**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

+----------------------------------+---+------------------------------+
| In the Matter of                 | * | CS Docket No. 00-30          |
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| Applications for Consent to the  | ) |                              |
| Transfer of Control of Licenses  | * |                              |
| and Section 214 Authorizations   | * |                              |
| by Time Warner Inc. and America  |   |                              |
| Online, Inc., Transferors, to    | * |                              |
| AOL Time Warner Inc., Transferee | * |                              |
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| Petition of AOL Time Warner Inc. | * |                              |
| for Relief From the Condition    | * |                              |
| Restricting Streaming Video AIHS |   |                              |
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+----------------------------------+---+------------------------------+

**MEMORANDUM OPINION AND ORDER**

**Adopted: July 31, 2003 Released: August 20, 2003**

By the Commission: Chairman Powell issuing a separate statement;
Commissioners Copps and Adelstein

dissenting and issuing a joint statement.

# Introduction

1.  In the captioned proceeding, the Commission approved certain license
    transfers attendant to the merger of Time Warner Inc. and America
    Online, Inc.[^1] As a part of that approval, the Commission imposed
    a condition relating to the provision of advanced instant
    messaging-based high-speed video services by AOL Time Warner. AOL
    Time Warner has now requested the elimination of this condition,
    pursuant to procedures specified in the *Order*.[^2] Public comment
    on the petition was solicited,[^3] and responsive comments were
    received from Gerald R. Faulhaber and David J. Farber, filing
    jointly, who urge the Commission "to proceed cautiously,"[^4] and
    from an individual, Dana-Renee Lee who, in a very brief comment,
    suggests a requirement, clearly beyond the scope of this proceeding,
    that all IM providers be compatible. MCI filed a reply comment
    supporting elimination of the condition and arguing that it should
    not have been imposed in the first place. BellSouth
    Corporation/BellSouth Telecommunications, Inc. filed a reply comment
    supporting denial of the petition. AOL Time Warner filed a reply to
    the initial comments. For the reasons stated below, we grant the
    petition and remove the condition.

# THE CONDITION

2.  Broadly speaking, the concern addressed by the Commission in the
    merger proceedings was that AOL's market dominance in text-based
    messaging, coupled with Time Warner's transmission assets and
    programming content, would result in the combined firm dominating
    the advanced IM-based high-speed services market. This, it was
    believed, would deprive the public of the benefits of
    interoperability and the efficiencies and potential for innovation
    associated with interoperability.

3.  The condition in question reads as follows:

    AOL Time Warner shall not offer an AIHS \[advanced instant
    messaging-based high-speed service\] application that includes the
    transmission and reception, utilizing an NPD over the Internet
    Protocol path of AOL Time Warner broadband facilities, of one- or
    two-way streaming video communication using IM protocols --
    including live images, tape or animation -- that are new features,
    functions, and enhancements beyond those offered in AIM 4.3 or ICQ
    2000b, until AOL Time Warner satisfies one of three options (the "IM
    condition"). The three options are: (1) AOL Time Warner may show
    that it has implemented a standard for server-to-server
    interoperability of NPD-based services that has been promulgated by
    the IETF or a widely recognized standard-setting body; (2) AOL may
    show that it has entered into a written contract providing for
    server-to-server interoperability with a significant, unaffiliated,
    actual or potential competing provider of NPD-based services offered
    to the public; after AOL Time Warner has entered this contract, an
    officer of AOL Time Warner shall certify to the Commission that it
    is prepared to promptly enter into negotiations, in good faith, with
    any other requesting provider of NPD-based services; within 180 days
    after entering this first contract, AOL Time Warner must enter two
    additional contracts with significant, unaffiliated, actual or
    potential competing providers of NPD-based services offered to the
    public; (3) AOL Time Warner may seek relief from this condition by
    showing that the imposition of the condition no longer serves the
    public interest, convenience or necessity because there has been a
    material change in circumstance. [^5]

4.  For purposes of this condition, IM service refers to an online
    Internet service that has the capability to detect whether other
    users of the system are present online at a given time and to
    exchange messages with them in real time. The "NPD" or "Names and
    Presence Database" is the subscriber username database file where
    the names of those present online at a given time are kept. "AIHS"
    or "advanced IM-based high-speed service" is defined, by way of
    example, as an IM-based application that takes advantage of
    high-speed Internet access, such as video conferencing or streaming
    video communications. "IETF" is the Internet Engineering Task Force,
    a body that is involved in setting standards relating to the
    Internet. "AIM 4.3" and "ICQ 2000b" are proprietary AOL Time Warner
    instant messaging protocols.

5.  The Commission specified that AOL Time Warner could seek to have
    this condition eliminated by providing "clear and convincing
    evidence" that the condition no longer is necessary in the public
    interest, convenience, and necessity because of a material change of
    circumstance, including new evidence that renders the condition
    unnecessary.[^6] Any market share information proffered as evidence
    that the condition no longer is necessary was required to
    demonstrate that AOL Time Warner had not been a dominant provider of
    NPD based IM services for at least four consecutive months. In the
    absence of any earlier termination, the condition expires by its own
    terms on January 22, 2006. [^7]

# DISCUSSION

6.  In its Petition, AOL Time Warner provides evidence, including market
    share data, of a material change of circumstance in market
    conditions from the time the *Order* was released to demonstrate
    that it has not been a dominant provider of NPD text-based IM
    services services for at least four consecutive months. Based on
    information obtained from comScore Media Metrix, a firm that
    measures Internet and digital media use,[^8] AOL's market share is
    shown to have been 100% as recently as June 1999.[^9] For the four
    months prior to the filing of the current petition, Media Metrix
    reports AOL Time Warner's market share as 59.5%, 58.5%, 57.6%, and
    58.5% for November 2002, December 2002, January 2003, and February
    2003, respectively, a decline for AOL from 75.3% in March 2000 and
    61.5% in December 2000, shortly before the *Order* was
    released.[^10] AOL's two major IM competitors, Microsoft and Yahoo!,
    have averaged 22.2% and 19.3% market shares, respectively, over that
    same period, an increase from 10.7% and 14% in October 2000.[^11]
    The Media Metrix data show a slow general decline in the number of
    unduplicated unique visitors to AOL's IM services from 52,120,000 in
    October 2002 to 50,965,000 in February 2003 (a 2% decrease), while
    MSN Messenger's number increased from 17,640,000 to 19,410,000 (a
    10% increase) and Yahoo! Messenger's number increased from
    16,138,000 to 16,802,000 (a 4% increase).[^12] We note that the
    trend in market shares is inconsistent with the market "tipping"
    concerns expressed in the *Order*.[^13] In particular, if a market
    is subject to tipping and the subsequent dominance of the largest
    firm, then as the overall market grows, we should see an increase in
    the largest firm's market share or at least an increase in the
    largest firm's number of users. In fact, the data show the opposite
    trend; the smaller firms are consistently growing at the expense of
    AOL Time Warner as the market grows.

7.  Faulhaber, Farber, and BellSouth do not directly dispute these
    statistics. Faulhaber and Farber acknowledge the decline in AOL's
    market share, but characterize the decline as slow, arguing that AOL
    still dominates the IM market with a 58.5% market share.[^14]
    Further, Faulhaber and Farber contend that the IM market is not
    mature such that market share data are not determinative of whether
    the IM market has tipped, *i.e.*, there remains a potential for AOL
    to monopolize new IM-based services because of its dominance in the
    text-based IM market.[^15] At the same time, however, they
    acknowledge that the presence of two stable competitors to AOL's IM
    service suggests that market tipping is less of a danger today than
    at the time the *Order* was released.[^16]

8.  We view this development of stable competitors as an indication that
    the market is maturing and stabilizing. This undermines Faulhaber's
    and Farber's primary claim that, because the market is immature,
    AOL's market share does not alleviate its dominance or the
    likelihood that it will tip the market and thus cannot be the sole
    determinant of dominance.[^17] From the available data, it is clear
    that AOL's market share experienced a precipitous decline from June
    1999 to December 2000, followed by a slow but steady decline to the
    present. The IM market itself is growing rapidly, but at a declining
    rate of increase, indicating a move away from the rapid growth that
    marks an immature market, and lowering the chance that the largest
    participant will be able to use a rapid influx of new IM users to
    gain dominance within the market. While we cannot say with complete
    certainty that the market has matured to the point that market
    shares will remain stable, the continuing success of Microsoft and
    Yahoo! indicates that AOL Time Warner cannot control entry or
    survival in the market. Indeed, in contrast to the tipping
    hypothesis, the trends in the market (with AOL Time Warner's share
    shrinking in an expanding market, but Microsoft's and Yahoo!'s
    increasing) show more risk to AOL Time Warner's position in the
    market than to that of its rivals.

9.  Faulhaber and Farber also argue that the data relied upon in the AOL
    Time Warner Petition do not take into account market segments, in
    particular the emerging IM business market, when analyzing the
    relevant market shares.[^18] Because the business market did not
    exist at the time of the *Order* and network effects are not as
    important for business IM implications used primarily for internal
    communications, Faulhaber and Farber contend that the relevant
    market for dominance analysis should be the consumer market.[^19]
    Although Faulhaber and Farber characterize business as a
    "significant" IM customer,[^20] the data provided in the record from
    Media Metrix are only aggregate market share data and are not broken
    down into separate business and consumer markets. Farber and
    Faulhaber provide no additional data, and therefore we have no means
    to evaluate their claim.

10. BellSouth contends that AOL Time Warner's reliance on market share
    data is flawed because many of the alleged users of competing IM
    providers are also AOL IM users who, as a result of AOL's failure to
    interoperate, are forced to use the services of multiple IM
    providers in order to communicate with the users of the competing IM
    providers.[^21] BellSouth states that this overlap, which is based
    on the Forrester Report's finding that 20% of AOL users have another
    IM service, impacts at least half of the market share numbers
    attributed to AOL's competitors and thereby unfairly inflates the
    competitors' market share data relied on in the AOL Time Warner
    Petition.[^22] We do not find this argument to be persuasive,
    because it is ambiguous both with respect to its implications for
    estimating market share and with respect to its policy implications.
    For example, in those markets such as typewriters, VCRs, or
    computers, where tipping has occurred with resulting emergence of a
    dominant firm or platform, each consumer typically purchases one
    product exclusively and then is "locked in" to that platform by the
    purchase.[^23] The fact that so many consumers are willing to use
    multiple platforms in this case suggests that consumer lock-in is
    not a concern here, which further ameliorates our concerns about the
    market tipping.

11. Further, we find persuasive AOL Time Warner's argument that because
    the other two large IM providers, Microsoft and Yahoo!, have not
    chosen to interoperate with each other, these providers must believe
    that the market is competitive and that their own market presence is
    strong enough for the market to remain competitive. Faulhaber and
    Farber indicate that failure to interoperate can only represent a
    strategic decision by a firm that is strong enough to cause
    tipping.[^24] We do not agree that this theory provides a sound
    basis for retaining the existing condition. At the outset, it is not
    clear that AOL Time Warner has made any such strategic decision.
    Indeed, it has recently stated in conjunction with the settlement of
    certain litigation with Microsoft that "\[t\]he two companies have
    agreed to explore ways to establish interoperability between AOL and
    MSN Instant Messenger networks in a manner that will protect
    consumer privacy, security, and network performance."[^25] Although
    Faulhaber and Farber attempt to downplay its importance, they also
    note the changed conditions reflected in the emergence of the
    Trillian interoperability application, which can supply "as if"
    interoperability among the three leading IM providers.[^26] This
    development, they recognize, suggests that a regulatory mandate for
    IM interoperability is less important today then it was at the time
    of the merger. At present, it appears that market-based initiatives,
    such as the Microsoft-AOL Time Warner agreement, the Trillian
    application, and IM interoperability initiatives before the Internet
    Engineering Task Force,[^27] demonstrate positive momentum toward
    achieving interoperability.

12. Moreover, we conclude that removal of the IM condition will likely
    provide public interest benefits. The Commission has continually
    recognized competition as an important policy objective for
    communications services, bringing consumer benefits of increased
    choice, lower prices, improved service, and new product
    offerings.[^28] With the removal of the IM condition, AOL Time
    Warner will be able to offer new and innovative AIHS services and
    provide competitive choices to the marketplace at lower prices.[^29]
    Removal of the condition will benefit consumers by enhancing
    competition among firms providing AIHS services, including AOL's
    primary competitors, MSN and Yahoo!, through the addition of a third
    significant competitor to the AIHS market.[^30] Competition will
    also likely accelerate the pace of innovation for IM services. At
    present, MSN and Yahoo!, are already offering AIHS services to
    consumers in the form of IM-based video chat services.[^31] AOL's
    experience and history of innovation in the IM market suggests that
    its own AIHS product could result in an AIHS offering with
    significant values for consumers, including both improved quality
    and features associated with video chat as well as the potential for
    new uses of AIHS services, such as the streaming or delivery of
    pre-packaged video content.

13. Such innovation would provide greater choice and functionality to IM
    users and also could reasonably be expected to stimulate competitive
    responses by Yahoo!, Microsoft, and other IM providers. By
    stimulating innovation in the AIHS market, removal of the condition
    will also contribute to another of the Communications Act's and the
    Commission's primary policy objectives, stimulating broadband
    deployment and usage.[^32] Since AIHS services can be most
    effectively provided via broadband facilities, the provision of new
    AIHS services could contribute to consumer demand for broadband
    services, which may in turn strengthen incentives for companies to
    bring broadband services to all areas of the country.[^33] These
    public interest benefits of competition, innovation, and increased
    broadband deployment and usage are likely to be accelerated if AOL
    Time Warner is permitted to compete against the established
    providers of AIHS service rather than be subject to the continued
    application of the IM condition.

14. For these reasons, we conclude that AOL Time Warner has provided
    clear and convincing evidence that imposition of the condition in
    question no longer serves the public interest, convenience, or
    necessity because there has been a material change in circumstances
    from the market conditions that existed at the time of the *Order*.
    Thus, we hereby grant the relief requested by AOL Time Warner and
    remove the restriction on its provision of video streaming AIHS
    services.

# ordering clauses

15. Accordingly, having reviewed the AOL Time Warner Petition for Relief
    from the Instant Messaging Condition and the record in this matter,
    IT IS ORDERED, pursuant to Sections 4(i) and (j), 214(a), 214(c),
    309, and 310(d) of the Communications Act of 1934, as amended, 47
    U.S.C. §§ 154(i), 154(j), 214(a), 214(c), 309, 310(d), that the
    Petition filed by AOL Time Warner Inc., Inc. IS GRANTED.

FEDERAL COMMUNICATIONS COMMISSION

Marlene H. Dortch

Secretary

**Statement of**

**Chairman Michael K. Powell**

*Re: Applications for Consent to the Transfer of Control of Licenses and
Section 214 Authorizations by Time Warner Inc. and America Online, Inc.,
Transferors, to AOL Time Warner Inc., Transferree; CS Docket No. 00-30.*

Today we adopt an Order removing a condition, imposed pursuant to the
Commission's approval of the AOL Time Warner merger, relating to the
provision of advanced instant messaging-based high-speed video services
("AIHS") by AOL Time Warner. As I explained in my separate statement to
the AOL Time Warner Order,[^34] I disagreed with the decision to impose
the condition at that time, and subsequent events have confirmed the
analysis set forth in my statement. I therefore wholeheartedly support
the decision to remove the AIHS condition.

In my separate statement to the AOL Time Warner Order, I wrote that the
majority's decision to impose the condition was faulty for several
reasons. That the Commission strayed out of its core competencies in its
analysis of instant messaging should now be clear. As I noted in my
statement, the Commission provided no clear market definition, used
inconclusive market share data, and relied upon a flawed "tipping"
analysis with respect to instant messaging.[^35]

We now have two-and-one-half years of evidence that the market is not
tipping. The fact that AOL Time Warner's market share is decreasing in a
growing market, combined with the fact that two non-trivial competitors
\-- Microsoft and Yahoo \-- have established stable and growing market
shares, directly contravenes the theory that the market is tipping
toward AOL Time Warner.[^36] The Commission anticipated the possibility
that its tipping analysis was flawed and included a provision for the
company to petition the Commission to remove the condition.

I would underscore the procedural posture of the case. The Commission's
fear in the AOL Time Warner Order was that the merged firm would
dominate the broadband market through its AIHS application over
broadband. Clearly that has not transpired. Yet the dissent stands for
the proposition that broadband consumers still need the government to
protect them from a company that is in a weaker competitive position
today than when the condition was imposed.

Moreover, I would reject any suggestion in the dissent that the focus of
today's Order is the possible public good inherent in interoperability
for all IM providers. If IM interoperability is good public policy
generally, it should be good for Yahoo, Microsoft, and other IM
providers. Indeed the dissent exhibits a desire for a rule of general
applicability when it calls for "an open Internet without bottleneck
controls," yet as I have stated repeatedly, FCC merger conditions
clearly demand specificity to the transaction before us.[^37] If a
requirement is in the public interest generally, it should be required
of all providers through a rulemaking. Regulators must resist using
merger conditions to make policy that the agency is unable or unwilling
to impose on the broader industry at large.

How much longer would the dissenters have us wait before agreeing that
AOL Time Warner is not going to dominate AIHS?[^38] For the past two and
a half years, the United States government decided -- in the name of
consumer protection \-- to completely preclude one company from
competing in a fast-changing high tech market and bringing more choice
and innovation to consumers. Instead of supporting today's pro-consumer
decision, however, the dissenters would continue this misguided central
planning policy for the high tech industry. I marvel at the willingness
of my dissenting colleagues to use the powerful levers of government to
manipulate market outcomes in the complete absence of any actual harm to
consumers.

Second, the lack of participation by affected parties speaks volumes.
Neither Yahoo! nor Microsoft, the supposed beneficiaries of the
condition, has argued to keep the condition. Similarly, consumer
advocates did not file to argue that this condition is necessary to
protect consumers. This lack of participation suggests to me that
continued imposition of the condition is regulation for the sake of
regulation with no clear purpose or public interest value.

Third, although AOL Time Warner did not need to show affirmative public
interest benefits, only changed conditions, the public clearly will
benefit by lifting the condition. Removal of the condition will benefit
consumers through the addition of a third significant competitor to the
AIHS market, furthering the Commission's policy goal of promoting
competition in communications services. The dissent dismisses this
pro-competition claim partly because "we have no assurance that removal
of the condition will actually make the IM market more competitive in
the future."[^39] While the future can never be predicted with
"assurance," there can be little doubt that competition will be enhanced
when AOL Time Warner begins offering AIHS service to consumers in
competition with Microsoft and Yahoo.

With the removal of the instant messaging condition, AOL Time Warner
will be able to offer new and innovative AIHS services and provide
competitive choices to the marketplace. AOL's experience and history of
innovation with instant messaging suggests that its own AIHS product
could result in an offering with significant value for consumers. Such
innovation very likely will stimulate competitive responses by Yahoo!,
Microsoft, and other instant messaging providers, all to the benefit of
consumers.

By increasing innovation in the AIHS market, removal of the condition
will also stimulate broadband usage and deployment, another objective of
the Communications Act and the Commission. Since video streaming AIHS
services can be provided most effectively via broadband facilities, the
provision of new AIHS services could contribute to consumer demand for
broadband services, which may in turn strengthen incentives for
companies to bring broadband services to all areas of the country. These
public interest benefits are much more likely with AOL Time Warner as a
competitor in AIHS service; removal of the condition eliminates an
artificial barrier of entry and likely will improve the performance of
whatever market may develop.

While neither company has achieved the goal and potential public
interest benefit of the condition, instant messaging interoperability,
MSN and Yahoo! are clearly making headway in garnering market share in
the AIHS market. Meanwhile, AOL Time Warner is prohibited from providing
a competitive response to consumers over its broadband facilities as a
direct result of the condition, and the hypothesized competitive harms
from the combination of AOL's Internet services and Time Warner's
content and broadband facilities have not materialized.

As MSN and Yahoo! take the lead in providing these new services, there
is little incentive for them to achieve instant messaging
interoperability with AOL Time Warner, since to do so would allow AOL
Time Warner to enter the AIHS market. Thus, the consumer benefits from
keeping the condition are unprovable, while the harms from retaining it
are, at least to the majority, painfully apparent. I therefore support
the action taken today.

**STATEMENT OF**

**COMMISSIONERS MICHAEL J. COPPS AND JONATHAN S. ADELSTEIN,**

**DISSENTING**

Re: *Applications for Consent to the Transfer of Control of Licenses and
Section 214 Authorizations by Time Warner Inc. and America Online, Inc.
Transferors, to AOL Time Warner Inc., Transferee; CS Docket No. 00-30*

We respectfully dissent from the decision to eliminate the requirement
that AOL Time Warner achieve interoperability with other providers of
instant messaging (IM) services prior to offering new streaming video
services through advanced IM. We believe that the petitioner, AOL Time
Warner, has failed to meet its high burden of demonstrating by clear and
convincing evidence that this requirement no longer serves the public
interest due to a material change in circumstance.

In 2001, the Commission found that AOL was the dominant provider of
instant messaging services, a platform that the Commission anticipated
would become significant for launching and supporting other applications
taking advantage of presence detection and real-time communication. At
that time, AOL claimed it had 65 percent of the IM market, but that the
shares of other competitors, including Microsoft and Yahoo!, were
growing. While committing in principle to interoperability, the
Commission found that America Online had consistently blocked efforts by
others to interoperate. The Order concluded that the combination of
America Online's IM dominance, coupled with network effects and
resistance to interoperability, and Time Warner's content and high-speed
distribution assets, would threaten the public interest in open and
interoperable communications systems, the development of the Internet,
consumer choice, competition and innovation.

To address potential public interest harms to consumers that could
result from the combination of America Online's Internet assets and Time
Warner's content and broadband distribution facilities, the Commission
required AOL Time Warner, the dominant player in the market, to achieve
interoperability with other IM market participants. In this manner, all
consumers would benefit from an open Internet without bottleneck
controls on the free flow of information.

The condition specifically barred the merged company from offering an
advanced IM-based streaming video service until it had achieved or
contracted to achieve interoperability. The Commission, however,
recognized that this was a nascent market, and therefore, provided that
AOL Time Warner could seek relief from this condition by demonstrating
that circumstances had changed such that the public interest is no
longer be served by an interoperability condition. The Commission not
only held that the burden was on AOL to justify elimination of the
condition, but that it would have to meet the high burden of doing so
through "clear and convincing evidence." The Order settled on a clear
and convincing evidence standard to provide an avenue for relief, but
with a significant evidentiary hurdle, thereby ensuring a detailed
written motion and decision that would be sufficient to overcome the
fact findings and predictive judgments in the Order that led to the
public interest condition in the first place.

AOL Time Warner, in its petition, argues that circumstances have changed
because its market share has dropped from over 60 percent to 58 to 59
percent and remained there for four consecutive months (although the
share increased from the third to fourth month). Thus, AOL Time Warner
argues that the market has not tipped and it is not dominant in the
market. AOL Time Warner further argues that there is competition in the
market and high demand elasticity because consumers can use multiple IM
services essentially without cost.

Opponents of eliminating this requirement contend that AOL Time Warner
has seen only a small erosion of market share and continues to dominate
the market. They further contend that, because there has been a
significant increase in business IM users for whom the network effects
of the public IM network are not important, we need to focus on the
consumer IM market for our analysis. They note, however, that AOL Time
Warner provides only aggregated data, thus precluding useful conclusions
about competitive effects within the consumer IM market. In addition,
they worry that AOL Time Warner will use its position as market leader
to extract supra-competitive rates from content providers that seek to
reach its users. Finally, they argue that this requirement is even more
important today because AOL Time Warner has only recently begun to
market AOL Broadband for which advanced IM-based high-speed services are
relevant.

We conclude that AOL Time Warner has failed to show by clear and
convincing evidence the material change in circumstance that establishes
that the condition no longer serves the public interest. While AOL Time
Warner submits evidence that its market share eroded slightly over more
than two years while competitors have increased market share, we cannot
conclude that AOL Time Warner has made the requisite showing necessary
to eliminate this condition nor that relief from the condition is a fair
outcome for consumers.

Although the Commission's 2001 Order requires at a minimum that AOL Time
Warner must demonstrate that it has not been dominant for four
consecutive months, the majority conducts little economic analysis of
the market to determine if AOL Time Warner remains dominant and if the
predicted effects of the 2001 Order are not likely to occur. Today, as
in 2001, AOL Time Warner is the market leader in IM services. AOL Time
Warner continues to have a mass of users that is larger than all other
providers combined. It continues to have significant high-speed
distribution and content assets which could be incorporated into its IM
services. The IM market may be more mature now than in 2001, at least
with respect to narrowband, and AOL's market share may have eroded
slightly, but the majority has not conducted the requisite analysis of
these market changes and their implications for the public interest,
convenience, and necessity. As such, any removal of the condition is
premature and unwarranted.

The majority dismisses the opponents' argument that AOL Time Warner's
market data is improperly aggregated. The majority ignores the
opponents' unrebutted analysis, because it is not accompanied by
independent, disaggregated data. In doing so, the majority fundamentally
misallocates the burden of proof in this proceeding turning the standard
on its head and dismissing any critique of AOL's petition that is the
least bit incomplete, even if such critique raises substantial questions
about the sufficiency of AOL Time Warner's petition. Without such
information, there is even more reason to doubt whether AOL Time Warner,
or the Commission, has effectively measured or appreciated the relevant
market characteristics and their impact on the public interest.

Further, the majority's analysis is often inconsistent, particularly in
its discussion of interoperability within the IM market. For example,
since AOL's competitors have failed to interoperate, the majority
assumes that they must believe that they are competitive in the IM
market. In assessing AOL's failure to interoperate, however, the
majority assumes that this failure was not the result of a strategic
decision. The majority then presents evidence that Microsoft and AOL
Time Warner settled litigation between the companies by agreeing to
explore ways to establish interoperability between their IM networks,
thereby refuting the majority's previous analysis.

Moreover, the Order also does not adequately analyze the public interest
implications that might result from the removal of the condition.
Perfunctory claims that increased competition is in the public interest
are simply not enough, especially when we have no assurance that removal
of the condition will actually make the IM market more competitive in
the future. Among other things, the Order fails to undertake a
prospective market structure analysis or consider how removal of the
condition will affect AOL Time Warner's ability to leverage its leading
position in the IM market, IM interoperability, continuation of multi-IM
services such as Trillian, or continuation of IM service offerings
without subscription to another service. All could be potentially
affected if AOL Time Warner is freed from this requirement. The
Commission has no business voting to eliminate this public interest
requirement until it at least addresses these critical questions.

In sum, we are unable to conclude on this record that the petitioner has
carried its heavy burden of proof. As a matter of policy, the goal of
open, interoperable Internet communications services justified this
condition as serving the public interest, and nothing in the petition
convincingly shows otherwise.

[^1]: *In the Matter of Applications for Consent to the Transfer of
    Control of Licenses and Section 214 Authorizations by Time Warner
    Inc. and America Online, Inc., Transferors, to AOL Time Warner Inc.,
    Transferee*, 16 FCC Rcd 6547 (2001) (*Order*).

[^2]: AOL Time Warner Inc., *Petition for Removal of the Condition
    Restricting Its Provision of Advanced Instant Messaging-Based
    High-Speed Services (AIHS)*, CS Docket No. 00-30 (filed Apr. 2,
    2003) (Petition).

[^3]: Public Notice, DA 03-1092 (rel. Apr. 4, 2003).

[^4]: As is noted in their comment, Professors Faulhaber and Farber were
    on the staff of the Commission during consideration of the merger
    and advised Commission members and staff with respect to it.

[^5]: *Order*, 16 FCC Rcd at 6679 ¶ 325 (footnotes omitted).

[^6]: *Order*, 16 FCC Rcd at 6628 ¶¶ 195, 196.

[^7]: *Order*, 16 FCC Rcd at 6629 ¶ 200.

[^8]: Petition at 11; Petition, Rogerson Affidavit at 5. The Media
    Metrix data track usage data of AOL IM, AIM, ICQ, MSN Messenger, and
    Yahoo! Messenger. AOL Time Warner claims that this data set likely
    understates AOL's market share because it fails to include
    comparable data for other IM services in the market. Petition at 11,
    n.40. The data set covers the 36 month period from March 2000 to
    February 2003 and reports the number of users of each IM service on
    a monthly basis based on a sample of households. Rogerson Affidavit
    at 5.

[^9]: Petition at 11-12. AOL's proprietary IM services, AIM and ICQ,
    were the only significant IM services available prior to June 1999.
    Petition at 12, n.42. Yahoo! Messenger launched on June 21, 1999,
    and MSN Messenger launched on July 22, 1999. Petition, Rogerson
    Affidavit at 10, n.12.

[^10]: Petition, Rogerson Affidavit, Table 2 at 8.

[^11]: *Id.*

[^12]: Petition at 12. AOL notes that the Media Metrix IM usage data
    methodology has become more precise since the release of the *Order*
    because, as of October 2002, among other things, it now counts only
    those IM users who send or receive at least one instant message that
    month. Petition at 12, n.42; Petition, Rogerson Affidavit at 5-6,
    nn.7-8.

[^13]: *Order*, 16 FCC Rcd at 6628 ¶¶ 153-157.

[^14]: Faulhaber and Farber Comments at 2.

[^15]: *Id.*

[^16]: *Id.* at 3.

[^17]: Faulhaber and Farber Comments at 2.

[^18]: *Id.*

[^19]: *Id.*

[^20]: *Id.*

[^21]: BellSouth Comments at 3-4, n.6 (citing Charles S. Golvin, Chris
    Charron & Alanna Denton, "This is Not Your Teenager's Instant
    Messaging," The TechStrategy™ Report, Forrester Research, Inc.,
    February, 2003).

[^22]: BellSouth Comments at 3, n.6.

[^23]: *See*, *e.g.*, Paul David, "*CLIO and the Economics of QWERTY*,"
    [American Economic Review]{.smallcaps}: Papers and Proceedings, 1985
    at 332-337.

[^24]: Faulhaber and Farber Comments at 4.

[^25]: *See* AOL Time Warner and Microsoft Press Release at
    <http://www.microsoft.com/presspass/press/2003/May03/05-29MSAOLSettlementPR.asp>,
    dated May 29, 2003.

[^26]: Faulhaber and Farber Comments at 3-4; *see also* MCI Reply
    Comments at 2-3.

[^27]: *See* Cathleen Moore, "Messaging Convergence,"
    [InfoWorld]{.smallcaps}, Vol 25, Iss. 16, Apr. 21, 2003 at pp.
    27-28.

[^28]: *See*, *e.g.*, *Annual Report and Analysis of Competitive Market
    Conditions With Respect to Commercial Mobile Services*, Eighth
    Report, WT 02-379, FCC 03-150, at ¶ 13 (rel. July 14, 2003)
    (enhanced competition benefits consumers directly with increased
    choice, innovative service, and new technologies); *National Systems
    & Research Co.*, 17 FCC Rcd 12011 (2002) (benefits of competition
    for consumers include lower prices, innovation, and additional
    service options).

[^29]: *See* Petition at 5-6, 29.

[^30]: The Commission has found that introduction of a third competitor
    into a given market with two existing competitors can result in
    significant benefits for consumers. *See*, *e.g.*, *Amendment of the
    Commission's Space Station Licensing Rules and Policies*, FCC 03-102
    ¶ 64 (rel. May 19, 2003) (discussing benefits of a three firm market
    and presumption against three to two mergers and citing *FTC v. H.J.
    Heinz Co.*, 246 F.3d 708 (D.C. Cir. 2001)).

[^31]: *See* Petition at 5, 22-24; Yahoo! Messenger SuperWebcam at
    <http://messenger.yahoo.com/messenger/superwebcam/>, viewed May 15,
    2003; MSN Messenger Service at <http://messenger.msn.com/>, viewed
    May 15, 2003.

[^32]: *See* Section 706 of the Telecommunications Act of 1996, 47
    U.S.C. § 157 nt; *Appropriate Framework for Broadband Access to the
    Internet over Wireline Facilities*, 17 FCC Rcd 3019 (2002).

[^33]: *See*, *e.g.*, Kevin Werbach, "Digital Tornado: The Internet and
    Telecommunications Policy," OPP Working Paper No. 29, at 5 (Mar.
    1997) (finding that supply of high-capacity networks increases
    demand for bandwidth-intensive (broadband) services, and demand
    creates the need for additional capacity, resulting in a continuous
    "Internet feedback loop" or "spiral" of supply and demand).

[^34]: *See Applications for Consent to the Transfer of Control of
    Licenses and Section 214 Authorizations by Time Warner, Inc. and
    American Online, Transferors, to AOL Time Warner, Inc., Transferee*,
    16 FCC Rcd 6547, 6700-14 (2001) ("*Order*")*, Separate Statement of
    Commissioner Michael K. Powell*.

[^35]: The analysis of instant messaging can be found in the *Order*, 16
    FCC Rcd at 6603-30 ¶¶ 128-200.

[^36]: Even stable market shares would disprove tipping, because tipping
    is characterized by rapid growth in the largest market share, and
    rapidly declining market share for others. As I noted in my
    statement, the analysis was already undermined by developments in
    the market as the *Order* was being written. Two competitors (Yahoo!
    and Microsoft) had already gained substantial market share and were
    growing at a substantial rate.

[^37]: *See, e.g.,* *Memorandum Opinion and Order, 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's Rules (CC Docket No.
    98-141*)(Statement of Commissioner Michael K. Powell, Concurring in
    Part and Dissenting in Part)*(*"The conditions that are sought \[in
    mergers\] are more often surrogates for policies and rules of
    general, rather than merger-specific, applicability, but without the
    extensive deliberative process and the check of judicial review
    normally afforded a rulemaking.")

[^38]: Only two-and-one-half years are left before the condition expires
    on its own. Is it realistic to suppose that within that time a
    market will develop for AIHS, and AOL will still be able to use its
    vastly diminished position to dominate this market?

[^39]: Statement of Commissioners Michael J. Copps and Jonathan S.
    Adelstein, Dissenting, at 3.