![](media/image1.wmf){width="1.3125in" height="0.5743055555555555in"}

**Stephen C. Garavito** Room 1131M1

General Attorney 295 North Maple Avenue

Basking Ridge, NJ 07920

908-221-8100

FAX 908-630-3424

> February 18, 2000

[BY MESSENGER]{.underline}

To-Quyen Truong, Esq.

Associate Chief

Cable Services Bureau

Federal Communications Commission

445 12^th^ Street, SW

Washington, DC 20554

> Re: Ex Parte Presentation
>
> In the Matter of Applications for Transfer of Control to AT&T Corp.
> ("AT&T")
>
> of Licenses and Authorizations Held by MediaOne Group, Inc.
> ("MediaOne")
>
> [CS Docket 99-251]{.underline}

Dear Ms. Truong:

This letter responds to your request that we summarize our arguments
rebutting claims that AT&T might use its broadband Internet access
"dominance" to harm some Internet content providers by giving other
providers preferential caching or favored placement on Excite@Home or
Road Runner web pages.

As a threshold matter, AT&T and MediaOne dispute the major premises
underlying these claims: the assumptions that there is a separate
broadband market; that broadband service will quickly grow into the
predominant mode of access; and that cable modem services will represent
the predominant broadband services. In fact, cable modem and other
broadband service today is a tiny sliver of the online services market.
And, as our submissions in this proceeding have demonstrated and as the
Commission itself has found, cable modem services face competition from
DSL and a wide range of other broadband services. DSL has been growing
even faster than cable modem service,[^1] and may even overtake may
cable modem subscribership in the very near future.[^2] MCI WorldCom,
Sprint, Nextel, Hughes, Teledesic and others are making multi-billion
dollar investments in alternative broadband technology. All available
evidence suggests that there will be multiple competing broadband paths
into virtually all U.S. residences well before broadband Internet
services eclipse traditional narrowband services, and that no one (or
two) technologies, networks or providers are poised to dominate.

As we have explained in past filings,[^3] the fundamental
characteristics of caching and content placement foreclose any argument
that the Merged Entity could somehow "dominate" the Internet. Attempts
to institute preferential caching practices would be counterproductive,
because they would undercut network efficiency, angering customers; and
futile, because content providers could easily turn to any one of the
numerous caching services that are available from third parties to
enhance content delivery. Attempts to favor content providers through
favorable placement on the Excite@Home or Road Runner web pages would be
similarly futile, because e-businesses have myriad ways other than those
pages -- including TV, radio, and print advertising, and unaffiliated
Internet sites -- to advertise and gain exposure. In addition, AT&T has
pledged that customers will continue to be able to bypass those pages
completely, and obtain "one-click" access to the content of their
choice. These points are presented in more detail in the attached
papers.

We hope that this summary is useful as you complete your public interest
review of the applications. Please let us know if you require any
additional information. We are submitting two copies of this letter and
the attachments to the Secretary in accordance with Section 1.1206(b)(1)
of the Commission's Rules.

> Very truly yours,

/s/

> Stephen C. Garavito

/s/

Susan Eid

Cc: Deborah Lathen

Howard Shelanski\
Magalie Roman Salas

**[PREFERENTIAL CACHING WOULD BE COUNTERPRODUCTIVE AND
FUTILE]{.underline}**

-   **Preferential caching practices would cause network inefficiencies
    and result in higher costs.** Caching is a dynamic, reactive process
    driven entirely by customer usage patterns \-- *i.e.*, the web sites
    that customers visit most often are cached. Caching according to
    usage patterns is a matter of utmost importance to the economic and
    efficient operation and integrity of the networks. In the absence of
    usage pattern caching, each time customers accessed content from
    popular content providers who were not "preferred providers," the
    content would have to be delivered over the backbone networks of
    Excite@Home and Road Runner, rather than from the local proxy
    servers. To maintain standards adequate to attract and retain
    customers, Excite@Home and Road Runner would have to incur the costs
    of leasing more backbone, which would substantially raise bandwidth
    management costs.

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-   **Degrading any content lowers customers' perception of service
    value.** A caching strategy that degraded the delivery of rival
    content would harm customers' perception of the value of our
    broadband services. AT&T\'s customers judge the performance of
    AT&T\'s high-speed Internet services by how fast they can access the
    content *they* want. If their experience in obtaining that content
    is degraded, they will think less of the service, harming AT&T\'s
    ability to attract and retain customers.

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-   **Discriminatory caching would drive customers to other online
    service providers.** When the Excite@Home and Road Runner
    exclusivity periods run, and other online service providers offer
    service over AT&T cable systems under commercial arrangements with
    AT&T, those other providers will determine their own caching
    policies. Any AT&T strategy that could negatively affect customer
    perception of AT&T's service would simply drive customers to these
    competing services.

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-   **Content providers seeking to improve content delivery speed by
    network edge replication could simply turn to "content delivery"
    companies.** Caching can -- and does -- occur at many places not
    controlled by AT&T, Excite@Home or Road Runner. As detailed below,
    there are numerous "content delivery" companies that deal directly
    with content providers and use their own facilities to replicate
    bandwidth-heavy content closer to customers. If AT&T attempted to
    advantage one streaming media provider by not caching its rivals,
    the rivals could simply obtain local caching from a third party.
    Third party caching would not require the cooperation of AT&T,
    Excite@Home or Road Runner.[^4]

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-   **Providers of "content delivery" services are proliferating and
    prospering.** There are numerous content delivery services available
    to interested content providers. Akamai has a market capitalization
    of approximately \$25 billion; over 2000 servers (including servers
    collocated in the Road Runner network) with sufficient capacity to
    serve peak demand of the world's top 25 web sites combined; and over
    200 content-owner customers, including seven of the top 10 search
    sites, major portals such as the Go Network, Looksmart, Lycos and
    Yahoo, and over 75 e-businesses including CCNB.com, discovery.com,
    jcrew.com and marthastewart.com.[^5]

> Competing services include a venture between Digital Island, Inc., Sun
> Microsystems, Inc., and Inktomi Corp. to provide content delivery
> service over a 5,000 server network that has already signed up many
> content providers, including CNBC.com, ft.com, Blue Mountain Arts, PBS
> and Value America,[^6] as well as Mirror Image Internet (with funding
> from Hewlett Packard), AboveNet Communications Inc., and Adero.[^7]

**[PREFERENTIAL PLACEMENT PRACTICES WOULD NOT BENEFIT
AT&T]{.underline}**

-   **Preferential placement is futile when customers can bypass the
    AT&T home page and go directly to the home page of any portal or
    website.** Even if some e-businesses negotiate favorable advertising
    deals with Excite@Home and Road Runner for favorable placement on
    their home pages, the e-businesses' competitors would not be at any
    competitive disadvantages. All customers would still be able to
    access the content of rival e-businesses, and would be aware of
    their existence through traditional advertising media or other
    Internet advertising.

-   **Most e-businesses still use traditional advertising media.** There
    are myriad ways -- including TV, radio and print advertising -- for
    new e-businesses to advertise and gain exposure. Internet financial
    companies, for example, have the option of advertising in the Wall
    Street Journal, Bloomberg, Fortune, and Business Week. It is widely
    recognized that more traditional alternatives like TV and radio are
    much more effective than Internet advertising,[^8] which explains
    why e-businesses, like their "bricks-and-mortar" counterparts, spend
    far more of their advertising dollars on traditional media.[^9] CNET
    reportedly spends 91.7% of its advertising dollars on traditional
    media. Similarly, Priceline.com and Amazon.com spend 99.9% and
    90.7%, respectively, of their advertising dollars on traditional
    media.[^10] Internet companies that spend heavily on TV advertising
    quickly achieve far greater brand awareness than those that
    don't..[^11] That is why so many "dot-com" companies bought ads
    during the Super Bowl this year.[^12]

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-   **An ISP's home page is just one of many places to get exposure on
    the Internet.** Large percentages (up to 50 percent) of Excite@Home
    and Road Runner customers never even view the Excite@Home and Road
    Runner home pages. And even among those customers that maintain
    Excite@Home or Road Runner as their home page, most visit and spend
    considerably more time on popular portal sites like Yahoo.[^13] That
    is why Yahoo brings in almost twice as much advertising revenue as
    Excite@Home and Road Runner combined.[^14]

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-   **Much advertising takes place on Internet content sites.** Internet
    content sites such as CNET, PC World, and the Wall Street Journal
    generate more in Internet advertising revenues than Excite@Home and
    Road Runner combined.[^15]

-   **Alternative advertising still allows for \"broadband\"
    advertising.** Numerous companies that do not themselves offer
    broadband Internet service have equal ability to (and do) offer
    placement for "broadband" (*i.e.*, "rich media" or interactive)
    advertising. Recent technological advances will further strengthen
    the ability of a wide array of sites and providers to offer
    placement for "broadband" advertising. For example, content delivery
    pioneer Akamai now offers a service to website owners (and ISPs)
    that stores "rich-media" ads locally, allowing even narrowband users
    to view and enjoy rich-media ads.[^16]

DCDOCS:166276.1(3K@S01!.DOC)

[^1]: Sylvia Dennis, DSL Taking Off Big Time, Newsbyte News Network
    (Aug. 17, 1999); http://www.uswest.com/news/012600.html.

[^2]: Vito Racanelli, AOL-Time Warner Deal Leaves Baby Bells Unjustly
    Shunned, Baron's (Jan. 15, 2000) (Exhibit 3).

[^3]: On caching, *see*, *e.g.*, September 17, 1999 Reply Comments 73,
    92; Medin Declaration (submitted with Reply Comments) ¶¶ 19-20;
    November 24, 1999 Response to Commission\'s November 3, 1999 Request
    for Additional Information No. 23; December 14, 1999 Ex Parte Reply
    Comments 26-28; Medin Reply Declaration (submitted with Ex Parte
    Reply Comments) ¶¶ 15-19; Ordover/Willig Reply Declaration
    (submitted with Ex Parte Reply Comments) ¶¶ 51-52. Regarding access
    to content, *see*, *e.g.*, July 7, 1999 Transfer of Control
    Application 84-86; Medin Reply Declaration (submitted with Ex Parte
    Reply Comments) ¶ 14; Ordover/Willig Reply Declaration (submitted
    with Ex Parte Reply Comments) ¶¶ 45-50.

[^4]: If a streaming media provider, for example, wanted to improve
    delivery of its content to Excite@Home subscribers, it could simply
    collocate its servers at Excite@Home's peering points with MCI or
    any of the many other backbone providers with which Excite@Home
    interconnects. The streaming media provider could deal directly with
    MCI or it could hire a third party content delivery service that
    operates such collocated servers. In either case, AT&T would have no
    way noticeably to degrade performance from the rival provider
    (absent blocking all content from the rival's website, which AT&T
    has pledged not to do).

[^5]: *See*
    http://www.upside.com/texis/mvm/print-it?387e33d00&t+/texis/mvm/people/story;
    http://www.akamai.com/service/network.html;
    http://www.akamai.com/news/press537.html;
    http://www.akamai.com/news/press010500.html;
    http://www.akamai.com/news/press 010600.html.

[^6]: http://www.digisle.net/customers/all_customers.shtml. Inktomi also
    has an arrangement with Verio, Inc., the world's largest operator of
    business and e-commerce Web sites, under which Inktomi will provide
    Verio with content delivery infrastructure. *See*
    http://www.inktomi.com/ new/press/verio.html.

[^7]: *See*
    http://www.infoworld.com/articles/el/xml/99/12/21/991221elmirror.xml;
    http://www. mirror-image.com/press/frame_latest.cfm?news_item_id=35;
    http://www. mirror-image.com/services/ overview.html;
    http://www.adero.com/index.html.

[^8]: Richard Tomkins, Caught in a Tangled Web of Confusion, Financial
    Times, (Jan. 21, 2000). As one commentator puts it "Before the
    Internet, advertisers understood how to reach people effectively
    through both print and electronic media. They knew where to run ads,
    how to apply creative talent, and how to measure and understand the
    results. On the web, they haven't figured it out yet." Peter
    Schwartz, Internet Advertising is Going to Change. But How?, Red
    Herring, at 76 (Feb. 2000).

[^9]: *See* Morgan Stanley, The Internet Data Services Report, pp. 42-45
    (http:// www.msdw.com/ techresearch/inetdata/index.html). Forrester
    Research estimates that the typical dot.com company spent 63.4% of
    its ad dollars in traditional media in 1999 (with that number going
    up to 73.8% in 2004). *See* Jennifer Gilbert, *Gaining Credibility
    and Trust Central to Online Strategies*, Advertising Age Interactive
    Special Report Supplement, p. 72 (November 1, 1999). AP reports that
    Internet-related companies bought \$277 million in TV advertising in
    just the first 9 months of 1999. David Bauder, NBC Leads the Way
    with Richer Viewers, Internet Users (January 25, 2000).

[^10]: *See* Jennifer Gilbert, *Gaining Credibility and Trust Central to
    Online Strategies*, Advertising Age Interactive Special Report
    Supplement, p. 72 (November 1, 1999); *Top 25 Internet Advertisers*,
    Advertising Age, p. 41 (September 27, 1999); Amazon.com 10-K (March
    5, 1999).

[^11]: *See* Sylvia Dennis, On line Ad Growth Will Fail to Topple
    Broadcast Dominance, Newsbyte (Jan. 26, 2000) (Exhibit 11) (quoting
    Fletcher Research analyst Caroline Sceats).

[^12]: Kathryn Kranhold, The Real Action: Ad Bowl XXXIV, Wall Street
    Journal, at B1 (Jan. 28, 2000).

[^13]: Jupiter Communications estimates that 50% of persons that visit
    the Excite portal also visit Yahoo (but that only 27% of those that
    visit Yahoo visit Excite). Jupiter Communications, Portal Deals,
    Fig. II.20 (July 1999). *See also* *id.* (estimating that 32% of
    visitors to the Excite portal visit MSN; 42% visit Infoseek; 43%
    visit Netscape; 40% visit Lycos; and 24% visit Alta Vista).

[^14]: *See* The Strategis Group, Advertising on the Internet: 1999,
    Figure 9.7.

[^15]: *See* Morgan Stanley, The Internet Data Services Report, pp.
    42-45 (http://www.msdw.com/ techresearch/inetdata/index.html).

[^16]: *See* http://www. akamai.com/service/howitworks.html.
    Bluestreak.com's E\*banner 2.0 service employs a "bandwidth
    sniffing" technology that senses the speed of the end user's modem.
    The customer's computer then downloads only the discrete pieces of
    the ad that are needed in real-time. *See*
    http://www.bluestreak.com/pressrelease2.asp.