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[Senate Hearing 106-1003]
[From the U.S. Government Publishing Office]

                                                       S. Hrg. 106-1003

    THE AOL/TIME WARNER MERGER: COMPETITION AND CONSUMER CHOICE IN 
              BROADBAND INTERNET SERVICES AND TECHNOLOGIES

=======================================================================

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 29, 2000

                               __________

                          Serial No. J-106-66

                               __________

         Printed for the use of the Committee on the Judiciary

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
72-845                     WASHINGTON : 2001

                       COMMITTEE ON THE JUDICIARY

                     ORRIN G. HATCH, Utah, Chairman
STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania          JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona                     HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio                    DIANNE FEINSTEIN, California
JOHN ASHCROFT, Missouri              RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan            ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama               CHARLES E. SCHUMER, New York
BOB SMITH, New Hampshire
             Manus Cooney, Chief Counsel and Staff Director
                 Bruce A. Cohen, Minority Chief Counsel

                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

DeWine, Hon. Mike, a U.S. Senator from the State of Ohio.........     5
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......     1
Kohl, Hon. Herbert, a U.S. Senator from the State of Wisoconsin..     6
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     3

                               WITNESSES

Case, Stephen M., Chairman, Chief Executive Officer, America 
  Online Inc., prepared statement................................     8
Levin, Gerald M., Chairman, Chief Executive Officer, Time Warner, 
  Inc., prepared statement.......................................    16

                                APPENDIX
                         Questions and Answers

Responses of AOL/Time Warner to Questions from Senator Leahy.....    55
Responses of AOL/Time Warner to Questions from Senator Thurmond..    61
Responses of Steve Case to Questions from Senator DeWine.........    64
Responses of AOL/Time Warner to Questions from Senator Kohl......    66

 
 THE AOL/TIME WARNER MERGER: COMPETITION AND CONSUMER CHOICE IN BROAD-
                BAND INTERNET SERVICES AND TECHNOLOGIES

                              ----------                              

                       TUESDAY, FEBRUARY 29, 2000

                                       U.S. Senate,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 1:06 p.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Orrin G. 
Hatch (chairman of the committee) presiding.
    Also present: Senators Specter, Grassley, DeWine, Abraham, 
Leahy, Biden, Kohl, Feinstein, Feingold, and Torricelli.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
                       THE STATE OF UTAH

    Chairman Hatch. If we could have your attention, we will 
get this committee hearing started.
    Good afternoon, and welcome to this hearing on the proposed 
AOL/Time Warner merger and its effects on competition and 
consumer choice in broadband Internet services and 
technologies.
    I first would like to thank sincerely both of our 
distinguished witnesses today for their time and cooperation. 
It is my hope that with this hearing we will better understand 
what this particular merger between one of the premier 
entertainment conglomerates and the premier Internet service 
provider means for competition and consumer choice for Internet 
services and content, including interactive television, and 
telephony.
    To get a full understanding of the array of issues 
implicated by this merger, I believe it will be important to 
have the benefit of the views of those affected by this merger, 
in addition to the two merging companies. To that end, I intend 
to hold at least one additional hearing in the coming weeks to 
hear from consumer groups, technology and antitrust experts, 
and others with an interest in broadband and the potential 
consequences of this particular merger.
    As I have said before, competition is essential to both the 
future of the Internet and continued innovation in the high-
technology world. It is competition that has created a robust 
Internet economy and its constituent enhanced services that we 
are enjoying today. Companies and venture capitalists alike 
have made unprecedented investments in new Internet products, 
services, and technologies. Continued growth in this area is 
vital not only to our economy but to our global leadership in 
the information technology sector.
    Today's hearing is really about the next chapter in the 
development of technologies that will liberate individual 
consumers to seek and obtain content. High-capacity Internet 
promises to allow anyone, regardless of wealth or market power 
or viewpoint, to deliver his or her perspective for the world 
to see and hear. In short, the Internet's paradigm-shifting 
characteristics make it the ultimate First Amendment-enabling 
technology. And I will repeat that. The Internet's paradigm-
shifting characteristics make it the ultimate First Amendment-
enabling technology.
    Now, two of the readily apparent policy questions we will 
explore today are, one, given that AOL will also become the 
second largest holder of the cable pipelines in the United 
States, is the company in a position to leverage this powerful 
infrastructure asset to unfairly compete against competitor 
Internet service providers by, ``directing,'' its cable 
customers to take AOL service; that is, will consumers have 
unfettered freedom to choose who provides their Internet 
services?
    And number two, given the new company's ownership of the 
cable pipelines and status as the dominant Internet service 
provider, will consumers be free to choose their content 
without pre-selection over the Internet, or will the merged 
company's significant Time Warner content holdings be favored 
and, ``ushered,'' to the consumer through technical price 
discrimination or by requiring users to pass through a 
proprietary first screen? In other words, will Internet 
consumers be led into content cul-de-sacs owned and operated by 
Time Warner? That is a question that has arisen.
    These are important and serious questions. They have 
implications not only for the technologies we are witnessing 
today, but for the environment necessary to the inexorable 
development of the next new thing. As I have said before, the 
most significant danger to the promise of the Internet is the 
possibility that a single company or a handful of companies 
control who can access or deliver applications and content for 
the Internet or over the Internet.
    I believe that this danger exists whether the ownership is 
concentrated in the architecture, the hardware, the content, or 
operating systems needed to navigate broadband architecture. As 
such, I invite both of you to continue your cooperation with 
the committee to try and address any market distortions that 
would prevent entertainment, software, telephone, or cable 
companies from entering the race to bring cheaper, better 
technologies to the consumer. In the end, we need to determine 
what is best for the American public.
    Before I turn to our ranking member for his opening 
remarks, I want to comment on the Memorandum of Understanding 
between Messrs. Case and Levin, which I learned of last night 
and read about in this morning's newspapers. Some of what I 
have heard sounds good, but I believe a degree of healthy 
skepticism is in order, given what is at stake here.
    A cynic could question whether, not unlike vapor-ware, the 
promises presented in this document will ever materialize in 
the marketplace. Indeed, the first paragraph of this 
promotional document makes it clear that it is neither binding 
on the parties nor is it definitive.
    The committee was informed that this document was developed 
and drafted without any input from the competitor ISP's or 
consumers the parties profess to be championing. Given that 
this document lacks both enforceability and specificity, this 
committee remains to be convinced of its value beyond the board 
room and public relations offices of AOL/Time Warner.
    Doubts concerning the resoluteness to, and vagueness of, 
this memo could be overcome should our witnesses agree to 
condition the approval of this merger or the transfer of any 
licenses by the FCC on AOL/Time Warner's compliance with the 
promises made therein and its yet to be articulated terms.
    I look forward to today's testimony, and I am particularly 
anxious to listen to two of the great leaders in this world in 
these areas and people I have tremendous respect for and 
naturally would like to help in the process.
    So we will turn to our ranking member, Senator Leahy.

  STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE 
                        STATE OF VERMONT

    Senator Leahy. Thank you, Mr. Chairman. The proposed merger 
reminds me of A Tale of Two Cities, with the portents of either 
the best of times or the worst of times, as yourecall the 
opening sentence in Charles Dickens' great classic. So we get to ask 
questions today to shed light on this proposal and the future.
    I ask whether this merger of the largest online service 
provider with a global information and entertainment giant will 
give consumers exciting new choices of multi-media content and 
e-commerce applications over their combination TV and computer 
screen?
    To put this in concrete terms, I was trying to think of 
some of the things it might mean to me. In fact, right now I am 
getting some comments from my office over my wireless laptop 
about the hearing and what you have been saying, Mr. Chairman, 
and they are very good comments. I will let you read them 
after; that is the only kind of comments we would allow.
    Chairman Hatch. I often wondered how he stays up on things.
    Senator Leahy. Well, as you know, I have always said that 
we Senators are merely constitutional impediments to the staffs 
and they are the ones who actually run things. You will notice 
that the staffs behind us are trying to keep a straight face 
after that.
    But I am thinking of this. I am at home and I am using a 
single screen and I am sitting there with my remote and I might 
be watching the latest Batman movie. I pause the movie to check 
my e-mails. I might want to coordinate online a family reunion 
with my children in Vermont and my son and daughter-in-law in 
California. I might simultaneously use instant messaging 
technology to find and purchase the cheapest airplane tickets 
for everybody to get together for the reunion. Then I can 
return to the movie without having lost any spot in it, and 
then finish up with a cut from my favorite Grateful Dead album 
or Carlos Santana's ``Supernatural.''
    Now, all of these things are all very possible, and that 
could be the good part, being able to do all these things. The 
thing we do worry about is whether the consequences of this 
merger will be that consumers will see their choices of 
Internet service providers dwindle and their viewing and 
listening choices over high-speed cable lines limited or 
directed just toward AOL or Time Warner's favorite content.
    Will customers of the conglomerate company get a single 
bill that will bundle the cost of high-speed Internet access to 
AOL, AOL Instant Messenger technology, access to Time Warner's 
music and video programming catalogues, but then penalize 
purchases from other sources?
    If customers want to use an alternative Internet service 
provider or listen to a Grammy Award winner who is not a Time 
Warner artist, will they have to pay more or wait longer, or 
find it more difficult to get them?
    As somebody said, together, AOL and Time Warner have the 
potential to cross-exploit and cross-promote their assets to 
create a media monster. Push the Time Warner content through 
the AOL gateway and the AOL content through the TV screen. 
Senator Hatch referred to this too--is this the potential?
    I cautioned when this merger was announced several weeks 
ago that we would all want to see whether this expands the 
promise of the Internet age or does it constrain it. That is 
why we have to look into the future. And I do want to thank 
both Jerry Levin and Steve Case for coming here today to talk 
about what they envision for the future, and I appreciate all 
the time you have spent with me in preparing for this and 
trying to answer the questions that I have raised. So we are 
going to ask about what this means to other Internet service 
providers. We can find out how it could translate into non-
discriminatory arrangements for Internet service providers, 
content providers, and others.
    And then lastly, Mr. Chairman, I want to explore the issue 
of privacy. As we move ever closer to the time when our TV 
watching, our Internet surfing, our electronic messaging and 
shopping take place over the same device, kind of like the 
scenario I discussed earlier, it is going to be much easier to 
track what our personal tastes are and what our activities are 
like.
    Every time we hit a button, somebody could well know what 
kind of films we like, what music we like, what sort of things 
we want to buy, what our financial status is, and what we 
purchase and don't purchase, and even who we communicate with 
regularly. Advertisers would think this is a gold mine. Many 
individuals might think it is nobody else's business, and that 
is what we have to look at.
    So I do want to hear how technology is going to be our 
servant and not our master, and how you are going to protect 
privacy. Technological progress is good. Conglomeration and 
globalization can often be very good, but it should not make us 
sacrifice the privacy we all hold dear.
    So, Mr. Chairman, I thank you for doing this, and I also 
thank our two witnesses for being here.
    Chairman Hatch. Well, thank you, Senator.
    We will turn to the chairman of the Antitrust Subcommittee, 
Senator DeWine, for a short statement, and then we will finish 
with Senator Kohl, the ranking member.

STATEMENT OF HON. MIKE DeWINE, A U.S. SENATOR FROM THE STATE OF 
                              OHIO

    Senator DeWine. Thank you, Mr. Chairman, for holding this 
very important hearing.
    This merger is valued at approximately $185 billion, the 
largest in history, and for that reason alone I believe that it 
deserves very careful scrutiny from this committee and from the 
antitrust agencies. But it is not the size, Mr. Chairman, of 
this deal alone that makes it important. It is the fact that 
the deal will bring together two giants from two very different 
industries and two very important industries, merging the 
dominant Internet provider and the largest media company in the 
world.
    The conventional wisdom is that this merger also raises no 
antitrust problems because AOL is for the most part a company 
that provides Internet access and Time Warner is a provider of 
information and entertainment. As chairman of the Antitrust 
Subcommittee, I agree that the deal at first glance does not 
appear to pose the traditional antitrust concerns raised by a 
merger between two directly competing companies. But the more I 
examine the deal, the more I am convinced that it does raise 
very significant competition and public policy issues that must 
be thoroughly explored.
    The merged AOL/Time Warner, if it lives up to the 
expectations of Mr. Case and Mr. Levin, will set the tone for 
the Internet of the future. It will help determine which new 
applications, products and services will be available online. 
It will help determine how the architecture of the Internet 
develops, and in some instances it will help determine which 
companies are allowed to compete with it.
    Competitors will be forced to react to the vast reach and 
power of AOL/Time Warner either by working with themerged 
company or by finding merger partners of their own. In fact, it is 
believed that this deal is merely the opening round in a series of 
mergers and acquisitions that will reshape the competitive landscape of 
the Internet and of traditional media, increasing the size and 
decreasing the number of competitors in each market.
    Another important issue raised by this deal is whether it 
will limit the give-and-take of the Internet, whether it will 
impede the free flow of ideas and expression that has helped 
make the Internet a strong counter-weight to the traditional 
media outlets. There are some who have expressed concern that 
companies such as AOL will steer consumers to their preferred 
media outlets, with the effect of slowly squeezing out the many 
smaller voices that the Internet has until now allowed to 
flourish. We must be careful, Mr. Chairman, to avoid this 
result, and work to maintain diversity in the so-called 
marketplace of ideas.
    The proposed merger also generates some concerns in the 
more traditional old media market. As conglomerate media 
providers such as Time Warner become larger and larger, it 
raises questions about exactly how they will be able to 
continue their journalistic tradition of unbiased reporting and 
whether the public can safely continue to rely upon the 
objectivity of news organizations that have such wide-ranging 
business interests. I have discussed this important issue with 
both members of the panel in the past and I look forward to 
continuing that dialogue today.
    Mr. Chairman, as is clear from my statement, I believe that 
there are many competition and public policy issues raised by 
this deal, and we must carefully examine all of them. But more 
than any specific concern, I believe we must work to preserve 
the fundamentally open nature of the Internet. The power and 
the value of the Internet is that it offers almost unending 
choice to those who use it. The Internet is thousands of 
different things to thousands of different people, and that is 
why it has become such a strong engine for innovation and for 
economic development.
    Mr. Case and Mr. Levin are here today to sketch for us 
their vision of the Internet of the future. As policymakers, 
our job is to make sure that they have a fair opportunity to 
pursue that vision. But we must be equally careful to make sure 
that others have a fair opportunity to pursue their vision as 
well. I look forward to hearing the testimony of the witnesses.
    Mr. Chairman, that is my opening statement, but I would 
like to take just a moment to show how I think Main Street 
views this merger and all of the other mega-mergers that have 
occurred lately. I think the best illustration of some of the 
issues we will face today is by one of my favorite 
illustrators, and that is Jim Borgman, of the Cincinnati 
Inquirer. I guess some in the audience can read that from a 
distance.
    The first cartoon shows a toaster saying, instead of you 
have got mail, ``you have got toast.'' And the second cartoon 
shows a man trying to buy a hamburger at a fast-food drive-
thru, and when he places his order he is asked, ``Do you want 
cable with that?'' I think these two cartoons show that many 
Americans are a little bit uncomfortable, Mr. Chairman, with 
the size and the reach of this deal, and I am sure we are going 
to explore many of these issues in a moment.
    Thank you very much.
    Chairman Hatch. Thank you.
    Senator Leahy. I hope you noticed, Mike, than when you put 
up the first one, one of the witnesses shook his head ``yes.'' 
[Laughter.]
    Chairman Hatch. Senator Kohl, the ranking member on the 
subcommittee.

 STATEMENT OF HON. HERBERT KOHL, A U.S. SENATOR FROM THE STATE 
                          OF WISCONSIN

    Senator Kohl. Thank you, Mr. Chairman. Our hearing today 
will be important for Mr. Case and Mr. Levin, but it will be 
even more important for the American people. On their behalf, 
we will be talking with you about what the merger between AOL 
and Time Warner is likely to mean to the development of the 
Internet, the telecommunications industry, the media, and most 
importantly the American consumer.
    Indeed, this may be the only such conversation we will ever 
have with regarding the consequences of your merger. So we must 
make an extra effort to ensure that we understand this deal, 
and you must make an extra effort to help us do that.
    Mr. Case and Mr. Levin, less than 2 months ago your two 
companies, the dominant Internet service provider with more 
than 20 million subscribers and the Nation's leading vertically 
integrated media company, stunned the world with your 
announcement of the largest merger in American history, a deal 
valued at over $160 billion.
    To many, this marriage between the old and the new media 
signifies a fundamental restructuring of our Information Age 
economy. From an antitrust perspective, my sense is that your 
merger is likely to pass, in whole or part, at both the FTC and 
FCC. After all, your two companies are mainly engaged in 
complementary rather than competing businesses, and combining 
them has the potential to provide some tangible benefits to 
consumers.
    Nonetheless, the AOL/Time Warner deal does raise a whole 
host of important public policy and competition questions, ones 
that need to be addressed before your deal is consummated. 
These questions include, number one, how will AOL/Time Warner 
maintain its commitment to give other Internet service 
providers open access to broadband cable pipe? Is there a 
capacity limit, and how many competitors constitutes openness?
    Two, will AOL/Time Warner's combined clout create an 
incentive to give itself preferential treatment as a provider 
of content and programming?
    Number three, will television networks, music companies, 
publishers, other media companies and Web portals, especially 
the smaller and start-up ventures that aren't vertically 
integrated, be able to survive without further consolidation?
    Four, will placing the Time Warner news outlets under the 
AOL corporate umbrella enhance the distribution of news or 
could it erode a proud tradition of independent journalism?
    And, five, whatever happened to the notion of the Internet 
as a competitor to existing media? Will the thousands of 
flowers of Internet voices continue to bloom in a consolidated 
marketplace?
    Finally, this deal appears to continue a troubling trend, 
the emerging American keiretsu of interlocking relationships 
among the major media, Internet and telecom entities. This 
complex web of cross-ownership includes AT&T's significant and 
growing stake in Time Warner, itslargest cable competitor; 
AT&T's one-third interest in Cable Vision, another large cable company; 
and AOL's interest in satellite television provider DirecTV, a service 
which competes head-to-head with cable systems.
    In my opinion, you will have to sell DirecTV. A cable 
company shouldn't have a stake in a direct competitor. And the 
FTC and the FCC need to take a long, hard look at what this 
high degree of overlapping ownership does for and to consumers. 
I recognize that these concerns must be balanced with the 
benefits promised by this merger, including improved 
distribution of all forms of media and a quicker deployment of 
broadband technologies.
    But in considering an acquisition like this, we need to pay 
attention to its effects on the marketplace of ideas and not 
merely the marketplace of money. No less an authority than you, 
Mr. Case, has recognized that, ``If we want to continue the 
Internet's exciting and explosive growth, the best interests of 
consumers must remain our focus.'' Of course, I agree. Our 
fundamental concern should always be preserving competition and 
the widest array of consumer choices possible, and that is our 
focus today, Mr. Case and Mr. Levin. We look forward to hearing 
from you.
    Thank you, Mr. Chairman.
    Chairman Hatch. Well, thank you, Senator.
    Today, we have only one distinguished panel of two before 
us. These two gentlemen, I am sure, need no introduction, but 
let me introduce them anyway.
    Our first witness is Mr. Steve Case, Chairman and CEO of 
America Online. Since Mr. Case cofounded AOL in 1985, the 
company has experienced monumental growth. AOL operates two 
worldwide Internet services, with over 21 million members, and 
numerous other Internet brands. Under Mr. Case's leadership, 
AOL has become the world's leading Internet services company, 
and we commend you for that.
    Our second witness is Mr. Gerald Levin, Chairman and CEO of 
Time Warner. Mr. Levin joined Time, Inc., in 1972 and was the 
leading architect of the Time Warner merger. He is recognized 
as one of the pioneers of the cable industry. He became CEO of 
Time Warner in 1992 and chairman in 1993. Under Mr. Levin's 
leadership, Time Warner has become the world's leading media 
conglomerate.
    I would like to thank each of our distinguished witnesses 
for taking time out of their busy schedules to be with us today 
because this is an important hearing and I am looking forward 
to this hearing, and I am certainly looking forward to what you 
both have to say about this. Naturally, I have very high 
respect for both of you and for the business acumen and 
leadership that you have, and I think everybody on this 
committee does. We are concerned about this, but we sure want 
to hear what you have to say about it.
    Mr. Case, we will turn to you first.

    PANEL CONSISTING OF STEPHEN M. CASE, CHAIRMAN AND CHIEF 
 EXECUTIVE OFFICER, AMERICA ONLINE, INC.; AND GERALD M. LEVIN, 
    CHAIRMAN AND CHIEF EXECUTIVE OFFICER, TIME WARNER, INC.

                  STATEMENT OF STEPHEN M. CASE

    Mr. Case. Good afternoon, Chairman Hatch and Senator Leahy 
and all the members of the committee. Thank you for the 
opportunity to appear before you today to talk about why this 
merger will continue to be in the interest of consumers and 
why, Senator Leahy, this will be the best of times.
    As you know, on January 10, AOL and Time Warner announced 
our plan to join our two companies together, creating the 
world's first truly global media and communications company for 
what we think will be known as the Internet Century.
    I want to start by saying that we see this as more than a 
merger of two companies. We really see it as a merger of ideas, 
a shared commitment to empower consumers, communities, families 
and citizens, expanding their choices, bringing more value into 
their lives and building a global medium that benefits society.
    I believe that the excitement generated by our announcement 
is due to the growing evidence that we really are on the verge 
of a second Internet revolution, a transformation of the way we 
live our lives. This transformation has already begun in ways 
large and small.
    The Internet has changed the way we communicate with 
friends and family, the way we learn more about the world 
around us, even the way we connect to our political leaders. It 
has impacted the way companies ship and consumers shop. It is 
changing the way we strengthen our communities at home, and 
also how we build a world community. And the terrain is 
changing before our eyes, from increasingly affordable Internet 
services to better, faster connections that make possible a far 
wider array of content on line, to wireless and hand-held 
devices that make the Internet available anywhere at any time.
    This is also a time of incredible innovation and of intense 
competition. We welcome that and believe that our new company 
will be stronger because of it. The Internet never could have 
become a driving force of the new economy, and neither AOL nor 
Time Warner could have gotten where we are today without 
competition. And going forward, we are committed to ensuring 
that our merger creates new choices for consumers and promotes 
a diversity of voices in our culture.
    We know that change this dramatic and rapid creates new 
opportunities, but we also believe that it creates new 
responsibilities. So while we work hard at AOL/Time Warner to 
make the most of this changing world, there are a fewthings 
that won't change: first, our commitment to provide consumers with an 
empowering range of choices; second, our commitment to earn their trust 
and their confidence; third, our commitment to foster the openness, 
competition and innovation that are the Internet's driving force; and, 
finally, our commitment to leave no one behind in the Internet Century, 
fostering the diversity of voices that is the Internet's greatest 
strength.
    Let me start with our first and most important commitment 
at AOL/Time Warner, which is to serve consumers. In our 
business, consumers are the ultimate venture capitalists. They 
guide our business models and drive our ideas. This will only 
increase in the years ahead.
    Let's step back for just a moment. Five years ago, the 
World Wide Web barely existed. But as people began to see the 
Internet as a tool to improve their lives, not some obscure 
realm for high-tech enthusiasts, they started using it. It 
happened slowly at first, starting with e-mail and chat groups, 
but then rapidly expanded to a range of experiences that are 
increasingly indispensable to millions of people's everyday 
lives.
    To give you just a few compelling examples, AOL provides 
200 million stock quotes everyday to help people invest their 
money. We handle nearly 900 million messages a day, 50 percent 
more than the 600 million pieces of mail handled daily by the 
U.S. Postal Service, and that is just AOL.
    It certainly doesn't stop there. The e-commerce phenomenon 
continues to develop as more and more people go online to buy 
an increasingly large number of products and services. Last 
year, the numbers spoke for themselves: around $100 billion in 
global e-commerce revenues, a figure that is expected to break 
$1 trillion by 2003.
    And what about education and the world of ideas? Today, a 
student in Alaska or Alabama can visit the Library of Congress 
online, and so can a young person in Ankara. Anyone with access 
to a computer and a modem can visit any one of our 800 million 
Web sites, in just about every language, covering every topic 
you could imagine.
    As consumers have embraced the interactive medium, they 
have begun to demand that it meet their needs in new ways. 
Technological advances, from cable broadband to satellite and 
DSL connections, to a new generation of wireless and hand-held 
devices are already increasing the range of online content 
people can enjoy and use in their everyday lives. And both new 
ideas and new competitors are surfacing everyday, further 
driving the medium in a vital process of continuous 
improvement.
    Consumers drove this quantum leap into the Internet 
revolution and they will most certainly drive it into this 
Internet Century. Consumers have been empowered and they are 
exercising their power everyday, seeking out the Internet 
service that meets their needs and the content that matches 
their interests, whether it be books, movies, stock quotes, 
even polling data. I believe that AOL/Time Warner will only 
accelerate this trend.
    History tells us that the most profound, life-changing 
ideas come to life when people find valuable new ways to join 
emerging technology with existing content. Consider this: 
nearly 25 years ago, Jerry Levin had an idea that the 
combination of satellite and cable technology with movies and 
other media could change the way people are entertained. That 
idea became HBO, and HBO not only accelerated development of a 
new cable medium, it really did change the way we think about 
entertainment.
    Twenty years ago, Ted Turner wondered what would happen if 
he combined the new capacity of cable television to reach 
households with a 24-hour news network. That idea became CNN, 
and it has transformed the way we think about news and raised 
the bar for every news station around the world. In the same 
way, VCR's transformed the movie industry and CD technology 
transformed the music industry. And these are the kinds of 
remarkable combinations and experiences we think AOL/Time 
Warner will be able to provide consumers across industries, 
across platforms, across media, from music to movies to 
publishing to communications to financial services.
    We certainly hope to lead a whole new era of innovation in 
our industry, but we won't be the only company out there, 
especially not in the new converged environment that is joining 
the forces of many historically distinct industries and 
creating so many new and compelling consumer products and 
services.
    We have come a long way from the time when all you could 
get was three broadcast networks, PBS, scratchy vinyl records, 
maybe a department store down the block. Again, consumers have 
been empowered and they will shape the market. One thing the 
last few years have made crystal clear is that in the rapidly 
changing, Internet-supercharged economy, companies must 
constantly innovate and continuously remake themselves if they 
expect to attract customers.
    And let me be clear. We do not intend to limit content 
diversity on any of our systems. If we limit content, if we do 
not promote a diversity of voices, if we do not maintain 
scrupulous journalistic standards, then consumers will waste no 
time migrating to other Internet and media services.
    The second commitment is that AOL/Time Warner will build on 
the consumer trust and confidence that have made our brands 
among the most trusted in the world. As I just mentioned, the 
media and communications landscape is changing rapidly as all 
the new media come together in powerful new combinations that 
are increasingly central to people's lives.
    If the Internet really is going to empower people in this 
new environment, then it is more important than ever for them 
to be able to trust that the information they share online is 
private and secure. At AOL, we have worked hard to educate 
consumers about the special nature of online transactions 
because we know it is the best way to build trust and to build 
our business. We have also put in place strict privacy and 
security standards, and we are working with our industry to 
make those standards universal. The same is true for Time 
Warner, a company that is committed to journalistic integrity 
and consumer trust both on and offline.
    AOL/Time Warner will continue to build consumer confidence 
and trust by maintaining our efforts to ensure that families 
and teachers have the tools they need to guide our children's 
experiences in cyberspace. The Internet can open a door into 
another world for our kids, a world of imagination and 
learning, but it is up to us to determine which doors they open 
and to keep them safe.
    As separate companies, we have made a commitment to 
consumers and we have kept it. As one company, we will continue 
to make that commitment and we will continue tokeep it. We will 
take building consumer confidence and trust to the next level, working 
within our industry and with all of you to craft responsive and 
responsible policies that address these concerns. This is something 
consumers care about and something we have to work together to ensure. 
One thing is certain. We share the same goal, protecting consumers and 
their families, and establishing a new standard of privacy and security 
for the digital age, while permitting the Internet to flourish in these 
changing times.
    Third, AOL/Time Warner will build on our commitment to open 
access. We have made real progress on this issue over the past 
year-and-a-half, and I am proud of the role AOL has played in 
getting us to where we are today. AT&T and Time Warner, the two 
largest cable companies in the country, have committed to the 
principle of providing consumer choice on their systems. And 
with other cable companies considering following our lead, I 
believe implementation of open access nationwide is no longer a 
question of whether, but of when.
    We believe that consumer choice is not only the smartest 
business practice for both the cable industry and for the 
growth of the Internet, it is the right policy, grounded in the 
right values, for consumers and for the growth of the Internet. 
This committee recognized this early on, and I want to thank 
you all for your support of our efforts to push this industry 
to act.
    Today, we took another step forward, jointly releasing a 
Memorandum of Understanding that will form the framework for 
delivering AOL and other ISP's over Time Warner cable and to 
give consumers greater choice. We look forward to putting that 
open access framework into practice as soon as possible.
    Meeting the challenge of consumer choice won't happen 
overnight, but it is part of our ongoing commitment to 
consumers. In fact, we believe that the merger of AOL and Time 
Warner puts us in a position to initiate real dialogue about 
the best way to offer multiple Internet services over multiple 
broadband platforms, from cable and DSL lines to satellite 
connections, turning our commitment into real choices for 
consumers in the marketplace. And we believe that working 
together with our industry and with all of you, we will ensure 
that open access is a common practice and that consumers are 
the real beneficiaries.
    Finally, AOL/Time Warner will be committed to using our 
combined resources, assets and experience to build a medium we 
can be proud of. Building a medium we can be proud of has 
always been core to the vision at AOL, and it will continue to 
drive us at AOL/Time Warner. That means empowering people by 
giving them a voice and greater choice. It means connecting 
people in meaningful ways to their government and helping them 
to give back to their communities. It means enhancing 
educational opportunities for children. And building a medium 
we can be proud of means expanding its reach and its benefits 
to every corner of the world, leaving no community and no 
country behind.
    We all have a responsibility to meet these challenges. At 
AOL/Time Warner, we will take this responsibility very 
seriously not only as a company but also as individuals with a 
shared personal conviction that we must use our leadership to 
build a better world. Nowhere is this leadership more important 
than driving the crusade to close the digital divide.
    You have all heard the statistics. Our public schools are 
overcrowded, understaffed, and unprepared to teach the skills 
of the future. Seventy-five percent of households with incomes 
over $75,000 own computers; 10 percent of our poorest families 
do. Yet, more than 60 percent of all new jobs will require 
high-tech skills by 2002.
    Both AOL and Time Warner have already taken significant 
steps to meet this challenge. I am especially proud of the role 
we are playing at AOL to help launch PowerUp, a unique public-
private partnership to create a network of community technology 
centers that teach young people the skills they need and give 
them the guidance they need to make the most of their 
potential. One of the things I am looking forward to doing at 
AOL/Time Warner is joining our resources and sharing our ideas 
to close this digital divide.
    Just as important, we intend to devote our personal energy 
to finding new ways to help the benefits and opportunities of 
this Internet Century to reach developing countries and all 
countries in the world. We have to make sure that the World 
Wide Web is not worldwide in name only. All of these measures 
will bring us closer than ever to fulfilling AOL/Time Warner's 
shared mission of building a truly global medium as central to 
people's lives as the telephone or the television, and even 
more valuable.
    Let me close with a comparison. 120 years ago almost to the 
day, Thomas Alva Edison patented the light bulb, but it took 
nearly 60 years for the power of electricity to reach every 
corner of America, bringing light to the farmhouses, connecting 
people in remote communities to the radio and to one another, 
and transforming life as we knew it.
    By comparison, the Internet was invented around 30 years 
ago and it has taken us most of the last 15 years to reach just 
40 percent of American households. Imagine what we will achieve 
when we reach every country, every community, every business, 
every family, because in truth we really are just scratching 
the surface of a broad and powerful vision that will forever 
alter our lives.
    It is no surprise really that both the electric light and 
the Internet were born in America. Our spirit of innovation and 
creativity, our tradition of competition and cooperation, and 
our ideal of inclusion and equal opportunity are the driving 
force of the Internet and they will be the guiding principles 
of AOL/Time Warner.
    I appreciate the time and effort the committee is taking to 
hear about this important merger, and I thank you all for your 
leadership on many important Internet policy issues. I look 
forward to working with you in the months and years ahead.
    Thank you.
    Chairman Hatch. Thank you, Mr. Case.
    [The prepared statement of Mr. Case follows:]

                    Prepared Statement of Steve Case

    Good morning, Chairman Hatch, Senator Leahy, and all the members of 
the Committee. Thank you for the opportunity to appear before you 
today.
    As you know, on January 10, AOL and Time Warner announced our plan 
to join our two companies--creating the world's first truly global 
media and communications company for the Internet Century
    I want to start by saying that we see this as more than a merger of 
companies. We see it as a merger of ideas: a sacred commitment to 
empower consumers, communities, families and citizens--expanding their 
choices, bringing more value into their lives, and building a global 
medium that benefits society.
    I believe that the excitement generated by our announcement is due 
to the growing evidence that we really are on the verge of a Second 
Internet Revolution--a transformation of the way we live our lives.
    This transformation has already begun in ways large and small. The 
Internet has changed the way we communicate with friends and family, 
the way we learn more about the world around us, even the way we 
connect to our political leaders. It has impacted the way companies 
ship and consumers shop. It is changing the way we strengthen our 
communities at home--and build the world community.
    And the terrain is changing before our eyes--from increasingly 
affordable Internet services, to better, faster connections that make 
possible a far wider range of content online, to wireless and handheld 
devices that make the Internet available anywhere, at any time.
    This is also a time of incredible innovation and intense 
competition. We welcome that and believe that our new Company will be 
stronger because of it. The Internet never could have become a driving 
force of the new economy--and neither AOL nor Time Warner could have 
gotten where we are today--without competition. And going forward, we 
are committed to ensuring that our merger creates new choices for 
consumers and promotes a diversity of voices in the culture.
    We know that change this dramatic and rapid creates new 
oportunities--but we also believe that it creates new responsibilities. 
So, while we will work hard at AOL Time Warner to make the most of the 
changing world, there are a few things wewon't change:
     Our commitment to provide consumers with an empowering 
range of choices.
     Our commitment to earn their trust and confidence.
     Our commitment to foster the openness, competition and 
innovation that are the Internet's driving force.
     And our commitment to leave no one behind in the Internet 
Century, fostering the diversity of voices that is the Internet's 
greatest strength.
    Let me start with our first and most important commitment at AOL 
Time Warner: to serve consumers. In our business, consumers are the 
ultimate venture capitalists--they guide our business models and drive 
our ideas. This will only increase in the years ahead. Let's step back 
for a moment. Five years ago, the World Wide Web barely existed. But as 
people began to see the Internet as a tool to improve their lives--not 
some obscure realm for high tech enthusiasts--they started using it.
    It happened slowly at first--starting with e-mail and chat groups, 
mainly, but rapidly expanding to a range of experiences that are 
increasingly indispensable to millions of people's every day lives. To 
give you just a few compelling examples, AOL provides 200 million stock 
quotes every day to help people manage their finances. We handle nearly 
900 million messages a day--50% more than the 600 million pieces of 
mail handled daily by the United States Postal Service. And that's just 
AOL.
    It certainly doesn't stop there. The e-commerce phenomenon 
continues to develop as more and more people go online to buy an 
increasing number of products and services. Last year, the numbers 
spoke for themselves: around $100 billion in global e-commerce 
revenues--a figure that is expected to break a trillion dollars by 
2003.
    And what about education and the world of ideas? Today, a student 
in Alaska or Alabama can visit the Library of Congress online--and so 
can a young person in Ankara. Anyone with access to a computer and a 
modem can visit any one of around 800 million websites, in just about 
every language, covering every topic you can imagine.
    As consumers have embraced the interactive medium, they have begun 
to demand that it meet their needs in new ways. Technology advances--
from cable broadband, satellite, and DSL connections, to a new 
generation of wireless and handheld devices--are already increasing the 
range of online content people can enjoy and use in their every day 
lives. And both new ideas and new competitors are surfacing every day--
further driving the medium in a vital process of improvement.
    Consumers drove this quantum leap into the Internet Revolution, and 
they will most certainly drive it in the Internet Century. Consumers 
have been empowered, and they are exercising their power every day--
seeking out the Internet service that meets their needs and the content 
that matches their interests: movies, books, stock quotes . . . even 
polling data.
    I believe that AOL Time Warner will only accelerate this trend.
    History tells us that the most profound, life-changing ideas come 
to life when people find valuable new ways to join emerging technology 
with existing content. Consider this: nearly 25 years ago, Jerry Levin 
had an idea that the combination of satellite and cable technology with 
movies and other media could change the way people are entertained. 
That idea became HBO--and HBO not only accelerated the development of 
the new cable medium to new heights--it really did change the way we 
think about entertainment.
    Twenty years ago, Ted Turner wondered what would happen if he 
combined the new capacity of cable television to reach households with 
a 24-hour news network. That idea became CNN--a killer app if ever 
there was one--and it has transformed the way we think about the news . 
. . and raised the bar for every news station around the world.
    In the same way, VCRs transformed the movie industry, and CD 
technology transformed the music industry. And these are the kind of 
remarkable combinations and experiences we think AOL Time Warner will 
be able to provide consumers--across industries, across media--from 
music to movies to publishing to communications to financial services.
    We certainly hope to lead a whole new era of innovation in our 
industry. But we won't be the only company out there, especially not in 
the new ``converged'' environment that is joining the forces of many 
historically distinct industries and creating so many new and 
compelling consumer products and services.
    We've come a long way from the time when all you could get was 
three broadcast networks, PBS, scratchy vinyl records, a department 
store down the block and your local bank.
    Again, consumers have been empowered--and they will shape the 
market. One thing the last few years have made crystal clear is that in 
a rapidly changing, Internet-supercharged economy, companies must 
constantly innovate and continuously remake themselves if they expect 
to attract customers. If we limit content, if we do not promote a 
diversity of voices, if we do not maintain scrupulous journalistic 
standards, then consumers will waste no time migrating to other 
Internet and media services.
    Second AOL Time Warner will build on the consumer trust and 
confidence that have made our brands among the most trusted in the 
business.
    As I just mentioned, the media and communications landscape is 
changing rapidly as old and new media come together in powerful new 
combinations that are increasingly central to people's lives. If the 
Internet is really going to empower people in this new environment, 
then it is more important than ever for them to be able to trust that 
the information they share online is private and secure.
    At AOL, we have worked hard to educate consumers about the special 
nature of online transactions, because we know it's the best way to 
build trust and to build our business. We have also put in place strict 
privacy and security standards--and we are working with our industry to 
make those standards universal. The same is true for Time Warner--a 
company that is committed to journalistic integrity and consumer trust, 
both on and offline.
    And AOL Time Warner will continue to build consumer confidence and 
trust by maintaining our efforts to ensure that families and teachers 
have the tools they need to guide our children's experience in 
cyberspace. The Internet can open a door into another world for kids--a 
world of imagination and learning. But it's up to us to determine which 
doors they open--and to keep them safe.
    As separate companies, we have made a commitment to consumers--and 
kept it. As one company, we will keep it. We will take building 
consumer confidence and trust to the next level--working within our 
industry and with all of you to craft responsive and responsible 
policies that address these concerns. This is something consumers care 
about--and something we have to work together to ensure.
    One thing is certain--we share the same goal: protecting consumers 
and their families and establishing a new standard of privacy and 
security for the digital age, while permitting the Internet to flourish 
in these changing times.
    Third, AOL Time Warner will build on our commitment to open access.
    We have made real progress on this issue over the past year and a 
half, and I am proud of the role AOL has played in getting us to where 
we are today. AT&T and Time Warner, the two largest cable companies in 
the country, have committed to the principle of providing consumer 
choice on their systems. And with other cable companies considering 
following our lead, I believe implementation of open access nationwide 
is no longer a question of whether, but of when.
    We believe that consumer choice is not only the smartest business 
practice for both the cable industry and for the growth of the 
Internet--it is the right policy, grounded in the right values, for 
consumers and the growth of the Internet. This committee recognized 
this early on, and I want to thank you for your support of our efforts 
to push the industry to act.
    Today, we took another step forward, jointly releasing a Memorandum 
of Understanding that will form the framework for delivering AOL and 
other ISPs over Time Warner cable--and to give consumers greater 
choice. We look forward to putting that open access framework into 
practice as soon as possible.
    Meeting the challenge of consumer choice won't happen overnight, 
but it is part of our ongoing commitment to consumers. In fact, we 
believe that the merger of AOL and Time Warner puts us in a position to 
initiate real dialogue about the best way to offer multiple Internet 
services over multiple broadband platforms--from cable and DSL lines to 
satellite connections--turning our commitment into real choices for 
consumers in the marketplace.
    And we believe that working together with our industry and with all 
of you, we will ensure that open access is common practice--and that 
consumers are the beneficiaries.
    Finally, AOL Time Warner will be committed to using our combined 
resources, assets, and experience to build a medium we can be proud of.
    Building a medium we can be proud of has always been our core 
vision at AOL, and it will continue to be at AOL Time Warner. What does 
that mean? It means empowering people by giving them a voice and 
greater choice. It means connecting people in meaningful ways to their 
government and helping them to give back to their communities. It means 
enhancing educational opportunities for children. And building a medium 
we can be proud of means expanding its reach--and its benefits--to 
every corner of the world, leaving no community and no country behind.
    We all have a responsibility to meet these challenges. At AOL Time 
Warner, we will take this responsibility seriously, not only as a 
company, but also as individuals with a shared personal conviction that 
we must use our leadership to build a better world.
    Nowhere is this leadership more important than driving the crusade 
to close the Digital Divide. You have all heard the statistics: our 
public schools are overcrowded, understaffed, and unprepared to teach 
the skills of the future. 75 percent of households with incomes over 
$75,000 own computers--10% of our poorest families do. More than 60% of 
all new jobs will require high tech skills by 2002.
    Both AOL and Time Warner have already taken significant steps to 
meet this challenge. I am especially proud of the role we are playing 
at AOL to help launch PowerUp, a unique public-private partnership to 
create a network of community technology centers that teach young 
people the skills they need--and that give them the guidance they 
need--to make the most of their potential. And one of the things I am 
most looking forward to at AOL Time Warner is joining our resources and 
sharing our ideas to close the Digital Divide.
    Just as important, we intend to devote our personal energy to 
finding new ways to help the benefits and opportunities of the Internet 
Century reach developing countries . . . and all the countries of the 
world. We have to make sure that the World Wide Web is not worldwide in 
name only.
    All of these measures will bring us closer than ever to fulfilling 
AOL Time Warner's shared mission of building a truly global medium as 
central to people's lives as the telephone and the television . . . and 
even more valuable.
    Let me close with a comparison. One hundred and twenty years ago, 
almost to the day, Thomas Alva Edison patented the light bulb. But it 
took nearly 60 years for the power of electricity to reach every corner 
of America--bringing light to the farmhouses, connecting people in 
remote communities to the radio and to one another, transforming life 
as we knew it.
    By comparison, the Internet was invented around 30 years ago--and 
it has taken us most of the last 15 years to reach just 40% of American 
households. Imagine what we will achieve when we reach every country, 
every community, every business, every family. Because in truth, we are 
really just scratching the surface of a broad and powerful vision that 
will forever alter our lives.
    It is no surprise, really, that both the electric light and the 
Internet were born in America. Our spirit of innovation and creativity, 
our tradition of competition and co-operation, and our ideal of 
inclusion and equal opportunity are the driving force of the Internet--
and they will be the guiding principles of AOL Time Warner.
    I appreciate the time and effort the Committee is taking to hear 
about this important merger--and I thank you for your leadership on 
many important Internet policy issues. I look forward to working with 
you in the months and years to come.

    Chairman Hatch. We will turn to you, Mr. Levin.

                  STATEMENT OF GERALD M. LEVIN

    Mr. Levin. Thank you, Chairman Hatch and Senator Leahy and 
members of the committee. I too am grateful for this 
opportunity to speak to you about the planned merger of Time 
Warner and AOL, and obviously both of us will be happy to 
answer your questions.
    I know our merger announcement came as a surprise to many, 
and the truth is, for such a large transaction, it was worked 
out in a remarkably short period of time. Even more remarkable, 
while I am sure such challenges don't exist here in Washington, 
we avoided any leaks. And from my perspective, the AOL/Time 
Warner merger was not a bolt from the blue, but actually the 
fulfillment of almost three decades spent in the media 
business, because I began my career with the quixotic hope, or 
so it seemed at the time, of using cable television to 
overthrow the stranglehold the broadcast triopoly had on 
television.
    When you had mavericks like Ted Turner, as well as myself, 
we believed that the real power of television would only be 
unleashed when it became a medium driven by consumer choice, 
with programming alternatives that went far beyond what simply 
three advertising-supported networks could deliver. And the 
success of that once radical notion, I think, is reflected in 
today's premier pay television networks, like Home Box Office, 
and the lineup of services that we have on our cable systems of 
hugely popular networks such as CNN, Disney--I will repeat 
that--Disney, Discovery, ESPN, Nickelodeon, CNBC. Obviously, 
the list is very long.
    And although we would never claim that this early 
experience with cable gave us a clairvoyant glimpse of the 
Internet, it was, in fact, profoundly formative for us because 
we were left with the conviction that we had barely touched the 
potential of technology to empower viewers to become their own 
programmers with no limits, no limits, on their options.
    Possessed as I was of this belief, I committed my company 
in 1994 to the deployment of the world's first fully 
interactive digital network in our Orlando, FL, cable system. 
Short term, that full-service network, which of necessity was a 
closed system that needed to be invented from scratch, did not 
lead to any instant rollout of interactive television. But long 
term, the risk that we took resulted in our engineers creating 
a breakthrough architecture that melded fiber optic trunk lines 
with a coaxial connection to subscriber homes to offer a 
switched broadband avenue for interactivity.
    And so in 1995, Time Warner made a $5 billion commitment to 
rebuild its systems with broadband architecture, a commitment 
which now stands at more than $6 billion, and we entered into a 
social contract, a social contract, with the Federal 
Communications Commission. In fact, my faith at that time in 
cable's pivotal part in the future of digital interactivity was 
so strong that at a time when re-regulation put cable out of 
favor with investors, we undertook major acquisitions to expand 
our cable footprint.
    And at the very moment we were opening the way for 
broadband delivery, the first great wave of a truly network 
society arrived in the form of the Internet. And today we are 
all awash in that wave or, better yet, surfing it, and the sea 
change has been so sweeping and so profound that it is hard to 
believe that the word ``Internet'' itself didn't enter 
Webster's until 1997.
    The growth of the Internet over so short a time reflects 
the sheer velocity of what is taking place. In 1995, there were 
19 million Internet users. Five years later, there are over 200 
million, and that number will cross 1 billion by mid-decade. 
Led by AOL's easy-to-use, consumer-friendly service, a 
constantly increasing number of people are making e-mail, 
instant messaging and e-commerce an integral part of how they 
live, how they work, and how they communicate.
    It would be hard for me to exaggerate the implications of 
the Internet revolution because for the first time in our human 
history, we have at our disposal a universal, limitless 
connection that no government, no corporation or centralized 
agency can control, because every user has the ability to 
publish and to offer something new. In fact, every Web site 
contains the possibility of meeting consumer needs in more 
attractive, efficient ways so that the noise that you are 
currently hearing across the economic landscape is that of 
time-honored, in some cases centuries-old business hierarchies 
as they crash to the ground, because the first lesson of the 
Internet has already been written.
    If you think you can do business in the realm of digital 
interactivity the way you have always done business, you need 
to think again because thinking again is precisely what Time 
Warner has been doing for the last 5 years as we refocused on 
achieving a company-wide digital transformation.
    I have spoken of what that transformation did for our cable 
customers, providing broadband capacity for high-speed delivery 
of the Internet, but that was a part of a far larger effort. 
Impelled by the nature of our content businesses, which are 
operations intimately involved with artistic and intellectual 
expression in every form, we were pioneers in adapting our flow 
of creative offerings to this environment because people 
throughout Time Warner understood the irrevocable impact of 
what was occurring. They embraced the almost inconceivably 
broad canvas the Internet provides for expanding the reach of 
their minds and imaginations.
    The challenge for Time Warner was never facing up to the 
historic significance of digital interactivity. We jumped that 
hurdle while other media companies were still debating if there 
was a race. The challenge was time. The global economy in 
general, and the global media industry in particular are on 
fast forward. They have entered a new context, and that is 
Internet time.
    Beginning last September, in Paris, Steve Case and I had 
the opportunity to work together as Co-chairs of the Global 
Business Dialogue on E-Commerce to help set international self-
regulatory standards for Internet traffic. The next month, at 
the Fortune magazine forum in Shanghai, we continued our 
conversation about the relentless unfolding of the digital 
future.
    These locales couldn't help but underline the unique 
leadership that America enjoys in deploying and using the 
Internet, and the fierce competitive determination of 
entrepreneurs across the globe who are trying to catch and 
surpass us. Steve and I understood that those who wished to 
stay ahead in the instant-to-instant evolution of this medium 
did not have the luxury of waiting on events. We saw that the 
company of the future, a company with the creative 
infrastructure to provide a constant stream of quality content, 
plus a genetic appreciation of how to form Web communities and 
how to serve them easily and conveniently--such a company had 
not yet come into existence.
    The solution to that puzzle became obvious to both of us. 
By putting together AOL and Time Warner, we could create the 
first enterprise not only fully prepared to compete on the 
Internet and really a prototype for the 21st century, but a 
company that could be a decisive spur to bringing consumers 
everywhere the speed and immediacy of broadband across all 
delivery platforms, wired or wireless, thus unlocking the 
fullest possibilities of interactivity.
    For my part, while the economic rationale for this merger 
was compelling, it was not sufficient. Before I could take the 
step of joining America Online in a merger of equals, I had to 
satisfy myself about three basic premises.
    First, at the very core, the very heart of Time Warner, the 
cornerstone of our global reputation and the enduring basis of 
the bond of trust we have created with audiences in every part 
of the world is commitment to journalistic independence, 
journalistic integrity.
    Ten years ago, in a landmark decision that allowed the Time 
Warner merger to go forward, Chancellor William Allen of 
Delaware's Chancery Court spoke of our journalistic culture as 
truly unique and deserving of protection and preservation. The 
addition of CNN in 1996 made that culture even richer and more 
far-reaching.
    I want to assure you that I have always regarded thedefense 
of that heritage as utterly central to my responsibilities as CEO. And 
in light of the continuing expansion of news and information outlets, 
many of which we carry on our cable systems, I have had a heightened 
awareness of Time and CNN's role in upholding the standard for 
reliable, unbiased journalism. Steve Case has been equally clear about 
his unwavering commitment to journalistic independence, and I have to 
say that his unprompted offer to have me serve as the CEO of AOL/Time 
Warner was a further reaffirmation of that belief.
    Second, as a prime mover in the design, development and 
deployment of broadband networks, Time Warner assumed the 
financial risk, huge though it was, of that investment in the 
face of strong competition from DSL, DBS, and other broadband 
providers. In building that capacity, we recognized not just 
the possibility of consumers having choice among ISP's, but, in 
fact, the desirability. This we learned clearly and 
historically with HBO because the provision of choice is, in 
fact, a boon to the dynamic growth of cable subscriptions and a 
prod to the creation of new and better programming.
    AOL and Time Warner now have a shared commitment to provide 
consumers with multiple ISP's in a genuinely competitive 
broadband marketplace. I would like to elaborate on that 
commitment because you have before you our announcement of a 
Memorandum of Understanding between Time Warner and AOL 
regarding our commitment to open-access business practices.
    As you can see from a review of this detailed 
understanding, we are serious about setting out the framework 
that will lead to true ISP choice for Time Warner cable 
subscribers. We will obviously answer your questions, but I 
just want to outline the key elements of our plan.
    First, delivering consumer choice. AOL/Time Warner is 
committed to offer consumers a choice among multiple ISP's. 
Consumers will not be required to purchase service from an ISP 
that is affiliated with AOL/Time Warner in order to enjoy 
broadband Internet service over AOL/Time Warner cable systems.
    Second, diversity of ISP's. AOL/Time Warner will not place 
any fixed limit on the number of ISP's with which it will enter 
into commercial arrangements, and it will offer ISP's the 
choice to partner on a national, regional, or local basis in 
order to facilitate the ability of consumers to choose among 
ISP's of different size and different scope.
    Three, direct relationship with the customer for ISP's. 
AOL/Time Warner is also committed to allow both the cable 
operator and the ISP to have the opportunity to have a direct 
relationship with the consumer. Accordingly, both the cable 
operator and the ISP will be allowed to market and sell 
broadband service directly to customers. When an ISP sells 
broadband Internet service directly to such a customer, it may, 
if it so chooses, bill and collect from the customer directly.
    Four, video streaming. AOL/Time Warner will allow ISP's to 
provide video streaming. We recognize that consumers desire 
video streaming and AOL/Time Warner will not block or limit it.
    Now, while today's MOU is subject to existing Time Warner 
obligations, such as its contracts with Road Runner, Time 
Warner and I are committed to providing a choice of ISP's as 
quickly as possible, and we will work with our partners to try 
to achieve that goal before current obligations expire. And I 
look forward to the rest of the cable industry following this 
same path of choice and innovation which I believe will drive 
consumer adoption of cable broadband services.
    Finally, fundamentally, as to how Time Warner defines 
itself, I have to refer to our sense of community 
responsibility. This has been basic to who we are from the very 
beginning and was best summed up in Henry Luce's formulation 
that we would always operate, ``in the public interest, as well 
as the interest of shareholders.''
    If you look through the biennial report we issued which 
details the depth and breadth of community involvement, you 
will see the seriousness and effectiveness with which we 
continue to live up to Henry Luce's charge. Time to Read, for 
example, is the country's largest, most successful corporate-
sponsored literacy program.
    But we are under no illusions. Like you, we recognize the 
need for a significant increase in corporate involvement 
focused on helping equip schools with the resources they need 
to prepare students to enter the digital economy. Personally, 
as someone who has witnessed firsthand the struggle of 
dedicated teachers to overcome the shameful inequalities 
embedded in our educational system, I regard this need as a 
moral obligation, and feel it is a personal moral obligation.
    As the members of this committee have so frequently 
articulated, if ever there has been a clear and present danger 
to the future of American society, it is in the digital divide 
that threatens to aggravate longstanding patterns of 
discrimination. From the inception of my discussions with Steve 
Case, I have been impressed with the passionate sincerity of 
his desire to ensure that his company plans an important role 
in bridging that divide, and nothing has been more crucial to 
the agreement we have reached to merge our companies than our 
vision of AOL/Time Warner's ability to be a catalyst for 
meaningful change in the way our country, indeed our world, 
offers its children the opportunity for creative expression, 
intellectual enrichment, and material success.
    As large as our merger may seem, it pales beside the open-
ended expanse of broadband media and the wired and wireless 
access available through PC's, TV's, and the burgeoning 
multiplicity of hand-held devices. From the consumer's point of 
view, the intense competitive struggle to offer everything from 
telephony to digital downloading of music and entertainment to 
video on demand embodies the best of all possible worlds--more 
choice, better value, and lower prices.
    I am grateful, obviously, for this chance to express to you 
my bedrock belief in the positive implications of our merger. 
Although the age we have entered will be brutally unsparing of 
companies that can't or won't move fast enough, it will also 
empower individual citizens as never before. If we do it 
right--and I am profoundly optimistic that a clear 
understanding by both the private and public sectors of what is 
involved will ensure we do--we will add new dimensions to our 
economy and our democracy.
    Under your leadership, Chairman Hatch and Senator Leahy, 
this committee has demonstrated a bipartisan willingness to 
strengthen copyright protection and ensure America's artists 
are encouraged to keep producing works of international appeal 
and distinction. I applaud passage of the Digital Millennium 
Copyright Act, and I pledge our full cooperation in addressing 
the vital public interest issues of Internet privacy and the 
protection of children.
    I think it is obvious that AOL/Time Warner is probably only 
the first of many competitive realignments intended to form 
enterprises with the agility and array of resources to thrive 
on this new terrain. Given the talent, imagination and values 
that AOL/Time Warner will possess, I am also confident it will 
be the most socially responsible as well as competitively 
successful.
    Along with my colleagues at AOL and Time Warner, I look 
forward to working with you to make sure that individuals and 
communities everywhere can use the most powerfully liberating 
communications tool in human history to amplify and inspire in 
Jefferson's wonderful phrase, ``the pursuit of happiness.''
    [The prepared statement of Mr. Levin follows:]

                 Prepared Statement of Gerald M. Levin

    Chairman Hatch, Senator Leahy and members of the committee, I'm 
grateful for this opportunity to speak about the planned merger between 
Time Warner and AOL and will be glad to answer any questions you might 
have.
    I know our merger announcement came as a surprise to many, and the 
truth is for such a large transaction, it was worked out in a 
remarkably short period of time.
    More remarkable--while I'm sure such challenges don't exist in 
Washington--we avoided any leaks!
    From my perspective, the AOL-Time Warner merger wasn't a bolt from 
the blue, but the fulfillment of almost three decades spent in the 
media business. I began my career with the quixotic hope--or so it 
seemed--of using cable television to overthrow the stranglehold the 
broadcast triopoly had on television. Mavericks like Ted Turner and 
myself believed that the real power of television would only be 
unleashed when it became a medium driven by consumer choice, with 
programming alternatives far beyond what three advertising-supported 
networks could deliver.
    The success of that once-radical notion is reflected today in 
premier pay-television networks like Time Warner's Home Box Office, and 
our cable systems' lineup of hugely popular networks such as CNN, TBS, 
Disney, Discovery, ESPN, Nickelodeon, CNBC. . . . The list is long.
    Although we'd never claim that this early experience with cable 
gave us a clairvoyant glimpse of the Internet, it was profoundly 
formative. I for one was left with the conviction that we'd barely 
touched the potential of technology to empower viewers to become their 
own programmers, with no real limits on their options.
    Possessed of this belief, I committed my company in 1994 to the 
deployment of the world's first fully interactive digital network in 
our Orlando, Florida, cable system.
    Short term, that full service network--a closed system that needed 
to be invented from scratch--didn't instantly lead to the rollout of 
interactive television. Long term, the risk Time Warner took resulted 
in our cable engineers creating a breakthrough architecture that melded 
fiber-optic trunk lines with the coaxial connection to subscriber homes 
to offer a switched broadband avenue for interactivity.
    In 1995, Time Warner made a $5 billion commitment to rebuild its 
systems with this broadband architecture--a commitment which now stands 
at $6 billion--and entered a social compact with the FCC. In fact, my 
faith in cable's pivotal part in the future of digital interactivity 
was so strong that at a time when reregulation put cable out of favor 
with investors, Time Warner undertook major acquisitions to expand its 
cable footprint.
    At the very moment Time Warner was opening the way for broadband 
delivery, the first great wave of a truly networked society arrived in 
the form of the Internet. Today, we're all awash in that wave, or 
better yet, surfing it, and the sea change has been so sweeping and 
profound that it's hard to believe the word Internet itself didn't 
enter Webster's until 1997.
    The growth of the Internet over so short a time reflects the sheer 
velocity of what's taking place: In 1995, there were 19 million 
Internet users; five years later, over 200 million. That number will 
cross one billion by mid-decade. Led by America Online's easy-to-use, 
consumer-friendly service, a constantly increasing number of people are 
making e-mail, instant massaging and E-commerce an integral part of how 
they live, work and communicate.
    It would be hard to exaggerate the implications of the Internet 
revolution. For the first time, human beings have at their disposal a 
universal, limitless connection that no government, corporation or 
centralized agency can control. Every user has the ability to offer 
something new. Every web site contains the possibility of meeting 
consumer needs in more attractive, efficient ways, so that the noise 
you hear across the economic landscape is that of time-honored--in some 
cases, centuries-old--business hierarchies as they crash to the ground.
    The first lesson of the Internet has already been written: If you 
think you can do business in the realm of digital interactivity the way 
you've always done business, think again. . . . Thinking again is 
precisely what Time Warner has been doing for the last five years, as 
we refocused on achieving a companywide digital transformation.
    I've spoken of what that digital transformation did for our cable 
customers, providing broadband capacity for high-speed delivery of the 
Internet. But that was part of a far larger effort. Impelled by the 
nature of our content businesses--operations intimately involved with 
artistic and intellectual expression in every form--we were pioneers in 
adapting our flow of creative offerings to this environment.
    People throughout Time Warner understood the irrevocable impact of 
what was occurring. They embraced the almost inconceivably broad canvas 
the Internet provides for expanding the reach of their minds and 
imaginations.
    The challenge for Time Warner was never facing up to the historic 
significance of digital interactivity. We jumped that hurdle while 
other media companies were still debating if there was a race. The 
challenge was time. The global economy in general and the global media 
industry in particular are on fast forward. They have entered a new 
context: ``Internet Time.''
    Beginning last September, in Paris, Steve Case and I had the 
opportunity to work together as co-chairs of the Global Business 
Dialogue on E-commerce to help set international self-regulatory 
standards for internet traffic. The next month, at the ``Fortune'' 
magazine forum in Shanghai, we continued our conversation about the 
relentless unfolding of the digital future.
    Those locales couldn't help but underline the unique leadership 
America enjoys in deploying and using the Internet and the fierce 
competitive determination of entrepreneurs across the globe to catch 
and surpass us.
    Steve and I understood that those who wished to stay ahead in the 
instant-to-instant evolution of this medium didn't have the luxury of 
waiting on events. We saw that the company of the future--a company 
with the creative infrastructure to provide a constant stream of 
quality content plus a genetic appreciation of how to form web 
communities and how to serve them easily and conveniently--had yet to 
come into existence.
    The solution to that puzzle was quickly obvious to both of us: By 
putting together AOL and Time Warner, we could create the first 
enterprise not only fully prepared to compete on the Internet--a 
prototype for the 21st century--but a company that could be a decisive 
spur to bringing consumers everywhere the speed and immediacy of 
broadband across all delivery platforms, wired or wireless, thus 
unlocking the fullest possibilities of interactivity.
    For my part, while the economic rationale for our merger was 
compelling, it wasn't sufficient. Before I could take the step of 
joining America Online in a merger of equals, I had to satisfy myself 
about three basic premises.
    First, at the very core of Time Warner--the cornerstone of our 
global reputation and the enduring basis of the bonds of trust we've 
created with audiences in every part of the world--is commitment to 
journalistic independence.
    Ten years ago, in the landmark decision that allowed the Time 
Warner merger to go forward, Chancellor William Allen of Delaware's 
Chancery Court spoke of our journalistic culture as ``unique'' and 
deserving of protection and preservation. The addition of CNN in 1996 
made that culture even richer and more far-reaching.
    I have always regarded the defense of that heritage as utterly 
central to my responsibilities as CEO, and in light of the continuing 
expansion of news and information outlets--many of which we carry on 
our cable systems--I've had a heightened awareness of Time CNN's role 
in upholding the standard for reliable, unbiased journalism.
    Steve Case has been equally clear about his unwavering commitment 
to journalistic independence, and his unprompted offer to have me serve 
as CEO of AOL Time Warner was a further reaffirmation of that belief.
    Second, as a prime mover in the design, development and deployment 
of broadband networks, Time Warner assumed the huge financial risk of 
that investment in the face of strong competition from DSL, DBS and 
other broadband providers.
    In building our broadband capacity, we recognized not just the 
possibility of consumers having a choice among ISPs but the 
desirability.
    Historically, as we learned so clearly with HBO, the provision of 
choice is a boon to the dynamic growth of cable subscriptions and a 
prod to the creation of new and better programming.
    AOL and Time Warner now have a shared commitment to provide 
consumers with multiple ISPs in a genuinely competitive broadband 
marketplace, and we will be happy to elaborate on that commitment.
    Third, fundamental to how Time Warner defines itself is our sense 
of community responsibility. This has been basic to who we are from the 
very beginning, and was best summed up in Henry Luce's formulation that 
we would always operate ``in the public interest as well as the 
interest of shareholders.''
    If you look through the biennial report we issue which details the 
deputy and breadth of our community involvements, you'll see the 
seriousness and effectiveness with which we continue to live up to 
Luce's charge. Time to read, for example, is the country's largest, 
most successful corporate-sponsored literacy program.
    But we're under no illusions.
    Like you, we recognize the need for a significant increase in 
corporate involvement focused on helping equip schools with the 
resources they need to prepare students to enter the digital economy. 
Personally, as someone who has witnessed firsthand the struggle of 
dedicated teachers to overcome the shameful inequalities embedded in 
our educational systems, I regard this need as a moral obligation.
    As the members of this committee have so frequently articulated, if 
ever there's been ``a clear and present danger'' to the future of 
American society, it's in the ``digital divide'' that threatens to 
aggravate long-standing patterns of discrimination and injustice from 
the inception of my discussions with Steve Case, I've been impressed 
with the passionate sincerity of his desire to ensure that his company 
plays an important role in bridging that divide.
    Nothing has been more crucial to the agreement we've reached to 
merge our companies than our vision of AOL Time Warner's ability to be 
a catalyst for meaningful change in the way out country--indeed, our 
world--offers its children the opportunity for creative expression, 
intellectual enrichment and material success.
    As large as our merger may seem, it pales the open-ended expanse of 
broadband media, and the wired and wireless access available through 
PCs, TVs and the burgeoning multiplicity of hand-held devices. From the 
consumer's point of view, the intense--and intensifying--competitive 
struggle to offer everything from telephony to digital downloading of 
music and entertainment to video on demand embodies the best of all 
possible worlds: more choice, better value and lower prices.
    Members of the committee, I'm grateful for this chance to express 
to you my bedrock belief in the positive implications of the merger 
between AOL and Time Warner. Although the age we've entered will be 
brutally unsparing of companies that can't or won't move fast enough, 
it will also empower citizens as never before.
    If we do it right--and I'm profoundly optimistic that a clear 
understanding by both the private and public sectors of what's involved 
will ensure we do--we will add new dimensions to our economy and our 
democracy.
    Under your leadership, Chairman Hatch and Senator Leahy, this 
committee has demonstrated a bipartisan willingness to strengthen 
copyright protection and ensure America's artists and encouraged to 
keep producing works of international appeal and distinction. I applaud 
passage of the Digital Millennium Copyright Act, and I pledge our full 
cooperation in addressing the vital public interest issues of Internet 
privacy and the protection of children.
    I think it's obvious that AOL Time Warner is only the first of many 
competitive realignments intended to form enterprises with the agility 
and array of resources to thrive on this new terrain. Given the talent, 
imagination and values that AOL Time Warner will possess, I'm also 
confident it will be the most socially responsible and competitively 
successful.
    Along with my colleagues at AOL and Time Warner, I look forward to 
working with you to make sure that individuals and communities 
everywhere can use the most powerfully liberating communications tool 
in human history to amplify and inspire, in Jefferson's wonderful 
phrase, ``the pursuit of happiness.''

    Chairman Hatch. Well, thanks to both of you, and we are 
very grateful that you are willing to come and explain this to 
us. I think it is something that has to be done. It is in your 
best interest to do so, and I think both of your statements 
were very good statements under the circumstances.
    Now, we will begin with the observation that this merger is 
attractive to both companies, for the following reasons, among 
others. Time Warner can deliver its vast content holdings to 
half of the Nation's online users, AOL's 22 million 
subscribers. I think the next closest provider is 3 million in 
one company, so you clearly have a dominance in this field. And 
AOL gets access to high-speed distribution, as well as access 
to popular content essential to advertising revenue. So there 
is much to be said of why you two would like to, of course, 
have this merger be totally completed.
    Of course, both of you are interested in maximizing the 
value of your stock to your stockholders, and that is a 
legitimate thing. The combination of Time Warner's vast content 
holdings with AOL's dominance as an access provider gives me 
some concern regarding the true potential of consumers' access 
to content from varying sources.
    Mr. Case, I know you are aware firsthand of the value of 
the first screen when a subscriber turns on the computer. In 
fact, this is so important to you that AOL uses an alternative 
browser as AOL's default browser even though AOL now owns 
Netscape.
    I think that is right, isn't it?
    Mr. Case. Yes.
    Chairman Hatch. OK. Now, as you recently testified in a 
Federal court proceeding, it was more important for you, AOL, 
to have your icon on the first screen of the computer than it 
was for you to try to distribute your own product. Moreover, 
consider last week's USA Today article which reported on AOL's 
strategy to be the start page for Internet access, and 
recognizing that as one of the big reasons for the merger.
    So I guess having stated all that, please tell the 
committee whether AOL/Time Warner will require viewers to 
access competitors' content through a proprietary start-up 
page.
    Mr. Case. A number of points. First of all, I think, as you 
know, the Internet is an extremely competitive business. There 
are many thousand ways, actually, that people can connect to 
the Internet. We are delighted that lots of people have chosen 
AOL, but in almost every city there are dozens, if not 
hundreds, of choices. That will continue. Indeed, we have seen 
rapid, increasing competition in the past year, even free 
Internet service providers emerging. So there is more and more 
choice out there.
    Similarly, at every level of the value chain, if you will, 
there are many new competitors emerging. Five years ago, for 
example, Yahoo was two students in a dorm at Stanford, and now 
it is one of the world's largest portals where a lot of people 
go to get access to information. So there are many, many 
companies participating in this, and many new companies forming 
everyday. So I think it is somewhat bizarre to imagine any one 
company, certainly AOL/Time Warner, somehow being a controlling 
influence here that really limits choice in any way.
    The main issue specifically on the browser actually had 
related to our concern to make sure our software was carried on 
the Windows Operating System. We thought that was very 
important. We wanted to give consumers an opportunity to use 
our service and have it there.
    On the Internet, everybody has carriage. There is 
essentially universal carriage. Everybody can create a Web 
site. You don't have to ask for permission, you don't have to 
get capacity on a cable system or on a newsstand. Everybody has 
a shot of making their service available to people, and that is 
why so many thousands of companies have emerged in the past 
years, the vast majority having no relationship with AOL.
    And many, many very successful companies, including Yahoo, 
benefit from AOL because we help drive people into the 
Internet. And companies like Yahoo, even though they have no 
relationship with us, they are not promoted within our 
service--the number one source of traffic to Yahoo is AOL 
customers, and that will continue. We are not going to do 
anything to limit choice because the bedrock principle of the 
Internet and the thing that consumers expect is that they have 
access to everything wherever they want and in whatever form 
they want.
    Chairman Hatch. But then the question was, would you set up 
a proprietary start-up page, and if so, would the start-up page 
tend to usher the subscribers or the consumers to AOL/Time 
Warner-owned content?
    Mr. Case. Well, I would be happy to demonstrate AOL for 
anybody who is interested. The way it works is that when you 
first sign on to the service, you have a bar at the top of the 
screen and you can type in that bar and go anywhere on the 
Internet, whether it be to Yahoo or Amazon or e-Bay or go.com. 
Anything is available from that front screen.
    We also do try to simplify the process of getting people 
around the Internet, so we do have, for example, a politics 
channel or an election channel, really trying to put the best 
resources in one place. We think that adds a lot of consumer 
simplicity and we think that is very important. But anybody on 
AOL can get to any service from that front page.
    Chairman Hatch. Well, the questions I have asked really 
deal with the access to content, not to the Internet itself. I 
acknowledge that you can get into anywhere you want to with 
that top bar.
    Will your users have to go through a start-up page to 
access non-Time Warner-affiliated content? I think maybe that 
puts it a little more clearly.
    Mr. Case. You do not have to go through a start-up page to 
access non-Time Warner content. Number one, they can, from the 
first screen that they see when they sign on, go anywhere they 
would like. All content is available to everyone, so there is 
this aspect of universal carriage which is very different than 
the world of traditional media.
    We also then promote certain sites, so everybody is there 
and some sites are promoted. We will not just promote AOL/Time 
Warner properties. We don't do that today. There are many 
services that compete with us that we promote because we think 
that is the best consumer experience and that ultimately is 
what drives our success.
    Similarly, Time Warner has a similar heritage. This isn't 
something we are talking about conceptually. It is something we 
have been doing for many years. Home BoxOffice, as Jerry Levin 
mentioned, is a leading movie channel. Most of the movies are not 
coming from Warner Brothers; they are coming from all the studios. The 
reason for that is if you had a movie service that only had Warner 
movies, with all due respect to Warner Brothers, not that many people 
would subscribe. They want all the movies.
    Similarly, Time Warner owns the Book of the Month Club. 
Guess what? Most of the books carried by the Book of the Month 
Club are not owned by Time Warner. Again, the principle has to 
be diversity and choice. Otherwise, these services wither and 
die. So it would be foolish for us to try to limit choice. We 
don't do that today and we won't do that in the future.
    Mr. Levin. I should respond, Chairman Hatch, because it is 
in our historical DNA, both understanding the importance of 
networks and delivering consumer choice. It operates both ways. 
There won't be exclusivity; that is, the material coming from 
Time Warner will not be exclusively available through AOL. And, 
likewise, the material that we have will be made available on 
all forms of distribution. Let me give you the analog examples.
    Today, CNN or HBO are aggressively pursuing distribution on 
every form, in addition to cable. That has always been true. 
And even any of our networks, including our cable networks, 
take programming from everyone because ultimately it is all 
about getting the most creative material and delivering 
consumer choice.
    So we should probably stipulate up front that this merger 
is not about the exclusive coopting of Time Warner's content on 
AOL. Nor is it simply capturing AOL on one form of 
distribution, and that is cable; quite the opposite. And I also 
want to reinforce the commitment that we have expressed today, 
which is AOL will get no preferential treatment as it relates 
to Time Warner's cable systems and as it relates to other 
ISP's. And this has been historically true, including the 
development of pay television in the cable business or the 
development of additional 24-hour news services.
    Chairman Hatch. Let me ask you, Mr. Levin, many view the 
Internet as a means of leveling the playing field for artists 
and as a way to expand consumer choice and competition in the 
recording industry, for instance. With the proposed union of 
Time Warner and EMI, AOL/Time Warner is poised to take over the 
world's largest music label and will own approximately maybe as 
much as one-half of all music publishing copyrights worldwide.
    Now, we understand that AOL recently purchased Win Amp, the 
most popular MP-3 software player, and spinner.com, the 
Internet's most influential Web radio property. Moreover, Time 
Warner has taken a significant equity position in 
artistsdirect.com and listen.com.
    All of this occurs amidst criticisms by some that the major 
labels are seeking to maintain undue control of the music 
distribution system by buying out their Web-based competitors 
at the expense of artists and consumers. At the press 
conference announcing the proposed merger, you yourself 
referred to these properties as key parts of AOL's music 
strategy.
    What assurance will there be that independent artists and 
unaffiliated Internet music companies will have access to these 
key properties on a level playing field with AOL/Time Warner 
for the delivery of music to Internet users? And a follow-on 
question: do any other Internet companies have access to these 
properties today, and if they do, under what terms?
    Mr. Levin. Well, first of all, Chairman Hatch, I share with 
you a great love of music as probably one of the most 
fundamental art forms. And, in fact, what we are seeing in the 
music business is what has been referred to as massive 
disintermediation; that is, the ability for a musician or an 
artist to deliver her or his work directly to the consumer is 
quite available.
    When you look at the current state of the music industry, 
the fastest growing part of the music recording industry 
happens to be the independent labels. I mean, right now they 
have the second largest market share, and that continues and is 
assisted by the availability of the Internet now so that an 
artist can reach a much broader audience.
    So I am very comfortable with the fact that the Internet 
provides for the music business the opportunity to be 
discovered, unlike the more restrictive period when, in order 
to promote music, you had to go through either the radio or 
music videos where there was a selection, there was a 
gatekeeper. The wonderful thing about the Internet is there is 
no gatekeeper. I can post any creation of mine, whether that be 
a song or some textual material.
    With respect to musical copyrights, I think this is an area 
where on a worldwide basis it is highly regulated with 
performing rights societies. And, in fact, in many countries 
there is ease of entry in terms of securing those musical 
copyrights. So we don't see any real difficulty with respect to 
the combination of EMI and Warner Music. In fact, there is 
something quite nice about it since it reunites Natalie Cole 
with her father, Nat King Cole, among others.
    Chairman Hatch. Now, that was really hitting below the belt 
there. [Laughter.]
    We will turn to Senator Leahy at this time.
    Senator Leahy. Does his answer mean that each member of 
this committee, Mr. Chairman, will always be able to get our 
hourly fix of your music?
    Chairman Hatch. I am trying to uplift him, but it is a big 
job is all I can say.
    Senator Leahy. There is always hope for redemption.
    Let me follow up a little bit on the question that the 
chairman was asking because I think the MOU that you have 
entered into is a good start in addressing these concerns about 
open access in cable broadband systems.
    I am thinking of a practical question. If I were to become 
a subscriber of AOL/Time Warner's broadband cable service, but 
I want to get my Internet connection through an alternative 
ISP, does that mean AOL and Time Warner still control what my 
screen looks like? In other words, if I come in, will my other 
server be shrunk and then have AOL/Time Warner advertising 
wrapped around it?
    Mr. Levin. No, no. In fact, let me state it not simply 
because we are here today----
    Senator Leahy. I mean, you could do that, technically.
    Mr. Levin. Well, you could do it, but let me tell you 
precisely why we won't do it and shouldn't do it, and it is not 
only a matter of good public interest policy. The consumer is 
really looking for as much choice as possible,and we saw this--
let me use an analogy again of the early days of pay television.
    You used to only get Home Box Office exclusively in a cable 
system. You couldn't get another pay service, and then Showtime 
was only available in its services. It became increasingly 
clear when the capacity was there and the ability to manage it 
that it was a consumer benefit to have these multiple services, 
so today we have a very thriving marketplace.
    The same thing should apply with multiple ISP's. They all 
have a different approach, a different screen, and in this case 
we are talking about an approach that enlivens broadband 
capability. And so one of the reasons I am actually quite 
excited--this is not simply a public relations statement; this 
is a commitment because it is very healthy for the cable 
systems which are in a competitive race with DSL by the 
telephone companies, with DBS, as well as wireless and MMDS, to 
provide as much choice as possible. So you will be able to get 
something that doesn't say AOL on it because it will be an 
alternative ISP.
    Mr. Case. Let me just add that as I think you know, I have 
been sort of the Paul Revere on open access calling for some 
time for the principle of openness that is so fundamental to 
the Internet to be preserved as the market migrates to 
broadband. In that process, we have been very clear about some 
of the key principles that need to be in place to make sure 
there really is consumer choice and there really is ISP 
competition.
    And one of them was exactly this issue, allowing ISP's to 
maintain a direct relationship, including a billing 
relationship, with consumers and allowing them to offer a 
complete service not constrained, for example, by limitations 
on video streaming and things like that. The Memorandum of 
Understanding we released today addressed those issues head-on. 
So we have really been, I think, the prime advocates of why 
open access is so important, and we have worked hard in the 
last 6 weeks since we announced this merger to make sure that 
the approach that was put in place was not just in the interest 
of AOL and Time Warner, but also the interest of ISP's in 
general, and most specifically consumers.
    Senator Leahy. Actually, we are very glad you have reached 
the Memorandum of Understanding, and I am still looking through 
it. Obviously, some questions have been addressed here, and we 
will probably even have some questions after this hearing based 
on answers from different people, which I will submit. And I am 
sure, Orrin, you probably will, too.
    Chairman Hatch. Sure.
    Senator Leahy. But in that MOU you say that the combined 
company will negotiate arms-length commercial agreements with 
both affiliated and unaffiliated ISP's, and the terms of those 
agreements and operations of broadband cable systems won't 
discriminate between affiliated and unaffiliated ISP's. Will 
this remain the same no matter if the proposed merger is 
approved, disapproved, or what might possibly happen, approved 
with conditions?
    Mr. Levin. Absolutely.
    Senator Leahy. This is your policy.
    Mr. Levin. I am expressing commitment and excitement that 
this is a very good thing to have multiple ISP's with access to 
our consumers providing broadband services. They will be 
marketing, they will be very aggressive. That has to be a good 
policy. So, again, I have to repeat it is not----
    Senator Leahy. I think it would be a good policy, but I 
just----
    Mr. Levin. It coincides with good public policy, but it is 
also a smart thing to do with respect to consumer choice. And, 
frankly, I would like my colleagues in the cable industry to 
also respond in a way because this should be helpful in 
delivering streaming video, a more robust service, to 
consumers.
    Senator Leahy. Can I take that a step further. In your 
company, you have an enormous library not only of entertainment 
products, but also information; I mean, Time and Life, for 
example, just the archives contains everything from photographs 
to articles written. In entertainment, you could rattle off the 
catalog of that far better than I. But will there be the same 
kind of non-discriminatory practices with respect to that 
access?
    Mr. Levin. Well, for example, in addition to our movie 
library with all the Batman films, with some distinguished 
Senators who played a role in those films, we have close to 20 
million photographs.
    Senator Leahy. In some places, that is more popular than 
others, let me tell you right now.
    Mr. Levin. We have 20 million photographs in the Time-Life 
Building, really a remarkable collection--Alfred Eisenstaedt, 
Margaret Bourke-White. Indeed, some of the photography in 
Fortune in the 1930's, Fortune just celebrating its 75th 
anniversary, is truly stunning in the early days of photo 
journalism.
    We have digitized a portion of that, and I can assure you 
that that material will be available to anyone on the Internet. 
It will be available through AOL, but it is available to 
everybody because in a sense all of that material requires the 
broadest form of distribution. So a lot of the material, the 
content, the heritage of Time, Inc., and Time Warner is going 
to find multiple expression.
    Senator Leahy. Mr. Case, what about AOL? Will the same kind 
of non-discriminatory practices be providing access to the 
products and information of others that might not be affiliated 
with Time Warner and its family?
    Mr. Case. Oh, sure. We do that now and we will do that in 
the future. We provide access to everything. That is really 
what people are expecting, and we think it is the right thing 
to do in terms of building this medium. It is also the right 
thing to do in terms of building our business. If we were 
constraining choice, we would wither as a service.
    All of these businesses, you really need to look at as 
separate opportunities. As Jerry Levin just said, if you are in 
the music business or in the movie business, you are looking 
for the widest possible audience. If a movie company only 
distributed its movies through specific channels, it would be 
making a big business blunder.
    Similarly, if you are aggregating content, whether it be 
Home Box Office or the Book of the Month Club or an AOL kind of 
service, you need the widest diversity of choices. That is why 
people will migrate to your service. So that principle has been 
in place for both companies for a long time and will continue 
to be in place. It is critical to continue to build these 
businesses.
    Senator Leahy. Somebody might ask, though, ifaffiliated and 
unaffiliated are being treated the same, why bother to merge?
    Mr. Case. Because we do think there is an opportunity to 
build some new kinds of products and services; that if we have 
all these different people in the same tent, we can do some 
very interesting things, such as what we call AOL TV, trying to 
make TV a little bit more personalized, a little bit more 
interactive; things like an electronic jukebox trying to not 
just talk about it, but do it so that consumers really have a 
more convenient way to get music. So we believe there are some 
significant business advantages to this merger, but none of 
them get in the way of continuing to have these bedrock 
principles of consumer choice and diversity of content.
    Mr. Levin. You know, you have asked a question that we have 
certainly received from Wall Street. Why not enter into a 
certain number of joint ventures? And, frankly, stepping back, 
there really as an intention to try and create a new kind of 
company, one that is not only outfitted for this cyber speed of 
this particular century, but one that recognizes its 
responsibilities and wants to play a role in the formulation of 
public policy with a very common social objective.
    So we felt that this had nothing to do with size or with 
conventional business metrics, but really trying to do 
something quite different. And, frankly, this merger came 
together because of a shared sense of values. Now, I know it is 
unusual to state that, but I don't think we would have 
proceeded otherwise. And it is also a profound statement about 
the reality of the Internet.
    You know, with some amusement, I don't mind the 
characterization of old media. But, in fact, what this is is a 
statement that we are living through a revolution and if we can 
on some kind of cooperative basis play a role not just as a 
vested interest but also as a company that cares about the 
formulation of public policy, we would like to do that.
    Senator Leahy. I know my time is up, Mr. Chairman, and I am 
going to another hearing and I will come back. If not, I will 
submit questions, if I might. Thank you.
    Chairman Hatch. If I could just before I turn to you, Mr. 
Case, just to clarify a point, if I want to access content on 
the Web over Time Warner's broadband pipes, will I have to pass 
through AOL's or Time Warner's start-up page even if I choose 
to use another ISP? And do unaffiliated ISP's in your plan 
share the first screen, get their own first screen, or do they 
even get on the first screen? I know that is a tough question 
because you can't put 800 million Web pages on the first screen 
or a huge number of ISP's on the first screen.
    Mr. Case. The way AOL customers today get the service is 
when they sign on to the service, they will see, ``Welcome, you 
have got mail,'' things like that. At the top of the screen, 
you can type in that box to get to any service you want or you 
can go through our menus and go to the services that we are 
recommending.
    In a broadband world, if the customer of a Time Warner 
cable system or some other cable system opts to subscribe to 
AOL, they would see that screen, similar to what they are 
seeing today. If they subscribe to some other service from 
EarthLink or a local ISP or Microsoft or whomever, they will 
see that company's screen, not ours.
    Mr. Levin. We tried to make that clear, Mr. Chairman, that 
that is the true meaning of having alternative ISP's. So this 
isn't a roundabout way of just providing AOL auspices for other 
ISP's. Non-discriminatory access means that the consumer can 
have a direct relationship with another ISP, including from the 
time connectivity is established.
    Chairman Hatch. Senator DeWine.
    Senator DeWine. Thank you, Mr. Chairman, very much.
    Mr. Levin, some time ago Time Warner and AT&T announced 
that it was their intention to conclude an arrangement that 
would allow Time Warner's cable subscribers to receive AT&T 
branded telephone service over Time Warner's cable facilities. 
Since so many Ohioans are served by Time Warner, this appeared 
to me at the time to be an excellent way to offer many Ohioans 
a choice of local service providers.
    Let me ask you a couple of questions. Does this merger 
impact on your arrangement with AT&T, and what exactly is the 
status of the arrangement and when do you anticipate that you 
will conclude an agreement with AT&T or some other provider 
that will enable cable customers to benefit from a choice of 
local telephone providers?
    Mr. Levin. Well, obviously we think this is an important 
service to be provided. First, with respect to business 
customers, including in the State of Ohio, we are using the 
cable platform for CLEC, a competitive local exchange carrier, 
called Time Warner Telecom, which is serving in a very robust 
fashion a lot of small businesses in many communities indeed 
around the country.
    Second, with respect to AT&T, while there has been some 
distraction on their part during the past year as it relates to 
the MediaOne transaction and a lot of developments have 
occurred, I am quite optimistic that the relationship remains 
as true and as strong as it always has been, so that in terms 
of several different levels of service, be that cooperative 
marketing, the provision of what is called circuit-switched or 
facilities-based telephony, and now the opportunity to present 
IP, or Internet protocol telephony, all of these opportunities 
are actually broader today than they were at the time we 
announced our understanding last year.
    So I remain optimistic about provision of now even more 
expansive services that take into account what we have just 
been discussing, including broadband ISP's, where there is 
another form of telephony that can accompany e-mail and instant 
messaging.
    Senator DeWine. Obviously, we have a special concern about 
residential customers.
    Mr. Levin. Yes, and that is why I said from a residential 
customer point of view there are several levels of relationship 
with respect to AT&T or other telephony providers. One is to do 
cooperative marketing to provide a bundle of services to 
residential customers. Two, where necessary, is to use the 
circuit-switched, facilities-based telephone that can ride on 
our cable pipes. And three is a new opportunity which we are 
currently testing, and that is to use the Internet connection 
as a way of providing residential telephony. So I think, in 
fact, the passage of time has actually helped us because there 
is a much wider array of services, and I think our interests 
are quite aligned with Mr. Armstrong.
    Senator DeWine. Let me ask you another question now.As you 
know, Time Warner is involved in ongoing retransmission consent 
negotiations with the Ohio News Network in Ohio over the issue of 
whether and how Time Warner will carry the Ohio News Network on its 
cable systems. You and I have discussed this before, and you know that 
I am very concerned about it and I hope that you can work out some 
reasonable settlement very soon.
    On a general note, though, I would like to state for the 
record that I am very concerned, Mr. Chairman, about how these 
retransmission consent negotiations have been deteriorating 
recently. Several months ago, Fox and Cox had a dispute that 
resulted in Fox being dropped from several local markets for 
some time, including some markets in the State of Ohio. Now, 
Time Warner and ABC are apparently having problems with a 
negotiation in the Houston market. I understand that one of the 
issues in that retransmission consent discussion is how the new 
AOL/Time Warner is going to treat ABC with regard to some 
Internet issues.
    While the details of all these negotiations obviously 
differ, I am concerned that we are seeing more and more 
situations where the parties are not coming to terms and the 
customers are the ones that are being harmed. These 
retransmission negotiations are going to become more and more 
important in light of the developments in digital television, 
satellite service, and broadband Internet service. And if the 
parties are unable to work constructively together, I think 
that some of the members of this committee are going to need to 
seriously reexamine the retransmission consent mechanism to 
make sure that it is working to protect the consumer. I look 
forward to working on this issue with Chairman Hatch should 
that become necessary.
    So just a general comment about that, Mr. Chairman.
    Mr. Levin. Well, if I could say to the distinguished 
Senator from Ohio, you know, I share your concern. What was 
intended to provide mandatory carriage, must carry, for our 
over-the-air, free broadcast system, there was an addition 
called retransmission consent, and up until recently I think 
that system was working.
    What we are seeing now is, I think, an abuse of that 
provision in the law designed to provide a lot of leverage for 
business purposes that really have nothing to do with serving 
the citizens through this public license. In this case, I have 
to say I am quite concerned with respect to ABC because here 
the citizens of Houston have been singled out amongst all of 
the communities where we have cable systems and ABC has 
television stations. For what purpose, I am not sure.
    There was an agreement in place at the end of last year 
which, after the announcement of our merger, seemed to 
disappear. And we have assured Messrs. Eisner and Eiger that 
nothing has really changed in terms of the ability for Disney 
material to be captured. So I share your concern about what is 
really a perversion of this system, and I would hope that our 
colleagues would recognize their public service obligation with 
their broadcast license for the citizens of Houston.
    Senator DeWine. Mr. Case, although AOL and Time Warner have 
agreed to provide the so-called open access to the cable 
network, you have indicated that there are some technological 
barriers that might limit the number of ISP's able to use your 
systems. Some people claim that the cable network could be 
built so that it is completely open, just like the phone 
system. And they are concerned that you may intentionally 
design your system to limit the amount of competition that you 
will face. These are obviously very complicated technical 
questions and issues with important implications.
    As policymakers, we certainly don't want to discourage 
investment in broadband by diminishing its effectiveness, and 
we don't want to regulate the Internet, but there are obvious 
benefits to having a system that is as open as humanly 
possible. Under these circumstances, does it make sense to 
consider using a group of independent private industry 
technical experts to help create industry protocols for open 
design of the broadband architecture, for example, something 
like the IETF, the Internet Engineering Task Force, or maybe 
some other group?
    This way, if an independent industry group were to find 
that only a certain number of ISP's can effectively share a 
network, there would be no question as to the validity of that 
particular assessment. Would you like to comment on that?
    Mr. Case. Well, as you know, we have been an advocate for 
open access for some time, and in that process we actually have 
done a lot of work with outside organizations to try to 
understand some of the engineering issues. And we are very 
committed to supporting a wide array of ISP's. We think it is 
in the interest of the cable system.
    I have believed this for some time. I guess I was not very 
effective in communicating it until recently. I have believed 
for some time that if you run a cable system, the best way to 
maximize the profit generated from that cable system was to 
have many companies essentially reselling that capability as 
opposed to forcing those companies to find some other path, 
whether it be a phone system or a satellite system or what have 
you.
    So it is in the best interest of the cable industry, as 
Jerry just said, to encourage as much competition as possible, 
as many people essentially selling your services as possible, 
and that is our intent.
    Senator DeWine. Thank you very much. Thank you, Mr. 
Chairman.
    Chairman Hatch. Thank you, Senator DeWine.
    Senator Kohl.
    Senator Kohl. Thank you very much, Mr. Chairman.
    Mr. Levin, Time Warner is one of the biggest media 
powerhouses existing today, with a large interest in virtually 
every aspect of media, including movies, cable television, book 
and magazine publishing, and music. As you know, now you seek 
to combine with AOL, linking this content to the enormous 
promise and reach of the Internet. I believe that media mergers 
such as this one should be looked at differently than more 
conventional mergers like, say, oil or cereal, because these 
mergers affect diversity of expression in the marketplace of 
ideas.
    Mr. Levin and Mr. Case, do you agree? Do you believe that 
mergers involving media companies should receive greater 
scrutiny?
    Mr. Levin. Well, I think it is very clear that particularly 
the dissemination of news is fundamental to our democracy, and 
therefore I would agree on the one hand that there should be 
scrutiny. On the other hand, I think it is important to 
recognize that the pillar of this society happens to be the 
free exchange of ideas registered in theFirst Amendment.
    When I referred before to the revolution that is taking 
place in the Internet, I would suggest that this is not like a 
traditional media merger where you have two players who are 
currently engaged in traditional media joining together. In 
fact, this is taking the Internet space and forging a merger 
with a more traditional media company, and kind of the true 
recognition of what the Internet can provide.
    As I indicated before, from a business point of view, most 
companies are feeling this disaggregation that is taking place. 
So while I agree with you that the dissemination of news in the 
marketplace of ideas is absolutely central to our democracy, I 
am not sure what we might refer to as antitrust scrutiny would 
do when you have almost an incalculable easy of entry. Let me 
give you one example and then I will stop.
    Everyone can be a source of news today, sent instantly 
around the world. What was an interesting example is during the 
war in Kosovo, when it was very difficult for any journalist to 
be in Pristina, there was a young teenager operating with a 
computer who was simply describing what was happening right 
outside her house. This was going around the world. In effect, 
this was the most profound source of news, and to me she was a 
heroine, actually.
    This is a symbol that today--actually, you know, when you 
have the marketplace of ideas, I am not saying every source of 
information has equal standing. But, in fact, there is no 
gatekeeper. So, to me, that puts a new perspective on the 
traditional antitrust scrutiny of this particular merger.
    Mr. Case. Let me just add I think you should take this very 
seriously because I think what we are talking about here in 
terms of how people get information and communicate and buy 
products is a very serious business. And we are talking about 
an acceleration of the pace and having people living more and 
more in a connected world, and there are many issues related to 
that, including privacy and taxation and copyright, and so 
forth, that merit attention. I think the good news is it is 
getting attention.
    But I think Jerry makes a very important point that from a 
consumer standpoint, which I think is the best way to look at 
this, there is an unparalleled level of diversity of voices. 
When I was growing up, as I was referencing earlier, there 
really were just three broadcast networks. And the challenge 
there if you were a program producer was good luck trying to 
get your program on the network, particularly getting your 
program on the network in a good slot.
    That has given way to now dozens of cable channels, in some 
cases on satellite systems or digital cable systems hundreds of 
channels, and there is a diversity of choice that is really 
quite unparalleled. The Internet, as I think you all know, 
takes that to a much greater extent because now there are 
millions of choices and anybody can create a new site, and 
millions of people have created new sites.
    So I think it is very different. We don't feel like we are 
putting these two companies together just to be kind of bigger, 
and bigger is better. We think better is better, and we think 
these companies can do some innovative things for consumers. 
But we don't for a moment think that we have any lock on any of 
these services, any of these businesses. We are going to have 
to come in everyday and compete vigorously.
    And some of the things we talked about which we think make 
sense from a public interest standpoint also make sense from a 
business standpoint. We have to do everything we can to build 
confidence and build trust because that is the bedrock of all 
these different services.
    Senator Kohl. I think both of you are arguing the 
legitimacy of your deal, and I am not disputing whether it is 
or isn't. I am just suggesting that people like Mr. Pitofsky, 
for example, who, as you know, is over at the FTC and is going 
to be looking at your merger, believes that a merger of this 
sort deserves even closer scrutiny because we are talking about 
the industry that you are part of which is so basic to our 
society.
    Mr. Levin, your company has an unparalleled history and 
tradition in journalism going back to the days of Henry Luce 
and the founding of Time magazine, and it has only been 
enhanced by CNN, one of today's preeminent cable news 
organizations. However, some observers are concerned about what 
this merger will mean for news and public affairs programming, 
and worry that AOL's business interests might constrain the 
reporting found on the various Time Warner's news outlets.
    For example, I was struck by both of these themes as I 
watched the CNN-sponsored Democratic presidential debate last 
week in New York City. I noticed that you were in the audience, 
Mr. Levin. Now, all members of the panel of journalists asking 
the candidates questions were part of the Time Warner 
organization, from either Time or CNN, as was the moderator, as 
you know, Bernie Shaw, of CNN.
    The program was broadcast only on CNN. The debate format 
allowed questions from the Internet, but only those that came 
through either AOL or the Time Warner Web site. And the debate 
took place in the historic Apollo Theater, which has been 
endowed by Time Warner. In addition to all of that, the New 
York Observer has reported that no journalist not affiliated 
with Time Warner was even permitted in the Apollo Theater, a 
venue with a capacity of over 1,400 people.
    So, Mr. Levin, the exclusion of outside journalists was a 
mistake, wasn't it? I assume it wasn't company policy. And, 
second, in light of all of this, will you pledge to us that the 
independence of Time Warner's news organizations will be 
preserved and that Time Warner's corporate owners will in no 
way interfere with the news coverage found on CNN, Time, 
Fortune, and its other outlets?
    Mr. Levin. Senator Kohl, I will refer to my statement. 
There is nothing more important to my trusteeship at Time 
Warner, now AOL/Time Warner, than journalistic independence. We 
have a deep tradition at our company of the separation of 
church and State, which means there is no business interference 
at all with the quality of our journalism, and I will make that 
commitment to you. It is at the core of my being. I was raised 
in this company and that is what I intend to do in the new AOL/
Time Warner. And as I indicated, Steve Case understands that 
this is a part of our heritage and we would not have moved 
forward if there were any other understanding.
    Let me refer to the Apollo Theater. This was a moment I was 
extremely proud of. I think it was the first time there has 
been any kind of political debate in the village of Harlem 
where the community leaders had a chance to address issues that 
relate to the African American communitythat are just not 
otherwise addressed.
    Now, in fact, the Apollo Theater does not have sufficient 
space for a press room. So, at our expense, we established one 
across the street above a Krispy Kreme donut shop and enabled 
250 journalists to have full access to the feeds that were 
available. And at the conclusion of the debate, we made sure 
that everyone who was in attendance, from Phil Jackson to 
Whoopi Goldberg, could have a chance to address the assembled 
press.
    In fact, I would say that the quality of the questions 
which came from the community leaders as well as from Bernard 
Shaw or Jeff Greenfield--that anyone on the Internet could have 
asked a question by just dialing up any of the chat rooms that 
we had available. So this, I think, was a proud moment. It also 
is something that again exemplifies this political season, 
where I believe we are seeing, because of the more intense 
coverage, more engagement, more voter turnout, more interest in 
the issues.
    And, in fact, one of my intentions by swearing off of soft 
money was to provide money available so that our journalists, 
whether it is CNN or Time or New York One News, could provide 
more issues coverage of this campaign, and I am very proud of 
what they are doing.
    Mr. Case. Let me just add that I did see an article this 
morning in the Washington Post talking about this, sort of 
suggesting that the motive for scheduling a debate like this is 
sort of to build the brands and things like that, almost being 
cynical about it.
    I actually am very proud of what Time Warner did and I 
think it is an example of what AOL/Time Warner wants to do, 
which is not just build our businesses, but also try to serve 
the public interest. I think CNN and other Time Warner networks 
have done many debates in the past few months that have given 
consumers and citizens much more of a sense of the issues in 
these elections.
    AOL has done the same thing, investing a lot of money and 
time in election coverage. It is not the best thing to do 
commercially. Doing a knock-off on ``Who Wants to Be a 
Millionaire'' probably would generate more revenue than a 
debate from the Apollo Theater. But it is the right thing to do 
and it is the kind of thing these companies are going to 
continue to do, and I think you should be appreciative of the 
fact that we are both committed to the public interest and 
using these different TV networks or Internet services to serve 
the public interest.
    Mr. Levin. I guess I should add in the sense of full 
disclosure, yes, our annual meeting will be at the Apollo 
Theater. We are going to produce a documentary on the history 
of the Apollo Theater so that the young people--and this was 
what was encouraging to me that evening, is to see young 
citizens in that community who had some measure of pride that 
we were bringing these issues and this campaign to their 
community.
    Chairman Hatch. Well, I have to say as somebody who has 
participated, after listening to Senator Kohl's recitation, I 
didn't realize how much control you had over presidential 
politics. I should have held this hearing in January. 
[Laughter.]
    We will turn to Senator Abraham now.
    Senator Abraham. Well, thank you very much, Mr. Chairman.
    Chairman Hatch. By the way, I thought that was an excellent 
format compared to some of the others that I was in.
    Senator Abraham.
    Senator Abraham. Thank you, Mr. Chairman. I just want to 
begin by saying that I very much have appreciated hearing today 
the commitment that both of you have expressed with respect to 
the issue of consumer choice and the issues of open access. And 
I hope that all of our colleagues will take note of that, as 
will others who have an interest in this merger. To me, those 
are really the central questions, or at least two of the most 
central questions that ought to be focused on. And I just want 
to draw attention to that here today and to applaud the obvious 
commitment that has been expressed in the Memorandum of 
Understanding that we heard about earlier today.
    I also want to just say, Mr. Chairman, that I do think in 
the age of the technology revolution that we are currently part 
of, it is very hard to apply existing regulatory or statutory 
analysis when we try to assess things such as whether or not 
antitrust issues are applicable, whether it is this merger or 
any other. When we are dealing with technology that is changing 
so fast, I think it changes the way we should look at business 
mergers.
    Mergers in today's 21st century information age Internet 
economy are, by definition, different than mergers that 
occurred in the industrial smoke-stack industry age of a 
century ago. Are there significant barriers to entry in today's 
information age technology and economy? Well, we can look at 
dollars and cents exclusively, but there don't certainly seem 
to be very many barriers to the start-up of new enterprises. 
Anyone with a PC and a good idea can start an Internet company 
pretty darn quickly, and nothing about this merger is going to 
change that.
    Are new ideas and new innovations being stifled? Well, pick 
up the business section in any newspaper in the country and 
what you will find are stories about new and very exciting 
innovations every single day. Just last week, in our State, the 
Big 3 auto makers announced a very innovative and exciting 
initiative to put all of their auto parts procurement processes 
online, and I suspect we will see some of the major parts 
providers joining in in some way in that enterprise.
    Are consumer prices rising and consumer choices being 
limited or reduced? Again, I don't see that happening. Consumer 
prices generally have remained in check, and prices for 
software, hardware and Internet services have essentially 
declined throughout the 1990's.
    And on the issue of consumer choice, here is an interesting 
fact. By the end of this year, 2000, there will be 
approximately 1 billion Web sites on the Internet offering a 
mind-boggling array of information products and services. It 
seems like an ample amount of choices to me, although I have 
got two 6-year-old daughters who are already finding themselves 
so literate at using the computer that maybe within a few years 
that won't be enough for them and their peers.
    In my judgment, I think we need to examine mergers against 
that backdrop and focus not exclusively on the size of the 
companies or what they do today, but on the broader backdrop of 
the sector that they are part of and what the slightest 
development or new innovation can do to change the whole world 
in which they operate. That is why I think this merger, 
certainly what I know about it, constitutes anexciting marriage 
in a sense of both the new as well as traditional media.
    By bringing together print, video and online media, I think 
the merger can open a number of possibilities for applications 
and cross-applications that we can only begin today to foresee. 
So I very much appreciate what I have heard.
    I also, because I am going to also see you both on 
Thursday, I guess, in the Commerce Committee, want to ask a 
question here that is a little more within Judiciary's 
jurisdiction and perhaps a little less in the jurisdiction of 
my friend Senator DeWine's subcommittee, and that is in my 
Subcommittee on Immigration.
    You talked, Mr. Case, in particular about the digital 
divide and the commitment that you have made, and I know Time 
Warner has likewise tried to make and Mr. Levin mentioned just 
a few minutes ago. One of the things that we are confronting 
this year is yet again an enormous shortfall in the number of 
IT and high-tech workers available to fill slots and 
assignments that we have in this country.
    I don't believe immigration can be a permanent solution or 
a long-term solution to those problems, and I know neither of 
you do as well. Therefore, as a result, we just are looking at 
legislation that would increase at least for a couple of years 
the number of high-tech worker visas that would be permitted to 
be issued.
    Those who are not immediately supportive of that idea have 
argued that the private sector is not doing very much with 
respect to training and education, and that instead of 
immigration visas we should crack down on industry because they 
are not pulling their fair share.
    I would like to ask both of you to comment, at least within 
the context of AOL/Time Warner, what you all are doing so that 
we might at least partly address some of those criticisms, and 
then also for any comment you might have with respect to the 
high-tech worker needs and then the issues that relate to high-
tech worker visas and whether or not you see them at this point 
as a positive versus a negative piece of legislation.
    Mr. Case.
    Mr. Case. We think it is terrific legislation, and we 
support and appreciate your leadership on this issue. We think 
it is great for this Nation to continue to be the beacon for 
talent around the world, people wanting to come here and 
participate in this phenomenon of the Internet, and that 
stimulated development of a lot of new companies in this 
country has been the beneficiary of that. So anything that is 
supportive of that process of getting the best and the 
brightest into this country so they can help us stimulate this 
economy and create these new companies and new services for 
consumers I think is a healthy thing.
    In terms of training specifically, we have had to do a lot 
on training because when we started our company 15 years ago, 
we started with a couple of dozen people. Even 5 years ago, we 
had less than 1,000 people, and now we have over 12,000 people. 
So we have grown very rapidly and we have had to do a lot of 
things internally to train our people to make sure they have 
the right skills going forward.
    And we also are taking on a very active role to try to 
stimulate training, new ways to even think about education, 
marrying these new technologies with educational systems. We 
have an initiative called AOL at School, for example, that is 
precisely designed to do that. So we think it is very important 
to invest in education, to invest in training, and to recognize 
that this new medium creates new opportunities, and to try to 
embrace those new opportunities so we do have a better educated 
society, not just people when they are going through school, 
but people throughout life.
    Mr. Levin. Just to connect two points, the underclass and 
the digital divide, we have a program that we put into 10 
public schools in New York City where we have been training 
teachers to take young people who are in the 11th and 12th 
grade to give them a certificate so they can become digital 
software engineers.
    In the past, they might have certainly not gone on to 
higher education, might have gravitated toward auto mechanics. 
And we do this in our own facility where we are training people 
at Time Warner because these jobs are actually--a high school 
graduate with this 2-year program can fill--there are 50,000 or 
60,000 jobs going unfilled at a very decent salary.
    And we have picked obviously 10 disadvantaged schools in 
the City of New York. It is a program started by Cisco 
Academies, but in this case we are trying to expand it. So it 
is just coming at it from another direction and it is another 
way of saying that the skill base in our companies, including 
AOL and Time Warner, that we ought to make those skills 
available not only for our own purposes--that is, training for 
our own company--but also to supplement what the schools are 
unable to do.
    Senator Abraham. Ten school districts. Approximately how 
many----
    Mr. Levin. Ten schools within New York City.
    Senator Abraham. Approximately how many people will be a 
part of that program?
    Mr. Levin. Well, at any one time we have put--we are 
training the teachers, who then train the students. So we 
probably train 20 teachers at a time. It is a several-month 
program, and then they go into each of their schools. This 
program is now in its third year, so we had the first class 
graduating, and it has probably been one of the most successful 
programs because we broke through some of the difficulty in the 
school governance system to do it.
    Senator Abraham. Great. Well, my time is up, but I would be 
interested in getting more information about what each of you 
and your companies are doing. Thank you for being here today.
    Chairman Hatch. Thank you, Senator.
    Senator Feinstein, we will turn to you.
    Senator Feinstein. Thanks very much, Mr. Chairman.
    You know, gentlemen, as I sit here and listen to this, I 
just cannot fathom the enormity of this. I am led to believe 
that this is the largest combination of businesses in the 
history of this Nation.
    I am concerned with three things and I would like to 
contain my comments and questions to those. The first is your 
Paul Revere aspect, Mr. Case, and that is open access. The 
second is really a narrowing of journalistic sources, and the 
third is privacy.
    Before the merger was announced, AT&T answered your demands 
about open access by pointing to contracts with At Home that 
required exclusivity for a number of years. Open access was an 
impossibility in the near term, they said, because the 
contracts could not be broken. And yourcompany, as you know, 
did not agree with that.
    I have looked through the Memorandum of Understanding. I am 
not a lawyer, but it doesn't appear to me to be binding. In 
point 11, ``All of the foregoing is subject to all preexisting 
obligations of Time Warner, including, without limitation, Time 
Warner's agreements with,'' and then it mentions some 
companies, or Road Runner, ``and its fiduciary and other 
obligations to its partner.'' Now, I have no idea of what that 
is.
    ``However, Time Warner will endeavor to reach agreements 
and accommodations with third parties to whom preexisting 
obligations are due that would permit the full implementation 
of the commitments described herein as quickly as possible.'' I 
mean, this does not seem like a binding commitment to me of 
open access. Could you respond?
    Mr. Case. Sure. Let me give you a little bit of the history 
of the Paul Revere ride. It was several years ago when it 
became clear that the Internet was about to move into another 
phase, that broadband was going to become more important, and I 
and others made the point that it is critical that the kind of 
openness and competition that exist in today's Internet 
continues to exist and flourish in tomorrow's Internet. 
Therefore, it is critical that all broadband networks be open 
and consumers have choice.
    We initially were hoping that companies in the cable 
industry would just voluntarily do that because we thought it 
made good business sense. When AT&T announced that they were 
acquiring TCI, we actually, I remember, put a statement out 
that day saying this is great, we look forward to working 
together to help build broadband.
    And what we found is at that point in time there was not a 
willingness to embrace this idea of consumer choice. The only 
way to get broadband access from an AT&T system was going to be 
if you bought the AT&T ISP, which was At Home. And that 
disappointed us. We therefore said, well, if it is important 
from a consumer standpoint and a policy standpoint and at this 
point in time the cable companies aren't willing to do it 
voluntarily, then it does seem like this is a need for 
Government involvement, and we said the Government needs to 
take a look at this.
    And I testified in a variety of hearings and talked to a 
lot of people, and the general reaction was we agree with you 
that this is a matter of concern, but our sense is we should 
see if the market will work on this before the Government needs 
to step in. And we said, well, OK, that is not exactly what we 
would have liked at that time, but we understand.
    Then two things happened really in the last few months. The 
first was AT&T, which up until then had said that open access 
was not technically possible nor financially feasible, issued 
some principles stating they were committed to open access. And 
we said that was a major step forward, but there are some 
details that needed to be looked at. We had some questions 
about billing relationships, we had some questions about video 
streaming, we had some questions about timing, but we thought 
it was a step forward.
    The second big thing was we announced the merger of AOL and 
Time Warner. We committed on that day that Time Warner systems 
would embrace the concept of consumer choice and that we would 
work as quickly as possible to achieve that. Today, we put out 
a Memorandum of Understanding that I think goes a major step 
ahead of where AT&T was, adding clarity on video streaming, 
adding clarity on billing relationships, and saying that we 
will move as quickly as possible to achieve that.
    That specifically references the Road Runner agreement. 
Road Runner is a partnership of Time Warner and AT&T. They are 
the principal owners, as well as Microsoft and Compaq, and 
there are some cable partners that have an interest in 
different cable systems. The present agreement for Road Runner 
in terms of exclusivity expires at the end of next year, the 
end of 2001, and the commitment that we have made is that we 
will move as quickly as possible to accelerate that. So instead 
of having to wait until the end of next year, the hope and the 
expectation is that this open access would happen faster.
    And an important point to point out is AOL will not get 
this open access. AOL will not be distributed on Time Warner 
systems until this exclusivity is renegotiated and Time Warner 
has the flexibility to work with us and also work with others. 
So I think we have done a lot in the past couple of years to 
take the issue, make it a major priority, build momentum for 
it, and now get several of the major companies, we hope all the 
cable companies, to embrace that notion of open access which we 
think is good for our business, but most importantly good for 
consumers.
    Senator Feinstein. Let me ask you both, do you regard this 
as a binding agreement?
    Mr. Levin. Well, here I think we are talking about a legal 
nicety. We are appearing today and asserting a commitment, and 
that commitment is as strong a statement as we can make by 
putting these principles out. So I don't think it is a lawyer-
like question. I think this is a personal commitment that we 
are making, I am making, with respect to the cable systems that 
we have.
    Also, the principles that are embedded here do go much 
beyond some of the general outlines that have occurred before 
and are designed to send a signal that this is very healthy 
opportunity for the cable industry. I can't turn back the 
history where there were exclusivity agreements entered into 
both with respect to Road Runner and Excite At Home because 
this was an untested area for high-speed broadband access.
    No one truly knew the opportunities or the difficulties, 
and now that we have had experience over the past year it is 
clear that there is capacity in this digital bank account. And 
the principle that is being articulated of non-discriminatory 
access is a fundamental principle really for, I think, the 
cable industry. Therefore, I think today's commitment has real 
significance.
    Senator Feinstein. Could I respond to that? I am not 
doubting that it has significance. Let me tell you one of the 
problems. I have been on this committee for 7 years. This is 
the biggest thing I have ever sat through. I have not had one 
letter or one phone call. I reached over to my staff and said 
have we had anything that has come in on this. He said we 
usually get a lot of stuff--my Judiciary counsel--not one 
thing. Senator Torricelli was sitting over here. I reached over 
and I said have you had any input? Not a thing.
    So this huge combination of companies is happening for us 
at a point where there is very little input as to exactly what 
means what. So I am not trying to in any way question you. I am 
trying to understand it and I am not an attorney, so I am 
pressing for that understanding. So please bearwith me.
    The situation Senator Kohl outlined to you was one--and the 
issue wasn't the Apollo Theater; the issue was a narrowing of 
journalistic interests, the ability to participate. And I am 
trying to figure out how much of the American public this 
merger will actually affect. I suspect it is almost close to 
half. I mean, it has got to be enormous in its impact. 
Therefore, trying to think 5 years, 10 years down the line, 
what does this do to the kind of input one gets in a 
decisionmaking process if most of the input into that process 
is controlled by one combination of companies.
    Mr. Levin. Well, Senator, I actually feel as deeply as you 
do about the importance of the dissemination of news and 
information in our Republic. In fact, I think the evidence is 
crystal clear that in more conventional terms, the amount of 
news and information before we turn to the Internet as a result 
of the multiple channels, particularly what has occurred 
through cable and through DBS, in this political season there 
is more opportunity for consumers to receive a diversity of 
voices and news on issues that really affect our society than 
ever before in the history of our Republic.
    Now, we add to that the Internet, and by definition the 
Internet is a wildly democratic, chaotic network with no 
central control. We have never had anything like that in our 
human history. Therefore, no matter what AOL or Time Warner may 
do, you can't prevent these billion Web sites from being sent 
around the world with as much information as possible. There 
isn't a subject available either that is happening today or 
relates to lifestyle information.
    You know, it is somewhat like having the old dream of the 
central library in Alexandria where all human wisdom would be 
recorded in a place that people would have access to. That is 
essentially what we are living in, and so the old concept that 
anyone could control this source of news just really is turned 
on its head.
    In addition, I have to return to the heritage of our 
company. I would like you to have some comfort that our company 
has been built on this separation of church and State, 
immunizing the news sources from any business input. And, in 
fact, in this era when some have cut back on the number of 
bureaus, in our case on a worldwide basis we have been adding 
to the opportunity particularly with respect to international 
news. So I feel deeply about this issue. It is at the 
cornerstone of our company. I would not have proceeded with the 
AOL/Time Warner merger if I thought that this would be either 
interfered with or narrowed.
    Mr. Case. If I could just add on this open access because I 
think it is very important, I think you should take some 
comfort in the fact that 6 weeks ago we announced the merger 
and today we are announcing a fairly detailed Memorandum of 
Understanding that addresses in a very direct way the precise 
concerns we and others have had over the years about open 
access, saying that it is important that video streaming be 
permitted, it is important that ISP's really be able to build 
directly with customers, it is important that there be no 
technical limits on the number of ISP's.
    And we have done that in a relatively rapid period. We have 
understood all along, because we were on the other side of this 
issue for so long, what was necessary to really ensure open 
access, and we have been working in a relatively brief period 
to achieve that and that is what we announced today. What we 
will be doing in the months ahead is putting that into 
practice, make it binding not just between our companies but 
between Time Warner and other cable systems, and between Time 
Warner and other cable systems and many other Internet service 
providers.
    So I think we have made tremendous strides here, really I 
think demonstrating that the commitment we have had to open 
access is a real commitment and it is not just about talk, it 
is about action.
    Chairman Hatch. Well, if I could just follow up more 
quickly on Senator Feinstein's concern here, Mr. Case, you were 
so concerned about the AT&T-TCI merger's possibility of 
suppressing competition that you urged an open access policy or 
requirement should be adopted as a matter of policy.
    Of course, you have both now attempted to address this 
through your Memorandum of Understanding between your two 
merging entities. As you have heard here today, some do appear 
skeptical about this voluntary pronouncement while the mergers 
are pending. To show your commitment, would you agree to have a 
more definitive version of the MOU, or Memorandum of 
Understanding, be a further on condition on regulatory approval 
of your proposed merger?
    Mr. Case. Well, I think we have made a lot of progress in 
the last 6 weeks and I think you will see us making a lot of 
progress in the coming weeks and months. And I think you will 
find that it will be unnecessary because we will actually have 
done in the marketplace precisely what consumers need and other 
ISP's need, which is stimulate choice and competition.
    So I understand there is always going to be some cynicism 
about this, and it is sort of the concept, I guess, of trust 
but verify. And I think you will find in the months ahead that 
we are dead serious about this and there will be no need for 
Government involvement because our companies, and we believe 
other cable companies, will get on this bandwagon.
    If that is not what happens in the marketplace, if there is 
not real definitive open access not just with our company, but 
with other companies, it would be certainly fair for you to 
readdress it at that particular point in time. I don't think 
you will find that that is going to be a concern.
    Chairman Hatch. Senator Feingold, I am sorry to delay your 
questioning.
    Senator Feingold. Thank you, Mr. Chairman.
    Mr. Levin and Mr. Case, welcome to both of you. We 
appreciate your coming and how generous you have been with your 
time.
    First, I would like to commend you, Mr. Levin, for your 
announcement back in November that Time Warner would no longer 
make soft money contributions to the political parties.
    You have obviously been in the news a lot in more recent 
months as a result of this merger, but I believe that the 
decision I have just referred to was very significant, and you 
deserve a lot of credit for it not only from me and others in 
Congress who support campaign finance reform, but also from the 
public. So I want to make sure that your important contribution 
to political reform is part of the record of this hearing.
    I would like to give you an opportunity to tell us about 
your decision and why you made it in a moment, and Iwould like 
Mr. Case to comment as well. But, first, I just want to tell you and my 
colleagues that I just came from a somewhat extraordinary event that 
bears upon this discussion.
    A few minutes ago, a 90-year-old great grandmother named 
Doris Haddock--many across the country know her as Granny D--
took the final steps in an extraordinary journey that started 
back in January 1999 at the Rose Bowl Parade in Pasadena. 
Granny D literally walked across the country; she walked across 
the country from the Rose Bowl to the Capitol steps, 10 miles a 
day, 6 days a week, through the rain and snow, relying on the 
kindness of average people who walked with her and took her 
into their homes. And she did this to call attention to the 
specific issue of banning soft money.
    So here we have this 90-year-old woman from New Hampshire 
doing her part, and I want to say again we have here sitting 
before us a powerful CEO of a major media corporation doing his 
part to address the problem. I think it is noteworthy that you 
made this decision in a changing and challenging regulatory and 
political environment for your business when many of your peers 
in the information technology industry are becoming more 
involved, not less involved, in trying to influence the process 
through huge political contributions.
    So again I want to commend you for what you have done. I 
would like to give you a chance to elaborate on your reasons 
for doing it and explain the other components of your plan to 
revise Time Warner's participation in the political process. I 
would also like to ask you and Mr. Case if AOL/Time Warner will 
continue these policies if and when the merger is consummated.
    Finally, if I could squeeze one more question in before 
turning to you, have you had any response, positive or 
negative, to Time Warner's new policy from others in the 
industry?
    Mr. Levin.
    Mr. Levin. Well, thank you, Senator. We have had some 
response from some people in the industry applauding it, not as 
much as I would have liked, and it is not a singularly popular 
decision here in Washington.
    Just to turn the clock back, Time Warner was built over 
several years, an aggregation of several companies having 
disparate views on political contributions. We finally reached 
a point where it became clear to me as a result of almost 
personal principle that the insidious effects of soft money 
were obviously--to me, it taints the underbelly of the 
electoral process because it is subject neither to regulation 
and therefore to real abuse. Also, what is the bargain being 
struck?
    So with some pain because of past practices by several of 
our constituent companies, it became clear to me that we 
couldn't really hold ourselves out with the journalism that we 
have discussed with Senator Feinstein before and maintain this. 
So we spent some time analyzing it, and in making the decision 
I decided to make one other statement, and that is I wasn't 
going to benefit from the reduction in expenditures from any 
business point of view.
    We would take that money which would otherwise have gone 
into soft money contributions and redeploy it. And it has been 
redeployed, I am pleased to say, including at several of the 
debates, in what we simply asked for more issues coverage in 
this political season. So with no strings attached, the money 
was dispatched to CNN, Time, and the five 24-hour news services 
that we have on our local cable systems. And I am pleased to 
say that, in fact, I think that has occurred.
    As an example, if I look at Time magazine--and by the way, 
I have no input in anything that is published there--there has 
been continuing coverage, first of all, in very specific terms 
of the rather lengthy piece that isn't necessarily the most 
commercially appealing piece, but had to do with the effects of 
one particular large contributor and what that did to the 
political process.
    At the same time that campaign finance reform is an issue 
that I think our journalists are holding before our country, 
they are also trying to keep the political focus on education. 
So there have been many reports to try and make sure that that 
issue gets addressed in this political season, including just 
this past week a pretty interesting piece in Time on a more 
structured, disciplined curriculum. So my own feeling is that 
this has succeeded.
    In the case of New York One News, there will be a lot to 
cover in the upcoming senatorial campaign. So I am really 
satisfied. I can't say that there is a bandwagon effect because 
I think that this is still a controversial issue both within 
corporations and certainly here in Washington. But I think it 
is absolutely essential, and the new AOL/Time Warner will 
follow the same policy.
    Mr. Case. Yes, I think that is very important. We share 
your concern about some of the issues related to the campaign 
financing process, and I have enormous respect for Jerry taking 
this bold, sort of controversial position as the leader of a 
major media company to stop soft money. Indeed, that, along 
with some other things, was one of the factors we considered in 
thinking about merging together because we really do want to be 
part of a company that is not just the most valuable in the 
world but also the most respected in the world.
    And being willing to lead on some of these controversial 
issues is part of that. So this combined company will embrace 
that notion that there are lots of things we can do to 
stimulate the political process, but we will not do anything 
related to soft money.
    Senator Feingold. Well, I will leave it at that. I really 
appreciate those answers. Thank you very much for being here.
    Chairman Hatch. I would like to wrap this up, but Senator 
Leahy has a question or two left.
    Senator Leahy. Thank you, Mr. Chairman. Senator Feingold 
mentioned about the soft money. Of course, the most relieved 
person with your position on that was Tim Boggs because instead 
of getting 300 phone calls a day, he now only gets about 100 
phone calls a day.
    I know there has been some discussion about the Apollo 
Theater. I was pleased in that debate to hear the question 
about the way the death penalty is handled in this country and 
the number of people on death row who, in some cases just hours 
before execution, they found they had the wrong person, and the 
need to do a better job of making all evidence available.
    Let me just ask one question and it relates to a question I 
have raised with both of you over the years, but especially 
since this happened. Mr. Case, you have got 21 million 
subscribers at AOL and Time Warner has 13 million-or-so cable 
subscribers, and then you have got millions ofpeople with 
subscriptions to your publications, and so on.
    Now, you have made no secret about the fact that you want 
to cross-promote and distribute your products and services, and 
nobody questions that that is a good corporate thing to do. 
What we do worry about is what happens about the databases that 
are there. How does that get shared? If somebody goes on AOL to 
buy something and they put their credit card in, everybody 
knows about that. They buy a sports magazine but don't want 
another magazine and all these things that could be done.
    How much information should be shared, how much should be 
sold, how much can be sold? As Double Click and others go into 
these questions, what are you doing to form a corporate policy 
and one that can evolve as technology evolves on privacy?
    Mr. Case. I will start, if you like. We think privacy is a 
key issue in this new Internet Century. As we move to a more 
connected society, I think it is critically important that 
people feel like their privacy is protected. If they don't, 
they won't use these services and the medium will not flourish. 
So it is the right policy decision and it is also the right 
business decision.
    At AOL, we have established a policy several years ago that 
really said that people should know what is going on, have 
notice of what information is being tracked, and also have the 
ability to opt out if there is anything they do not want to 
participate in. And we have encouraged others within the 
industry through the Online Privacy Alliance and other 
initiatives to join with us, and we are pleased to say in the 
last 2 years we have gone from a situation where very few 
Internet sites posted a privacy policy now to a majority of 
sites do. So that is progress, but there is still work to be 
done.
    We are in continuing discussions with companies and with 
people in Congress about what is the right balance to strike 
here. We do think that privacy needs to be protected. We don't 
have an allergic reaction to any legislation related to 
privacy. If there is something that really deals with the issue 
in a focused way so that every consumer has the kind of basic 
principles of notice and choice, we would be supportive of 
that.
    Time Warner--Jerry could speak to this--also has policies 
in place for many decades and it is part of building these 
brands and building this trusting relationship. So this 
combined company hopes to be a leader in really defining how 
privacy should work in the future and being protective of 
privacy in any way we possibly can.
    Mr. Levin. This is a fundamental concern of ours that is a 
historic concern that we share because the direct marketing 
business in advance of the development of the Internet has 
involved issues of privacy. And we have--this is 75 years--
supported what today are known as the DMA's privacy promise, 
and that is we make sure there is notice, there is choice, 
there is the ability to opt out before any information is used. 
I mean, this is really ingrained in the direct marketing side 
of the development of our businesses because you have a special 
bond of trust with the consumer.
    And now fast forward to our relationship. Steve and I are 
Co-chairs of something called the Global Business Dialogue, and 
here we are trying to establish on a worldwide basis a set of 
standards that relate to privacy for companies around the globe 
so that there can be the form of consumer confidence and trust. 
And this also is an issue where our own communication with you 
is to work through where is that line between self-regulation 
and is there any necessity to do something about it. We are 
really very open because we really share the same concern. 
There is no dissimilar interest here.
    Mr. Case. I think one point to add is although I understand 
why there would be sort of a natural concern about big 
companies with all these databases, and so forth, I think the 
real concern is less likely to be the big companies and more 
likely to be the smaller companies. As Tom Friedman in the New 
York Times has said, it is not the fear of Big Brother, it is 
more a fear of Little Brother.
    I think the big companies, certainly ours, really recognize 
the importance of privacy and the importance of trust and the 
importance of putting principles in place that do make sense. 
It may be some of those kind of smaller companies on the 
fringes of the Internet where the real risks are, which is why 
some kind of legislation may be necessary. I think you will 
find companies like ours really leading the charge in trying to 
protect privacy, working with you to try to do the right thing 
in the right way.
    Senator Feinstein. Mr. Chairman, would you allow me a 
follow-up on that?
    Chairman Hatch. Sure.
    Senator Feinstein. This has to do with another subcommittee 
of this committee, which is the Technology Subcommittee. Mr. 
Levin, you mentioned the words ``opt out/opt in,'' which is 
something that we are looking at in this subcommittee. I happen 
to believe very strongly that all of our Social Security 
numbers and our drivers' licenses shouldn't be used for 
commercial purposes without our permission, nor should our 
personal financial or our personal medical data.
    Now, opt in/opt out touches on that. My belief is very 
strongly that the company ought to get the permission of the 
individual before they use that personal information. Would you 
agree with that?
    Mr. Levin. Just to get beyond some of the rhetoric that 
sometimes invades this issue, it really is a question of notice 
and choice so that consumers will understand and know exactly 
what is intended, and they have the ability to choose, to make 
a decision, as opposed to somebody----
    Senator Feinstein. Just say yes or no. In other words, they 
have notice first?
    Mr. Levin. Yes. I would use the----
    Senator Feinstein. In other words, if you wanted to use my 
personal health information or my personal financial 
information, what mortgage I had, where, you would agree that 
you would need my permission?
    Mr. Levin. We would need to--I will use these words. Notice 
should be given and the choice should be left to the consumer.
    Mr. Case. But I would add that I think there are different 
aspects of this that require different approaches. For example, 
last year we were supporters of the legislation trying to 
protect children's privacy. We think the standards should be 
higher for children. We think the standards should be higher 
for medical information, for example.
    At the same time, we need to strike the right balance, 
making sure consumers know what is being done withinformation 
and if they don't like it, say I don't want that to happen, balancing 
that with trying to make sure the Internet continues to flourish and 
some of the benefits to consumers of personalized information are real 
as well.
    So ultimately it is about consumers knowing what is 
happening and feeling in control of their own information. That 
is the principle that we support, but we agree that there are 
some situations that require a higher standard and children 
being the highest of all.
    Senator Feinstein. Well, I would very much like to discuss 
this with you because we have a hearing on identity theft 
coming up and this relates exactly to that issue.
    Mr. Case. I look forward to it.
    Chairman Hatch. Well, let me just say that I really 
appreciate your views on online privacy. Senator Leahy and I 
are working very hard to try and come up with some solutions 
here and we could use your advice and your counsel in helping 
us to know how to do it because I think you are right. The 
major companies--this is something they are really concerned 
about and want to do something about. It is the fly-by-nighters 
that you have to be concerned about and that is a fact.
    Now, let me just ask a couple of last questions. Gentlemen, 
your MOU, your Memorandum of Understanding, does not address 
the issue of emerging Internet telephony. I think I would like 
to ask the question this way. Will competitor ISP's that have 
access to your cable pipes be able to offer Internet telephony 
services without any restrictions?
    Mr. Levin. Yes.
    Chairman Hatch. OK, that is all I wanted to know on that.
    Now, Mr. Case, you were quoted last July by the New York 
Times as saying--and I am sorry to bring these things up, but I 
want to get it cleared up, and I think it is better we do it 
here in these hearings to give you a chance to clarify it.
    Mr. Case. I appreciate that.
    Chairman Hatch. You were quoted as saying in the New York 
Times, ``Windows is the past. In the future, AOL is the next 
Microsoft.'' Now, I understand that you later clarified that 
quote.
    Mr. Case. Particularly with Microsoft, which did not 
appreciate it, I assure you. [Laughter.]
    Chairman Hatch. Listen, that is not a bad goal to have in 
mind is all I can say.
    However, the committee has received a number of consumer 
complaints that installing the new AOL 5.0 access software 
disables other ISP's that the consumer might have on his or her 
computer. Now, this happens even if the consumer chooses 
through the AOL 5.0 prompts to have another ISP as his or her 
default first screen.
    Can you explain why this happens and the steps, if any, you 
have taken to address this technical problem that, in my 
opinion, would clearly eliminate consumer choice?
    Mr. Case. Well, first of all, I would like to clarify that 
I never said we wanted to be the next Microsoft or expected to 
be the next Microsoft. It would be presumptuous for me to say 
that and I am not a presumptuous person. We have said that we 
do hope that someday we could be the most valuable company in 
the world, and we also said that we hope to be the most 
respected company in the world. I would just leave it at that.
    As it relates to the AOL 5.0 issue, we and other companies 
try to simplify the process of installing and using our 
services. There are a lot of things built into operating 
systems such as Windows that encourage people to set defaults, 
whether it be for their audio program like real networks or for 
many other features related to the Internet. If you set those 
preferences properly, then the software will work faster and 
more seamlessly.
    So when people install AOL 5.0, it asks them would you like 
us to set this up so that AOL is your primary service. If you 
say yes, we set it up that way. If you say no, we don't set it 
up that way. And if you say yes and then change your mind, you 
can turn back those settings. So we do tell people what we are 
doing. We are doing it because it is better for consumers, and 
indeed for 95 percent of our members they only use AOL. They 
don't use other Internet service providers, so this isn't even 
an issue. It is only an issue for the 5 percent or so that have 
multiple ISP's and they have the choice about whether they want 
AOL to be the default ISP.
    Chairman Hatch. But I have been informed that even those 
that have been selected have been disabled with other ISP's.
    Mr. Case. When you ask the question, if you say you do not 
want AOL to be set up as a default, it will not be set up as a 
default. Or if you say yes and then change your mind, you can 
change the settings. And we do that, as I say, as many 
companies do, simply because that results in a seamless 
software interface. So when you access certain sites, it will 
happen faster than having to ask you or find the right software 
on your hard drive.
    Chairman Hatch. Recently, some have raised the idea of 
granting compulsory copyright licenses to Internet service 
providers to retransmit broadcast signals similar to those 
granted to cable and satellite. As you well know, Mr. Levin, I 
am generally skeptical of compulsory licenses for intellectual 
property, except perhaps as a stop-gap measure to remedy 
antitrust violations or compelling marketplace failures. 
Indeed, I fully endorse longstanding trade policy to curtail 
such practices by foreign governments.
    Now, do you believe such compulsory licensing is 
appropriate for broadband Internet services given the 
interactive nature of the service, and do you believe that with 
the advent of broadband Internet, with its a la carte program 
selection possibilities, it might allow us to move away from 
the need for compulsory licensing of programming altogether in 
favor of more fluid market relationships?
    Mr. Levin. Well, I certainly don't think compulsory 
licensing is necessary in the Internet environment, either 
narrow band or broadband. In fact, you have a very thriving 
marketplace in the licensing of material that is really quite 
dynamic, with a whole source of new suppliers, new companies 
emerging everyday with commercial arrangements for Internet 
distribution. So I am comfortable at this point that that would 
really be a mistake because it is just not necessary. It would 
be nice at some point with respect to compulsory license 
throughout the rest of our regulations as to whether at some 
point it might be necessary. I don't think we are at that point 
yet.
    Chairman Hatch. Do you have any comments on that, Mr. Case?
    Mr. Case. No, not really. There was some concern afew 
months ago about this issue, but that related more to it being appended 
to something else in the wee hours of the night without really having 
any discussion about the issue. We just think there should be a 
discussion about any of these issues.
    We do think the Internet is going to become more and more 
important and we need to look at these issues in a serious way. 
I am actually encouraged that as people move more and more 
toward the Internet, there are going to be some benefits to 
consumers, particularly parents in terms of how parental 
controls work not just on your PC but maybe on your television 
or your music jukebox, things like that.
    And some of the debates we have in the television world 
that I am starting to learn about about retransmission consent 
and must-carry and things like that is different in the 
Internet world because everybody gets carried. There is no 
debate about must-carry. So I think in this new world, this 
more converged world, it will require us to look at a lot of 
these issues from a fresh perspective. The good news is 
consumers are getting more choices through more different kinds 
of systems.
    Chairman Hatch. Well, Mr. Case, let me ask one more 
question. We understand that start-up companies sign agreements 
with AOL in order to provide access by the start-ups to 
consumers accessing the Internet through AOL. These agreements, 
according to what I have been told, typically involve tens of 
millions of dollars in cash payments to AOL and the granting of 
equity in these companies to AOL, presumably due to the strong 
market power and subscriber base.
    As Mr. Levin is familiar, in 1992, due to abuse by cable 
companies, Congress overwhelmingly passed legislation limiting 
the ability of cable companies to extract equity in programmers 
as a condition of carrying programming signals to the consumer. 
Now, do you think that these cable restrictions are applicable 
to AOL/Time Warner's ability to equally extract equity in 
independent content providers who wish to be indiscriminately 
accessible to AOL Internet subscribers, and without such 
restrictions will this new merger not tend to thwart the 
ability of alternative voices to reach the vast AOL subscriber 
base?
    Mr. Case. Well, as I was just referencing, I think is 
really is apples and oranges. The world of television is really 
a world of scarcity, where the debate is can you get your 
channel carried on systems that have limited channel capacity. 
There is no issue of scarcity on the Internet. There really is 
an issue of abundance where everybody can be carried. There 
really is universal carriage in that sense.
    So we do not have to enter into any relationship with any 
company for their software, their service to be available to 
all of our subscribers. And we are not playing any role in 
terms of trying to block access to certain things, even direct 
competitors. People can go through AOL or go through Netscape, 
Net Center, and get to anything they want and do anything they 
want.
    All we really do is for some of our services in the 
entertainment area or the sports area, we will promote some 
sites. And we are compensated for promoting those sites much as 
a grocery store is compensated for promoting Kellogg's cereal 
at the end of the aisle. But nobody needs to pay us to be on 
the system. Everybody is on the system instantaneously. And 
some start-ups have asked to give us some equity as opposed to 
some dollars because they don't yet have the dollars and 
therefore want a shot.
    So we talk to all kinds of companies. We are willing to 
enter into relationships with all kinds of companies, but this 
is really about getting more promotion. It is not in any way, 
shape, or form about getting carriage, which was the issue in 
the television world. So I think it is apples and oranges.
    Mr. Levin. If I could add that unlike the situation with 
the 1992 Act, part of the genius of the American capital system 
that is operating now is the various ways of financing start-
ups who would otherwise be capital-starved have this 
opportunity. So that is why we are seeing so much innovation 
and so many new, young companies getting started. Very 
different from the cable situation.
    Chairman Hatch. Now, I have had a number of calls from the 
music industry, as you can imagine. I am not going to ask you 
this question. I would like you to think it through and then 
write to me and tell me how you are going to handle this, but 
many in the music industry, with your acquisition of EMI, are 
very concerned that it will give you such leverage that you 
will be able to dictate whose music will be used for filming, 
for television shows, et cetera, et cetera, because you control 
about 50 percent of the copyright publishing rights in the 
world.
    Mr. Levin. That figure is not correct in terms of music 
publishing. We will respond appropriately.
    Chairman Hatch. If you would. I don't expect a definitive 
answer here today, but it would be good for you to respond to 
that in writing to us so that it will alleviate the concerns 
that some people have, if they can be alleviated.
    Mr. Levin. I will acknowledge that we own the musical 
copyright to ``Happy Birthday.''
    Mr. Case. Also, on the music issue I think I should point 
that the Internet really is going to transform music. And new 
companies have emerged, including many that are public with 
multi-billion-dollar valuations, that are trying to change the 
paradigm of music. There are lots of electronic distribution 
issues and copyright issues related to that. So I think if you 
are a music company, the focus should really be on the Internet 
and how it is going to transform the experience and some of the 
risks in terms of protecting copyright. I don't think there is 
anything to fear with EMI getting together with Warner.
    Chairman Hatch. Nobody even has a beginning understanding 
of how that is going to splurge and, it seems to me, just 
develop. It is going to be a terrific area, and I think, done 
right, it will open up opportunities for many people in the 
music industry.
    Well, this has been a very interesting and productive 
hearing, and I would like to thank both of our distinguished 
witnesses for their time and cooperation. The issues raised 
today affect not only e-commerce, entertainment, and the next 
generation communications services, but these issues have a 
deeper social impact due to the Internet's powerful liberating 
effect.
    As this merger is reviewed, we need to ensure that proper 
public policies are in place at the outset that will ensure 
that no single company acts as the, ``gatekeeper,'' of the 
Internet, limiting or influencing consumer choice or adversely 
impacting the pace of innovation. Doing so will ensure that we 
will not findourselves in the position we were in in the early 
1990's, when the public called for, and Congress overwhelmingly imposed 
regulations on cable operators to ensure that owners of the cable 
infrastructure do not abuse their distribution power by discriminating 
against competitor programmers.
    These are very important issues that have been raised today 
and I will have a few additional questions which I will submit 
to you in writing, and I think the distinguished ranking member 
will do the same. And we would appreciate your responses, if 
you could, within 2 weeks of receipt. I think it is to your 
advantage to do that. We are making sure we are covering this 
issue.
    I and the ranking member and our colleagues on this 
committee look forward to working with you as we both examine 
the multiplicity of issues that are involved here. So I really 
want to thank you both for your time and the answers to all of 
our questions that we have had here today, and we will submit 
some others to you and I hope that we can help to resolve this 
matter in a way that is pleasing to everybody.
    Senator Leahy. Mr. Chairman, if some of the e-mails that 
have been coming through here this afternoon are an indication, 
there is a great deal of interest not only in this hearing, but 
I suspect in having similar follow-up ones subsequently. It is 
an interesting time.
    Chairman Hatch. Well, as you know, we respect both of you 
and we appreciate your willingness to come and inform the 
public and inform the committee of what is going on here.
    Thanks so much, and we will adjourn until further notice.
    [Whereupon, at 3:49 p.m., the committee was adjourned.]

                            A P P E N D I X

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                         Questions and Answers

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      Responses of AOL/Time Warner to Questions From Senator Leahy

    Question 1. The commitments in the Memorandum of Understanding 
between AOL and Time Warner are conditioned by reference to phrases 
like ``consistent with providing a quality consumer experience'' and 
``consistent * * * with any technological limitations'' and 
``consistent with technological capacity.'' In addition, Time Warner 
has made the entire MOU subject to all of its pre-existing obligations 
and its fiduciary and other obligations to its partners while 
indicating that it will endeavor to reach accommodations with third 
parties to whom pre-existing obligations are due. What is meant by 
those conditions and what progress have you been able to make to allow 
Time Warner to fulfill the commitments to ``open access business 
practices'' for Internet service?
    Answer. As your question indicates, the conditions referred to in 
the Memorandum of Understanding (``MOU'') between Time Warner and AOL 
relate principally to Time Warner's fiduciary and other pre-existing 
obligations with respect to the provision of the Road Runner cable 
modem service to Time Warner Cable subscribers and to the technical 
issues associated with the offering of multiple ISPs over Time Warner's 
broadband cable platform. In the MOU Time Warner committed itself to 
addressing both of these conditions and we are pleased to report that 
progress is being made in this regard.
    More specifically, with respect to Time Warner's fiduciary and 
other pre-existing obligations, Time Warner is working with its Road 
Runner cable partners (namely AT&T and Advance/Newhouse) to achieve an 
early termination of contractual provisions that give Road Runner the 
right to be the baseline provider of cable modem service to Time Warner 
Cable subscribers for a specified period of time (typically through the 
end of 2001). While Time Warner's fiduciary and other obligations to 
its partners preclude Time Warner from unilaterally terminating such 
provisions of these binding contracts, we are highly optimistic that we 
will be able to achieve an early termination. Indeed, there is growing 
evidence of a recognition in the cable industry that a multiple ISP 
approach to cable modem service is good business. See Communications 
Daily, ``Leading Cable MSOs Quietly Shifting Toward Open Access,'' 
April 6, 2000 at 4-5 (copy attached). We also wish to bring to your 
attention the fact that AT&T, in connection with its acquisition of 
Road Runner partner MediaOne, has entered into a consent decree with 
the Department of Justice requiring it to divest its interest in Road 
Runner and requiring Justice Department approval (for two years 
following divestiture) of certain agreements between AT&T and AOL Time 
Warner relating to the provision of cable modem or residential 
broadband service in order to ensure that such agreements do not lessen 
competition.
    AOL and Time Warner also are dedicated to resolving the technical 
and operational issues associated with the creation of a multiple ISP 
environment for cable modem service. The language quoted in the 
question above was merely intended to reflect the fact that, whenthe 
MOU was agreed to, the extent of any technical, operational, or other 
issues in offering a multiple ISP environment over cable systems was 
largely unknown. The reference to possible limitations reflects the 
parties' recognition that as the Internet has evolved, promises of 
boundless capacity and virtually instantaneous response times have 
sometimes run up against a surfeit of demand that can slow or otherwise 
impede use of the Internet. Maintaining a high-speed connection, after 
all, is the principal basis by which cable modem service can provide 
``a quality customer experience.'' Indeed, the MOU embodies a pledge to 
work to overcome any technological barriers so that the goal of 
consumer choice among multiple ISPs, without sacrificing the quality of 
service, can be achieved as quickly as possible.
    It would be premature, however, to attempt to describe with any 
particular specificity what, if any, limitations might be necessary on 
the way that the cable platform is used for high-speed Internet access 
as demand, capacity, and the number of providers grow. A ``white 
paper'' prepared in May 1999 for the White House National Economic 
Counsel concluded that there could be substantial technical costs 
associated with the offering of multiple ISP access on cable systems. 
Some of the issues identified in this white paper included: quality of 
service (e.g., delay, jitter, error rate, etc.), subscriber and service 
provider containment (i.e., limiting the extent to which the use of the 
system by one subscriber/group of subscribers or one service provider 
interferes with the use of the system by other subscribers/groups of 
subscribers or other service providers), link privacy, and content 
preservation.
    Neither AOL nor Time Warner necessarily subscribe to the specific 
assumptions and/or conclusions found in the aforementioned white paper, 
and the companies intend to conduct their own technical and operational 
tests in order to identify and resolve any technical impediments to the 
provision of multiple ISP choice. AT&T has announced that it too will 
be conducting field tests, and it is expected that other cable 
operators will follow suit. Indeed, it has just been announced that 
Charter Communications intends to conduct a test of multiple ISP 
carriage this Fall. Through these efforts, AOL and Time Warner intend 
to find and implement solutions to any technical or other issues that 
may arise. In any event, AOL and Time Warner stand by the commitment 
made in the MOU not to place arbitrary limits on the number of ISPs 
which they will offer over their cable facilities and to enable cable 
modem customers to exercise broad choice in a meaningful way.
    Time Warner has developed a ``Multiple ISP Program'' to address the 
technical and operational issues associated with consumer choice among 
multiple ISPs. As part of this program, Time Warner and AOL are 
cooperating in a technical and operational trial being conducted using 
Time Warner's Columbus, Ohio broadband cable facilities. These efforts 
will involve the participation not only of Road Runner and AOL, but 
also of other ISPs, as well. In addition, AOL has been invited and 
intends to participate in the trial that AT&T has scheduled to take 
place in Denver.

    Question 2. Paragraphs 3, 8 and 10 of the MOU refers to partners 
and ``partnering.'' Is use of those terms meant to suggest that the 
only ISPs with which AOL Time Warner will enter into arm's length non-
discriminatory agreements for Internet service are companies willing to 
enter into partnerships agreements and share their profits with AOL 
Time Warner?
    Answer. We do anticipate that deals between Time Warner Cable and 
ISPs, including AOL, will include an element of revenue sharing as 
those deals relate to revenue generated from services provided over 
Time Warner Cable systems. However, no ISP will be required to share 
profits and AOL will be treated the same. We are also not using the 
term ``partner'' in its legal sense of the word. By ``partner'' and 
``partnering,'' we mean that we will work with other ISPs to offer 
consumers broad choices in gaining access to the Internet and the rich 
content available through broadband access to it. While the terms of 
each deal will be individually negotiated, we will not discriminate 
based on affiliation with AOL-Time Warner.

    Question 3. In documents submitted to the Committee by AOL to 
explain its instant messaging technology, AOL has said that it 
``strongly supports open standards--in fact, we think the future of the 
medium depends on them, and we're working with other companies to 
develop those standards.'' Yet, AOL has in the past aggressively 
blocked competitors with instant messaging services from communicating 
with users of AOL's instant messaging software. In light of the fact 
that the future of the medium depends on interoperability, what 
progress has been made to develop standards that will result in such 
interoperability?
    Answer. We are committed to extending the benefits of instant 
messaging technology to as many consumers as possible. In an effort to 
permit all Internet users to communicate by means of instant messaging 
whether or not they subscribed to the AOL online ISP service, we made 
our AOL Instant Messenger client software available for free to anyone 
on the Internet. In addition, we have entered into more than a dozen 
royalty-free licensing agreements to allow industry leaders to include 
instant messaging features in their products with their own brand 
identification. Indeed, today consumers have more than 40 choices of 
instant messaging services, all of which are free; and consumers are 
able to communicate with anyone by means of instant messaging, 
regardless of which system they are using, by downloading free instant 
messaging software from the Internet.
    Over the past two years, we have participated in industry 
discussions through the Internet Engineering Task Force about how to 
achieve the goal of interoperability among instant messaging networks. 
In doing so, we have resisted efforts by certain of our competitors to 
impose a ``quick fix'' system that would jeopardize our members' 
privacy and security and risk the proliferation of spam which is a 
pervasive problem in the e-mail environment where interoperability came 
early. Throughout this effort, we have been guided by a bedrock 
commitment: to provide consumers with a secure, private, and convenient 
online experience.
    Indeed, we remain committed to achieving real interoperability 
consistent with those fundamental principles. To that end, on June 15 
we submitted to the co-chairs of theInstant Messaging and Presence 
Protocol Working Group of the Internet Engineering Task Force our 
proposed architectural design for a worldwide instant messaging system. 
(A copy of our proposal is attached.) While our competitors have tried 
to use the political process to their business advantage, none have 
submitted a proposal to the IETF for the kind of world-wide 
interoperability we have or shown that their proposals would not result 
in consumers being deluged by a new barrage of a spam by instant 
messaging.

    Question 4. Progress in distributing music online has been bogged 
down in disputes over standards--whose are more secure, whose can be 
easily adapted to recording devices, and so on. With the AOL reach into 
different distribution channels, combined with the Time Warner music 
catalogue, this merger raises the possibility that AOL Time Warner may 
be able to impose digital music standards not just one industry, but on 
several: copyright owners, online distributors, and hardware 
manufacturers. What assurances can you give that you will move forward 
as a partner with these interests.
    Answer. Recognizing the value of the digital music revolution, the 
combined company will remain committed to maximizing the market 
potential for distribution of music over the Internet and through other 
electronic means. The company will have no interest in imposing a 
single technical solution for digital distribution of music, whether 
downloading or streaming, over the Internet, nor will it have the 
ability to impose such a solution. It should be noted that AOL's Winamp 
player does not make use of standards or protocols that are proprietary 
to AOL and the Winamp player supports all of the popular music formats. 
AOL Time Warner would lack the ability to successfully promulgate some 
kind of music standard, even if it wanted to. Imposing a standard would 
require the cooperation of all of the various parties at the different 
levels of the online music distribution chain--including music labels, 
industry associations, and the various firms that provide the relevant 
encryption, downloading, streaming, digital rights management and 
compression technology (none of which technology AOL Time Warner owns 
or controls). The Company could not possibly impose a standard without 
the assent of all of these powerful representatives from all these 
areas.
    As a business matter, whether looked at from the perspective of 
Time Warner's music business, or of AOL's Internet business, the 
combined company will have compelling interests in supporting multiple 
technologies and modes of distribution and making any contribution 
necessary to ensure growth in the marketplace for digital music 
distribution.
    Time Warner, through the Warner Music Group, is engaged in the 
business of selling music. Just as Time Warner currently seeks to 
maximize its sales of compact disks by selling through as many outlets 
as possible, it will seek to maximize it sales of online music by 
selling through as many digital outlets as possible. The company will 
not be able to reach its goal of maximizing sales by supporting a 
single technology, because no single technology (or set of 
technologies) works with all digital music players. In light of this 
overriding goal, AOL Time Warner will have no incentive to support a 
single technical solution, but instead will have powerful incentives to 
support multiple technologies.
    Thus, AOL Time Warner will support technologies that maximize the 
outlets for its music, while providing a secure, technically sound, 
easy-to-use, and affordable means of downloading or streaming. This is 
fully consistent with Time Warner's past practice. To date, Time Warner 
has generally provided downloads as a promotional device. In so doing, 
Time Warner has supported a variety of technologies, including those of 
Liquid Audio, Microsoft, and Mjuice; and it recently entered into a 
licensing arrangement with MP3.com for digital downloading.

    Question 5. Music is one of the experiences revolutionized by the 
Internet. MP3 and other digital technologies are revolutionizing the 
music business, and giving consumers access to many more groups, and 
giving many aspiring musicians a chance to get noticed by both music 
fans and music companies. The companies have indicated that the 
prospect of a huge market in digital music one of the forces driving 
this merger.
    (A) Do you acknowledge that AOL Time Warner would have enormous 
financial incentives to drive customers to music within its own 
proprietary labels?
    (B) What assurances can you give that musicians who are not 
affiliated with the newly expanded Warner Music-EMI venture, will be 
treated equitably with affiliated musicians?
    Answer. To be successful, the joint company will be driven to offer 
the best listening experience it can. To that end, the company's 
overriding financial incentive is to give subscribers access to the 
broadest possible array of music in the most easy-to-be affordable 
digital format. We will never accomplish that objective if we limit the 
online experience of our members to listening to albums in the Warner 
Music and EMI collections. Rather, we must provide our subscribers with 
the broadest array of content produced by the broadest possible group 
of musicians, including musicians who are not affiliated with either 
Warner Music or EMI which is the corollary to Warner Music's need to 
serve its music through the broadest array of digital and non-digital 
outlets.

    Question 6. AOL has retreated from its early pro-active position 
for statutory or regulatory requirements for open access and will now 
rely on the marketplace. How long do you think is reasonable for 
Congress to give the marketplace to ensure open access before we step 
in, as we have in other contexts, to mandate the opportunity for 
consumer choice?
    Answer. It is true that with steps being taken by AT&T, AOL-Time 
Warner and other MSOs, AOL believes that government intervention may 
not be necessary to bring choice and diversity to consumers in the 
cable broadband marketplace. However, we remain as committed as ever to 
the importance of open access as an end result. Indeed, even with AOL's 
merger with Time Warner, Time Warner's cable systems will only pass 
about 20 percent of the cable households. As a national service, AOL 
needs access to cable systems throughout the country. We are therefore 
committed to working with other members of the industry to achieve open 
access and believe it is in the entire industry's interest to get 
there. We certainly believe that Congress' vigilance in monitoring the 
industry's progress in reaching this goal has helped the marketplace 
move to where it is today and such activity shouldcontinue. With AT&T 
committed to offering multiple ISP services over its cable plant by 
July 1, 2002, with AOL Time Warner committed to achieving that goal 
before the scheduled expiration of its RoadRunner agreement at the end 
of 2001, and with the announcement by Microsoft and Juno of broadband 
services over DirectTV, we believe that the multiple ISP model is 
already taking hold in broadband. Indeed, Time Warner took another step 
in this regard by announcing a deal in principle with Juno to offer 
broadband ISP services to Juno's customers ISP service over the Time 
Warner cable plant and the company looks forward to announcing 
additional deals with unaffiliated ISPS soon.

    Question 7.  The FCC has mandated open access and nondiscrimination 
requirements for DSL services provided over telephone lines, and 
Internet Service Providers have flourished in a highly competitive 
market. Should the same requirements be authorized for cable broadband 
access and, if not, please explain why?
    Answer. Over the past two years, the FCC has repeatedly concluded 
(most recently in its order approving the AT&T/MediaOne merger), that 
the imposition of mandatory broadband cable requirements is not 
necessary and that the marketplace can and should be relied upon to 
ensure that consumers are offered the greatest diversity of choice of 
service options. While we had proposed a ``light touch'' approach that 
would move the cable marketplace toward a multiple ISP model, the FCC 
decided to rely on marketplace developments to achieve that result. 
With the AOL Time Warner announcement, we have been able to move the 
marketplace toward that model without FCC intervention. Given the steps 
that AOL and Time Warner have taken to move the market toward an ``open 
access'' model, and given the increased competition among differing 
broadband platforms, it would be surprising were the FCC to reverse 
course and determine that government intervention were needed to move 
the marketplace.

    Question 8.  Mark Lemley, a law professor at the University of 
California at Berkeley, thinks federal regulators should approve 
mergers such as the proposed merger between AOL and Time Warner--and 
any similar mergers involving broadband access issues--only if the 
companies agree to adhere to open-access standards. In light of the MOU 
and the strong arguments AOL and Time Warner have raised in favor of 
open access to broadband delivery, would the companies oppose such a 
conditions?
    Answer. AOL Time Warner has announced that it intends to adopt a 
strategy of competing in the market, by offering its users a choice of 
multiple ISPs. This strategy is consistent with AOL's widely publicized 
pre-merger views that such an approach would accelerate the development 
and deployment of advanced broadband services. Indeed, evidence of 
marketplace growth in DSL deployment is already emerging, in part, as a 
result of these announcements. Given our public commitment, which is in 
our financial interest, we see no reason for the Commission to 
condition our merger in this respect. We share the same commitment to 
consumer choice as Professor Lemley, and hope to achieve them quickly. 
As we indicated in our MOU, AOL Time Warner will not place any fixed 
limit on the number of ISPs with which it will enter into commercial 
arrangements to provide broadband service to consumers. AOL Time Warner 
will provide its consumers with a broad choice among ISPs, consistent 
with providing a quality consumer experience across the entire nation 
and any technological limitations in providing multiple ISPs on its 
broadband cable systems. To the extent necessary to achieve this level 
of access and quality experience, we will work with the rest of the 
industry to achieve any necessary standards. Moreover, given the 
decision of the FCC and the Department of Justice not to impose open 
access conditions when approving the AT&T/Media One or AT&T/TCI mergers 
and its announced decision to initiate a proceeding to examine the 
issue on an industry-wide basis, it has become clear that policy 
questions surrounding the issue of open access should not be resolved 
in the context of this merger review.

    Question 9.  Open access sometimes means different things to 
different people. Under the MOU, does ``open access'' mean open access 
to all ISPs, so that consumers can get the full benefit of unlimited 
competition over Time Warner cables, or just to a select group?
    Answer. The MOU is intended to establish a framework whereby 
consumers will be able to select among multiple ISPs for the delivery 
of cable modem service. AOL Time Warner will seek to provide a wide 
array of choices and will not establish an arbitrary limit on the 
number of ISPs with which it will be willing to negotiate cable modem 
service relationships. We will try to reach agreements with a diverse 
group of ISPs, without regard to affiliation with Time Warner. The 
precise number will depend on a variety of technical and other factors 
and will vary by region and by demand. None of them will discriminate 
based on affiliation with Time Warner.

    Question 10.  The International Federation of Journalists has 
warned that the proposed merger ``could threaten democratic values and 
freedom of speech unless editorial independence was protected. Unless 
action is taken to ensure journalistic independence some argue that we 
face a dangerous threat to media diversity.'' How do you respond to 
these concerns and what specific steps do you intend to take to assure 
this journalistic integrity?
    Answer. As we explained in our appearance before the Committee, we 
are absolutely committed to maintaining the highest levels of 
journalistic integrity. We cannot hope to grow our business and serve 
our customers if they lose confidence in our integrity. We at AOL and 
Time Warner deeply respect the tremendous legacy of Henry Luce, to 
operate ``in the public interests as well as the interests of 
shareholders'' and fully expect that proud tradition to continue.
    Apart from our deep commitment to and legacy of journalistic 
independence, it is important to recognize that the very nature of the 
Internet answers the question posed about the impact of the merger on 
media diversity and freedom of speech. The Internet is the ultimate 
``open forum''--literally millions of users, representing every 
conceivable view point on every conceivable subject, are able to 
express themselves. There is no entity--not any government nor any 
corporation--that can control this unbridled explosion of speech.

    Question 11. David Rubin, Dean of the Public Communications School 
at Syracuse University, has commented that ``what could happen is that 
users could be sufficiently lazy that their behavior could be 
essentially circumscribed by Time Warner/AOL-type deals'' making it 
``really, really easy'' to get to Time Warner and AOL content and 
``really, really difficult to get anywhere else.'' Even if it is as 
easy to get to other content, accessing it may take more time. How do 
you respond to these concerns and what do you plan to do to make it as 
easy and as fast to get to other content as to AOL or Time Warner 
content over the cable broadband system?
    Answer. Ever since the widespread consumer deployment of the 
Internet, AOL has been built on the fundamental proposition of giving 
people access to everything on the Internet in the most easy-to-use, 
user-friendly way. Nothing about the merger will change that approach. 
We cannot block the access of users to the Internet without denying 
them the value for which they subscribe. Efforts to deny users access 
to non-Time Warner content would be self-defeating and would merely 
cause users to go to competing Internet service providers, of which 
there are many. We do cache material coming from Internet sites in 
order to provide a faster, more compelling user experience, and we do 
so based on user demand and not affiliation. Often the sites we cache 
are those of our largest competitors like Yahoo. In addition, AOL does 
not determine what is cached, our subscribers do. We cache whatever 
they go out to retrieve, subject to the constraint that websites have 
the ability to set their own caching frequency and duration of cached 
pages. If we do not give our users what they want quickly and 
efficiently, we know (and they know) they have other ways to access the 
Internet. Any technological ploys that affect the user experience--like 
selective caching, slowing the return path on certain networks, or 
slowing downstreams on competitors' content--will drive our members to 
competitive services. We want them to stay with us.
    As we remind ourselves everyday, our members are volunteers. 
Nothing requires them to visit our site or to maintain an account with 
us. We will only keep them coming back and staying with us if we meet 
the challenge of providing them with content from a variety of sources 
in easily accessible format through simple tools.

    Question 12. The companies have made no secret about their plans to 
cross-promote and distribute their products and services, which raises 
the specter of the huge databases held by both companies being combined 
in powerful and valuable ways for the merged company's own commercial 
purposes, or for resale to their parties.
    (A) Does either company currently resell to third parties 
information about their subscribers and, if so, what kind of 
information?
    (B) AOL states in its posted privacy policy that it does not 
disclose personal information to ``outside companies.'' After the 
merger, will AOL share information about its Internet service 
subscribers, including their names, addresses, phone numbers, credit 
card numbers, email addresses and web viewing habits, with affiliated 
companies as diverse as Rhino Records, New Line Cinema, Fortune 
Magazine, and Time-Warner Cable, and will AOL have access to personal 
information gathered by those other companies?
    Answer A. Both AOL and Time Warner have made commitments about 
respecting customer privacy and those commitments will continue in the 
merged company. Consistent with our respective privacy policies, AOL 
and Time Warner only make select information available to third parties 
after providing our customers with an opportunity prevent us from doing 
so, in other words a choice about the use and disclosure of their 
information. Both companies' commitment to notice and choice for all 
consumers as it relates to personally identifiable information will 
remain the bedrock principle of the combined company. Of course where 
Time Warner has statutory obligations surrounding the collection, use 
and disclosure of personally identifiable information in the case of 
the Cable Act privacy requirements, the company currently complies with 
the letter of the law and the combined company will continue to do the 
same with respect to its cable properties.
    Answer B. In the case of AOL, we never share any personal 
information about our members with outside or affiliated companies 
beyond their names and addresses and, even then, only after providing 
them with the choice not to have us make such disclosures. We do not 
share phone numbers, credit cards or email addresses with anyone and we 
do not even use personally identifiable ``web viewing'' practices 
internally and most certainly do not make that information available to 
anyone.
    As for Time Warner, as a general proposition, we are looking for 
ways, and indeed are beginning, to cross-promote our magazine and other 
products with AOL just as we do with our current affiliates such as HBO 
and Warner Bros. But we again do not do so, nor will we with AOL, 
without first offering each consumer notice and an opportunity to say 
no--an opt out--not only for affiliate-sharing, but for all internal 
uses.

    Question 13. Concerns have been raised about a few online services, 
such as DoubleClick and Abacus, that combine personal information, 
financial information, web purchasing behavior and web browsing records 
to get a fairly complete personal profile of individuals. Since many 
people pay for AOL Internet service by credit cards, browse using AOL's 
web browser, and shop online through their AOL connection, is AOL 
currently in a position to do what Double Click has been criticized for 
doing.
    Answer. Our commitment to our members not to follow them around 
online or use personally identifiable online information to target 
market to them is a core principle of our privacy policy. We have not 
and will not link the web surfing habits or interests of our members 
with personally identifying information about them.
                                 ______
                                 

    Responses of AOL/Time Warner to Questions From Senator Thurmond

    Question 1. Mr. Levin and Mr. Case, many experts have suggested 
that this merger is the beginning of a rapid trend of mergers between 
Internet and more traditional companies. Do you agree with this view?
    Answer. There can be no doubt that the Internet Century will 
provide tremendous opportunities for traditional media companies to 
reach their existing audiences and to find new audiences. Technology is 
transforming not just the global media industry but the global economy 
in general and the merger of AOL and Time Warner represents a prototype 
for the 21st Century--a company prepared to meld quality content and a 
creative infrastructure with the evolving Internet culture. The 
question of whether our merger will mark the beginning of a trend is 
dependent upon whether others believe that such combinations can offer 
value to their customers. We are starting to see some that do, but the 
future remains hard to predict.

    Question 2. Mr. Case, broadband Internet access is very important 
to the future of the Internet. Do you believe that this merger will 
accelerate the availability of broadband access for consumers, 
especially in rural areas?
    Answer. I do believe that our merger will accelerate the deployment 
of broadband services and certainly hope that broadband availability 
will increase for all consumers, particularly in rural areas and other 
under-served markets, as quickly as possible. You can be assured that 
we will do our part to accelerate the rollout of broadband services. I 
do not want to see anyone left behind in the Internet Century, and have 
committed numerous resources, both corporate and foundation, to 
ensuring we bridge rather than widen the existing digital divide.

    Question 3. Mr. Case, clearly AOL will promote Time Warner's 
products. How far will it go in this area? For example, will AOL refuse 
to accept advertisements from Time Warner's competition or refuse to 
display a competitor's content?
    Answer. As I have reiterated on numerous occasions, the key to the 
success of AOL's online service and to Time Warner's distribution 
businesses is that we both deliver consumers the best content from 
whatever sources they demand. As an online service, we will distribute 
Time Warner content and products and we will distribute that of others. 
We will not block Internet users from obtaining any lawful material 
that resides on the Internet. As for Time Warner's content businesses, 
we will seek distribution from both AOL and its other online brands and 
from a panoply of other content distribution networks. Through 
diversity on both the content and distribution side the combined 
company will maximize consumer benefits and our company's success.

    Question 4. Mr. Case and Mr. Levin, the Internet and television 
provide great access to programs and information. However, much of the 
content is not suitable for young children. Do you have plans for 
giving parents more effective tools for controlling children's access 
to inappropriate material?
    Answer. We are absolutely committed to providing parents with the 
most effective tools possible so that they can control access to 
inappropriate material on the Internet by their children. At both 
companies, we in fact are quite proud of what we have developed to help 
parents. We will continue to refine the tools we have developed as 
technology changes and as we introduce new services. AOL's parental 
controls functionality which has been such an important benefit to 
AOL's 23 million online subscribers is, for example, an integral 
element of our recently launched AOLTV service. These and other tools 
will continue to be refined as technology and content demand.

    Question 5. Mr. Levin, clearly traditional media companies will 
need their content to be available on the Internet in the future. Do 
you believe that these companies can be successful without merging with 
Internet providers?
    Answer. There is no doubt that the Internet will provide tremendous 
opportunities for traditional media companies to reach their existing 
audiences and to find new audiences and our merger with AOL will help 
us achieve that goal. However, the combination of Time Warner and AOL 
is not just about finding an outlet for Time Warner's content. It is 
about finding means to competitively distribute others' content as 
well. As I pointed out in my testimony, as large as our merger may 
seem, it pales beside the open-ended expanse of broadband media and the 
growing array of wired and wireless distribution systems. In such an 
environment, no content owner need fear that it will be unable to find 
distribution. Indeed, while we obviously believe that combining the 
assets of Time Warner and AOL affords us with the flexibility to 
compete in the new global market, we recognize that the open protocols 
of the Internet make it possible for anyone, traditional media company 
or upstart, large corporation or individual, to establish a worldwide 
platform for their messages.

    Question 6. Mr. Levin, Time Warner has always had strict separation 
between its advertising and editorial departments. Some new articles 
have suggested that AOL does not have such a strict separation. Will 
this merger put pressure on the new company to ease this strict 
separation?
    Answer. No. At Time Warmer, the independence of our editorial staff 
has been at the core of our value system, and the most revered 
component of our corporate heritage. Our ``church/state'' system of 
complete separation of editorial from business operation has served us 
well, both assuring purely journalistic decisions about editorial 
matters and in creating confidence that we are safeguarding the 
public's trust to accurately report and comment upon the news and other 
information. Moreover, it is in our business interest. If the 
independence of our editorial operations is eroded, public trust in our 
journalism willbe undermined, and our subscribers/viewers will turn to 
other more objective competitors. Steve Case personally and explicitly 
embraced our journalistic ethics, and articulated support of our policy 
of ``church/state'' separation.

    Question 7. Mr. Case, privacy is certainly an important issue with 
the Internet today. What steps will AOL Time Warner take to ensure a 
consumer's privacy?
    Answer. Based on our discussions, we are confident both companies 
share an overriding and mutual desire to ensure the privacy of our 
members and our subscribers. We have set a very high standard at AOL 
and we will maintain it once the merger has been completed, through the 
implementation of clear user-friendly privacy policies and practices.

    Question 8. Mr. Case, after the announcement of the merger AOL 
stock price dropped. What do you believe is the main reason investors 
did not initially appear enthusiastic about the merger?
    Answer. We had anticipated that it would take time for investors as 
a whole to understand the value proposition underlying the merger. As 
we have had an opportunity to explain our shared vision about creating 
enhanced shareholder value, we have found increasing support among 
investors in their support for the company and had an enormously strong 
vote in favor of the merger in June by the shareholders of both 
companies. Their positive recommendations confirm that they recognize 
the tremendous value represented by the merged company.

    Question 9. Mr. Levin, I understand that Time-Warner has entered 
into a transaction concerning the combination of its Warner music 
division with EMI, essentially combining the first and second largest 
music publishing companies in the world (i.e., Warner/Chappell Music 
and EMI Music publishing). The combination of these companies would 
provide Time-Warner and presumably AOL, with control over nearly one-
half of all copyrighted songs in the United States. Why do these 
companies need to combine to compete in the music publishing market? Is 
there a risk that the combination of these music publishing companies 
reduce competition in the payments of advances to aspiring songwriters 
for their copyrighted songs? Please explain.
    Answer. Your question raises three issues. First, in terms of the 
number of copyrights, as you may know, the music publishing industry 
does not track this type of information. So, to address this issue, we 
asked ASCAP and BMI, which are the two principal U.S. performing rights 
organizations, to provide us with information so that we could estimate 
the combined entity's share of copyrights. BMI and ASCAP have informed 
us that, together, they have 10.25 million to 12.25 million registered 
compositions. We estimate that the combined entity would own (or even 
just administer) well under 10 percent of the copyrights registered to 
ASCAP and BMI.
    Second, as for the reasons underlying the proposed transaction, we 
estimate that the combination of our businesses will save approximately 
$400 million per year, largely from the consolidation of back-office 
functions on both the recorded music and music publishing sides of the 
business. These savings will better enable the combined entity to 
discover new songwriters and singers, to promote their work, and to 
transition our traditional bricks-and-mortar music businesses to the 
Internet world. This should benefit not only songwriters and artists, 
but also consumers.
    Third, the proposed transaction will not reduce competition for 
aspiring songwriters and their compositions. Just like today, after the 
transaction, there will be hundreds of music publishing companies, not 
only those associated with the large record companies (sometimes called 
the ``majors''), but also numerous significant independent music 
publishing firms. In addition, it is easy to enter and prosper in the 
music publishing business--indeed, many songwriters from novices to 
Paul McCartney, do not hire a music publisher, but choose to self-
publish. Further the Internet is making it even easier for individuals 
and smaller music publishing companies to promote their works on a 
global basis.

    Question 10. Mr. Levin, what assurances can you provide that this 
music will be licensed to other companies to permit the digital 
downloading of popular music recordings over the Internet on the same 
basis as will be available to Time-Warner recordings and the AOL 
properties?
    Answer. There are many reasons that, after the merger, Time 
Warner's music will continue to be available online through a diversity 
of outlets. First, and perhaps most importantly, it has and will 
continue to be in the company's economic interest to do so. As a music 
company, Time Warner can succeed only if it makes its music as widely 
available to as many people as possible through as many outlets as 
possible. It would be economic suicide to limit the distribution of its 
music to subscribers of a single Internet provider. It would, of course 
reduce music sales of the company's existing artists. Even more 
importantly, no artist would want to sign with a record company that 
would only distribute its music to AOL subscribers, when any other 
record company competing for the same artist could distribute music 
online to everyone connected to the Internet in the world.
    Second, Time Warner's past experience in making music available 
online demonstrates that it has consistently sought broad distribution. 
Time Warner's records are sold widely through all ``brick and mortar,'' 
``click-and-mortar'' and exclusively online retailers. Indeed, Time 
Warner has made digital downloads of its songs available through the 
online sites of retailers such as Amazon, CDNow, and Barnes & Noble. 
That is also consistent with our practices in other areas such as our 
cable networks. for example, on HBO over 80 percent of the programming 
is owned by parties other than Time Warner or one of its subsidiaries.
    Third, the proposed transaction between Time Warner's music 
business and EMI would create Warner EMI Music, which would provide 
additional assurance that its music would be available through many 
outlets. Under the proposed combination agreement with EMI, any 
dealings between Warner EMI and AOL Time Warner would need to be on an 
arms-length basis. This will further guarantee that the independent 
interest of Warner EMI Music, as a record company, in broad 
distribution would be protected.

    Question 11. Mr. Levin, Warner/Chappell and EMI Music both sit on 
the board of directors of ASCAP, the National Music Publishers 
Association. Will this provide AOL with disproportionate influence over 
the licensing policies of these organizations to the disadvantage of 
other music publishers and songwriters? Please explain.
    Answer. Combing Time Warner's and EMI's music publishing businesses 
will not provide the resulting partnership with disproportionate 
influence over either ASCAP or the National Music Publishers 
Association (``NMPA''). Indeed, in certain respects, the combined 
entity will have a smaller role than the two companies now have 
separately.
    As for ASCAP, Warner/Chappell and EMI each currently has a 
representative on the board of directors. After the transaction, the 
combined entity will have only one board member. In addition, Warner/
Chappel land EMI both currently vote as members of ASCAP. After the 
transaction, the combined entity will represent less than 10 percent of 
the votes of ASCAP's music publisher--and music publishers as a group 
represent a minority of the votes of ASCAP, with songwriters 
representing a majority of votes. Thus, the combined entity will have 
only a small stake within what is itself a minority group is ASCAP.
    Similarly, for NMPA, Warner/Chappell and EMI each now has a 
representative on the board, but the combined entity will have only one 
member. Further, after the transaction, the combined entity would 
represent less than 10 percent of the votes of NMPA.

    Question 12. Mr. Levin, I understand that AOL recently purchased 
WinAMP, the most popular MP3 software player, and Spinner.com, an 
influential web radio property. At the press conference announcing the 
proposed merger, Mr. Levin referred to these properties as key parts of 
AOL's music strategy. What assurances will there be that content owners 
and other Internet music companies will have access to these key 
properties on a level playing filed with AOL/Time-Warner for the 
delivery of music go Internet users? Do any other Internet companies 
have access to these properties today and under what terms?
    Answer. Both the Winamp MP3 software player and Spinner.com are 
very successful Internet offerings with a loyal online following of 
music fans. They are, however, very different products with equally 
different business models. Nullsoft's Winamp MP3 player is a software 
player that can be used to play any MP3, regardless of the label or 
musician who produces it. The player is available for free on the 
Internet to anyone who wishes to download and use it. The joint company 
is not likely to change this policy of making the Winamp player freely 
available online.
    Spinner.com is an Internet site, also available for free, that 
streams Interent radio, including a wide diversity of music genres. As 
part of its commitment to music diversity, Spinner has developed the 
Spinner.com Music Partern Program to expand content on its music 
channels, simultaneously providing a more effective distribution 
mechanism for record labels. The Spinner.com site currently represents 
over 350 labels (independent and otherwise), including Rykodisc, High 
Tone, Matador, Bloodshop, Rounder, Ubiquity, Touch and Go, Arhoolie, 
and 4AD. Unsigned artists are also encouraged to submit their music to 
the site. Following the merger, Spinner will continue to make available 
the music of a diverse group of artists and labels or as with our other 
Internet properties our consumers would go elsewhere. Again, we will 
never accomplish our objective of giving subscribers access to the 
broadest possible array of music if we limit the online experience of 
our Spinner. com users to listening to albums in the Warner Music and 
EMI collections. We are committed to providing our subscribers with the 
broadest array of content produced by the broadest possible group of 
musicians.

    Question 13. Mr. Case, AOL has shown great agility in the 
marketplace. Some analysts have stated that this merger will force AOL 
to loose some of its agility. How do you respond to these suggestions?
    Answer. In short, we disagree with these suggestions and intend to 
demonstrate our agility and our ability to bring our members the best 
possible online experience. To succeed in the Internet Century, we will 
have to move faster and smarter. As a combined company, we are 
confident that we can meet that challenge.

    Question 14. Mr. Case, AOL is rapidly growing with many 
acquisitions and investments. However, some analysis have stated that 
your company has taken on too many new business ventures recently. How 
do you respond to these charges?
    Answer. We intend to demonstrate that we are able to continue to 
create value for our shareholders and our members. We make acquisitions 
and undertake new business ventures for the sole purpose of meeting 
that twin objective. We are confident of our ability to continue to do 
so.
                                 ______
                                 

        Responses of Steve Case to Questions From Senator DeWine

    Question 1. Mr. Case, at the hearing I asked if you believed it 
would make sense to consider using a group of independent, private 
industry technical experts to help create industry protocols for open 
design of the cable broadband architecture. You responded that AOL has 
supported similar groups or efforts in the past. It was not clear to me 
whether you would be in favor of such an independent group to 
specifically examine the questions of open design for cable broadband 
architecture. Do you believe such an organization would be useful in 
addressing some of the concerns that have been raised about the 
openness of the cable broadband architecture with an eye toward 
establishing industry protocols?
    Answer. We believe the industry will soon be able to make the 
necessary technical adjustments to ensure consumers have real choice of 
multiple ISPs in cable broadband. We certainly do not have all the 
answers, and recognize that private technical experts may be able to 
contribute to our efforts to achieve this shared objective. At this 
point, however, we are making great progress, in particular with our 
trial in Columbus, Ohio, and it does not appear that a specific group 
of independent experts is needed.

    Question (A). If you do believe such a group would be useful, what 
are your recommendations concerning participants, structure and purpose 
of the group?
    Question (B). If you do not believe such a group would be useful, 
why not? How would you recommend addressing concerns that many have 
that individual cable companies will have the ability to design cable 
broadband systems in ways that favor themselves and limit competition?
    Answer. We have been looking forward to being able to provide 
consumers with a choice of multiple ISPs, and thus have been making 
engineering and design decisions that would allow us to take full 
advantage of the availability of expanded broadband access throughout 
the country. We are quite confident that other companies similarly have 
been working towards this goal. We have not designed in and will not 
place any artificial barriers in the paths of ISPs connecting their 
customers to our broadband networks, and would hope that other industry 
members would see problems with attempting to do so themselves. We 
certainly are prepared to address company-specific problems as they 
arise, and to work with the entire industry should systemic problems 
need addressing by the industry as a whole.

    Question 2. Regardless of the number of ISPs that are eventually 
able to provide services on AOL Time Warner's broadband system, some 
have expressed concern that your combined company will have the ability 
to discriminate against competitors by manipulating the technology or 
format of the system. While all cable broadband providers may have this 
ability, the concern is particularly acute when the cable broadband 
provider is also an ISP, Internet content provider and/or traditional 
media content provider because of the numerous opportunities for 
preferential treatment in such a vertically integrated company.
    For example, AOL Time Warner could seek to assign more favorable 
channel positions to its own content, the combined company might favor 
its own content with ``front screen'' positioning or better menu 
placement, or it could provide local caching of only their own content 
leading to superior response time and performance. Will you commit not 
to use technological or formatting control of the system in such a way 
as to burden your competitors? In other words, will you compete on the 
merits, and not use your ownership of the cable broadband system to 
give you an unfair advantage?
    Answer. AOL Time Warner will absolutely compete based on the merits 
of its services and will not use its ownership of cable broadband 
platform as a means of obtaining an unfair advantage over competitors. 
We note that the amount of unaffiliated programming that Time Warner 
offers on its cable systems is far, far greater than the amount of 
vertically integrated programming and includes programming, such as the 
Showtime movie channel, that directly competes with Time Warner content 
(e.g., HBO). Time Warner's willingness to deal with competitors also is 
reflected by the fact that Time Warner programming is available to DBS 
providers and wired multichannel distribution systems that compete 
head-to-head with Time Warner cable systems. Time Warner's program 
networks buy programming content from a variety of sources and Warner 
Bros. sells programming to various broadcast networks. In short, Time 
Warner has allowed marketplace forces to dictate its business 
practices.
    With respect to the Internet, marketplace forces will similarly 
ensure that AOL Time Warner non-discrimination prevails. For example, 
AOL Time Warner has made clear, consistent with the commitments 
embodied in the MOU, that consumers electing to obtain cable modem 
service on AOL Time Warner cable systems from competing ISPs will not 
be required to ``click through'' AOL's first screen. And even AOL 
broadband Internet customers can elect any other web page as their 
default first screen. AOL clearly understands the value of attracting 
subscribers to its front page. But with so many alternatives available 
to consumers. AOL has every incentive to make its front page consumer 
friendly, easy to use, and to highlight that content of greatest value 
to subscribers. Otherwise, consumers will simply go elsewhere. Thus, 
marketplace forces are fully adequate to protect consumers in this 
area.
    On caching, AOL has always cached content on the basis of member 
activity alone. We have never engaged in discriminatory caching and 
never would. It would ruin our member experience. Competitive 
marketplace forces are the most effective safeguard against any 
discriminatory caching practices. In its recent order approving the 
AT&T/MediaOne merger, the FCC analyzed the caching issue as follows:
          [B]oth Excite@Home and Road Runner use ``caching'' 
        technology, a technology that places certain content at 
        regional distribution centers to allow faster access by their 
        customers. Excite@Home and Road Runner cache (a) the content 
        most often accessed by customers as determined by mathematical 
        algorithms and (b) the content for which content providers have 
        negotiated for preferred caching. MediaOne Group, Inc., FCC 00-
        202 (June 6, 2000) at para.112.

    After full consideration, the FCC rejected concerns that the merged 
firm could use its control over caching technology ``to discriminate 
against unaffiliated providers:''

          Given the nascent condition of the broadband industry and the 
        foregoing promises of competition, we find it premature to 
        conclude that the proposed merger poses a sufficient threat to 
        competition and diversity in the provision of broadband 
        Internet services, content, applications, or architecture to 
        justify denial of the merger or the imposition of conditions to 
        supplement the Justice Department's proposed consent decree.
          The evidence of growing competition from both alternative 
        broadband providers and unaffiliated ISPs gaining access to 
        cable and other broadband networks indicates that any action 
        taken by the merged firm to disfavor unaffiliated broadband 
        content and applications providers is likely to threaten the 
        networks' ability to attract and retain customers. Id. at 
        para.123.
                                 ______
                                 

       Responses of Gerald Levin to Questions From Senator DeWine

    Question 1. Mr. Levin, the Cable Act of 1992 prohibits cable 
companies from selling data about subscribers' viewing habits, but it 
permits using the information for internal purposes. After the merger, 
Time Warner may legally be permitted to provide information about its 
cable subscribers to AOL, and alterntively, AOL might legally be able 
to transmit its information about 20 million subscribers to Time 
Warner.
    Question (A). Given the consolidation that we are seeing, and the 
creation of huge companies that serve separate markets and have vast 
customer bases, does it make sense to distinguish between selling 
customer data to outside companies and sharing it between separate 
departments within the same company?
    Questions (B). How will AOL Time Warner use information concerning 
the television viewing and Internet usage habits of its millions of 
customers? And specifically, how will you ensure that consumer rights 
are protected by your use of such information?
    Answer (A). At both AOL and Time Warner we have long given our 
consumers the most robust notice we can about our data collection, use 
and disclosure policies and have provided them with choices when 
information is to be shared with people outside the company for 
marketing purposes. We believe this practice is an important one that 
recognizes the needs of consumers in the commercial marketplaces in 
which both companies operate. Regardless of this merger or others, we 
continue to believe that this is an important commitment to make to our 
customers and we will continue to do so.
    Answer (B). Neither AOL nor Time Warner uses information about 
television viewing habits or Internet usage habits in a personally 
identifiable manner. Any use of such data is only on an aggregated 
basis to determine general usage habits of consumers as a whole. For 
example, while AOL's system may automatically collect online usage 
information, such information is only used or stored in a non-
identifiable manner to help us determine the aggregate behavior of our 
members, including the most popular areas on our service and where we 
might make changes to better serve consumers. As a result, we believe 
that there is no risk to the privacy of any of our members today, nor 
will there ever be in the future.
                                 ______
                                 

      Responses of AOL/Time Warner to Questions From Senator Kohl

    Question 1.  We've heard that Cisco Systems makes ``routers'' than 
can speed up broadband to one web site and slow it down to another. 
There may be some valid uses for this--but this technology raises some 
troubling questions. It might be possible to use this technology to 
give quicker access to Time Warner web sites. For example, you could 
slow down traffic to the ESPN/Disney site while speeding it up to your 
own CNN/Sports Illustrated site. Do you plan to give preferential 
treatment to Internet sites owned by, or affiliated with, AOL Time 
Warner, Mr. Case and Mr. Levin?
    Answer. No. We reiterated our commitment to non-discrimination in 
traffic management in our April 29th letter to Senators DeWine and Kohl 
and attach it here as our response.

    Question 2.  After this merger, your combined company will be a 
true media and telecom powerhouse, offering both an enormous range of 
content, from news and entertainment, cable television networks, movie 
production, book and magazine publishing, and also offering the means 
to deliver this content over the Internet as the largest ISP.
    Mr. Case and Mr. Levin, won't your merger cause your competitors--
both content providers and ISPs--to follow your example? That is, won't 
the major media and entertainment companies need to find an Internet 
partner, and the major Internet companies a content partner, in order 
to compete with AOL Time Warner? And won't independent producers of 
content be in a very disadvantageous situation if they are left outside 
of this system?
    Answer. There will certainly be new alliances and other 
combinations among our competitors. But we disagree with the premise 
that independent producers of content will find themselves in a 
disadvantageous situation if they are not part of a larger entity. In 
fact, as is our history at AOL, we can serve as a great enabler of 
independent producers of good content. Today, a majority of the 
programming on Time Warner Cable system is provided by unaffiliated 
programmers. Similarly, Time Warner programming is available to DBS 
providers and wired multichannel distribution systems that competes 
head-to-head with Time Warner cable systems. Together AOL/Time Warner 
can offer content providers the combined audience of AOL members and 
Time Warner subscribers. Independent producers of the best content 
should be excited about the prospect of reaching so many potential 
homes. We remain committed to providing our members with the best 
content, irrespective of who produces it.

                                
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