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Before the
               Federal Communications Commission
                     Washington, D.C. 20554
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
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CS Docket No. 00-30
                  MEMORANDUM OPINION AND ORDER
     Adopted:  January 11, 2001              Released:  January 22, 2001*
     By the Commission:  Chairman Kennard, Commissioners Ness and Tristani issuing separate
     statements; Commissioners Furchtgott-Roth and Powell concurring in part, dissenting in part, and
     issuing separate statements.
                       TABLE OF CONTENTS
     I.                                                     INTRODUCTION. . . . . . 1
     II.                                                    PUBLIC INTEREST FRAMEWORK . . . . . . 19
     III.                                                   BACKGROUND. . . . . . .27
          A.                                                The Applicants . . . . . . .27
          B.                                                Other Proceedings Relevant to the Application to Transfer Licenses.. . . . . .47
          C.                                                The Merger Transaction and the Application to Transfer Licenses. . . . . 50
     IV.                                                    ANALYSIS OF POTENTIAL PUBLIC INTEREST HARMS . . . . .52
          A.                                                High-Speed Internet Access Services. . . . . . .53
               1.                                           Background. . . . . . .62
               2.                                           Discussion. . . . . . .68
               3.                                           Conditions. . . . . . 126
          B.                                                Instant Messaging and Advanced IM-Based High-Speed Services. . . . . . .127
               1.                                           Background. . . . . . 133
               2.                                           Discussion. . . . . . 145
               3.                                           Condition . . . . . . 190
          C.                                                Video Programming. . . . . 200
               1.                                           Electronic Programming Guides . . . . . . 203
               2.                                           Broadcast Signal Carriage Issues. . . . . 207
               3.                                           Cable Horizontal Ownership Rules. . . . . 209
          D.                                                Interactive Television Services. . . . . .215
               1.                                           Background. . . . . . 217
               2.                                           Discussion. . . . . . 233
          E.                                                Multichannel Video Programming Distribution. . . . . . . 240
               1.                                           Common Ownership of DBS and Cable MVPDs . . . . . . 243
               2.                                           Program Access Issues . . . . . 248
          F.                                                Coordination With AT&T . . . . .253
               1.                                           Background. . . . . . 255
               2.                                           Discussion. . . . . . 261
          G.                                                Other Potential Public Interest Harms. . . . . 273
     V.                                                     ANALYSIS OF POTENTIAL PUBLIC INTEREST BENEFITS. . . . . .277
          A.                                                The Evidence . . . . .282
          B.                                                Discussion . . . . . .298
VI.  CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . 311
     VII.                                                   ORDERING CLAUSES. . . . . .312
Appendix A:  List of Timely Filed Comments
Appendix B:  Confidential Appendix
Appendix C:  List of Authorizations and Licenses
     I.   introduction
1.     In this Order, we consider the joint application ("Application") filed by America Online, Inc.
("AOL") and Time Warner Inc. ("Time Warner") (collectively the "Applicants") for approval to transfer
control of certain licenses and authorizations to AOL Time Warner Inc., a newly created company, pursuant
to Sections 214(a) and 310(d) of the Communications Act of 1934, as amended ("Communications Act").
The licenses to be transferred include the cable television relay service ("CARS") licenses that are essential
to the operation of the cable systems currently owned by Time Warner, which are in several respects the
critical asset involved in the combination of the two firms.  To obtain approval, the Applicants must
demonstrate that their proposed transaction will serve the public interest, convenience, and necessity.  In this
regard, we must weigh the potential public interest harms of the proposed merger against the potential public
interest benefits to ensure that the Applicants have shown that, on balance, the benefits outweigh the harms.
2.     The proposed merger of AOL and Time Warner was, at the time of its announcement, the largest
corporate merger in history.  The combination is remarkable not only for its size, but also for the nature of
the companies and the assets they control.  The proposed merger has attracted substantial public interest and
has come under scrutiny by several bodies other than this Commission, including the U.S. Congress, the
Federal Trade Commission ("FTC"), and the European Commission.  The unprecedented nature of the merger
creates more than the normal potential for controversy and confusion both about the merits and about the role
of the Commission's review.
3.     To minimize potential confusion, we begin with a summary overview of the foundation and
context of our decision.  We first describe the scope of the Commission's inquiry and its specific focus on
potential consequences of approving the proposed transfers on the rules, policies and objectives of the
Communications Act, and note several pervasive issues about whether and how those potential consequences
should be addressed by this Commission in the context of reviewing license transfer applications.  We then
briefly note from the standpoint of the Communications Act the most significant aspects of the companies and
assets that will combine if the transfers are approved.  Having established this context, we describe the major
issues that have been identified and will be discussed in the course of the decision.
4.     As the Commission has explained in prior merger orders, this Commission and the Federal Trade
Commission each have independent authority to examine communications mergers, but the standards
governing the Commission's review differ from the FTC's standards.  The FTC must examine whether a
merger will harm competition.  The Commission's review encompasses an examination of anticompetitive
effects but also evaluates, as explained in more detail below, the potential impact of the proposed transaction
on the rules, policies and objectives of the Communications Act.    Transactions that would violate the Act
will be rejected.  Transactions that would violate the Commission's rules may be allowed only if the
Commission waives the rules in question.  Transactions that do not violate the Act or the Commission's rules
are examined to determine whether they would otherwise substantially impair or frustrate the enforcement of
the Act or the objectives of the Act and whether the transaction would produce potential public interest
benefits in furtherance of Communications Act policies.  Among the major policies and objectives that may
be affected by significant mergers are preserving and enhancing competition in related markets, ensuring a
diversity of voices, and providing advanced telecommunications services to all Americans as quickly as
possible. To gain approval, an applicant bears the burden of establishing that the potential for benefits to the
public interest outweighs the potential for harms.
5.     The balancing of potential harms and benefits to the public interest is particularly appropriate in
the context of reviewing license transfer applications that are associated with significant mergers because such
mergers are likely to create potential for both good and ill.  For example, the same concentration of assets that
may support technological innovation by providing sufficient capital to take the necessary risks or by reducing
transaction costs may also allow the merged entity to create or enhance barriers to entry by its competitors.
As a result of this ambiguity, the outcome most favorable to the public interest, in terms of the policies and
objectives of the Communications Act, is often best achieved by allowing the transfers, and thus the associated
merger, to proceed (thus obtaining the positive benefits of the combination), but only subject to certain
conditions, either voluntarily agreed to or imposed by the Commission under its statutory authority, designed
to minimize the potential harms or increase the potential benefits.
6.     It is important to emphasize that the Commission's review focuses on the potential for harms and
benefits to the policies and objectives of the Communications Act that flow from the proposed transaction
i.e., harms and benefits that are "merger-specific."  The Commission recognizes and discourages the
temptation and tendency for parties to use the license transfer review proceeding as a forum to address or
influence various disputes with one or the other of the applicants that have little if any relationship to the
transaction or to the policies and objectives of the Communications Act.
7.     License transfer applications, even those associated with significant mergers, are adjudications
focused on particular parties.  Some have argued that the Commission should avoid in such proceedings
addressing significant issues that also apply to parties in the same industry other than the applicants, and
should deal with such industry-wide issues exclusively in rulemakings.  They point out the potential
unfairness of subjecting the license transfer applicants to a different standard that is not applicable to their
competitors and contend that rulemakings may offer a better opportunity for public comment focused on the
adoption of an industry-wide policy rather than on the facts of a particular merger.  While recognizing the
relative advantages of rulemakings in many circumstances, the Commission also recognizes the well-
established principle that administrative agencies have discretion to proceed by either adjudication or
rulemaking to decide such issues, and that the Commission must fulfill its responsibility in an adjudication to
decide the issues presented by that case.  In this case, the Commission is required to balance these
considerations and resolve them with respect to several of the major issues presented by the facts, including
one issue that is currently the subject of a notice of inquiry that may lead to a rulemaking proceeding.
8.     The proposed merger has been touted as a productive marriage of a new media giant with a
traditional media giant.  AOL has become one of the most significant forces in the Internet environment.  It is
the nation's and the world's largest Internet Service Provider ("ISP"), and serves about five times as many
narrowband subscribers as its nearest competitor.  AOL initially created and provided an online service,
separate and apart from the Internet, which was designed to provide the benefits of connecting to a network
of computers, including those of other AOL members and those of AOL itself, that provided collections of
information on various subjects.  AOL's online service was distinguished both by its emphasis on creating a
format that was "user friendly" to persons not otherwise familiar with computer networking and by its
aggressive marketing programs, which educated the general public as to the benefits and relative ease of
connecting to a computer network.  The development and increasing popularity of the World Wide Web
eventually led AOL to adapt its service to include access to the broader Internet, transforming AOL into an
ISP, and to allow access to AOL's online service over the Internet to persons who used other ISPs.  At the
same time, AOL has continued as an online service provider ("OSP") to provide a number of resources and
services to members who pay a monthly fee.  As the use of the Internet has grown in popularity, AOL has
continued to attract the largest share of users.  Moreover, as the commercial potential of the Internet has been
recognized, the value of AOL's large subscriber base has been recognized, as has the value of AOL's ability
to attract and hold its members to the services and information provided by AOL itself, as opposed to having
them go to other sites on the World Wide Web.  AOL's abilities to attract a large number of subscribers, to
keep them primarily "inside" its own services, and to negotiate contracts with other businesses that take
advantage of these abilities have provided a basis for a profitable business enterprise.
9.     Prior to the announcement of the proposed merger with Time Warner, AOL faced a threat to its
continued success in the Internet environment as a narrowband ISP and OSP, posed by the anticipated
migration of Internet users from narrowband access over ordinary telephone lines to high-speed access.  The
early leaders in providing high-speed Internet access have been cable television operators which, unlike
telephone companies, are not common carriers.  High-speed ISP service over cable systems is provided on an
exclusive basis by companies owned in large part by the cable companies, and AOL had been unable to
negotiate access to the cable systems on terms satisfactory to it.  In response, AOL developed relationships
with alternative providers of high-speed access, including high-speed Digital Subscriber Line ("DSL") service
provided over telephone lines and satellite broadcasting service.  In addition, AOL became the leading voice
in a movement led by narrowband ISPs to compel cable operators to allow competing ISPs to provide high-
speed access to the Internet over their cable systems.
10.     AOL also has the largest share of subscribers to services known as instant messaging ("IM"),
which allows subscribers to detect whether other identified subscribers are currently on-line (presence
detection), and to send and receive messages to other subscribers in essentially "real" time.  There are
competing versions of instant messaging software and most, including those controlled by AOL, are offered
without charge.  It is anticipated that IM will become a significant platform for launching and supporting
other applications that take advantage of the tools for presence detection and real-time communication.  At
present, with a few exceptions, the competing IM systems do not interoperate with one another i.e., a
member of one such system cannot detect the presence of or send messages to a member of a competing
system.  Competing systems have attempted to interoperate with AOL's system without AOL's consent.
While stating its commitment to the principle of interoperability, AOL has blocked these unauthorized efforts,
citing concerns for security, privacy and performance of its own system.  Finally, AOL has recently begun to
provide interactive television services ("ITV") that combine traditional video programming features with web-
based and other interactive features, viewed and used by consumers through their television sets.
11.    Time Warner is a conglomerate of many of the most successful traditional media companies.  It
holds one of the world's largest content libraries, comprised of innumerable print, film, television
programming, and music interests.  Time Warner delivers this content through magazines, records and its
cable holdings, the second largest in the nation.  In recent years, Time Warner leaped into the new media
world by creating, with other cable companies, Road Runner, the nation's second largest broadband ISP,
which Time Warner controls.  Most of Time Warner's cable systems are owned and operated by Time Warner
Entertainment ("TWE"), a partnership in which Time Warner has a 75% stake.  As a result of the merger of
AT&T Corp. ("AT&T") and MediaOne, AT&T owns the remaining 25%.  Thus Time Warner already
represents a vertical integration of substantial programming (content) and distribution (conduit) assets.
12.    This proposed merger at this particular point raises a number of issues with respect to the policies
of the Communications Act that have generated intense public comment.  The Internet is widely recognized as
a major source of innovation and economic growth in recent years.  The conditions which allowed that
explosive growth and innovation to occur included substantial initial public investment and an architecture
that encouraged innovation by reducing barriers to entry and ensuring competition on the merits.  Competition
among narrowband ISPs has been open because of the common carrier telephone network over which they
offer their services.  As already noted, the proposed merger has been motivated in large part by the anticipated
migration of ISPs' customers from the regulated common carrier telephone network to broadband conduits,
primarily cable systems, which are not common carriers.  The policies of the Communications Act that are
potentially implicated by this shift, and by this proposed merger, include the preference for competitive
telecommunications markets, the existence of diverse platforms and providers, the promotion of innovation,
and rapid deployment of advanced telecommunications services.
13.    From a competition standpoint, vertical integration can create potential problems when the
integrated company has market power at one or more of the levels of integration.  Concerns about the
integration of video programming content and the cable conduit are addressed in statutory provisions and
Commission rules, such as the horizontal ownership cap and the channel occupancy rules.  These provisions,
however, do not necessarily apply to or resolve the similar concerns raised by the proposed merger with
respect to the integration of the existing Time Warner combination of content and conduit with AOL's online
services in the residential market.  As Congress and this Commission have recognized, market power exists on
the Time Warner side in the cable assets.  On the AOL side, market power arguably exists both in AOL's
position as the leading narrowband ISP and in AOL's instant messaging network.
14.    A number of the comments reflect fears of the potential anticompetitive impacts that could flow
from the unprecedented combination of assets that the merger represents.  Our task in evaluating the
comments is more difficult because of the rapid development of the technologies and products involved and the
ambiguous nature of some of the merger's predicted impacts.  For instance, several of the most controversial
issues relating to the proposed merger involve products and markets that have only recently developed or that
are only anticipated and yet commenters urge that if some conditions are not placed on the merger at this
point, harms will occur so rapidly that much more onerous intervention will be required to cure them later.
15.    We recognize that there is a difference between intervention to preserve a level of competition that
will allow a market to operate effectively and the kind of substantial regulatory intervention that is required
to compensate in markets where sufficient competition is lacking.  The 1996 Act reflects a clear preference
that competitive markets, as opposed to regulated monopolies, be created and preserved as the mechanism for
economic decision making.  Mergers can reflect the healthy operation of competition, creating more efficient
collections of assets; but they can also threaten its continued existence, eliminating competitors or creating
opportunities to disadvantage rivals in anticompetitive ways.  We are guided both by the desire to avoid
intervention and the realization that some degree of timely intervention to preserve competition may avoid a
later need for more onerous intervention to either regulate where competition has disappeared or to attempt to
reintroduce competition once it has been eliminated.
16.    We also recognize that the same consequences of a proposed merger that are beneficial in one
sense may be harmful in another.  For instance, combining assets may allow the merged firm to reduce
transaction costs and offer new products; but if the merged firm has market power, these advantages may
operate to consolidate that power.
17.    In its review of the instant merger, the FTC found that the merger would harm competition in the
residential Internet access marketplace and imposed conditions on the merging parties requiring them to afford
access to Time Warner's cable plant to unaffiliated ISPs, requiring them not to discriminate against
unaffiliated content under certain circumstances, requiring AOL Time Warner to market AOL's DSL services
in the same manner and at the same retail price in Time Warner cable areas as in other areas, and to hold
separate Road Runner, a cable ISP, from AOL's ISP service until AOL Time Warner offers an unaffiliated
ISP on all AOL Time Warner cable systems.
18.    After reviewing the comments filed in this proceeding, we find that, subject to certain conditions
designed to mitigate merger-specific harms, and in light of the terms of the FTC Consent Agreement, the
public interest benefits of the proposed merger outweigh the public interest harms.  Among many issues raised
by commenters, we focus particularly on four potential harms.  First, we find that the proposed merger would
give AOL Time Warner the ability and incentive to harm consumers in the residential high-speed Internet
access services market by blocking unaffiliated ISPs' access to Time Warner cable facilities and by otherwise
discriminating against unaffiliated ISPs in the rates, terms and conditions of access.  To remedy this harm, this
Order conditions approval of the merger on certain conditions relating to AOL Time Warner's contracts and
negotiations with unaffiliated ISPs.  Second, we find that the merger would make it more likely that AOL
Time Warner would be able to solidify its dominance in the high-speed access market by obtaining preferential
carriage rights for AOL on the facilities of other cable operators.  We particularly find that the merger would
harm the public interest by allowing for greater coordinated action between AOL Time Warner and AT&T in
the provision of residential high-speed Internet access services.  To remedy these harms, we impose a
condition forbidding the merged firm from entering into contracts with AT&T that would give AOL exclusive
carriage or preferential terms, conditions and prices.  Third, we find that the proposed merger would enable
AOL Time Warner to dominate the next generation of advanced IM-based applications.  To remedy this harm,
we impose a condition requiring AOL Time Warner, before it may offer an advanced IM-based application
that includes streaming video, to provide interoperability between its NPD-based applications and those of
other providers, or to show by clear and convincing evidence that circumstances have changed such that the
public interest will no longer be served by an interoperability condition.  Fourth, although we have concerns
that the merger may give AOL Time Warner the ability and the incentive to discriminate against the
interactive television ("ITV") services of unaffiliated video programming networks, we find that the terms of
the FTC Consent Agreement will adequately protect the public interest by prohibiting certain types of
discrimination and that it is not necessary for us to impose further conditions in this proceeding; however, we
have initiated a Notice of Inquiry ("ITV NOI") to explore ITV issues in the market generally.  Subject to the
conditions described above, we find that the proposed merger will serve the public interest.
     XIX. PUBLIC INTEREST FRAMEWORK
20.     Sections 214(a) and 310(d) of the Communications Act require the Commission to determine
whether the Applicants have demonstrated that the public interest would be served by transferring control of
AOL's and Time Warner's Commission license authorizations to AOL Time Warner.  Our statutory
mandate, confirmed by our precedent, requires that we weigh the potential public interest harms of the
proposed transaction against the potential public interest benefits to ensure that the Applicants have
demonstrated that, on balance, the merger serves the public interest and convenience.  The Applicants bear
the burden of proving that the transfer will advance the public interest.
21.    In conducting its public interest inquiry, the Commission examines four overriding questions:
(1) whether the transaction would result in a violation of the Communications Act or any other applicable
statutory provision; (2) whether the transaction would result in a violation of the Commission's rules; (3)
whether the transaction would substantially frustrate or impair the Commission's implementation or
enforcement of the Communications Act and/or other related statutes, or would interfere with the objectives
of the Communications Act and/or other related statutes; and (4) whether the transaction promises to yield
affirmative public interest benefits.
22.    The Commission's analysis of public interest benefits and harms includes, but is not limited to,
an analysis of the potential competitive effects of the transaction, as informed by traditional antitrust
principles.  While an antitrust analysis, such as that undertaken by the Department of Justice or, in this case,
the Federal Trade Commission, focuses solely on whether the effect of a proposed merger "may be
substantially to lessen competition," the Communications Act requires the Commission to make an
independent public interest determination, which includes evaluating public interest benefits or harms of the
merger's likely effect on future competition. To find that a merger is in the public interest, therefore, the
Commission must "be convinced that it will enhance competition."
23.    Our public interest evaluation necessarily encompasses the "broad aims of the Communications
Act." These broad aims include, among other things, ensuring the existence of a nationwide communications
service, available to everyone; implementation of Congress's pro-competitive, deregulatory national policy
framework designed to open all telecommunications markets to competition; the preservation and advancement
of universal service; and the acceleration of private sector deployment of advanced services.  Our public
interest analysis may also entail assessing whether the merger will affect the quality of telecommunications
services or will result in the provision of new or additional services to consumers. Thus, apart from
traditional antitrust concerns, we are required to consider, among other things, whether the proposed merger
will further the statutory goals of "assur[ing] that cable communications provide and are encouraged to
provide the widest possible diversity of information sources and services to the public," and "promot[ing]
competition in the delivery of diverse sources of video programming  . . ."
24.    The Supreme Court has found that decentralization of information production serves values that
are central to the First Amendment. Indeed, the Court has repeatedly emphasized the Commission's duty and
authority under the Communications Act to promote diversity and competition among media voices: It has
long been a basic tenet of national communications policy that "the widest possible dissemination of
information from diverse and antagonistic sources is essential to the welfare of the public." Accordingly, the
Court had "no difficulty" in concluding that the Commission's interest in "promoting widespread
dissemination of information from a multiplicity of sources" is "an important governmental interest."
25.    Following passage of the 1996 Act, local telecommunications markets have been undergoing a
transition to competitive markets.  Therefore, a transaction may have predictable yet dramatic consequences
for competition over time even if the immediate effect is more modest. When a transaction is likely to affect
local communications markets, our statutory obligation requires us to assess future as well as current market
conditions. In doing so, the Commission may rely on its specialized judgment and expertise to render informed
predictions about future market conditions and the likelihood of success of individual market participants.
26.    Where necessary, the Commission can attach conditions to a transfer of licenses and
authorizations in order to ensure that the public interest is served by the transaction.  Section 214(c) of the
Communications Act authorizes the Commission to attach to the certificate "such terms and conditions as in
its judgment the public convenience may require."  Similarly, section 303(r) of the Communications Act
authorizes the Commission to prescribe restrictions or conditions, not inconsistent with law, that may be
necessary to carry out the provisions of the Act.  Indeed, unlike the role of antitrust enforcement agencies,
the Commission's public interest authority enables it to impose and enforce certain types of conditions that
result in a merger yielding overall positive public interest benefits.
27.    Where a license transfer applications shows that the merger would yield affirmative public
interest benefits and would not violate the Communications Act or Commission rules, nor frustrate or
undermine policies and enforcement of the Communications Act, there is no need for extensive review and
expenditure of considerable resources by the Commission and interested parties.  This is not the case with
regard to this proposed transaction. We analyze the potential public interest harms and benefits of this
proposed merger, absent conditions, in the next sections.
     XXVIII.   Background
          A.   The Applicants
29.    AOL.  AOL is divided into four operating groups, the Interactive Services Group, the Interactive
Properties Group, the AOL International Group, and the Enterprise Solutions Group.  These groups provide
interactive service, Web brands, Internet technologies and electronic commerce ('e-commerce') services.  For
the twelve months ending June 30, 2000, AOL earned $6.9 billion in revenues.  Subscription services
accounted for $4.4 billion, advertising, commerce and other related services accounted for just under $2
billion, and "Enterprise Solutions" accounted for the remaining $500 million in revenues.  AOL's net income
for this period totaled $1.2 billion.  For the first quarter of its fiscal year 2001, AOL reported $2.0 billion in
revenue.
30.    Interactive Services.  The Interactive Services Group operates branded interactive services such
as AOL's flagship ISP AOL Internet service.  This fee-based service provides Internet access and specialized
content to more than 26 million subscribers.  AOL's ISP content includes news, entertainment, health, travel,
sports, and finance information organized into "channels" from which subscribers can choose.  Included
among AOL's numerous corporate partners that provide it with content and advertising are American Airlines,
Budget Rent-a-Car, Sesame Street, Toys-R-Us, Barnes and Noble, Amazon.com, Godiva Chocolatier, JC
Penney, Wal-Mart, Coca Cola, Proctor and Gamble, Avon, and CBS News.  A non-exhaustive list of
additional features that the AOL service affords members includes e-mail, public bulletin boards, and the
"Buddy List" feature (allowing members to discern whether fellow members are online simultaneously).
The AOL ISP service also includes AOL Plus, AOL's broadband Internet access service and enhanced
content.  AOL also offers the CompuServe ISP service, which has 2.8 million subscribers worldwide.
31.    An additional feature offered by AOL to its subscribers is IM.  In its simplest form, IM enables
the almost instantaneous exchange of short text messages over the Internet between a person ("the sender")
and another person ("the recipient") chosen by the sender.  AOL also offers IM software, known as AOL
Instant Messenger ("AIM") to non-AOL subscribers free of charge.  AOL has AIM co-branding
arrangements with numerous companies, including Apple, BellSouth Mobility, DigitalWork.com, EarthLink
Communications, Juno, IBM, Lycos, Motorola, Net2Phone, Nokia, Oxygen Media, RealNetworks, and TV
Guide.  AOL also owns another IM service, ICQ.  AOL is, by far, the largest provider of IM.
32.    The Interactive Services Group also oversees AOLTV, an advanced interactive television service.
AOLTV enables subscribers to access AOL features, such as chat rooms, e-mail, and IM through an interface
overlaid on their television screens.  In addition, AOLTV offers interactive content and information tailored
to the specific video programming being viewed.  Selected retailers started selling AOLTV set-top boxes in
June 2000.  The boxes retail for $200-300.  In addition, consumers must pay a monthly subscription fee to
receive the service.  AOLTV services can also be purchased directly from AOLTV's website.  AOL has
plans to develop an AOLTV integrated cable set-top box, as well as an integrated DirecTV set-top box.
33.    Interactive Properties Group.  The Interactive Properties Group includes Digital City,
MovieFone, Spinner, WINamp, and ICQ.  Digital City provides Internet local content and community guides
that include news, sports, weather and entertainment information, as well as an interactive forum.   Digital
City provides this information for 200 markets.  According to AOL, Digital City averages 40 million page
views a week, and has 2,000 interactive marketing partners.  AOL MovieFone is a movie guide and ticketing
service customers can access either through a toll-free number or the MovieFone.com web site.  Prior to the
merger, AOL MovieFone had entered into advertising agreements with Time Warner film companies, Warner
Bros. and New Line Cinema.  Spinner is a web site that allows users to listen to music organized into
channels, and to purchase the music directly through the web site.  WINamp is a branded MP3 player that
allows users to listen to and download music.  The WINamp web site also hosts numerous Internet radio
stations.
34.    AOL International Group.  The AOL International Group oversees the AOL and CompuServe
services outside the United States. AOL and CompuServe offer their branded services through joint ventures
or distribution arrangements in Australia, Austria, Canada, France, Germany, Japan, the Netherlands,
Sweden, Switzerland, and the United Kingdom.  America Online Latin America, Inc. is a leading Latin
American Internet and interactive service provider.  AOL owns approximately 80% of America Online Latin
America.
35.    Enterprise Solutions Business Products and Services. The Netscape Enterprise Group is the
primary product group in AOL's Enterprise Solutions division. The Netscape Enterprise Group develops,
markets, sells and supports a broad suite of enterprise software that consists of electronic commerce
infrastructure and electronic commerce applications targeted primarily at corporate intranets and extranets, as
well as the Internet. In November 1998, AOL entered into a strategic electronic commerce alliance with Sun
MicroSystems, which is now referred to as the Sun-Netscape Alliance. The alliance builds and markets on a
collaborative basis end-to-end electronic commerce solutions to help business partners and other companies
put their businesses online.
36.    Ownership Interest in General Motors Corporation-Hughes Electronics Corporation.  In 1999,
AOL invested $1.5 billion in General Motors Corporation ("GM"), the parent company of Hughes Electronics
Corporation ("Hughes"), to "accelerate the development of" Direct Broadcast Satellite ("DBS") "as a
platform for the next generation of Internet services."  This investment is in the form of GM's "Series H
6.25% Automatically Convertible Preference Stock."  Hughes is the parent company of DirecTV, the
country's largest DBS provider, and DirectPC, a high-speed satellite ISP.
37.    Telephony.  AOL has ownership stakes in two companies that offer telephony services,
Talk.Com, Inc. and Net2Phone, Inc. AOL owns 6.26% of Talk.com.  Talk.com offers local
telecommunications services, including outbound long-distance service, local service, inbound toll-free service,
and dedicated data line services.  Among its calling plans is AOL Long Distance, a plan offered exclusively
to AOL members.  AOL also owns 4.63% of Net2Phone's capital stock.  AOL's ownership of this stock
gives it 5.14% of the total voting power of the company. Net2Phone provides Internet telephony, a service
that allows users to make low-cost telephone calls over the Internet.  It also provides technology to integrate
live voice capabilities into the Web.
38.    Time Warner.  Time Warner is a worldwide media and entertainment company.  It creates and
distributes branded content through the business interests described in detail in this section.  Time Warner
reported overall 1999 revenues of $27.3 billion, and operating income of $7.3 billion.
39.    Cable Systems and MVPD Services.  Time Warner, the second largest cable provider in the
country, serves 12.7 million subscribers through cable systems that pass approximately 21 million homes.
Time Warner cable systems serve approximately 18.9 % of the 67 million cable subscribers nationwide and
15.4% of the 82 million subscribers to multichannel video programming distribution ("MVPD") systems
nationwide.
40.    Time Warner's cable systems are held through three entities managed by Time Warner Cable:
Time Warner Entertainment ("TWE"), Time Warner Entertainment   Advance/Newhouse Partnership
("TWE-A/N"), and TWI Cable, Inc. ("TWI Cable"). TWE is a limited partnership; Time Warner owns
74.5% of TWE.  The remaining 25.5% is owned by AT&T as a result of its purchase of MediaOne Group,
Inc. TWE serves approximately 4.2 million basic cable subscribers.  TWI Cable, which serves
approximately 1.8 million subscribers, is an indirect wholly-owned subsidiary of Time Warner.  TWE-A/N
is a general partnership owned by TWE, TWI Cable, and Advance/Newhouse Partnership.  TWE-A/N
serves approximately 6.7 cable million subscribers.  Time Warner's partnership interest in TWE-A/N, held
through TWE and TWI Cable, totals approximately 67%.
41.    Internet Services. Time Warner controls Road Runner, a joint venture that provides high-speed
Internet access and content optimized for broadband networks to more than 1.1 million subscribers, of whom
more than 719,000 are served by Timer Warner Cable systems.  Road Runner is available in cable systems
passing more than 19.5 million homes. As of December 31, 1999, after conversion of all preferred interests,
Road Runner was owned 8.6% by TWI Cable, 20% by TWE, 26.3% by TWE-A/N, 25.1% by AT&T, and
10% each by Microsoft and Compaq.  Pursuant to a consent decree with the United States Department of
Justice ("DOJ"), entered into as a condition of the AT&T-MediaOne merger, AT&T must divest its direct
interest in Road Runner no later than December 31, 2001.  Time Warner and AT&T recently announced a
restructuring of Road Runner that is the first step in AT&T's divestiture of its interest in Road Runner in
compliance with the DOJ Consent Decree.  The restructuring is anticipated to be completed by April 2001.
42.    Video Programming Networks.  Time Warner holds interests in numerous national, international
and regional programming networks.  These interests are divided into three entities:  TBS Entertainment,
CNN News Group, and Home Box Office ("HBO").  TBS Entertainment and CNN News Group are each
indirectly wholly owned by Time Warner.  CNN News Group includes CNN, CNN Headline News, CNN/SI,
and CNNfn.  CNN, a 24-hour per day cable television news service, is available to more than 77 million
U.S. MVPD subscribers.  In 1999, CNN had nine of the ten highest-rated regularly scheduled basic cable
news programs.  TBS Entertainment includes TBS, TNT, Turner Classic Movies, Cartoon Network and
Turner South.  Three of TBS Entertainment's stations were among the five top-rated basic cable networks
in 1999.  TBS and TNT each are available to over 75 million subscribers.  Additionally, through wholly
owned subsidiaries of TBS, Time Warner owns three Atlanta-based sports franchises:  the Atlanta Braves of
Major League Baseball, the Atlanta Hawks of the National Basketball Association, and the Atlanta Thrashers
of the National Hockey League.  HBO is wholly owned by TWE.  HBO offers premium programming
channels such as Home Box Office and Cinemax.  These channels had almost 36 million subscribers in
1999.  In addition, Time Warner Cable operates 24-hour local news channels in New York City; Tampa
Bay; Orlando; Rochester, New York; and Austin, Texas.
43.    Publishing Interests.  Time Warner's publishing division includes magazines, book publishing,
book-of-the-month clubs, and interactive media sites.  Time, Inc. publishes 36 magazines that reach
approximately 200 million readers.  These magazines include Time, People, Sports Illustrated, Money, and
Fortune.  Each of these magazines also has an affiliated website.  In 1999, Time Warner magazines
accounted for 22.6% of total advertising revenue in consumer magazines, as measured by the Publishers
Information Bureau.
44.    Music.  Time Warner's music division, Warner Music Group ("WMG"), consists of interests in
recorded music and music publishing.  WMG includes record labels such as Atlantic, Elektra, Rhino, Sire,
Warner Bros. Records, and Warner Music International.  The Applicants have worked together to cross-
promote WMG properties.  A WMG subsidiary and AOL's Spinner.com, an Internet streaming music service,
cross-promoted a recording earlier this year, and cross-promoted musicians on one of Spinner.com's
channels.  Maverick Recording Co., another WMG record label, and AOL have partnered to provide music
and premiere recordings on AOL's Entertainment Channel and Spinner.com.
45.    Filmed Entertainment.  Time Warner's filmed entertainment businesses primarily consist of the
production and distribution of films and television programming.  Its component companies include Warner
Bros. Pictures, New Line Cinema, Castle Rock, Warner Home Video, and Telepictures Productions.  During
1999, Warner Bros. Pictures released 25 motion pictures for theatrical distribution.  Through its other film
lines, Time Warner released more than 20 additional films in 1999.  Time Warner's television programming
interests include ownership of a library containing 5,700 feature films, 32,000 television titles, 12,000
animated titles, and 1,500 animated shorts.  Warner Bros. Television ("WBTV") produces various
primetime dramatic and comedy programming for major networks.
46.    The WB Television Network.  Time Warner is the majority owner of The WB Television Network
("The WB").  The WB is a broadcast network that reaches 83% of all U.S. households.  The WB
broadcasts 13 hours of series programming per week; its children's network, Kids' WB!, airs 19 hours of
programming per week.
47.    Telephony.  Time Warner provides both residential and business telephony services.  Time
Warner residential telephony service is offered by Time Warner Cable ("TWC").   TWC has offered circuit-
switched service in Rochester, New York since 1994. TWC also provides residential telephony service in
Portland, Maine to a limited number of its cable customers in that market.  In February 1999, eleven
months prior to the announcement of the intended AOL and Time Warner merger, Time Warner and AT&T
signed a preliminary letter of intent for a cable telephony joint venture.  While the joint venture has not yet
been launched, Time Warner and AT&T continue to have ongoing discussions regarding the provision of
residential telephony to Time Warner's cable subscribers.  Time Warner and AT&T have also signed joint
marketing agreements to provide incentives to individuals in Albany and Syracuse, New York to subscribe to
both Time Warner cable service and AT&T long distance service.  According to Time Warner, "AT&T and
Time Warner Cable will offer other long distance and cable television incentives and will engage in
[additional] joint telemarketing efforts."  Finally, Time Warner, through its subsidiary Time Warner
Connect, has received certification as a competitive local exchange carrier ("LEC"), allowing it to offer
residential telephony in California, Florida, Ohio and Texas.
48.    Time Warner serves businesses through Time Warner Telecom, Inc. ("TWT"), a facilities-based
communications provider serving large businesses.  TWT offers businesses "last mile" broadband
connections for data, high-speed Internet, local voice and long-distance services.  TWT is certified to offer
telecommunications services in 21 metropolitan areas in 12 states.  As of December 31, 1999, TWT's
network included almost 8,900 route miles, 333,00 fiber miles and offered service to 5,566 buildings.
During 1999, TWT's investment in its communications networks exceeded $556 million. TWT anticipated
that it would commit approximately $350 million in 2000 to fund its capital expenditures for current operating
areas its expansion plans.
1      Other Proceedings Relevant to the Application to Transfer Licenses.
1.     Federal Trade Commission Review. In addition to Commission review, the proposed merger is
subject to review by the FTC.  The FTC recently approved the merger, subject to certain conditions.  The
FTC Consent Agreement requires, among other provisions discussed below:  (1) that AOL Time Warner make
available to subscribers at least one unaffiliated ISP on Time Warner's cable systems before AOL itself
begins offering service; that AOL Time Warner allow two other unaffiliated ISPs onto its cable systems
within 90 days after AOL's commencement of service; and that AOL Time Warner negotiate in good faith for
non-discriminatory access to its cable systems with any ISPs requesting such access; (2) that AOL Time
Warner not interfere with content passed along the bandwidth contracted for by unaffiliated ISPs, or
discriminate on the basis of affiliation in the transmission of content that AOL Time Warner has contracted
to deliver to subscribers over their cable systems; and (3) that AOL Time Warner market and offer AOL's
DSL services in the same manner and at the same retail price in Time Warner cable areas where affiliated
cable-based Internet access service is available, as in those areas where affiliated cable-based Internet access
service is not available.  The FTC also required, in a separate order, that AOL Time Warner hold separate
Road Runner and AOL until such time that it offers over all of its cable properties an unaffiliated ISP.
2.     European Commission Review.  On October 11, 2000, the European Commission (the "EC")
granted conditional approval to the Applicants' proposed merger.   The EC's approval was conditioned
upon AOL's agreement to sever all structural links between itself and the German multi-media company
Bertelsmann AG.  The EC did not address concerns with respect to the European market for residential
high-speed Internet access, stating that the Applicants do not have a "broadband infrastructure in Europe."
3.     Local Franchising Authority Review.  As of September 14, 2000, Applicants had completed
initial regulatory filings with approximately 1,150 local franchising authorities.  Pursuant to Section 617 of
the Communications Act, local franchising authorities with jurisdiction to review transfers or sales of cable
systems have 120 days from the date of Applicants' request for a franchise transfer to render a decision.  As
of September 14, the Applicants had received approval from, or did not need to receive approval from,
communities covering approximately 99.63% of total subscribers served by Time Warner Cable.  Three
communities denied the request to transfer.  Subsequently, one of these communities reconsidered and
granted approval.
1      The Merger Transaction and the Application to Transfer Licenses
1.     Proposed Transaction.   On January 10, 2000, AOL and Time Warner agreed to merge in a
stock-for-stock transaction whereby each will become a wholly owned subsidiary of AOL Time Warner.
Under the merger agreement, Time Warner and AOL stock will be converted into AOL Time Warner stock at
fixed exchange ratios: Time Warner shareholders will receive 45% of the new corporation, and AOL
shareholders will receive 55%, each on a fully diluted basis.  Upon the merger's completion, ownership and
control of all entities holding FCC licenses are to be transferred from Time Warner and AOL individually to
the newly formed AOL Time Warner.  Currently, Time Warner holds numerous Commission licenses
associated with its cable television systems, broadcast stations, and telephony ventures.
2.     The merger would join the nation's largest ISP, AOL, with the nation's second largest cable
operator, Time Warner.  The Applicants believe that the combined company will spur the development of
residential broadband service, and bring next-generation multimedia content and powerful e-commerce
applications to consumers.  The Applicants also contend that their combination will create new
opportunities for interactive entertainment, news, online services, music, publishing, and film distribution.
The Applicants aver that their merger will lead to a solution to the "cable access" issue, and to the provision
of multiple ISPs over the cable platform.  In particular, AOL and Time Warner point to their Memorandum
of Understanding Regarding Open Access Business Platforms (the "MOU"), into which the Applicants
entered shortly after agreeing to merge, as a "turning point" in the effort to promote a "vigorously competitive
marketplace for broadband Internet services."
     III. Analysis of Potential public interest harms
4.     Parties opposing the merger have alleged that the combination of AOL and Time Warner will
harm the public interest with respect to the provision of various services.  We address below the effects of the
merger on only those services that may be affected adversely by the merger, based on commenters' allegations
and our own analysis.  Specifically, we examine the merger's potential effects on (1) high-speed Internet
access services, (2) services based on instant messaging, (3) interactive television services, (4) electronic
programming guides, (5) carriage of television broadcast signals, (6) increased concentration among MVPDs,
and (7) competition among MVPDs. In addition, we examine the merger's potential public interest harms in
light of AOL Time Warner's ownership and contractual relationships with AT&T Corp.
          A.   High-Speed Internet Access Services
5.     In this section, we examine the effects of the proposed merger on competition in residential high-
speed Internet access services.  We again confront in the merger context whether to impose some conditions
regarding access to the cable platform for unaffiliated ISPs seeking to provide these services.  The Applicants
have argued that (i) this case is indistinguishable from prior cases such as AT&T-MediaOne in which the
Commission declined to require AT&T to open its cable networks to unaffiliated ISPs, and (ii) imposing an
access condition here is inconsistent with the Commission's pending Notice of Inquiry on high-speed Internet
access ("Cable Access NOI"), which explores the need for rules of general applicability.  We disagree.
6.     We find that the circumstances presented by these applications are dramatically different from
those presented in our former cases, and compel a different result.  AOL is by far the largest narrowband ISP
and has been the leading advocate and supporter of the "open access" movement. The proposed merger
represents a substantial shift in strategy for AOL and a dramatic change in the ISP/cable system landscape.
AOL seeks to purchase the second largest cable system in the country and would obtain in the transaction
programming assets that could give it even greater bargaining power to negotiate access to other cable
systems.  After the merger, AOL would have a unique concentration of assets (vast narrowband membership
and the product that has created it, access to Time Warner cable systems, and extensive Time Warner content
assets) that could well give it sufficient power to bargain its way onto all other platforms (indeed at
preferential terms) without any change in government regulation.
7.     None of the prior mergers involved a comparable combination of assets or a comparable potential
impact on competition among broadband ISPs.  Moreover, while the access issue affects the whole industry,
as our Cable Access NOI indicates, this merger would place AOL Time Warner in a unique position that may
justify conditions inapplicable to others.
8.     As further elaborated below, we find that, absent mitigating conditions, the proposed merger
would undermine competition in the provision of residential high-speed Internet access services.  We find in
particular that these services constitute a relevant product market distinguishable from residential narrowband
Internet access services.  We also find that the proposed merger would give AOL Time Warner both the
ability and the incentive to discriminate against unaffiliated ISPs and alternative (non-cable) high-speed
platforms within Time Warner cable territories, and to obtain exclusive or preferential carriage for its own
Internet access services from other cable providers.  As a result, the proposed merger would frustrate statutory
goals and Commission policies designed to ensure that the American public has access to a diversity of
information sources and to widely available advanced services.
9.     We conclude, however, that these potential harms will be substantially averted by the terms of the
FTC Consent Agreement.  The FTC Consent Agreement requires, among other provisions discussed below,
(1) that AOL Time Warner make available to subscribers at least one unaffiliated ISP on Time Warner's
cable systems before AOL itself begins offering service; that AOL Time Warner allow two other unaffiliated
ISPs onto its cable systems within 90 days after AOL's commencement of service; and that AOL Time
Warner negotiate in good faith for non-discriminatory access to its cable systems with any ISPs requesting
such access; (2) that AOL Time Warner not interfere with content passed along the bandwidth contracted for
by unaffiliated ISPs, or discriminate on the basis of affiliation in the transmission of content that AOL Time
Warner has contracted to deliver to subscribers over their cable systems; and (3) that AOL Time Warner
market and offer AOL's DSL services in the same manner and at the same retail price in Time Warner cable
areas where affiliated, cable-based Internet access service is available as in those areas where affiliated, cable-
based Internet access service is not available.  Because we conclude that the FTC Consent Agreement will
not avert all the potential harms to the public interest that would result from the proposed merger, we impose
certain additional conditions to ensure that AOL Time Warner does not disadvantage unaffiliated ISPs on its
cable systems through several indirect means not squarely addressed by the FTC Consent Agreement.
10.    The decisions we make in this proceeding do not necessarily portend any specific policy
determinations in future proceedings, such as the Cable Access NOI or the ITV NOI, which will be based
on the record in those proceedings.  If the Commission were to determine in the context of those proceedings
that rules of general applicability were warranted, this Order does not determine or prejudge whether the
conditions we adopt here should apply industry-wide.  The assessment of what types of generally applicable
rules, if any, would be appropriate will flow from the record developed in those proceedings.  Should those
proceedings ultimately result in rules of general applicability or yield any findings on market definition
contrary to our finding here, the Commission may revisit the merger conditions imposed in this section, either
on its own motion or upon the Applicants' request.
11.    Our authority to address the merger's impact on competition for high-speed Internet access
services derives from our statutory duty to ensure that the proposed transaction serves the public interest.
As discussed in Section II above, we conduct our public interest inquiry by determining, among other things,
whether the proposed transaction would substantially frustrate or impair the Commission's implementation or
enforcement of the Communications Act, or would interfere with the objectives of the Act or of other
statutes.  Several such objectives are relevant to our analysis here.  First, in adopting the 1996 Act,
Congress established a clear national policy to "promote the continued development of the Internet" and "to
preserve the vibrant and competitive free market that presently exists for the Internet and other interactive
computer services unfettered by Federal or State regulation."  Concurrently, Congress charged the
Commission with "encourag[ing] the deployment on a reasonable and timely basis of advanced
telecommunications capability to all Americans."  The principal purpose of such capability is to facilitate
the use of advanced services, of which residential high-speed Internet access services are one kind.  Finally,
"it has long been a basic tenet of national communications policy that the widest possible dissemination of
information from diverse and antagonistic sources is essential to the welfare of the public."  This national
policy to promote the public's access to a diversity of viewpoints from a multiplicity of sources finds
expression in statutory law as well as in previous decisions of this Commission.
12.    Our authority to review the impact of the proposed transaction on the public interest goes hand
in hand with broad authority to attach conditions to the proposed transfer of lines and licenses to ensure that
the transfer actually serves the public interest.  Section 303(r) of the Act authorizes the Commission to
prescribe restrictions or conditions, not inconsistent with law, that may be necessary to carry out the
provisions of the Act. Similarly, Section 214(c) of the Communications Act authorizes the Commission to
attach to the certificate "such terms and conditions as in its judgment the public convenience and necessity
may require."
13.    We find that, absent mitigating conditions, the proposed transaction would interfere with each of
the objectives discussed above.  The merger would imperil the continued existence of a vibrant and
competitive free market for development of the Internet because AOL Time Warner would have the ability and
the incentive to discriminate against unaffiliated ISPs on its own cable platform, and to obtain exclusive
carriage for its Internet access services on the networks of other cable providers.  These outcomes would
also thwart the deployment of advanced telecommunications capability to all Americans by limiting choice in
the realm of residential high-speed Internet access services and, potentially, by threatening the survival of ISPs
unaffiliated with AOL Time Warner as consumers migrate from narrowband to high-speed services.  These
outcomes would likewise diminish the public's ability to obtain information from diverse sources, as
customers of the nation's second largest cable operator (AOL Time Warner) would have little choice but to
access the Internet through service providers affiliated with that entity.  Furthermore, as we discuss below,
discrimination by AOL Time Warner against unaffiliated ISPs in the market for residential high-speed Internet
access services would facilitate discrimination by that company in favor of its own broadband content, a result
that could constrain consumers' access to the "widest possible" array of information over high-speed
technology.  If, in contrast, AOL Time Warner were obligated to carry multiple, unaffiliated ISPs over its
network on non-discriminatory terms, those ISPs could serve as an alternative outlet for non-AOL Time
Warner content, making it more likely that AOL Time Warner's affiliated ISPs would feature such content
themselves to remain competitive.  For all of these reasons, we conclude that our duty to ascertain that the
proposed transaction serves the public interest requires us to condition our approval on the terms we describe
below.  We have narrowly tailored these terms to augment the terms in the FTC Consent Agreement, and to
avoid duplication of those terms.  Each of the conditions we impose is designed to ensure that the transaction
does not interfere with the aforementioned statutory objectives.
               1.   Background
14.    Internet access services consist principally of connectivity to the Internet provided to end users.
These end users may be residential consumers, businesses, content providers, or application providers.  In this
analysis, we focus on Internet access services provided to residential consumers.
15.    The majority of residential and small business consumers who purchase Internet access services
do so from ISPs offering relatively low-speed access (typically between 28 and 56 kilobits per second
("kbps")) over local telephony plant, otherwise known as "narrowband" (or "dial-up") service.  Customers
of these ISPs typically pay $22 per month or less for unlimited usage.  Major nationwide dial-up ISPs
include AOL, AT&T's WorldNet, MSN, and EarthLink.  LECs operating within their service territories,
Erol's, and thousands of other ISPs offer service locally or regionally.  High-speed (or "broadband")
Internet access is available through several different technologies, including cable, digital subscriber line
("DSL"), fixed terrestrial wireless, and satellite.  In general, high-speed access enables consumers to
communicate over the Internet at speeds that are many times faster than the speeds offered through dial-up
telephone connections.  With high-speed Internet access, consumers can send and view content with little or
no transmission delay, utilize sophisticated "real-time" applications, and take advantage of other high-
bandwidth services.
16.    Cable operators that provide high-speed Internet access services to their subscribers often do so
by purchasing some components of such services from another company.  In particular, a cable operator
typically contracts with an Internet connectivity provider (such as Road Runner, Excite@Home, or High-
Speed Access Corporation) to link its cable headend to the Internet, which entails providing routers, servers,
and a dedicated Internet connection.  The cable operator, in turn, generally retains responsibility for
installing the modems upon which end users rely, for upgrades to the cable system plant, and for marketing.
The cable operator and the Internet connectivity provider often divide billing and technical support functions.
From the perspective of the consumer, these services form one product -- residential high-speed Internet access
service.
17.    Presently, the majority of residential high-speed Internet users connect to the Internet via cable.
The main competitor to cable in the market for residential high-speed Internet services is currently DSL,
which LECs provide over existing telephone plant.  As of November 2000, there were approximately 3
million customers in the United States accessing the Internet via cable and more than 1.7 million accessing
it via DSL lines.  Although DSL subscriptions appear to be growing at a faster rate than cable Internet
subscriptions, analysts differ as to whether and how quickly DSL will catch up with cable.
Excite@Home and Road Runner are the two largest high-speed ISPs, serving a majority of all high-speed
subscribers.  The remaining subscribers are splintered among a handful of other cable operators that do not
offer Internet access services through Road Runner or Excite@Home, and a number of DSL, fixed wireless,
and direct broadcast satellite ("DBS") competitors.
18.    Residential high-speed Internet access services are also provided through satellite technology,
which employs a radio relay station in orbit above the earth to receive, amplify, and redirect signals.  Satellite-
based Internet access services are offered by DBS providers such as DirecTV, and may be offered within the
next several years by low earth orbit ("LEO") satellites deployed by firms such as Teledesic.  At present,
satellite-based Internet access services can supply high-speed transmission only in the "downstream" direction,
that is, from the Internet to the end user's home; the end user must use narrowband telephone lines for the
"upstream" transmission of data from the home to the Internet.  Although satellite providers are working to
address this deficiency, two-way high-speed transmission facilitated by satellite may not be widely available
for several years.  As of today, DBS providers offering the "one-way" technology have captured only a very
small share of the market for residential high-speed Internet access services.
19.    Finally, residential high-speed Internet access services are also being offered -- albeit on a much
smaller scale as yet -- through "fixed wireless" technologies, including local multipoint distribution systems
("LMDS") and multichannel multipoint distribution systems ("MMDS").  Fixed wireless technology typically
employs microwave transmission facilities to transmit data to and from residential consumers.  Although
several firms have made significant investments to develop fixed wireless technology, high-speed Internet
access services using such technology is not yet widely available to consumers, and may not be commercially
deployed for use by residential consumers on a large scale in the immediate future.
               1.   Discussion
                    a.   Relevant Markets
20.    The possibility that AOL Time Warner would engage in anticompetitive conduct must be
evaluated in the context of relevant markets.  A relevant market is the smallest market -- defined in terms of
both the pertinent product and the pertinent geographical area -- for which the elasticity of demand is
sufficiently low that a firm supplying the entire market could profitably reduce output and elevate its price
substantially over a sustained period of time.  In defining the relevant market, it is useful to analyze whether
the firm at issue could profitably impose a "small but significant and non-transitory" increase in price, i.e.,
could raise prices without losing a significant portion of sales to competitors.
21.  We begin by addressing whether high-speed Internet access services, as distinct from narrowband
services, constitute the relevant product market in determining the effects of the proposed merger on the public
interest.  We conclude that they do.  We find particularly significant the fact that high-speed Internet
access services include features unavailable over narrowband, such as access to high-bandwidth content that
is impractical over dial-up connections.  Analysts agree that over time the Internet will become a more
absorbing experience, in which dynamic content supplements and supplants static pages of information.
Even at present, the experience of "surfing" the Internet is more immediate and efficient over high-speed
connections, at which users can move between texts as if they were flipping pages of a book.  Increasingly the
Internet is also becoming a multimedia experience, complete with film and audio clips as well as other high-
bandwidth applications.  Full-screen video is already commonly available over the Internet, and other
applications, such as video-on-demand, telemedicine, full-featured software applications, and distance learning
are available or under development.  Such applications so completely change the experience of using the
Internet that the difference can be likened to the contrast between looking at a still photograph and watching
a movie.  The existence of high-speed transmission is necessary to spur development of such applications,
and consumers with narrowband connectivity are unable to experience (or in some instances even access) such
content in the manner intended, i.e., rapidly and in real-time.
22.    Another factor supporting our conclusion that high-speed Internet access services constitute a
discrete market is the high consumer costs involved in switching to a high-speed platform.  Consumers
switching to high-speed service from dial-up (or between high-speed services) experience costs significantly
higher than those involved in switching between dial-up providers.  Switching between dial-up services
typically entails a telephone call, a software download, and rarely, a one-time connection fee on the order of
$25.  In contrast, switching from dial-up to high-speed service often entails several telephone calls, at least
one installation visit from a high-speed service provider, and a fee on the order of several hundred dollars to
cover the cost of the installation and a high-speed modem.  Furthermore, switching to high-speed service
may also necessitate upgrading the end user's PC to one with the requisite microprocessing capacity and an
Ethernet port for cable modem attachment; such an upgrade may increase the cost of switching by a thousand
dollars or more.
23.    The record developed in AT&T-MediaOne also supports our definition of the relevant market for
high-speed Internet access services.  In that proceeding, numerous commenters raised the issue of market
definition, and all who addressed the issue (other than AT&T and MediaOne) maintained that residential high-
speed Internet access services constitute a market separate from narrowband services.  The commenters
cited the following reasons (among others):
    High-speed Internet access services support all the content and applications that narrowband access
  services do, but also allow access to services that will never be technically feasible over narrowband.
    High-speed access services are "always on," a feature currently unavailable over narrowband access
  services.
    Preliminary quantitative studies indicate that narrowband and high-speed access services occupy separate
  markets.
These reasons corroborate our finding in this proceeding that a separate market for high-speed Internet access
services does exist.
2.     We also find it noteworthy that AOL itself argued in the AT&T-TCI merger proceeding that high-
speed Internet access services occupy a market separate from narrowband services, and that AOL does not
contradict its earlier position here. AOL's comments in AT&T-TCI did not include a formal market
definition, but they referred repeatedly to the merged firm's potential position as the "dominant provider of .
. . broadband data transport" in the "nascent broadband marketplace."  While AOL and Time Warner do
not maintain in this proceeding that there is a separate market for high-speed Internet access services, they do
not deny the existence of such a market.
3.     Finally, we note that the Department of Justice ("DOJ"), analyzing the relevant market in the
course of its review of the AT&T-MediaOne merger, found that high-speed Internet access services occupy
a market separate from narrowband services.  DOJ defined this separate market as one encompassing the
"aggregation, promotion, and distribution of broadband" content and services; under its analysis, the market
includes the transmission facilities used for distribution of broadband content and services, as well as portals
that aggregate and market that content.  DOJ further found that narrowband Internet service is not a
substitute for broadband service, as "[m]uch of this broadband content will not be readily accessible or
attractive to narrowband users, because of the much longer times that are needed to transmit the data through
narrowband facilities."
4.     The relevant geographic markets for residential high-speed Internet access services are local.
That is, a consumer's choices are limited to those companies that offer high-speed Internet access services in
his or her area, and the only way to obtain different choices is to move.  While high-speed ISPs other than
cable operators may offer service over different local areas (e.g., DSL or wireless), or may offer service over
much wider areas, even nationally (e.g., satellite), a consumer's choices are dictated by what is offered in his
or her locality.
                    a.   Applicants' Roles in the Relevant Market
5.     AOL is the largest provider of narrowband Internet access services in the United States and
worldwide.  The Company's flagship AOL service provides Internet access to more than 26 million
subscribers around the globe.  AOL also owns another ISP, CompuServe (acquired in 1998), that serves more
than 2.8 million customers. AOL is the only narrowband ISP with a double digit worldwide market share,
and boasts a customer base nearly five times larger than its nearest competitor, EarthLink.  Time Warner
does not provide narrowband Internet service.
6.     Time Warner owns the second largest cable network in the United States, one that serves
approximately 13 million subscribers and passes nearly 21 million homes.  When the Application was filed,
85 percent of its network already supported high-speed Internet access services, and Time Warner claimed
that the remainder would do so by the end of 2000.  Time Warner provides high-speed Internet access
services to its cable customers through an exclusive contract with Road Runner, the nation's second largest
provider of such services in the residential market.  That contract expires in December 2001.  Road
Runner currently serves more than 1.1 million cable modem customers -- more than 26 percent of all
residential high-speed Internet access subscribers -- of whom approximately 719,000, or 65 percent, reside in
communities served by Time Warner cable systems.
7.     Although the vast majority of AOL subscribers access the Internet by means of dial-up
connections, the company has sought to provide high-speed Internet access services across a variety of
platforms.  AOL has agreements with several LECs to deliver its Internet service via DSL, and with DBS
provider DirecTV to deliver its Internet service via DirecPC.  The record demonstrates that AOL's efforts
to date to migrate consumers to its high-speed service have yielded only modest results.  AOL has
previously been unsuccessful in gaining access to cable systems.  This merger, however, would give AOL
direct ownership of a high-speed cable network.  Upon acquiring Time Warner cable systems, AOL would be
in a position to use its established brand name and proven marketing acumen to migrate many of its
narrowband customers to high-speed service, and to market AOL Internet access services to Time Warner
cable subscribers.  Thus, the merger would create the opportunity for AOL to use cross-promotional
strategies and its control over Time Warner cable networks to add millions of subscribers to its high-speed
service.
8.     In acquiring Time Warner, AOL would obtain not only a vast network of cable systems, but also
an enormous library of multimedia content.  Time Warner and its content affiliates comprise the largest
traditional media company in the world.  This company owns four of the top fifteen video programming
services (CNN, TNT, TBS, Cartoon Network) and the largest premium TV network (HBO).  Time Warner
also operates a broadcast network (The WB) and one of the largest movie and television studios (Warner
Bros.).
9.     Similarly, AOL is more than just an ISP.  AOL owns many leading Internet brands and
applications, including:
         AOL Instant Messenger ("AIM") and AOL Buddy List services, and ICQ instant messaging
     service.
              AOL.com and Netscape Netcenter, two leading Internet portals.  AOL.com has nearly 32 million
       unique monthly visitors, while Netscape Netcenter has almost 20 million unique visitors.  In
       any given month, nearly 77 percent of all Internet subscribers will visit an AOL site, with AOL
       members spending an average of 64 minutes per day online.
         Spinner and WINamp, leading Internet music properties with 42 million customer
       relationships.
              Digital City, the leading local online network, with more than five million unique visitors in May,
       2000.
         AOL MovieFone, the nation's largest online movie listing guide and ticketing service, which
       attracts 20 percent of all moviegoers.
         MapQuest.com, which delivers more than 150 million maps and driving instructions each
       month.
              Netscape Communicator client software, including the Netscape Navigator browser, claiming
       millions of users.
It has been asserted that through its family of brands, AOL "now has an unduplicated reach of roughly 80
percent of all Internet users in the United States, by far the greatest on the Web."
                    a.   Potential Public Interest Harms
10.    Commenters raise a variety of competitive concerns stemming from the merged company's
potential to control Internet transmission facilities, access, portals, content and applications.  Generally
speaking, these concerns may be summarized as follows: Unless appropriate restrictions are placed on the
proposed merger, AOL Time Warner will have both the ability and the incentive to: (a) discriminate against
unaffiliated ISPs on its own cable network; (b) facilitate discrimination against unaffiliated ISPs on other
cable operators' networks by leveraging control over Time Warner video programming to obtain exclusive or
preferential carriage rights for AOL's high-speed Internet access service on those networks; (c) limit
consumers' access to the widest possible array of content on the Internet by denying unaffiliated content
providers placement on AOL Time Warner's high-speed Internet access service and denying unaffiliated ISPs
access to AOL Time Warner content; and (d) discriminate against alternative high-speed platforms by
withholding AOL Internet access service from high-speed platforms that compete with cable.  We address
each of these concerns below.
11.    As a threshold matter, we will address the argument that regardless of the magnitude of the
harms, imposing conditions in this merger would be inconsistent with the Commission precedent in AT&T-
MediaOne and the pending Cable Access NOI.  The Applicants first contend that the Commission's merger
review process is an inappropriate forum to determine whether AOL Time Warner should be required to
negotiate non-discriminatory agreements with unaffiliated ISPs for access to its cable network.  Instead, the
Applicants argue, the Commission should address that question through a rulemaking proceeding that would
set "open access" policy for the entire cable industry.  We disagree.  The Commission has a statutory duty
to determine whether the proposed transaction would serve the public interest, and may not approve it absent
such a finding.  We cannot abdicate this duty on the basis of speculation that a future proceeding might be
able to remedy harms to the public interest that we believe would result from a proposed merger.  As we
explain below, the unconditioned merger of AOL and Time Warner would create a company with a unique
incentive and ability to thwart competition in the market for residential high-speed Internet access services --
an outcome that would undermine important national policy objectives.
12.    Furthermore, we are not convinced that a proceeding resulting from the Cable Access NOI could
adequately redress the public interest harms that would result from the proposed transaction.  First, should it
be a rulemaking proceeding, such a proceeding is designed to formulate rules of general applicability, and
therefore would not necessarily produce requirements containing the level of specificity needed to resolve the
unique concerns that arise from this proposed merger.  The marriage of AOL and Time Warner would wed the
nation's leading ISP with its second largest cable provider and would thereby yield a company with
unprecedented potential to dominate the market for residential high-speed Internet access services.  The
record demonstrates that the Applicants have already begun to contemplate using their combined potential in
a manner that would render unaffiliated ISPs in that market unable to compete effectively.
13.    We believe that in order to prevent these trends from accelerating after the merger, we must
impose specific conditions on our approval -- conditions that a rulemaking proceeding would be ill-suited to
effectuate.  Second, we believe that the conditions we impose must precede the merger itself in order to be
effective.  The record suggests that if AOL Time Warner were permitted to discriminate against unaffiliated
ISPs in the terms and conditions of access to its cable network, many such ISPs would be unable to compete
effectively, permitting the merged entity and its affiliated ISPs to attain a market-dominant position for
residential high-speed Internet access services within one to two years.
14.    Moreover, our approval of the AT&T-MediaOne merger without any condition pertaining to
Internet access services was predicated in part on our perception that alternative high-speed platforms --
especially DSL -- were rapidly gaining strength as viable competitors to cable, thereby mitigating the
anticompetitive potential of the acquisition.  We reasoned that AOL's aggressive support of DSL would no
doubt serve as a powerful impetus for incumbent LECs to deploy DSL technology in residential markets.
By giving AOL access to Time Warner's cable facilities and enhancing its ability to gain access to the
facilities of AT&T and other cable operators, the merger would diminish AOL's reliance on DSL as a means
of reaching subscribers and would give AOL Time Warner an incentive to steer subscribers away from
DSL and toward cable in Time Warner service areas.  In addition, the record in this proceeding
demonstrates that the availability of DSL in Time Warner service areas may not be sufficiently widespread to
constrain the merged firm in the market for residential high-speed Internet access services, at least in the short
term.  For these reasons we reject the arguments that the Commission may not redress potential harms in the
market for residential high-speed Internet access services.
                         (i)  Potential Discrimination Against Unaffiliated ISPs on AOL
                         Time Warner's Cable Network
15.    Several commenters contend that a combined AOL Time Warner would engage in anticompetitive
behavior in an attempt to dominate the market for residential high-speed Internet access services.  In
particular, commenters express concern that AOL Time Warner would discriminate against unaffiliated ISPs
by refusing to carry them on its cable network; by offering them carriage on unfavorable terms that would
render it impossible for them to remain in business; by limiting their online features and functionalities; and
by degrading their quality of service.  Numerous parties to this proceeding advocate the imposition of an
"open access" condition on the merging parties.  We note at the outset that, judging from the record in this
proceeding, these commenters' concerns are persuasive.  We conclude, however, that they are substantially
addressed by the terms of the FTC Consent Agreement.  As the FTC Consent Agreement may not entirely
mitigate AOL Time Warner's ability to discriminate against unaffiliated ISPs on its cable network through
indirect means, we impose certain additional conditions on the proposed transaction to avert that result.  We
conclude that these conditions are necessary to ensure that the proposed merger does not result in harms to the
public interest that would outweigh its potential public interest benefits.
16.     Our conclusion that conduct restrictions are necessary to address the potential harms described
above rests on two findings: (i) that the merged company would have the incentive to discriminate against
unaffiliated ISPs on its cable network and (ii) that it would have ability to do so in a manner that would
undermine competition in the relevant market.  We begin by noting that AOL itself has argued in other
contexts that a vertically integrated cable operator offering high-speed Internet access services would have
precisely such incentive and ability.  Our findings, however, do not depend on AOL's prior observations.
The record in this proceeding points to several factors that would give the merged firm an incentive to
discriminate.  AOL, with 26 million narrowband subscribers, has a manifest incentive to migrate those
subscribers to high-speed Internet access services as an ever-greater proportion of Internet content falls into
the "broadband" category.  AOL has a complementary incentive to ensure that as its subscribers switch to
high-speed access services, they remain customers of AOL (or one of its affiliates) and do not select a
competing high-speed ISP.  Excluding unaffiliated ISPs from the merged company's cable network, or
discriminating against them in more subtle ways, would help achieve that objective.  AOL Time Warner
would also have an incentive to discriminate against unaffiliated ISPs for an additional, independent reason:
the natural inclination to maximize the value of its cable network by converting its captive base of Time
Warner cable customers into customers of ISPs affiliated with the merged firm.  This objective, too, would
be facilitated by discriminating against unaffiliated ISPs with respect to carriage on AOL Time Warner cable
networks.
17.    We also find that AOL Time Warner would have the ability to discriminate against unaffiliated
ISPs.  This is well-documented in the record.  As earlier mentioned, the proposed transaction would give the
merged company ownership of the nation's second largest cable network.  Such ownership would enable AOL
Time Warner to deny unaffiliated ISPs carriage on this network at will.  Due to the size of the network and
its dominance in the geographic areas to which it extends, AOL Time Warner's ownership rights would also
empower the merged company to deal with unaffiliated ISPs requesting carriage by offering them "take it or
leave it" agreements based on terms that would render it difficult if not impossible for these ISPs to provide
service over cable profitably.  And of course, AOL Time Warner's physical control over the network would
allow it to limit the online features and functionalities of unaffiliated ISPs or to degrade their quality of
service, conceivably in ways that would escape easy detection.
18.    Finally, we note that the proposed merger would strengthen AOL Time Warner's ability to
discriminate against unaffiliated ISPs on its cable network by bringing AOL and Road Runner under common
ownership.  Road Runner is the nation's second largest high-speed ISP.  The elimination of potential
competition between AOL and Road Runner in the market for residential high-speed Internet access services
would significantly enhance AOL Time Warner's power in this market.  And by adding to the merged firm's
lead in subscribership for residential high-speed Internet access services, it would diminish AOL Time
Warner's incentive to adopt an "open access" regime with respect to its cable network.
19.    The Applicants maintain that, far from having an incentive to discriminate against unaffiliated
ISPs, a combined AOL Time Warner would have an incentive to permit these ISPs to interconnect with its
cable network so as to encourage the adoption of "open access" policies by other cable providers.  AOL
Time Warner would need to promote the adoption of such policies, the Applicants maintain, in order to ensure
the availability of AOL Internet services on other cable platforms.  Time Warner's cable network currently
serves less than 20% of all cable subscribers nationwide -- a figure which, arguably, underscores how
dependent AOL Time Warner would be on other cable providers for access rights.
20.    Notwithstanding the Applicants' reasoning, we are not convinced that AOL Time Warner would
need to refrain from discriminating against unaffiliated ISPs on its own cable platform in order to secure
carriage for AOL Internet services on the platforms of other cable providers.  We find it implausible that AOL
Time Warner -- with the leading brand among ISPs as well as the largest library of proprietary content in the
world at its disposal -- would be unable to leverage these resources and others to obtain carriage for AOL
Internet services on the facilities of unaffiliated cable operators.  Despite AOL's previous difficulties in
obtaining access to cable lines, the addition of Time Warner's content and other resources greatly increases
the merged company's leverage in this area.  And we are equally certain that the merged firm would be able
to obtain such carriage regardless of whether it were to discriminate against unaffiliated ISPs on its own
platform.  Accordingly, we reject Applicants' contention that AOL Time Warner would not discriminate
because of a putative need to support industry-wide "open access" policies.
21.    The Applicants' primary response to commenters' contentions that the merged firm would
discriminate against unaffiliated ISPs on its cable network is that AOL and Time Warner have issued a joint
Memorandum of Understanding (the "MOU") voluntarily committing themselves to negotiate commercial
agreements under which unaffiliated ISPs may connect with Time Warner's cable network on a non-
discriminatory basis.  Applicants contend that adherence to the MOU should not become a condition of
merger approval.  They assert that a government mandate regarding ISP access would be wholly
inappropriate and, in any event, should be considered (if at all) only in a proceeding of general applicability
such as the Cable Access NOI.
22.    We find that if unaffiliated ISPs were permitted to offer their services over AOL Time Warner's
cable network on non-discriminatory terms and conditions, the merger's potential to undermine competition
in the relevant market would be mitigated.  Unaffiliated ISPs in areas served by AOL Time Warner's cable
network would have the opportunity to compete fairly on price and quality, and residential consumers in these
areas would be able to choose a high-speed ISP based on the best combination of those characteristics.
Market forces, not control of a bottleneck facility, would determine the firms that would succeed in the
relevant market, thereby enhancing efficiency and consumer welfare.
23.    However, we are not convinced that the MOU alone will achieve these goals and mitigate the
potential harms to competition that we have described.  Broadly speaking, our concerns are twofold.  First,
even if it were legally enforceable, the MOU by itself would fail to offer unaffiliated ISPs adequate protection
against discrimination by a merged AOL Time Warner.  Second, the MOU on its own is not legally
enforceable, and reports regarding the terms of access that Time Warner has proposed to certain unaffiliated
ISPs cast doubt on the company's commitment to implement the principles underlying the MOU in a manner
that would avert the merger's potential deleterious effects on the relevant market.  We discuss each of these
concerns in turn.
24.    Although the MOU represents a commendable statement of principles, it does not address several
specific areas in which unaffiliated ISPs connecting to Time Warner cable networks could be treated less
favorably than affiliated ISPs.  For example, it seems likely that in many cases, Time Warner cable
subscribers who desired cable-based high-speed Internet access services would call Time Warner with their
initial inquiries.  Such inquiries would give Time Warner the opportunity to steer prospective customers
toward affiliated ISPs (such as AOL, CompuServe, or Road Runner), a practice the MOU does nothing to
prohibit.  The MOU also leaves unaffiliated ISPs vulnerable to discrimination by AOL Time Warner in other
facets of their business.  In particular, it does not prohibit AOL Time Warner from requiring unaffiliated ISPs
to display an AOL Time Warner "brand" or "presence" on the customer's first screen as a condition of
carriage; does not prohibit AOL Time Warner from disadvantaging unaffiliated ISPs by offering them
logistically unfavorable connection points; and does not prohibit AOL Time Warner from restricting the
features and functionalities available to unaffiliated ISPs in several technical areas (such as caching
capability; multicasting; address management; and interaction with customer premises equipment).  Perhaps
most importantly in light of the subtle, technically sophisticated ways in which the merged entity might
disfavor non-affiliates, the MOU does not provide a mechanism through which unaffiliated ISPs could verify
that they were being treated in a non-discriminatory manner -- for example, a mechanism giving ISPs or a
neutral arbitrator a right to review confidential agreements between AOL Time Warner and affiliated ISPs, as
well as data on AOL Time Warner's actual network operations.
25.    Even if the MOU did not contain these vulnerabilities, we would still be concerned about the
proposed merger's potential to harm competition in the market for residential high-speed Internet access
services.  That is because the MOU is not legally enforceable, and reports regarding the terms of carriage that
Time Warner has proposed to certain unaffiliated ISPs raise doubt regarding the company's commitment to
implement the principles underlying the MOU on a voluntary basis and in a manner that would avert the
merger's harmful effects.  According to these reports, Time Warner's proposals to unaffiliated ISPs have
conditioned access to Time Warner's cable network on (i) a co-branding presence on the top half of the ISP's
home page featuring links to Time Warner content and services; (ii) Time Warner's right to terminate the
ISP's carriage if the ISP fails to meet subscription targets set by Time Warner; (iii) Time Warner's right to
set the total price for Internet access paid by the ISP's customer; and  (iv) a fee consisting of 75 percent of the
ISP's subscription revenues, 25 percent of the ISP's cable-access advertising, web-hosting, and e-commerce
revenues, a $50,000 up-front deposit, and a minimum monthly payment of $30 for each customer that
switches from an ISP affiliated with Time Warner to the unaffiliated ISP.  Time Warner contends that these
conditions are not unreasonable and merely replicate the business model that governs its provision of cable
service.  Time Warner points out, for example, that it already sets the price for video programming supplied
to consumers even though much of the programming is supplied by unaffiliated entitities.  Likewise, it
shares advertising revenues with video programmers in the form of local advertising "spots" that programmers
reserve for Time Warner's use.  Notwithstanding Time Warner's explanation of these provisions, we
believe that these conditions conflict with the principles of non-discrimination and "open access" underlying
the MOU. Particularly troubling are the pricing conditions.  As we discuss in the Confidential Appendix, these
conditions may well prevent unaffiliated ISPs from profitably offering service over AOL Time Warner's
systems.  To the extent that they do so, the conditions flatly contradict the most basic commitment of the
MOU, namely that "Consumers will not be required to purchase service from an ISP that is affiliated with
AOL Time Warner in order to enjoy high-speed Internet access services over AOL Time Warner cable
systems."
26.    Although we conclude that the MOU by itself constitutes an insufficient safeguard against
potential discrimination by AOL Time Warner against unaffiliated ISPs on its cable network, we believe that
FTC Consent Agreement will substantially mitigate the risk of such discrimination.  That decree requires,
among other things, that AOL Time Warner open its cable systems on a non-discriminatory basis to at least
three unaffiliated ISPs -- the first of which, EarthLink, must begin offering service on Time Warner's cable
systems before AOL itself may do so; and the latter two, which remain as-yet undetermined, must have
secured agreements to offer service on Time Warner's cable systems within 90 days of the time that AOL
itself commences service on those systems.  The FTC Consent Agreement further stipulates that the FTC
pre-approve the agreements between AOL Time Warner and each of the three unaffiliated ISPs to be granted
immediate access to Time Warner cable systems, and that the agreements themselves include detailed
safeguards protecting these ISPs against discrimination by AOL Time Warner on the basis of affiliation.
Additionally, the FTC Consent Agreement requires AOL Time Warner to negotiate in good faith, and enter
into arms' length commercial agreements, with any other unaffiliated ISPs seeking access to its cable systems;
and it forbids AOL Time Warner from declining to negotiate or enter such agreements, or from imposing
terms and conditions in such agreements, based on ISPs' non-affiliation with the merged firm.  The FTC
Consent Agreement also requires AOL Time Warner to provide any unaffiliated ISP on its cable system with
the same point of connection to its cable network that the merged firm provides to affiliated ISPs, should an
unaffiliated ISP request access to that connection point.
27.    We are convinced that the foregoing requirements will substantially ensure that unaffiliated ISPs
are able to offer their services over AOL Time Warner's cable system on non-discriminatory terms and
conditions.  However, we are concerned that AOL Time Warner will have insufficient incentives to enter
contracts with local or regional ISPs that are unaffiliated with the merged firm.  We note that the FTC
Consent Agreement requires AOL Time Warner to negotiate in good faith with any unaffiliated ISP seeking
access to its cable systems.  Therefore, we reiterate here that AOL Time Warner must engage with local and
regional ISPs in a good faith, non-discriminatory manner.  The requirements we discuss below regarding
choice of ISPs, first screen, billing, technical performance, and disclosure of contracts are particularly
relevant to the ability of smaller ISPs to negotiate carriage arrangements on non-discriminatory terms, and we
expect that AOL Time Warner will negotiate in good faith to reach contract provisions that are consistent with
the commercial viability of these entities.
28.    In addition, the record in this proceeding reveals several indirect means through which the merged
firm could afford preferential treatment based on affiliation to ISPs on its cable systems that are not expressly
proscribed by the FTC Consent Agreement.  In particular, commenters have expressed concern that AOL
Time Warner would condition access to its cable systems on an ISP's placement of Time Warner content on
its first screen.  Commenters have also expressed concern that AOL Time Warner would preclude ISPs on
its cable systems from establishing direct billing relationships with subscribers, even when those ISPs were
responsible for acquiring the subscribers in the first place.  These measures, even if imposed in a facially
neutral manner on affiliated and unaffiliated ISPs, would in fact disadvantage unaffiliated ISPs alone:
affiliated ISPs would suffer neither from placement of Time Warner content on their first screen nor from the
absence of a direct billing relationship with subscribers, as any revenue they "lost" from these measures would
be made up by the parent company.  Accordingly, we will impose narrowly tailored conditions, described
below, to prevent AOL Time Warner from disadvantaging unaffiliated ISPs on its cable systems through such
indirect means.
29.    Commenters have also expressed concern that AOL Time Warner would discriminate against
unaffiliated ISPs on its cable network in the technical performance it affords to these ISPs.  In particular,
commenters fear that AOL Time Warner would provide unaffiliated ISPs with inferior Quality of Service
mechanisms, caching capability, technical support, multicasting capability, address management, and other
technical functionality of the cable system that affects customers' experience with their ISP.  Although we
believe that the FTC Consent Agreement would prohibit AOL Time Warner from entering into contract terms
that discriminated on the basis of affiliation with respect to technical performance, we note that the decree
does not explicitly forbid AOL Time Warner from actually providing inferior technical performance to
unaffiliated ISPs where no contract term governs.  We are convinced that discrimination against unaffiliated
ISPs with respect to technical performance would be sufficiently harmful to such ISPs that a remedy is
warranted.  Accordingly, we will impose a condition requiring AOL Time Warner, in all contracts with
unaffiliated ISPs for access to its cable networks, to warrant that it will not discriminate on the basis of
affiliation with respect to technical performance.
30.    Finally, we also impose two additional conditions.  First, we will prohibit AOL Time Warner
from restricting the ability of current or prospective customers to select and initiate service from any
unaffiliated ISP that has contracted for access to the merged firm's cable systems; and we will require AOL
Time Warner to provide customers who contact Time Warner cable representatives seeking Internet access
services with a neutral means of selecting an ISP (that is, a means that does not discriminate in favor of
affiliated ISPs on the basis of affiliation).  Second, we will prohibit AOL Time Warner from entering into any
contract with an ISP for connection with AOL Time Warner's cable systems that prevents that ISP from
disclosing the terms of the contract to the Commission under the Commission's confidentiality procedures.
Both conditions, we conclude, are necessary to fully effectuate the commitment to non-discriminatory
treatment of unaffiliated ISPs that the Applicants have undertaken in the MOU and that the FTC Consent
Agreement substantially accomplishes.
                         (i)  Potential Discrimination Against Unaffiliated ISPs on non-AOL
                         Time Warner Cable Networks
31.    ACA, in its initial comments, expressed concern that the proposed merger would give AOL Time
Warner the incentive and the ability to require other cable operators to carry AOL's Internet access services
as a condition of obtaining Time Warner video programming.  ACA sought a commitment from the
Applicants that they would not engage in such tactics.  Subsequently, Time Warner representatives stated
at the Commission's en banc hearing in this proceeding that the merged firm would not condition access to its
programming on carriage of AOL.  ACA then released a statement indicating its satisfaction with the
Applicants' pledge.
32.    While we commend Time Warner for its representations at the en banc hearing, we remain
concerned that the merger would give AOL Time Warner the incentive to seek exclusive or preferential
carriage rights for AOL on non-Time Warner cable systems. The merged company would have an incentive
to pursue such arrangements wherever preferential carriage rights were essential to the success of its entry
strategy for AOL Plus, or wherever it encountered difficulty obtaining carriage rights altogether.  If the
merged firm's efforts on behalf of AOL were to induce anticompetitive behavior by other cable operators
regarding carriage of non-AOL Time Warner ISPs, the public interest would clearly be harmed.
33.    We find it unnecessary to address AOL Time Warner's ability to obtain exclusive or preferential
carriage rights for AOL, however, because we are satisfied that the FTC Consent Agreement adequately
addresses the potential harm with which we are concerned.  In particular, the decree prohibits AOL Time
Warner from entering into any agreement with a cable provider that would interfere with the cable provider's
ability to enter into an agreement with another ISP.  This provision will prevent AOL Time Warner from
entering agreements with other cable providers that would restrict the rates, terms, or conditions of service that
these providers could offer to ISPs competing with AOL.
                         (i)  Potential Harms to Diversity of Internet Content
34.    Several commenters, notably Disney and NBC, argue that a merged AOL Time Warner could
utilize its control over high-speed distribution to favor its affiliated content and to discriminate against
unaffiliated content providers, thus limiting the public's access to a diversity of information sources.
According to the commenters, such discrimination could be accomplished through router technology in a way
that would be undetectable to consumers.  For example, routers could be programmed to provide high bit rates
and superior customer performance for AOL Time Warner channels, programs and services, and slower bit
rates and inferior customer performance for content provided by unaffiliated sources.  In addition, Disney
asserts that AOL, as a condition for purchasing placement on the AOL website, requires that content
providers disable hyperlinks to unaffiliated websites (including other areas of the content providers' own web
sites), and requires a commitment that no more than a set percentage of traffic at a site within the AOL
network can be "diverted," via links, to sites outside the AOL network.  If these claims are valid, the merger
could harm consumers by enhancing AOL Time Warner's incentive and ability to limit access to Internet
content not affiliated with the merged company.
35.    The Applicants assert that their primary economic incentive is to increase subscribership by
distributing the widest possible variety of content to the widest possible audience, and that therefore they have
no incentive to discriminate against unaffiliated content providers.  With respect to Disney's argument in
particular, the Applicants emphasize that AOL does not restrict a user's ability to reach any site on the World
Wide Web by typing in a URL.
36.    The record in this proceeding provides some evidence that AOL already seeks to limit its
members' access to unaffiliated content on the World Wide Web.  For example, AOL requires that content
appearing on AOL websites have only a limited number of hyperlinks to unaffiliated content.  Furthermore,
while it is true that AOL users can access unaffiliated content by typing the URL for any site on the World
Wide Web into the AOL browser, a user must know the correct URL in order to complete that operation, and
must take the time to do so -- factors which, Disney and NBC maintain, make typing a URL an inadequate
substitute for clicking a hyperlink.
37.    Nevertheless, we decline to impose the remedial conditions proposed by Disney and NBC, for two
reasons.  First, as we discuss below, we believe that if unaffiliated ISPs receive non-discriminatory access to
Time Warner cable systems -- a result effectuated by the FTC Consent Agreement, and reinforced by certain
conditions we impose in this proceeding -- the merged firm's incentive and ability to withhold unaffiliated
content from its subscribers will be substantially mitigated.  Second and relatedly, the FTC Consent
Agreement explicitly forbids AOL Time Warner from interfering in any way with content passed through
Time Warner cable conduits being used by unaffiliated ISPs that have contracted for access to them.  These
provisions ensure that unaffiliated ISPs on Time Warner's cable systems will have unimpeded access to
unaffiliated content should they choose to provide it -- thus effectively ensuring that Time Warner cable
subscribers will have access to such content as well.
38.    Other commenters, especially BellSouth and SBC, argue that a combined AOL Time Warner
would have both the incentive and the ability to discriminate against alternative, non-cable platforms for high-
speed Internet service (such as DSL) by withholding valuable affiliated content from ISPs that utilize these
alternative platforms, especially in areas served by Time Warner cable systems.  Were the combined
company to discriminate in this manner, these commenters allege, competing ISPs (as well as competing high-
speed platforms) would be placed at a disadvantage, thereby limiting consumers' ability to choose among
varied and diverse sources of broadband Internet content.
39.    The Applicants maintain in response that their commitment to maximizing subscribership means
that AOL Time Warner would distribute its own affiliated content on all high-speed Internet platforms,
including DSL, satellite, and wireless.
40.    The record in this proceeding demonstrates that the Applicants contemplate giving some popular
Time Warner programming and content exclusive placement on AOL websites.  It further demonstrates that
the Applicants contemplate moving certain Time Warner content from unaffiliated portals to AOL's portal.
The merger would certainly enhance AOL's ability to secure exclusive contracts for Time Warner content,
and AOL would have an incentive to grant such exclusivity due to the competitive advantage it would gain by
offering popular content on an exclusive basis.  Although there are thousands of content sources on the World
Wide Web, Internet users look to a relatively limited number of sources to access that content.  This
proposition is demonstrated by the dominance of a small number of major portals (led by AOL) in terms of
Internet traffic.
41.    Notwithstanding the likelihood that the proposed merger would lead to AOL's securing exclusive
or preferential access to some Time Warner content, we find the record insufficient to justify a requirement of
"equal access" to such content.  In particular, we are not persuaded that AOL's ability to obtain exclusive or
preferential access to such content in the wake of the merger would harm the public interest in a manner
sufficiently grave to warrant the remedy commenters seek, which is far-reaching.
42.    Finally, we believe that the AOL Time Warner's incentive and ability to engage in Internet
"content discrimination" will be largely mitigated if unaffiliated ISPs are given non-discriminatory access to
Time Warner's cable systems, as the FTC Consent Agreement requires.  Were AOL Time Warner to withhold
desirable unaffiliated content from subscribers to its affiliated ISPs (as Disney and NBC fear), these
subscribers would be able to select an alternative, unaffiliated ISP on Time Warner's cable network without
incurring substantial switching costs.  And were AOL Time Warner to withhold desirable affiliated content
from subscribers to unaffiliated ISPs on competing platforms (as BellSouth and SBC fear), it would sacrifice
a potentially significant source of revenue.  Therefore, we find that commenters' concerns with respect to
potential "content discrimination" are adequately addressed by the provisions in the FTC Consent Agreement
and this Order ensuring that unaffiliated ISPs receive non-discriminatory access to Time Warner cable
systems.
                         (i)  Potential Harms to Unaffiliated Broadband Platforms
43.    Commenters claim that the proposed merger would impair the viability of DSL as a competitive
alternative to cable for the delivery of residential high-speed Internet access services.  Based on the record
in this proceeding, we do not believe that the merger would threaten the continued existence of DSL.  We do
find, however, that the merger could undermine the availability of residential high-speed Internet access
services over DSL by creating an incentive for AOL Time Warner to steer cable customers seeking Internet
access in Time Warner service areas to the cable platform.  Nonetheless, we are satisfied that this outcome
will be averted by the requirements of the FTC Consent Agreement.
44.    Cable operators have been early leaders in deploying residential high-speed Internet access
services.  Cable's early rollout encouraged deployment of alternative platforms; as the Commission has
observed, the expansion of DSL in the past two years by incumbent LECs "is primarily a reaction to other
companies' entry into broadband."  As of November 2000, cable retained a substantial edge over DSL as
measured by the number of residential subscribers to each platform.
45.    AOL currently markets its high-speed Internet access service ("AOL Plus") over DSL through
non-exclusive strategic alliances with SBC (including Ameritech) as well as Bell Atlantic and GTE (both now
components of Verizon Communications).  Taken together, AOL's agreements with these companies give
it an almost nationwide DSL footprint.  AOL's effort to obtain such a nationwide DSL footprint has been
credited with making DSL highly competitive with cable due to the attractiveness of AOL's content.
46.    Thus far, AOL has been unable to offer AOL Plus over cable, though the company has sought a
presence on that platform through negotiations with cable companies and its past advocacy of "open
access."  The merger would enable AOL to offer its high-speed Internet access services to Time Warner's
nearly 13 million cable subscribers as soon as Time Warner's exclusive contract with Road Runner expires.
AOL's access to this customer base would not be significantly slowed by technical obstacles, as eighty-five
percent of Time Warner's cable plant has already been upgraded to two-way, 750 MHz hybrid fiber/coaxial
(HFC) networks.  AOL has indicated that it would offer AOL Plus to Time Warner cable customers at the
earliest possible juncture.
47.    Because the proposed transaction would give AOL ownership of a cable network, the merged firm
could maximize its profits by maximizing the number of Time Warner cable subscribers receiving AOL's
residential high-speed Internet access services over Time Warner's cable facilities instead of DSL.  This
conclusion follows from the simple fact that customers in Time Warner service areas who received AOL's
high-speed Internet access services over cable would pay the merged firm for Internet access, for content, and
for transmission, whereas customers in the same service areas who received AOL's services over DSL would
pay the merged firm only for the first two components.  Every customer in a Time Warner service area who
elected to receive AOL's high-speed Internet access services over DSL instead of cable, in other words, would
cost the merged firm one stream of revenue.
48.    For this reason, commenters fear that AOL -- which played an important role in promoting DSL
before the proposed merger -- would "withdraw support" from that platform post-merger and steer customers
who could receive its high-speed Internet access services over either DSL or cable to the latter.  AOL could
withdraw its support from DSL in a number of ways.  Most dramatically, it could refuse to offer AOL Plus
over DSL altogether.  Alternatively, as SBC contends, AOL could restrict the availability of AOL Plus over
DSL to geographic markets where that service could not be delivered over Time Warner's cable facilities.
If it sought a more subtle means to withdraw support from DSL, AOL could continue to offer its Internet
access services over that platform, but do so at higher prices or on less favorable terms than would be
available over Time Warner cable.
49.    In response to commenters' concerns, AOL asserts that it intends to offer its residential high-
speed Internet access services across all platforms, in keeping with its "AOL Anywhere" strategy.  AOL
Chairman Steve Case stated at the en banc hearing in this proceeding that it is "in [AOL Time Warner's]
interest to work as forcefully as we can to establish arrangements with all the cable companies to deploy cable
broadband, as well as [with] all the DSL companies, satellite companies, [and] wireless companies, so we
really have a national footprint, with a tapestry of broadband solutions."  AOL claims that it must provide
its services over as many distribution platforms as possible in order to reach the greatest number of
consumers; maximizing the number of consumers that view AOL content, the company maintains, will
increase subscription revenue, advertising revenue and revenue from e-commerce transactions.  AOL further
contends that if it failed to offer AOL Plus on multiple broadband platforms within Time Warner service
areas, consumers would likely subscribe to an ISP other than AOL in lieu of being forced onto cable.  The
Applicants observe that within Time Warner franchise areas, "a substantial percentage of consumers" do not
subscribe to cable, and that refusing to offer AOL Plus over alternative platforms could foreclose AOL from
signing up these potential subscribers.
50.    Although the record supports AOL's general commitment to offering its services over DSL, we
nonetheless conclude that the merged firm would have a clear economic incentive to favor cable as its platform
of choice with respect to customers in Time Warner service areas who could obtain residential high-speed
Internet access services over either conduit.  The record does not support a conclusion that AOL Time
Warner would discriminate against DSL by refusing to offer high-speed Internet access services over that
platform altogether.  On the contrary, as the Applicants' aver, it would be consonant with AOL Time
Warner's economic interest to offer such services over DSL in order to reach as many "eyeballs" as
possible.  However, the merged firm's incentive to offer "AOL Anywhere" would not negate its incentive
to steer customers to the platform the Applicants would own where customers could choose that platform.
51.    If AOL Time Warner acted upon this latter incentive and withdrew its full-fledged support from
the DSL platform in Time Warner cable service areas, the result would be to retard the growth of DSL as a
competitor to cable.  We believe such a result would be against the public interest.  Robust competition
between cable and DSL platforms is important to "promote the continued development of the Internet," to
"preserve the vibrant and competitive free market that presently exists for the Internet and other interactive
computer services," and to "encourage the deployment on a reasonable and timely basis of advanced
telecommunications capability to all Americans."  We are convinced that a decision by AOL Time Warner
to withdraw support from DSL -- even if it were limited to Time Warner cable service areas, and even if its
ultimate effect were only to slow DSL's continued growth -- would amount to a public interest harm.
52.    Nonetheless, we are satisfied that this harm will be adequately ameliorated by the requirements
in the FTC Consent Agreement.  As earlier mentioned, these requirements, augmented by the conditions we
impose in this proceeding, will allow unaffiliated ISPs to offer residential high-speed Internet access services
over Time Warner cable on a non-discriminatory basis. With unaffiliated ISPs able to market their services
over AOL Time Warner's cable platform as well as DSL, the merged firm will have an incentive to offer its
Internet access services over DSL in order to provide prospective customers with the same range of conduit
options its competitors do.  AOL Time Warner will likewise have an incentive to offer its Internet access
services over DSL in order to replace ISP customers lost to unaffiliated ISPs on its cable platform.
53.    The FTC Consent Agreement also addresses the possibility that AOL Time Warner will withdraw
support from DSL in Time Warner cable service areas more directly: by requiring the merged firm to market
its Internet access service over DSL in the same manner and at the same retail price in Time Warner service
areas where AOL or affiliated ISP service is available over cable as in Time Warner service areas where AOL
or affiliated ISP service is not available over cable.  These requirements effectively forbid AOL Time
Warner from steering customers toward the cable platform in Time Warner cable service areas, and ensure
that the merged firm's support for DSL service will not vary where cable and DSL platforms compete head
to head.
54.    We are not persuaded that further requested remedies are appropriate.  Memphis, Light, Gas and
Water Division ("MLG&W") and Memphis Networx (jointly referred to as "Memphis Commenters") ask the
Commission to condition its license transfer approval on the Applicants taking a "neutral stance to the entry
of facilities-based network providers in areas in which Time Warner provides telecommunications and cable
services."  MLG&W is a division of the City of Memphis, Tennessee, that supplies electricity, natural gas
and water to approximately 400,000 customers.  Through a joint venture with a third party, MLG&W
formed Memphis Networx to build a physical network that will provide, among other things, residential high-
speed Internet access services.  The Memphis Commenters allege that Time Warner, which holds the cable
franchise in Memphis, has sought to prevent Memphis Networx from building its competitive network, and
has "gone to extraordinary lengths to protect its dominant position in the Memphis broadband market." The
Applicants respond that Time Warner's concerns about Memphis Networx's proposed network predate the
proposed merger, and would be unaffected by a combination of the firms.  Time Warner also argues that its
concerns about Memphis Networx's proposed network are legitimate, and that to the extent the Memphis
Commenters object to the manner in which Time Warner has acted upon its concerns, such objections should
be addressed to local decision-makers.
55.    MLG&W's undertaking may promote competition for high-speed Internet access services and
facilitate the deployment of these services to under-served areas.  Nevertheless, the Memphis Commenters
have not demonstrated that Time Warner's opposition to their plan is anticompetitive or unlawful.  They have
also failed to demonstrate that the proposed merger would increase the likelihood of anticompetitive or
unlawful behavior by the Applicants.  As we have previously noted, where a "merger is not the cause of . . .
[a] competitive threat . . . the . . . license transfer proceeding is not the appropriate forum" to address the
issue.
               1.   Conditions
56.    Commenters argue that the MOU is insufficient to prevent the proposed merger from harming the
public interest because it is unenforceable and vague with respect to how the principle of non-discrimination
will be implemented.  Although we commend the Applicants for proffering the MOU, as we have earlier
explained we agree with the commenters that the MOU by itself affords insufficient protection against the
potential harms to the public interest that could result from the proposed merger.  The FTC Consent
Agreement, on the other hand, substantially addresses these harms, as we have already described.  The
conditions we impose below are narrowly tailored to augment that decree by preventing AOL Time Warner
from utilizing certain indirect means to disadvantage unaffiliated ISPs on its cable systems due to their lack
of affiliation.
A.     Choice of ISPs:  AOL Time Warner shall not restrict the ability of any current or prospective ISP
customers to select and initiate service from any unaffiliated ISP which, pursuant to a contract with AOL
Time Warner, has made its service available over AOL Time Warner's cable facilities ("Participating ISP").
AOL Time Warner shall allow customers to select a Participating ISP by a method that does not discriminate
in favor of AOL Time Warner's affiliates on the basis of affiliation.  At a minimum, AOL Time Warner shall
allow customers to obtain a list of Participating ISPs by calling their local AOL Time Warner cable system
and requesting such a list.  Whenever a customer requests a listing of Participating ISPs, AOL Time Warner
shall provide the list in a reasonable and timely manner.  Such list shall not discriminate in favor of AOL
Time Warner's affiliates on the basis of affiliation.  AOL Time Warner shall not prohibit ISPs from
marketing their services to AOL Time Warner cable customers.
B.     First Screen:  AOL Time Warner shall permit each Participating ISP to determine the contents
of its subscribers' first screen and shall not require a Participating ISP to include any content as a condition
of obtaining access to AOL Time Warner cable systems; provided that AOL Time Warner and any
Participating ISP may agree that the ISP will include specified content or links on its first screen.  AOL
Time Warner shall not require any high-speed Internet access cable customer to go through an affiliated ISP
to reach any Participating ISP from which the customer purchases service.
C.     Billing:  AOL Time Warner shall permit each ISP to have a direct billing arrangement with those
high-speed Internet access subscribers to whom the ISP sells service.  AOL Time Warner may offer a billing
service to any Participating ISP, but shall not require any ISP to purchase this service as a condition of
obtaining access.
D.     Technical Performance: All contracts between AOL Time Warner and unaffiliated ISPs for
access to Time Warner's cable systems shall contain a clause warranting that, to the extent AOL Time
Warner provides any Quality of Service mechanisms, caching services, technical support customer services,
multicasting capabilities, address management and other technical functions of the cable system that affect
customers' experience with their ISP, AOL Time Warner shall provide them in a manner that does not
discriminate in favor of AOL Time Warner's affiliated ISPs on the basis of affiliation.
E.     Rights to Disclose Contracts to the Commission: AOL Time Warner shall not enter into any
contract with any ISP for connection with AOL Time Warner's cable systems that prevents that ISP from
disclosing the terms of the contract to the Commission under the Commission's confidentiality procedures.
F.     Enforcement:   With respect to any dispute concerning AOL Time Warner's compliance with
these conditions, the following procedures shall apply.  These procedures are designed to resolve any disputes
within sixty (60) days of the filing of the Complaint and to have them resolved by the Chief, Cable Services
Bureau ("Chief").
          1.   No less than ten (10) business days before filing a complaint with the Commission, the
          complainant shall notify AOL Time Warner of its intention to file the complaint.  This is
          intended to afford the parties a final opportunity to resolve their dispute without resort to our
          processes.
          2.   Within twenty (20) days after public notice of the filing of the complaint, any interested party
          shall file an answer.  Within ten (10) days after the filing of the answer, the complainant may
          file its reply. The complainant and AOL Time Warner shall each, with its first filing, furnish
          a detailed report, technical or otherwise, describing the conduct or events that are the subject
          of the filing. All filings shall be made with Commission Secretary and shall be concurrently
          served on the Chief.
          3.   In resolving these filings, the Chief shall apply the following principles:  (a) The general
          pleading rules set forth in Parts 1 and 76 of our rules shall apply to the extent they are
          consistent with the specific requirements of the proceedings provided for herein; (b)
          complaints of misconduct by AOL shall be filed within one year of the occurrence of the
          alleged misconduct; (c) discovery shall be at the discretion of the Chief and may be requested
          by a party in one of its filings provided for above; and (d) the complainant shall bear the
          burden of proof in the proceeding it commences.
          4.   The Chief shall sustain or dismiss the complaint within sixty (60) days of the filing of the
          complaint.
57.    We conclude that these requirements, in conjunction with the FTC Consent Agreement,
adequately address the potential harms to the public interest raised by the proposed merger.  If and when the
Commission adopts any rules of general applicability concerning ISPs' access to cable system facilities, any
such rules will apply to AOL Time Warner to the extent they do not conflict with the conditions set forth
herein.  AOL Time Warner may file a petition at any time after the issuance of such rules, or after the
issuance of any Commission finding on market definition that is contrary to the findings set forth herein,
seeking modification or termination of these conditions.  The Commission may, on its own motion, modify or
terminate the conditions set forth above at any time if it finds such requirements are no longer necessary to
mitigate or prevent potential public interest harms.
          A.   Instant Messaging and Advanced IM-Based High-Speed Services.
58.    In this section we analyze Instant Messaging ("IM"), new IM-based services, and advanced IM-
based high-speed services ("AIHS") from the perspective of our well-settled statutory obligations.  Based
on the following analysis, and to ensure the public interest as set forth in 47 U.S.C.  230(b) and 157 and
elsewhere in the Communications Act is protected, we impose conditions on the merged parties.
59.    We conclude the market in text-based instant messaging is characterized by strong "network
effects," i.e., a service's value increases substantially with the addition of new users with whom other users
can communicate, and that AOL, by any measure described in the record, is the dominant IM provider in
America.  We further find AOL has consistently resisted interoperability with other non-licensed IM
providers. AOL's market dominance in text-based messaging, coupled with the network effects and its
resistance to interoperability, establishes a very high barrier to entry for competitors that contravenes the
public interest in open and interoperable communications systems, the development of the Internet, consumer
choice, competition and innovation. We also find that a Names and Presence Database ("NPD") is currently
an essential input for the development and deployment of many, if not most, future high-speed Internet-based
services that rely on real-time delivery and interaction.
60.    Given these findings, the combination of Time Warner's high-speed information transmission
assets and its programming content with AOL's current IM market dominance, substantially increases the
probability that AOL's dominance in the narrowband text-messaging world will persist in the world of high-
speed interactive services.  For these reasons, we impose conditions to ensure that the factors described in
paragraph 129 above regarding narrowband text-messaging will not be reproduced and compounded by this
merger.
61.    We find that the public interest is served by interoperability among NPD-based services, first and
foremost because interoperability will bring concrete and significant improvements to all consumers.  With
interoperability, communication between users that was inconvenient becomes convenient, communication that
was impossible becomes possible, and new entrants are enabled to bring their innovations and creativity
promptly to the largest possible number of users.  Interoperability of NPD-based services will open new
possibilities for communication for persons who are deaf or hard of hearing, persons with speech and/or
learning disabilities, persons with cognitive limitations, and others for whom voice communication is
problematic   who may come to rely on IM as a basic means of communication.  They will be able not only
to use new services, but also to interact with the perhaps 150 million users of IM all over the world.  These
improvements, in turn, will make these services more valuable to previously uninterested persons, drawing
them to become users.  As we explain in detail below, the network effects of the business, instead of
entrenching the largest incumbent, will work to the benefit of all users.  The rewards of success in the
marketplace will go to the provider who offers the most value to consumers rather than automatically to the
first provider who amassed a large body of users.  Alternately, if a single provider achieves dominance by
relying on network effects and refusing to interoperate, actual and potential competing providers will be driven
from and kept out of the market, resulting in a loss in competition, innovation, and consumer welfare.
Interoperability would also continue the long-standing tradition of the Internet being open and interoperable.
In sum, interoperability will benefit consumers and be in the public interest because (i) it enables each user to
communicate with the largest number of other users through one source, thus maximizing efficiency; (ii)  it
leads to more product and service choices and convenience for users; (iii) it leads to more competition, thus
avoiding the need for regulation; and (iv) it leads to more innovation.
62.    We begin with a description of current and anticipated Instant Messaging and NPD-based
services and of our authority to examine the impact of the proposed merger on these services in reviewing the
applications in this case.  We then explain the "network effects" characteristics of these services, and the
conditions under which an unregulated market is and is not likely to lead to interoperability among competing
providers.  We then find that the proposed merger would give AOL Time Warner substantial, and perhaps
insurmountable, advantages in providing advanced IM-based services over the high-speed Internet platform.
63.    While we recognize a number of factors that signal caution here, including the relative novelty of
the services and the need to resolve security and privacy concerns, we must also weigh the danger of inaction
where the window of opportunity to preserve competition and protect the other policies of the Communications
Act may be narrow because the markets are changing rapidly.  On balance, we find it appropriate to impose
a narrow condition specifically tailored to address the potential harm to Communications Act objectives
created by the combination of assets that will be permitted by granting the pending license transfer
applications.
               1.   Background
64.    IM, in its simplest form, enables the almost instantaneous exchange of short, private,
individualized text messages over the Internet between two users who are online simultaneously and are either
in a "chat room" or on each other's "buddy lists." Each Internet user may maintain a "buddy list"
consisting of the IM names of the other users with whom he or she may wish to communicate via IM. A user
may have several IM names or identities, such as one for work and another for business.  Typically, when a
user turns on her Internet access service, a box appears on the screen containing the names of those users who
are on her buddy list and are also online.
65.    A typical exchange begins when a user ("the sender") sees from her buddy list that another user
("the recipient") is online.  The sender then brings up the IM box on her computer screen, types the recipient's
IM name, types a message ("Hi, how are you this morning?"), and then clicks "Send" or an analogous
command that sends the message to the recipient over the Internet.  An instant later, the sender's IM name and
message appear on the recipient's Internet screen and the recipient may reply.  The general purpose and effect
of IM is to allow almost instantaneous communication between two persons, each of whom sees the other's
IM name on her screen and also sees that the other is online. IM enables them to communicate by exchanging
personalized text messages privately and with a degree of informality and immediacy much like that of a face-
to-face conversation or telephone call.  Because IM messages are in text and are typically short, the speed (or
"latency") demands of the service are relatively modest and well within the narrowband "best efforts" Internet
of today.
66.    IM is especially beneficial to persons who are deaf or hard of hearing, persons with speech and/or
learning disabilities, persons with cognitive limitations, and persons for whom voice communication is
otherwise problematic.  As a mass medium for the almost instantaneous exchange of text messages, as
opposed to voice messages, IM can be as useful to these persons as telephone service is to persons who do not
have such limitations.
67.    Following AOL's pioneering efforts, IM became a mass market product in the late 1990s.  In
the short time since then, IM has mushroomed into a highly popular service, with an estimated 150 million
users worldwide on AOL's IM services alone.  More than 30 million individuals use IM at least once a
month, and AOL transmits almost five times as many IMs a day as it does e-mails.  From all appearances,
the market is nowhere near saturation.
68.    An essential input to an IM service is the provider's NPD.  The names and presence
indication, as displayed on the sender's and recipient's buddy lists and screens, enable each to know the
other's IM name and when he or she is online or available.  The actual NPD consists, first, of a database of
the users' unique IM names and addresses and, second, of a "presence detection" function, which is the IM
provider's knowledge, and its ability to inform others, that a certain user is online and therefore available to
engage in instant messaging.  The NPD is more than simply a customer list.  It is a working part of an
electronic communications network for persons who have requested participation in the network and actually
use it to exchange communications in real time with other users.
69.    Each IM provider has its own NPD, which constitutes the total universe of persons with whom
that provider's users can engage in instant messaging.  Until recently, IM providers did not share access to
their NPDs with other providers.  Some providers are starting to do so.  Such sharing makes possible
"interoperability," which is the ability of users of one IM service to engage in instant messaging with users of
another IM service.
70.    Many new services and applications based on "simple text" IM are being developed.  A few
companies, including AOL, are already providing them to their IM users. Many experienced industry
observers believe that these new services, including AIHS, will be popular.
71.    The new IM-based services include sending, along with a text message, attachments such as
documents; using IM as a way to access shopping, personal homepages, and calendars; using presence
detection as a trigger to perform "intelligent agent" functions such as selective message routing and instant
alerts, automatic responses, filtering out unwanted messages, sending individual users advertising, and time-
sensitive personalized information such as news bulletins on pre-chosen subjects, stock quotes, and travel
arrangements; and ordinary web surfing.  Some of these new services are appearing on wireless devices
such as cellphones and Personal Digital Assistants such as "Palm Pilots" and "Pocket PCs."  These new
services are also expected to be included in interactive television to allow, among other things, text chatting
(for example, among faraway friends watching the same football game), obtaining information (for example,
getting the statistics of a football player who has just come on the field) and shopping on the Internet (for
example, for a team mascot or some other souvenir of a football game).
72.    Some of these new IM-based services -- and perhaps the most important ones in the long term --
are bandwidth-intensive and therefore will work best with high-speed Internet access.  These AIHS include
time-sensitive, "latency-dependent" applications such as talking (e.g., a Talk Feature that enables users to
engage in live conversation online and is included in AIM 4.1), game-playing (e.g., features in AOL's New
Windows AIM 4.3, buddies jointly 'playing along' with popular quiz shows such as Jeopardy! or Who
Wants to Be a Millionaire?, or enacting their own versions of those shows online, independent of television
broadcasts), and buddies sending each other brief music and video clips.
73.    Even more bandwidth-intensive will be video conferencing via IM, which at least one study
group predicts will be a major success in the marketplace.  Also, many kinds of streaming video broadband
content will likely be delivered via IM to both home and business users in forms such as long video
entertainment and business documents in video form.  Finally, AIHS on interactive television could include
IM chat buddies jointly seeing streaming video highlights of a football player's best plays.
74.    Quality of Service ("QoS") will be especially important for AIHS.  This is because delivering
AIHS, compared to simple text IM, is relatively complicated and susceptible to degradation; and because slow
or choppy delivery can degrade the value of an AIHS seriously or totally.
75.    Despite the quantum leap that all these new services represent beyond IM, they are like IM in one
respect.  That is, a provider of AIHS depends on its NPD as much as a provider of IM does.  Absent
interoperability, an AIHS provider's database of users' names is the total universe with whom one user can
swap video clips, engage in video conferencing, and so on.
               1.   Discussion
76.    Authority.  The Public Interest.  We are obligated under the Communications Act to ensure that
the transfer of control of Time Warner's cable licenses serves the public interest.  We determine the public
interest with reference to the policies and goals of the Communications Act and related statutes.  Thus, as
stated in Section II, Public Interest Framework, we examine whether a transaction would substantially
frustrate the Commission's implementation or enforcement of, or interfere with the objectives of, the
Communications Act or related statutes.  Accordingly, in conducting our public interest analysis, we do not
examine those issues that are not communications-related.  But where an issue may be said to be fairly
related to the policies and goals set forth in the Communications Act and related statutes, as is the effect of the
merger of AOL and Time Warner on advanced IM services, we are required to satisfy ourselves that the
public interest would be served by our approval of the transaction before us.
77.    Our authority to examine the public interest effects associated with the combination of AOL's
NPD and Time Warner's assets and to place any necessary conditions on our approval of the transfer of Time
Warner's licenses rests on several statutory grounds.  Sections 214(a) and 310(d) of the Communications Act
require the Commission to determine whether the Applicants have demonstrated that the public interest would
be served by transferring control over Time Warner's licenses and authorizations.  Further, we have broad
authority to attach conditions to a transfer of lines and licenses to ensure that the public interest is served by
the transaction.  Section 303(r) of the Act authorizes the Commission to prescribe restrictions or conditions,
not inconsistent with law, that may be necessary to carry out the provisions of the Act.  Similarly, Section
214(c) of the Communications Act authorizes the Commission to attach to the certificate "such terms and
conditions as in its judgment the public convenience and necessity may require."
78.    Moreover, IM, new IM-based services (including AIHS in particular), and AOL's NPD are
subject to our jurisdiction under Title I of the Communications Act.  Our jurisdiction flows from at least
three sections of the Communications Act.  Section 1 of the Communications Act established the Commission
"[f]or the purpose of regulating interstate and foreign commerce in communication by wire and radio so as to
make available, so far as possible, to all the people of the United States . . . adequate facilities at reasonable
charges . . . ."  Similarly, Section 2 gives us jurisdiction over "all interstate and foreign communication by
wire or radio" and "all persons engaged within the United States in such communication . . ."  Finally,
Section 3 defines "communication by wire" and "communication by radio" as including "the transmission . .
. of writing, signs, signals, pictures and sounds of all kinds . . . including all instrumentalities, facilities,
apparatus, and services (among other things, the receipt, forwarding, and delivery of communications)
incidental to such transmission."   We find that IM and AIHS fall well within Section 3's definitions of radio
and wire communication, as does the NPD as an instrumentality, facility, apparatus, or service incidental to
the IM and AIHS.  Accordingly, the Commission has Title I jurisdiction over IM and AIHS services.  This
being clear, we need not classify IM and AIHS as information services, cable services, or telecommunications
services (as some allege)   the Commission has subject matter jurisdiction over them.
79.    While several commenters agree that the Commission has "clear jurisdiction" to impose
conditions on IM here, citing, inter alia, Sections 1, 2, 230(b)(2), 310(d), and 256, and Title VI of the
Communications Act, AOL argues that there is no such jurisdictional nexus.  AOL's argument, despite
its jurisdictional phraseology, amounts to a claim that its position on the merits is correct, namely that the IM
business is competitive and the IM issues raised in this proceeding are not merger-specific.  As we find below,
however, the IM business is not competitive, and AOL's acquisition of Time Warner's content, cable assets
and control of Road Runner will be contrary to the public interest.
80.    In deciding whether the transfer of control of the licenses and authorizations at issue here is in the
public interest, as discussed above in Section II, we consider, inter alia, whether the merger would interfere
with the policies and objectives of the Communications Act.  Several policies and objectives are implicated by
this merger.  First, in enacting the Telecommunications Act of 1996, Congress established a clear national
policy that competition leading to deregulation, rather than continued regulation of dominant firms, shall be
the preferred means for protecting consumers.  Further, to promote the policies of the Communications Act,
we may "plan in advance of foreseeable events instead of waiting to react to them."  We may therefore
examine and place conditions on a merger to ensure that it will not impede the development of future
competition but will, in fact, enhance competition.  Congress expressed its preference for similar policies
with respect to the Internet.  Section 230(b) of the Communications Act provides that it is a policy of the
United States "to promote the continued development of the Internet and other interactive computer services
and other interactive media" and "to preserve the vibrant and competitive free market that presently exists for
Internet and other interactive computer services, unfettered by Federal or State regulation."  Finally,
Congress has charged the Commission with "encouraging the deployment on a reasonable and timely basis of
advanced telecommunications capability to all Americans."
81.    Several commenters argue that we may impose conditions on IM services to remedy
anticompetitive harms, and that doing so would be consistent with our prior decision in WorldCom-MCI.
In WorldCom-MCI, we held that because the merger raised anticompetitive concerns regarding the Internet
backbone service market, it was necessary for the Commission to review the applicants' proposed divestiture
of one of their Internet backbone services to ensure that those anticompetitive concerns were met, even though
the applicants did not need our "approval" to complete that divestiture.  AOL finds the analogy to Internet
backbone service to be inapposite, claiming that IM is not a facility or transmission service that the
Commission regulates, but an information service that the Commission has chosen not to regulate.  Those
commenters who seek to impose a condition on IM or AIHS also cite Section 230(b) of the Communications
Act as support.  We agree, in part because our decision in WorldCom-MCI supports our examining this
merger to ensure that it does not have an anticompetitive effect on the provision of AIHS.  The fact that we
have chosen not to subject IM and AIHS to traditional regulation does not mean that the merger's effects on
these services escapes our inquiry.  In fact, exactly the opposite is true.  Because we have jurisdiction over
IM and AIHS but, mindful of Congress's intent, have chosen not to regulate them, it is all the more important
that we ensure that this merger does not cause any anticompetitive harms with regard to these services.  Only
in this way can we "preserve the vibrant and competitive free market that presently exists for Internet and
other interactive computer services" and ensure that competition, rather than regulation, protects consumers.
82.    Relevant Markets. After reviewing all the parties' submissions and making our own analysis of
the businesses in question and relevant economic principles, we find that the area of our concern is "NPD
services"   interactive communication services which, as we described above, depend on an NPD for real time
communication between and among users.  Today, the principal services of this type are IM, the emerging new
IM-based services, and AIHS in particular.  In the following paragraphs, we find that the database of names
and the presence detection ability of an NPD cause services that depend on an NPD to be characterized by
strong network effects.  These and other aspects of NPD services cause them to have few, if any,
substitutes.  We further recognize that IM services are evolving rapidly, and we expect that this evolution
will continue as more home users come to use high-speed platforms for Internet access.  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.
83.    General Characteristics of NPD Services.  Network Effects.  Certain services, such as telephone
services, become more attractive to customers as more customers use them, a phenomenon called "network
effects."  Network effects tend to be strongest in businesses whose main output or product is access to other
persons, as is the case with telephone service.
84.    Often, in businesses with strong network effects, each of several providers creates its own
network that is potentially incompatible with the others'.  If each of the networks is of roughly equal size, then
no provider dominates the market and each has an incentive to interoperate -- to make its service compatible --
with the others.  In such an equilibrium, interoperability gives each provider's users access to a larger universe
of other users and that makes each service more valuable to its users.  This equilibrium leads to effective
competition and benefits consumers.
85.    A different outcome, and one less beneficial for consumers, can also occur in markets with strong
network effects.  If one provider achieves a larger market share, either through superior performance or a first
mover advantage, then it may not have an incentive to interoperate.  If that provider wants to dominate the
market, it can adopt a strategy of refusing to interoperate with the other, smaller providers.  This, compared
to a strategy of interoperation,  will make its service less valuable and will hurt its users.  But while these ill
effects will be relatively slight, because the users will still be able to reach most other users, refusing to
interoperate will hurt the smaller providers and their users greatly, because their users will not be able to reach
most other users.  The largest provider's refusal to interoperate will lead to users switching to it from the
smaller providers, which will further swell the dominant provider's NPD and shrink the smaller ones'.  This
will continue until the largest provider's network is the dominant one, perhaps yielding the provider monopoly
control of the market.  From that point onwards, the dominant network remains dominant, not necessarily
because it charges the lowest prices, offers the best quality, or innovates fastest with the features that
customers want most, but simply because in the past it gained the most users.
86.    Where there is no interoperability, the network effects of a service can be mitigated if competing
providers or users of another service can provide an "adapter."  An adapter is a facility or activity that enables
users of one service to benefit, in full or in part, from the network effects of another.  The absence of an
adapter can lead to inconvenience and inefficiency.  For example, in the early 20th century, a telephone
subscriber who wanted access to every other telephone subscriber had to establish accounts with several
telephone companies, have several telephones and telephone directories, and perhaps consult the directories
each time he wanted to call someone to find out which system(s) that person subscribed to.  Most consumers
preferred that all telephone systems be interconnected and unified.  These conditions led to monopoly and,
ultimately, federal and state regulation.
87.    The dominant provider of a service with network effects can exploit its dominant position as it
offers new services that also have network effects.  The provider can do so by making its new service
compatible with its existing one ("backward compatibility").  This extends the network effects of the existing
service into the new business and helps to migrate the provider's users from its existing service to the new one.
Backward compatibility is efficient to the extent that it allows users to benefit from both the features of the
new service and the network effects of the old service.  If, however, it occurs where there is no
interoperability, then backward compatibility can serve to lengthen and widen the dominant provider's power,
to the harm of consumers and efficiency.  The actual, or even potential, introduction of new backward
compatible services by the largest provider can also stifle innovation, as potential entrants will be unlikely to
invest in new services, knowing the disadvantage that they have in competing with the largest provider.
88.    Findings About NPD Services.  We find that NPD services exhibit strong network effects.  Our
first basis for this finding is simply that IM strongly fits the above definition of a business that is characterized
by network effects.  If an NPD service has only one user, the service is useless to her because she is the only
user in the NPD and there is no one with whom to engage in instant messaging.  When a second user joins the
service, NPD grows and the IM service based on it becomes useful.  Each additional user makes the NPD
larger and the IM service based on it more useful to both its existing users and to potential users.  Most users
of IM want to be able to compose their buddy lists from, and/or engage in IM with, the largest number of
other users.  Therefore, when choosing between rival IM services, a typical new user will place the greatest
value on the service with the largest NPD (and therefore the most users) and will choose that service.  In all
these hypothetical situations, the underlying value (or lack of value) in an IM service resides in the NPD.
89.    Second, many observers agree that IM services exhibit strong network effects.   Third, although
AOL's filings before us almost deny that there are any network effects in IM, or that any such effects benefit
only AOL, its promotions attempt to attract new users by proclaiming how many millions of registered IM
users it already has.  Specifically, the top paragraph of its own web page for AIM 4.1 entices users with
"[f]ind out what over 64 million people already know, . . ."  (underlining in original).  Accordingly, we find
that NPD services are characterized by strong network effects.
90.    We find that AOL is by far the leading provider of IM  today.  Many commentators have
concluded that it dominates IM.  AOL was the first company to successfully market IM to the mass market
and thus gained a significant first mover advantage.  According to all observers, AOL has a mass of users --
and, therefore, an NPD -- that is several times larger than any other provider's and is larger than all other
providers' combined.  And AOL's presence in IM is still growing.   Furthermore, small IM providers
have recently exited the market.
91.    Independent companies have recognized the strength of AOL's IM by signing deals with AOL.
These include both Sprint and AT&T agreeing to make AOL's IM available to their wireless customers and
Sears agreeing to use instant messaging to connect Sears customers with Sears customer service
representatives.  EarthLink, a major direct competitor of AOL in the ISP business, has continued a licensing
arrangement with AOL.  EarthLink would be expected to compete with AOL in IM if that were possible.
Finally, the continuing strength of AOL's IM has been recognized by a number of independent analysts.  All
this evidence strengthens our conviction that AOL's possession of by far the largest NPD confers great power
on it.
92.    AOL disagrees with the commenters who contend that it dominates IM.  For example, AOL
points to entry into the IM business by other providers and appears to claim that it does not benefit from
network effects.   We disagree.  New entry may indicate competition, especially in a stable, mature
business.  IM is not such a business, however, and new entry into IM may also be explained by factors other
than healthy competition.  The smaller providers may be able to attract customers in a fast-growing market in
which they offer extraordinary promotional inducements, may plan to succeed by targeting niche groups
or may be concentrating on very sophisticated features and functions.  Because their offerings are unlikely
to tempt a significant number of mass market users, however, they do not challenge AOL directly or
significantly.  Further, entry into IM may have been induced, despite network effects, by the prospect of
interoperability with AOL.  This prospect has been created by industry efforts; by expectations of
governmental action by this Commission, the Federal Trade Commission, and/or Congress; and by AOL's
own public statements pledging to help achieve interoperability.  These factors may induce entry especially
by those who believe that they will have advantages post-interoperability stemming from unique features and
functions.
93.    From among all entrants into the IM business, AOL points especially to Microsoft as a significant
rival.  AOL claims that Microsoft's presence, and especially its recent growth in the market, demonstrates that
AOL does not dominates IM.  AOL points to Microsoft integrating its IM product into its Windows desktop
and to Microsoft's strength in desktop applications generally. We note that Microsoft is a potentially
formidable competitor.  However, Microsoft has not always been able to leverage its control of the Windows
desktop into dominance of other applications.  In addition, in IM today, AOL benefits from network effects
and first mover advantages; and, as we discuss below, the proposed merger would give AOL significant,
additional advantages over Microsoft, Yahoo!, and smaller IM providers.  And even if Microsoft's NPD did
grow to rival AOL's, the result would be merely a duopoly, not the healthy competition that exists today in
electronic mail and that we hope will exist in new IM-based services and AIHS in particular.
94.    AOL also claims that any incompatibilities between its and other IM providers' NPDs are
mitigated by an existing adapter for IM, namely that an IM user may use several IM services
simultaneously, and that millions of users do so.  AOL argues, therefore, that there are no barriers to
entry into IM.  We disagree.  We find the ability of users to use several IM services is not a substitute for
interoperability.  Using several IM services (and, therefore, several NPDs) entails much inconvenience.  A
user must download several kinds of IM software; must register and maintain accounts, unique names, and
passwords with several IM providers; must use each one enough to become comfortable with its 'look and
feel'; must keep several buddy lists and remember which buddies are on which IM service (and with what
names); and must keep several IM sessions open simultaneously.  Even then, three-way communications are
impossible unless all participants use the same service.  Indeed, in light of these inconveniences, the fact that
millions of people use more than one IM service (especially AOL and one or more other services) indicates not
easy adaptation but the great value that users put on being able to communicate with more, rather than fewer,
people.  Maintaining multiple accounts, each with its own IM software, will be especially burdensome in
hand-held devices.  They have less storage capacity than desktop personal computers.  In addition, we
understand that wireless carriers may choose one software (e.g., AOL's) and make use of others impossible.
Lack of choice of IM services in hand-held devices will particularly hurt persons with hearing, speech, and
other disabilities, to whom IM via hand-held devices can be as important as telephones and face-to-face
conversations are to persons who do not have hearing limitations.  In sum, we find that the ability to use
several IM services and NPDs does not effectively mitigate the network effects that favor AOL's NPD.
95.    AOL further contends that it does not dominate IM because it is possible for users to move in a
coordinated group from one IM service to another.  We find this not only inconvenient, but in most cases
impossible as a practical matter.  Only if those who propose to move have precisely the same buddy lists is
this solution possible.  Most likely, one user's buddy list does not correspond perfectly with his or her
buddies' lists, in which case moving requires that at least some of one's buddies be left behind.
Accordingly, we find that no adapter exists to mitigate the network effects of AOL's NPD.
96.    AOL claims that entry into IM would be easy for any company with a customer list, especially a
customer list as full as, for example, that of Sears or American Express.  Again, we disagree.  As we noted
above, an NPD for IM must be a working part of an electronic communications network.  Even the lengthy list
of an interactive web service firm such as Amazon, E-Bay, Napster and Real Player would only be the
starting raw material for entry into IM.  Any of these would-be entrants would need to master a new business
-- real-time, two-way, consumer-to-consumer interactive service.  A would-be entrant would also need to
launch a major marketing campaign to interest its customers in using its IM.  Then millions of those customers
would need to accept the invitation, download software into a personal computer or other interactive device,
pick an IM name and find their buddies on the same service.  From the entrant's original customer list, tens
of millions of customers would need to finish all these steps for the resulting IM NPD to rival AOL's.  We
find that there are few companies that could seriously attempt such entry, and that even they would find many
obstacles to successful entry.
97.    Finally, it might be thought that in the rapidly changing technology of the Internet, even network
effects and AOL's present position in the market would not prevent successful entry by IM providers other
than AOL, that a new breakthrough technology might become available and would be superior enough to
AOL's service to overcome the network effects flowing from its NPD, and cause users to shift en masse away
from AOL.  In some "serial monopoly" markets, one standard dominates a market for a time and is then
overtaken by a new standard.  We see no evidence at this time, however, of such a new breakthrough
technology strong enough to overtake AOL's NPD.  AOL has pointed us to no such evidence.  On the
contrary, the evidence indicates that NPD technology is the best protocol for providing address and presence
information for interactive services.
98.    AOL's Resistance to Interoperability.  AOL has consistently resisted interoperability of IM
services.  In 1999, various non-AOL IM providers repeatedly attempted to gain access to AOL's proprietary
and/or AIM NPD in order to interoperate with AOL, and were blocked by AOL.
99.    AOL has stated that it will seek interoperability, but has participated little in industry
consultations aimed at industry-wide interoperability. According to several observers, AOL has dragged its
feet in these consultations.  Objective evidence supports this view.  The body through which the
consultations were occurring, the Internet Engineering Task Force (IETF), found that AOL's proposal lacked
specificity, and began pursuing several other proposals.  Recently, the IETF suspended its efforts, stating
that no consensus about how to effect interoperability could be reached.  At the en banc hearing in this
proceeding, AOL opined that interoperability could only be achieved after lengthy industry deliberations and
has stated that a technical standard could be achieved by July 2001, after which testing would begin.  As
noted below, we will require AOL to file a progress report with the Commission every 180 days with regard
to the actions it has taken towards interoperability.
100.   AOL claims that it has been stymied in its attempts to provide interoperability by its desire
to protect the privacy and security of its customers.  Other IM providers allege that they already have
security and privacy procedures that are at least as great as AOL's.  We find AOL's claim unconvincing.
AOL has given us no details about its concerns, or how it currently protects its users.  While it may be that
AOL desires eventually to create an interoperable product that protects subscribers' privacy and security,
privacy and security are matters that can be negotiated and resolved promptly, not pretexts for delaying
interoperability unnecessarily.  Microsoft and Yahoo! express no such disabling anxieties about privacy and
security, even though they, like AOL, have reputations, goodwill, and customer bases to protect, and the
technical expertise to distinguish serious and real problems from imaginary and minor ones.  Microsoft and
Yahoo!, not to mention many other IM providers, have as much incentive as AOL to implement
interoperability with adequate protections for users' privacy and security.  Security concerns do not appear to
be the only reason that AOL has resisted interoperability.
101.   AOL's Use of Backward Compatibility.  AOL's new IM-based services in AIM 4.1 include
a Talk Feature.  In introducing AIM 4.1, AOL is taking advantage of backward compatibility by making its
new features compatible with its IM service.  AOL does this by using the same NPD, the one it originally
built for IM, for these new features.  In this way, a user of AIM 4.1 who has high-speed Internet access
service is not only able to engage in AIHS exchanges with other users of AIM 4.1, but is also able to continue
to engage in IM with the much larger body of AOL's IM users who continue to use narrowband Internet
access service.  AOL is also using its base of IM users as a springboard for launching its AIHS.  Recently, in
introducing AOL Instant Messenger 4.3, AOL's web page warns that "[i]n order to take advantage of some
of the newest AIM features, both you and your buddies must upgrade to AIM 4.3.  . . .  If your buddy's
software is older, they may not be able to talk, share files, or take advantage of other new features.  Send an
instant message to your buddies today to let then know about AIM 4.3."
102.   We find it likely that AOL will, when presented with other, similar opportunities, continue to
take advantage of backward compatibility as it rolls out new AIHS.  Users of its new high-speed services will
be able to use AOL's IM to communicate with its existing customer base.  In addition, narrowband IM users
may be able to adopt these new high-speed services, which will enable them to communicate with their users,
albeit with relatively low quality.  The Talk Feature of AIM 4.1 is a good example of such a feature.  It can
be used by narrowband customers, but quality is higher for high-speed customers.  This difference will be
more evident for features that require yet more bandwidth, such as videoconferencing.
103.   Backward compatibility will have at least two benefits for AOL.  First, it will enable it to
offer new services tailored to high-speed customers without losing the network effects of the NPD that it
developed in narrowband IM services.  That is, AOL will be able to take the value inherent in its IM NPD and
leverage it into its new AIHS.  For example, users of AOL's AIHS will, because of the availability of AOL's
NPD, be able to send streaming video messages to more other users, and will be able to receive them from
more other users, than users of any other AIHS.  AOL users will be able to video chat with more buddies, will
be able to go web surfing via streaming video with more other users, will be able to hold larger business
meetings with documents displayed via streaming video, and will be more likely to quickly compose large
groups for these and other uses of streaming video.
104.   Second, the benefits of providing backward compatible AIHS may lead other actual or
potential providers of competitive but incompatible AIHS to conclude that it will be difficult, if not
impossible, to successfully compete with AOL for customers.  Thus, AOL's user base and NPD in IM gives
it a unique first mover advantage into AIHS.  We find that, with the advantages that backward compatibility
will give it, AOL will be more able to dominate AIHS, or may be likely to dominate AIHS, not necessarily on
the merits of its service, but because of the network effects inherited and leveraged from the NPD it built up
in the IM business.
105.   Anticompetitive Effects of the Proposed Merger.  As already discussed, AOL is by far the
largest IM provider, by virtue of its uniquely large NPD, and therefore has a strong incentive to resist and
delay interoperating with other IM providers' NPDs.  Without interoperability, users may choose AOL's IM
simply because it has the largest NPD and not because it offers the best value or is most attractive for some
other meritorious reason.  This puts a damper on competition and innovation, whether or not the network
effects are so strong that they cannot likely be overcome (e.g., by a highly superior product offered by a
competitor).   AOL is in fact strongly resisting interoperability, thus taking advantage of the network effects
of its NPD in competing with other providers.  As a consequence, all consumers  and the public interest are
being disserved.  Actual and potential competition among IM providers is hampered.
106.   We conclude that AOL, through the proposed merger, will gain control over many significant
assets owned by Time Warner and that these assets will make AOL Time Warner more able or more likely to
dominate AIHS than it would otherwise be.  AOL Time Warner may well be in a position of unassailable
dominance in AIHS as a result of the proposed merger.
107.   One, but by no means the only, relevant asset is the cable television systems owned by Time
Warner.  These systems are now being used to provide high-speed Internet access.  A second asset that AOL
will acquire in the proposed merger is Time Warner's contractual relations with the approximately 13 million
cable television households in this country that those systems serve.
108.   A third relevant Time Warner asset is Road Runner, a major high-speed ISP, and a fourth is
Road Runner's contractual relations with its subscriber base, which recently passed 1.1 million.  Road
Runner is now the exclusive high-speed ISP on Time Warner cable systems.  In addition, approximately 40
percent of Road Runner's customers are on cable television systems other than Time Warner's that have
agreed to make Road Runner their exclusive high-speed ISP through 2001.  These latter cable television
systems serve more than five million households.  Thus, by acquiring Time Warner, AOL has gained access
to nearly 20 million households who are or will be enabled for residential high-speed Internet access and to
whom AOL Time Warner may now market AIHS.  Road Runner does not now include an IM service in its
home page offering, but it is reasonable to expect it to have one and for that to be AOL's NPD.
109.   AOL will also acquire other relevant Time Warner assets, such as the significant content
owned by Time Warner.  This includes the stories and photographs in Time Warner's magazines, such as
Time and Sports Illustrated; the news, sports programs and other information in video form available through
CNN; and its extensive library of movies, television shows, popular music, and animated entertainment.  This
content will be useful to certain of AOL's new AIHS, in particular sending individual users television-based
news stories on pre-selected subjects and allowing users to send each other Time Warner-owned animation,
movie and television excerpts, and music.  The video assets in particular are well suited for AIHS.  AOL's
ownership of Time Warner will allow it to make this mass of content available quickly to users of AOL's
AIHS.  This content will have already been created, so the cost of providing a copy of it (e.g., a video clip
from CNN or a story from Time Magazine) to AOL will be, as a practical matter, zero.  The savings resulting
from this kind of vertical merger will thus be increased beyond their normal levels.
110.   The combination of these assets will likely give AOL Time Warner another first mover
advantage in AIHS.  In contrast, other AIHS providers, if they have any access to Time Warner's systems,
services, and content, will need to negotiate individual contracts for that access and will have to pay for it.
They will need negotiations with, and payments to, other content owners, also, to bring comparable AIHS to
their users.  Given the size and scope of Time Warner's assets, many contracts and much time would be
needed to make an equivalent AIHS offering.
111.   In sum, although Time Warner's valuable content, conduits, prominent high-speed ISP, and
ready-made customer base will enable the merged firm to provide more services to AOL's IM customers, this
combination will also make it much easier for AOL Time Warner to leverage the network effects of AOL's
NPD into AIHS.  The Applicants appear to be pointing to this very phenomenon as a benefit of their proposed
merger when they state that they "plan to create and deliver to consumers easily accessible interactive services
  mixing and fusing content and communication elements   that today are only in their infancy or are not yet
on the drawing board."
112.    The proposed merger will also give AOL the opportunity and incentive to impair the
performance of its rivals' AIHS.  Other AIHS providers will provide their services over Time Warner cable
systems and Road Runner.  The proposed merger will put AOL in control of those assets.  The merger will
thus give AOL the opportunity to control the quality of service that its competitors receive.  For example,
AOL Time Warner will be able to make its own users' video conferencing transmissions quick and clear and
those of competitors slow and choppy. AOL Time Warner will have the incentive to engage in such conduct
because it will discourage consumers from using competitors' AIHS and will draw them instead to AOL Time
Warner's.  Such conduct would be particularly destructive to competition in AIHS because, as we have
noted, QoS will be especially important in those services.
113.   There is precedent for such misconduct. Companies in communications markets have been
known to acquire scarce facilities that their competitors need and to deny the competitors equal or reasonable
access to those facilities, and thus to give themselves anticompetitive advantages or monopolies.  AOL in
particular has a history of denying its IM competitors any access to its NPD.
114.   We find the situation in AIHS different from that which, in our ruling on the merger of
AT&T and Media One, led us to conclude that concern for the future of competition in various broadband
services would be premature and that it would be prudent to refrain from action.  There, we addressed the
entire residential high-speed Internet access business.  Here, our attention has been sharply focused on AIHS,
the NPD assets at its core, and the particular abilities and incentives in AIHS of the two specific parties to this
proposed merger.  Seeing a foreseeable and likely danger to competition in AIHS, we can act promptly and
with confidence.  This danger leads us to protect the possible emergence of a competitive market and not to
wait for more traditional antitrust remedies, which may not be used until harm is done and may take years to
undo.
115.   With a dominant position in the AIHS business, AOL Time Warner would be likely to charge
higher prices than it otherwise would to end users, content providers, and/or advertisers.  AOL's domination
may also result in less innovation in new IM-based services, and AIHS in particular, than there otherwise
would be.  We find such harm both more likely as a result of the proposed merger than it would otherwise be,
and contrary to the public interest.  Accordingly, we find that the proposed merger will significantly enhance
AOL Time Warner's ability and incentive to leverage the network effects of AOL's NPD, from its IM service,
into new IM-based services including AIHS, thereby making it more able or likely to dominate those services
and to effectively foreclose the emergence of a competitive market.  We see no benefits from AOL Time
Warner's domination that will outweigh these harms.
116.   AOL implies that we should address these issues in a rulemaking that would apply to all
providers of IM and new IM-based services.  The concerns we have described above flow, specifically and
exclusively, from AOL's role, and not from any other company's, in services that depend on an NPD after the
proposed merger. Further, our concerns are time-sensitive, focusing as they do on current events in the
emerging business of new interactive services.  By the time a rulemaking ended, the domination by AOL Time
Warner that we today find likely might well have been achieved and be beyond correction by marketplace
forces.  Regulation of AOL Time Warner's offerings might be necessary.  Too often in the history of
communications, interoperation has required detailed government mandate and decades of supervision, and
dominant firms' entry into new markets has required case-by-case permission after intense scrutiny.  We
assiduously seek to avoid those outcomes here, and we earnestly hope that our light-handed, market-opening
condition will lead to interoperability without further government action.
117.   Interoperability. We find that the anticompetitive dangers discussed above would be
mitigated if there were interoperability between AOL's new IM-based services and those of other companies.
This would permit a user of an AOL service and a user of another service to talk, play games, engage in video
conferencing, etc., with each other as easily as each exchanges instant text messages today with other users of
the service to which he or she subscribes.  If there were interoperability of new IM-based services, AOL
would be less able to leverage its leading position in IM services into those new services.
118.   To prevent AOL Time Warner, as a result of the proposed merger, from becoming more able
or likely to dominate AIHS, we impose a prophylactic condition.  Because the domination that concerns us
would be made likely by the combination of AOL's and Time Warner's assets, we reject AOL's argument that
its dispute with other IM providers about interoperability preceded and is therefore immaterial to the proposed
merger.  We have also considered carefully AOL's other cautions against intervention in the market, but we
find them unconvincing.   AIHS are novel services, but we and many others believe that they will be
significant in the near future.  If they are not, our intervention will cause little, if any, harm to consumers or
efficiency.  If, as AOL predicts, Microsoft and Yahoo! effectively challenge AOL in IM and/or AOL Time
Warner in AIHS, then AOL will have an incentive to achieve interoperability and our condition will not come
into operation.  The risk of our not intervening now, however, is to risk the emergence of a significant new
business needing regulation, a result we and Congress wish to avoid especially on the Internet and interactive
services.  For the reasons stated above, we cannot be certain that new entry, even by the likes of Microsoft and
Yahoo!, will discipline AOL Time Warner in AIHS.  Finally, we are not convinced that AOL's expressions
of concern with security and privacy justify giving free rein to its resistance to interoperability.
119.   Accordingly, we are imposing a condition that is precisely and narrowly aimed at preventing
the specific harm that the proposed merger will cause.  It is also directed at serving the broader public interest
in encouraging entry, competition, innovation, the broader deployment of new services, the lowest possible
transaction costs for consumers, and necessary protection of persons with disabilities.  Our condition is
balanced because it contains ways for AOL to show that, due to events we do not anticipate, the condition is
no longer necessary.  Our condition gives AOL incentives that it does not now have to interoperate and thus
to benefit consumers, efficiency and the public interest.  Our condition also gives other IM and AIHS
providers incentives to enter and remain in the business that they do not now have.
120.   As set forth below, our condition gives AOL an incentive to interoperate by forbidding it from
providing streaming video AIHS applications until it interoperates. Our condition focuses on streaming video
AIHS applications, for several reasons.  First, AOL is not offering them as part of its IM today.  Second, as
we define them below, we believe that the scope of video AIHS applications is relatively clear. If our condition
focused on AIHS applications that included "talking" or "game-playing," which AOL appears to be providing
now to some extent, there might be difficulty in detecting when AOL had made an advancement with these
services.  Third, AOL will be able to provide streaming video AIHS applications for the first time on the
facilities of Time Warner that are coming under AOL's control as a result of the proposed merger.  We
believe that it is in these applications that AOL would be positioned to gain the greatest anti-competitive
advantage as a result of the proposed merger, by combining its NPD with the assets of Time Warner.
               1.   Condition
121.   AOL Time Warner's likely domination of the potentially competitive business of new, IM-
based services, especially AIHS applications such as videoconferencing, requires that we impose a condition
to prevent that merger-specific harm.  AOL Time Warner may not offer an AIHS application that includes
the transmission and reception, utilizing an NPD over the Internet Protocol path of AOL Time Warner
broadband facilities, of one- or two-way streaming video communication using NPD protocols   including live
images or tape   that are new features, functions, and enhancements beyond those offered in current offerings
such as AIM 4.3 or ICQ 2000b, unless and until AOL Time Warner has successfully demonstrated it has
complied with one of the following grounds for relief.
122.   Grounds for Relief.  Option One.  AOL Time Warner may file a petition demonstrating 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 that is recognized as complying with
National Institute of Standards and Technology or International Organization for Standardization
requirements for a standard setting body.  At a minimum, AOL Time Warner must demonstrate that the
adopted protocol makes available to another provider of NPD-based services such data in AOL Time
Warner's NPD(s) as will enable the other provider's users to know the addresses of AOL Time Warner users
and detect their presence online, to the same extent that AOL Time Warner's users know each others'
addresses and detect each others' presence online.  AOL Time Warner must also demonstrate that the protocol
makes available to other IM providers any other information used by AOL Time Warner to implement and
process transactions of AIHS services, to the extent allowed by law.  The adopted standard shall also ensure
that AOL Time Warner shall afford the same quality and speed in processing transactions to and from the
other provider as it affords to its own transactions of the same type.  Other than specifying server-to-server
interoperability as described above, we do not set any technical criteria for interoperability.
123.   Option Two.  AOL may file a petition demonstrating that it has entered into written contracts
providing for server-to-server interoperability with significant, unaffiliated, actual or potential competing
providers of NPD-based services offered to the public. AOL must execute the first such contract prior to
offering the video AIHS service described above. After AOL Time Warner executes the first contract, an
officer of AOL Time Warner shall certify to the Commission that it is prepared to promptly negotiate in good
faith, with any other requesting provider of NPD-based services.
124.   Within 180 days of executing the first contract, AOL must demonstrate that it has entered
into two additional contracts with significant, unaffiliated, actual or potential competing providers.  The
interoperability achieved under these contracts shall be identical to that described under Option One above
with identical terms and conditions for technical interoperability. All parties to a contract shall agree not to
alter the technical protocol without the consent of all parties providing interoperable IM services under these
agreements.  The contracts may contain different provisions for business considerations.  AOL Time Warner
must submit copies of these agreements for server-to-server interoperability into the record of this proceeding
within 10 days of execution of such agreement.  AOL Time Warner may redact any proprietary information
or terms not related to technical interoperability.
125.   Option Three.  AOL Time Warner may seek relief from the condition on offering AIHS video
services by filing a petition demonstrating that imposition of the condition no longer serves the public interest,
convenience and necessity because there has been a material change in circumstance, including new evidence
that renders the condition on offering AIHS video services no longer necessary in the public interest,
convenience, and necessity.  If AOL Time Warner proffers market share information as evidence that the
condition no longer is necessary in the public interest, convenience, and necessity, AOL Time Warner must
demonstrate that it has not been a dominant provider of NPD services for at least four (4) consecutive months.
126.   Procedure for Submission of Petition to the Commission.  To receive authorization to offer
AIHS video services pursuant to Options One through Three above, AOL Time Warner shall submit a
Petition to the Commission.  The Petition shall be filed with the Secretary's office and shall contain the factual
and legal bases demonstrating satisfaction of one of the three options set forth above.  The Commission shall
put the Petition out for Notice and Comment with a maximum of 30 days for receipt of such comments.
Petitioner may submit a reply not more than 15 days after the closure of the comment period.  Upon the timely
filing of Petitioner's reply, the Petition, comments and reply shall be submitted to the Commission for
disposition.  The Commission shall issue its findings and conclusions not more than 60 days after receipt of
the matter.  This timeline may be altered at the discretion of the Commission upon a timely submitted request
of the Petitioner. The findings of the Commission shall be made upon clear and convincing evidence, and in
the absence of such an evidentiary showing, the condition shall not be eliminated.
127.   Reporting Requirement.  We also require that AOL Time Warner file a progress report with
the Commission, 180 days after the release of this Order and every 180 days thereafter, describing in
technical depth, the actions it has taken to achieve interoperability of its IM offerings and others' IM
offerings.  Such reports will be placed on public notice for comment.  Any confidential or proprietary
information contained in the reports may be submitted to the Commission pursuant to the terms of the
protective order in this proceeding.
128.   Enforcement.  The Commission shall retain jurisdiction over the licensees or their successors
for the purpose of enforcing the terms of this condition, for a period not to exceed five years.  The terms of
this condition shall be enforced pursuant to the Commission's powers under the Communication Act.  Any
party to the Order, or their successor in interest, may petition this Commission at any time for relief from the
condition on offering AIHS video services imposed pursuant to this Order.
129.   In the event that any person wishes to bring to us a dispute about AOL's compliance with our
condition, we shall require that the following procedures be followed.  These procedures are designed to
resolve any disputes within sixty (60) days of the first filing.  Within twenty (20) days after public notice is
given of either the filing of a complaint or a showing by AOL Time Warner, any interested party shall file a
response (AOL Time Warner's answer to the complaint, another person's response to AOL Time Warner's
alleged showing).  Within ten (10) days after the filing of the responses, the party that made the first filing
may file its reply.  The complainant and AOL Time Warner shall each, with its first filing, furnish a
detailed report, technical or otherwise, describing the conduct or events that are the subject of the filing.  All
these filings shall be made with the Commission Secretary and shall be concurrently served on the Chief,
Cable Services Bureau.  The complaint or showing, as the case may be, shall be dismissed or sustained
within sixty (60) days of its filing.
130.   Sunset.  Five (5) years after the date of release of this Order, the condition set forth in the
preceding paragraphs shall expire and shall not restrain AOL Time Warner from offering video AIHS.
          A.   Video Programming
131.   In this section, we consider the proposed merger's impact on video programming sold by
program networks to MVPDs, who then deliver the networks via their distribution systems to their
subscribers' television sets.  MVPDs include cable, DBS, multichannel multipoint distribution services
("MMDS"), and satellite master antenna television ("SMATV") providers.
132.   Companies that own programming networks produce their own programming and/or acquire
programming produced by others, then package this programming for sale to MVPDs.  As discussed above,
Time Warner has ownership interests in a large number of programming networks, such as CNN, TBS, HBO,
Comedy Central and Court TV, among others.
133.   We examine below whether the merger will create public interest harms with respect to
electronic programming guides ("EPGs"), the carriage of analog and digital video signals, or AOL Time
Warner's post-merger ownership interest in DirecTV, the nation's largest DBS provider.  We conclude that
the merger will not result in a violation of the Communication's Act or Commission rules, nor will it interfere
with our implementation of the Communications Act or the Commission's policy objectives.  Accordingly, we
reject commenters' requests that we impose conditions related to video programming.
               1.   Electronic Programming Guides
134.   EPGs are on-screen directories of programming delivered through various means, including
cable plant, telephone lines, and over-the-air broadcast signals. Original-generation EPGs are not interactive,
but rather continually scroll programming listings.  These EPGs are generally delivered as discrete video
programming channels.  Newer, interactive EPGs, however, allow users to sort and search programming, give
program descriptions, provide reminders of upcoming programming, and take users to programming they
select.  Interactive EPGs can be transmitted via the Vertical Blanking Interval ("VBI") of analog channels,
or may be transmitted as standalone digital data streams.  The purchasers of EPGs are MVPDs such as cable
and DBS operators, and, potentially, through set-top boxes, individual consumers.  The sellers of EPGs are
EPG companies.  Gemstar, the current market leader in the provision of EPGs, has contracted with AT&T
for provision of EPGs on AT&T cable systems.  Gemstar also has an agreement with AOL to provide
electronic program guide functions for AOLTV.
135.   Gemstar argues that, although it has no complaint regarding AOL, Time Warner has engaged
in anticompetitive conduct by blocking subscriber access to Gemstar's Guide Plus+ EPG.  The "Guide
Plus+" EPG conveys programming information to consumers without a monthly service charge and without
the need for set top boxes or other devices.  According to Gemstar, Guide Plus+ works only when the
television can receive updated programming information transmitted via the vertical blanking interval of local
television broadcast stations.  Gemstar states that Time Warner strips out the EPG data in the VBI,
rendering Guide Plus+ useless to many potential consumers.  Prior to the start of this proceeding, Gemstar
filed a petition for special relief with the Commission regarding Time Warner's actions.  Gemstar states that
it is taking the additional step of filing in this proceeding because it believes Time Warner's past conduct with
respect to Gemstar illustrates Time Warner's lack of commitment to open access for content, including
EPGs.  As a result, Gemstar asks that the Commission impose conditions on the merger to ensure that Time
Warner will keep its systems open to competitive content and service providers.
136.   In response to Gemstar's comments, the Applicants state that this merger is not the
appropriate forum to litigate EPG issues.  The Applicants assert that the special relief proceeding initiated
by Gemstar is the proper place to issue a determination on the EPG dispute.
137.   Gemstar has not shown that the merger is likely to create or exacerbate competitive harm.  Its
dispute with Time Warner predates the merger announcement.  Moreover, Gemstar's arguments are being
fully considered in the context of its petition for special relief asking that Time Warner cease stripping out the
Guide Plus+ data, and we find that it would be inappropriate to address them here.  We therefore decline
Gemstar's additional request for conditions on the proposed AOL Time Warner merger. Furthermore, we note
that the Commission has committed to "monitor developments with respect to the availability of electronic
programming guides to determine whether any action is appropriate in the future."  Finally, the Commission
has requested comment in a pending rulemaking proceeding on "whether any rules are necessary to ensure fair
competition between EPGs controlled by cable operators and those that are controlled by broadcasters."
               1.   Broadcast Signal Carriage Issues
138.   The National Association of Broadcasters ("NAB") and other broadcast groups are
concerned about the impact of the proposed merger on Time Warner's carriage of analog and digital television
signals.  Specifically, NAB urges the Commission to prohibit AOL Time Warner from blocking access to
any part of a broadcast signal that consumers could receive free over-the-air, such as electronic program guide
information.  NAB also requests that the Commission require AOL Time Warner to carry the digital
broadcast signals of local television stations on its upgraded cable systems. In response, the National Cable
Television Association ("NCTA") asserts that the issues raised by NAB are not merger-specific, but rather
apply to all cable operators.  Time Warner states that it has negotiated retransmission consent agreements
providing for carriage of both analog and digital signals with each of the four major television networks
(ABC, CBS, FOX, and NBC).  According to Time Warner, these agreements also serve as templates for
stations affiliated with, but not owned by, any of the four television networks.
139.   The record does not indicate that the merger will create or enhance AOL Time Warner's
ability or incentive to refuse carriage of broadcasters' signals.  We cannot conclude, therefore, that the merger
would create any public interest harm in this regard.  Moreover, the issues raised by the broadcasters are
already under consideration in pending Commission proceedings of general applicability.  The conditional
requirements suggested by NAB should be addressed in those proceedings, and not within the confines of the
merger analysis.  As NCTA points out, the issues raised by the broadcasters affect all cable operators and not
only Time Warner.  We arrived at a similar conclusion in the AT&T-TCI merger, where NAB also
requested digital broadcast signal carriage as a merger condition.  We find no reason to depart from
Commission precedent in this case.  Insofar as NAB's concerns about the carriage of all components of the
free analog broadcast signal are directed at EPG data carried on the broadcaster's VBI, we note that this
particular matter will be addressed in the Gemstar special relief proceeding, where the issues have been fully
briefed and discussed. The carriage of digital broadcast signals by Time Warner and other cable operators
is being considered in a pending rulemaking proceeding specifically addressing digital must-carry issues.
The conclusions we reach in that docket will, of course, apply to Time Warner as well as all other cable
operators.  Accordingly, we reject commenters' requests that we impose remedial conditions on AOL Time
Warner in this proceeding.
               1.   Cable Horizontal Ownership Rules
140.   Commenters assert that AOL's indirect ownership interest in DirecTV, coupled with Time
Warner's cable holdings, would give the merged entity excessive purchasing power in the video programming
market such that it could harm video programmers and MVPD competitors.  We analyze below the
potential harm that the merger may cause in the video programming market.  We examine specifically the
question whether the merger would violate the Commission's cable horizontal ownership rules, which we
adopted pursuant to a statutory directive.  We find that AOL's ownership interest in GM does not violate
our horizontal ownership rules or the statute, nor does it frustrate the implementation of the Communications
Act's goals.
141.   In 1999, AOL made a $1.5 billion investment in General Motors Corporation ("GM") in
exchange for 2,669,633 shares of a type of GM Preference Stock ("Preference Stock").  General Motors
invested this money in its wholly owned subsidiary, Hughes Electronics Corporation ("Hughes"), which in
turn wholly owns DirecTV, a direct broadcast satellite ("DBS") company that provides multichannel video
programming to approximately 8.3 million consumers nationwide.  Several commenters argue that AOL's
investment in GM gives AOL the ability to influence DirecTV and DirecTV's video programming purchasing
decisions.  Given that Time Warner is the second largest cable operator in the nation, these commenters
argue that the proposed merger would increase the merged firm's size as a multichannel video distribution
provider ("MVPD").  Commenters contend that this larger, combined MVPD would have excessive
purchasing power over suppliers of video programming, thereby harming suppliers of video programming and
MVPD competitors of AOL Time Warner seeking access to the programming.  Accordingly, the
commenters request that the Commission require AOL to divest its interest in GM as a merger condition.
142.   In Section 613(f)(1)(A) of the Communication Act, as amended, Congress directed the
Commission to place limits on a cable operator's size.  Congress was concerned that concentration in the
cable industry could pose "barriers to entry for new programmers and a reduction in the number of media
voices to consumers."  Therefore, Congress directed the Commission to establish a horizontal ownership
limit that would prevent a large cable operator from using its size to harm video programmers and MVPD
competitors by virtue of its purchasing power.  Pursuant to this directive, the Commission promulgated a
rule limiting a cable operator to 30% of the nation's MVPD subscribers.  The 30% limit takes into account
the ability of a cable operator "either because of its size . . . or because of joint actions by a group of
operators of sufficient size" to unfairly impede the flow of programming from the video programmer to the
consumer.
143.   The Commission established rules (the "attribution rules") that determine whether a cable
operator has sufficient influence or control over an MVPD such that the MVPD's subscribers should count
towards the cable operator's 30% limit. Under these rules, AOL's Preference Stock is not attributable
because nonvoting equity is not attributable unless the nonvoting equity is worth more than 33% of the total
assets of the MVPD, which is not the case here.  The only possible attribution rule that could be invoked
here is one that is triggered when a cable operator holds 5% or more of the MVPD's voting equity.
However, even if AOL's Preference Stock were converted to voting equity, it would constitute approximately
1.76% of GM's voting equity, well below the 5% voting equity threshold.  Thus, under our attribution rules,
AOL does not have an interest in GM and its subsidiary DirecTV which would de jure deem AOL to have
influence and control over DirecTV and its purchasing decisions.
144.   Nevertheless, RCN argues that the Commission should examine the totality of the
circumstances of the AOL and DirecTV relationship to determine whether AOL has the actual ability to
influence or control DirecTV.  In our order establishing the attribution rules, we declined "to examine
contract language on a case-by-case basis to determine whether the contract gives one of the parties thereto an
attributable interest."  However, the Commission reserved discretion to review unique cases where "there
is substantial evidence that the combined interests held are so extensive that they raise an issue of significant
influence."  We do not find that this case presents unique facts that would merit such a review.
145.   RCN argues that AOL's investment in GM has led to a high degree of cooperation, including
the launch of AOLTV for DirecTV and an integrated AOLTV-DirecTV set-top box.  We also note that
AOL and DirecTV have a number of other contracts relating to DirecTV, DirecPC and AOL's ISP
services.  Nonetheless, our review of these contracts does not reveal that they confer on AOL significant
influence over DirecTV's video programming activities.  Therefore, we reject the arguments of commenters
that AOL's ownership interest in GM will enable the merged firm to harm video program suppliers and
MVPD competitors seeking access to these suppliers.
          A.   Interactive Television Services
146.   In this section we consider whether the merger will harm consumers or competition with
respect to the provision of interactive television ("ITV") services in Time Warner's cable system service
areas.  Two objectives of the Communications Act appear to be relevant to the provision of ITV services.
First, the Commission has the responsibility to ensure that cable communications provide the "widest possible
diversity of information sources and services to the public."  Second, the Commission is charged with
ensuring the rapid, private deployment of advanced services.  As discussed in our analysis of public interest
benefits, AOL and Time Warner bring together assets that could engender a successful launch of ITV.
AOL is the world's largest aggregator of Internet content and interactive services, and Time Warner is the
nation's second largest cable operator and owner of a significant number of the nation's most popular cable
programming networks.
147.   We examine below whether the merged entity will have the ability and the incentive to engage
in behavior that would likely cause public interest harms with respect to ITV.  We find that AOL Time
Warner would have the potential ability to use its combined control of cable system facilities, video
programming and the AOLTV service to discriminate against unaffiliated video programming networks in the
provision of ITV services.  We also find that AOL Time Warner may have incentives to engage in such
discriminatory behavior.  Nevertheless, even if AOL Time Warner were to discriminate, it appears that the
terms of the FTC Consent Agreement will, at present, substantially address concerns about the availability
of alternatives for the distribution of unaffiliated video programming networks' ITV services.  Therefore, we
conclude that discrimination by the merged entity is not likely to cause a public interest harm that warrants
denial of the merger or the imposition of conditions that do not apply industry-wide.  Though we are
unpersuaded a case has been presented on this record of merger-specific harm, we do believe important
questions have been raised that warrant further examination in a proceeding of general applicability.  In the
ITV NOI, we will consider whether industry-wide rules are needed to address any impediments to the
development of ITV services and markets.
               1.   Background
                    a.   The Components of ITV Service
148.   Given the infancy of this market and the limited record before us, it would be imprudent to
endorse a comprehensive definition of ITV services.  At present, however, such services appear to include
EPGs, content that permits the viewer to interact with the video signal ("interactive content"), time shifting,
and the overlay of communications services (chat, e-mail and instant messaging) functionality onto video
programming provided by a programming network (such as TBS or AMC).  Based on this record, it
appears that three components are necessary for the delivery of high-speed ITV services to consumers:
149.   (1)     a transmission system (preferably broadband) for the delivery of the video signal and
interactive content ("transmission system"),
150.   (2)     an Internet connection with sufficient bandwidth to provide a suitable interactive
experience, with limited latency and optimal synchroneity ("Internet connection"), and
151.   (3)     a processing capability (e.g., a stand-alone set-top box ("ITV-STB"), such as those
used by WebTV or AOLTV, or a box integrated with the cable or DBS set-top box, that can respond to
interactive triggers, integrate video and enhanced content, and display the integrated product on a television
screen.
152.   Transmission System.  It appears that cable facilities provide the optimal platform for the
delivery of ITV services.  The cable pipeline can permit interactive content to be delivered to the viewer with
the video signal, thereby ensuring that the video programming and the interactive content achieve a high level
of synchroneity when blended in the ITV-STB for television viewing.
153.   A video programming network may send two types of interactive content with its video signal,
the so-called "trigger" of interactive content and interactive content itself, both of which could be based on the
ATVEF protocol or any other protocol.  The "trigger" can appear as an icon on a viewer's television screen
and alerts the viewer to the availability of interactive content.  When a viewer clicks on the trigger, the trigger
requests the interactive content.  When the interactive content is sent with the video signal, the trigger causes
a compatible ITV set-top box to display the interactive content on the television set.
154.   A high level of synchroneity is necessary for certain forms of interactivity.  For example,
synchroneity would be important if secondary audio, such as a referee's voice, were to be delivered with the
video signal to a viewer watching a sporting event.  By sending the interactive content with the video signal of
the television program, a cable operator ensures that the ITV set-top box is able to blend the television
program and the interactive content seamlessly, without the level of latency associated with interactive content
delivered via the Internet.
155.   Internet Connection.  Although synchroneity and latency difficulties can be avoided by
sending some interactive content with the video signal, the amount of interactive content that may be delivered
with the video signal might be limited by the video pipeline's bandwidth or capacity.  Under these
circumstances, where the interactive content requires a large amount of bandwidth (or subscriber-specific
content), the ATVEF trigger carried with the video signal would direct the ITV-STB to obtain interactive
content from the Internet.  However, because the ATVEF (or similar) interactive content would be delivered
via the Internet and not via the video signal, the video programming and the interactive content would have a
lesser degree of synchroneity.  Therefore, a high-speed two-way Internet connection, such as a DSL or cable
Internet connection, appears necessary in order to provide large capacity interactive content to the viewer with
minimum latency.  While a narrowband Internet connection, i.e., a dial-up telephone connection, could enable
an interactive experience, it cannot currently provide the speed and bandwidth that broadband paths would
provide.
156.   The ITV Set-Top Box.  An ITV set-top box is the third necessary component for ITV services.
The ITV set-top box activates interactive content sent with the video signal and blends it with the video
program signal for display on the television set.  As noted above, an ITV subscriber may also direct the ITV
set-top box to obtain additional interactive content (from the Internet) that is designed to accompany the
television program viewed by the subscriber.
                    a.   AOLTV
157.   AOL offers ITV services via its AOLTV set-top boxes.  The AOLTV service provides
interactive television programming in conjunction with video programming to create interactive television
channels.  AOLTV services also currently include an EPG and most features of AOL's ISP service, such as
limited Web browsing, e-mail, IM, and chat.  AOL has deployed its AOLTV set-top boxes in several U.S.
cities, including Phoenix, Sacramento and Baltimore, for sale through Circuit City and other retailers.  To
receive the service, consumers in these cities must purchase an AOLTV set-top box and subscribe to AOLTV
at a rate of $14.95 per month for current AOL ISP subscribers or $24.95 per month for AOLTV customers
that do not subscribe to the AOL ISP service.  The subscriber need not purchase the AOL ISP service (or
any ISP service) in order to receive AOLTV because the interactive set-top box interfaces with the Internet
directly using standard Internet Protocol ("IP").
158.   At present, the AOLTV service can be provided to both cable and DirecTV subscribers, but
utilizes only a narrowband telephone connection to the Internet.  The current AOLTV box is not integrated
into a cable or DBS set-top box.  Instead, the current AOLTV box receives video programming from a
separate cable or DBS set-top box, and receives two-way narrowband interactive services via a telephone line.
The AOLTV box then blends the interactive content and the video programming for viewing on the
subscriber's television set.  At this time, the interactive triggers, the customer's request for interactivity and
further interactive content are transported to the subscriber's television through the AOLTV set-top box's
connection to the Internet.
159.   AOL intends to upgrade its AOLTV service to a high-speed Internet platform, using cable
modems, DSL, and DBS.  As a preliminary step, AOL may continue to employ a stand-alone ITV-STB that
connects to a cable or DBS set-top box that contains a high-speed cable modem, DSL line, or high speed DBS
Internet connection.  AOL states that it will complete this upgrade by integrating AOLTV functionality into
DBS set-top boxes that contain high-speed Internet connections.  AOL has had preliminary discussions to
incorporate its AOLTV software into the Time Warner cable set-top box, and AOL and DirecTV have entered
into an agreement in which Hughes will manufacture a set top box that integrates DirecTV and AOLTV.
In addition, the Applicants state that AOLTV will incorporate additional features such as personal video
recording capability and more advanced interactive programming, including services that would enable video
programmers to use and customize AOLTV features such as chat for special television events.
                    a.   Other ITV Services and ITV Companies
160.   ITV services can be offered directly to consumers by the ITV service provider (such as
AOLTV or WebTV) or through a partnership between a transport provider (such as a cable or DBS operator)
and an ITV provider (such as WorldGate).  When ITV services are offered directly to consumers, typically
consumers must purchase a set-top box and then contract with an ITV provider for service.  When ITV
services are offered through partnerships between transport providers and ITV providers, often ITV
components are integrated into the transport provider's set-top box, and the service is offered in addition to the
transport provider's existing video services.  These services are then marketed by the transport provider as a
premium offering supplemental to its existing array of services.  ITV providers may, in turn, rely on
partnerships with other vendors for certain components of the ITV product.  AOL, for example, contracts with
Philips Electronics to build its ITV-STB and licenses software for the ITV-STB from Liberate.
161.   At this early and fluid stage of the ITV market, there are a growing number of firms that now
provide or plan to provide ITV service.  The types of ITV services offered and the business models used by
these companies vary widely.  For purposes of our analysis, it is useful to examine a non-exhaustive sampling
of existing ITV services and business models.
162.   ITV Providers.  Microsoft Corp. has approximately one million users subscribing to its
WebTV product.  WebTV provides e-mail and Internet access, and also enables interactivity with certain
television programs.  At present, WebTV customers must buy a separate ITV-STB for use in conjunction with
the box of their selected MVPD provider, though plans exist to integrate WebTV directly into MVPD set-top
boxes.  For example, EchoStar's Dish Network set-top boxes will include WebTV Plus, which will provide
additional features such as on-line banking, shopping, and video programming storage.  In addition,
Microsoft, Thompson RCA, and DirecTV announced plans to jointly create an integrated set top box and
service that will combine DirecTV satellite service and a new version of WebTV called Ultimate TV.  The
Ultimate TV product will include personal video recording, picture-in-picture viewing and the ability to watch
one program while recording another.  Microsoft states that it will also offer two-way satellite service that
allows downloading and uploading as rapidly as cable modems or DSL.
163.   As an ITV service provider, Microsoft has also established business relationships with
several cable MSOs and interactive software providers.  In 1997, Microsoft purchased an 11.5% interest in
Comcast Communications, and in 1999 it entered into an agreement to supply the software for 7.5 million
of AT&T's planned 10 million ITV-STBs, although technical trials have since been delayed.  Microsoft
recently acquired Peach Networks, Ltd., which manufactures software for cable headends that enables more
advanced programming to run on existing set-top boxes.  Microsoft has also entered into a relationship with
Wink Communications, a provider of interactivity with video programming and advertising.  Microsoft
recently announced plans to incorporate its Microsoft TV software into Whistler, the next version of the
Windows 2000 operating system.  Under the new plan, TV signals and interactive programming would be
received via a personal computer that runs the Whistler operating system, using a television set as the
monitor.
164.   WorldGate Communications provides ITV service through a cable set-top box, and offers
ITV subscribers access to the Internet, e-mail and other interactive services.  WorldGate serves homes using
the facilities of several cable MVPDs, including AT&T, Comcast and Charter Communications.  As of
summer 2000, 15,000 consumers subscribed to the WorldGate ITV service.
165.   ITV Services Provided by MVPDs.  Cable and satellite MVPDs are also positioning
themselves to introduce their own ITV services.  Cox Communications has partnered with Excite@Home to
launch a trial ITV product in San Diego in late 2000.  The Cox-branded service will provide video-on-
demand, Web browsing and e-mail.  AT&T also plans to offer ITV in partnership with Excite@Home.
BellSouth announced in August that it would use Liberate to deliver ITV applications to some of its customers
in the Southeast.
166.   Other ITV Services.  The Applicants state that TiVo and RePLAY, providers of personal
video recording service ("PVR"), Wink and RespondTV (e-commerce providers), and EPG provider
Gemstar all offer elements of ITV service.  We note that AOL holds an ownership interest in TiVo, and
Time Warner holds an interest in RePLAY, another PVR service.
               1.   Discussion
                    a.   Relevant Markets
167.    At a global level, the developing ITV market appears to have two broad segments that may
constitute separate markets.  The first segment is ITV programming.  The second is ITV distribution and
retail.  The ITV programming segment includes interactive content provided by video programming networks
to accompany their video signals.  ITV distribution involves the aggregation of interactive video content and
other inputs in the provision of ITV services.  As discussed in greater detail above, AOL is an aggregator
and distributor of ITV inputs, and has begun a nationwide rollout of its AOLTV product.  Time Warner owns
cable facilities that can be used to deliver advanced ITV services to consumers.  AOL and Time Warner will
become a vertically integrated provider of ITV services in Time Warner's cable territories.
                    a.   Harm to Competition
168.   Commenters allege that the merged firm would have the ability to discriminate against
unaffiliated programming networks.  AOL Time Warner could, according to commenters, discriminate
against unaffiliated video programming networks by denying them access (or degrading their access vis--vis
affiliated video programming networks) to one or all three delivery components of ITV: the cable video
pipeline, the merged entity's ITV-STB, and the cable Internet connection.  We recognize the possibility of
the alleged harm.  However, we are of the view that a merger-specific condition is unwarranted given the
terms of the FTC Consent Agreement and that any industry-wide intervention requires (1) a greater
examination of the potentially conflicting incentives for favoring one's own programming to the detriment of
competitors, and for offering as much interactive programming as possible; and (2) a fuller exploration of the
technical ability and manner of potential discrimination.
169.   Disney argues that conditions must be placed on Commission approval of the merger to
prevent AOL Time Warner from using its control over the cable video pipeline, the ITV-STB, and the
broadband Internet connection to discriminate against the interactive content of unaffiliated video
programming networks in the following ways:
              excluding unaffiliated interactive content and services,
              transmitting its affiliated content at faster rates,
              manipulating communications between competing content providers and customers,
              limiting unaffiliated ITV services providers from caching data locally,
              favoring its own content on navigation systems and links (with more convenient consumer interfaces for
  its own content),
              building its own links to merchant Internet sites that conflict with an unaffiliated video programming
  network's advertisers,
              making unaffiliated video programming less attractive and/or accessible to consumers,
              imposing charges for each interactive commercial transaction,
              restricting an unaffiliated video programming network's advertising on interactive channels so that it
  would not interfere with exclusive contracts that AOL Time Warner has with its advertisers, and
              developing AOLTV controlled interactive advertising that undermines unaffiliated content providers'
  advertising.
11.     The record in this proceeding demonstrates that AOL Time Warner intends to integrate the cable
set-top box with the AOLTV box and a high speed Internet connection and that AOL and Time Warner are
well aware that control over the set-top box would enable the merged firm to favor its own content.  In
addition, we agree with Dr. Haseltine's findings that AOL Time Warner could use equipment at the cable
headend in order to discriminate.  While AOL and Time Warner do not dispute Disney's allegations that
they have the technical ability to use the three components   Time Warner's video pipeline and broadband
Internet connection and AOLTV's set-top box   in the manner alleged, they argue that they have no incentive
to do so.  Based on this record, it appears that the merged entity would have conflicting incentives.
Applicants assert that the merged entity has the incentive to carry as much interactive programming as
possible so that AOLTV will be attractive to consumers.  AOL Time Warner states that its AOL ITV-STB
will activate the ATVEF interactive content of unaffiliated video programming networks, without any
agreement with or payment to AOL, so that AOLTV subscribers may view unaffiliated interactive content.
12.    However, the record also contains evidence that AOL has a history of negotiating exclusionary
deals once it is in its economic interest to do so. AOL may cease its current practice of carrying interactive
content of unaffiliated programmers without AOLTV carriage agreements once it has achieved some level of
success in the marketplace.  We note that if AOLTV becomes successful, it may be less dependent on the
interactive content of unaffiliated video programming networks and therefore may be in a position to
discriminate against them in the terms, conditions and prices for carriage on AOLTV.  At the same time,
unaffiliated video programming networks will likely become more dependent on interactive television
commerce revenue.  Some analysts predict that while video programmers' revenues from traditional
advertising will decline over the next few years, lost revenue will be replaced by new revenue from interactive
television commerce. Moreover, AOL and Time Warner have stated that their MOU does not obligate them
to provide access to the cable broadband platform for ITV uses.
13.    We believe that, at the present time, the terms of the FTC Consent Agreement will substantially
mitigate any potential public interest harm that may arise from discrimination by AOL Time Warner with
regard to ITV content or service.  The FTC has ordered that AOL Time Warner not discriminate in the
transmission and carriage of content that it has agreed to carry, and has forbidden AOL Time Warner from
blocking or otherwise interfering with interactive content transmitted by an unaffiliated ISP.  Thus, it would
appear that unaffiliated video programming networks could utilize alternatives to AOLTV for distribution of
their interactive content.  For example, even if AOL Time Warner refused to carry an unaffiliated video
programmer's interactive content with its video signal, the video programmer could seek to deliver its
interactive content via an unaffiliated ISP on AOL Time Warner's cable system.  Further, the FTC Consent
Agreement would prohibit AOL Time Warner from blocking subscribers' access to any interactive content
that is carried on the AOL Time Warner facilities and thus would enable subscribers to access such content
as part of an ITV service provided by an unaffiliated entity.  If unaffiliated video networks have alternatives
to the video pipeline for the provision of competitive interactive services to consumers (comparable to a cable-
affiliated ITV provider that has access to a video pipeline), then AOL Time Warner's refusal to carry
interactive content with the video signal would not appear to harm the public interest.  Therefore, in light of
the FTC's actions, we disagree with Disney that the Commission should impose a merger condition with
respect to unaffiliated video programming networks and interactive content providers that does not apply
industry-wide.
14.    We note that Disney has provided evidence that suggests that alternatives to the cable video path
may not ultimately provide competitive outlets for the provision of ITV services.  We find that it is
necessary to develop a more complete record in this regard to determine whether rules of general applicability
are needed to promote competition and diversity in the provision of ITV services.  Our ITV NOI will explore
further what types of services should be defined as ITV, what types of ITV business models will prevail, how
ITV services will be delivered, and whether there are competitive alternatives to a cable operator's affiliated
ITV provider for the provision of ITV services.
          A.   Multichannel Video Programming Distribution
15.    In this section we examine the merger's potential effects on the video services provided by
multichannel video programming distributors ("MVPDs").  MVPDs include cable operators, direct
broadcast satellite providers ("DBS"), multichannel multipoint distribution services ("MMDS"), and satellite
master antenna television ("SMATV") providers.  In AT&T-TCI, we concluded that the relevant geographic
market for MVPD service is local.  One or more MVPD providers furnish MVPD services in local
franchise areas.  Only one cable operator serves most franchise areas.  In a limited number of franchise areas,
a second cable operator (an "overbuilder") or MMDS operator also offers service. SMATV providers
generally offer service in any setting in which a public right-of-way is not crossed, but do not provide
competition throughout a local franchise area. DBS providers also distribute MVPD services and are available
nationwide to consumers with an unobstructed southern view.
16.    Time Warner is the dominant provider of multichannel video programming services in those local
markets in which it operates franchised cable systems.  America Online does not directly operate any company
providing MVPD service, but does have an ownership interest in DBS operator DirecTV's corporate parent,
Hughes.
17.    We examine below specific allegations of harm to MVPDs arising from the combination of Time
Warner's cable systems with AOL's ownership interest in DirecTV, as well as concerns about MVPDs'
access to Time Warner video programming post-merger.  We conclude that the merger will not present any
public interest harms affecting MVPD services.
               1.   Common Ownership of DBS and Cable MVPDs
18.    As discussed in Section IV.C.3 above, AOL paid GM $1.5 billion for 2,669,663 shares of non-
voting GM Preference Stock that tracks the performance of Hughes, GM's wholly owned subsidiary.  If
AOL converted its GM Preference stock into GM voting equity, AOL would hold approximately 1.76% of
GM's voting equity.  GM's wholly owned subsidiary DirecTV, the nation's largest DBS provider, served
8.3 million MVPD customers nationwide as of March, 2000.  Commenters argue that the merged firm's
ownership interests in both DirecTV and Time Warner will enable the merged firm to harm competition
between DBS and cable MVPDs. Consumers Union asserts that the merged firm will harm the ability of
DirecTV to compete with cable.  Although the Commission does not have a rule barring cross-ownership
of both a DBS and cable MVPD, RCN argues that the Commission has the discretion to address any
competitive harms caused by such cross-ownership on a case by case basis. Consumers Union and ACA
request that the Commission order AOL to divest its interest in GM, DirecTV's parent, as a condition of the
merger.
19.    With respect to the merged firm's ownership interest in GM, we find that the proposed merger
will not violate the Communications Act or any Commission rules, nor will it frustrate the implementation of
the Communications Act or its goals. We conclude that the merger will not result in public interest harms
regarding competition between DBS and cable.
20.    Although legislation introduced in the Senate proposed a cable/DBS cross-ownership ban in the
1992 Cable Act, the House and Senate Conference decided that it was premature to adopt such a ban at that
time.  The conferees stated that they expected "the Commission to exercise its existing authority to adopt
such limitations should it be determined that such limitations would serve the public interest."  The
Commission subsequently decided that "its authority to approve transfers of control of licenses would enable
it to address any competitive concerns raised by subsequent proposals by cable affiliated entities to acquire
DBS spectrum."  In 1998, the Commission initiated a rulemaking seeking comment whether the
Commission should adopt DBS ownership rules, including DBS cross-ownership rules with cable operators.
This rulemaking is still pending.  In the meantime, we examine "specific competition and public interest
concerns related to DBS ownership on a case-by-case basis."
21.    In this case, we find that the merged entity's indirect interest in DirecTV does not rise to the level
of ownership that ordinarily triggers scrutiny by the Commission.  Therefore, we need not examine whether
the common ownership of both a DBS and a cable MVPD provider raises public interest concerns.  We agree
with the Applicants that AOL does not have an interest in DirecTV's parent, GM, that confers on AOL the
ability to influence or control DirecTV such that AOL should be deemed the "owner" of DirecTV for the
purposes of a DBS/cable competitive analysis.  As noted above, the Commission does not have ownership
or attribution rules that apply to satellite spectrum ownership.  Under our various other ownership rules, the
Commission has generally found that a voting equity interest of 5% or more is required to confer influence or
control on the interest holder in order to deem the interest holder an "owner" for purposes of the applicable
rule.  As discussed above, AOL holds nonvoting equity in DirecTV's parent that, if converted, would
constitute less than 2% of the voting equity of GM.  Thus, we would not treat AOL as an owner for purposes
of our other ownership rules, and the commenters have made no credible arguments why AOL's less than 2%
voting equity interest should be treated differently under these circumstances.  Because the record does not
demonstrate that AOL has the ability to influence or control DirecTV, we need not examine further whether
this merger poses potential harms to competition between DBS and cable.
22.    Nevertheless, if the merged firm increases its ownership interest in Hughes and/or GM, we
reserve discretion to decide whether the increased ownership interest poses a threat to DBS/cable competition.
Accordingly, as a condition of this merger, we will require the Applicants to notify the Commission in writing
of any transactions that increase the Applicants ownership interest in Hughes and/or GM, within 30 days of
the transaction.
               1.   Program Access Issues
23.    Commenters allege that the merger would harm unaffiliated MVPDs, and assert that the
Commission should remedy this potential harm by expanding the scope and application of its program access
rules to cover terrestrially delivered video programming and contracts between cable operators and
unaffiliated programmers.  These rules are designed to prevent vertically integrated programming suppliers
from favoring affiliated cable operators over unaffiliated MVPDs in the sale of satellite-delivered
programming.  The record does not support a finding that the merger would enable or increase the likelihood
of harm to competing MVPDs with respect to the sale of video programming.  Accordingly, we find it
unnecessary to impose remedial conditions.
24.    The program access rules apply to cable operators and programming vendors affiliated with cable
operators that deliver video programming via satellite to a cable operator.  The Commission adopted these
rules pursuant to Section 628 of the Communications Act, through which Congress sought to minimize the
incentive and ability of vertically integrated programming suppliers to favor affiliated cable operators over
nonaffiliated cable operators or other MVPDs in the sale of satellite cable and satellite broadcast
programming.  Among other restrictions, the rules prohibit any cable operator that has an attributable
interest in a satellite cable programming vendor from improperly influencing the decisions of the vendor
with respect to the sale or delivery, including prices, terms, and conditions of sale or delivery, of satellite cable
programming or satellite broadcast programming to any unaffiliated MVPD.  The rules also prohibit
vertically integrated satellite programming distributors from discriminating in the prices or terms and
conditions of sale of satellite-delivered programming to cable operators and other MVPDs.  Additionally,
cable operators generally are prohibited from entering into exclusive distribution arrangements with affiliated
programming vendors.
25.    RCN contends that Time Warner has "migrated" affiliated programming from satellite to
terrestrial delivery so that it will not be required to give competing MVPDs access to this programming.  RCN
argues that AOL Time Warner's ability to shield terrestrially delivered affiliated programming, such as local
news or sports programming, from the program access rules will substantially impair its ability, and that of
other MVPDs, to compete.  SBC echoes these sentiments in its comments.  RCN also expresses concern
about the Applicants' potential power as a purchaser of video programming, and further suggests that the
combined entity's forays into interactive TV, and its ownership stake in DirecTV's parent Hughes, would
exacerbate its market power, allowing it to exercise substantial power in the programming marketplace.
RCN contends that this power, in turn, might lead unaffiliated programmers to discriminate against RCN and
other overbuilders by offering the Applicants exclusive contracts or preferential treatment.
26.    To remedy these alleged problems, RCN first proposes a merger condition that would require the
Applicants to provide programming to other MVPD competitors "without reference to its mode of delivery."
Similarly, SBC asks that the Commission condition the merger on AOL Time Warner's agreement to comply
with the program access rules, "regardless of the technology used to distribute its content at the wholesale
level."  Second, RCN requests that we require AOL Time Warner to comply with the program access rules
"without the requirement of vertical integration."  Such a condition would prevent the Applicants from
entering into exclusive arrangements with unaffiliated programmers.  Digital Access, another cable
overbuilder, seeks the same condition, based on its inability to obtain sports programming from the Midwest
Sports Channel, which has an exclusive contract with Time Warner Cable in the Milwaukee, Wisconsin
market.  AOL and Time Warner oppose these conditions, arguing both that the proposed conditions are
inconsistent with existing statutory language, and that they are unrelated to the merger.
27.    There is no record evidence suggesting that the merger would either create or enhance the ability
or incentive of AOL Time Warner to prevent competing MVPDs from gaining access to Time Warner's video
programming through the migration of such programming from satellite to terrestrial delivery.  Thus we
cannot conclude that competing MVPDs will suffer any harm in this context.  Accordingly, we decline these
commenters' invitation to apply the program access rules or equivalent restrictions to terrestrially delivered
programming distributed by the merged company.  We also reject RCN's proposal that we apply our
program access rules to AOL Time Warner's dealings with unaffiliated programmers.  Again, there is no
evidence suggesting that the merged firm's incentive or ability to enter into exclusive contracts with
unaffiliated video programmers would be greater than Time Warner's current ability to do so.  While we are
cognizant of the harm that exclusive contracts can cause overbuilders in local markets, we cannot conclude
that the merger will harm competing MVPDs seeking to purchase non-Time Warner video programming.
          A.   COORDINATION WITH AT&T
28.    In this section we consider whether the merger would increase the likelihood of coordinated action
by AOL Time Warner and AT&T that would harm the public interest.  We conclude that it would.  We have
already found that the merger would enable AOL Time Warner to obtain preferential access on both Time
Warner and non-AOL Time Warner cable systems to provide AOL's residential high-speed Internet access
services.  We find that among all non-AOL Time Warner cable operators, AT&T, the nation's largest cable
operator, would be particularly likely to afford preferential access rights to AOL as a result of the merger.
Because AT&T is the nation's largest cable operator, such preferential treatment for AOL would exacerbate
the harms to competition for residential Internet access service that would result from the merger.
29.    Although commenters request that in this proceeding we order AT&T's structural separation from
Time Warner, we need not address this issue because AT&T has already elected to divest its interest in
TWE.  Notwithstanding AT&T's withdrawal from TWE, there still exists the possibility of anticompetitive
coordination between AT&T and AOL Time Warner.  We conclude that the adverse effects of potential
coordination between AT&T and AOL Time Warner as a result of the merger would be sufficiently mitigated
by a condition that prohibits AOL Time Warner from entering into exclusive contracts with AT&T for access
by AOL Time Warner's affiliated ISPs and that further prohibits AOL Time Warner from interfering with
AT&T's ability to offer other ISPs any rates, terms, or conditions of service that AT&T and an ISP find
mutually agreeable.
               1.   Background
30.    AT&T holds attributable ownership interests in cable systems, including its interest in TWE, that
serve approximately 51.3% of the nation's cable subscribers.  Through Liberty Media Group ("Liberty
Media") and other holdings, AT&T also is a major supplier of video programming.  In addition, AT&T
controls Excite@Home, the nation's largest broadband ISP.  Excite@HomeExcite@Home serves
approximately 1.15 million subscribers over both AT&T cable systems and over cable systems owned by
other cable companies.  AT&T has an exclusive contract with Excite@Home that expires June 30, 2002.
Once the contract expires, AT&T can choose whether to afford other ISPs access to its cable plant in
competition with Excite@Home, as well as the terms and conditions of such access.  On October 25, 2000,
AT&T announced that it would restructure each of its major units into four separate, publicly-held companies
traded as a common stock or tracking stock.  AT&T Broadband, the unit responsible for broadband
services, including MVPD, pay TV and high-speed Internet access services, will assume ownership of
Excite@Home.  AT&T also offers local telephone service over its cable systems, and has sought to provide
local telephone service over other cable systems.  As a result of its merger with MediaOne, AT&T acquired
a 34.67% direct interest in Road Runner, the nation's second largest broadband ISP, and a 25.5% interest in
TWE.  Time Warner owns the remaining 74.49% of TWE.
31.    TWE owns or operates Time Warner's cable systems, which serve approximately 12.7 million,
or 18.9% of the nation's cable subscribers.  TWE is also a major producer of video programming and
controls Road Runner.  Time Warner controls the day-to-day management of the TWE cable systems and
the other TWE assets.  AT&T currently has no right to participate in day-to-day management of TWE.
According to AT&T, however, its ownership interest in TWE does confer rights to vote on specified
"Participant Matters," and gives it veto power over, among other things, any merger involving TWE, the sale
or transfer of more than ten percent of TWE's assets, the expansion of TWE into new lines of business and
the transfer or sale of TWE assets.  Time Warner enjoys the same voting rights.
32.    As a result of its acquisition of MediaOne and MediaOne's interest in Road Runner, AT&T
presently is subject to a DOJ consent decree.  In the complaint accompanying the Consent Decree, DOJ
alleged that the substantial ownership interest AT&T was acquiring in Road Runner would facilitate collusion
and coordination between Excite@Home and Road Runner.  The DOJ Consent Decree therefore requires
AT&T to divest its interest in Road Runner on or before December 31, 2001, restricts AT&T's role in the
management and governance of Road Runner prior to divestiture, and prevents AT&T from entering into
certain agreements with Time Warner (and AOL Time Warner after the merger) with regard to Residential
Broadband Service without the approval of DOJ.
33.    On December 18, 2000, AT&T and Time Warner announced that they would dissolve the Road
Runner joint venture as required by the DOJ Consent Decree, turning over operations of Road Runner to Time
Warner (and America Online after the merger).  The restructuring of Road Runner also would end Road
Runner exclusivity on Time Warner's cable platform, permitting further opportunity for consumer choice of
ISPs on Time Warner's cable platform.
34.    AT&T is also subject to a "video condition," imposed as a condition of the Commission's
approval of AT&T's merger with MediaOne, that AT&T either:  (i) divest its ownership interest in TWE; (ii)
divest or reduce its interest in Liberty Media and other video programming companies such that AT&T
terminates its involvement in TWE's video programming activities pursuant to the limited partnership
exemption and the officers/directors attribution waiver provisions of the cable ownership attribution rules;
or (iii) divest its ownership interest in certain non-TWE cable systems.  AT&T was required to make an
unambiguous election of one of the three options by December 15, 2000, six months after the consummation
of the AT&T-MediaOne merger, and must comply with this election by May 19, 2001. We also stated that
until AT&T complies with the divestiture condition, its participation in TWE is further limited by certain
other Commission-imposed restrictions.
35.    Pursuant to the AT&T-MediaOne Order, on December 15, 2000, AT&T notified the Commission
that it would divest its interest in Liberty Media if it obtains a favorable tax ruling, and that otherwise it
would divest its interest in TWE.  On December 18, 2000, the Cable Services Bureau requested
clarification of AT&T's December 15 letter which, by making the Liberty Media divestiture contingent upon
a favorable tax ruling, did "not appear to make a single election" as required by the AT&T-MediaOne
Order.  On December 21, 2000, after considering AT&T's response to the Bureau's request for
clarification, the Commission issued an order ruling that AT&T had not complied with the provisions of the
AT&T-MediaOne Order that required AT&T to "unambiguously elect a single compliance option."  In the
December 21 Order, we ruled that it was "AT&T's intent to elect . . . the divestiture of TWE . . ." and we
determined to "treat AT&T's election as choosing that option only."
               1.   Discussion
36.    Several commenters argue that the merger will create what one describes as a "sprawling
conglomerate of interests" between AT&T and AOL Time Warner that would confer upon the companies
the ability and incentive to use their combined dominance in the Internet access market, and other unspecified
product markets, to discriminate against unaffiliated companies.  Commenters also allege that AOL Time
Warner would be able to leverage its power in video programming, broadband content and portal services  to
solidify this dominance.  They argue that AT&T's and AOL Time Warner's ownership interest in TWE will
give AT&T and AOL Time Warner the incentive to refrain from competing with each other in areas of
MVPD, Internet and IM services.  Consumers Union, for example, argues that "AOL Time Warner would
clearly have the incentive to use its leverage to induce AT&T to drop its efforts to push for
compatibility/interoperability/access to AOL's IM customers."  Similarly, Consumers Union believes "AOL
could use TWE leverage to foreclose rival portals like Yahoo," encouraging AT&T to favor AOL as a portal
over rivals, and adds that AOL would encourage AT&T to give preferential treatment to AOL Time Warner
music distribution services.  Next, Consumers Union contends that "AOL could use the TWE leverage to
impede 'head-to-head' competition between AT&T and AOL in, for example, the provision of interactive
television offerings by agreeing to common platforms that further their collective interests.  To remedy the
alleged harms, these commenters ask that we require AOL Time Warner to not discriminate against
unaffiliated Internet access providers, to provide open access to its cable systems for unaffiliated ISPs,  to
sever its cross-ownership ties with AT&T through  TWE and Time Warner Inc., and to sever all contractual
ties and joint ventures with AT&T.
37.    We find that the merger increases the likelihood of coordinated action by AOL Time Warner and
AT&T to discriminate in favor of AOL's ISP service.  The proposed merger will increase AOL Time
Warner's incentive and ability to obtain agreements with AT&T to favor AOL Time Warner's ISPs to the
detriment of AOL Time Warner's competitors.  AT&T could give preferential treatment to AOL's ISP by
refusing carriage to competing ISPs, by providing AOL better price or non-price terms of service if AT&T
does carry competing ISPs, or by limiting the functionalities or features available to competing ISPs.  For
example, AT&T could, as Consumers Union contends, circumscribe the availability of capacity or connection
points for non-favored ISPs.
38.    Accordingly, because we conclude below that the benefits of the merger do not outweigh its
harms, we find it necessary to impose remedial conditions that will prevent the potential harm arising from
possible post-merger coordination between AT&T and AOL Time Warner.  This conduct remedy, in
combination with our conditions prohibiting AOL Time Warner from discriminating against unaffiliated ISPs
on its own cable systems, as well as the conditions we imposed in our AT&T-MediaOne Order, conditions
imposed by DOJ in its AT&T-MediaOne Consent Decree, and existing antitrust laws, will prevent any public
interest harms that might arise from coordination between AOL Time Warner and AT&T as a result of the
merger.
39.    We find that other alleged harms that might arise from the possibility of coordinated action
between AT&T and AOL Time Warner, such as coordination in MVPD and video programming services and
coordination between Excite@Home and Road Runner, existed before the proposed merger, and there is
insufficient evidence that the merger would increase the likelihood or magnitude of those harms.  Moreover,
those harms have already been addressed by the Commission and DOJ in their respective reviews of the
AT&T-MediaOne merger.  Other harms, such as potential agreements not to compete in IM or ITV
services, would be addressed by existing antitrust laws.  Thus, we do not believe any additional remedies
are warranted.
40.    We find that in three respects the merger will increase the likelihood of discrimination by AT&T
in favor of AOL.  Although we agree with the Applicants that the merger of AOL and Time Warner creates
no new corporate link between AT&T and Time Warner, we nevertheless conclude that AT&T's existing
ownership interests in TWE, and its rights afforded over "Participant Matters," such as any merger involving
TWE, could be used as leverage to gain favorable ISP access.  For example, in exchange for voting with
AT&T on a particular Participant Matter, AOL Time Warner could require AT&T to afford AOL
preferential rights of access to AT&T's cable systems.  In addition, as AT&T points out, because AOL Time
Warner would retain veto rights over important TWE partnership decisions, AOL Time Warner could wield
strategic influence over AT&T and use this power if AT&T deviated from any tacit or agreed upon
preferential treatment for affiliated ISPs.  Thus, although we agree with the Applicants that these ownership
interests existed pre-merger, we are persuaded that these corporate provisions could be used to enforce post-
merger cooperation.  AT&T's election to divest TWE in compliance with the AT&T-MediaOne Order will,
once it is effectuated, eliminate this possibility.  We note, however, that AT&T is not required to divest TWE
until May 19, 2001.  Our conduct remedy, which prohibits AOL Time Warner from seeking or accepting
exclusive or preferential treatment from AT&T, will eliminate AOL Time Warner's incentive and ability to
engage in any such conduct before AT&T divests TWE.
41.    Second, AOL Time Warner could delay or otherwise seek to frustrate AT&T's plans to sell its
interest in TWE in connection with AT&T's election to divest TWE.   AT&T states that Time Warner is
already effectively blocking AT&T's attempts to sell its TWE interest by refusing to provide AT&T with
financial information AT&T deems necessary.  AOL Time Warner could use these or other tactics as
leverage to gain preferential ISP access rights on AT&T's cable systems.  Our conduct remedy will prevent
this result.
42.    Third, since at least February, 1999, AT&T has sought access to Time Warner's cable systems
to offer Time Warner's cable customers local telephone service, but has so far been unsuccessful in its
negotiations with Time Warner. As a result of the merger, however, we find that it is more likely that
AT&T will obtain a telephony deal from the merged firm if it chooses to pursue this strategy.  The merger will
increase the incentive for AOL Time Warner to negotiate with AT&T because AT&T holds the key to AOL's
access to the facilities of the nation's largest cable operator.  AOL clearly desires access to AT&T's cable
systems in order to provide ISP service.  In exchange for giving AT&T telephony access to TWE cable
systems, an outcome that may in fact benefit the public interest, AOL Time Warner could obtain preferential
treatment for AOL's ISP service on AT&T's cable systems, an outcome that would harm the public interest.
AT&T's divestiture of TWE will not forestall this outcome.  Our conduct remedy is therefore necessary to
prevent it.
43.    Under the condition we are adopting to address the potential harm described above, AOL Time
Warner shall be prohibited from entering into any agreement with AT&T that gives AOL or any other AOL
Time Warner ISP exclusive carriage rights on AT&T's cable systems.  Further, AOL Time Warner may not
enter into any agreement with AT&T the purpose of which is to limit in any way AT&T's ability to enter
agreements with a non-AOL Time Warner ISP.  For example, AOL Time Warner may not enter into an
agreement with AT&T that would give AOL preferential rights to use a particular system resource, such that
AT&T would not be free to offer the same rights to another ISP.  AOL Time Warner, through its General
Counsel, must certify upon the merger's closing and annually thereafter that it is in compliance with this
condition.
44.    In combination with the other conditions we adopt in this Order, the conditions we adopted in
AT&T-MediaOne, the conditions adopted by the DOJ in its AT&T-MediaOne Consent Decree, and existing
antitrust laws, the conduct remedy we adopt here will remedy any potential harm that might arise from the
merger in the form of coordination between AT&T and AOL Time Warner.  This conduct remedy will address
in a direct manner any potential harm due to coordination between AT&T and AOL Time Warner that would
affect competition for high-speed residential Internet access service.  We conclude that this condition will
prevent AOL Time Warner from using any leverage it might gain against AT&T as a result of the merger to
induce AT&T to favor AOL and disfavor other ISPs seeking access to AT&T's cable systems.  Thus, AOL
Time Warner will not be permitted to use its control of TWE , or any other merger asset, to induce AT&T
to give AOL preferential carriage rights as a condition of AOL Time Warner's agreement to vote in AT&T's
favor on any TWE Participant Matter, to improve any offer to purchase AT&T's TWE interest, or to enter
a telephony deal with AT&T.  Nor may AOL Time Warner for any other reason or in any other manner enter
into any agreement with AT&T that is designed to afford AOL preferential access to AT&T's cable systems
or to otherwise disadvantage AOL's competitors with respect to access to AT&T's cable systems.  Thus, the
condition will also prevent any agreements between AOL Time Warner and AT&T that may arise as a result
of the merger from any unforeseen motivation by AT&T to disfavor AOL's competitors.
45.    Several commenters requested that we require AT&T and Time Warner to sever all corporate and
contractual relationships, including AT&T's interest in TWE.  Because AT&T recently elected to divest
TWE, effective May 19, 2001, in compliance with the Commission's order in AT&T-MediaOne, we need not
address this issue.  AT&T requests that we condition this merger by requiring AOL and Time Warner to
submit to binding arbitration if AT&T and AOL Time Warner fail to reach agreement on the price for
AT&T's interest in TWE.  AT&T argues that the Commission could provide the appropriate incentive to
AOL Time Warner to complete AT&T's divestiture of the TWE partnership by requiring as a condition of its
approval of the AOL-Time Warner merger that, in the event AT&T and AOL Time Warner fail to reach
agreement on the price Time Warner will pay for AT&T's interest by a certain date, the matter will be
submitted to binding arbitration pursuant to a customary appraisal process.  AT&T also requests that the
Commission require that AOL Time Warner enter a "definitive agreement to effect disposition of AT&T's
TWE interest at the arbitrated price, before the compliance date set" in the AT&T-MediaOne Order.
46.    AT&T contends that the imposition of arbitration requirements also would prevent the potential
harms to competition that commenters have alleged.  AT&T claims that "[i]f AOL and AT&T were to become
partners in TWE, their shared ownership and incentives could . . . lead to unilateral conduct that would
produce the same outcome that consumer advocates have suggested would result from joint action."  For
example, apparently adopting Consumers Union's arguments, AT&T states that because of Time Warner's
control over TWE, Time Warner "could use the TWE leverage to impede competition where AOL and AT&T
compete 'head-to-head' or plan to do so."  For example, AT&T notes that "[p]ost-merger AOL could let
AT&T know that a condition for agreeing to restructure TWE would be for AT&T to drop its rival interactive
TV platform."  AT&T also argues that "AOL would clearly prefer less rather than more broadband
competition from AT&T and, as a consequence of the merger with Time Warner, could gain the means to
achieve that goal."
47.    We find it disturbing that AT&T would recite a litany of anticompetitive actions it might pursue,
including agreements not to compete, if the Commission fails to adopt a merger condition that would improve
AT&T's prospects of obtaining a favorable price from Time Warner for the sale of the TWE assets AT&T
has elected to divest to comply with our order in AT&T-MediaOne.  We disagree with AT&T that the
Commission should use this merger proceeding to facilitate AT&T's compliance with obligations the
Commission imposed in a separate merger proceeding.  While we are concerned about the possibility that
AT&T and AOL Time Warner would engage in collusive behavior as a result of this merger, we believe our
conduct remedy will address any potential public interest harms that might arise from conduct that is not
otherwise prohibited by law or that is not remedied by AT&T's divestiture of TWE pursuant to its December
15, 2000 election.
          A.   Other Potential Public Interest Harms
48.    Protection of Subscriber Privacy.  Congressman Markey notes that privacy of personal
information is increasingly becoming a concern of consumers using the Internet.  He states that cable
operators, such as Time Warner, have a statutory obligation under Section 631 of the Communications Act
to protect personal information gathered from subscribers.  He further states that the obligation applies not
just to information obtained through a customer's use of a cable service, but to a customer's use of any wire
or radio communications service provided using any of the cable system's facilities.  Congressman Markey
asks that we assure ourselves that AOL Time Warner will comply with the requirements of Section 631 after
the merger.
49.    Section 631 of the Communications Act provides that at the time a cable operator enters into an
agreement to provide any cable service "or other service" to a subscriber, and annually thereafter, the cable
operator shall inform the subscriber of, among other items, the nature of personally identifiable information
the cable operator will be collecting, the nature of the use of the information, and the nature and purpose of
any disclosures of that information.  The statute further provides that, with limited exceptions, a cable
operator may not use the cable system to collect personally identifiable information nor may the cable operator
disclose personally identifiable information without the prior written or electronic consent of the subscriber.
As Congressman Markey notes, the statute defines "other service" to include any wire or radio communication
service provided using any of the facilities of a cable operator that are used in the provision of cable service.
50.    We agree with Congressman Markey that consumers have become increasingly concerned about
the unauthorized use and disclosure of personal information gathered about them, especially with regard to
information collected while they are using the Internet.  By enacting Section 631, Congress directed cable
operators, including affiliates, to protect the privacy of their subscribers.  Although Section 631's terms are
enforced by the courts, and not by the Commission, AOL Time Warner's future compliance with Section
631 is part of our examination of AOL Time Warner's qualifications to control the licenses at issue.
Accordingly, as a condition of our approval, we require AOL Time Warner, by its General Counsel, to certify
to the Commission, by filing a copy of the certification with the Secretary's Office, on the merger's closing
and annually thereafter, that AOL Time Warner is and will remain in compliance with Section 631 of the
Communications Act.
51.    Premature Control by AOL.  RCN Telecom Services, Inc. ("RCN") requests that we delay
approval of the merger to investigate whether AOL had assumed premature control of Time Warner.
RCN's request is based on a Washington Post article that reported that a senior AOL official had begun the
process of "knitting together" AOL and Time Warner.  AOL responds that RCN offers no evidence that an
AOL official has assumed control over Time Warner's daily operations or policy determinations, or that an
AOL official or any other AOL employee in any way dominates the management of Time Warner's corporate
affairs and licensed facilities.  Rather, according to AOL, an AOL senior official "simply has participated,
along with other AOL and Time Warner officials, in the parties' collective efforts -- wholly consistent with
applicable law -- to achieve a smooth integration of the two companies after closing."   We find that the
record is devoid of specific allegations of fact that establish a prima facie case of de facto transfer of control
that would warrant delaying our approval of the merger with conditions or initiating an investigation.  We
therefore deny RCN's request.
     LII. ANalysis of potential public interest benefits
53.    In addition to assessing the potential public interest harms of this merger, we must consider
whether the merger will produce public interest benefits.  The proposed transaction is deemed in the public
interest if the identifiable potential public interest benefits outweigh any potential public interest harms.
54.    Our analysis of public interest benefits focuses on demonstrable and verifiable benefits to
consumers that could not be achieved but for the merger.  Merger-specific benefits may include beneficial
conditions either proffered by the Applicants or imposed by the Commission.  At a minimum, our public
interest test requires that the merger not interfere with the objectives of the Communications Act.
55.    We find that the Applicants have demonstrated that the merger will result in benefits, but the
nature and degree of these benefits are not sufficient to outweigh the potential harms that would result from
the merger absent conditions. The conditions we impose, in conjunction with those imposed by the FTC
Consent Agreement, will mitigate the potential harms, and allow us to conclude that, on balance, the benefits
will outweigh any remaining potential harms.
56.    The Applicants claim the merger will produce affirmative public interest benefits in the following
four areas:
              access by unaffiliated ISPs to cable broadband networks ("cable access");
              accelerated deployment of broadband content and broadband technologies;
              accelerated transformation of traditional media products to digital platforms; and
              expedited development and deployment of new service offerings, some of which, the parties
          maintain, are yet to be developed.
5.     The Applicants have produced limited third-party documentation supporting these claims of
affirmative public interest benefits.  For the most part, the Applicants have provided narrative descriptions
and affidavits from business persons explaining the synergies likely to result from joining these two companies
and the merged company's potential to provide affirmative public interest benefits.  The evidence offered by
the Applicants is described below.  Our findings follow.
          A.   The Evidence
6.     Cable Access. As evidence of their commitment to a marketplace solution to cable access, the
Applicants have submitted a Memorandum of Understanding ("MOU") between AOL and Time Warner.
As described in more detail in Section IV.A., above, the MOU provides that multiple ISPs would be permitted
to serve consumers over Time Warner cable systems without consumers having to also purchase AOL Time
Warner ISP services.  In addition, the MOU provides that there will be no fixed limit on the number of
unaffiliated ISPs selected by Time Warner cable systems (except as mandated by technical limitations), and
that AOL and Time Warner will consider ISPs of national, regional, and local scope.
7.     The Applicants assert that their MOU represents a shift within the industry towards a
marketplace solution to cable access.  The Applicants believe the MOU is significant not only because
compliance with its terms will bring choice to consumers where none existed before, but also because it
creates momentum for similar action throughout the cable industry.  The Applicants cite Wall Street
financial analysts that agree the MOU will encourage other major cable operators to open their networks to
unaffiliated ISPs.
8.     Accelerated Deployment of Broadband Technologies and Content. The Applicants claim that the
merger will accelerate the deployment of cable and alternative broadband technologies, as well as the
development of broadband content.  The Applicants assert that the development of broadband content and
conduit are mutually reinforcing occurrences.  They state that many potential content providers have hesitated
to roll out broadband applications in the absence of assurance that a platform for their services would be
available, while facilities providers have been similarly skeptical about the advantages of investing in
broadband technology prior to the development of broadband content.
9.     The Applicants assert that the merger will accelerate the deployment of broadband technologies
by several years.  First, the Applicants contend that the merger is likely to accelerate the pace of deployment
of Time Warner's cable broadband Internet access services.  Time Warner submits that rolling out high-
speed Internet services is more complex and requires a greater undertaking than the roll-out of other new
services.  They believe that the merger will result in the deployment of more resources for marketing and
consumer connection functions, thus hastening the ability of consumers to obtain high-speed Internet
service.  As evidence, the Applicants have provided the Commission with confidential pre-and post-merger
facilities deployment plans for Time Warner and information regarding potential operating synergies for both
parties.  As further evidence, the Applicants note that the financial community believes the merger will
accelerate cable broadband Internet access deployment.
10.    Second, the Applicants assert that the merger will serve to accelerate deployment of alternative
broadband technologies.  The Applicants note that AOL, in keeping with its "AOL Anywhere" business
strategy, has sought, and will continue to seek, a nationwide footprint for its ISP services, utilizing multiple
broadband technologies.  AOL asserts that to maximize revenues, it must continue to pursue as many
broadband delivery options as possible to reach every potential customer, both within and outside Time
Warner's local cable franchise areas.  As evidence of its commitment to further the development of a wide
range of broadband technologies, AOL points to its $1.5 billion investment in Hughes parent GM, and its
numerous deals with DSL and wireless equipment manufacturers.  AOL does not claim that the merger is
the only way to accomplish the goals of AOL Anywhere.  However, AOL does indicate that after the merger,
AOL will continue to pursue its AOL Anywhere strategy and that Time Warner will enable AOL to further
these goals.  Neither AOL nor Time Warner provide concrete examples of how the merger will serve to assist
AOL in its AOL Anywhere strategy other than to say that a merger between Time Warner and AOL will
enable AOL to provide its ISP service over cable. AOL claims that this is particularly significant because
prior to the proposed merger, AOL had been unable to strike an agreement with any cable operator.
11.    AOL also asserts that its commitment to the cable broadband platform in and of itself will spur
development of competing platforms.  AOL asserts that the Commission itself has recognized this pattern,
"understanding that competition among rival technologies is one of the primary focuses that drives deployment
of broadband services."
12.    Finally, the Applicants argue that their commitment to maximizing diversity of content and
consumer choice on the Internet will further promote deployment of broadband conduit and vice versa.  The
Applicants state that it is well understood that consumer interest in innovative and enticing online offerings
will inevitably have a direct positive impact on broadband penetration and deployment across platforms.
They state that they intend to provide their customers the broadest possible array of appealing content,
regardless of the source.  Furthermore, the Applicants argue that the merged entity's introduction of widely
appealing broadband offerings will motivate providers of other broadband technologies and services to deploy
and market their own content and services more widely in order to compete with the merged entity.
13.     Accelerated Transition of Traditional Media Products to Digital Platforms. The Applicants
contend that the merged entity will accelerate the transition of established media offerings to digital
platforms.  In their filings with the SEC, the Applicants note that one factor motivating the merger is the
existence of "cost efficiencies in launching and operating interactive extensions of Time Warner brands."
They claim that the merged company will bring together experience, incentives, and resources that can help
lead the integration of traditional media with online interactive media.  As evidence, the Applicants cite
financial analyst reports asserting that the merged entity can quickly respond to and inspire "rapidly morphing
user habits as users reexamine their daily activities through 'Internet-enabled glasses."
14.    Accelerated Deployment of New Services: The Applicants claim that a major benefit of the
merger will be the merged entity's ability to develop and promote new interactive services.  They maintain that
this combination of complementary assets will create "the first company prepared to compete on the Internet,"
due to the lowered risk to the combined companies in deploying new products and services as well as
increased operating efficiencies and complementary expertise.  New services to be offered include
developing services such as video-on-demand, interactive television, video streaming, online music distribution
and purchasing, IP telephony, and numerous yet-to-be developed services.  The Applicants state that while
detailed business plans have not been finalized, plans are being developed in light of the merged entity's
coordinated strengths and potential to offer such services.
15.    As evidence, the Applicants cite to financial community reports, stating that the merged company
will be "well positioned to pursue and expedite personalized jukeboxes, news clipping services, voice activated
web surfing, Internet enabled voice communications, downloadable music, personalized video services, and
virtual communities centered around off-line magazines."  In addition, the same analyst notes that "the new
company will be well-positioned to define and create yet-to-be imagined new businesses which [will] evolve
as technologies are introduced and as the Internet continues to develop."
16.    As evidence of the merger's ability to hasten the online music revolution, Applicants cite to
financial analyst and trade press recognition of the merged entity's ability and expertise.  While the
Recording Industry Association of America ("RIAA") did not file comments in this proceeding, Applicants
cite to a public statement made by RIAA President Hilary Rosen that the merger "brings together a
tremendous wealth of music assets and a group of people who have mastered the art of making things simple
on the Internet."  One financial analyst states, "AOL Time Warner is poised to have a substantial, positive
effect on overcoming the technical and financial complexity that has hindered the development of
downloadable music."
17.    In addition, the Applicants state that the unique combination of AOL and Time Warner assets
could permit the merged firm to create a successful, robust ITV product where others have failed.  According
to the Applicants, "with the merger's promotion of competitive broadband development, the prospects for an
enhanced, next-generation AOLTV that could even more seamlessly and robustly integrate Internet and video
services become more foreseeable." The Applicants state that a "merged AOL Time Warner will be able to
significantly enhance the just-launched AOLTV service and thereby turbo-charge an entire industry" and that
"[t]he new company can work to develop all facets of interactive television including both the platform and
new interactive content applications with a breadth of common purpose unlikely to be matched even in the
best joint venture."
18.    As evidence, the Applicants quote several industry analysts addressing AOL's expertise in the
provisioning of Internet access services, and Time Warner's expertise in developing and distributing content,
including a report stating that "one of the strengths of the combined entity will be its ability to develop and
promote new interactive services."  Another analyst asserts that "[a]s the interrelationship between and the
evolution of new media and old media is established in the form of AOLTV, we believe the wisdom of
merging AOL and Time Warner will become increasingly evident and obvious."  The Applicants further
note that at least one analyst agrees that the merged entity "is in a better position than either entity separately
to drive the revolution of interactive services to the next level   breaking the convergence logjams that, in
many sectors of the media and communications industries, are inhibiting growth of the medium."
19.    Merger vs. Joint Ventures. The Applicants contend that joint venture agreements and other
contractual arrangements would not produce the same efficiencies as will the merger. The Applicants claim
that a joint venture would be much less efficient than full integration and maintain that it is impractical and
unprecedented for the parties to try to negotiate a series of joint ventures to cover the far-reaching scope of
this merger.
20.    Commenters' Position on Merger Benefits. According to the Applicants, commenters do not
dispute that the merger will hasten the development of new broadband services, and furthermore, some
commenters concede that the merger provides "social benefits."
21.    A review of the record reveals that while several commenters find certain public interest benefits
possible, most believe these benefits would result only if the Commission conditions its approval of the license
transfers on specific requirements.  For example, Memphis Networx does not request a denial of the merger,
but believes the Commission should require that the Applicants commit to taking a neutral stance with respect
to the entry of facilities-based network providers in Time Warner service areas.  Such commitments, they
say, would provide concrete support for a Commission finding that the proposed merger is consistent with the
public interest.  In its initial comments, ACA expressed concern that the merged entity would require small
cable operators to carry AOL service in order to receive Time Warner programming.  In its reply
comments, ACA sought a commitment from the Applicants that they would not engage in such tactics, while
at the same time recognizing the potential of the merger to create "boundless opportunities for new consumer
services."  After Time Warner representatives stated, at the Commission's en banc hearing in this
proceeding, that the merged entity would not tie or condition access to its programming on carriage of AOL
service, ACA released a statement voicing its support for the merger.  BellSouth asserts that
notwithstanding the anticompetitive potential, the merger could advance the public interest, provided the
Commission implements certain safeguards.  Finally, Sinclair Broadcasting argues that the merger has the
potential to promote the development and delivery of new products and services, but not without the
appropriate safeguards.
          A.   Discussion
22.    Cable Access. The Applicants' MOU represents a commendable commitment to the principle of
multiple access and offers a starting point from which a marketplace solution can proceed.  The Applicants
have offered evidence that in the wake of their MOU, other cable operators are considering allowing multiple
ISPs to provide service over their systems.  Nevertheless, as discussed in Section IV.A., supra, the MOU
is not sufficient to avert the merger's potential deleterious effects. Moreover, we are not convinced that the
MOU alone will induce other cable operators to open their networks in a manner that would meaningfully
benefit the market for high-speed Internet services. The Applicants admit that there are significant details
surrounding the implementation of a multiple ISP approach that are unresolved.  Although the FTC's
Consent Agreement substantially mitigates these harms, we remain concerned that the merged firm could
indirectly disadvantage unaffiliated ISPs, especially, local and regional ISPs, through means that are not
squarely addressed by the Consent Agreement.  Thus, while the terms of the Consent Agreement would clearly
enhance the merger's potential public interest benefits, we cannot conclude that the merger will result in
unqualified public interest benefits with respect to the provision of Internet access by multiple ISPs over cable
facilities without imposing the conditions set forth in Section IV.A., supra..
23.    Accelerated Deployment of Broadband Technologies and Content. We recognize that AOL
currently has many agreements with non-cable broadband service providers.  For example, AOL currently has
non-exclusive strategic alliances with DSL providers SBC (including SBC-owned Ameritech), and with both
components of the newly formed Verizon Communications, Bell Atlantic and GTE.  While AOL could, on
its own, pursue a strategy of "AOL Anywhere," by independently advancing subscription to all broadband
technologies, AOL's acquisition of Time Warner may aid Time Warner in the rollout of its high-speed Internet
service offering by enabling Time Warner to more rapidly assemble the inputs it needs to increase the rate of
deployment.  However, because Time Warner already offers high-speed Internet access in a significant
number of its franchise areas, this presents only a modest potential public interest benefit.
24.    To the extent that AOL's investment in cable broadband stimulates outside investment in
alternative technologies, we acknowledge the potential for the merger to provide consumers the added benefit
of expedited broadband rollout generally.  Financial analysts agree that investment in one broadband
technology tends to stimulate investment in competing technologies.  The Cable Services Bureau has also
recognized this fact.  At the request of the Commission Chairman, the Cable Services Bureau convened a
series of meetings in 1999 to study the state of the broadband industry and identify any potential market
failures.  In its Report to the Chairman, the Bureau found that there was little disagreement among the
panelists that cable investment inherently spurs investment in DSL and vice versa.  However, it is
impossible for us to predict the magnitude of the potential impact.
25.    Finally, to the extent that the merger advances alternative broadband technologies and thus
broadband deployment generally, we would expect such a result to stimulate the development of broadband
content.  However, we cannot conclude that the merger will advance the quantity and quality of broadband
content because, as we indicate in section IV.A. above, the merger itself threatens to reduce competition
among high-speed ISPs.
26.    Accelerated Transformation of Traditional Media Products to Digital Platforms. We find that
the merged entity will have the resources to implement its proposed plan for accelerating the transformation
of traditional media products to digital platforms.  AOL has proven successful at making online content
appealing to consumers, especially those who are not computer experts.  Time Warner, on the other hand, has
been relatively unsuccessful at migrating its traditional media products to digital platforms.  For example,
Pathfinder was Time Warner's attempt to aggregate its name brand content into one, convenient Web portal.
However, Time Warner later abandoned Pathfinder in hopes of finding a better strategy to market its
traditional media products.  Similarly, Time Warner attempted in 1994 to launch an interactive television
service called "Full Service Network" in Orlando, Florida.  Because Full Service Network was too costly to
maintain, Time Warner abandoned the project.  Given the histories of each of these companies
independently, we find that the addition of AOL's expertise in making content commercially acceptable to
consumers over the Internet could very well advance the migration of Time Warner's name brand content to
digital interactive platforms.
27.    Accelerated Deployment of New Services.  While we have no reason to doubt that the Applicants
have every economic incentive to provide consumers with a wide array of new services, we also have no way
of determining the level to which consumers will benefit in this regard because consumers have not yet had the
opportunity to express demand for as-yet-unavailable products.  In particular, we recognize the potential for
the merged firm to expedite Time Warner's deployment of IP telephony and to allow Internet video streaming.
With respect to IP telephony, we believe that Time Warner's technologically advanced cable systems and
AOL's expertise in Internet-based applications, as well as AOL's investment in IP telephony provider
Net2Phone, together provide promise for this developing technology.  With respect to Internet video
streaming, we recognize that the Applicants have pledged to allow unaffiliated ISPs to "provide video
streaming" to consumers over Time Warner cable systems. Our assessment of these benefits is tempered,
however, by the prospect that AOL's network effects advantage in the IM market will position the merged
firm to foreclose competition, and thereby diminish innovation and consumer choice, with respect to real-time,
interactive broadband services that rely on NPDs.  Thus, while we believe the merger would stimulate the
development of such services and thereby produce some public interest benefit, we cannot conclude that it
would stimulate competition or innovation with respect to such services.
28.    We also recognize the potential for the merger to advance the deployment of new services such as
online music distribution, ITV, and video-on-demand.  For example, as we noted earlier, AOL and Time
Warner bring together significant assets that the merged firm could use to launch a successful interactive
television product.  The Applicants' unique combination of assets presents the possibility that the merged
firm will successfully deploy a more comprehensive and highly-advanced ITV product to consumers than was
offered in the past. The cable broadband platform in particular may offer ITV providers and consumers
advantages over its DSL and satellite distribution networks.  AOLTV delivered over Time Warner's cable
broadband pipeline could serve to ensure the success of a new generation of ITV services.  Against a backdrop
of limited ITV success, the deployment of this new product, if successful, could further the statutory goal of
promoting the deployment of advanced services.  Moreover, provided the merged firm does not limit its
distribution of unaffiliated interactive content for the purpose of favoring its own content, AOLTV could also
benefit the public by giving viewers access to a greater diversity of information services.  While the parties
could most certainly develop ITV and other new products on their own, the combination of differing areas of
expertise and the diminished risks associated with a more broad-based merged entity will potentially allow
these products to be more fully developed, and may allow ITV to reach the market sooner than would
otherwise occur.
29.    Merger vs. Joint Ventures. Having found that the combination of AOL's and Time Warner's
assets will offer some public interest benefits, we next consider whether those benefits could be achieved
through a series of joint ventures or other contractual arrangements. The Applicants enumerate, and we
recognize, the difficulties involved in establishing a series of joint ventures to accomplish a diverse set of
goals.  Because the intent underlying the merger is not to develop or deploy a single product or service, we
agree that it would be difficult for the parties to successfully negotiate a series of contracts or joint venture
arrangements that would account for the series of multimedia ventures contemplated by the transaction.  We
agree with the Applicants that negotiating individual joint venture agreements for each separate endeavor
would involve delays and inefficiencies inherent in establishing the formal relationship necessitated by
agreements among independent, publicly traded companies. As we noted in AT&T-MediaOne:  "the services
to be covered by [a series of] joint venture[s], in light of dynamic and rapidly evolving technology and market
developments, would make 'arms-length negotiations arduous.'"  We also note here that AOL's merger with
Time Warner will create an alignment of the parties' economic interests that will reduce the areas of friction
between the two companies and facilitate the development of new services.
30.    We agree with the Applicants that "because there is no way to predict precisely what technologies
and services will develop and be demanded by consumers in the future, it would be difficult, if not impossible
to forecast the appropriate parameters of a limited contractual relationship." Furthermore, we agree that
AOL and Time Warner offer complementary strengths.  For example, we note that Time Warner's Pathfinder
portal, which aggregated the company's numerous popular content brands, failed to achieve widespread
commercial success. Time Warner's attempt to establish interactive television services was similarly
unsuccessful. Conversely, we observe that AOL has unique expertise in content distribution, as evidenced by
its successful distribution of its AOL ISP.
31.    Finally, we agree with the Applicants that a merged entity with the resources of AOL and Time
Warner would be able to take on substantial additional risk in the development and rollout of new services.
AOL states that "a merger offer[s] the only way for AOL and Time Warner to fully integrate their operations
and allow the merged entity to set aside considerations concerning individual lines of business to concentrate
on the good of the whole."
32.    Conclusion.  We recognize that were they not to merge, AOL and Time Warner acting
independently or in contractual arrangements with each other or other service providers could likely achieve
some of the same public benefits promised by the merger.  We are not persuaded that the proposed merger is
the only means to assure advancement of these benefits.  Nevertheless, we recognize that this merger has the
potential to further several of the Commission's goals and therefore produce some public interest benefits.
Among them are the deployment of a wide range of broadband technologies to all consumers.  As described
above, we believe this merger allows for the direct stimulation of the cable broadband market and the probable
indirect stimulation of investment in alternative broadband technologies. While it is impossible for us to
predict the magnitude of the potential benefit the merger may bring to the deployment of alternative broadband
platforms, we acknowledge that the merged entity will to some extent allow Time Warner to more rapidly
complete its rollout of high-speed services, and in turn encourage competitors to do the same.  We also
recognize that the Applicants' MOU and the FTC Consent Agreement have given the industry a starting point
by which to discuss the meaningful advancement of multiple ISP access. Additionally, we believe that the
merger will accelerate the transformation of traditional media products to digital platforms, aiding the
development of advanced services.
33.    These potential public interest benefits, however, do not outweigh the serious potential public
interest harms we have identified above. For example, while the merger may well stimulate the development
and deployment of new services, if the merger in fact diminishes competition and consumer choice with
respect to advanced "IM-based" services and residential high-speed Internet access service, as we predict, then
the merger's potential stimulation of the development of new services will not guarantee that consumers will
benefit from innovation, price competition, or diversity of choices with respect to these services.  Finally, these
potential harms threaten to diminish consumers' access to the widest possible array of information and
information sources.
34.    Accordingly, we find it necessary to impose remedial conditions to mitigate the merger's potential
harms and in order to ensure that consumers enjoy the benefits the merger promises to offer. The conditions
we are imposing to mitigate the merger's potential harms enable us to conclude that, on balance, the potential
public interest benefits offered by the merger will outweigh the merger's potential public interest harms.
     XXXV.     CONCLUSION
36.    Given the conditions we are imposing to mitigate the merger's potential harms, together with the
conditions imposed by the FTC in its Consent Agreement and Order To Hold Separate, we conclude that, on
balance, the potential public benefits offered by the merger outweigh any harms that would not be remedied
by these conditions.  Accordingly, we find that approval of the license transfer applications subject to the
conditions discussed herein will serve the public interest, convenience, and necessity.
     XXXVII.   ORDERING CLAUSES
38.    Accordingly, having reviewed the Application and the record in this matter, IT IS ORDERED,
pursuant to Sections 4(i) and (j), 214(a), 214(c), 309, and 310(d) of the Communications Act of 1934, as
amended, 47 U.S.C.  154(i), 154(j), 214(a), 214(c), 309, 310(d), that the Application filed by America
Online, Inc. and Time Warner Inc., Inc. IS GRANTED subject to the conditions stated below.
39.    IT IS FURTHER ORDERED, pursuant to Sections 4(i) and (j), 214(a), 214(c), 309, and 310(d)
of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j), 214(a), 214(c), 309, 310(d),
that the above grant shall include authority for AOL Time Warner Inc. to acquire control of:
               a)   any authorization issued to Time Warner, its subsidiaries, or its affiliates during the
          Commission's consideration of the Application and the period required for consummation of
          the merger transaction following approval;
               b)   construction permits held by licensees involved in this transfer that matured into licenses
          during the Commission's consideration of the Application or that mature into licenses after
          closing of the merger transaction and that may have been omitted from the transfer of control
          Application; and
          c)   applications filed by such licensees and that are pending at the time of consummation of the
          proposed transfer of control.
4.     IT IS FURTHER ORDERED that AOL Time Warner shall not restrict the ability of any current
or prospective ISP customers to select and initiate service from any unaffiliated ISP which, pursuant to a
contract with AOL Time Warner, has made its service available over AOL Time Warner's cable facilities
("Participating ISP").
5.     IT IS FURTHER ORDERED that AOL Time Warner shall allow customers to select a
Participating ISP by a method that does not discriminate in favor of AOL Time Warner's affiliates on the
basis of affiliation.  At a minimum, AOL Time Warner shall allow customers to obtain a list of Participating
ISPs by calling their local AOL Time Warner cable system and requesting such a list.  Whenever a customer
requests a listing of Participating ISPs, AOL Time Warner shall provide the list in a reasonable and timely
manner.  Such list shall not discriminate in favor of AOL Time Warner's affiliates on the basis of affiliation.
AOL Time Warner shall not prohibit ISPs from marketing their services to AOL Time Warner cable
customers.
6.     IT IS FURTHER ORDERED that AOL Time Warner shall permit each Participating ISP to
determine the contents of its subscribers' first screen and shall not require a Participating ISP to include any
content as a condition of obtaining access to AOL Time Warner cable systems; provided that AOL Time
Warner and any Participating ISP may agree that the ISP will include specified content or links on its first
screen.  AOL Time Warner shall not require any high-speed Internet access cable customer to go through an
affiliated ISP to reach any Participating ISP from which the customer purchases service.
7.     IT IS FURTHER ORDERED that AOL Time Warner shall permit each ISP to have a direct
billing arrangement with those high-speed Internet access subscribers to whom the ISP sells service.  AOL
Time Warner may offer a billing service to any Participating ISP, but shall not require any ISP to purchase
this service as a condition of obtaining access.
8.     IT IS FURTHER ORDERED that all contracts between AOL Time Warner and unaffiliated ISPs
for access to Time Warner's cable systems shall contain a clause warranting that, to the extent AOL Time
Warner provides any Quality of Service mechanisms, caching services, technical support customer services,
multicasting capabilities, address management and other technical functions of the cable system that affect
customers' experience with their ISP, AOL Time Warner shall provide them in a manner that does not
discriminate in favor of AOL Time Warner's affiliated ISPs on the basis of affiliation.
9.     IT IS FURTHER ORDERED that AOL Time Warner shall not enter into any contract with any
ISP for connection with AOL Time Warner's cable systems that prevents that ISP from disclosing the terms
of the contract to the Commission under the Commission's confidentiality procedures.
10.    IT IS FURTHER ORDERED that complaints or petitions regarding conditions regarding high-
speed Internet services shall be filed and adjudicated pursuant to the provisions of Section IV.A of this Order.
11.    IT IS FURTHER ORDERED that AOL Time Warner shall not offer an AIHS application that
includes the transmission and reception, utilizing an NPD over the Internet Protocol path of AOL Time
Warner broadband facilities, of one- or two-way streaming video communication using IM protocols
including live images, tape or animation   that are new features, functions, and enhancements beyond those
offered in AIM 4.3 or ICQ 2000b, 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.
12.    IT IS FURTHER ORDERED that if AOL Time Warner seeks relief from the IM condition
pursuant to one of the three options listed in the preceding paragraph, it shall submit a petition to the
Commission seeking findings and conclusions that one of the three options has been met. The findings of the
Commission shall be made upon clear and convincing evidence, and in the absence of such an evidentiary
showing, the condition shall not be eliminated.  If the Commission finds that one of the three options has been
met, then AOL Time Warner may offer video AIHS services.
13.    IT IS FURTHER ORDERED that AOL Time Warner shall file a progress report with the
Commission, 180 days after the release of this Order and every 180 days thereafter, describing in technical
depth, the actions it has taken to achieve interoperability of its IM offerings and others' offerings.  Such
reports will be placed on public notice for comment.
14.    IT IS FURTHER ORDERED that complaints or petitions regarding the IM condition shall be
filed and adjudicated pursuant to the provisions of Section IV.B of this Order.
15.    IT IS FURTHER ORDERED that five (5) years after the date of release of this Order, the
condition set forth in the preceding paragraphs 325 through 328 shall expire and shall not restrain AOL Time
Warner from offering video AIHS.
16.    IT IS FURTHER ORDERED that the Applicants shall notify the Chiefs of the Commission's
Cable Services Bureau and International Bureau, in writing, of any transactions that increase the Applicants'
ownership interest in General Motors Corporation and/or Hughes Electronics Corporation, no later than 30
days after the transaction.
17.    IT IS FURTHER ORDERED that AOL Time Warner shall be prohibited from entering into any
agreement with AT&T Corp., tacit or otherwise, that gives any AOL Time Warner ISP exclusive access to
any AT&T cable system for the purpose of offering high-speed Internet access service.
18.    IT IS FURTHER ORDERED that AOL Time Warner shall be prohibited from entering into any
agreement with AT&T, tacit or otherwise, that affects AT&T's ability to offer any rates, terms or conditions
of access to ISPs that are not affiliated with AOL Time Warner.
19.    IT IS FURTHER ORDERED that AOL Time Warner, by its General Counsel, shall certify to the
Commission upon the merger's closing and annually thereafter that it is in compliance with the foregoing
provisions in paragraphs 331 and 332 above.
20.    IT IS FURTHER ORDERED that compliance with all conditions imposed herein is a non-
severable condition of the grant of the Application.
21.    IT IS FURTHER ORDERED that all references to AOL, Time Warner, and AOL Time Warner
in this Order shall also refer to their respective officers, directors, and employees, as well as to any affiliated
companies, and their officers, directors, and employees, except as otherwise noted.
22.    IT IS FURTHER ORDERED, pursuant to Sections 4(i) and (j), 214(a), 214(c), 309, and 310(d)
of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j), 214(a), 214(c), 309, 310(d),
that the Petition to Deny filed by the Consumers Union, Consumer Federation of America, Media Access
Project and Center for Media Education, the Petition to Deny of Thomas Lewis Bonge, the Petitions to
Condition filed by RCN Telecom Services and Gemstar, and all similar petitions ARE DENIED.
23.    IT IS FURTHER ORDERED that the motion to consolidate filed by the Consumers Union,
Consumer Federation of America, and Center for Media Education, IS DENIED.
24.    IT IS FURTHER ORDERED that this Memorandum Opinion and Order SHALL BE
EFFECTIVE on January 11, 2001, in accordance with Section 1.103 of the Commission's rules, 47 C.F.R.
 1.103.
                         FEDERAL COMMUNICATIONS COMMISSION
                         Magalie Roman Salas
                         Secretary

                           APPENDIX A
                 List of Timely Filed Comments
* Denotes that the commenter filed a Petition To Deny
Initial Comments
American Cable Association ("ACA")
* Consumers Union, Consumer Federation of America, Media Access Project, and Center for Media
Education ("Consumers Union")
Gemstar International Group, Ltd. and Gemstar Development Corp. ("Gemstar")
City of Houston City Council Members:  Bert Keller, John E. Castillo, Annise D. Parker, Carroll G.
Robinson, Rob Todd ("Houston City Council Members")
iCAST Corporation ("iCast")
Memphis Light, Gas & Water Division ("MLG&W")
Memphis Networx, LLC ("Memphis Networx")
SBC Communications ("SBC")
RCN Telecom ("RCN")
Tribal Voice ("Tribal Voice")
Reply Comments
America Online, Inc. and Time Warner Inc. ("Applicants")
American Cable Association ("ACA")
Association for Maximum Service Television, Inc. ("MSTV")
BellSouth Corporation ("BellSouth")
Freedom Broadcasting, Inc. ("Freedom")
iCAST Corporation and Tribal Voice ("iCast and Tribal Voice")
Emy Tseng, Kamal Latham, Chen Hao, and Armand Ciccarelli ("MIT/Harvard Students")
RCN Telecom ("RCN")
Sinclair Broadcast Group, Inc. ("Sinclair")
State of Connecticut, Office of the Attorney General ("Connecticut Attorney General")
Town of Cary, North Carolina ("Town of Cary")
The Walt Disney Company ("Disney")

                           Appendix B
                     CONFIDENTIAL APPENDIX
                  CONFIDENTIAL AND UNDER SEAL
                  SUBJECT TO PROTECTIVE ORDER
                     IN CS DOCKET NO. 00-30
                                                           APPENDIX C
             25.List of Authorizations and Licenses
The approval for transfer of control of Time Warner's and AOL's authorizations and licenses to AOL Time
Warner includes the Commission authorizations and licenses listed below. Additional applications may have
been filed during the pendency of the applications for transfer of control that may be the subject of future
public notices.  Further, AOL and Time Warner have acquired or disposed of licenses during the pendency of
this proceeding.  Applications for transfer of these licenses will also be addressed in future public notices.
The call signs of the stations involved are included below for reference only.
Domestic Fixed Satellite Service (Part 25)
Cable News Network LP, LLLP
SES-T/C-20000211-00219
E2001
E890835
E861053
E880870
E890577
E890834
E890836
E900975
E930204
E940420
E940421
E940422
E950363
E970490
E990281
E990282
Turner Teleport, Inc.
SES-T/C-20000211-00225
KA58
Time Warner Entertainment-Advance/Newhouse Partnership
SES-T/C-20000211-00226
E990035
E990041
Turner Broadcasting System, Inc.
SES-T/C-20000211-00228
E920013
E980173
E980181
Time Warner Entertainment Company, L.P.
SES-T/C-20000211-00229
E4063
E910207
E930421
E930422
International Section 214  (Part 63)
ITC-T/C-2000211-00069                   Time Warner Telecom Inc.
ITC-T/C-20000211-00230             Time Warner Connect of San Antonio, Inc.
Television Broadcast Station (Part 73)
BTCCT-200211AAD     WTBS(TV)       SuperStation, Inc.
                    CH. 17         Atlanta, GA
                    FAC ID 64033
Low Power Television (Part 74)
BTCTTL-20000211AAE  W34AX          Time Warner Entertainment-
                    FAC ID 64636        Advance/Newhouse Partnership
                                   Henderson, NC
Cable Television Relay Services (Part 78)
Cablevision Industries, Inc.
CAR-50596-09        WHZ-685        Fishkill, NY
     CAR-50597-09        WHZ-239        Lloyd, NY
     CAR-50598-09        WHZ-502        West Point, NY
     CAR-50599-09        WAD-241        Wurtsboro, NY
Century Venture Corporation
CAR-50600-09        WHZ-810        Brunswick, GA
     CAR-50601-09        WLY-436        Jekyll Island, GA
     CAR-50602-09        WHZ-971        Owensboro, KY
     CAR-50603-09        WAW-505        Brookfield, WI
     CAR-50604-09        WGZ-277        Wauwatosa, WI
CNN America, Inc.
CAR-50605-09        WHZ-931        Oakland, CA
Florida Cablevision Management Corp.
CAR-50606-09        WLY-604        Golden Gate, FL
Kansas City Cable Partners
CAR-50607-09        WLY-353        Ft. Leavenworth, KS
     CAR-50608-09        WHZ-921        Leavenworth, KS
     CAR-50609-09        WGW-207        Independence, MO
     CAR-50610-09        WAE-602        Kansas City, MO
     CAR-50611-09        WGW-219        Kansas City, MO
     CAR-50612-09        WGW-220        Kansas City, MO
KBL Cablesystems of Minneapolis, Inc.
CAR-50613-09        WHZ-238        Eden Prairie, MN
KBL Cablesystems of the Southwest, Inc.
CAR-50614-09        WHZ-244        Minneapolis, MN
Massachusetts Cablevision Systems Limited Partnership
CAR-50615-09        WAL-427        Bellevue, OH
     CAR-50616-09        WAY-894        Galion, OH
     CAR-50617-09        WBB-813        Upper Sandusky, OH
Paragon Communications
CAR-50618-09        WHZ-373        Carson, CA
     CAR-50619-09        WGZ-435        Mars Hill, ME
     CAR-50620-09        WGV-525        Fishkill, NY
     CAR-50621-09        KN-5098        Manhattan, NY
     CAR-50622-09        WHW-60         Manhattan, NY
     CAR-50623-09        WAF-665        New Windsor, NY
Staten Island Cable, LLC
CAR-50624-09        WHZ-455        Elizabeth, NJ
Texas Cable Partners, L.P.
CAR-50625-09        WHZ-504        Alton, TX
     CAR-50626-09        KYZ-22         Bandera, TX
     CAR-50627-09        WMC-696        Beaumont, TX
     CAR-50628-09        WHZ-677        Commerce, TX
     CAR-50629-09        WGI-758        Eagle Pass, TX
     CAR-50630-09        WHZ-780        El Paso, TX
     CAR-50631-09        WJI-36              El Paso, TX
CAR-50632-09        WLY-483        Ft. Bliss, TX
     CAR-50633-09        WGI-756        Farias Ranch, TX
     CAR-50634-09        KOD-36         Harlingen, TX
     CAR-50635-09        KA-80625       Houston, TX
     CAR-50636-09        KYX-62         Loma Vista, TX
     CAR-50637-09        WGI-757        Moore, TX
     CAR-50638-09        WHZ-869        One North, TX
     CAR-50639-09        KYX-61         Pearsall, TX
     CAR-50640-09        KOD-31         Pharr, TX
     CAR-50641-09        WAF-861        Port Isabel, TX
     CAR-50642-09        WBH-846        Port Neches, TX
     CAR-50643-09        KOD-35         Weslaco, TX
     CAR-50644-09        WGI-755        Winter Haven, TX
Time Warner Cable of Southeastern Wisconsin, L.P.
     CAR-50645-09        WLY-245        Brown Deer, WI
     CAR-50646-09        WHZ-447        Milwaukee, WI
     CAR-50647-09        WGZ-421        S. Milwaukee, WI
Time Warner Entertainment Company  L.P.
     CAR-50648-09        WBM-740        EMS-Lanai, HI
     CAR-50649-09        WAE-470        Glenwood, HI
     CAR-50650-09        WAX-743        Glenwood, HI
     CAR-50651-09        WAB-577        Haleakala Mtn., HI
     CAR-50652-09        WHZ-819        Hana, HI
     CAR-50653-09        WLY-683        Hawaii Kai, HI
     CAR-50654-09        WLY-240        Hawaii Kai, HI
     CAR-50655-09        WAE-478        Hilo, HI
     CAR-50656-09        WBM-744        Hilo, HI
     CAR-50657-09        KA-80614       Honolulu, HI
     CAR-50658-09        WGV-848        Kahului, HI
     CAR-50659-09        WHZ-876        Kahului, HI
     CAR-50660-09        WAV-644        Kaupulehu, HI
     CAR-50661-09        WAN-954        Kaupulehu Lava Flow, HI
     CAR-50662-09        WLY-248        Kihei, HI
     CAR-50663-09        WLY-713        Lahaina, HI
     CAR-50664-09        WLY-684        Lanai City, HI
     CAR-50665-09        WAN-953        Mahukona, HI
     CAR-50666-09        WBD-613        Mauna Kapu Peak, HI
     CAR-50667-09        KA-80615       Mauna Kapu Peak, HI
     CAR-50668-09        WAB-578        Maunaka Mtn., HI
     CAR-50669-09        WLY-402        Meyers Ranch, HI
     CAR-50670-09        WLY-415        Mililani, HI
     CAR-50671-09        WLY-409        Olinda, HI
     CAR-50672-09        WLY-678        Puu Kolii, HI
     CAR-50673-09        WLY-685        Puu Nana, HI
     CAR-50674-09        WBM-738        Puu Nana, HI
     CAR-50675-09        WBM-742        Puu Nianiau, HI
     CAR-50676-09        WHZ-617        Waimalu, HI
     CAR-50677-09        WBD-612        Waipahu, HI
     CAR-50678-09        WHZ-728        Brazil, IN
     CAR-50679-09        WRC-25         Chanute, KS
     CAR-50680-09        WRC-23         Garnett, KS
     CAR-50681-09        WLY-703        Independence, KS
     CAR-50682-09        WRC-24         Iola, KS
     CAR-50683-09        KZW-67         Neodesha, KS
     CAR-50684-09        WBL-521        Thrall, KS
     CAR-50685-09        WBK-510        Saco, ME
     CAR-50686-09        WAS-288        Sanford, ME
     CAR-50687-09        WLY-479        Columbus, NE
     CAR-50688-09        WAB-572        Wynantskill, NY
     CAR-50689-09        WHZ-633        Bazetta, OH
     CAR-50690-09        WAY-890        Columbus, OH
     CAR-50691-09        WHZ-408        Lima, OH
     CAR-50692-09        WHZ-587        Marysville, OH
     CAR-50693-09        WAY-903        New Albany, OH
     CAR-50694-09        WHZ-437        Ottawa, OH
     CAR-50695-09        WHZ-406        Richwood, OH
     CAR-50696-09        WHZ-545        Troy, OH
     CAR-50697-09        WLY-471        Youngstown, OH
     CAR-50698-09        WGK-594        Burlington, WI
Time Warner Entertainment-Advance/Newhouse Partnership
CAR-50699-09        WHZ-982        Clearwater, FL
     CAR-50700-09        KA-80616       Clearwater, FL
     CAR-50701-09        WLY-462        Deland, FL
     CAR-50702-09        WHZ-784        Lakeland, FL
     CAR-50703-09        WHZ-785        Lakeland, FL
     CAR-50704-09        KD-55011       Orlando, FL
     CAR-50705-09        WHZ-396        Palm Harbor, FL
     CAR-50706-09        WGZ-487        Pinellas Park, FL
     CAR-50707-09        WHZ-652        St. Petersburg, FL
     CAR-50708-09        KD-55009       Tampa, FL
     CAR-50709-09        WLY-330        Barada, NE
     CAR-50710-09        WLY-331        Octavia, NE
     CAR-50711-09        WHZ-882        Camden, NY
     CAR-50712-09        WLY-554        Crown Point, NY
     CAR-50713-09        WGK-590        Glens Falls, NY
     CAR-50714-09        WAN-337        Lake George, NY
     CAR-50715-09        KB-60127       Rochester, NY
     CAR-50716-09        KD-55003       Rochester, NY
     CAR-50717-09        WAF-786        Sidney, NY
     CAR-50718-09        WLY-235        Atlantic, NC
     CAR-50719-09        WLY-509        Beaufort, NC
     CAR-50720-09        WBF-574        Burgaw, NC
     CAR-50721-09        WGJ-890        Butner, NC
     CAR-50722-09        WAJ-761        Fayetteville, NC
     CAR-50723-09        WLY-333        Fayetteville, NC
     CAR-50724-09        WLY-246        Garner, NC
     CAR-50725-09        WHZ-394        Havelock, NC
     CAR-50726-09        WHZ-430        Lizard Lick, NC
     CAR-50727-09        WHZ-395        Morehead City, NC
     CAR-50728-09        WLY-646        Pembroke, NC
     CAR-50729-09        WLY-429        Raleigh, NC
     CAR-50730-09        WAX-279        Red Springs, NC
     CAR-50731-09        WAE-564        Supply, NC
     CAR-50732-09        WHZ-774        Wilmington, NC
     CAR-50733-09        WDH-701        Florence, SC
     CAR-50734-09        WGV-822        Sumter, SC
     CAR-50735-09        KA-80624       Austin, TX
     CAR-50736-09        KD-55017       Austin, TX
     CAR-50737-09        WBY-600        Austin, TX
     CAR-50738-09        WAH-212        Bluegrove, TX
     CAR-50739-09        WAH-213        Crafton, TX
     CAR-50740-09        WLY-367        Elroy, TX
     CAR-50741-09        WSV-58         Flat, TX
     CAR-50742-09        WHZ-585        Grenada Hills, TX
CAR-50743-09        WHZ-339        Lukenbach, TX
     CAR-50744-09        WSV-56         McGregor, TX
     CAR-50745-09        WAH-228        Vashti, TX
     CAR-50746-09        WCJ-907        West Lake Hills, TX
TWI Cable Inc.
CAR-50747-09        WGV-526        New Riegel, OH
TWI Summit Cable, Inc.
CAR-50748-09        WHZ-548        Banning, CA
     CAR-50749-09        WLY-451        Beaumont, CA
     CAR-50750-09        WLY-306        Cathedral City, CA
     CAR-50751-09        KD-55002       Palm Desert, CA
     CAR-50752- 09       WLY-449        Whitewater, CA
     CAR-50753-09        WHZ-547        Whitewater, CA
     CAR-50754-09        WGZ-470        Palm Desert, CA
CARS Transfers to be effected in the future (pending application and public notice)
Time Warner Entertainment Company, LP
                    WLY-720        Mauna Lani, HI
                    WLY-726        Wailuku, HI
                    WAB-572        Wynantskill, NY
Texas Cable Partners, LP
                    WGZ-450        Escobas, TX
                    WGZ-451        Horseshoe Ranch, TX
                    WGZ-452        Benavides, TX
                    WGZ-264        Realitos, TX
                    WJT-43         Corpus Christi, TX
The Wireless Telecommunications Bureau is processing 41 applications to transfer control of approximately 400
licenses:
Private Land Mobile Radio Services (Part 90)
                              File #    Lead Call Sign
Alert Cable TV Inc                                0000302063     KYK615
Alert Cable TV of Oklahoma Inc          0000302074     KWS691
Alert Cable TV of South Carolina Inc    0000302077     KFI554
America Online, Inc.          0000302103     KNNW816
American Television and Communications
 Corporation                  0000302198     KXL770
Cablevision Industries Inc    0000302444     KNGX578
Cablevision Industries, Limited Partnership  0000302460     KNHJ962
Cablevision Industries of Alabama Inc   0000302488     KYD420
CAT Holdings LLC              0000301862     KRU795
Century Venture Corporation   0000302539     KZE460
Community CATV Corp           0000303479     WRJ952
Dorchester Cablevision Inc    0000303483     WSK244
Erie Telecommunications, Inc  0000303486     KNCA620
Fairclark Cable TV Inc        0000303492     KQI872
Florida Cablevision Management Corp     0000303506     KNDR433
Home Box Office               0000303522     KB51583
HBO Studio Productions        0000303600     WPLP425
Kansas City Cable Partners    0000304203     WRU681
KBL Multnomah Cablesystems LP 0000304757     WNLJ857
KBL Portland Cablesystems LP  0000305899     WYJ623
Massachusetts Cablevision Industries Inc     0000305900     WNZV590
Massachusetts Cablevision Systems LP    0000305901     KYC473
Paragon Communications        0000305902     KBE579
Texas Cable Partners, LP      0000305904     KTF476
Time Warner Cable of Avalon LP          0000305908     WPMF361
Time Warner Entertainment Company LP    0000301876     KEA342
Time Warner Entertainment-
Advance/Newhouse Partnership  0000301895     KFM714
Time Warner Entertainment-
Advance/Newhouse Partnership            0000301830     WPFZ212
Time Warner Inc.              0000305897     KNAX816
Turner Broadcasting System Inc.         0000305909     WNXV224
TWFanch-one Co.               0000301815     WQP536
TWI Cable Inc                 0000305910     KNHA621
TWI Summit Cable Inc          0000305911     WNDP983
Warner Bros                   0000305912     WPLD733
West Valley Cablevision Industries, Inc 0000305913     WNSH254
Fixed Microwave Services (Part 101)
Private Operational Fixed Point-to-Point Microwave
                              File #    Lead Call Sign
CNN America Inc                         0000084755          WNES530
Superstation Inc                             0000084751     WNEL539
Texas Cable Partners, LP                0000084765     WNEW367
Time Warner Entertainment-
Advance/Newhouse Partnership            0000084762     WNER856
Common Carrier Fixed Point to Point Microwave
                              File #    Lead Call Sign
American Television and
Communications Corporation              0000084776     KPR32
Texas Cable Partners, LP                0000084753     KLH77
          STATEMENT OF FCC CHAIRMAN WILLIAM E. KENNARD
       ON CONDITIONED APPROVAL OF AOL TIME WARNER MERGER
Our conditioned approval of the AOL Time Warner merger is significant not only for the size of the
merger we approve today, but also for its scope.  AOL Time Warner is a marriage of old media and new
media, content and conduit, 20th century know-how and 21st century vision.  In a phrase, it's "Convergence
Illustrated."
I took a hard, careful look at this merger to make sure that this historic marriage would benefit
consumers.  I balanced the need to protect the public from the danger that any one company will be able to
dominate the marketplace against the need to guard against intrusive regulation that could stifle investment
and innovation.
The conditions we impose today are forward-looking and fair. They preserve the openness of the
Internet. They protect consumers and avoid heavy-handed regulation by using a narrowly-tailored market
opening approach. And they ensure that neither AOL Time Warner nor a government agency will pick winners
and losers in this dynamic marketplace.
I have long been concerned about bottlenecksbottlenecks that could stifle competition and
innovation.  So in reviewing this merger, I was particularly concerned about the future of the instant
messaging platform, the ability of competing broadband ISPs to access Time Warner's cable systems, and the
potential for discrimination in the interactive television space.
We don't rely on good intentions.  We require AOL to interoperate with competing instant messaging
(IM) providers before it can offer videoconferencing and other streaming video over IM.  This condition
guards against AOL's ability to leverage its existing dominance in current IM into the broadband IM
marketplace.   In order to ensure fair and open access to Time Warner's cable system, we augment the FTC
conditions by imposing specific protections against discriminationprotections that will be particularly
critical for smaller ISPs.  We also hold AT&T to its commitment to divest its interest in Time Warner
Entertainment and impose additional conduct restrictions to protect consumers.  Finally, the potential for
discrimination in the interactive television marketplace bears watching and we have begun a proceeding to
explore the need for the FCC's involvement in promoting competition in this developing service.
When I look at this merger, the potential benefits I see are the ability to roll out technologies faster
and farther, the potential for significant innovation in new services and technologies.  But, those benefits could
be the proverbial silver lining.  AOL and Time Warner each possess significant market power in their
respective spheres.  AOL is the leading Internet service provider with over 26 million members worldwide, and
it continues to grow.  In fact, AOL has gained almost six million members in just the last year.  Time Warner
is the nation's second largest cable television company with ties to AT&T, the nation's largest cable operator
and owns one of the most popular video content libraries in the world.
The power of these players is immense and so is the potential for anti-competitive behavior.
Therefore, I only voted to approve this merger because of the conditions we impose.
With the merger of AOL and Time Warner, we are seeing the creation of a new platform for
communications based on the Internet. Our challenge is to make sure that consumers get the full benefits of
this new world technology without importing the dangers of monopoly and bottlenecks from the old world.
We have met this challenge.

         SEPARATE STATEMENT OF COMMISSIONER SUSAN NESS
          Re:  Applications for Consent to the Transfer of Control of Licenses and Section 214
          Authorizations by Time Warner Inc. and America Online, Inc., Transferors, to AOL
          Time Warner Inc., Transferee
The marriage of America Online (AOL), the world's largest Internet service provider (ISP), and Time Warner,
the second largest American cable operator and a global content provider, creates not only the largest merger
in U.S. history, but also one of the most novel and complex this agency has ever faced.  It represents the
convergence of old and new media.  The energy and synergy derived from this combination have the potential
to provide consumers with a wealth of innovative new products and services.  If unchecked, however, this
corporate union also has the potential to exploit its considerable market power to stymie competition by
restricting the flow of competing goods and services over its broadband facilities.  For this reason, I voted to
approve the transfer of Time Warner's communications licenses with conditions.  I would not have supported
it otherwise.
The merger presents several novel issues for FCC consideration.  Four such issues were raised in challenges
to the grant of the transfer of control of applications filed by AOL and Time Warner.  Commenters urged us
to:
    Intervene to require AOL, the dominant provider of instant messaging (IM), to make its IM service
  interoperable with competing IM offerings;
    Examine whether the vertical combination of a major cable operator with the largest ISP necessitated our
  intervention to pry open the Time Warner systems to other ISPs, even though we had rejected such
  remedies;
    Intervene to protect competing content providers wishing to offer interactive television services over Time
  Warner cable facilities   novel services that are still nascent and not commercially available; and, finally,
    Reexamine whether the joint ownership of Time Warner Entertainment by AOL Time Warner and AT&T
  poses an unacceptable risk that the two joint venture partners would conspire to discriminate against other
  programming and service providers.
While we believe that we have jurisdiction to explore each of these matters, we limited our actions to address
specific harms caused or exacerbated by the merger of the applicants.  Moreover, we crafted remedies that
were merger-specific -- designed to address only merger-related harms.
Instant Messaging
Instant messaging is a relatively new, Internet-based service that provides presence detection and real-time
communication capabilities to subscribers.  I believe consumers overwhelmingly want competing IM services
to be interoperable.  I do, too.  The Internet has thrived upon principles of openness and connectivity. With
interoperability, consumers would have real-time access to more individuals and to competitive services.
Thus, I have strongly and repeatedly encouraged AOL and the other industry players to work together to
achieve interoperability as expeditiously as possible.
There is abundant evidence on the record that AOL, which developed the IM product, is the dominant provider
of that service.  In my view, however, it has earned that position for dial-up service through innovation and
hard work.  And most significantly for the purposes of this proceeding, regardless of the public interest in
interoperability, it earned that position outside of the context of this merger.
There are other major players competing aggressively against AOL to attract IM customers.  These
competitors include Microsoft, which has bundled its IM service with its operating system.  There is even
disputed evidence in the record that Microsoft and others recently have gained, not lost, market share in their
pursuit of IM subscribers.  Moreover, users of IM represent a small percentage of online consumers,
suggesting that the market is far from saturated.  There is nothing to prevent large user groups, such as
employment-based entities, from switching en masse from one IM provider to another if more attractive terms
are offered.  Thus, while our decision concludes that AOL is a dominant provider, it appropriately stops short
of finding that the market has "tipped" in AOL's favor.   We need not find that the market has tipped,
however, in order to address potential harm to consumers that could result from the merger of AOL's
dominant IM presence with Time Warner's assets.
AOL claims that it seeks interoperability, yet it appears to have resisted efforts to create an industry-wide
standard.  Indeed, its contributions to an industry-wide standards body were disappointing at best.  At our en
banc hearing on the merger, however, AOL reaffirmed its commitment to interoperability, and testified that
it expected to have a workable technical standard by July 2001, and the standard then would have to be tested.
It explained that any standard must take into account AOL's need to protect the security of its network and the
privacy of its subscribers.
I take AOL at its word that it will have a standard ready by July -- presumably one that addresses its privacy
and security concerns.  Thus, I supported a requirement that AOL submit a detailed report to the Commission
every six months on the actions it has taken to achieve interoperability in IM.  By AOL's own testimony, the
first interoperability report to be submitted under this Order should include a technologically detailed
description of a successful IM interoperability protocol or standard.  The Internet and technology community
at large will be able to evaluate the accuracy and thoroughness of AOL Time Warner's assertions when the
report is placed on public notice.  Should we conclude that AOL is not moving expeditiously toward
interoperability, we then can decide whether further steps in a proceeding of general applicability are
warranted.
While I do not believe that AOL has moved as rapidly as it could to resolve its privacy and security concerns,
I do not discredit these issues entirely.  It is reasonable for a company that features itself as a protected
community to be cautious about outside contamination.  AOL Chairman Steve Case correctly observes that
the e-mail system is riddled with security and privacy problems.  Nevertheless, it has been alleged that AOL's
IM products also suffer from security and privacy problems today.
We wisely decline to require interoperability on AOL's existing dial-up IM service because such relief would
not be merger specific.  Without interoperability, however, AOL should not be allowed to leverage its market
power in the dial-up IM market into the broadband market using Time Warner's content and facilities.  Our
restriction is based upon combining AOL's names and presence database (NPD) with Time Warner's
broadband facilities.  Thus, if AOL wishes to offer streaming video through IM using its NPD, it first will
have to open that database to other IM providers.
Many argue that NPD is at the heart of future real-time broadband services, such as streaming video and
video conferencing.  Assertions by several Internet and technology companies led me to conclude that the
development of communications services within the FCC's jurisdiction would be affected by the combination
of the NPD and broadband infrastructure.
Given the potential for abuse of market power and the importance of the services at issue, I supported
imposing conditions if they were merger specific and minimally intrusive to achieve the public interest goal of
interoperability.  The conditions meet those requirements.  They are incentive based.  We do not reach into
AOL's current IM offerings or establish through the heavy hand of regulation an interoperability protocol.
Rather, we create an incentive for AOL to achieve interoperability on its own terms.  By allowing AOL to
meet this condition by entering into interoperability agreements with three significant providers, we have
enabled AOL contractually to address its privacy and security concerns.
In addition, our condition reflects an understanding that technology is constantly evolving. The Commission
cannot presume to know what will come next.  A popular service or technology today, such as IM, may
become irrelevant tomorrow, if another technology captures the hearts and minds of the Internet public.  Thus,
we permit AOL to avoid mandatory interoperability if it can demonstrate that the market has changed
dramatically and the NPD no longer is at the core of new services.
I am realistic about the scope of our narrowly tailored conditions on AOL Time Warner, and recognize that
the restriction may be of limited consequence. The triggering factor may never be deployed.  Nonetheless, our
message is clear and I fully expect the merged company to live up to its representations to allow other
providers to interoperate with its IM product.
Our actions to address the IM interoperability concerns raised by members of the Internet and information
services community likely will be cited in the future whenever the Commission is called upon to consider
Internet service offerings.  I caution advocates against using this decision to justify invasive regulation of the
Internet.   Far from opening a Pandora's box of "information service" regulation, our action establishes that
the Commission will act in a merger only when essential to preserve the openness and connectivity of the
Internet and only when the issue is merger specific.  Moreover, in the rare instance where intervention is
necessary, the narrow scope of our conditions demonstrates that such action must be minimally intrusive,
technologically neutral, and market-based.
     V.   Cable Internet Access
The combination of AOL's dominant narrowband ISP service with the second largest cable operator in the
nation presented the clearest threat to competitive markets posed by this merger.  Our sister agency, the
Federal Trade Commission (FTC), took sweeping action to open AOL Time Warner's cable infrastructure to
competing Internet service providers.  I am pleased that the actions taken by the FTC and this Commission
were complementary and avoided inconsistent requirements.  I have long supported inter-agency coordination
as a way to expedite merger review.
The FTC used its antitrust and enforcement expertise to devise restrictions that address broad, anti-
competitive behavior. We used our technological expertise to address specific concerns created by the merger
combination, including first screen access and quality of service issues. We also require AOL Time Warner
to negotiate in good faith with local and regional ISPs so that a diversity of ISPs might have an opportunity
to serve cable subscribers.  These conditions operate in concert with those imposed by the FTC.
Our conditions are appropriately merger specific. I agree with recent industry assessments that the
uniqueness of this transaction counsels against importing our analysis and conclusions in this proceeding into
our separate Notice of Inquiry on cable access.
     VI.  Interactive Television
Many content providers urged this agency to impose conditions on AOL Time Warner to prevent it from
exercising its control over the cable infrastructure to impair competing interactive television services. The
advent of these services is still hypothetical and we were called upon to make assumptions about where the
market is heading.  We wisely declined to take action in this Order, recognizing that the issues raised have
implications for the industry as a whole and are more appropriately explored in a Notice of Inquiry.  While the
Commission and the public should remain watchful as these issues develop, we must tread cautiously and not
leave the impression that we are on the verge of pouncing on a nascent industry by imposing a detailed
regulatory regime.
     VII. Time Warner Entertainment and AT&T
While we are concerned about the potential for abuse by the partnership of the first and second largest cable
MSOs in Time Warner Entertainment, we decline to take action in this merger review to require AOL Time
Warner to resolve its divestiture discussions with AT&T.  I therefore urge Time Warner to negotiate in good
faith in any discussions with AT&T regarding the latter's disposition of its 25% minority stake in TWE.
     VIII.     Privacy
While occupying only a few short paragraphs of our 150-page Order, consumer privacy is an issue
that increasingly concerns me.  I wish to emphasize the importance I attach to this aspect of our
Order.  We require AOL Time Warner to regularly certify to the Commission its compliance with
the Communications Act's cable subscriber privacy provision.  While this section by its own
terms is enforceable in federal district court, rather than at the Commission, we should regard it as
an expression of Congressional concern for cable subscribers' privacy.  Under this provision,
cable operators must give a subscriber adequate notice that her personally identifiable information
is being used, and secure her consent for such use.
AOL itself raised privacy concerns with respect to IM interoperability.  AOL Time Warner is well
situated to be at the forefront of protecting consumer privacy as we enter a new era of
communications.  I hope this will be reflected in its section 631 certifications.
Conclusion
Media convergence   long awaited   clearly has arrived with the approval of the AOL Time
Warner merger.  From many quarters of industry and the public, we heard concerns regarding the
ability, the incentive, and the propensity of this powerful combination to thwart competition.  Our
response in this merger has been limited, yet purposeful.  The ball now is in AOL Time Warner's
court to demonstrate by its actions its willingness to allow all to compete fully and fairly in the
broadband marketplace for the benefit of the American consumer.

FURCHTGOTT-ROTH SUPPORTS MERGER,
BUT DECRIES REVIEW PROCESS AS "BROKEN"
Statement of Commissioner Harold W. Furchtgott-Roth,
Concurring in Part and Dissenting in Part
In re Applications for Consent to the Transfer of Control of Licenses and
Section 214 Authorizations by Time Warner and America Online, Inc., Transferors, to AOL Time
Warner, Inc., Transferee, Memorandum Opinion and Order
Because the proposed transfer of radio licenses from Time Warner to the new, combined entity does
not raise any compliance issues under any relevant statutory provisions or our numerous regulations, I find the
transfer clearly to be in the public interest.  I therefore concur in the grant of the license transfer applications.
     I cannot subscribe to any of the other aspects of this Order, however.  My general views on the proper
scope of the Federal Communications Commission's role in the mergers of communications entities are well
documented.  To summarize, I believe that our job under the plain language of the Communications Act is
to approve the transfer of radio licenses, not to pass on mergers.  The approval of such transfers should
depend upon compliance with extant regulations and applicable statutory provisions, not open-ended analysis
of the entities' businesses.
Unfortunately, the Commission in this Order continues to engage in just this sort of "merger" review.
The overwhelming bulk of this document has little, if anything, to do with the proposed transferee's use of the
CARS licenses that are the jurisdictional object of this proceeding.  Instead, the Order focuses on the
transferee's various lines of internet business, including instant messaging and interactive television.  And it
analyzes those business activities to see whether the entities' future conduct might "impair or frustrate the
objectives" of the Act.  At the end of the day, the Commission has speculated about as yet undeveloped facts
that are only tangentially related to license usage, and then applied to that conjecture a standard of review that
is virtually unknowable ex ante. As I have said before, this approach is fundamentally flawed.
     I am also troubled by a particular aspect of this proceeding: the coordination of efforts by this agency
and the Federal Trade Commission (FTC). To be sure, federal agencies may -- indeed, sometimes should --
communicate with each other about official government business.  What it should not do, however, is to
engage in such communication in a way that is not transparent and predictable.
Apparently, the FCC and the FTC shared deliberative documents with each other -- presumably for
the purpose of coordinating their efforts -- throughout the course of each agencies' proceedings.  This
interaction was not made public, which makes it difficult for interested commenters and even the parties
themselves to track important developments in the decisionmaking process.  Furthermore, at the outset of this
adjudication, the applicants had no notice of the extent or nature of the intergovernmental coordination that
ultimately ensued.  That is because we lack consistent, predictable procedures for working with other agencies
on mergers; such work is done on a purely ad hoc basis, depending on the personal inclination of individual
officials. The  approval process would be more fair to the applicants, and also more efficient for the FCC
staff, if the scope of the working relationships between this agency and other relevant entities were defined in
advance.
Of course, if this Commission had not tied its review to that of the FTC's in the first place, no such
coordination would ever have been necessary.  That is to say, if our review of the license transfer applications
were limited to compliance with extant FCC regulations and the Communications Act, there would be no
problem of duplication with the FTC, since it has no jurisdiction over those provisions of the law.  We would
be free to process applications in a timely fashion, fully independent of any action taken by the FTC.
For the foregoing reasons, I concur in the grant of the applications, but dissent from the remainder of
the Order, including the conditions imposed upon its approval.
                              ###
For more information regarding this release please contact Bryan Tramont, Press Liaison, Office
       of Commissioner Furchtgott-Roth at 202-418-2000.

         STATEMENT OF COMMISSIONER MICHAEL K. POWELL,
           CONCURRING IN PART AND DISSENTING IN PART
     Re:  Memorandum Opinion and Order, Applications for Consent to the Transfer of Control of
     Licenses by Time Warner Inc. and America Online, Inc., Transferors, to AOL Time Warner,
     Inc., Transferee (CS Docket No. 00-30)
The merger before us is one of the most significant in history.  It promises to open a new
chapter in communications, combining a host of assets and expertise that will likely bring new
products and services to consumers.  As one would expect, the very same things that engender
excitement and promise with this combination also raise anxiety and trepidation among competitors
that the market will be dominated by this new entity, to the detriment of competition and consumers.
The merger is also unique because it is difficult to review using traditional metrics.  The
greatest public benefits as well as the putative harms lie principally in the future, thus making any
analysis somewhat speculative and amorphous.  Our challenge is to base a decision soundly on
evidence that presently exists, on an understanding of the business dynamics of an Internet-centered
market, on a grasp of past experiences and on reasonable (and carefully limited) assumptions about
the future.  This is no easy task, but the key is not to let our imaginations run away with us, given
the absence of strong evidentiary moorings.
Unfortunately, in this Order, we do take excessive counsel of our fears, or, more accurately,
the fears of AOL Time Warner's competitors.  Therefore, I concur in approval of this merger but
dissent in several respects.  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.  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.  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.  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.
          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."   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.  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.
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,"
while trying to avoid concluding the market has in fact "tipped."  Whatever the semantics of its
conclusions, the Majority's market tipping analysis is a critical analytical underpinning for the IM
condition.  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.
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.  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.  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.  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.  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
nave.  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.
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.  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.  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."   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.  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.
Losing your buddies.  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.  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.  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.  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.  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."  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.
I have long been of the view that the telecommunications/information services distinction
is, in the long run, untenable.  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."
There may be a case for asserting our jurisdiction over IM services, and then finding that
they must interoperate as a matter of law, though I doubt it.  But such a grand conclusion should
only be reached after very careful and thoughtful deliberations and full comment by a wide range
of interested parties, which can only be achieved in a rulemaking proceeding.  The record here
and the limited comment are woefully insufficient for considering and anticipating the
reverberations of our conclusions.  This merger, involving only two members of the industry is
not an appropriate vehicle for taking our authority where the Majority does today.
B.   Achieving Interoperability Through Market Forces
Even assuming the merits of interoperability, which may be substantial, there is still a very
central question:  whether interoperability can only be achieved by government-intervention, or
whether market forces will produce the desired result.  I am concerned that in new and innovative
markets, the government will be too easily seduced to intervene prematurely, given the initial
excitement and promise (if not hype) of innovative offerings, the rapid pace of change in the
market, and competitors' natural anxiety (if not panic).
Increasingly, the variables of digitalization, broadband and the Internet are combining to
spurn entirely new products and services for communications.  These innovation markets are
marked by the fact that they are in their infancy and present challenges to understanding them.
For example, there is usually scant experience with the new markets that these forces are just now
spawning.   The products in these markets may be technically novel, making it difficult to
comprehend, and easy to exaggerate, or underestimate, their significance or the ability to offer
competing services.  And business models, business relationships and terms and conditions for the
market have yet to form fully.  In short, there is typically a period of extensive experimentation in
developing markets.  During this period, the lucky innovator will always be racing to take
advantage of having created the market and to gain and maintain market leadership.  Competitors,
likewise, often will be struggling to respond to a new threat.  Increasingly, one of their responses,
even in the largely unregulated Internet realm, is to seek the assistance of the government either
to intervene directly and impede the market leader, or to use the threat of regulation as business
leverage with that player.
Given the infancy and necessarily speculative nature of these markets, it is easy to be
seduced into believing that an ounce of early government intervention will prevent these markets
from catching an anticompetitive cold.  This view emphasizes how quickly a provider can gain
market share and market dominance.  Yet it is often overlooked that in the network effect,
innovation environment players often fall and die a fiery death just as easily as they ascend (see
the 2000 NASDAQ market), and the government should be careful not to let its imagination run
away with it.
That said, the more important question, even when there is some general agreement about
an operating or market paradigm such as interoperability or open standards, is whether the terms
and conditions for those regimes are better developed in the market through negotiation and
market responses, or by a regulator.  Given the experience of "regulatorily-derived" terms and
conditions (its plodding process, its high regulatory costs, its risk of distorting efficient
development, its political compromises), rarely should we leap to regulatory approaches without
compelling circumstances and strong confidence that the conditions are clearly absent for market
resolution through competition, business negotiation and innovation.  Moreover, it is hubris to
believe that regulators can (better than businesses) craft the optimal terms and conditions to
govern the fundamental rules for market operation, particularly where innovation is at a premium
and new and novel technologies are at stake.  The beauty of market mechanisms has always been
that the give and take among competitors and consumers produces an optimal set of terms and
conditions.  To say that these mechanisms will not work with respect to video AIHS before we
even know what these services will comprise seems to indulge regulators' fears, not to mention
our eagerness to "look tough" at the expense of sober reflection on the inconclusive record before
us.
The concern with premature intervention is also great where viable business models are
still being explored.  The Internet is a wonderful space, but producers are still struggling mightily
to find services and approaches that will allow them to prosper.  I am concerned about the
government labeling aspects of market activity as anticompetitive before we even have a fix on the
elements of a viable business.  Notions such as proprietary assets and exclusivity can surely rise to
anticompetitive levels, but they also are often the keys to profitability and viable business that
allow producers to serve consumers effectively.  The struggle for brand protection and strong
copyright protections in the Internet space by established businesses is animated by that very same
sort of concern.
Regulatory intervention can also divert companies from efforts in the marketplace to
battles in the halls of government.  When the government appoints itself referee, it provides a
venue to which competitors can run to gain market leverage, and to appeal even the most minor
market disputes.  This puts the government in the game on an ongoing basis.  I think companies
and regulators delude themselves into believing a regulator can act surgically a sharp quick
cut and then stay out.  One searches past experiences in vain for such an example, and I am
skeptical of our skill with the knife.
For these many reasons, I cannot support the Majority's decision to impose an IM
condition based on this record.
  SEPARATE STATEMENT OF COMMISSIONER GLORIA TRISTANI
Re:  Applications for Consent to the Transfer of Control of Licenses and
Section 214 Authorizations by Time Warner Inc. and America
Online, Inc., Transferors, to AOL Time Warner Inc., Transferee
I voted to approve the license transfers involved in the AOL and Time Warner merger because the
conditions imposed to serve the public interest were the best that could be achieved under the
circumstances, and tipped the balance narrowly in favor of approval.  I urged my colleagues to adopt open-
code interoperability as a fundamental component of the public interest in the Internet communications era.
I believe that interest compelled the merged company to achieve, and publish, interoperability protocols by
a date certain.  I write separately to distinguish the outcome for which I cast my vote, from the policy of
Internet openness I urged.
1.I.Framing the Internet Openness Problem Presented by this Case
          But if I bought a radio and found that it accessed only certain stations and
          not others, I'd be upset.  I suppose I could have a half dozen radios, one
          for each set of stations.  It makes no more sense to have a half dozen
          computers or different operating systems or browsers for Web access.
          This is not just impractical; it fragments the Web, making it cease to be
          universal.
What began as an inquiry into the blocking of text-based instant messages ("IM") sent to AOL
customers, became instead an inquiry into whether the migration of this business practice, and the
proprietary code upon which it depends, to Time Warner's cable platform, would contravene the public
interest in an open, interoperable Internet. We concluded the evidence in the record demonstrated AOL's
business practice of controlling the flow of information to and from its customers would create
unacceptable bottlenecks in the broadband world of high speed, interactive communications services.
AOL's use of proprietary code to filter out both unwanted incoming and outgoing messages
confronted this agency with a new digital-era problem: communications infrastructure control that is no
longer limited to opening or closing access to physical networks.  The marriage of cable network hardware
with the proprietary protocols necessary to access the virtual network of listeners and speakers using the
Internet provides the possibility of complete control over a consumer's incoming receipt of content and
outgoing speech.  Because the record disclosed this code is an essential input for the future development of
many, if not most, new IM-based services, and these new services will require cable modem access to the
broadband pipe provided by the Time Warner network, the extent of the future threat was readily
cognizable.  This Commission has not previously confronted a situation where a corporate consolidation
squarely presented a commercial party's refusal to allow its system to interoperate with its competitors
thereby distorting a worldwide pathway of communication.
     A.   Factual Background of the Parties' Physical and Virtual Networks
       1. The Physical Network Assets
Time Warner, the second largest cable provider in the country, serves 12.7 million subscribers
through cable systems that pass approximately 21 million homes and serves approximately 18.9 % of the
67 million cable subscribers nationwide.  Time Warner also offers Internet access over its cable systems
through Road Runner, a joint venture that provides high-speed Internet access and content optimized for
broadband networks to more than 1.1 million subscribers. Time Warner serves businesses through Time
Warner Telecom, Inc. ("TWT"), a facilities-based communications provider serving large businesses.
TWT offers businesses "last mile" broadband connections for data, high-speed Internet, local voice and
long-distance services. TWT is certified to offer telecommunications services in 21 metropolitan areas in
12 states.
       2. The Virtual Network Assets
AOL is the world's largest Internet Service Provider ("ISP"), and serves about five times as many
narrowband subscribers as its nearest competitor.  AOL's large subscriber base and its ability to attract
and hold its members to the services and information provided by AOL itself, as opposed to having them go
to other sites on the World Wide Web, is highly valued.
Instant messaging, in its current form, enables the almost instantaneous exchange of short, private,
individualized text messages over the Internet between two users each of whom is on the other's "buddy
list." AOL has an estimated 150 million users worldwide on its IM services.  More than 30 million
individuals use IM at least once a month, and AOL transmits almost five times as many IMs a day as it
does e-mails.
An essential input to an IM service is the provider's Names and Presence Database or "NPD."
The names and presence detection information enables users to know other users are online or available and
permits messages to be addressed and delivered.  The actual NPD consists of two parts.  First, it is a
database of the users' unique IM names and addresses and, second, it has a "presence detection" function.
Presence detection is the IM provider's knowledge, and its ability to inform others, that a particular user is
online and the bandwidth capacity of that user.  This also signals that the user is available to engage in
instant information exchange.
The NPD is the asset that allows a virtual communications network for persons who have
requested participation in the network to exchange communications in real time with other users.  Use of an
NPD, together with the high bandwidth infrastructure provided by the cable network, will transform the
Internet experience by replacing today's static pages of information with dynamic and interactive
content.  The Report and Order characterized these new applications and services as advanced IM-based
high-speed services ("AIHS").  It is these services that were the focus of the interoperability condition.
B. The Instant Messaging Market has "Tipped" Towards an AOL Monopoly
The market in text-based instant messaging is characterized by strong "network effects," i.e., a
service's value increases substantially with the addition of new users with whom other users can
communicate.  AOL, by any measure described in the record, is the dominant IM provider in America.  It
was also uncontested that AOL has consistently resisted interoperability with other non-licensed IM
providers.  AOL's market dominance in text-based messaging, coupled with the network effects and its
resistance to interoperability, has established a very high barrier to entry for competitors that contravenes
the public interest in open and interoperable communications systems.
Recent literature suggests that near monopoly outcomes in markets exhibiting strong network
effects are "tipped markets."  Here, we declined to opine "whether the factual conclusions [regarding
text-based instant messaging] in this Order can be characterized as amounting to a tipped market or
not."  However, in 1999, various non-AOL IM providers repeatedly attempted to gain access to AOL's
NPD in order to pass messages between customers of AOL and other services.  AOL blocked these
attempts.  At the en banc hearing in this proceeding in July 2000, AOL's representatives said that
protocols that allowed the messages to flow freely could not be achieved until July 2001 at the earliest.
AOL's competitors contended AOL could have ceased blocking competitor's messages immediately and
achieved open protocols for interoperability in less time.  AOL's stark refusal to interoperate with its
competitors, and the timeline for achieving interoperability cited at the en banc hearing, represented an
apparent change in strategy.  The most reasonable inference was AOL's strategy switch from openness
to blocking was a business decision rather than one based on technical concerns.
If AOL's competitors, taken together, represented marketshare close to AOL's size, an equilibrium
would have existed that would have made interoperability the most effective business strategy for all
competing services because interoperability would have provided access to the maximum number of people.
Each service would thereby be more useful and valuable because its users could have accessed more
people.  However, if one of the interoperating providers wanted to dominate the market, it could close its
network and adopt a strategy of refusing to interoperate.  Such a business practice would seem to make its
service less valuable and hurt its users by cutting them off from the bigger, interoperating network of users.
But, if the provider refusing to interoperate had a big enough share of the market prior to refusing to
interoperate, any loss in value or harm to its business would be relatively slight because its customers
would still be able to reach most other users.  And when it closed its network to the clients of the smaller
providers, the refusal to interoperate would result in defections from the smaller services to the dominant
one.  This would further swell the dominant provider's NPD and shrink the smaller ones.  Without
interoperability no smaller provider could catch up to the largest one.
This is precisely the business strategy that a premerger AOL undertook.  Under these conditions
AOL's strategy of refusing to interoperate was profitable because the incentive to switch to the largest
provider could hardly be resisted.  The economic and antitrust literature generally acknowledge that the
only motive for a provider to close its network and refuse to interoperate is to cause the market to tip in its
favor.  After the point of tipping has been passed, the largest network will continue to grow at the expense
of the smaller networks until it is the dominant network, perhaps possessing monopoly control.  From that
point forward, the dominant network remains dominant, not necessarily because it charges the lowest
prices, offers the best quality, or offers innovative features that customers want, but simply because in the
past it gained the most users.
This is not merely sharp business practice--it contravenes well-settled federal communications
policy that is equally applicable to a virtual communications pathway as to a physical one.  As the
Supreme Court said many years ago,
          The First Amendment's command that government not impede the freedom
          of speech does not disable the government from taking steps to ensure that
          private interests not restrict, through physical control of a critical pathway
          of communication, the free flow of information and ideas.
A premerger AOL demonstrated both the ability and the economic incentive to exploit its
proprietary protocols and its large subscriber base to position itself as an informational gatekeeper.  Based
on the foregoing, and in particular on AOL's change from a policy of interoperability and openness to
blocking incoming and outgoing communications, I would have concluded the narrowband IM market had
tipped.  Because the "tipped market" will more likely than not persist in the broadband space, the record
called for a mandate compelling meaningful Internet openness in the broadband space by a date certain.
The principle of openness I urged here, has been elegantly expressed elsewhere:
          Competition should be the policy. And code that enables competition
          should be the rule.
The new company's control over both the network served by Time Warner's cable plant and the
code-based NPD applications of AOL, when combined with the aforementioned business practices,
established it will possess virtual and physical bottlenecks in the new world of high speed services. New
applications that require real time functionality will require an NPD to work, thus an NPD encased in a
proprietary-code shell means the owner controls a virtual bottleneck analogous to the cable operator's
control over its physical network.  This Agency's history and Congressional directives in the 1996 Act
compelled us to closely scrutinize and ultimately reject such an outcome.
II.  An Open and Interoperable Internet Serves the Public Interest
          Incompatibility between computers had always been a huge pain. . . . .the
          real world of high energy physics was one of incompatible networks, disk
          formats, data formats, and character-encoding schemes, which made any
          attempt to transfer information between computers generally impossible.
          The computers simply could not communicate with each other.  The Web's
          existence would mark the end of an era of frustration.
Widely regarded as the creator of the Internet, Tim Berners-Lee has repeatedly stressed the
Internet's openness and interoperability as its principal feature and virtue.  From its inception the Internet
was designed to avoid the interoperability problem that we confronted in this case.  Like the legacy
industry examples used by Mr. Berners-Lee, the Internet is a communications network; unlike the
communications networks before it however, the Internet depends on both physical interconnection and
code-based interoperability.
          A.   Interoperability Furthers Competition and is Consistent with Congressional
          Objectives of an Open and Vibrant Internet
Several extant congressional objectives support an open and vibrant Internet.  First, Congress
established a clear national policy to "promote the continued development of the Internet" and "to preserve
the vibrant and competitive free market that presently exists for the Internet and other interactive computer
services unfettered by Federal or State regulation."  Concurrently, Congress charged the Commission
with "encourag[ing] the deployment on a reasonable and timely basis of advanced telecommunications
capability to all Americans."  Deployment of such capability facilitates the use of advanced services, of
which residential high-speed Internet access services are one kind.
In addition to explicit provisions regarding high-speed services and the Internet, concerns about the
integration of video programming content and the cable conduit are contained in statutory provisions and
Commission rules, such as the horizontal ownership cap and the channel occupancy rules.  Thus, apart
from a competition analysis, the public interest impact of combining AOL's virtual, code-based network
assets as described above, with the extensive cable and content assets of Time Warner compels a policy
that considers inter alia, "cable communications provide and are encouraged to provide the widest possible
diversity of information sources and services to the public," and "promot[ing] competition in the delivery
of diverse sources of video programming."
Finally, the Supreme Court has repeatedly emphasized the Commission's duty and authority to
promote diversity and competition among media voices: "It has long been a basic tenet of national
communications policy" that "the widest possible dissemination of information from diverse and
antagonistic sources is essential to the welfare of the public."  The Commission's interest in "promoting
widespread dissemination of information from a multiplicity of sources" is "an important governmental
interest."
          B.   The Condition Imposed in this Case Seeks to Preserve Internet Openness and
          Serves the Policies Favoring Competition
The Report and Order bars the merged company from offering a new service that utilizes both
AOL's NPD and Time Warner's cable assets until it has achieved interoperability with at least some of its
competitors.  Thus, the outcome most threatening to the free flow of information and consumer choice,
where the tipped market in the text based instant messaging world migrates to the broadband world of high-
speed services, would appear to be mitigated if not avoided.  But, the best public interest outcome,
maintaining the openness that has characterized the Internet since its inception, was not guaranteed. The
condition, rather than ensuring the best outcome, instead sought to avoid the worst.  It is in this sense that
my approach differed from my colleagues.
First, under the bar-the-worst-approach, the new company may decline to offer the new service that
triggers the requirement that they achieve interoperability.  Under this scenario there is no interoperability
and little, if any, public interest benefit arising from the condition.
Second, if the merged company chooses to offer the new service, they may do so by entering into
contracts with no less than three competitors who offer NPD-based services.  This outcome achieves
contractual interoperability rather than code-based interoperability.  In other words, if the competitors
agree to use the merged company's proprietary code, they actually expand the market-domination of this
code rather than interoperate with that code.  This is not open interoperability like that which makes email
work today.  To the extent applications running on AOL's proprietary protocols proliferate, the
applications consumers desire will likely be bound in some way to AOL and its contractors.  If these
protocols are proprietary and closed, the competitive landscape of the Internet world might soon look like
the competitive landscape of the software operating system world.  Because the Internet is a critical
pathway for information dissemination, this outcome would foreshadow precisely the kind of improper
private control of communications infrastructure the Supreme Court has repeatedly rejected.
Third, the merged company may offer the new, high-speed service using its combined assets if it
achieves server to server interoperability using a public, published protocol that bears the approval of
appropriate international standard setting bodies.  This is the outcome that best serves the public interest in
open communications systems, provides consumers with the maximum number of choices and most
completely deconstructs the "tipped market" that favors anti-competitive business practices.  It is the only
outcome in the Order that ensures interoperability based on open, non-proprietary code.
I supported the overall scheme adopted in the Report and Order, in part, because it also set forth
several policy features applicable in future mergers.  First, we soundly rejected private, corporate control of
the Internet protocol pathway.  Second, we rejected the facile assumption that business practices based on
proprietary code that create informational bottlenecks on the Internet somehow serve the public interest.
Third, the merged company must achieve interoperability at the time it seeks to utilize its combined assets,
and not before.  This avoided a ham-handed result (not unknown in general rulemakings in the world of
converged technologies) that would be inconsistent with our obligation to carefully tie the condition to the
facts of the case.  Fourth, if the commercial realities in the converging broadband space discussed in this
record have materially changed, and clear and convincing evidence establishes the public interest in
maintaining the bar on the new service offering has thereby dissipated, relief from the terms of the Order is
a fair outcome for consumers and the parties.
     III. Conclusion
Ensuring the continued viability of an open, interoperable Internet does not constitute "regulation"
in the traditional sense.  Ensuring interoperability, far from regulating the Internet, actually blocks de
facto regulation of the Internet by a private corporation through a combination of a cable bottleneck,
proprietary code, network effects and the high consumer cost of switching to a competing service.
Interoperability combats centralized control of speech and ultimately, severely restricts both government
and corporate power to control the speech transmitted on the Internet. Arguing against interoperability in
this case is akin to arguing against the pro-competitive, interconnection policies the FCC has historically
pursued and that are present in the requirements in the 1996 Act.
The rise of the commercial Internet, as this case demonstrates, does not confound application of the
existing federal policies that require interconnection and interoperability of communications systems.  In
fact, ensuring code-based interoperability goes hand in hand with the Commission's fundamental obligation
to ensure that our communications infrastructure serves the public interest, assists the development of the
Internet, and sparks competition and innovation.  The mandate that such systems serve the public interest,
in the context of this case, compelled action to ensure that the Internet remains open and vibrant.  Here, we
took the initial steps towards preserving that openness.  Only time will tell whether these efforts will be
sufficient.