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

**CONCURRING IN PART AND DISSENTING IN PART**

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

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

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

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

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

I have had many previous occasions to discuss our approach to license
transfers (*i.e.,* mergers) and have expressed some concerns about it,
focusing primarily on our tendency to adopt conditions that were
divorced from the perceived harms.[^2] In contrast, I would like to
compliment the drafters of this *Order* (primarily, our hardworking
Cable Services Bureau staff) for making a valiant attempt to identify
specific harms and crafting conditions in response to them. Regrettably,
in places, the final product strays considerably from this limited
approach.

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

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

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

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

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

A.  No Traditional Indicia of Market Power

> 1\. No Clear Market Definition

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

With respect to IM, however, the *Order* does not cleanly define the
market, presumably because the analysis vainly tries to anticipate harms
relating to a loose collection of largely hypothetical, not-yet-existent
services. Indeed, it eschews the need to define the market with any
precision.[^3] A sound competitive analysis cannot proceed without some
attempt to pin down the market, even where, or perhaps especially where,
services are new and novel and share characteristics with many other
products and services. This foundational discussion is absent from this
*Order*, and would likely prove fatal if an antitrust authority tried to
bring such a case in court.

> 2\. Inconclusive Market Share Data

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

The most objective data on the record is a study by Media Metrix,
recognized as the world leader in the measurement of Internet and
digital media use.[^4] Tellingly, the study shows very substantial
growth by the two largest competitors of AOL (*i.e.,* Microsoft and
Yahoo!) as compared to slowing growth for the AOL service. Moreover, the
study reports that, combined, Microsoft and Yahoo! have nearly the same
market share as AOL. This study, though arguably the best objective
evidence of market share, market trends and market power is barely
mentioned in the *Order*.[^5]

> B. Classic Tipping is Unsubstantiated

In the absence of sound market definitions and market data, the Majority
turns to a more theoretical construct to show that AOL may be in a
position of "unassailable dominance." [^6] The Majority essentially
employs a market "tipping" analysis in an effort to make this case,
attempting to demonstrate that the IM market has nearly tipped, or will
tip when AOL combines with Time Warner. The Majority avers, however,
that it expresses no opinion on whether its conclusions can be read as a
finding the market has tipped. Tipping analysis is emerging as a tool to
examine markets that exhibit strong network effects and can be employed
to consider the anticompetitive dangers with respect to IM. However,
theory is only predictive and must yield when the facts stubbornly belie
the theory. That is the case with IM.

A market is said to tip when consumers find the largest provider of the
real or virtual network so much more valuable that consumers
increasingly select that provider and increasingly abandon all other
providers.[^7] Thus, in theory, tipped markets can lead to one provider
rapidly surfing these network effects to a point that competitors are
unable, no matter how efficient or innovative, to compete effectively
with the market leader. Under these circumstances, the benefits to
consumers of joining or not leaving the dominant provider\'s network so
far outweigh the benefits of using rival networks that consumers
increasingly choose the dominant provider and increasingly avoid rival
providers. Not all markets exhibiting strong network effects will tip,
however.[^8]

Had the Majority persuasively demonstrated that the IM market had
tipped, and that AOL Time Warner would assuredly dominate the market for
any future IM-based services, an IM condition might be warranted.
Instead, the Majority takes a middling course---using tipping analysis
to find that AOL Time Warner may well be in a position of "unassailable
dominance,\"[^9] while trying to avoid concluding the market has in fact
"tipped."[^10] Whatever the semantics of its conclusions, the Majority's
market tipping analysis is a critical analytical underpinning for the IM
condition.[^11] Thus, I believe it worth some extended discussion.

Tipping is a very interesting theoretical phenomenon regarding network
markets and has been the source of much discussion in antitrust
literature. Despite its appeal, however, there is little consensus on
how to measure when a market has tipped, and at what point government
intervention is warranted. Tipping theory is at once seductive and
elegant, perhaps too much so. My concern here is that it can be used to
justify premature, unwarranted government intervention, even where there
are counter-indications that the market will remain competitive on its
own, as I believe is the case here.[^12]

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

**No sign of competitor collapse.** Network effects can be both positive
and negative. That is, while a company might grow subscribers, market
share, and market leadership quickly, network effects can also combine
to destroy other companies just as rapidly. In fact, if a market has
tipped one would normally expect to see exponential growth by the leader
and a precipitous fall off by its competitors.[^13] Here, we see the
opposite; although AOL\'s customer base has continued to grow, AOL\'s
competitors have been growing at a much faster rate.[^14] Indeed,
although AOL essentially created the market for IM only a few years ago,
competitors have garnered a sizeable portion of the market in
considerably less time.[^15] Many of AOL\'s competitors have surpassed
AOL with respect to IM innovation and have joined the battle by bringing
their own unique assets to bear.[^16] Microsoft is integrating its
product into the world\'s leading browser as well as its successful
Hotmail e-mail service. Yahoo! has created an applet called Yahoo!
Companion that attaches to the browser and has made it a part of its My
Yahoo! services, the leading Internet portal with a very substantial
subscriber base.

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

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

Underlying the Majority\'s analysis is the clear view that IM is the new
phone system---that it will be a mass market, public network (like the
public switched telephone network), allowing anyone to talk to anyone. I
am not convinced that this is the proper conception of the service, as
IM\'s most compelling and sustained use may be to serve as a tool for
intimate communications with a well-defined, limited community (rather
than with everyone in the world), or as an adjunct to some other product
or service. Further, unlike the Majority, I find it cavalier to conclude
or even suggest that IM is *the* essential platform for real-time
interactive services. There are many technologies vying as solutions for
real-time interactive service and our endorsement of one is naïve. Sure,
it could turn out that the Majority has guessed correctly, but I would
remind them that even the surest bets for the \"next big thing\"
(*i.e.,* the technology that will be most popular) have missed the
mark.[^17]

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

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

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

[No learning curve]{.underline}. Another lock-in effect is present when
a user must invest a lot of time in learning how to use a product. A
consumer is not easily convinced to switch to another product if he must
start over and learn a new system. Economists sometimes call this \"path
dependence.\" [^18] The classic example is the \"QWERTY\" standard
typewriter keyboard. This keyboard was reportedly designed purposely to
be inefficient in order to prevent users from typing so rapidly that
they jammed the typing mechanism. Having learned to use this
\"inefficient\" keyboard, however, few people want to learn to type
again, in an entirely new way. Thus, they are \"locked in\" to using the
keyboard they have already learned to use. Here, despite the *Order\'s*
suggestions to the contrary, there is no real dispute that any of the IM
products can be downloaded and used within a matter of minutes, without
any significant training. Thus, this ease of access and mastery ensures
that users are not locked in to any given IM product based on any steep
learning curve.

[No incompatibility]{.underline}. A customer might not wish to switch to
a competitor\'s product if it would be incompatible with her system. For
example, one who owned a Microsoft Windows-based PC, could not switch to
an Apple operating system without purchasing an entirely new computer,
because of the incompatibility. Here, all IM products can be run on the
same machine, and at the same time. Users can run both products and talk
quite easily with two networks of people. Perhaps a teenager speaks with
her close friends on one service and her soccer teammates on another,
and her parents on still another. Indeed, there is evidence that people
use multiple IM services purposely and see benefit in operating in this
fashion, rather than insisting that IM work like a telephone, that
allows anyone to call into you using one platform.[^19]

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

> C. The Majority's Novel Behavioral Theory

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

*First*, it is an over-statement to say AOL has refused to interoperate.
It has maintained both publicly and in this proceeding that it wishes to
and will interoperate once it can tackle a number of concerns in
developing a standard.[^20] I recognize that such a statement could be
self-serving, and the Commission is entitled not to credit AOL\'s
sincerity. But I have problems with a theory that rests so heavily on a
leading provider\'s refusal to interoperate as a basis for concluding
the market has nearly tipped or is dominated by that provider, where the
provider is not, in fact, refusing to interoperate under any
circumstances. I am not prepared to read so much into AOL's less than
fulsome participation in the Internet Engineering Task Force (IETF) for
the relatively short period that effort has been underway, nor can I
place that much weight on AOL blocking companies that entered their
servers without consent or negotiation.

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

Indeed, AOL itself proffers a different reason for why it has yet to
interoperate with other providers and that is privacy and security
concerns.[^21] AOL has a business model according to which it sells
"community." In facilitating that community, it places a premium on
protecting the consumer\'s experience and privacy.[^22] Surely,
increasing unwanted exposure of its subscribers to unwanted IM contact
from others is not necessarily nefarious. Additionally, it does appear
that some security issues do in fact presently exist, which is one
reason the Commission was not comfortable with mandating immediate
interoperability with other providers.[^23] Lending some support to
AOL's argument that it does not interoperate with other providers for
reasons other than its desire to maintain market dominance over its
competitors is the fact that AOL has not integrated its own IM product
(AIM) with ICQ, so that they could interoperate.

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

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

> E. The IM Condition Itself

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

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

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

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

A.  A Misguided Regulatory Leap Into the Internet Space

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

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

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

With regard to Internet-like services, the fact that we have always had
Title I authority has not meant it was prudent to exercise it. Indeed,
from the earliest days, the Commission has carefully drawn a distinction
between communications services that it defined as \"basic\" or
\"telecommunication services\" and \"enhanced\" or \"information
services.\"[^24] The distinction was made as a matter of policy, not
power, to limit or avoid regulation and to rely on competition for
innovative information services, while regulating as common carriers the
providers of basic or telecommunications services. This distinction took
on greater import with the rise of the Internet, which was seen as the
mother of all \"information services.\" In addition, this distinction is
the basis for a parade of pronouncements by members of this very
Commission, that we do not, will not and shall not regulate the
Internet.[^25]

I have long been of the view that the telecommunications/information
services distinction is, in the long run, untenable.[^26] Digital,
packet-based technologies will increasingly blur and obliterate the
ability to make any rational distinction between the transmission of
information and the information itself. Therefore, I am not critical of
looking for ways to step beyond the distinction. I do, however,
criticize the Majority for taking that step and thereby walking away
from decades-long policies of declining to regulate services in this
jurisdictional category, without any meaningful explanation, or even
consideration of this significant turnabout. Rather, the Majority
asserts that IM fits within a category under our jurisdiction, and
lightly dismisses the need to discuss the nature of the service without
conceding the traditional deregulatory implication of this
categorization. The result is a regulatory foray across a border
consistently held to be inviolate. This step is a very big one and
should not be made in such a breezy manner and in the context of an
adjudication, particularly to impose such a minor and questionable
condition that rests on such a questionable evidentiary basis.

Taking the analysis and the remedy together, it is evident that the real
driving force behind this condition is a preference by the Majority for
interoperability as the market paradigm for IM services, indeed, perhaps
for all Internet-based communications. The Majority declares that the
public interest standard somehow compels interoperability, yet have no
basis for that finding in the statute or the record. More startling, the
Commission, with no particular technical, or business competence
declares that elements of IM make up an "essential input for the
development and deployment of many, if not most, future high-speed
internet-based services that rely on real-time delivery and
interaction."[^27]

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

B. Achieving Interoperability Through Market Forces

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

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

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

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

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

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

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

[^1]: In addition to dissenting from the Majority\'s Instant Messaging
    condition, I object to the Majority\'s decision to impose broadband
    open access conditions that may conflict with and prejudge issues in
    the *Notice of Inquiry* proceeding regarding broadband Internet
    access. *See* In the Matter of Inquiry Concerning High-Speed Access
    to the Internet Over Cable and Other Facilities, GEN Docket No.
    00-185, FCC 00-185, *Notice of Inquiry* ¶¶ 25-42 (rel. Sept. 28,
    2000) (examining potential definitional, policy and regulatory cable
    open access issues). I concur in the conditions regarding Time
    Warner\'s relationship with AT&T, though I believe our concerns were
    substantially addressed by the Department of Justice consent decrees
    involving AT&T and MediaOne and the Federal Trade Commission consent
    decree involving AOL and Time Warner. *See United States v. AT&T
    Corp.,* 2000 WL 1752108, \*3 (D.D.C. 2000); *see also* *In the
    Matter of America Online and Time Warner*, 2000 WL 1843019 (F.T.C.
    Dec. 14, 2000).

[^2]: *See, e.g.,* In the Matter of Applications of Ameritech Corp.,
    Transferor, and SBC Communications Inc., Transferee, For Consent to
    Transfer Control of Corporations Holding Commission Licenses and
    Lines Pursuant to Section 214 and Section 310 (d) of the
    Communications Act and Parts 5, 22, 24, 25, 63, 90, 95, and 101 of
    the Commission Rules, CC Docket No. 98-141, FCC 99-279, *Memorandum
    Opinion and Order,* 14 FCC Rcd 14712, 15197 (1999) (Separate
    Statement of Michael K. Powell, Commissioner, Federal Communications
    Commission) \[available on the World Wide Web at
    \<http://www.fcc.gov/commissioners/powell\>\]; Statement Of Michael
    K. Powell, Commissioner, Federal Communications Commission, Before
    The Subcommittee On Telecommunications, Trade And Consumer
    Protection Of The House Committee On Commerce On \"The
    Telecommunications Merger Act Of 2000\" (Mar. 14, 2000) (expressing
    personal discomfort with \"a standard that places harms on one side
    of a scale and then collects and places any hodgepodge of
    conditions---no matter how ill-suited to remedying the identified
    infirmities---on the other side of the scale).

    .

[^3]: *Order* ¶ 151 ("\[W\]e find that the area of our concern is 'NPD
    \[Names and Presence Directory\] services' -- interactive
    communication services which . . . depend on an NPD for real-time
    communication between and among users. . . . A more precise
    definition of the relevant market is not necessary here, where the
    Commission can accurately assess the competitive impact of the
    merger without such a detailed analysis.").

[^4]: Media Metrix, a widely regarded Internet traffic measurement
    consultancy, reported in a November 2000 press release that although
    AOL Instant Messenger is still the dominant IM application in the
    Internet space, \"Yahoo! Messenger and MSN Messenger Service each
    have accumulated approximately half the number of users as AOL
    Instant Messenger and have become the fastest growing
    instant-messaging applications in terms of overall users.\" *See*
    Press Release, Media Metrix, *Yahoo! Messenger and MSN Messenger
    Service Are Fastest Growing Instant-Messaging Applications In The
    U.S*. (Nov. 16, 2000) \[available on the World Wide Web at
    \<http://us.mediametrix.com/press/releases/20001116.jsp\>\]. AOL
    Instant Messenger had accummulated 21.5 million unique users by
    August 2000; for their part, Yahoo! and MSN, respectively, had grown
    their services to 10.6 million unique users and 10.3 million unique
    users. Equally interesting, to my mind, Media Metrix noted that
    approximately one-third of AOL Instant Messenger residential users
    also used at least one other competing IM application. *See id.*

[^5]: Microsoft, one of the two significant IM competitors,
    \"dismissed\" the Media Metrix IM findings. *See* *FTC Prepares Vote
    On AOL-TW Deal, Critics Seek More Conditions*, Communications Daily,
    Dec. 12, 2000.

[^6]: *Order* ¶ 175.

[^7]: *See* Carl Shapiro & Hal R. Varian, *Information Rules: A
    Strategic Guide to the Network Economy* 174-76 (1999).

[^8]: *Id.* at 187; *see also* William J. Kolasky, *Network Effects: A
    Contrarian View,* 7 Geo. Mason L. Rev. 577, 577 (1999).

[^9]: *Order* ¶ 175.

[^10]: To be clear, I do not dispute that the IM market could tip at
    some undetermined point in the future. But as I describe in greater
    detail, the underlying facts are inconclusive as to whether tipping
    has occurred, particularly with respect to the future hypothetical
    services contemplated by the Majority's IM condition.

[^11]: Presumably, no IM condition would be needed if it is
    demonstrated, as I do below, that it is still quite possible that
    market forces will enable some competing firm to prevent AOL from
    becoming a dominant provider of the advanced IM services
    contemplated by the majority\'s condition.

[^12]: Kolasky at 577.

[^13]: Shapiro & Varian at 174-77.

[^14]: *See* Press Release, Media Metrix, *Yahoo! Messenger and MSN
    Messenger Service Are Fastest Growing Instant-Messaging Applications
    In The U.S*. (Nov. 16, 2000) (Launched in 1999, both Yahoo!\'s and
    MSN\'s IM product offerings have become the \"fastest growing
    instant-messaging applications in terms of overall users\" over the
    period of August 1999 to August 2000) \[available on the World Wide
    Web at \<http://us.mediametrix.com/press/releases/20001116.jsp\>\].

[^15]: *Id.*

[^16]: *See, e.g.,* *Yahoo! Companion* (on-line description of Yahoo!
    content and feature on browser) (visited Jan. 11, 2001) \[available
    on the World Wide Web at
    \<http://edit.yahoo.com/config/download_companion\>\]; *Yahoo!
    Messenger* (on-line description of Yahoo! IM capability and
    integrated functionality like free Internet phone calls, Yahoo! Chat
    client, alerts for your stocks and Yahoo! Mail, news, weather, stock
    quotes, etc.) (visited Jan. 11, 2001) \[available on the World Wide
    Web at \<http://messenger.yahoo.com/\>\]; *MSN Messenger Service*
    (same) (visited Jan. 11, 2001) \[available on the World Wide Web at
    \<http://messenger.msn.com/\>\]; Press Release, Microsoft
    Corporation, *MSN Reviewers Guide, January 2000* (visited Jan. 11,
    2001) \[available on the World Wide Web at
    \<http://www.microsoft.com/presspass/newsroom/msn/guide/0100guide.asp\>\].

    .

[^17]: I am fond of recording bold technology predictions about the
    various industries over which the Commission has jurisdiction that,
    over time, proved generally overstated or absolutely incorrect and
    off the mark. For example, the New York Times, on the occasion of
    the 1939 World\'s Fair and the introduction of the black-and-white
    television, predicted that television \"will never be a serious
    competitor for radio because people must sit and keep their eyes
    glued on a screen; the average American family hasn\'t time for
    it.\" And, in 1876, a Western Union internal memorandum forecasted
    that \"\[t\]his \'telephone\' has too many shortcomings to be
    seriously considered as a means of communication. The device is
    inherently of no value to us.\" Many of these failed technology
    predictions are now compiled in *The Experts Speak*. *See*
    Christopher Cerf & Victor Navasky, in *The Experts Speak: The
    Definitive Compendium of Authoritative Misinformation* 225-231
    (Villard 1998).

[^18]: Kolasky at 579.

[^19]: According to Media Metrix, over 30% of both AIM and ICQ users
    already use at least one other IM or chat application. *See* Press
    Release, Media Metrix, *Yahoo! Messenger and MSN Messenger Service
    Are Fastest Growing Instant-Messaging Applications In The U.S*.
    (Nov. 16, 2000). *See also id* ("Instant-messaging applications are
    proving to be very popular with consumers . . . But their different
    features and lack of interoperability cause users, especially heavy
    users, to adopt more than one brand in order to keep in touch with
    all their friend and colleagues."). If the costs or difficulties of
    using multiple IM services were truly significant, presumably people
    would have begun to focus on only one IM provider, rather than
    continuing to use more than one.

[^20]: *See, e.g.,* Ex Parte Letter to Deborah Lathen, Chief, Cable
    Services Bureau, Federal Communications Commission, from George
    Vradenburg III, Senior Vice President, Global and Strategic Policy,
    America Online, Inc. (Sept. 29, 2000) at 1, 7-8 (\"AOL is committed
    to pursuing industry-wide IM interoperability for the benefit of
    consumers, not competitors.\")

[^21]: *Id.* at 7-8.

[^22]: *See, e.g., Unsolicited Bulk E-mail* (on-line statement of AOL\'s
    anti-spamming policy) (visited Jan. 11, 2001) \[available on the
    World Wide Web at \<http://www.aol.com/info/bulkemail.html\>\];
    *AOL\'s Privacy Policy* (on-line statement of AOL\'s privacy policy)
    (visited Jan. 11, 2001) \[available on the World Wide Web at
    \<http://www.aol.com/info/privacy.html\>\].

[^23]: For example, my discussion with my colleagues leads me to
    conclude that even the Majority would acknowledge there would have
    been many security problems associated with mandating immediate
    interoperability for text-based IM. For example, if AOL had to
    publish its operating protocols and accept and deliver all outside
    IM messages, hackers and users of unscrupulous IM providers would be
    able to masquerade as other users. AOL IM users would receive
    messages from people that they think are their buddies, but in fact
    are advertisements, spam, or possibly even messages from predators.
    Also, AOL users could find that hackers have been sending false
    messages in their names, creating its own set of problems. AOL today
    deals with these issues chiefly by using live monitors, to whom its
    users can report problems. It is not clear that AOL would be able to
    do this with messages that come from outside its system.

[^24]: *See* In the Matter of Amendment of Section 64.702 of the
    Commission's Rules and Regulations, 77 FCC 2d 384, 428-40 (1980)
    (*Computer II*).

[^25]: *See, e.g.,* Remarks of William E. Kennard, Chairman, Federal
    Communications Commission Before the Summer 2000 Session of the
    National Association of Regulatory Utility Commissioners (July 24,
    2000) (\"\[p\]erhaps the FCC\'s most important decision---we decided
    to leave the Internet unregulated\"); Remarks of Chairman Kennard
    Before the National Press Club, *Telecommunications @ the
    Millennium: The Telecom Act At Four* (Feb. 8, 2000) (\"The
    Commission wisely withheld regulation of most advanced services.
    Similarly, we refused to apply legacy-style regulations to the new
    service of cable access to the Internet, relying instead on market
    incentives to keep multiple paths open to the Internet.\"); Remarks
    of Susan Ness, Commissioner, Federal Communications Commission
    Before the IRTS, *The Net Effects on Communications Policy (or how
    the Internet and Convergence are Revamping Regulatory Regimes*)
    (June 7, 2000) (in reference to technological developments,
    \"\[t\]he FCC\'s policies of fostering competition, while taking a
    hands-off approach to the Internet and information services, have
    facilitated many of these changes\").

[^26]: In the Matter of Federal-State Joint Board on Universal Service,
    CC Docket No. 96-45, FCC 98-67, *Report to Congress* (rel. Apr. 10,
    1998) (Statement of Michael K. Powell, Commissioner, Federal
    Communications, concurring) \[available on the World Wide Web at
    \<http://www.fcc.gov/commissioners/powell/statements\].

[^27]: *Order* ¶ 128.