**Before the**

**FEDERAL COMMUNICATIONS COMMISSION**

**Washington, D.C. 20554**

In the Matter of )

> )

Applications of America Online, Inc. ) CS Docket No. 00-30

and Time Warner Inc. for )

Transfers of Control )

To: The Commission

**SUPPLEMENTAL INFORMATION**

+-----------------------------------+-----------------------------------+
| **AMERICA ONLINE, INC.**          | **TIME WARNER INC.**              |
+-----------------------------------+-----------------------------------+
| George Vradenburg, III            | Timothy A. Boggs                  |
|                                   |                                   |
| Jill A. Lesser                    | Catherine R. Nolan                |
|                                   |                                   |
| Steven N. Teplitz                 | **Time Warner Inc.**              |
|                                   |                                   |
| **America Online, Inc.**          | 800 Connecticut Avenue, N.W.      |
|                                   |                                   |
| 1101 Connecticut Avenue, N.W.     | Suite 800                         |
|                                   |                                   |
| Suite 400                         | Washington, D.C. 20006            |
|                                   |                                   |
| Washington, D.C. 20036            | \(202\) 457-9224                  |
|                                   |                                   |
| \(202\) 530-7883                  |                                   |
+-----------------------------------+-----------------------------------+
| Richard E. Wiley                  | Aaron I. Fleischman               |
|                                   |                                   |
| Peter D. Ross                     | Arthur H. Harding                 |
|                                   |                                   |
| Wayne D. Johnsen                  | Craig A. Gilley                   |
|                                   |                                   |
| Wiley, Rein & Fielding            | Fleischman and Walsh, L.L.P.      |
|                                   |                                   |
| 1776 K Street, N.W.               | 1400 Sixteenth Street, N.W.,      |
|                                   | Suite 600                         |
| Washington, D.C. 20006            |                                   |
|                                   | Washington, D.C. 20036            |
| \(202\) 719-7000                  |                                   |
|                                   | \(202\) 939-7900                  |
+-----------------------------------+-----------------------------------+

March 21, 2000

**TABLE OF CONTENTS**

I. INTRODUCTION AND SUMMARY

II\. AS ORIGINALLY DESCRIBED AND FURTHER DETAILED HEREIN, THE PARTIES'
ASSETS AND LINES OF BUSINESS ARE LARGELY COMPLEMENTARY AND PRESENT NO
ANTICOMPETITIVE COMBINATION

A. Additional Details Concerning The Parties' Assets And Businesses
Confirm That The Two Companies Largely Operate In Different Spheres

1\. America Online, Inc.

2\. Time Warner Inc.

B. AOL's Non-Attributable Investment In The Ultimate Parent Of DirecTV
Is Spurring The Development Of Broadband Services Delivered Via
Satellite Without Posing Any Threat To The Multichannel Video
Programming Distribution Marketplace

1\. AOL invested in GM to advance its pro-consumer "AOL Anywhere"
strategy by accelerating the development of satellites as a competitive
broadband platform

2\. AOL's investment in GM produces these pro-competitive broadband
benefits without raising any offsetting concerns for the video
marketplace

3\. Even if AOL's investment in GM led to the unprecedented conclusion
that DirecTV should be attributed to the merged entity, AOL Time Warner
still would not breach the Commission's still stayed horizontal
ownership rules

III\. THIS MERGER ADVANCES AOL'S LONG-STANDING COMMITMENT TO THE
DISTRIBUTION OF ITS ONLINE SERVICE USING A WIDE RANGE OF TECHNOLOGIES

A. The Success Of The "AOL Anywhere" Strategy Depends On The
Availability Of The AOL Service Wherever And However Consumers Might
Wish To Obtain It

B. In Recognition Of These Business Imperatives, AOL Has Long Committed
Itself To A Broad Diversity Of Platforms

C. The Merger In No Way Alters The Platform-Agnostic Foundation Of The
"AOL Anywhere" Strategy---Including Within Time Warner's Local Cable
Franchise Areas

IV\. ADDITIONAL DATA AND ANALYSIS CONFIRM THAT THE PROPOSED MERGER WILL
SERVE THE PUBLIC INTEREST BY BRINGING CONSUMER CHOICE, INNOVATION, AND
MOMENTUM TO BROADBAND AND NEXT-GENERATION SERVICES

A. The Parties' Unsurpassed And Demonstrated Commitment To Consumer
Choice From Among Multiple ISPs Significantly Advances The Public
Interest By Expediting The Resolution Of The Open Access Debate

1\. AOL and Time Warner have committed to providing consumer choice
among multiple ISPs on AOL Time Warner's cable systems

2\. The AOL Time Warner MOU represents tremendous marketplace progress
in advancing open access

3\. The AOL Time Warner merger and its commitment to providing
consumers' choice among multiple ISPs will only enhance the marketplace
pressure that the Commission has already found to be fueling competitive
broadband deployment

B. This Merger Significantly Advances The Public Interest By Bringing
Together Complementary Skills And Resources To More Rapidly And
Effectively Offer Consumers The New Content, Products, And Services That
Broadband Promises

1\. The spectrum of new consumer offerings

2\. A compelling illustration: "The Online Music Revolution"

3\. Boundless possibilities for new consumer services

4\. These benefits will be delivered to consumers more quickly and
efficiently through this merger

V. THE COMMISSION'S PAST RULINGS, COMBINED WITH THE PARTIES' COMMITMENT
TO OPEN ACCESS, PRECLUDE ANY FINDING THAT THE PROPOSED MERGER COULD
THWART---OR EVEN DAMPEN---INTERNET ACCESS SERVICES COMPETITION

A. The FCC's Analysis and Conclusions in *AT&T/TCI* Belie any Need to
Rule on a Precise Market Definition in Order to Find this Merger in the
Public Interest

B. The Proposed Merger Will Have No Appreciable Anticompetitive Effect
on the Provision of Internet Access Services, and Thus the FCC Need Not
Resolve the Market Definition Issue

1\. Assuming first a broadly defined market including both narrowband
and broadband Internet access services, the proposed merger presents no
harm to the thriving competition in Internet access services

2\. Even assuming a separately defined broadband Internet access market,
the proposed merger will have no significant anticompetitive effects and
will enhance consumer welfare

VI\. CONCLUSION

**INDEX OF ATTACHMENTS**

America Online, Inc. 1998 Annual Report;

Summary of AOL Investments in Publicly Traded Companies Tab 1

Time Warner Inc. 1998 Annual Report Tab 2

Memorandum of Understanding Between Time Warner Inc. and America Online,
Inc. Regarding Open Access Business Practices, dated February 29, 2000
Tab 3

Testimony of Steve Case, Chairman and CEO, America Online, Inc. on AOL
Time Warner Merger:

> \(1\) United States Senate, Committee on the Judiciary, February 29,
> 2000; and
>
> \(2\) United States Senate, Committee on Commerce, Science and
> Transportation, March 2, 2000 Tab 4

Testimony of Gerald M. Levin, Chairman and CEO, Time Warner Inc. on AOL
Time Warner Merger:

> \(1\) United States Senate, Committee on the Judiciary, February 29,
> 2000; and
>
> \(2\) United States Senate, Committee on Commerce, Science and
> Transportation, March 2, 2000 Tab 5

AOL Time Warner Inc., SEC Form S-4, Registration Statement, filed
February 11, 2000 (Proxy Statement) Tab 6

Merrill Lynch, In-Depth Report: "AOL Time Warner: You've Got Upside!"
February 23, 2000 Tab 7

PaineWebber, Company Analysis: "AOL Time Warner: A Merger that Defines
the New Digital Age," March 1, 2000 Tab 8

Goldman Sachs, Internet Media: "America Online/Time Warner (AOL/TWX):
Perfect Time‑ing," March 10, 2000 Tab 9

**Before the**

**FEDERAL COMMUNICATIONS COMMISSION**

**Washington, D.C. 20554**

In the Matter of )

> )

Applications of America Online, Inc. ) CS Docket No. 00-30

and Time Warner Inc. for )

Transfers of Control )

To: The Commission

**SUPPLEMENTAL INFORMATION**

America Online, Inc. ("AOL") and Time Warner Inc. ("Time Warner")
(collectively, the "Applicants") hereby provide this supplement to the
information contained in their Applications for Transfers of Control and
associated Public Interest Statement, which were filed with the
Commission on February 11, 2000.[^1]

# INTRODUCTION AND SUMMARY

The Applicants' Public Interest Statement provided information pertinent
to Commission consideration of the proposed merger of AOL and Time
Warner, including discussion of the transaction's public interest
benefits and lack of any anticompetitive impact. Additional information
has been developed since that initial filing---by the Applicants, by
independent analysts, and in press reports---that allows us to update
the record in this proceeding and further address certain questions
raised by the Commission's staff. [^2]

The parties have, of course, already submitted one significant update:
the Memorandum of Understanding ("MOU"),[^3] which outlines their mutual
commitment to provide consumers with choice from among multiple Internet
service providers ("ISPs") via the merged entity's broadband cable
systems. That document, entered into on February 29, 2000, and filed
with the Commission the next day, is discussed further herein, as are
other noteworthy data and developments. Specifically, this submission
addresses the following topics:

1.  **Further details concerning the assets and lines of business of
    each of the Applicants**, including specific information relating to
    AOL's limited investment in General Motors Corporation (the ultimate
    parent of DirecTV). As reflected in the Public Interest Statement, a
    review of these assets and lines of businesses confirms that the
    Applicants operate in largely complementary, not overlapping,
    spheres---and that, therefore, the proposed merger does not present
    an anticompetitive combination.

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1.  **Further details and analysis concerning the public interest
    benefits of the proposed merger.** As reflected initially in the
    Public Interest Statement, this information supports the Applicants'
    showing that Commission approval of the proposed transaction will
    serve the public interest by fostering more rapid development of
    broadband products and services, including facilitating the
    integration of traditional media and the Internet, and by leading
    the way to resolution of the "open access" issue in the marketplace.
    The Applicants' commitment to consumer choice from among multiple
    ISPs, as well as to vigorous development of alternative broadband
    platforms, significantly advances policymakers' goals.

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1.  **Further analysis concerning the appropriate analytical framework
    for considering competition issues in the Internet access
    marketplace.** This discussion details how the Commission's prior
    analysis and marketplace developments together demonstrate that this
    merger will not reduce competition, but rather will enhance consumer
    choice in Internet access, however the market for such services
    might be defined.

# AS ORIGINALLY DESCRIBED AND FURTHER DETAILED HEREIN, THE PARTIES' ASSETS AND LINES OF BUSINESS ARE LARGELY COMPLEMENTARY AND PRESENT NO ANTICOMPETITIVE COMBINATION

As set forth in the Public Interest Statement, the proposed merger
brings together two companies that have operated in largely separate and
non-overlapping spheres.[^4] While Time Warner's cable and broadcast
interests historically have been subject to FCC regulation,[^5] AOL's
Internet-based business has operated essentially outside of the agency's
regulatory ambit. It is not surprising, then, that this merger is fully
consistent with Commission rules and policies and requires no rule
waivers.[^6]

As described more fully below, the complementary nature of the AOL and
Time Warner lines of business ensures that the proposed merger will not
negatively affect competition in any way. In particular, Section II.B
below demonstrates the lack of anticompetitive effects in multichannel
video programming distribution (where AOL has only a small indirect
interest in DirecTV), while Section V shows the lack of anticompetitive
effect with regard to the provision of Internet services.

The following information supplements that contained in the Public
Interest Statement by providing a more detailed description of the lines
of business of each of the merger parties, as well as a detailed
discussion of the nature of AOL's limited, indirect interest in DirecTV.

## Additional Details Concerning The Parties' Assets And Businesses Confirm That The Two Companies Largely Operate In Different Spheres

### America Online, Inc.

A worldwide provider of interactive services, Web brands, Internet
technologies, and electronic commerce services, AOL has two major lines
of business: Interactive Online Services and Enterprise Solutions.[^7]
AOL's Interactive Online Services business is, in turn, comprised of the
Interactive Services Group, the Interactive Properties Group, and the
AOL International Group.

1.  **Interactive Services Group**---develops and operates branded
    interactive services:

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1.  The Company's flagship AOL service is an Internet online service
    serving more than 21 million members worldwide. In addition to
    access to all content available over the Internet, AOL members are
    provided with access to more than 15,000 chat rooms,
    up-to-the-minute news reports, and information concerning topics
    such as personal finance, health, travel, sports, and entertainment.
    The AOL service provides parents with a special "Kids Only" Feature
    that includes AOL's Parental Controls. AOL members also have access
    to other services, including e-mail, instant messaging, and keyword
    searching.

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1.  CompuServe, acquired by AOL in 1998, is an Internet online service
    designed for value-conscious adults who go online for the first
    time. CompuServe serves more than two million customers.

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1.  AOL's Netscape Netcenter is an Internet portal serving 27 million
    registered users. Netscape Netcenter provides content, services, and
    search and directory tools, including MyNetscape, which allows users
    to customize their Internet start page; Internet Keywords searching
    capability; Netscape - AOL Instant Messenger, which allows users to
    exchange personal messages instantly and privately over the
    Internet; WebMail, a free, permanent e-mail account accessible from
    any Internet connection; calendar services; and Netscape Site
    Central, which allows users to create a website.

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1.  AOL.COM Web site is an Internet portal offering any Internet user
    content, features and tools, including AOL NetFind, an Internet
    search and rating tool, and the AOL Instant Messenger Service, which
    allows any Internet user to communicate in real-time with friends
    and family.

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1.  Netscape Communicator client software, including the Netscape
    Navigator browser, allows consumers to search the Internet, and
    provides one-click access to music, shopping, and information
    gathering services. Netscape Communicator services include Netscape
    Messenger, which allows users to send and receive e-mail; Netscape
    Composer, used for Web-based word processing; and Netscape AOL
    Instant Messenger.

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1.  AOLTV is a proposed interactive service designed to enhance the
    television viewing experience by not only bringing popular AOL
    features and services (such as e-mail, Instant Messaging, and chat)
    to consumers' TV sets, but also offering content and information
    tailored to the specific programming being viewed. AOLTV is expected
    to debut later this year.

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1.  **Interactive Properties Group**---consists of an array of branded
    properties that operate across multiple services and platforms,
    including:[^8]

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1.  Digital City, Inc., a local content network and community guide on
    the Internet. Digital City, which began providing local content
    regarding Washington, D.C. in 1995, now has a presence in more than
    60 cities across the United States. Among the features provided are
    employment guides, dining guides, movie guides, real estate guides,
    auto shopping guides, and community event guides.

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1.  ICQ, a communications portal providing instant communications as
    well as chat technology. ICQ, which was acquired by AOL in 1998, is
    an innovator in providing real-time communications services over the
    Internet. Other services include ICQ Mail, ICQ Search, ICQ Now!
    (which offers a table of contents designed to help navigate ICQ's
    member-created content), and ICQ Personal Assistant Tools (which
    provide users with reminders, "virtual" post-it notes, alarms,
    greeting cards, and a daily planner).

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1.  MovieFone, Inc., acquired by AOL in 1999, is a movie guide and
    ticketing service that is provided both online and through
    interactive telephony.

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1.  Internet music brands Spinner.com, Winamp, and SHOUTcast provide
    online music services. Spinner.com is an Internet music hub offering
    access to the Spinner Web-based player and Spinner Plus, a 1.3
    megabyte downloadable player that works independently of a
    listener's Web-browser. Winamp is a music player for Windows,
    supporting all music formats, including MP3, CD, AudioSoft, Audio
    Explosion, MOD, and WAV. SHOUTcast is a Winamp-based distribution
    streaming audio system that enables users with the Winamp
    high-fidelity audio player and a dial-up Internet connection to
    provide or tune into Internet streaming audio.

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1.  **AOL International Group**---oversees the AOL and CompuServe
    services and joint ventures outside the United States (including
    Australia, Austria, Brazil, Canada, France, Germany, Hong Kong,
    Japan, the Netherlands, Sweden, Switzerland, and the United
    Kingdom), as well as the Netscape Online service in the United
    Kingdom. Globally, members are able to access these services in more
    than 100 countries.[^9]

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1.  **Enterprise Solutions**---consists primarily of the Netscape
    Enterprise Group, which provides businesses with a range of software
    products, technical support, consulting, and training services
    designed to assist them in providing services to their customers in
    the electronic commerce markets. These products and services enable
    businesses and users to share information, manage networks, and
    facilitate electronic commerce. The software is based on
    industry-standard protocols that can be deployed across a variety of
    operating systems, platforms, and databases and be interconnected
    with traditional client/server applications. Netscape Enterprise
    Group provides services and features such as:

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1.  Electronic Commerce Infrastructure, which provides a flexible,
    scalable foundation on which customers can build and manage their
    extranet or Internet applications or use Electronic Commerce
    Applications.

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1.  Electronic Commerce Applications, which enable businesses to link
    and manage online trading communities of suppliers, distributors,
    and customers. They also enable organizations to create more secure
    Internet commerce sites and exchange information with trading
    partners.

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1.  AOL also has entered into a number of ventures with other companies
    serving a broad range of Internet and related industries. For
    example, to accelerate the growth of electronic commerce, AOL
    entered into a strategic alliance with Sun Microsystems, Inc. to
    develop and market client software and network application and
    server software for electronic commerce, extended communities, and
    connectivity. The Netscape Enterprise Group operates the Company's
    part of the alliance. The products developed, which will be sold by
    the alliance under the brand name "iPlanet," include e-commerce
    infrastructure software such as messaging and calendar software;
    Web, application, and directory software; and security services such
    as certificate management, firewall, and remote access. Also offered
    are e-commerce applications for online business-to-business
    transactions, procurement, sales, and billing.

### Time Warner Inc.

Time Warner is a worldwide media and entertainment company. Time
Warner's principal business objective is to create and distribute
information and entertainment throughout the world. Time Warner
classifies its business interests into the following fundamental
areas:[^10]

1.  **Cable Networks**, consisting principally of interests in cable
    television programming, including TBS Superstation, TNT, Cartoon
    Network, CNN News Group, and Home Box Office;

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1.  **Publishing**, consisting principally of interests in magazine and
    book publishing and direct marketing. Time Warner's magazines
    include Time, People, Fortune, Money, Entertainment Weekly, and
    Sports Illustrated. Time Warner's book and publishing operations
    include Warner Books, Little Brown, and Time Life Inc.;

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1.  **Music**, consisting principally of interests in recorded music and
    music publishing, including Warner Music Group and its labels
    Atlantic, Elektra, Rhino, Sire, Warner Bros. Records, and Warner
    Music International;[^11]

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1.  **Filmed Entertainment**, consisting principally of interests in
    filmed entertainment production and distribution, television
    production, and television broadcasting, including Warner Bros., New
    Line Cinema, Castle Rock, Warner Home Video, Telepictures
    Productions, and the WB Network;

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1.  **Cable**, consisting principally of interests in cable television
    systems which pass approximately 20,650,000 homes and serve
    approximately 12,630,000 subscribers.

Additional information regarding the various business activities of Time
Warner is set forth in its most recent Annual Report.[^12] Further
details as to Time Warner's ownership interests in certain
communications-related lines of business are set forth below:

1.  **Cable Systems**---Time Warner\'s cable system operations are held
    through three principal entities, each of which is managed by Time
    Warner Cable: Time Warner Entertainment Company, L.P. ("TWE"), Time
    Warner Entertainment -Advance/Newhouse Partnership ("TWE-A/N") and
    TWI Cable, Inc. ("TWI Cable"). The subscriber breakdown by entity is
    as follows:

    **Entity Basic Subscribers**

    TWE 4,181,504[^13]

    TWE-A/N 6,674,732

    TWI Cable 1,794,797

    TWE is a limited partnership of which approximately 74.49 percent of
    the residual equity is held indirectly by Time Warner. The remainder
    is held by MediaOne Group, Inc. in the form of a limited partnership
    interest. TWE-A/N is a general partnership owned by TWI Cable, TWE,
    and Advance/Newhouse Partnership. Time Warner's partnership interest
    in TWE-A/N, through TWE and TWI Cable, is approximately 67 percent.
    TWI Cable is an indirect wholly owned subsidiary of Time Warner.

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1.  **Cable Programming**: Time Warner's cable programming networks
    consist primarily of domestic and international basic cable networks
    and pay television programming services. Time Warner's cable
    programming operations are conducted through three principal
    divisions: Home Box Office ("HBO"), CNN News Group, and TBS
    Entertainment. HBO offers premium programming channels such as Home
    Box Office and Cinemax, and is wholly-owned by TWE. CNN News Group
    includes CNN, CNN Headline News, CNN/SI, CNNfn, and related
    services. TBS Entertainment includes TBS, TNT, Turner Classic
    Movies, Cartoon Network, and Turner South. CNN News Group and TBS
    Entertainment are indirectly wholly owned by Time Warner. In
    addition, Time Warner Cable operates, alone or in partnerships,
    24-hour local news channels in New York City, Tampa Bay, Orlando,
    Rochester, and Austin.

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1.  **WTBS(TV)**: Superstation, Inc., the licensee of WTBS(TV), is
    indirectly wholly owned by Time Warner. The ownership structure of
    Superstation, Inc. is set forth in greater detail in the FCC Form
    315 filed with the Commission on February 11, 2000.

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1.  **The WB Television Network**: The WB Television Network is a
    limited partnership whose managing general partner is WB
    Communications, a division of TWE, which holds approximately 66
    percent of the partnership interest.

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1.  **Road Runner**: Road Runner, which provides high-speed Internet
    access and content optimized for broadband networks, currently is
    available in cable systems passing over 13 million homes and has
    over 550,000 subscribers, of which 330,000 are in communities served
    by Time Warner Cable systems. Road Runner is a joint venture among
    Time Warner (through TWE, TWE-A/N, and TWI Cable), affiliates of
    Media One Group, Inc., Microsoft Corp., Compaq Corp., and
    Advance/Newhouse Partnership. Time Warner holds an indirect 40
    percent ownership interest in Road Runner.

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1.  **Time Warner Telecom**: Time Warner Telecom provides
    facilities-based competitive telecommunications services primarily
    to commercial/business customers. Time Warner indirectly holds 48
    percent of the equity of Time Warner Telecom Inc., a publicly traded
    corporation that holds certificates to provide telecommunications
    services in 12 states.

## AOL's Non-Attributable Investment In The Ultimate Parent Of DirecTV Is Spurring The Development Of Broadband Services Delivered Via Satellite Without Posing Any Threat To The Multichannel Video Programming Distribution Marketplace

The merger of AOL and Time Warner will not adversely affect competition
among multichannel video programming distributors ("MVPDs"). Time
Warner, with attributable interests in cable systems serving
approximately 13 million subscribers, is a significant MVPD. But AOL is
not. This fact is in no way contradicted by AOL's small, non-voting
interest in the General Motors Corporation ("GM"), which (through its
subsidiary Hughes Electronics Corporation, "Hughes") controls a direct
broadcast satellite service ("DBS") provider, DirecTV. As described
below, this non-voting, attenuated, and insubstantial interest provides
no opportunity for the merged entity to affect DirecTV's day-to-day
operations, much less video programming competition generally. Analysis
under relevant FCC rules confirms that AOL's investment does not
constitute an attributable interest in DirecTV and gives no cause for
concern. To the contrary, by helping to facilitate the development and
deployment of new broadband services such as DirecPC high-speed Internet
access, AOL's investment in GM promotes competition and the public
interest.

### AOL invested in GM to advance its pro-consumer "AOL Anywhere" strategy by accelerating the development of satellites as a competitive broadband platform

AOL seeks to reach consumers utilizing multiple devices by any and all
means: dial-up, xDSL, cable, wireless, and satellite. In pursuit of this
goal of "AOL Anywhere," AOL and Hughes announced a strategic alliance in
June 1999 to develop and market digital entertainment and Internet
services nationwide via satellite.[^14] As part of that agreement, AOL
invested \$1.5 billion in GM, the parent company of Hughes,[^15] to
accelerate the development of DBS as a platform for the next generation
of Internet services.[^16] The investment was not intended to, and does
not, provide any opportunity for AOL or the merged entity to participate
in DirecTV's video programming operations. AOL's investment is thus
pro-competitive in two important ways. First, it promotes the
development of the satellite broadband platform as an alternative to
other technologies, a long-held goal of the Commission.[^17] Second, it
advances the development of a broadband platform with a nationwide
footprint, thus promoting the potential for all Americans to gain access
to the Internet no matter where they live.

### AOL's investment in GM produces these pro-competitive broadband benefits without raising any offsetting concerns for the video marketplace

AOL's non-attributable investment in GM does not implicate any of the
Commission's concerns regarding MVPD competition. As discussed more
fully below, AOL's investment is presently in the form of a preference
stock of GM which (absent very limited circumstances) provides AOL with
no voting rights. Second, even after AOL's preference stock would
convert to a class of GM stock with voting rights, its voting interest
in GM would be well below any threshold for attribution. Therefore, any
concerns over horizontal concentration and the ability of the merged
entity to use the DirecTV interest to impede competition in the MVPD
marketplace are not credibly triggered by AOL's investment.

#### AOL's current interest provides it with no voting rights in GM

AOL's non-voting, indirect interest in DirecTV is of no consequence
under FCC rules. AOL's investment in GM is currently in the form of GM's
"Series H 6.25% Automatically Convertible Preference Stock" (the
"Preference Stock"), which, as the name implies, pays annual dividends
at a rate of 6.25 percent.[^18] The Preference Stock does not, however,
provide its holder with voting rights in GM, except in the most limited
circumstances.[^19] On this basis alone, then, AOL's current interest is
clearly non-attributable.[^20]

#### Even upon conversion to a form of GM stock with voting rights, AOL's interest in GM would be well below any relevant attribution threshold and would remain non-attributable

Even when converted, AOL's interest would not be attributable under any
potentially relevant Commission attribution rule. The Preference Stock
is convertible into shares of GM's Class H common ("GMH") stock.[^21]
GMH stock is a publicly held tracking stock, the outstanding shares of
which track the economic performance of Hughes. In the aggregate, the
publicly held shares track approximately 35 percent of the economic
value of Hughes. The remainder of that value is retained by GM. Holders
of GMH stock have no direct rights in the equity and assets of Hughes,
but rather have rights in the equity and assets of GM.[^22] Neither GMH
shareholders in general, nor AOL in particular, has the ability to
appoint any board members to GM, Hughes, or DirecTV. Rather, Hughes
remains a wholly owned subsidiary of GM and is subject entirely to GM's
operational control. Each share of GMH stock provides its holder with a
voting interest equivalent to 0.6 of a vote of a share of GM Common
Stock.[^23] Accordingly, upon conversion to GMH stock, AOL's voting
interest in GM would be approximately 1.76 percent,[^24] an interest too
insubstantial to be deemed cognizable under any arguably relevant FCC
attribution rule.[^25]

### Even if AOL's investment in GM led to the unprecedented conclusion that DirecTV should be attributed to the merged entity, AOL Time Warner still would not breach the Commission's still stayed horizontal ownership rules

As detailed above, AOL's investment in GM is in no way cognizable under
any pertinent FCC rules, and thus it cannot reasonably be found to pose
any cause for concern. [^26] Moreover, even assuming that this interest
were somehow considered attributable, the total number of MVPD
subscribers served by the merged entity *plus DirecTV* would not breach
the 30 percent limit set forth in the Commission's (stayed) horizontal
ownership rules.[^27]

Time Warner serves approximately 13 million subscribers. DirecTV,
meanwhile, serves 8.2 million subscribers.[^28] The combined total
number of subscribers served by these two separate entities, 21.2
million subscribers, constitutes approximately 25 percent of the total
number of MVPD subscribers nationwide.[^29] Thus, even if DirecTV's
subscribers are inappropriately attributed to the merged entity, AOL
Time Warner would still be well within the 30 percent ownership cap.

\* \* \*

In sum, AOL's non-attributable investment in GM---designed to promote
the development of broadband Internet services delivered via
satellite---is procompetitive. Moreover, the level of AOL's interest,
which currently is in the form of a non-cognizable, non-voting
preference stock, would be far too insignificant---even upon
conversion---to be deemed attributable under the (stayed) cable
ownership cap or any other set of rules applied in the cable context.
Accordingly, there is simply no risk that AOL's limited interest in GM,
even after the proposed merger, could adversely affect consumers.

# THIS MERGER ADVANCES AOL'S LONG-STANDING COMMITMENT TO THE DISTRIBUTION OF ITS ONLINE SERVICE USING A WIDE RANGE OF TECHNOLOGIES

This merger advances AOL's long-standing commitment to employing the
full range of available platforms for the delivery of the AOL service.
Even before its merger with Time Warner was announced, AOL was actively
pursuing non-exclusive agreements with digital subscriber line ("DSL"),
wireless, satellite, and cable providers, despite the fact that its
service is already available via dial-up connection nationwide. The
merged AOL Time Warner looks forward to offering the AOL service over
its broadband cable systems, as quickly as possible, subject to existing
contractual commitments. This will move AOL further toward its goal of
being available across all technologies and to as many consumers as
possible, where, when, and how they want to be reached. These systems,
however, pass only approximately 20 percent of homes nationwide.
Accordingly, AOL Time Warner will continue to strive to make the AOL
service available on as many different facilities as
possible---including alternative broadband facilities within Time
Warner's local cable franchise areas.

## The Success Of The "AOL Anywhere" Strategy Depends On The Availability Of The AOL Service Wherever And However Consumers Might Wish To Obtain It

AOL's corporate strategy is to offer "AOL Anywhere." AOL has sought to
make the full range of its interactive brands, services and features
available to consumers *across a range of products and devices*. Through
"AOL Anywhere," AOL's members, online consumers of its other Web brands,
and millions of other consumers will be able to access popular AOL
features *whenever and wherever they need them*---from the Web and when
using their television, Internet-ready phones, handheld computers, and
other personal wireless devices.

A key focus of this strategy---and, indeed, of AOL's overall business
strategy---is the ability to reach as many consumers as possible, in as
many ways as possible. Subscriber revenues, obviously, are a function of
the number of customers. Similarly, advertising revenues are linked to
the number of "eyeballs" that advertisers' messages will reach. And
e-commerce revenues are derived on a per-transaction basis. Thus, for a
whole host of reasons, the economic model upon which AOL's corporate
success is based depends upon widespread distribution of the AOL
service.

## In Recognition Of These Business Imperatives, AOL Has Long Committed Itself To A Broad Diversity Of Platforms

Consistent with the goal of "AOL Anywhere," AOL has entered into
non-exclusive agreements with providers using a broad range of
facilities in order to ensure that all consumers who want to access its
service---no matter where they live, no matter what device they use to
access the Internet, and no matter what access platform they
employ---will be able to do so. AOL's purpose for negotiating these
agreements is to create a "broadband tapestry" capable of delivering
AOL's service through a range of technologies. To that end, AOL has
entered into a broad range of non-exclusive agreements, including:

**Satellite.** As described in greater detail above, AOL has formed a
strategic alliance with Hughes Electronics Corporation to make its
high-speed Internet service, "AOL-Plus," available nationwide via the
DirecPC satellite Internet network, on a non-exclusive basis.[^30]

**DSL.** AOL has formed non-exclusive strategic alliances with SBC
Communications Inc. (including the former Ameritech), Bell Atlantic, and
GTE to provide broadband access to the AOL service via the phone
companies' DSL offerings. As AOL President and Chief Operating Officer
Robert W. Pittman has stated, "AOL is strongly committed to finding new
ways to offer our members added access to high-speed options. By
partnering with telecommunications leaders like \[SBC\], and exploring
all means of access, we are delivering on the promise of the interactive
medium and helping to make broadband access a reality for the mass
market consumer."[^31]

**Wireless.** AOL recently announced non-exclusive agreements with
Sprint PCS, Nokia, Motorola, Research in Motion, BellSouth, and Arch
Communications to make the AOL service one of the choices that will be
accessible via wireless devices (including wireless phones). These
wireless announcements are a major step forward for the AOL Anywhere
strategy---making it possible for consumers to access the AOL service
anywhere, any time.[^32]

**Cable.** Stephen Case, AOL Chairman and CEO, noted in his recent
testimony before the Senate Commerce Committee that AOL "from day one"
has pursued the goal of consumer choice from among multiple ISPs over
broadband cable systems. And irrespective of the Time Warner merger, AOL
will continue to seek the ability to serve customers passed by the
broadband facilities of other cable operators.

## The Merger In No Way Alters The Platform-Agnostic Foundation Of The "AOL Anywhere" Strategy---Including Within Time Warner's Local Cable Franchise Areas

AOL's commitment to a multitude of broadband delivery
options---including within Time Warner's cable service areas---is in no
way diminished by this merger. Indeed, AOL must continue to pursue as
many broadband delivery options as possible in order to reach every
potential customer, both inside and outside of Time Warner's local cable
franchise areas. Within Time Warner's local franchise areas, a
substantial percentage of consumers do not subscribe to cable and thus
are perhaps less likely to subscribe to cable modem service on a
stand-alone basis. Further, Time Warner's cable systems reach less than
20 percent of the nation's homes passed by cable. And nationwide, one of
every three consumers do not now subscribe to cable---a figure that does
not take into account the fact that many cable subscribers may wish to
obtain broadband Internet services over facilities other than cable. AOL
thus does, and will continue to, rely upon a multiplicity of other
providers---including DSL, satellite, wireless, and other cable
operators.

Moreover, while AOL Time Warner is encouraged by AT&T's pledge to
provide consumers with a choice among multiple ISPs and hopes that other
cable companies will join in providing such consumer choice, AOL
nevertheless remains committed to a diversity of delivery options.
Consequently, the possibility of future deals with other cable operators
has no effect upon AOL's continuing commitments to satellite, wireless,
and DSL.

For all of these reasons, AOL Time Warner remains committed to making
the AOL service available via the broadest range of technologies
possible. AOL Time Warner thus will continue to provide the AOL service
over alternative facilities, both beyond and within its own cable
service areas. AOL's strategy is to deliver on what consumers want---and
that means giving consumers choices in terms of how and where they
connect. Limiting distribution of the AOL service would undermine the
long-standing "AOL Anywhere" strategy and be a poor business decision.

# ADDITIONAL DATA AND ANALYSIS CONFIRM THAT THE PROPOSED MERGER WILL SERVE THE PUBLIC INTEREST BY BRINGING CONSUMER CHOICE, INNOVATION, AND MOMENTUM TO BROADBAND AND NEXT-GENERATION SERVICES

The goal of this merger is not simply to market existing AOL and Time
Warner products and services under one corporate banner. Rather, AOL and
Time Warner have committed to this merger because their shared vision
for serving consumers in the coming Internet Age calls for more than
simple cooperation on a specific product or service offering. Maximizing
the potential of each company requires fully integrating both into a
single, transformed enterprise. As Gerald Levin, Time Warner Chairman
and CEO, testified before the Senate Commerce Committee, the leaders of
AOL and Time Warner saw the merged entity as something much bigger than
the sum of its parts:

\[we\] saw that the company of the future---a company with the creative
infrastructure to provide a constant stream of quality content plus a
genetic appreciation of how to form web communities and how to serve
them easily and conveniently---had yet to come into existence. The
solution to that puzzle was quickly obvious to both of us: by putting
together AOL and Time Warner, we could create the first enterprise not
only fully prepared to compete on the Internet---a prototype for the
21st century---but a company that could be a decisive spur to bringing
consumers the speed and immediacy of broadband across all delivery
platforms, wired or wireless, thus unlocking the fullest possibilities
of interactivity.[^33]

In the same vein, Steve Case, Chairman and CEO of AOL, told investors,
"\[M\]ake no mistake: This merger is not just about putting different
forms of media together. It is about creating something new and
powerful---a truly mass-market interactive company providing services on
a global level that will become even more central to people's
lives."[^34]

As AOL and Time Warner explained in their Public Interest Statement, the
merger promises (and has already begun) to deliver substantial benefits
to consumers and competition.[^35] These benefits---whether in the form
of more consumer choice among Internet services delivered via cable or
more advanced products and services reaching the marketplace---will help
drive the next generation of information, entertainment, communications,
and e-commerce opportunities for consumers.

## The Parties' Unsurpassed And Demonstrated Commitment To Consumer Choice From Among Multiple ISPs Significantly Advances The Public Interest By Expediting The Resolution Of The Open Access Debate

Our Public Interest Statement asserted that the AOL Time Warner merger
would likely hasten a marketplace solution to the open access issue.
Less than three weeks after submitting our public interest showing, AOL
and Time Warner took an important first step toward achieving this
objective by entering into a Memorandum of Understanding setting out the
framework under which AOL Time Warner will offer consumers a choice of
ISPs on its broadband cable systems.[^36] Through their commitments, the
parties have demonstrated that this merger will promote the public
interest by increasing consumer choice and, ultimately, accelerating
broadband deployment.

### AOL and Time Warner have committed to providing consumer choice among multiple ISPs on AOL Time Warner's cable systems

At the heart of the MOU is the parties' commitment to ensuring that
consumers will be able to choose from among multiple ISPs for high-speed
Internet service over AOL Time Warner's broadband cable systems. The
details of the MOU confirm that this commitment is real and meaningful.
Significantly, consumers will not be required to purchase service from
an ISP that is affiliated with AOL Time Warner in order to enjoy
broadband Internet service over AOL Time Warner cable systems.

The parties also have committed to offer a diversity of ISPs. AOL Time
Warner will not place any fixed limit on the number of ISPs with which
it will enter into commercial arrangements. Moreover, AOL Time Warner
will offer those ISPs the choice to partner on a national (*i.e.*, on
all AOL Time Warner cable systems), regional, or local basis, in order
to facilitate consumer choice among ISPs of different size and scope.

Importantly, AOL Time Warner will not control the nature of the ISP's
relationship with customers. Both the cable operator and the ISP will
have the opportunity to have a direct relationship with the consumer.
Accordingly, both the cable operator and the ISP will be allowed to
market and sell broadband Internet service directly to customers. When
an ISP sells broadband Internet service directly to a customer, it may,
if it so chooses, bill and collect from the customer directly. The MOU
also makes clear that AOL Time Warner will allow ISPs to provide video
streaming.

The MOU is compelling evidence of AOL and Time Warner's joint commitment
to the principle that providing consumer choice is integral to achieving
the full potential of the merged company, as well as the Internet
marketplace. While the MOU is subject to existing Time Warner
obligations, AOL Time Warner is committed to providing a choice of ISPs
as quickly as possible, and will work with its Road Runner partners to
try to achieve that goal even before its current obligations expire.

### The AOL Time Warner MOU represents tremendous marketplace progress in advancing open access 

AOL and Time Warner view the principles embodied in the MOU as the
foundation of their Internet access policy and believe that the
resulting benefits to consumers will be profound. Industry observers
agree---the MOU has been widely heralded as a turning point destined to
resonate throughout the industry and drive the promotion of a vigorously
competitive marketplace for broadband Internet services.

The merging parties themselves clearly appreciate the broad importance
of their agreement. Steve Case described the MOU as a "significant step
forward today toward making open access a reality for consumers in the
marketplace" and "exactly what we believe our two companies can achieve
when we work together: providing new choices for consumers and value in
the marketplace." He continued:

Choice, competition, and innovation have been the factors driving the
Internet's explosive growth to date. Now, with this framework, we are
poised to make it easier, more attractive, and more affordable than ever
for consumers to sign up for high-speed, always-on Internet service,
with all of the benefits that has to offer.[^37]

Gerald Levin articulated this same vision:

We know Time Warner consumers want choice and innovation in cable
Internet service, and we are going to deliver it to them---access to AOL
as well as to a variety of other ISPs . . . . Today's announcement is
another step forward in delivering on the promise of the interactive
medium and helping make broadband access a reality for every
consumer.[^38]

The MOU is thus significant not just for the choice of broadband
Internet service it is bringing to subscribers of Time Warner's cable
systems, but also because it creates an additional public interest
benefit: momentum for similar action throughout the cable industry.
Indeed, the merging parties have been outspoken about their expectation
that other cable operators will follow their lead. When the MOU was
announced, Mr. Levin said:

I look forward to the rest of the cable industry following this same
path of choice and innovation, which I believe will greatly accelerate
consumer adoption of cable broadband services.[^39]

Mr. Case expounded on this idea in recent testimony before the U.S.
Senate:

We have made real progress on this issue over the past year and a half,
and I am proud of the role AOL has played in getting us to where we are
today. AT&T and Time Warner, the two largest cable companies in the
country, have committed to the principle of providing consumer choice on
their systems. And with other cable companies considering following our
lead, I believe implementation of open access nationwide is no longer a
question of whether, but of when.[^40]

AOL and Time Warner are not alone in the view that the MOU is likely to
spur other cable companies to achieve marketplace arrangements that
facilitate consumer choice among multiple ISPs. Chairman Kennard called
the MOU "a significant step in the right direction" of "find\[ing\]
business solutions to consumer demand as an alternative to intervention
by the government."[^41] And the trade press recently reported that:

Cable-industry sources said the AOL-Time Warner deal "turns the heat up"
on Cox Communications Inc., Comcast Corp., Cablevision Systems Corp. and
Charter Communications Inc. to join the open-access crusade.[^42]

Independent financial analysts have reached the same conclusion
regarding the widespread impact of the MOU. [^43]

### The AOL Time Warner merger and its commitment to providing consumers' choice among multiple ISPs will only enhance the marketplace pressure that the Commission has already found to be fueling competitive broadband deployment

By demonstrating the power of consumer choice to fuel demand for
broadband Internet service, the AOL Time Warner merger also will
heighten competitive pressure for deployment of broadband by all
technologies. The inevitable consequence is that, in order to stay
competitive, providers of alternative broadband platforms such as
DSL,[^44] satellite, and fixed wireless must accelerate their own
development and deployment plans.

The Commission has recognized this pattern, understanding that
competition among rival technologies is one of the primary forces that
drives deployment of broadband services. As the FCC continues to
observe, "it is widely believed that incumbent LECs' recent moves to
offer broadband to residential customers are primarily a reaction to
other companies' entry into broadband."[^45] Chairman Kennard elaborated
on this point in a speech last September:

And this pickup in growth \[of DSL deployment\] is a function of one
thing: competition. The regional Bell companies know that for the first
time in the history of this country they are facing a serious,
facilities-based competitor in their backyard: the residential
marketplace. And that is the cable television industry. And it is the
prospect of that competition that is going to really jumpstart broadband
deployment in this country.[^46]

In the same vein, FCC Cable Bureau Chief Deborah Lathen recently stated
that the "deployment of cable modems has spurred the deployment of DSL,
and this competition has resulted in lower prices and greater choices
for consumers."[^47]

Industry observers likewise have noted that the merger will trigger a
major step forward in the deployment and adoption of broadband. As one
account stated it, the

deal may well set off a chain reaction among local phone companies,
long-distance giants, other cable providers and wireless carriers to
step up their high-speed Internet strategies.[^48]

The financial community agrees. Merrill Lynch, for example, noted that
"the merger will only help to accelerate cable's rollout of high speed
data and new services . . . ."[^49] The same is true for the deployment
of other platforms. Analysts have concluded that 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."[^50]

In addition, AOL and Time Warner believe that, in two related ways,
their merger will help prompt the availability of broadband services to
all Americans. First, the companies' commitments to this important
social goal,[^51] combined with Time Warner's ongoing comprehensive
broadband deployment efforts and AOL's ability to make new technologies
and services accessible and attractive to even the most inexperienced
users, should greatly accelerate the adoption of broadband access across
all segments of society. Second, the merged entity's introduction of
widely appealing broadband offerings will help spur providers of other
broadband technologies and services to deploy and market their own
services more widely in order to compete directly with AOL Time Warner.

In summary, the broadband access deployment benefits of the merger will
be far-reaching, and the irreversible course of open competition
fostered by this merger is---with the MOU---already underway. The
continuing payoff for consumers lies in the actions that AOL Time Warner
will spur among other ISPs and broadband providers as they seek to join
in the emerging broadband marketplace boom.

## This Merger Significantly Advances The Public Interest By Bringing Together Complementary Skills And Resources To More Rapidly And Effectively Offer Consumers The New Content, Products, And Services That Broadband Promises

As explained in the Public Interest Statement, combining AOL and Time
Warner's resources will allow the new entity to spearhead the
convergence of traditional media and online technologies. The two
parties bring the experience, incentive, and resources necessary to
develop together an array of new services and products in a marketplace
that is filled with promise---but also with risk and unpredictability.
Yet, as Goldman Sachs plainly states, "the risks of the combined company
are lower than for the individual companies."[^52] With this merger,
consumers will more rapidly see products and services that range, as
discussed below, from familiar information and entertainment content
delivered in a new way to interactive or wholly new and innovative
consumer offerings.

### The spectrum of new consumer offerings

Just how will AOL Time Warner advance the delivery of all the benefits
that the broadband marketplace promises? Detailed business plans are
still being developed, but what AOL and Time Warner together make
possible is acceleration of the development and availability of (1)
established media offerings made more widely available and accessible
online; (2) new, interactive forms of media content more fully tailored
to and enriched by the Internet; and (3) wholly new forms of
information, entertainment, communications, and commerce. AOL Time
Warner's development of these new content services, coupled with the
merged company's strategy of making its offerings broadly available
across multiple technologies, will add further depth and diversity to
the already stunning chorus of "voices" to be heard via the
Internet.[^53]

Certainly the merged entity will be well placed to integrate traditional
and new media. Observers have widely hailed the prospect of AOL using
its demonstrated skills to enable technology-reluctant users to
participate in the Internet revolution by ensuring that these consumers
can easily find and enjoy the online versions of the many content
offerings (magazines, books, video, etc.) that they already trust and
value, including Time Warner's popular brands. Indeed, Time Warner has
found that this transaction would "accelerate\[ \] Time Warner's
Internet distribution plan by several years."[^54] But even beyond the
existing Time Warner library, commentators have applauded how the deal
will promote generally the development of next-generation content:
"Deals like AOL Time Warner will accelerate the creation of digital
content not only at Time Warner, but also at other traditional media
companies."[^55]

Furthermore, the merged entity expects to infuse its traditional and
trusted sources of information and entertainment with interactivity,
thereby transforming the consumer experience. By internalizing under one
roof their collective Internet know-how and media expertise, AOL Time
Warner can bring consumers content that is not merely re-purposed for
the Internet but rather is born of the online medium and its rich
capacity for interactivity. In their merger-related filings with the
Securities and Exchange Commission, moreover, the Applicants noted that
one factor motivating the merger was the existence of "cost efficiencies
in launching and operating interactive extensions of Time Warner
brands."[^56]

The merger will also help spur the development and delivery to the
marketplace of next-generation products and services---wholly new
content offerings specifically designed for delivery via broadband and
supporting interactive components. As Goldman Sachs noted, the merged
entity can quickly respond to and inspire "rapidly morphing user habits
as users re-examine their daily activities through 'Internet-enabled
glasses.'"[^57] Similarly, Merrill Lynch, after examining the merger,
concluded that one of the strengths of the combined entity will be its
ability to develop and promote new interactive services: "\[AOL Time
Warner\] is in a better position than either entity is separately to
drive the evolution of interactive services to the next level---breaking
the convergence logjams that, in many sectors of the media and
communications industries, are inhibiting the growth of the
medium."[^58]

### A compelling illustration: "The Online Music Revolution"

Among the examples of new products and services that the proposed merger
should deliver quickly to consumers is Internet-delivered music. Hilary
Rosen, President of the Recording Industry Association of America, has
noted 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."[^59] Indeed, many analysts believe that
"the Internet revolution and its influence on e-commerce, marketing,
digital delivery, and distribution will have a profound impact on the
structure, growth, and traditional operating models of the music
industry."[^60]

In particular, independent observers widely agree that 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.[^61] Or, as the *Washington Post* put it,

\[t\]he push toward digital music just got a shove. America Online
Inc.'s proposed merger with Time Warner Inc. may vastly hasten the
online music revolution, say record industry specialists, and could
transform the race to find new ways to sell and distribute music over
the Internet . . . . "This \[the merger\] will speed up how fast the
digital music market emerges," said Andrea Fleming, a spokeswoman for
Liquid Audio, referring to the AOL-Time Warner deal.[^62]

Part of the reason that online music distribution has not yet achieved
widespread availability is the lack of inter-industry standards on
software and encoding. AOL Time Warner's combined expertise can help
expedite the development of a technological platform which will permit
consumers, legally and securely, to download music over the Internet.
Together, AOL and Time Warner can build quickly on steps now underway to
bring consumers a world in which music downloading is easy and
convenient---allowing them to sample music before purchasing it, and to
obtain news about musical releases that fit their personal interests.

The Applicants fully expect the upshot to be not just a "music
revolution" but also the advancement of the broadband revolution.
Independent analysts agree that a burgeoning online music marketplace
also will hasten the consumer transition to broadband Internet
access.[^63] In order to download music faster and more efficiently,
consumers will desire the greater bandwidth capacity which broadband
access can provide.

### Boundless possibilities for new consumer services

In addition to the prospects for online music, this merger holds promise
for advancing the roll-out of ventures now in development, as well as
those in the conceptual stages. As PaineWebber observed in its analysis
of the transaction, 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."[^64] For example, AOL is developing a new service called AOLTV
which is intended to enhance the traditional television viewing
experience by adding an exciting new element of interactivity. A leading
attribute of this new offering will be its ability to extend and
directly link the community aspects of AOL to video programming, thereby
making television viewing more entertaining and useful for millions of
viewers. Among other activities, subscribers will be able to join online
chats with others watching the same television program or be able to
simultaneously watch television programs and send instant messages.
Moreover, AOLTV holds the promise of allowing subscribers to
instantaneously obtain more information about the television programming
they are watching with a simple click. A viewer could obtain the voting
records of the candidates while watching a Presidential debate, to cite
but one example. In short, AOLTV will give customers the capability to
integrate Internet-enabled interactivity into their television viewing
experience.

Even before this merger was proposed, the planned roll-out of AOLTV was
viewed as a promising expansion of the "AOL Anywhere" initiative to make
AOL services available over a broad range of devices. With the added
expertise in television programming and distribution that Time Warner
will bring to the table, AOLTV promises to be a service that is both
highly appealing and useful to consumers. And with this 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 even more
foreseeable.

Because of the AOL Time Warner merger, a host of other new products and
services likewise can be expected to move more readily and promptly from
drawing board to market. Of course, as PaineWebber points out in its
analysis of the merger, "\[t\]oday it is difficult to see what the new
digital world will look like."[^65] Nevertheless, among the promising
next-generation products that analysts suggest the merged company is
well positioned to pursue and expedite are personalized jukeboxes and
news clipping services; voice-activated web surfing; Internet-enabled
voice communications; personalized video services; virtual communities
centered around off-line magazines; and downloaded music. The companies
welcome the challenge of bringing the future closer to consumers in a
way that enriches their lives; once fused together, AOL Time Warner will
be well-suited to deliver on that goal.

\* \* \*

In sum, the public interest benefits of the proposed merger are both
tangible and significant. The discussion below makes clear that they
would not occur as rapidly if AOL and Time Warner had not chosen to
merge their operations into one, wholly new entity.

### These benefits will be delivered to consumers more quickly and efficiently through this merger

As explained in the Public Interest Statement, AOL and Time
Warner---relying on their collective experience across the media and
communications industries---concluded that a merger would efficiently
and effectively enable the two entities to transform themselves to
compete vigorously in the rapidly evolving media/communications/Internet
marketplace. Specifically, both companies came to the conclusion that
the merger is the best means to:

1.  create the first fully integrated media and communications company
    for the Internet age;[^66]

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1.  act as a catalyst both to accelerate the growth of each company's
    current businesses and to create new business opportunities;[^67]

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1.  bring compelling and attractive new offerings to consumers as
    quickly as possible.;[^68] and

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1.  fully realize the cost savings and efficiencies, as well as the
    growth potential, that would stem from mixing and transforming the
    resources and operations of both companies.[^69]

For its own part, Time Warner concluded that the merger would be the
best way to bring consumers enhanced access to a broad selection of the
company's high quality content and interactive services---and at a more
accelerated pace than could otherwise be achieved.[^70] Time Warner also
concluded that uniting the creative and journalistic talents of its
employees with the technological expertise in the AOL ranks would
position the combined company to offer consumers products and services
particularly suited to interactive media.[^71]

Similarly, AOL concluded that, through a merger, Time Warner's resources
would advance the development of next-generation broadband services and
the "AOL Anywhere" strategy---both results a net plus for
consumers.[^72] In addition, AOL recognized that common ownership of
Time Warner's cable systems will expand the broadband availability of
AOL's own interactive and next-generation services.[^73]

The magnitude of the proposal was not underestimated by either company.
The merger's potential is much more than just providing consumers with a
single defined product or service in a predictable business environment.
Rather, AOL and Time Warner have made a considered, and indeed
compelling, judgment that the type of sweeping innovation and
transformation they wish to achieve requires the full integration
embodied by this merger.

It certainly would be impractical for the parties to try to negotiate a
series of contracts or joint venture arrangements to account for the
far-reaching and unprecedented undertaking contemplated by this
transaction. Furthermore, where two parties such as AOL and Time Warner
are operating in an environment defined by ever-evolving technologies
and services, individual contractual relationships would be especially
difficult to negotiate and much less efficient than the full integration
offered by a merger. 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. Thus, the
most efficient option---and the one that holds the most promise for
consumers in the shortest period of time---is for AOL and Time Warner to
become one company with unified goals for meeting consumer demand and
needs across every product and service they do or could potentially
offer.

Independent analysts agree that, as AOL and Time Warner stated in their
Public Interest Statement, a merger is the most reliable vehicle for
these two companies to bring new services and products to consumers
quickly in what all agree is a risky, albeit exciting, marketplace.
Goldman Sachs observed that a merger offered 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 in order to concentrate on the good of the whole: "In the past,
each company had self-interest at heart, arguing that its assets were
more important to the equation. This often prevented either company from
maximizing its growth. This limitation is no longer an issue."[^74]

Moreover, analysts note that mergers are reliable vehicles for
delivering new products and services to consumers as quickly as
possible.[^75] Here, the specific business arrangement---*i.e.*, the
merger---to which AOL and Time Warner have committed will uniquely
enable the combined entity to develop and offer a broad range of
services to the public. As noted above, these services are not limited
to the accelerated migration of Time Warner content onto the Internet,
though that is a merger-specific benefit which will rapidly occur. Nor
are these services limited to the development of interactive versions of
that content, though one of AOL's strengths is its ability to create new
and readily accessible content tailored to the online experience.
Instead, the AOL Time Warner merger offers all of these benefits *plus*
a wholly new and, by-definition, still-under-conception wave of
broadband-enabled services that will revolutionize people's lives.

# THE COMMISSION'S PAST RULINGS, COMBINED WITH THE PARTIES' COMMITMENT TO OPEN ACCESS, PRECLUDE ANY FINDING THAT THE PROPOSED MERGER COULD THWART---OR EVEN DAMPEN---INTERNET ACCESS SERVICES COMPETITION

As explained in our Public Interest Statement, the AOL Time Warner
merger will produce no anticompetitive effects in the provision of
Internet access services. However defined, Internet access is more
competitive today than when the Commission last reviewed it, and it will
become even more so as this merger facilitates consumer choice among
multiple ISPs delivered over cable systems. Indeed, FCC Cable Bureau
Chief Deborah Lathen recently stated, "We have not seen any signs of a
market failure that would justify regulation at this point . . . . We
see competition flourishing and thriving."[^76]

The following discussion reviews the Commission's analysis of this
marketplace in its *AT&T/TCI Order*; applies the agency's findings and
reasoning to the AOL Time Warner merger; and demonstrates that the
proposed merger will indeed promote consumer choice in Internet access
services, whether the relevant market is broadly or narrowly defined. As
discussed below, the Commission rejected any potential concerns about
Internet access competition (including those of AOL) raised in the
AT&T/TCI merger. In that proceeding, the FCC found that the highly
competitive Internet access marketplace would not be harmed by AT&T's
acquisition of TCI's cable systems---even though those merging parties
had in place contractual provisions affording exclusivity to their
affiliated broadband Internet provider, \@Home. The Commission, finding
abundant competition no matter how the market was viewed, essentially
dismissed as academic the debate among commenting parties over how to
define the precise market at issue.

*A fortiori*, the AOL Time Warner merger cannot reasonably be found to
cause any anticompetitive effect on Internet access---and the need for
any specific market definition is thus even more academic. By offering
multiple, unaffiliated ISPs over its cable systems, AOL Time Warner will
empower Internet users to choose among a wider variety of products and
providers. Accordingly, the Commission, by its own reasoning, now faces
a merger that will render a marketplace already found abundantly
competitive to be even more so---and so the agency again has no need to
adopt a precise market definition:

1.  If broadband and narrowband Internet access services are understood
    as being part of the *same* product market, there are countless
    firms in that market, barriers to entry are low; market
    concentration will not be significantly increased; and the merger
    will not have any significant anticompetitive effect.

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1.  If broadband and narrowband Internet access services are viewed as
    *separate* product markets, this merger will not eliminate any
    significant existing competition; market concentration will not be
    significantly increased; and consumer choice among ISPs will be
    promoted.

## The FCC's Analysis and Conclusions in *AT&T/TCI* Belie any Need to Rule on a Precise Market Definition in Order to Find this Merger in the Public Interest

In approving the AT&T/TCI merger---and rejecting efforts to define the
precise market at issue---the Commission found competition among
existing Internet access providers so vigorous as to be not threatened
even by the merged company's exclusive arrangements with its affiliated
Internet provider. A review of the underlying facts of the AT&T/TCI
merger, the FCC's lines of analysis, and the agency's ultimate findings
leaves no room for a contrary Commission ruling on this merger.

The previous merger presented the FCC with a major facilities-based
communications/ Internet company (AT&T) proposing to acquire control of
the nation's largest cable operator (TCI) and its affiliated broadband
Internet provider (@Home). AT&T had a significant narrowband ISP
(WorldNet) and pre-existing plans to offer facilities-based Internet
access service using an alternative (fixed wireless) technology. TCI
offered broadband Internet access over its cable systems subject to an
exclusive agreement with \@Home. Notably, the merging parties there did
not commit to offer consumers a choice of unaffiliated ISPs over their
cable systems.

Faced with these facts, the FCC concluded that---no matter how the
relevant market was defined---the merger would engender no adverse
effects in the competitive Internet access marketplace that warranted
any agency action. The Commission's own words best reveal its findings
and reasoning:

1.  *"Effect on Competition*. To address the specific issues raised by
    parties opposing the merger or seeking conditions, we must first
    consider whether the merger is likely to produce any adverse
    competitive effects in residential markets for Internet access
    services."[^77]

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1.  *"Market Definition*. **We do not need to determine at this time
    whether narrowband and broadband Internet access services provided
    to residential and small business customers are sufficiently
    different to support the conclusion that they are in separate
    markets**. As we explain in the following paragraphs, even if we
    were to assume that they are in separate markets, we would reach the
    same conclusion concerning the issues raised by parties opposing and
    commenting on the proposed merger."[^78]

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1.  One Market Analysis: "Currently, there are **a large number of firms
    providing Internet access services in nearly all geographic
    markets** in the United States, and **these markets are quite
    competitive today**. Accordingly, if all Internet access services
    were included in the market definition, we would conclude that the
    **merger is unlikely to adversely affect the public interest in
    competitive markets for Internet access services**."[^79]

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1.  Separate Market Analysis: "**Even if we were to consider a market
    defined to include only high-speed Internet access services, we
    would still conclude that the merger is unlikely to adversely affect
    the public interest in a competitive market.** Although AT&T/TCI
    together might be able more quickly to deploy high-speed Internet
    access services and win a significant number of residential Internet
    access customers, it appears that quite a few other firms are
    beginning to deploy or are working to deploy high-speed Internet
    access services using a range of other distribution technologies.
    Moreover, even if broadband Internet access services were deemed to
    constitute a separate market from dial-up Internet access services,
    AT&T is not a more likely entrant than AOL or other leading ISPs
    (including the incumbent LECs, which have facilities of their own)
    that are currently providing services using narrowband transmission.
    Accordingly, **the merger does not eliminate any scarce assets or
    capabilities**; in fact, a partnership between AT&T and TCI is
    precisely the kind of arrangement by which AT&T (and other ISPs)
    could be expected to provide higher-speed Internet access
    services."[^80]

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1.  Benefit of Merger: "Finally, while the merger is unlikely to yield
    anticompetitive effects, we believe it **may yield public interest
    benefits** to consumers in the form of a quicker roll-out of
    high-speed Internet access services."[^81]

The FCC thus dismissed any concerns related to these issues---and any
associated need to adopt a precise market definition---based, it
appears, on three fundamental findings: (1) Internet access is
competitive, whether viewed as a whole or separately; (2) the merger
would not harm this competition; and (3) the merger might even *promote*
the public interest by accelerating deployment of broadband services.

## The Proposed Merger Will Have No Appreciable Anticompetitive Effect on the Provision of Internet Access Services, and Thus the FCC Need Not Resolve the Market Definition Issue

The Commission's reasoning and analysis in its *AT&T/TCI Order*
necessitates the same conclusion here: the agency need not resolve the
market definition issue to find that this merger poses no harm to
Internet access competition. Moreover, the AOL Time Warner merger
presents a compelling new factor---as described above, AOL and Time
Warner together have committed to offering consumers a choice of
multiple ISPs, including AOL, over Time Warner's broadband cable
systems. This merger therefore will only benefit consumers of Internet
access services. Nevertheless, and without prejudice to the Applicants'
position that the purported markets need not be further defined
here,[^82] we explain why both of the alternative market analyses
discussed below would support this conclusion---as the Commission itself
has specifically recognized.

### Assuming first a broadly defined market including both narrowband and broadband Internet access services, the proposed merger presents no harm to the thriving competition in Internet access services

A broadly defined Internet access market, comprised of both narrowband
and broadband Internet access providers, can only be found more
competitive today than when the Commission assessed it one year ago.
This business has grown considerably; as Chairman Kennard noted
recently, there are roughly 80 million Internet users in the United
States.[^83] The Commission's finding that there are "a large number of
firms providing Internet access services in nearly all geographic
markets"[^84] is even more true today. In essentially every city and
town across the country, consumers have a choice among a broad array of
ISPs.

Barriers to entry are low, and new providers are entering the Internet
access business continually. This new entry creates a vibrantly
competitive Internet access marketplace that prompts ISPs to offer new
products and to otherwise distinguish their offerings. The resulting
Internet access marketplace is remarkably diverse, enabling consumers to
choose among a number of attributes---price, speed, technical and
customer service, ease of use, and platform delivery---to find the
specific offering that best suits their needs. For example, 1stUp.com,
NetZero, and Spinway.com have begun offering Internet access services
*free*---a notable competitive development just since the FCC last made
its assessment.

Any effect this merger would have on horizontal concentration among
providers of Internet access services is *de minimis*. Road Runner is
not, of course, solely controlled by Time Warner. The incremental
addition of Road Runner subscribers to AOL's would, in any event, have
very little impact on concentration in a market so defined. There simply
are too many competing ISPs and too few subscribers to the Road Runner
service to create any significant effect.

The only impact this merger will have on the broad Internet access
marketplace is positive. Pursuant to the MOU, consumers will have a
choice of ISPs, including AOL, in obtaining broadband Internet access
services over Time Warner's cable systems. Consumers will not be
required to purchase service from an ISP that is affiliated with AOL
Time Warner in order to enjoy broadband Internet service received over
its cable systems. The merger therefore promotes consumer welfare by
increasing consumer choice among competing Internet services and
provides strong competitive pressure on other cable operators to offer
similar choice to consumers.

### Even assuming a separately defined broadband Internet access market, the proposed merger will have no significant anticompetitive effects and will enhance consumer welfare

Even assuming *arguendo* that the FCC were to find a separate market for
broadband Internet access services, this merger would have no
anticompetitive effects.[^85] Such a market is more competitive today
than when the Commission looked at this issue a year ago, and this
merger will only promote consumer choice of ISPs. Under such an
analysis, AOL's narrowband offerings and Road Runner's broadband
offerings would, by definition, not overlap. On this basis, this merger
would neither eliminate significant existing competition nor increase
market concentration.

The Commission found over a year ago that competition in broadband
Internet access posed no cause for agency concern, particularly because
new providers "using a range of other distribution technologies" were
poised to join cable and DSL offerings.[^86] Since then, new entry, new
commitments, and technological advances have strengthened the
Commission's analysis. Chairman Kennard has acknowledged this healthy
development in competition, noting a significant increase in DSL
deployment and progress among providers of wireless and satellite
broadband offerings.[^87] For instance, Rhythms NetConnections, Covad,
and Broadband Digital Group have all begun to offer Internet access via
DSL in various regions. Early DSL providers have expanded the geographic
areas in which their DSL service is available for the use of their own
and others' Internet access service offerings, and many have made public
commitments to further accelerate their pace of deployment.[^88]
Finally, as the Commission anticipated last year, new technologies have
moved closer to becoming widely available. For instance, Teligent,[^89]
NextLink,[^90] MCI WorldCom,[^91] and AT&T[^92] have announced or are
beginning to deploy fixed wireless broadband Internet access services;
Gilat Satellite Networks recently announced plans with Microsoft to
begin trials of satellite-based broadband Internet access in several
cities;[^93] and iSky also plans to provide a satellite-based service to
all of North America by late 2001.[^94] Under its *AT&T/TCI* analysis,
the Commission could only find that competition is growing.

The primary effect of the AOL Time Warner merger on any separately
defined broadband Internet access market, just as for a more broadly
defined market, will be to enable consumers desiring cable modem service
over Time Warner's systems to choose among multiple ISPs---without first
purchasing services of an AOL Time Warner affiliate. This, in turn, will
provide strong competitive pressure on other cable operators (and other
broadband technologies as well) to provide similar choice to consumers.
As broadband consumers choose among a variety of ISPs, they will benefit
from the kind of competition among service providers that has fueled
lower prices and a diversity of products in narrowband Internet access
offerings.

Thus, given that (1) competition among broadband Internet access
providers has increased and is likely to intensify within the next two
years; (2) this merger will have no impact on concentration in a
separately defined broadband Internet access market; and (3) the merging
parties will enable consumers to choose among multiple ISPs for
broadband cable Internet access service, the FCC has all the more reason
to conclude here, as it did in *AT&T/TCI*: "Even if we were to consider
a market defined to include only high-speed Internet access services, we
would still conclude that the merger is unlikely to yield
anticompetitive effects . . . \[and\] may yield public interest
benefits."[^95]

\* \* \*

The FCC already has determined that competition in the Internet access
marketplace is not harmed even when a cable merger would not afford
consumers a choice of ISPs offered over cable facilities. Yet the AOL
Time Warner merger dispenses with any such basis for challenge. By
offering multiple ISPs over the merged entity's cable systems, this
merger will enhance consumer choice and will in no way constrain
competition for Internet access services.

# CONCLUSION

For the reasons set forth in the Public Interest Statement, as
supplemented by the data and analysis supplied herein, the Commission
should expeditiously grant the Applicants' request for consent to the
transfer of control of their FCC licenses to the proposed new company.
Creation of AOL Time Warner will deliver several interrelated benefits
to consumers and thereby serve the public interest. As discussed, the
merged company will develop and offer an enticing array of new broadband
services to consumers, including next-generation interactive mixes of
pictures, text, video, voice, and sound, on its own facilities as well
as those of others. Moreover, the new company will address the open
access issue in the marketplace by offering consumers choice among ISPs
on their cable systems. These consumer benefits---more content choice
and more

ISP choice---will operate together to spur demand that will, in turn,
fuel the pace of broadband facility deployment by all providers. Given
these pro-consumer benefits of the merger, and its lack of any
anticompetitive impact, the FCC should act promptly to approve the
proposed transaction.

> Respectfully submitted,

**AMERICA ONLINE, INC**. **TIME WARNER INC.**

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

+-----------------------------------+-----------------------------------+
| George Vradenburg, III            | Timothy A. Boggs                  |
|                                   |                                   |
| Jill A. Lesser                    | Catherine R. Nolan                |
|                                   |                                   |
| Steven N. Teplitz                 | **Time Warner Inc.**              |
|                                   |                                   |
| **America Online, Inc.**          | 800 Connecticut Avenue, N.W.      |
|                                   |                                   |
| 1101 Connecticut Avenue, N.W.     | Suite 800                         |
|                                   |                                   |
| Suite 400                         | Washington, D.C. 20006            |
|                                   |                                   |
| Washington, D.C. 20036            | \(202\) 457-9224                  |
|                                   |                                   |
| \(202\) 530-7883                  |                                   |
+-----------------------------------+-----------------------------------+
| Richard E. Wiley                  | Aaron I. Fleischman               |
|                                   |                                   |
| Peter D. Ross                     | Arthur H. Harding                 |
|                                   |                                   |
| Wayne D. Johnsen                  | Craig A. Gilley                   |
|                                   |                                   |
| Wiley, Rein & Fielding            | Fleischman and Walsh, L.L.P.      |
|                                   |                                   |
| 1776 K Street, N.W.               | 1400 Sixteenth Street, N.W.,      |
|                                   | Suite 600                         |
| Washington, D.C. 20006            |                                   |
|                                   | Washington, D.C. 20036            |
| \(202\) 719-7000                  |                                   |
|                                   | \(202\) 939-7900                  |
+-----------------------------------+-----------------------------------+

March 21, 2000

[^1]: Time Warner Inc./AOL Time Warner Inc. Transfer of Control
    Applications and Public Interest Statement for Various Services
    including: Broadcast, Broadcast Auxiliary, Section 214
    Authorizations, Domestic Fixed Satellite (Part 25), Low Power
    Television (Part 74), Aviation Services (Part 87), Cable Television
    Relay (Part 78), Private Land Mobile (Part 90) and Fixed Microwave
    (Part 101), filed February 11, 2000 ("Public Interest Statement").

[^2]: *See* Letter from Christopher J. Wright, General Counsel, Federal
    Communications Commission, to Arthur H. Harding, Esq. and Peter D.
    Ross, Esq., Counsel for the Applicants, CS Docket No. 00-30 (filed
    March 9, 2000).

[^3]: Memorandum of Understanding Between Time Warner Inc. and America
    Online, Inc. Regarding Open Access Business Practices, February 29,
    2000 ("MOU") (Tab 3).

[^4]: Public Interest Statement, at 1.

[^5]: The Time Warner licenses at issue are those for its broadcast
    station and those ancillary to the operation of its cable systems.

[^6]: Public Interest Statement, at 1.

[^7]: A copy of AOL's most recent Annual Report is attached (Tab 1). AOL
    also has made strategic investments in a number of Internet-related
    companies. *See* "Summary of AOL Investments in Publicly Traded
    Companies" (Tab 1) for a list of public companies in which AOL has
    made investments that constitute an ownership interest of five
    percent or more. In addition, AOL's limited investment in the
    ultimate parent of DirecTV is discussed more fully below.

[^8]: AOL has entered into a merger agreement with MapQuest.com, Inc.,
    which provides online destination information solutions, pursuant to
    which MapQuest would become a wholly owned subsidiary of AOL.

[^9]: In Europe and Australia, AOL service is offered pursuant to a
    joint venture with Bertelsmann AG. Bertelsmann AG and AOL recently
    agreed to restructure their ownership interests in AOL Europe and
    AOL Australia; it is the parties' intention that AOL will purchase
    Bertelsmann AG's interest in the joint venture at some point during
    the next three years. The companies at the same time announced a new
    strategic global alliance under which AOL will distribute
    Bertelsmann's media content and e-commerce properties over AOL's
    services worldwide. *See* "Bertelsmann and America Online Announce
    \$250-Million, Four-Year Alliance to Expand Distribution," America
    Online, Press Releases, March 17, 2000, available at
    \<http://media.web.aol.com/media/press_view.cfm?
    release_num=25100413&title=BERTELS-MANN%20AND%20AMERICA%20ONLINE%20%20ANNOUNCE\>.

[^10]: Time Warner also holds interests in certain Internet-related and
    digital media businesses, such as web sites Entertaindom.com,
    CNN.com, ALLPolitics.com, CNNfn.com, CNNSI.com, and
    CartoonNetwork.com.

[^11]: On January 24, 2000, Time Warner and EMI Group plc announced that
    they had signed definitive agreements to combine their recorded
    music and music publishing businesses into a global joint venture to
    be owned equally by Time Warner and EMI Group. The 11-member Warner
    EMI Music board of directors, controlled by Time Warner, will
    consist of six Time Warner designees and five EMI designees. The
    transaction is subject to certain conditions, including regulatory
    consents and EMI Group shareholder approval, and is expected to be
    completed by the end of 2000.

[^12]: Time Warner 1998 Annual Report ("TW Annual Report") (Tab 2).

[^13]: This includes certain cable systems managed, but not wholly
    owned, by TWE, such as Texas Cable Partners and Kansas City Cable
    Partners.

[^14]: "America Online and Hughes Electronics Form Strategic Alliance to
    Market Unparalleled Digital Entertainment and Internet Services,"
    America Online, Press Release, June 21, 1999.

[^15]: *See* *id.* ("Under the agreement, \[AOL\] will make a \$1.5
    billion, strategic investment in a General Motors equity
    security . . . . GM will immediately invest the \$1.5 billion in a
    security of Hughes under similar terms where it will be employed to
    implement the strategic alliance . . . ."). GM has a current market
    capitalization in excess of 50 billion dollars.

[^16]: Hughes is also the parent company of DirecPC, a service that
    provides Internet access via satellite at downstream speeds up to
    400 kilobits per second (with telco return). One of the goals of the
    strategic alliance is to provide AOL's high-speed Internet service,
    "AOL-Plus," via DirecPC. *Id.*

[^17]: *See, e.g.*, *Inquiry Concerning the Deployment of Advanced
    Telecommunications Capability to All Americans in a Reasonable and
    Timely Fashion, and Possible Steps to Accelerate Such Deployment
    Pursuant to Section 706 of the Telecommunications Act of 1996,* 14
    FCC Rcd 2398, at 2401 (1999) ("As Congress directed, we intend to
    ensure that broadband capability is being deployed on a reasonable
    and timely basis to all Americans. We are encouraged that, as the
    demand for broadband capability increases, methods for delivering
    this digital information at high speeds to consumers are emerging in
    virtually all segments of the communications industry---wireline
    telephone, land-based ('terrestrial') and satellite wireless, and
    cable, to name a few.").

[^18]: *See* General Motors Corporation, SEC Form 8-K, Appendix D at
    Section 3(i) (filed August 24, 1999) ("GM, SEC 8-K, Appendix D").
    ("Holders of outstanding Series H Preference Shares will be entitled
    to receive, subject to the rights of holders of Preferred Stock of
    the Corporation and of holders of . . . Preference Stock or other
    class of stock of the Corporation or series thereof ranking senior
    to the Series H Preference Shares in respect of dividends and
    distributions, . . . cumulative cash dividends at the per share
    annual rate of 6.25% of the per share stated value . . . .").

[^19]: Holders of Series H Preference Shares are entitled to vote in the
    following limited situations: (1) where the corporation proposes to
    "amend, alter, or repeal any of the provisions of its Certificate of
    Incorporation or \[the Certificate of Designations of Series H 6.25%
    Automatically Convertible Preference Stock\] so as to alter or
    change the powers, preferences or special rights of the Series H
    Preference Shares so as to affect them adversely;" and (2) where the
    Corporation has "failed to declare and pay or set apart for payment
    in full the Preferential Dividends accumulated on the outstanding
    Series H Preference Shares for any six quarterly dividend payment
    periods, whether or not consecutive, and all such accumulated
    preferential dividends remain unpaid." *Id.* at Section 5.

[^20]: Under the Commission's general attribution standard, non-voting
    stock interests are not attributable. *See, e.g., Review of the
    Commission's Cable Attribution Rules*, CS Dockets No. 98-82 and
    96-85, FCC 99-288, at ¶ 3 (rel. Oct. 20, 1999). Similarly,
    convertible interests are not deemed attributable until converted.
    *See, e.g.,* 47 C.F.R. § 76.501, Note 2(h).

[^21]: AOL's 2,669,633 shares of preference stock would automatically
    convert to GMH stock on June 24, 2002. The exact conversion rate in
    June 2002 would be determined by the price of GMH stock at that
    time. *See* GM, SEC 8-K, Appendix D at Section 6. AOL also can elect
    to convert its shares prior to that date. Based on the current price
    of GMH stock, AOL's Preference Stock would (in June 2002 as today)
    convert to GMH stock at a ratio of 8.0645:1. GM, SEC 8-K, Appendix D
    at Section 5.

[^22]: *See* General Motors Corporation, 2000 SEC Form 10-K, Item 8, at
    Note 18 (filed March 13, 2000).

[^23]: Note that, under the rules adopted by the Commission for
    competitive bidding in the DBS service, only a "voting stock
    interest amounting to 5% or more of the outstanding voting stock of
    a corporate DBS licensee or permittee will be cognizable." *Revision
    of Rules and Policies for the DBS Service*, 11 FCC Rcd 9712, 9800
    (1995). Thus, under the only attribution standard ever employed by
    the FCC specifically for DBS interests, AOL's indirect interest in
    DirecTV would likewise not be treated as cognizable.

[^24]: The votes of the 156,667,112 outstanding shares of GMH stock
    combined with the votes of the 640,208,136 shares of GM Common Stock
    would produce a total of 734,208,403 votes. Based on the conversion
    factor discussed above, AOL's 21,529,255 shares, converted at the .6
    ratio, would thus constitute a voting interest of less than 2
    percent of the total votes in GM.

[^25]: *See, e.g.,* 47 CFR § 76.501, Note 2.

[^26]: Applicants acknowledge that, in 1998, the Commission initiated a
    proceeding considering the potential adoption of a DBS/cable
    cross-ownership rule. *In the Matter of Policies and Rules for the
    Direct Broadcast Satellite Service*, IB Docket No. 98-21, 13 FCC Rcd
    6907 (Feb. 26, 1998).

[^27]: Both the statutory horizontal ownership provision and the
    Commission's implementing regulations remain the subject of judicial
    review. *See Daniels Cablevision, Inc. v. United States*, 835
    F.Supp. 1 (D.D.C. 1993), *appeal pending sub nom. Time Warner
    Entertainment Co. v. FCC*, No. 96-5272 (D.C. Cir.) and *Time Warner
    Entertainment Co. v. FCC*, 93 F.3d 957 (1996), *reh'g en banc
    denied*, 105 F.2d 923 (D.C. Cir. 1997).

[^28]: "DirecTV Announces Record February Customer Growth," DirecTV,
    Press Release, March 7, 2000, available at
    \<http://www.directv.com/press/pressdel/0,1112,300,00.html\>.

[^29]: *See* The Kagan Media Index, February 25, 2000 at 8 (concluding
    that there are 82.6 million MVPD subscribers nationwide).

[^30]: "America Online and Hughes Electronics Form Strategic Alliance to
    Market Unparalleled Digital Entertainment and Internet Services,"
    America Online, Press Release, June 21, 1999.

[^31]: "Ameritech, America Online Ink Pact for High-Speed DSL Access,"
    America Online, Press Release, July 21, 1999.

[^32]: "America Online Goes Wireless," America Online, Press Release,
    Feb. 28, 2000.

[^33]: *See* Levin Testimony (Commerce Committee) (Tab 5).

[^34]: "Statement of Steven M. Case, Chairman and Chief Executive
    Officer, Concerning Q2 FY00 Quarterly Results," America Online
    Corporate Web Page, Jan. 19, 2000,
    \<http://www.corp.aol.com/conffy00q2.html\>.

[^35]: While AOL and Time Warner are confident that their merger will
    produce substantial and widespread public interest benefits,
    Commission precedent does not require definitive quantification of
    the public interest effects in this case. Rather, as the FCC has
    plainly stated, it pursues a "sliding scale approach" in
    circumstances such as that presented by this proposed merger:
    "\[W\]here, as here, potential harms are unlikely, Applicants'
    demonstration of potential benefits need not be as certain."
    *Application of WorldCom, Inc. and MCI Communications Corporation
    for Transfer of Control of MCI Communications Corporation to
    WorldCom, Inc.*, 13 FCC Rcd 18025, 18137 (1998).

[^36]: *See* MOU (Tab 3).

[^37]: "America Online And Time Warner Announce Framework For Agreements
    To Offer AOL Service and Other ISPs On Time Warner Broadband Cable
    Systems," AOL - Time Warner Joint News Release, February 29, 2000.

[^38]: *Id.*

[^39]: *Id.*

[^40]: Testimony of Steve Case, Chairman and CEO, America Online, Before
    the Committee on the Judiciary, United States Senate, February 29,
    2000. Steve Case and Gerald Levin both spoke before the Senate
    Judiciary Committee, as well as before the Senate Commerce
    Subcommittee on Telecommunications on March 2, 2000. *See generally*
    "Case Testimony" (Tab 4), "Levin Testimony" (Tab 5).

[^41]: Statement of FCC Chairman William E. Kennard on the MOU Between
    AOL and Time Warner, FCC News Release, February 29, 2000.

[^42]: "Access Plan Turns Up Heat on MSOs," Multichannel News, March 6,
    2000, at 75.

[^43]: For instance, Merrill Lynch & Co. has predicted that

    AOL's ownership of one of the largest MSOs will help pave the way
    for commercial resolution of the so-called "open access" issue as
    opposed to regulatory intervention . . . . We would expect the
    merger to, in turn, push other major cable operators to consider
    establishing deals with AOL or other Internet service
    providers . . . .

    Merrill Lynch, In-depth Report: AOL Time Warner, February 23, 2000
    at 9, 15 ("Merrill Lynch") (Tab 7).

    As reflected in this submission, Merrill Lynch and a number of other
    independent financial analysts who specialize in the media and
    Internet marketplaces have produced substantial and detailed studies
    of the proposed merger since the applications in this proceeding
    were filed. These analyses corroborate much of what the Applicants
    set forth in their Public Interest Statement. AOL and Time Warner
    understand that the Commission would find benefits in reviewing
    these analysts' insights and so, for the agency's convenience,
    copies of the full reports are attached as a courtesy. *See* Merrill
    Lynch (Tab 7); Goldman Sachs, Internet Media,
    AmericaOnline/TimeWarner: Perfect Time-ing, March 10, 2000 ("Goldman
    Sachs") (Tab 9); PaineWebber, Company Analysis, AOL Time Warner,
    March 1, 2000 ("PaineWebber") (Tab 8). Nevertheless, because these
    analyses were, of course, not subject to the editorial control of
    either Applicant, their submission should not be deemed to
    constitute endorsement or adoption by either AOL or Time Warner of
    the data and views therein.

[^44]: *See, e.g.*, Seth Schiesel, *A Rush to Provide High-Speed
    Internet Access*, The New York Times, Jan. 12, 2000 ("Even as cable
    television companies across the nation are upgrading their systems
    to deliver advanced Internet services, local phone companies are
    racing to beat them to the punch using D.S.L., a technology that
    transmits huge volumes of digital data over standard phone lines.").

[^45]: *Implementation of the Local Competition Provisions of the
    Telecommunications Act of 1996*, CC Docket No. 96-98, at n. 624
    (*Third Report and Order and Fourth Further Notice of Proposed
    Rulemaking*) (rel. Nov. 5, 1999); *see also AT&T/TCI Order,* at ¶ 94
    (describing the "range of distribution technologies" for providing
    broadband Internet access that already were or would soon be
    available to the public).

[^46]: Chairman William E. Kennard, "Consumer Choice Through
    Competition," Remarks before the National Association of
    Telecommunications Officers and Advisors, Atlanta, GA, September 17,
    1999, available at
    \<http://www.fcc.gov/commissioners/kennard/speeches.html\>; *see
    also* Chairman William E. Kennard, "The Unregulation of the
    Internet: Laying a Competitive Course for the Future," Remarks
    before the Federal Communications Bar, Northern California Chapter,
    San Francisco, CA, July 20, 1999, available at \<http://www.fcc.gov
    /Commissioners/kennard/speeches.html\> ("Where cable modem service
    has been introduced, DSL has followed.").

[^47]: Deborah A. Lathen, Chief, Cable Services Bureau, Remarks before
    the National Governors' Association, February 27, 2000, available at
    \<http://www.fcc.gov/Speeches/ misc/spdal904.html\>.

[^48]: Seth Schiesel, *A Rush to Provide High-Speed Internet Access*,
    The New York Times, Jan. 12, 2000. *See also id*. (quoting Daniel P.
    Reingold, chief telecommunications analyst for Credit Suisse First
    Boston, as stating that "\[t\]he race to provide broadband access
    will only accelerate from here").

[^49]: Merrill Lynch, at 9 (Tab 7).

[^50]: Merrill Lynch, at 28 (Tab 7).

[^51]: As Mr. Case testified before the Senate Judiciary Committee, "Our
    spirit of innovation and creativity, our tradition of competition
    and cooperation, and our ideal of inclusion and equal opportunity
    are the driving force of the Internet---and they will be the guiding
    principles of AOL Time Warner." Case Testimony (Tab 4).

[^52]: Goldman Sachs, at 2 (Tab 9).

[^53]: As noted in the Public Interest Statement, AOL and Time Warner
    intends to make the combined company's content and services
    available to consumers on a variety of devices through any and all
    means of access, including cable, DSL, satellite, and wireless. Nor
    will AOL Time Warner deny its own subscribers ready access to
    content from other providers---such an approach would be simply
    untenable in today's Internet environment. Public Interest Statement
    at 3.

[^54]: AOL Time Warner Inc., SEC Form S-4, Registration Statement, filed
    February 11, 2000 at 37 ("Proxy Statement") (Tab 6).

[^55]: Christopher Charron*, A Look at the AOL Deal; Cheered: Anything,
    Anywhere, for Anyone*, The Washington Post, Jan. 16, 2000.

[^56]: Proxy Statement, at 33 (Tab 6).

[^57]: Goldman Sachs, at 1 (Tab 9).

[^58]: Merrill Lynch, at 11 (Tab 7); *see also* *id.* at 10 (discussing
    four possible views of the proposed merger and advising that its
    analysis suggests the merged entity is in a "great position" to
    become a "leading platform for and provider of consumer-oriented
    interactive services---services that we expect to evolve far beyond
    the rudimentary PC-based activities popular today"); *id.* at 14
    (stating that the merger "should allow the new entity, over time, to
    introduce new products and services" ).

[^59]: David Segal, *Deal May Make Online Music Pay*, The Washington
    Post, January 12, 2000, at E1.

[^60]: *See* Goldman Sachs, at 13 (Tab 9).

[^61]: *See, e.g.,* Merrill Lynch, at 11 (Tab 7); PaineWebber, at 9 (Tab
    8) ("As secure audio streaming standards are developed, we
    anticipate . . . lower\[ed\] risks associated with producing new
    artists.")

[^62]: David Segal, *Deal May Make Online Music Pay*, Washington Post,
    January 12, 2000, at E1.

[^63]: PaineWebber predicts that "as high-speed connections to the
    Internet proliferate, within seven years the Web will become a
    critical part of the music distribution chain---and that,
    accordingly, the merger will allow the new company to keep pace with
    this development." *See* PaineWebber, at 8 (Tab 8); *see also*
    Goldman Sachs, at 13 (Tab 9) (merger will help address issue of lack
    of demand to drive broadband facilities penetration).

[^64]: PaineWebber, at 6 (Tab 8).

[^65]: PaineWebber, at 6 (Tab 8).

[^66]: *See* Proxy Statement, at 31 (Tab 6); *id.* at 34-35 (Tab 6).

[^67]: *See* Proxy Statement, at 31-33 (Tab 6); *id.* at 35-36 (Tab 6).

[^68]: *See* Proxy Statement, at 32 (Tab 6); *id.* at 36 (Tab 6).

[^69]: AOL acknowledged the cost efficiencies that would stem from
    launching and operating interactive extensions of Time Warner
    brands. Proxy Statement, at 33 (Tab 6). Furthermore, Time Warner
    recognized that the combination of its strong international presence
    with AOL's global interactive services will further strengthen the
    combined companies' position in the international marketplace. *Id.*
    at 36 (Tab 6).

[^70]: *See* Proxy Statement, at 35 (Tab 6).

[^71]: *See* Proxy Statement, at 36 (Tab 6).

[^72]: *See* Proxy Statement, at 32 (Tab 6).

[^73]: *See* Proxy Statement, at 32 (Tab 6).

[^74]: Goldman Sachs, at 2 (Tab 9).

[^75]: "During 2000, given the near-year-end closing of the transaction,
    both companies should benefit due to their cooperative 'prenuptial'
    relationship. Business decisions that would have been stymied by
    'who's getting the better end of the deal' mentality should progress
    with relatively little friction." Goldman Sachs, at 21 (Tab 9).

[^76]: "Open Access Rivals Debate Next Moves in Broadband Battle,"
    Communications Daily, March 10, 2000, at 9.

[^77]: *Applications for Consent to the Transfer of Control of Licenses
    and Section 214 Authorizations from Tele-Communications, Inc.,
    Transferor to AT&T Corp., Transferee*, 14 FCC Rcd 3160, 3205-06
    (1999) ("*AT&T/TCI Order*").

[^78]: *Id.*

[^79]: *Id.* (citations omitted, emphasis added).

[^80]: *Id.* at 3206 (citations omitted, emphasis added).

[^81]: *Id.* (emphasis added).

[^82]: Without endorsing either of the market definition formulations
    addressed below, the Applicants demonstrate herein this merger would
    cause no anticompetitive effects under any analysis.

[^83]: William E. Kennard, "Internet: The American Experience,"
    Conference on "Internet and Telecommunications: The Stakes," Paris,
    France, January 28, 2000, available at
    \<http://www.fcc.gov/commissioners/kennard/speeches.html\>.

[^84]: *AT&T/TCI Order,* at 3206.

[^85]: As noted above, the record before the FCC in the AT&T/TCI
    proceeding presented a variety of arguments regarding market
    definition. AOL did not address the merging parties' assertion of a
    single retail market encompassing both the narrowband and broadband
    Internet access services. AOL submitted an economic analysis
    suggesting that last-mile broadband and narrowband data transport
    services be viewed as separate inputs. However, as explained
    *supra*, the FCC did not accept, or even consider decisionally
    relevant, this analysis or any proposed market definitions.

[^86]: *AT&T/TCI Order,* at 3206.

[^87]: *See, e.g.*, Chairman William E. Kennard, "Consumer Choice
    Through Competition," Remarks before the National Association of
    Telecommunications Officers and Advisors, Atlanta, GA, September 17,
    1999 ("The telephone companies are starting to deploy \[DSL\] much
    more aggressively. Between the end of March and the end of June of
    this year the number of DSL lines doubled to nearly 200,000 and it
    is expected to double again by the end of the year."); *id.* ("I am
    convinced that we will have a wireless broadband pipe. The wireless
    companies are starting to show up at the broadband party . . . . And
    the satellite industry, as many of you know, is starting to roll out
    broadband offerings as well."); Chairman William E. Kennard, "The
    Road Not Taken: Building a Broadband Future for America," Remarks
    before the National Cable Television Association, Chicago, Illinois,
    June 15, 1999 ("Wireless companies like Motorola and Nextel have
    announced partnerships with other firms; satellite companies like
    DirectTV, Lockheed Martin, and TRW have made moves to provide
    broadband through their technology; and DSL providers have entered
    into deals with Prodigy, AOL, and Microsoft."). *See also* Letter
    from William E. Kennard, Chairman, Federal Communications
    Commission, to Mr. Kenneth S. Fellman, Esq., Chairman, Local and
    State Government Advisory Committee, 14 FCC Rcd 13292 (released
    August 10, 1999).

[^88]: For example, GTE, which introduced DSL service only a few months
    before the Commission released its AT&T/TCI Order, expects by the
    end of this year to triple its current subscriber base, offer DSL
    from 1,000 wire centers, and have more than 8 million ADSL-qualified
    telephone access lines. "GTE introduces new self-install DSL kit,
    paving way to triple DSL subscribers this year," GTE, News Release,
    March 2, 2000, available at \<http://www.gte .com/AboutGTE/
    NewsCenter/News/Releases/DSLSelfInstall.html\>. Similarly, SBC has
    expanded the availability of its DSL service to millions of
    additional homes and businesses in the past year alone and, through
    its "Project Pronto" initiative, plans to increase the service's
    reach from the current 10 million to an estimated 77 million
    Americans during the next three years. "SBC First to Surpass 100,000
    DSL Subscribers," SBC, News Release, November 4, 1999, available at
    \<http://www.sbc.com/News_Center/Article.html?query\_
    type=article&query =19991104-01\>.

[^89]: Teligent plans "wide-scale deployment" of its fixed wireless
    broadband Internet access service beginning this spring. Fred
    Dawson, "Broadband Wireless Gets To The (Multi)Point," Interactive
    Week, March 16, 2000, available at
    \<www.zdnet.com/intweek/stories/news/ 0,4164,2468792,00.html\>.

[^90]: Chris Oakes, "Fast Connection Sans Cables," Wired News, Mar. 14,
    2000, available at
    \<www.wired.com/news/technology/0,1282,34963,00.html\>.

[^91]: MCI Worldcom recently announced trials for its own fixed wireless
    service, with plans to offer the service in more than 100 cities by
    the end of next year. "MCI WorldCom Announces 'Fixed Wireless'
    Service Trials," MCI WorldCom, News Release, Mar. 7, 2000, available
    at \<www.wcom.com\>.

[^92]: *See Ex Parte* Submission of Joan Marsh, Director, AT&T Federal
    Government Affairs, CS Docket No. 99-251 (filed Dec. 15, 1999)
    (Presentation by Lew Chakrin, AT&T Vice President, Consumer Product
    Management).

[^93]: *See* "Microsoft, Gilat in broadband satellite deal," IDGnet,
    February 18, 2000, available at
    \<www.idg.net.nz/webhome.nsf/UNID/292931A4166D2C45CC25688800621B31!open\>.

[^94]: "Frequently asked questions," iSky, visited March 20, 2000,
    available at \<www.iSKY .net/me/index.htm\>.

[^95]: *AT&T/TCI Order*, at 3206.