Services Bureau, FCC, dated Oct. 5, 2000 ("Ross-Harding Oct. 5
    Letter") at 3.

[^672]: MediaOne's right to participate in the day-to-day management of
    TWE terminated in 1999 as a result of a non-compete provision in the
    TWE limited partnership agreement that prohibited MediaOne from
    competing in any lines of business with TWE. MediaOne had the right
    to unilaterally terminate the non-compete clause. Upon termination
    by MediaOne, Time Warner had the right to terminate entirely
    MediaOne's right to participate on the TWE cable management
    committee. *See* *Applications for Consent to the Transfer of
    Control of Licenses from MediaOne Group, Inc. to AT&T Corp.*, CS
    Docket No. 99-251, Letter from Betsy J. Brady, Esq., Vice President
    Federal Government Affairs, AT&T to To-Quyen Truong, Associate
    Chief, Cable Services Bureau, dated Nov. 24, 1999 at 2-3 n. 7; *see*
    *also* Letter from Betsy J. Brady, Vice President, Federal
    Government Affairs, AT&T, to Magalie Roman Salas, Secretary, dated
    FCC, Nov. 28, 2000 (AT&T Nov. 28 Ex Parte) at 1.

[^673]: According to AT&T, these rights include: "veto rights over any
    merger involving Time Warner Entertainment; the sale or transfer of
    assets constituting more than 10% of Time Warner Entertainment
    Assets; the expansion of Time Warner Entertainment into new lines of
    business; the specified issuance of additional partnership interest;
    the indemnification of any partner or affiliate for liability in
    excess of \$500,000; incurrance of debt for money borrowed above a
    defined ratio; the admission of a new general partner; certain
    acquisitions above the greater of \$750,000 or 10% of Time Warner
    Entertainment's consolidated revenues for its most recent fiscal
    year; the dissolution of Time Warner Entertainment; the voluntary
    bankruptcy of Time Warner Entertainment; the amendment or
    modification of the Time Warner partnership agreement; and the
    transfer or sale of certain major interests in Time Warner or any
    sub-partnership thereof. *See* *Applications for Consent to the
    Transfer of Control of Licenses from MediaOne Group, Inc. to AT&T
    Corp.*, CS Docket No. 99-251, Letter from Betsy J. Brady, Esq., VP
    Federal Government Affairs, AT&T to To-Quyen Truong, Associate
    Chief, Cable Services Bureau, dated Nov. 24, 1999, at 10; *see also
    AT&T-MediaOne Order*, 15 FCC Rcd at 9830 ¶ 26 n.93. Time Warner does
    not agree with AT&T's characterization of AT&T's rights in TWE.
    *See* Letter from Catherine R. Nolan, VP, Law and Public Policy, to
    Kathryn C. Brown, Chief of Staff, Office of Chairman, FCC, dated
    Oct. 13, 2000 (Time Warner Oct. 13 Ex Parte) at 1 transmitted by
    Letter from Peter D. Ross, Counsel for Applicants, to Magalie Roman
    Salas, Secretary, FCC, dated Nov. 9, 2000.

[^674]: DOJ Consent Decree Section IV ¶¶ 30-34.

[^675]: *U.S. v. AT&T Corp. and MediaOne Group, Inc.*, Final Judgment,
    2000 WL 782849. The DOJ Consent Decree reads, in part:

    > Prior to the earlier of December 31, 2003 or two years after
    > AT&T's and MediaOne's divestiture of \[Road Runner\], unless they
    > obtain prior consent of \[DOJ\], AT&T, MediaOne, and their
    > Affiliates shall not (1) enter into any contractual or other
    > arrangement with Time Warner to jointly offer or provide any
    > wholesale or retail Residential Broadband Service; (2) enter into
    > any contractual or other arrangement with Time Warner that has the
    > purpose or effect of preventing AT&T, MediaOne, their Affiliates
    > or Time Warner from offering or of providing a wholesale or retail
    > Residential Broadband Service in any geographic region or to any
    > group of customers; or (3) enter into any contractual or other
    > arrangement with Time Warner that has the purpose or effect of
    > preventing (a) services, capabilities, or features in any
    > wholesale or retail Cable Modem Service offered by AT&T, MediaOne,
    > their Affiliates, or Time Warner; or (b) AT&T, MediaOne or their
    > Affiliates from granting preferential treatment in any wholesale
    > content, services, capabilities, or features offered by any person
    > other than Time Warner, or Time Warner from granting preferential
    > treatment in any wholesale or retail Cable Modem Service offered
    > by Time Warner to content, services, capabilities, or features
    > offered by any person other than AT&T, MediaOne or their
    > Affiliates . . . (B) \[DOJ\] shall consent to a proposed
    > contractual or other arrangement if it determines in its sole
    > discretion that such arrangement will not substantially lessen
    > competition in any market.

    DOJ Consent Decree Section V(A), (B).

    The Consent Decree further defines "Residential Broadband Service"
    to mean "...any service offered to residential customers in the
    United States of America that permits users to transmit and receive
    information using Internet protocols at speeds which may exceed 128
    kilobits per second. The Consent Decree also defines "Time Warner"
    to include Time Warner, TWE, Road Runner, their successors and
    assigns, and their parents, divisions, groups, majority-owned
    subsidiaries, and any entity that has a merger agreement with Time
    Warner and that would be included in this definition when the merger
    is consummated. DOJ Consent Decree Section II(F), (H).

[^676]: AT&T Corp., *Road Runner Joint Venture to be Dissolved* (press
    release), Dec. 18, 2000; Time Warner Inc., *Time Warner to Increase
    Road Runner Ownership and Manage its Operations* (press release),
    Dec. 18, 2000. At the time of the announced restructuring of Road
    Runner, Microsoft Corporation and Compaq Computer Corporation owned
    a combined 20 percent interest in Road Runner, while Time Warner,
    AT&T Broadband, and Advance/Newhouse together owned an 80 percent
    fully diluted interest. Under the restructuring plan, the interests
    of Microsoft and Compaq would be redeemed and Road Runner would
    distribute substantially all of its assets to Time Warner and its
    affiliates, and to AT&T Broadband.

[^677]: *Id*.

[^678]: The Commission's cable ownership attribution rules provide that
    all partnership interests are attributable because, unlike a
    corporate shareholder, a limited partner may influence or control
    the operations of the partnership even if the percentage equity
    interest is small. *See AT&T-MediaOne Order*, 15 FCC Rcd at 9837 ¶
    43; *see also In re Cable Reform Act Provisions of the
    Telecommunications Act of 1996: Review of the Commission's Cable
    Attribution* Rules CS Docket Nos. 98-82, 96-85, Report and Order
    ("*Attribution Order*"*),* 14 FCC Rcd 19014, 19039 ¶ 61 (1999).
    However, partnership interests may be rendered nonattributable,
    under the insulated limited partnership exemption ("ILP"), when a
    partner that \"is not materially involved, directly or indirectly,
    in the management or operation of the video-programming related
    activities of the partnership and the relevant entity so
    certifies.\" *See* *Attribution Order*, 14 FCC Rcd at 19040 ¶ 64; 47
    C.F.R. § 76.503 n.2(b)(1). In order to satisfy this standard, the
    limited partner may not engage in the following seven activities
    (the \"ILP test\"):

    \(1\) The limited partner cannot act as an employee of the
    partnership if his or her functions, directly or indirectly, relate
    to the video programming enterprises of the company;

    \(2\) the limited partner may not serve, in any material capacity,
    as an independent contractor or agent with respect to the
    partnership\'s video programming enterprises;

    \(3\) the limited partner may not communicate with the licensee or
    general partners on matters pertaining to the day-to-day operations
    of its video programming business;

    \(4\) the rights of the limited partner to vote on the admission of
    additional general partners must be subject to the power of the
    general partner to veto any such admissions;

    \(5\) the limited partner may not vote to remove a general partner
    except where the general partner is subject to bankruptcy
    proceedings, is adjudicated incompetent by a court of competent
    jurisdiction, or is removed for cause as determined by a neutral
    arbiter;

    \(6\) the limited partner may not perform any services for the
    partnership materially relating to its video programming activities,
    except that a limited partner may make loans to or act as a surety
    for the business; and

    \(7\) the limited partner may not become actively involved in the
    management or operation of the video programming businesses of the
    partnership. *Attribution Order*, 14 FCC Rcd at 19040-41 ¶ 64.

    *See also* 47 C.F.R. § 76.503 n. 2(b)(2). To utilize the ILP
    exemption, the limited partner must file with the Commission a
    certification, with supporting facts, stating that it is not
    involved in these seven activities. ("\[T\]he certification must be
    accompanied by facts, *e.g.*, in the form of documents, affidavits
    or declarations, that demonstrate that these insulation criteria are
    met.") *Attribution Order*, 14 FCC Rcd at 19040-41, ¶ 64.

[^679]: We further required that AT&T abide by several interim
    conditions and their enforcement mechanisms until such time as AT&T
    has taken the required compliance action. The interim conditions
    provide that:

    \(1\) No officer or director of AT&T shall also be an officer or
    director of TWE. AT&T may appoint an employee (who is not an officer
    or director of AT&T) to the TWE Board of Directors, provided that
    such employee is not involved in the Video Programming activities of
    AT&T.

    \(2\) No officer, director, or employee of AT&T shall, directly or
    indirectly, influence or attempt to influence, or otherwise
    participate in, the management or operation of the Video Programming
    activities of TWE. In particular, no member of the TWE Board of
    Directors appointed by AT&T shall be involved in the following
    matters:

    > a\) the decisions of TWE regarding which Video Programming
    > services are purchased for or carried on TWE\'s cable systems;

    b\) negotiation of the prices paid by TWE for Video Programming
    carried on TWE\'s cable systems;

    c\) setting the schedule for rollout of Video Programming by TWE\'s
    cable systems;

    d\) marketing by TWE of Video Programming carried on TWE\'s cable
    systems;

    e\) setting the budget for the Video Programming operations of
    TWE\'s cable systems (except that AT&T may be involved in setting
    the overall TWE budget for Video Programming operations provided
    that AT&T\'s access to TWE budget information does not include
    information concerning individual budget components of TWE\'s Video
    Programming operations, *e.g.*, personnel, overhead, marketing, and
    program purchasing);

    f\) selecting the electronic programming guide used by TWE\'s cable
    systems;

    g\) the hiring, firing, or supervising of TWE employees directly
    involved in the Video Programming activities of TWE\'s cable
    systems; or

    h\) assessing the performance of any Video Programming service
    carried by TWE\'s cable systems.

    \(3\) AT&T may not receive information from TWE regarding the price,
    terms, and conditions which TWE negotiates for the carriage of Video
    Programming on the TWE cable systems, nor provide information to TWE
    regarding the price, terms, and conditions which AT&T negotiates for
    the carriage of Video Programming on the AT&T cable systems. AT&T
    may not obtain from any Video Programming vendor a volume discount
    or other favorable terms and conditions as a result of TWE\'s
    purchase of Video Programming for, or carriage on, TWE\'s cable
    systems.

    *AT&T-MediaOne Order*, 15 FCC Rcd at 9899, Appendix B ¶¶ 3-5.

[^680]: *See In the Matter of Applications for Consent to the Transfer
    of Control of Licenses and Section 214 Authorizations from MediaOne
    Group, Inc., Transferor To AT&T Corp., Transferee,* CS Docket No.
    99-251, Letter from James W. Cicconi, General Counsel, AT&T, to
    Deborah Lathen, Chief, Cable Services Bureau, dated Dec. 15, 2000.
    *See also id.* Letter from Deborah A. Lathen, Chief, Cable Services
    Bureau, FCC, to James W. Cicconi, General Counsel, AT&T, dated Dec.
    18, 2000.

[^681]: *See In the Matter of Applications for Consent to the Transfer
    of Control of Licenses and Section 214 Authorizations from MediaOne
    Group, Inc., Transferor To AT&T Corp., Transferee,* CS Docket No.
    99-251, Letter from James W. Cicconi, General Counsel, AT&T, to
    Deborah Lathen, Chief, Cable Services Bureau, dated Dec. 15, 2000
    ("\[i\]f, however, AT&T is unable for any reason to achieve
    insulation of its TWE interests by May, 19, 2001 . . . AT&T hereby
    certifies that it will, by such date, either divest its ownership
    interest in TWE or place this interest in an irrevocable trust for
    purposes of sale."). If AT&T divests Liberty Media pursuant to its
    December 15 letter, it will also divest other programming interests.
    *Id.*

[^682]: *See In the Matter of Applications for Consent to the Transfer
    of Control of Licenses and Section 214 Authorizations from MediaOne
    Group, Inc., Transferor To AT&T Corp*., *Transferee*, CS Docket No.
    99-251, Letter from Deborah A. Lathen, Chief, Cable Services Bureau,
    FCC, to James W. Cicconi, General Counsel, AT&T, dated Dec. 18,
    2000.

[^683]: *In the Matter of Applications for Consent to the Transfer of
    Control of Licenses and Section 214 Authorizations from MediaOne
    Group, Inc., Transferor To AT&T Corp., Transferee*, CS Docket No.
    99-251, Order, FCC No. 00-447 (rel. Dec. 21, 2000) ("*December 21
    Order*").

[^684]: *December 21 Order* at ¶¶ 4-5. We further stated that AT&T would
    be permitted until January 15, 2001 to seek a modification of the
    *December 21 Order*. The *December 21 Order* states:

    > "IT IS FURTHER ORDERED . . . should AT&T seek to have the
    > Commission consider a modification of this *Order* to allow it to
    > elect Option (b) \[the divestiture of Liberty Media Group and
    > AT&T's other video programming interests\], it must submit a
    > written request by January 15, 2001 with an appropriate showing as
    > to why such a modification would serve the public interest."

    *December 21 Order* at ¶ 7.

[^685]: SBC Comments at 1; *see also* Consumers Union Comments at 4.

[^686]: Consumers Union broadly defines the competitive problem with
    respect to AT&T as involving barriers to entry, foreclosure of
    inputs and monopsony power. Consumers Union Comments at 37-49. SBC
    asserts that "\[c\]ollectively, AOL, Time Warner, and AT&T will be
    able to leverage their dominant position in the Internet access
    market to increase their power in the market for broadband portal
    and content services" while simultaneously leveraging their
    "combined dominance in the broadband portal and content markets to
    increase their market share for high-speed Internet access." SBC
    Comments at 7, 18-24; *see also* Disney Reply Comments at 5
    ("Assuming approval of the \[AT&T-MediaOne merger\], Time Warner and
    AT&T/TCI/MediaOne would operate as an interconnected consortium
    passing 83 million U.S. homes---80% of all U.S. households . .
    .Taken together, the cross interests of AT&T and Time Warner are
    enormous in the broadband services market, including control of 69%
    of the high-speed residential Internet access market.").

[^687]: Commenters also believe AOL Time Warner could use its power as
    owner of Road Runner to discriminate against unaffiliated content
    providers, and could use its power as a large content provider to
    discriminate against competing broadband ISPs. *See* SBC Comments at
    27; Letter from Andrew Jay Schwartzman, Counsel for Consumers Union,
    et. al., to Deborah Lathen, Chief, Cable Services Bureau, FCC, dated
    Nov. 14, 2000 ("Schwartzman Nov. 14 Letter") at 2-4. Even AT&T
    acknowledges that Time Warner could use its dominance over TWE to
    impede competition between AOL and AT&T. *See* AT&T Nov. 28 Ex Parte
    at 2-4 (summarizing Consumers Union arguments).

[^688]: *See* SBC Comments at 27-30; Schwartzman Nov. 14 Letter at 3.

[^689]: Schwartzman Nov. 14 Letter at 3.

[^690]: *Id*. at 2-3.

[^691]: *Id*. at 3.

[^692]: *See* SBC Comments at 32; BellSouth Reply Comments at 19-20.
    BellSouth argues that "AT&T cannot, for example, be permitted to
    provide AOL access to AT&T customers on a preferential basis for ISP
    services in exchange for AT&T access, for telephony purposes, to the
    cable customers of Time Warner." BellSouth Reply Comments*.* at 20.
    *See also* Consumers Union Comments at 157; Schwartzman Nov. 14
    Letter at 2-3. We note that in *AT&T-MediaOne*, we rejected
    Consumers Union's motion to consolidate that proceeding with this
    proceeding. Consumers Union filed its motion in the dockets of both
    proceedings. We once again reject the request for the reasons
    enumerated in *AT&T-MediaOne*. *See* *ATT-MediaOne Order*, 15 FCC
    Rcd at 9892-93 ¶ 179.

[^693]: We note that even AOL acknowledges that prior to the proposed
    merger, AOL was unable to strike an agreement with any cable
    operator. *See* Applicants Second Response at 13.

[^694]: *See* Disney Reply Comments at 9; s*ee also* Letter from the
    Senator Mike DeWine, Chairman, Subcommittee on Antitrust, Business
    Rights, and Competition, and Senator Herb Kohl, Ranking Member,
    Subcommittee on Antitrust Business Rights and Competition to William
    Kennard, Chairman, FCC, and Robert Pitofsky, Chairman, Federal Trade
    Commission, dated May10, 1999 (citing a hypothetical example of
    possible discrimination against unaffiliated content providers:
    "Using this technology, it appears that it would be possible, for
    example, for the combined AOL Time Warner to slow down traffic to
    the \[unaffiliated\] ESPN web site while speeding it up to its own
    competing CNN/Sports Illustrated site."); *see also* SBC Comments at
    31-32 (contending that risks of anticompetitive coordination also
    stem from contracts and "sweetheart deals").

[^695]: Consumers Union points out that "\[e\]fforts to impose or obtain
    exclusive arrangements have become ever-present controversies in the
    \[cable industry\], including efforts to prevent competing
    technologies from obtaining programming, as well as to prevent
    competition from developing within the cable industry." Consumers
    Union Comments at 40. We believe that Consumers Union intends to
    suggest that similar preferential or exclusive arrangements may be
    implemented with respect to ISP services over cable platforms. *See*
    Schwartzman Nov. 14 Letter at 2-4.

[^696]: *See* Section V, *infra*. (Analysis of Potential Public Interest
    Benefits)

[^697]: *See* SBC Comments at 22-29.

[^698]: *See* Section IV.A., *supra*. (High-Speed Internet Access
    Services)

[^699]: *See* para. 276, *infra*.

[^700]: We are not persuaded by AOL Time Warner's argument that no
    conditions are required here because "the FCC found no cause for
    concern over 'preferential agreements' in *AT&T-MediaOne.*" *See*
    Letter from Peter D. Ross, Counsel to America Online, to Magalie
    Roman Salas, Secretary, FCC, dated Sept. 19, 2000 ("Applicants'
    Sept. 19 Letter") at 3; Ross-Harding Oct. 5 Letter at 4-8, 12. In
    *AT&T-MediaOne*, we were not presented with facts that would lead to
    a concern about preferential treatment of AOL by AT&T. Nothing in
    the AT&T-MediaOne merger increased the likelihood of such a result.
    For the reasons explained above, this merger does increase the
    likelihood of preferential treatment of AOL by AT&T. Moreover, we
    expressly declined to consider in *AT&T-MediaOne* the facts of the
    instant merger, and as a consequence we denied a motion to
    consolidate the two proceedings. *See* *AT&T-MediaOne Order*, 15 FCC
    Rcd at 9892-93 ¶ 179.

[^701]: *See* Ross-Harding Oct. 5 Letter (". . .this combination has no
    effect on the nature of AT&T's limited ownership relationships with
    Time Warner---relationships that the Commission and antitrust
    regulators alike reviewed and approved only a few months ago when
    AT&T obtained approval to acquire MediaOne.").

[^702]: *See, e.g.*, SBC Comments at 31-32 (contending that risks of
    anticompetitive coordination also stem from contracts and
    "sweetheart deals"); BellSouth Comments at 20. However, we disagree
    with commenters' apparent assertions that it is the mere existence
    of AT&T's cross ownership interest in TWE that results in
    merger-specific competitive harms. These cross ownership interests
    exist absent the merger. However, we do conclude that these
    ownership interests would serve to facilitate any anticompetitive
    incentives brought on as a result of the merger. *See* Consumers
    Union Comments at 4; *see* *also* AT&T Nov. 28 Ex Parte at 1-2.

[^703]: AT&T Nov. 28 Ex Parte at 2-4 (citing Consumers Union Comments).

[^704]: Applicants' Sept. 19 Letter. AT&T's acquisition of MediaOne
    created AT&T's interest in TWE, and the Commission affirmatively
    ruled this ownership interest permissible in the AT&T-MediaOne
    merger, subject to AT&T's compliance with the conditions set forth
    in its order in that proceeding. *AT&T-MediaOne Order*, 15 FCC Rcd
    at 9866 ¶ 116.

[^705]: We also note that AT&T may, on or before January 15, 2001, seek
    a modification of the Commission's *December 21 Order* that
    determined it has elected to divest TWE. *December 21 Order* at ¶ 7.
    Any further argument with respect to the mandatory divestiture of
    AT&T's interest in TWE is being considered in the pending Petition
    for Reconsideration of *AT&T-MediaOne*.

[^706]: As noted in Section IV-A., *supra*, (High-Speed Internet Access
    Services) the FTC Consent Agreement forbids AOL Time Warner from
    entering agreements with other cable operators "that would interfere
    with the ability of any such \[cable operator\] to enter into
    agreements with any other ISP or provider of ITV services." FTC
    Consent Agreement Section III.E. While we believe the FTC provision
    would prohibit both exclusive and preferential agreements between
    AOL Time Warner and other cable operators, because of AT&T's
    particular incentive and ability to enter into such agreements with
    AOL Time Warner we find it necessary to impose a condition that
    explicitly addresses this potential public interest harm.

[^707]: *See* AT&T Nov. 28 Ex Parte.

[^708]: AT&T Nov. 28 Ex Parte at 2; Letter from James W. Cicconi,
    General Counsel and Executive Vice President, Law & Gov't. Affairs,
    AT&T, to Kathryn C. Brown, Chief of Staff, Office of the Chairman,
    FCC, dated Nov. 8, 2000 ("AT&T Nov. 8 Ex Parte") at 2, transmitted
    by Letter from Joan Marsh, Director, Federal Gov't Affairs, AT&T, to
    Magalie Roman Salas, Secretary, FCC, dated Nov. 8, 2000.

[^709]: *See AT&T-MediaOne Order*, 15 FCC Rcd at 9890 ¶ 173.

[^710]: *See* Confidential Appendix IV-F Note 1. As AOL Time Warner
    points out, "although Time Warner and AT&T have previously explored
    the possibility of AT&T providing telephony services over Time
    Warner cable systems (in discussions that long predated the
    announcement of this merger), no binding agreement has ever been
    reached . . ." Ross-Harding Oct. 5 Letter at 6; *see also*
    Confidential Appendix IV.F Note 2. As discussed below, we believe an
    agreement that would facilitate the provision of cable telephony and
    competition with the incumbent local exchange carriers would be
    pro-competitive.

[^711]: This result would arise from AOL's acquisition of the Time
    Warner cable systems, not from any TWE cross-ownership between AOL
    and AT&T.

[^712]: *See* Confidential Appendix IV-F Note. 3.

[^713]: We note that there may be unique assets that only one ISP can
    use. We do not intend to prohibit AT&T from entering into contracts
    with AOL that utilize these unique assets. Moreover, we do not
    believe that all agreements between AT&T and a merged AOL Time
    Warner would be contrary to the public interest. Although certain
    cable broadband arrangements, such as those described above, would
    result in discrimination against unaffiliated ISPs and therefore,
    would be contrary to the public interest, other agreements between
    AT&T and the merged entity would likely further important public
    interest goals. Efforts by AT&T to expand its cable telephony
    service over the Time Warner cable plant may in fact satisfy
    important Commission policy goals and fulfill the goals of the 1996
    Act. Accordingly, we reaffirm the public interest benefits that we
    recognized would result from agreements between AT&T and Time Warner
    relating to local telephony services. *See* *AT&T-MediaOne Order*,
    15 FCC Rcd at 9890 ¶¶ 173-174; *see also* Ross-Harding Oct. 5 Letter
    at 6. Similarly, AOL's expansion of its service over AT&T's cable
    systems could also satisfy important Commission policy goals,
    provided the terms of AOL's access do not unfairly favor AOL over
    its competitors. We therefore do not wish to prohibit AT&T and AOL
    Time Warner from reaching what may be pro-competitive agreements.

[^714]: For example, as a result of this condition, AOL Time Warner
    would not be permitted to require AT&T to give preferential access
    rights to AOL as a condition of AT&T's access to AOL Time Warner
    video programming. *See* Section IV-A *supra*, (High-Speed Internet
    Access Services)..

[^715]: *See* SBC Comments at 30-32; BellSouth Reply Comments at 18-19.

[^716]: AT&T Nov. 28 Ex Parte at 1-3.

[^717]: AT&T specified December 1, 2000, as the date after which the
    matter should be submitted to binding arbitration if by that date it
    had failed to reach agreement with Time Warner. *See* AT&T Nov. 8 Ex
    Parte at 3; *see also* AT&T Nov. 28 Ex Parte at 4.

[^718]: AT&T Nov. 8 Ex Parte at 3.

[^719]: AT&T Nov. 28 Ex Parte.

[^720]: AT&T Nov. 28 Ex Parte at 3.

[^721]: AT&T Nov. 28 Ex Parte at 3.

[^722]: AT&T Nov. 28 Ex Parte at 2 (citing Schwartzman Nov. 14 Letter at
    1-4).

[^723]: *See* Media Access Project Ex Parte at 2. See *also* AT&T Nov.
    28 Ex Parte at 9819 ¶ 4.

[^724]: We are not sympathetic to AT&T's argument that it may be induced
    by AOL Time Warner to refrain from competing with AOL Time Warner.
    We do not believe that it is likely that AT&T would unilaterally
    abandon its planned interactive TV offering, for example, on the
    mere supposition that AOL Time Warner would react favorably to such
    actions. Rather such conduct would more likely reflect an explicit
    agreement not to compete, which would be addressed by antitrust laws
    and the state and federal authorities charged with enforcing them.
    *Loraine Journal v. United States*, 342 U.S. 143 (1951); *Klors Inc.
    v. Broadway-Hale Stores*, 359 U.S. 207 (1959) (firms induced others
    to boycott one's competitors); *United States v. Associated
    Patents*, 134 F. Supp. 74 (E.D. Mich 1955), *aff'd mem*., 350 U.S.
    960 (1956); *United States v. Topco Associates*, Inc., 405 U.S. 596
    (1972). "The fact that the parties to an \[unlawful\] agreement did
    not have identical motives, or that one party to the agreement was
    coerced to participate, does not negate the finding of an agreement
    for purposes of \[Sherman Act\] Section 1 so long as the parties
    share a commitment to a common scheme that has an anticompetitive
    objective or effect." ABA, Antitrust Law Developments (Fourth) 4
    (1997); *Rochez Brothers v. North American Salt Co.*, 1994-2 Trade
    Cas. (CCH) ¶ 70,804, at 73,441 (W.D. Pa. 1994).

[^725]: Letter from Cong. Edward J. Markey to Chairman William E.
    Kennard at 1-2 (Dec. 13, 2000).

[^726]: *Id*. at 1.

[^727]: *Id*.

[^728]: *Id.* at 2.

[^729]: 47 U.S.C. § 551(a).

[^730]: 47 U.S.C. § 551(b), (c). The cable operator must also take
    actions necessary to prevent unauthorized disclosure. 47 U.S.C. §
    551(b).

[^731]: The statute defines "cable operator" to include any company that
    is under common ownership or control with a cable operator and that
    provides any wire or radio communication service.

[^732]: *See* 47 U.S.C. § 551(f) (providing that any person aggrieved by
    the section may bring a civil action in a United States district
    court).

[^733]: Pursuant to Sections 308(b) and 310(d) of the Communications
    Act, 47 U.S.C. §§ 308(b), 310(d), as part of our public interest
    determination, we determine whether the person that will control the
    licenses being transferred is qualified to do so. *See Voicestream
    Wireless Corp.*, Memorandum Opinion and Order, 15 FCC Rcd 3341,
    3345-46 ¶¶ 10-11 (2000).

[^734]: Letter from William F. Fishman, counsel for RCS, to Deborah
    Lathen, Chief, FCC Cable Services Bureau (Dec. 15, 2000).

[^735]: Letter from Peter Ross, Counsel for AOL, and Arthur Harding,
    Counsel for Time Warner, to Deborah Lathen, Chief, FCC Cable
    Services Bureau (Dec. 29, 2000) at 2.

[^736]: *Id*.

[^737]: *Bell Atlantic-NYNEX Order*, 12 FCC Rcd at 20063 ¶ 157;
    *WorldCom-MCI Order*, 13 FCC Rcd at 18134-35 ¶ 194; *AT&T-TCI
    Order*, 14 FCC Rcd at 3168 ¶ 13; *AT&T-MediaOne Order*, 15 FCC Rcd
    at 9883 ¶ 154.

[^738]: *AT&T-MediaOne Order*, 15 FCC Rcd at 9816 ¶ 154.

[^739]: *Id.*

[^740]: *Bell Atlantic-NYNEX Order*, 12 FCC Rcd at 20063 ¶ 157;
    *AT&T-MediaOne Order*, 15 FCC Rcd at 9883 ¶ 154.

[^741]: *Applications of Southern New England Telecommunications Corp.
    and SBC Communications, Inc. for Consent to Transfer of Control of
    Licenses and Section 214 Authorizations*, CC Docket 98-25,
    Memorandum Opinion and Order, ("*SBC-SNET Order*") 13 FCC Rcd 21292,
    21298-99 ¶ 13 (1998); *WorldCom-MCI Order*, 13 FCC Rcd at 18134-35 ¶
    194; *Bell Atlantic-NYNEX Order*, 12 FCC Rcd at 20063 ¶ 157.

[^742]: Application at 15 and 17; Applicants' March 21 Supplemental
    Information at 21-26; Applicants' Reply Comments at 4-5, 9-11, 17,
    27-29, 39, 45; MOU *generally*; Letter from Peter D. Ross, Attorney,
    Wiley, Rein & Fielding, to Magalie Roman Salas, Secretary, FCC,
    dated Aug. 14, 2000 ("Applicants' Aug. 14 Benefits Ex Parte") at 2;
    Ex Parte Comments of Applicants (Aug. 22, 2000) ("Applicant's Aug.
    22 Benefits Ex Parte") at 2, 13-15, transmitted by letter from
    Arthur H. Harding, Counsel, Fleischman and Walsh, to Magalie Roman
    Salas, Secretary, FCC, dated Aug. 25, 2000; Case En Banc Testimony,
    Tr. at 28 and 41; Testimony of Gerald Levin, Chairman and CEO, Time
    Warner Inc., FCC En Banc Hearing, CS Docket No. 00-30 (July 27,
    2000), Tr. at 34-37, 44 ("Levin En Banc Testimony"); *see also*
    Applicants' Second Response at 33.

[^743]: Application at 8, 10, 13, 15; Applicants' March 21 Supplemental
    Information at 10-11, 15-19, 22, 26-28, 30; Applicants' Reply
    Comments at 9, 23-27, 31, 36, 40, 43; Applicants' Aug. 14 Benefits
    Ex Parte at 2; Applicants' Aug. 22 Benefits Ex Parte at 3, 15-18;
    Case En Banc Testimony, Tr. at 26-27, 41; Levin En Banc Testimony,
    Tr. at 34-35, 42; *see also* Applicants' Second Response at 13-14,
    18.

[^744]: Application at 11; Applicants' March 21 Supplemental Information
    at 30; Applicants' Reply Comments at 1; Applicants' Aug. 22 Benefits
    Ex Parte at 3 (citing Mary Meeker, Richard Bilotti, Mark Mahaney,
    and Celeste Mellet, *America Online/Time Warner: How Big is Big?
    Big!*, Morgan Stanley Dean Witter, May 4, 2000, at 10 ("MSDW May 4
    Report"); Lanny Baker, Jill Krutick, and Spencer Wang, *AOL and Time
    Warner Link The Dynamic Duo: Form a Free Cash Flow Dynamo,* Salomon
    Smith Barney, Mar. 22, 2000 at 1 ("Salomon Smith Barney Mar. 22
    Report"); Bressler Decl. at 2-4 ("Applicants' Aug. 22 Benefits Ex
    Parte, Bressler Decl.")); Levin En Banc Testimony, Tr. at 33-34.

[^745]: Application at 9-10; Applicants' March 21 Supplemental
    Information at 21, 29-35; Applicants' Reply Comments at 9-10, 43-44;
    Applicants' Aug. 22 Benefits Ex Parte at 1, 6, 7 (citing Salomon
    Smith Barney Mar. 22 Report at 31), 8 (citing Myers Group Report) 9,
    (citing Applicants' Aug. 22 Benefits Ex Parte, Bressler Decl. at ¶¶
    10-12); *see also* Applicants' Second Response at 16-23.

[^746]: *See* MOU; Henry Blodget, Jessica Reif Cohen, Virgina Syer, and
    Andrew Slabin, *AOL Time Warner -- You've Got Upside!*, Merrill
    Lynch, Feb. 23, 2000 ("Merrill Lynch: Upside"); Christopher Dixon,
    Catherine Kim, *AOL Time Warner - A Merger that Defines the New
    Digital Age*, Paine Webber, Mar. 1, 2000 ("Paine Webber: Merger for
    a Digital Age"); Michael Parekh, Richard Simon, Richard Greenfield,
    Katherine Hays, and Christopher Cox, *America Online/Time Warner --
    Perfect Time-ing*, Goldman Sachs, Mar. 10, 2000 ("Goldman Sachs:
    Perfect Time-ing"); MSDW May 4 Report; Salomon Smith Barney Mar. 22
    Report; First Union June 20 Report; *America Online Inc./Time Warner
    Inc.,* Credit Lyonnais Securities, Feb. 28, 2000, at 12 ("Credit
    Lyonnais Report").

[^747]: *See generally* Application*;* Applicants' March 21 Supplemental
    Information; Applicants' Reply Comments; Applicants' Aug. 22
    Benefits Ex Parte, Britt Decl.; Applicants' Aug. 22 Benefits Ex
    Parte, Bressler Decl.; Applicants' Aug. 22 Benefits Ex Parte,
    Schuler Decl.; Applicants' Aug 14 Benefits Ex Parte; Case En Banc
    Testimony; Levin En Banc Testimony; Applicants' Second Response.

[^748]: *See* MOU.

[^749]: *Id.* at ¶ 2.

[^750]: *Id.* at ¶ 4.

[^751]: *Id.* at ¶ 8.

[^752]: Applicants' March 21 Supplemental Information at 21-24 and 25
    (citing Merrill Lynch: Upside at 9, 15); Applicants' Reply Comments
    at 11, 27; Applicants' Aug. 14 Benefits Ex Parte at 2; *see also*
    Applicants' Aug. 22 Benefits Ex Parte at 2, 13-15; Applicants'
    Second Response at 33.

[^753]: Applicants' March 21 Supplemental Information at 24; *see also*
    Applicants' Reply Comments at 5, 11; Applicants' Aug. 22 Benefits at
    15 (citing Applicants' Aug. 22 Benefits Ex Parte, Britt Decl. at
    ¶13) ("\[Our MOU\] has already acted as a catalyst to encourage
    other cable operators to provide ISP choice to consumers. At least 7
    of the 11 largest cable operators are looking at offering access to
    multiple ISPs on their high- speed broadband lines.") *See also*
    Applicants' Second Response at 33.

[^754]: Applicants' March 21 Supplemental Information at 25. Merrill
    Lynch notes that: "AOL's ownership of Time Warner will help pave the
    way for commercial resolution of the so-called "open access" issue.
    We would expect the merger to, in turn, push other cable operators
    to consider establishing deals with AOL or other Internet service
    providers . . . " Applicants' March 21 Supplemental Information at
    25 (citing Merrill Lynch: Upside at 9, 15).

[^755]: Applicants' Aug. 22 Benefits Ex Parte at 2-3; *See also*
    Applicants' Second Response at 18.

[^756]: Applicants' March 21 Supplemental Information at 30 (citing AOL
    Time Warner Inc., *SEC Form S-4,* filed Feb. 11, 2000 at 37).

[^757]: Applicants' Second Response at 13.

[^758]: Applicants' Aug. 22 Benefits Ex Parte, Britt Decl. at 4.

[^759]: Letter from Art Harding, Attorney, Fleischman and Walsh, LLP, to
    Magalie Roman Salas, Secretary, FCC, dated July 12, 2000
    ("Applicants' July 12 Benefits Ex Parte") at 2; *see also*
    Applicants' Aug. 22 Benefits Ex Parte, Britt Decl. at 4.

[^760]: *See* Applicants' First Response (Confidential Version) at 30,
    35-36; *see generally* Applicants' Second Response (Confidential
    Supplemental Volumes: Benefits 1-7).

[^761]: Applicants' March 21 Supplemental Information at 28 (citing
    Merrill Lynch: Upside at 9) "the merger will only help to accelerate
    cable's rollout of high-speed data and new services." *Id;* *see
    also* Applicants' Second Response at 13-14.

[^762]: Applicants' March 21 Supplemental Information at 10, 16-19;
    Applicants' Reply Comments at 23-26; *see also* Levin En Banc
    Testimony, Tr. at 26-27.

[^763]: Applicants' March 21 Supplemental Information at 19.

[^764]: *Id.* at 11 and 16-18.

[^765]: *See* Applicants' Second Response at 9 and 13.

[^766]: *Id,* at 13.

[^767]: Applicants' Aug. 22 Benefits Ex Parte at 16-17; *see also*
    Applicants' Second Response at 11. Applicants note that Merrill
    Lynch also believes the availability of AOL Time Warner's service on
    broadband cable "should also put pressure on local exchange carriers
    to become more aggressive in rolling out DSL." *See* Applicants'
    March 21 Supplemental Information at 26 (citing Merrill Lynch:
    Upside at 9).

[^768]: Applicants' March 21 Supplemental Information at 26-27.

[^769]: Application at 10, 13; Applicants' Aug. 14 Benefits Ex Parte at
    2; Applicants' Aug. 22 Benefits Ex Parte at 15-19.

[^770]: *Id.*

[^771]: Application at 8.

[^772]: Applicants' March 21 Supplemental Information at 28-29.

[^773]: Application at 11; Applicants' March 21 Supplemental Information
    at 30; Applicants' Reply Comments at 1; Applicants' Aug. 22 Benefits
    Ex Parte at 3 (citing MSDW May 4 Report and Salomon Smith Barney
    Mar. 22 Report); Levin En Banc Testimony, Tr. at 33-34.

[^774]: Applicants' March 21 Supplemental Information at 31.

[^775]: Applicants' Reply Comments at 1. Applicants use the term
    "traditional media" to refer to print periodicals, books, video, and
    other popular Time Warner brands. *See* Applicants' March 21
    Supplemental Information at 30.

[^776]: Applicants' March 21 Supplemental Information at 31 (citing
    Goldman Sachs: Perfect Time-ing at 1).

[^777]: *See Id.* at 29 and 31, and Testimony of Gerald M. Levin,
    Chairman and CEO, Time Warner Inc., Before the Senate Committee on
    the Judiciary, 106^th^ Congress, Feb. 29, 2000 at 4; Applicants'
    Aug. 14 Benefits Ex Parte at 2; Applicants' Aug. 22 Benefits Ex
    Parte at 1, 12; *see also* Applicants' Second Response at 16-17.

[^778]: Applicants' March 21 Supplemental Information at 35 (citing
    Paine Webber: Merger for a Digital Age at 8); Applicants' Reply
    Comments at 44; Applicants' Aug. 22 Benefits Ex Parte at 7-12.

[^779]: *See* Applicants' March 21 Supplemental Information at 30.

[^780]: *Id.* at 35.

[^781]: *Id.* at 34 (citing Paine Webber: Merger for a Digital Age at
    6).

[^782]: *Id.* at 32-34.

[^783]: *Id.* at 32 (citing David Segal, *Deal May Make Online Music
    Pay*, [The Washington Post]{.smallcaps}, Jan. 12, 2000, at E1).

[^784]: *Id.* at 32 (citing Merrill Lynch: Upside at 11 and Paine
    Webber: Merger for a Digital Age at 9).

[^785]: Applicants' Aug. 22 Benefits Ex Parte at 7-8.

[^786]: *Id.*

[^787]: Applicants' March 21 Supplemental Information at 31-32 (citing
    Merrill Lynch: Upside at 11).

[^788]: Applicants' Aug. 22 Benefits Ex Parte at 7-8 (quoting Salomon
    Smith Barney Mar. 22 Report, at 95).

[^789]: Applicants' March 21 Supplemental Information at 32 (citing
    Merrill Lynch: Upside at 11).

[^790]: *Id.* at 38; Applicants' Aug. 22 Benefits Ex Parte at 11 (citing
    Applicants' Aug 22 Benefits Ex Parte, Schuler Decl. at ¶¶ 21-22) and
    12; *see also* Applicants' Second Response at 21.

[^791]: Applicants' Reply Comments at 1 and 12.

[^792]: *Id.* at 12.

[^793]: Memphis Networx Comments at 3.

[^794]: *Id.* at 7.

[^795]: *See generally* ACA Comments.

[^796]: ACA Reply Comments at 5 and 8.

[^797]: ACA, *American Cable Association Backs Time Warner/AOL Merger*
    (press release), July 27, 2000.

[^798]: BellSouth Reply Comments at 1.

[^799]: Sinclair Reply Comments at 1.

[^800]: Applicants' March 21 Supplemental Information at 23; *see also*
    Applicants' Aug. 22 Benefits Ex Parte at 13.

[^801]: Time Warner Inc., *America Online and Time Warner Announce
    Framework for Agreements to Offer AOL Service and Other ISPs on Time
    Warner Broadband Cable Systems* (press release), Feb. 29, 2000;
    Applicants' Reply Comments at 11 (citing *Leading Cable MSOs Quietly
    Shift Toward Open Access*, [Comm. Daily]{.smallcaps}, Apr. 6, 2000
    "(a)t least 7 of (the) 11 largest cable operators are looking at
    offering access to multiple ISPs on their high-speed broadband
    lines").

[^802]: Application at 15.

[^803]: Applicants' March 21 Supplemental Information at 17-18.

[^804]: Applicants' July 12 Benefits Ex Parte at 2. Deployment of
    high-speed Internet services by cable operators is more complex than
    the deployment of video services. High-speed Internet service
    deployment requires the expenditure of additional capital for
    equipment such as high-speed routers, file servers, and cable modem
    termination systems. Additional personnel are needed for
    installation and customer care. New procedures must be established
    for billing, provisioning, customer maintenance, and marketing. A
    merger between AOL and Time Warner gives Time Warner access to AOL's
    capital, trained personnel, and Internet expertise in the areas of
    technical implementation, sales, marketing and customer care. *Id.*

[^805]: Applicants' March 21 Supplemental Information at 28 (citing
    Merrill Lynch: Upside at 28).

[^806]: *Broadband Today,* at 33. *See also* Deborah A. Lathen, Chief,
    Cable Services Bureau, Federal Communications Commission, Remarks
    Before the National Governor's Association, Feb. 27, 2000 ("This
    deployment of cable modems has spurred the deployment of DSL, and
    this competition has resulted in lower prices and greater choices
    for consumers.").

[^807]: *See also* Section IV.F. *supra* (Coordination with AT&T), where
    we discuss the merged firm's incentive and ability to obtain
    preferential ISP access rights on AT&T's cable systems.

[^808]: *See* Communications Media Center at New York Law School, *Time
    Warner Will Shut Down Pathfinder Web-Site* (Bulletin), Apr. 26, 1999
    at http://www.cmcnyls.edu/bulletins/twsdpfws.html-ssi (visited on
    Oct. 24, 2000); *See also* [ZDNet UK]{.smallcaps}, *Time Warner to
    Close Pathfinder*, ZDNN US, Apr. 27, 1999, at
    http://www.zdnet.co.uk/news/1999/16/ns-7919.html (visited Oct. 24,
    2000); *See also* Jack Egan, *Pathfinder, Rest in Peace: Time Warner
    Pulls the Plug on the Site*, [US News Online]{.smallcaps}, May 10,
    1999, at http://www.usnews.com/usnews/issue/990510/10path.htm
    (visited Oct. 24, 2000).

[^809]: Dan Trigoboff, *Full Service Network out of Service*,
    Broadcasting & Cable, May 5, 1997, at
    http://www.ee.surrey.ac.uk/Contrib/Edupage/1997/05/15-05-1997.html
    (visited Oct. 24, 2000). Industry observers also note that FSN's
    failure may have been due to a lack of content and consumer
    interest. "The technology was not there yet. And without the
    technology the content was not there. And it's clear that people
    don't want a lot of what's being offered." *Id.*

[^810]: *See* Confidential Appendix V, Note 1.

[^811]: MOU at ¶ 6.

[^812]: As discussed in more detail in Section IV.B., *supra* (Instant
    Messaging and Advanced IM-Based High-Speed Services), we believe
    this represents a potential public interest harm that is likely to
    arise from the merger.

[^813]: *See* Section IV.A.D, *supra.* (Interactive Television Services)

[^814]: This issue will be explored in our *ITV NOI*.. *See* *ITV NOI*,
    FCC 01-15.

[^815]: *See AT&T-MediaOne Order*, 15 FCC Rcd at 9821 ¶ 11; *WorldCom-
    MCI Order*, 13 FCC Rcd at 18030-31 ¶ 9*; see also* 47 U.S.C §§ 254;
    Telecommunications Act of 1996 (\"1996 Act\"), Pub.L. 104-104, Title
    VII, § 706, Feb. 8, 1996, 110 Stat. 153, reproduced in the notes
    under 47 U.S.C. § 157; 1996 Act Preamble.

[^816]: *See* 47 U.S.C. § 521(4) (purpose of Title VI, \"Cable
    Communications,\" of the Act is to \"assure that cable
    communications provide and are encouraged to provide the widest
    possible diversity of information sources and services to the
    public\"); 47 U.S.C. §§ 532(a), (g) (\"diversity of information
    sources\"); *see also* Turner Broadcasting System, Inc. v. FCC, 512
    U.S. 622, 663 (1994) (quoting United States v. Midwest Video Corp.,
    406 U.S. 649, 668 n.27 (1972)); Review of the Commission\'s
    Regulations Governing Television Broadcasting, Television Satellite
    Stations Review of Policy and Rules, MM Docket No. 91-221, MM Docket
    No. 87-8, Report and Order, 14 FCC Rcd 12903, 12910-12916 (1999);
    Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 390 (1969) (\"It is
    the purpose of the First Amendment to preserve an uninhibited
    marketplace of ideas in which truth will ultimately prevail, rather
    than to countenance monopolization of that market, whether it be by
    the Government itself or a private licensee.\"); Turner
    Broadcasting, 512 U.S. at 657 (emphasizing that \"\[t\]he potential
    for abuse of this private power over a central avenue of
    communication cannot be overlooked. The First Amendment\'s command
    that government not impede the freedom of speech does not disable
    the government from taking steps to ensure that private interests
    not restrict, through physical control of a critical pathway of
    communication, the free flow of information and ideas.\").

[^817]: *AT&T-MediaOne Order*, 15 FCC Rcd at 9891 ¶175.

[^818]: *Id.* at 15 FCC Rcd at 9891 ¶175.

[^819]: Applicants' March 21 Supplemental Information at 38.

[^820]: *Id.* at 38 (citing Goldman Sachs: Perfect Time-ing at 2).

[^821]: A list of the licenses and authorizations that have been
    approved for transfer pursuant to the terms of this *Order* is set
    forth in Appendix C hereto.

[^822]: The term AOL Time Warner as used in this sentence refers to the
    division of AOL Time Warner that operates its cable systems.

[^823]: This provision is not intended to restrict AOL Time Warner's
    ability to market its own products to prospective or current ISP
    customers.

[^824]: The term "first screen" shall have the meaning ascribed to it in
    Section IV.A, *supra*.

[^825]: In "AOL Time Warner," we include the separate pre-merger
    companies and the post-merger company.

[^826]: We explicitly exclude upgrades to AOL's current IM products that
    are not otherwise included in AIHS.

[^827]: The condition and the three options are set forth more fully in
    Section IV.B., *supra*. (Instant Messaging and Advanced IM-Based
    High-Speed Services)

[^828]: The procedures for submission of petitions are set forth more
    fully in Section IV.B, *supra*. (Instant Messaging and Advanced
    IM-Based High-Speed Services)

[^829]: On January 11, 2001, the Commission released a public notice
    announcing the Commission's adoption of this *Order*. Public Notice,
    "Subject to Conditions, Commission Approves Merger Between America
    Online, Inc. and Time Warner Inc.," CS Docket No. 00-30, FCC 01-11
    (rel. Jan. 11, 2001).

[^830]: *See Applications for Consent to the Transfer of Control of
    Licenses and Section 214 Authorizations from MediaOne Group, Inc.,
    Transferor, to AT&T Corp., Transferee,* CS Docket No. 99-251,
    Memorandum Opinion and Order*,* 15 FCC Rcd 9816 (2000);
    *Applications of AT&T Corp. and Tele-Communications, Inc. for
    Transfer of Control of Tele-Communications, Inc. to AT&T Corp.,* CC
    Docket No. 98-178, Memorandum Opinion and Order, 14 FCC Rcd 3160
    (1999).

[^831]: The service benefits from what is called "network effects." At
    its core is a directory of names and presence detection capability.
    Each new person who joins an IM directory database adds value to the
    service for every other subscriber in that database. If
    interoperability exists among competing IM services, then all
    subscribers benefit from the enlarged database. But if a provider
    does not permit others to access the database, then prospective
    subscribers are more likely to choose the service provider that has
    access to the greatest number of people they wish to contact. In
    antitrust terms, a market characterized by network effects is deemed
    to have "tipped" when subscribers to a competing service
    increasingly switch to the dominant provider to gain access to the
    larger number of users on the closed system. Generally, in a tipping
    scenario, competing providers show a net loss of customers in favor
    of the dominant provider.

[^832]: *In the Matter of America Online, Inc. and Time Warner, Inc.,*
    FTC Docket No. C-3989, Agreement Containing Consent Orders; Decision
    and Order, 2000 WL 1843019 (FTC) (proposed Dec. 14, 2000); Federal
    Trade Commission, *Order to Hold Separate in the Matter of America
    Online, Inc., and Time Warner Inc.,* Docket No. C-3989, rel. Dec.
    14, 2000.

[^833]: *See, e.g., Response of NCTA President & CEO Robert Sachs to FTC
    Approval of AOL/Time Warner Merger,* December 14, 2000 (on file with
    the National Cable Television Association) ("the anti-trust
    safeguards imposed by the FTC are unique to AOL's substantial
    Internet position and are not a precedent for broader government
    regulation").

[^834]: *Inquiry Concerning High-Speed Access to the Internet Over Cable
    and Other Facilities,* GN Docket No. 00-185, Notice of Inquiry, FCC
    00-355 (rel. Sept. 28, 2000).

[^835]: 47 U.S.C. 551.

[^836]: 47 U.S.C. 551(a)(1).

[^837]: 47 U.S.C. 551(b)(1).

[^838]: Applications for Consent to the Transfer of Control of Licenses
    and 214 Authorizations From MediaOne Group, Inc., Transferor, to
    AT&T Corp., Transferee, 15 FCC Rcd 9816 (2000); Applications of
    Ameritech Corp., Transferor, and SBC Communications, Inc.,
    Transferee, for Consent to Transfer Control of Corporations Holding
    Commission Licenses and Lines Pursuant to Sections 214 and 310(d) of
    the Communications Act and Parts 5, 22, 24, 25, 63, 90, 95, and 101
    of the Commission's Rules, 14 FCC Rcd. 14712 (1999); Application of
    WorldCom, Inc., and MCI Communications Corporation to WorldCom,
    Inc., 13 FCC Rcd 18025 (1998); Applications of NYNEX Corp.
    Transferor, and Bell Atlantic Corp., Transferee, for Consent to
    Transfer Control of NYNEX Corp. and its Subsidiaries, 12 FCC Rcd
    19985 (1997).

[^839]: *See supra* note 1.

[^840]: In addition to dissenting from the Majority\'s Instant Messaging
    condition, I object to the Majority\'s decision to impose broadband
    open access conditions that may conflict with and prejudge issues in
    the *Notice of Inquiry* proceeding regarding broadband Internet
    access. *See* In the Matter of Inquiry Concerning High-Speed Access
    to the Internet Over Cable and Other Facilities, GEN Docket No.
    00-185, FCC 00-185, *Notice of Inquiry* ¶¶ 25-42 (rel. Sept. 28,
    2000) (examining potential definitional, policy and regulatory cable
    open access issues). I concur in the conditions regarding Time
    Warner\'s relationship with AT&T, though I believe our concerns were
    substantially addressed by the Department of Justice consent decrees
    involving AT&T and MediaOne and the Federal Trade Commission consent
    decree involving AOL and Time Warner. *See United States v. AT&T
    Corp.,* 2000 WL 1752108, \*3 (D.D.C. 2000); *see also* *In the
    Matter of America Online and Time Warner*, 2000 WL 1843019 (F.T.C.
    Dec. 14, 2000).

[^841]: *See, e.g.,* In the Matter of Applications of Ameritech Corp.,
    Transferor, and SBC Communications Inc., Transferee, For Consent to
    Transfer Control of Corporations Holding Commission Licenses and
    Lines Pursuant to Section 214 and Section 310 (d) of the
    Communications Act and Parts 5, 22, 24, 25, 63, 90, 95, and 101 of
    the Commission Rules, CC Docket No. 98-141, FCC 99-279, *Memorandum
    Opinion and Order,* 14 FCC Rcd 14712, 15197 (1999) (Separate
    Statement of Michael K. Powell, Commissioner, Federal Communications
    Commission) \[available on the World Wide Web at
    \<http://www.fcc.gov/commissioners/powell\>\]; Statement Of Michael
    K. Powell, Commissioner, Federal Communications Commission, Before
    The Subcommittee On Telecommunications, Trade And Consumer
    Protection Of The House Committee On Commerce On \"The
    Telecommunications Merger Act Of 2000\" (Mar. 14, 2000) (expressing
    personal discomfort with \"a standard that places harms on one side
    of a scale and then collects and places any hodgepodge of
    conditions---no matter how ill-suited to remedying the identified
    infirmities---on the other side of the scale).

    .

[^842]: *Order* ¶ 151 ("\[W\]e find that the area of our concern is 'NPD
    \[Names and Presence Directory\] services' -- interactive
    communication services which . . . depend on an NPD for real-time
    communication between and among users. . . . A more precise
    definition of the relevant market is not necessary here, where the
    Commission can accurately assess the competitive impact of the
    merger without such a detailed analysis.").

[^843]: Media Metrix, a widely regarded Internet traffic measurement
    consultancy, reported in a November 2000 press release that although
    AOL Instant Messenger is still the dominant IM application in the
    Internet space, \"Yahoo! Messenger and MSN Messenger Service each
    have accumulated approximately half the number of users as AOL
    Instant Messenger and have become the fastest growing
    instant-messaging applications in terms of overall users.\" *See*
    Press Release, Media Metrix, *Yahoo! Messenger and MSN Messenger
    Service Are Fastest Growing Instant-Messaging Applications In The
    U.S*. (Nov. 16, 2000) \[available on the World Wide Web at
    \<http://us.mediametrix.com/press/releases/20001116.jsp\>\]. AOL
    Instant Messenger had accummulated 21.5 million unique users by
    August 2000; for their part, Yahoo! and MSN, respectively, had grown
    their services to 10.6 million unique users and 10.3 million unique
    users. Equally interesting, to my mind, Media Metrix noted that
    approximately one-third of AOL Instant Messenger residential users
    also used at least one other competing IM application. *See id.*

[^844]: Microsoft, one of the two significant IM competitors,
    \"dismissed\" the Media Metrix IM findings. *See* *FTC Prepares Vote
    On AOL-TW Deal, Critics Seek More Conditions*, Communications Daily,
    Dec. 12, 2000.

[^845]: *Order* ¶ 175.

[^846]: *See* Carl Shapiro & Hal R. Varian, *Information Rules: A
    Strategic Guide to the Network Economy* 174-76 (1999).

[^847]: *Id.* at 187; *see also* William J. Kolasky, *Network Effects: A
    Contrarian View,* 7 Geo. Mason L. Rev. 577, 577 (1999).

[^848]: *Order* ¶ 175.

[^849]: To be clear, I do not dispute that the IM market could tip at
    some undetermined point in the future. But as I describe in greater
    detail, the underlying facts are inconclusive as to whether tipping
    has occurred, particularly with respect to the future hypothetical
    services contemplated by the Majority's IM condition.

[^850]: Presumably, no IM condition would be needed if it is
    demonstrated, as I do below, that it is still quite possible that
    market forces will enable some competing firm to prevent AOL from
    becoming a dominant provider of the advanced IM services
    contemplated by the majority\'s condition.

[^851]: Kolasky at 577.

[^852]: Shapiro & Varian at 174-77.

[^853]: *See* Press Release, Media Metrix, *Yahoo! Messenger and MSN
    Messenger Service Are Fastest Growing Instant-Messaging Applications
    In The U.S*. (Nov. 16, 2000) (Launched in 1999, both Yahoo!\'s and
    MSN\'s IM product offerings have become the \"fastest growing
    instant-messaging applications in terms of overall users\" over the
    period of August 1999 to August 2000) \[available on the World Wide
    Web at \<http://us.mediametrix.com/press/releases/20001116.jsp\>\].

[^854]: *Id*

[^855]: *See, e.g.,* *Yahoo! Companion* (on-line description of Yahoo!
    content and feature on browser) (visited Jan. 11, 2001) \[available
    on the World Wide Web at
    \<http://edit.yahoo.com/config/download_companion\>\]; *Yahoo!
    Messenger* (on-line description of Yahoo! IM capability and
    integrated functionality like free Internet phone calls, Yahoo! Chat
    client, alerts for your stocks and Yahoo! Mail, news, weather, stock
    quotes, etc.) (visited Jan. 11, 2001) \[available on the World Wide
    Web at \<http://messenger.yahoo.com/\>\]; *MSN Messenger Service*
    (same) (visited Jan. 11, 2001) \[available on the World Wide Web at
    \<http://messenger.msn.com/\>\]; Press Release, Microsoft
    Corporation, *MSN Reviewers Guide, January 2000* (visited Jan. 11,
    2001) \[available on the World Wide Web at
    \<http://www.microsoft.com/presspass/newsroom/msn/guide/0100guide.asp\>\].

[^856]: I am fond of recording bold technology predictions about the
    various industries over which the Commission has jurisdiction that,
    over time, proved generally overstated or absolutely incorrect and
    off the mark. For example, the New York Times, on the occasion of
    the 1939 World\'s Fair and the introduction of the black-and-white
    television, predicted that television \"will never be a serious
    competitor for radio because people must sit and keep their eyes
    glued on a screen; the average American family hasn\'t time for
    it.\" And, in 1876, a Western Union internal memorandum forecasted
    that \"\[t\]his \'telephone\' has too many shortcomings to be
    seriously considered as a means of communication. The device is
    inherently of no value to us.\" Many of these failed technology
    predictions are now compiled in *The Experts Speak*. *See*
    Christopher Cerf & Victor Navasky, in *The Experts Speak: The
    Definitive Compendium of Authoritative Misinformation* 225-231
    (Villard 1998).

[^857]: Kolasky at 579.

[^858]: According to Media Metrix, over 30% of both AIM and ICQ users
    already use at least one other IM or chat application. *See* Press
    Release, Media Metrix, *Yahoo! Messenger and MSN Messenger Service
    Are Fastest Growing Instant-Messaging Applications In The U.S*.
    (Nov. 16, 2000). *See also id* ("Instant-messaging applications are
    proving to be very popular with consumers . . . But their different
    features and lack of interoperability cause users, especially heavy
    users, to adopt more than one brand in order to keep in touch with
    all their friend and colleagues."). If the costs or difficulties of
    using multiple IM services were truly significant, presumably people
    would have begun to focus on only one IM provider, rather than
    continuing to use more than one.

[^859]: *See, e.g.,* Ex Parte Letter to Deborah Lathen, Chief, Cable
    Services Bureau, Federal Communications Commission, from George
    Vradenburg III, Senior Vice President, Global and Strategic Policy,
    America Online, Inc. (Sept. 29, 2000) at 1, 7-8 (\"AOL is committed
    to pursuing industry-wide IM interoperability for the benefit of
    consumers, not competitors.\")

[^860]: *Id.* at 7-8.

[^861]: *See, e.g., Unsolicited Bulk E-mail* (on-line statement of
    AOL\'s anti-spamming policy) (visited Jan. 11, 2001) \[available on
    the World Wide Web at \<http://www.aol.com/info/bulkemail.html\>\];
    *AOL\'s Privacy Policy* (on-line statement of AOL\'s privacy policy)
    (visited Jan. 11, 2001) \[available on the World Wide Web at
    \<http://www.aol.com/info/privacy.html\>\].

[^862]: For example, my discussion with my colleagues leads me to
    conclude that even the Majority would acknowledge there would have
    been many security problems associated with mandating immediate
    interoperability for text-based IM. For example, if AOL had to
    publish its operating protocols and accept and deliver all outside
    IM messages, hackers and users of unscrupulous IM providers would be
    able to masquerade as other users. AOL IM users would receive
    messages from people that they think are their buddies, but in fact
    are advertisements, spam, or possibly even messages from predators.
    Also, AOL users could find that hackers have been sending false
    messages in their names, creating its own set of problems. AOL today
    deals with these issues chiefly by using live monitors, to whom its
    users can report problems. It is not clear that AOL would be able to
    do this with messages that come from outside its system.

[^863]: *See* In the Matter of Amendment of Section 64.702 of the
    Commission's Rules and Regulations, 77 FCC 2d 384, 428-40 (1980)
    (*Computer II*).

[^864]: *See, e.g.,* Remarks of William E. Kennard, Chairman, Federal
    Communications Commission Before the Summer 2000 Session of the
    National Association of Regulatory Utility Commissioners (July 24,
    2000) (\"\[p\]erhaps the FCC\'s most important decision---we decided
    to leave the Internet unregulated\"); Remarks of Chairman Kennard
    Before the National Press Club, *Telecommunications @ the
    Millennium: The Telecom Act At Four* (Feb. 8, 2000) (\"The
    Commission wisely withheld regulation of most advanced services.
    Similarly, we refused to apply legacy-style regulations to the new
    service of cable access to the Internet, relying instead on market
    incentives to keep multiple paths open to the Internet.\"); Remarks
    of Susan Ness, Commissioner, Federal Communications Commission
    Before the IRTS, *The Net Effects on Communications Policy (or how
    the Internet and Convergence are Revamping Regulatory Regimes*)
    (June 7, 2000) (in reference to technological developments,
    \"\[t\]he FCC\'s policies of fostering competition, while taking a
    hands-off approach to the Internet and information services, have
    facilitated many of these changes\").

[^865]: In the Matter of Federal-State Joint Board on Universal Service,
    CC Docket No. 96-45, FCC 98-67, *Report to Congress* (rel. Apr. 10,
    1998) (Statement of Michael K. Powell, Commissioner, Federal
    Communications, concurring) \[available on the World Wide Web at
    \<http://www.fcc.gov/commissioners/powell/statements\].

[^866]: *Order* ¶ 128.

[^867]: I believe the record demonstrates this condition should have
    been mandatory. *See Report and Order* at Paras.169-70; 192
    (identifying open protocol approach to achieving interoperability).

[^868]: Tim Berners-Lee, [Weaving the Web]{.smallcaps}*,* at 132 (Harper
    Business Books 1999).

[^869]: *See Report and Order* at Paras. 10; 134-35 (describing markets,
    defining IM services and NPD).

[^870]: *See Report and Order* at Paras. 176-81; *see also Steadman v.
    SEC*, 450 U.S. 91 (1981) (affirming agency action on a preponderance
    of the evidence standard).

[^871]: *See Report and Order* at Paras. 27-46 (Time Warner and AOL
    assets).

[^872]: *See Report and Order at* Paras 27-46 (assets); 128-45 (defining
    and describing instant messaging; advanced IM-based high speed
    services; Names and Presence database).

[^873]: *See Report and Order at* Para. 8, n.12.

[^874]: Some observers put the total number of registered IM service
    users under AOL's control at over 150 million. Tribal Voice Comments
    at 1-2 (120 million); Julia Angwin, *Instant Messaging Services at
    AOL Quietly Linked*, [Wall St. J]{.smallcaps}., Oct. 26, 2000*,* at
    B-1, B-4 (138 million); Jim Lynch, *Instant Messaging Roundup,*
    MSNBC Technology, Aug. 18, 2000, at
    http://www.msnbc.com/news/447786.asp (visited Aug. 28, 2000) (more
    than 150 million users); Nick Wingfield, *Changing Chat,* [Wall St.
    J.]{.smallcaps}, Sept. 18, 2000, at R-28 (154 million registered
    users).

[^875]: *IM Interoperability: The Need for Minimum Safeguards* at 2,
    White Paper filed herein ("First IM White Paper") under Letter from
    Ross Bagully, President and CEO, Tribal Voice, and Margaret
    Heffernan, President and CEO, iCast, to Magalie Roman Salas,
    Secretary, FCC, dated Sept. 5, 2000 ("Tribal Voice and iCast Sept. 5
    Ex Parte"); Nick Wingfield*, Changing Chat*, [Wall St.
    J.]{.smallcaps}, Sept. 18, 2000, at R-28.

[^876]: *See Report and Order* at n.376 (defining "essential input").

[^877]: *See, e.g.*, Letter from Karen B. Possner, Vice President --
    Strategic Policy, BellSouth Corp., to Magalie Roman Salas,
    Secretary, FCC, dated Oct. 10, 2000, Attachment (BellSouth's Views
    on the Effect of the Proposed America Online-Time Warner Merger on
    Instant Messaging and Related Capabilities) at 1.

[^878]: *See, e.g.*, George Gilder, [Telecosm: How Infinite Bandwidth
    Will Revolutionize Our World]{.smallcaps} 252 (2000); Francois Bar
    et al., *Access and Innovation Policy for the Third-Generation
    Internet*, [Telecommunications Policy]{.smallcaps}, July-Aug. 2000,
    at 7.

[^879]: IM-based services are relatively new but have shown enormous
    growth in popularity in recent years. Their key characteristics are
    the capabilities to detect whether other users of the system (whose
    names are kept in a Names and Presence Database) are present online
    and to exchange messages with them in real time. These features are
    predicted to have vast potential as a "platform" for the development
    of additional applications in the future, particularly as users
    obtain high-speed Internet access.

[^880]: *See Report and Order* at para. 170. AOL contends it currently
    cannot adequately protect its customers' privacy and security.

[^881]: *See, e.g.,* Andrew Watson, *Predatory Pricing in the Software
    Industry*, 23 [Rutgers L. Rec]{.smallcaps}. 1 (1998) (*citing* David
    S. Evans and Richard Schmalensee, *A Guide to the Antitrust
    Economics of Networks*, 10 [S]{.smallcaps}pring
    [Antitrust]{.smallcaps} 36, 36-37 (1996)).

[^882]: *See Report and Order* at n.368.

[^883]: iCast Comments at 1; Disney July 25 Ex Parte at 27-28; Aaron
    Pressman, *Microsoft Messenger Finds Its Voice* at 2, [The
    Standard,]{.smallcaps} July 20, 2000.

[^884]: FCC En Banc Hearing, CS Docket No. 00-30 (July 27, 2000), Tr. at
    167-68.

[^885]: *See, e.g.,* Confidential Appendix IV-B-2, Note 5; Tribal Voice
    Aug. 8 Ex Parte at 1-2; *see also White Paper on Instant Messaging,*
    at 3 (Filed September 5, 2000).

[^886]: *White Paper on Instant Messaging,* at 11 (Filed September 5,
    2000).

[^887]: *See Report and Order* at Paras. 168-70 (rejecting AOL
    contentions).

[^888]: *But see Report and Order* at n.425: "Ultimately, new technology
    may overcome the dominant provider's power, as the telephone did to
    the telegraph and airplanes and automobiles did to railroads. Many
    years can pass, however, before a new technology appears with enough
    advantages to overcome the entrenched one. That technology, too, may
    be deployed by the dominant incumbent, who will deploy it slower
    than a new entrant would. Finally, some technologies persist for
    very long times, such as the QWERTY keyboard."

[^889]: *See Associated Press v. United States*, 326 U.S. 1, 20 (1945);
    *see also Associated Press v. NLRB*, 301 U.S. 103, 128 (1937)
    (Noting that the A.P.\'s activities "involve\[d\] the constant use
    of channels of interstate and foreign communication," and concluding
    its operations "amount\[ed\] to commercial intercourse, and such
    intercourse is commerce within the meaning of the Constitution.").

[^890]: This Agency has previously defined tipping as "the tendency for
    a \[service\] with an initial edge over incompatible, rival systems
    to become an industry standard and thus achieve market dominance."
    The service with the edge can attain a monopoly position, with its
    rivals relegated to a fringe position. *AT&T Corp., British
    Telecom.,PLC, VLT Co. L.L.C., Violet License Co. LLC, and TNV
    \[Bahamas\] Ltd*., *For Grant of Section 214 Authority, Modification
    of Authorizations and Assignment of Licenses in Connection With the
    Proposed Joint Venture Between AT&T Corp. and British
    Telecommunications, plc*, IB Docket No. 98-212,
    SES-ASG-19981110-01654 (30), SES-ASG-19981110-01655 (2), Memorandum
    Opinion and Order, 14 FCC Rcd 19140, 19167 ¶ 54 (1999) (footnote
    omitted); *see also* Stan J. Liebowitz and Stephen E. Margolis,
    [Winners, Losers and Microsoft]{.smallcaps} at 138 (1999) ("Tipping
    occurs when a product subject to increasing returns generates
    sufficient momentum in market share that its domination of the
    market becomes inevitable.").

[^891]: *See, e.g., Report and Order* at n.368 (noting the majority
    expressed no opinion on "tipping"); *see also* Paras.175-176.
    Tipping has occurred before in the entertainment and communications
    markets. In the mid-1980s, the consumer videocassette
    recorder/player market tipped in favor of VHS and against Betamax.
    In the local telephone business, it appears that tipping occurred
    shortly before 1910, when the Bell companies and the independents
    with whom it interconnected attained a significantly larger number
    of telephone customers than the independent telephone companies with
    whom Bell companies refused to interconnect. In both cases, after
    tipping the market was dominated by one standard or network.

[^892]: *See* Lawrence Lessig, *Cable Blackmail*, The Standard, Nov. 14,
    1999.

[^893]: *See* Telecommunications Act of 1996, Pub. L. No. 104-104, 110
    Stat. 56 §§ 1, 230 (b)(1, 2), 47 U.S.C. §§ 151, 230 (b)(1, 2). *See
    also WorldCom-MCI Order,* 13 FCC Rcd at 18103-04 ¶ 142 (reviewing
    competitive effects of merger on provision of Internet backbone
    services).

[^894]: *See Weaving the Web,* at 35*; see also id.* at 99 ("The
    international phone system offers a decent analogy. The reason we
    can plug in a telephone pretty much anywhere in the world is because
    industry agreed on certain standard interfaces. \* \* \* The phone
    system defines what it has to, but then leaves how it is used up to
    the devices*.*").

[^895]: The Internet protocols necessary to achieve interoperability for
    such services as email, are called the Transmission Control
    Program/Internetworking Protocol ("TCP/IP"). These protocols are
    open and non-proprietary. The open protocols utilized on the
    Internet are routinely recognized as the historical key to its
    openness and rapid growth. Since commercialization of the Internet
    has begun in earnest, there is a threat that the Internet will
    fragment into a digital archipelago of closed networks the
    communications between which are controlled by private entities.

[^896]: 47 U.S.C. § 230(b)(1)-(2).

[^897]: 47 U.S.C. § 157; *see also id.* § 1 (FCC was created "so as to
    make available, so far as possible, to all people of the United
    States . . . a rapid, efficient, Nationwide, and world-wide wire and
    radio communication service with adequate facilities at reasonable
    charges"). Congress defined "advanced telecommunications capability"
    as "high-speed, switched, broadband telecommunications capability."
    47 U.S.C. § 157.

[^898]: *See, e.g.*, *Second Inquiry Concerning the Deployment of
    Advanced Telecommunications Capability Pursuant to Section 706 of
    the Telecommunications Act of 1996*, CC Docket No. 98-146, Second
    Report, FCC 00-290 (rel. Aug. 21, 2000) at ¶ 3 ("*Second 706
    Report*") (noting that "\[w\]ith advanced telecommunications
    capability consumers can take advantage of advanced services that
    allow residential and business consumers to create and access
    content, sophisticated applications, and high-bandwidth services").

[^899]: *See, e.g.*, 47 U.S.C. §§ 533(f), 548; 47 C.F.R. §§ 76.503,
    76.504, 76.1000-76.1004; *AT&T-MediaOne Order*, 15 FCC Rcd at 9835 ¶
    38.

[^900]: 47 U.S.C. § 521(4).

[^901]: 47 U.S.C. § 523(a).

[^902]: *Turner Broadcasting System, Inc. v. FCC*, 512 U.S. 622, 663
    (1994) (*quoting United States v. Midwest Video Corp.*, 406 U.S.
    649, 668 n.27 (1972)).

[^903]: *Turner Broadcasting System, Inc. v. FCC,* 512 U.S. 622, 663
    (1994); *see also id.,* 512 U.S. at 657 ("\[T\]he potential for
    abuse of this private power over a central avenue of communication
    cannot be overlooked."); *Review of the Commission's Regulations
    Governing Television Broadcasting: Television Satellite Stations
    Review of Policy and Rules*, 14 FCC Rcd 12903, 12910-916 (1999);
    *see also Red Lion Broadcasting Co. v. FCC*, 395 U.S. 367, 390
    (1969) ("It is the purpose of the First Amendment to preserve an
    uninhibited marketplace of ideas in which truth will ultimately
    prevail, rather than to countenance monopolization of that market,
    whether it be by the Government itself of a private licensee.");
    *see also, e.g.*, 47 U.S.C. § 257(b) (noting that one of the
    "policies and purposes" of the Communications Act is to "favor\[\]
    diversity of media voices"); *id.* § 601 (codifying findings and
    policy underlying Cable Television Consumer Protection and
    Competition Act of 1992) ("There is a substantial governmental and
    First Amendment interest in promoting a diversity of views provided
    through multiple technology media."); *AT&T-MediaOne Order*, 15 FCC
    Rcd at 9818-20 Paras. 3-5 (considering proposed merger's effects on
    "diversity and competition" in video programming and its effects on
    "openness and diversity of broadband Internet content").

[^904]: *See Report and Order,* at Paras. 191-95.

[^905]: *See e.g United States v. Microsoft,* 87 F.Supp.2d 30 (D.C.)

[^906]: *See infra nn.36-37; see also, e.g., United States v. AT&T,* 524
    F. Supp. 1336 (D.D.C. 1981) (detailing the discrimination of the
    Bell System local telephone companies against their competitors in
    terminal equipment, long distance, and other products and services
    for which access to local lines was necessary). Similar concerns
    also underlie the provisions concerning "program access" by cable
    television companies (Communications Act § 628, 47 U.S.C. § 548) and
    Bell re-entry into interexchange service (Communications Act §§
    271-72, 47 U.S.C. §§271-72). *See also* James W. Olson and Lawrence
    J. Spiwak, *Can Short-Term Limits on Strategic Vertical Restraints
    Improve Long-Term Cable Industry Market Performance?*, 13 [Cardozo
    Arts & Ent. L.]{.smallcaps}J. 283 (1995).

[^907]: *See, e.g., Report and Order* at Para. 186. To continue
    Congress' goal of achieving vibrant competition in high speed
    services, we avoided the calls for a one size fits all traditional
    rulemaking on interoperable Internet communications networks. If the
    Commission had allowed the inevitable time delay that arises in a
    general rulemaking, the outcome would have come so late in the day
    as to be meaningless.

[^908]: *Compare* Dissenting Statement of Commissioner M. Powell at 13.

[^909]:
    ####  *See, e.g.,* Amendment of Sections 64.702 of the Commission\'s Rules and Regulations (Third Computer Inquiry), 104 F.C.C.2d 958 (1986) (Report and Order)(requiring AT&T, the long-distance monopolist, to open its basic network facilities to enhanced service providers); *See also* *id.* at 1006(mandating an \"Open Network Architecture\" that would \"permit all users of the basic network \... to interconnect to specific basic network functions and interfaces on an unbundled and \'equal access\' basis.\"); Amendment of Sections 64.702 of the Commissions Rules and Regulations (Third Computer Inquiry), 104 F.C.C.2d 958, 1022 (1986) (Report and Order)(noting the Open Network Architecture would permit the agency to "rely on interconnective technology, rather than external regulations, to minimize the competitive and efficiency dangers of bottleneck control.")