Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Applications of America Online, Inc. ) CS Docket No. 00-30 and Time Warner Inc. for ) Transfers of Control ) To: The Commission SUPPLEMENTAL INFORMATION AMERICA ONLINE, INC. TIME WARNER INC. George Vradenburg, III Jill A. Lesser Steven N. Teplitz America Online, Inc. 1101 Connecticut Avenue, N.W. Suite 400 Washington, D.C. 20036 (202) 530-7883 Timothy A. Boggs Catherine R. Nolan Time Warner Inc. 800 Connecticut Avenue, N.W. Suite 800 Washington, D.C. 20006 (202) 457-9224 Richard E. Wiley Peter D. Ross Wayne D. Johnsen Wiley, Rein & Fielding 1776 K Street, N.W. Washington, D.C. 20006 (202) 719-7000 Aaron I. Fleischman Arthur H. Harding Craig A. Gilley Fleischman and Walsh, L.L.P. 1400 Sixteenth Street, N.W., Suite 600 Washington, D.C. 20036 (202) 939-7900 March 21, 200 TABLE OF CONTENTS I. INTRODUCTION AND SUMMARY 1 II. AS ORIGINALLY DESCRIBED AND FURTHER DETAILED HEREIN, THE PARTIES' ASSETS AND LINES OF BUSINESS ARE LARGELY COMPLEMENTARY AND PRESENT NO ANTICOMPETITIVE COMBINATION 3 A. Additional Details Concerning The Parties' Assets And Businesses Confirm That The Two Companies Largely Operate In Different Spheres 4 1. America Online, Inc. 4 2. Time Warner Inc. 7 B. AOL's Non-Attributable Investment In The Ultimate Parent Of DirecTV Is Spurring The Development Of Broadband Services Delivered Via Satellite Without Posing Any Threat To The Multichannel Video Programming Distribution Marketplace 10 1. AOL invested in GM to advance its pro-consumer "AOL Anywhere" strategy by accelerating the development of satellites as a competitive broadband platform 10 2. AOL's investment in GM produces these pro-competitive broadband benefits without raising any offsetting concerns for the video marketplace 12 3. Even if AOL's investment in GM led to the unprecedented conclusion that DirecTV should be attributed to the merged entity, AOL Time Warner still would not breach the Commission's still stayed horizontal ownership rules 14 III. THIS MERGER ADVANCES AOL'S LONG-STANDING COMMITMENT TO THE DISTRIBUTION OF ITS ONLINE SERVICE USING A WIDE RANGE OF TECHNOLOGIES 16 A. The Success Of The "AOL Anywhere" Strategy Depends On The Availability Of The AOL Service Wherever And However Consumers Might Wish To Obtain It 16 B. In Recognition Of These Business Imperatives, AOL Has Long Committed Itself To A Broad Diversity Of Platforms 17 C. The Merger In No Way Alters The Platform-Agnostic Foundation Of The "AOL Anywhere" Strategy-Including Within Time Warner's Local Cable Franchise Areas 18 IV. ADDITIONAL DATA AND ANALYSIS CONFIRM THAT THE PROPOSED MERGER WILL SERVE THE PUBLIC INTEREST BY BRINGING CONSUMER CHOICE, INNOVATION, AND MOMENTUM TO BROADBAND AND NEXT-GENERATION SERVICES 20 A. The Parties' Unsurpassed And Demonstrated Commitment To Consumer Choice From Among Multiple ISPs Significantly Advances The Public Interest By Expediting The Resolution Of The Open Access Debate 21 1. AOL and Time Warner have committed to providing consumer choice among multiple ISPs on AOL Time Warner's cable systems 22 2. The AOL Time Warner MOU represents tremendous marketplace progress in advancing open access 23 3. The AOL Time Warner merger and its commitment to providing consumers' choice among multiple ISPs will only enhance the marketplace pressure that the Commission has already found to be fueling competitive broadband deployment 26 B. This Merger Significantly Advances The Public Interest By Bringing Together Complementary Skills And Resources To More Rapidly And Effectively Offer Consumers The New Content, Products, And Services That Broadband Promises 29 1. The spectrum of new consumer offerings 30 2. A compelling illustration: "The Online Music Revolution" 32 3. Boundless possibilities for new consumer services 34 4. These benefits will be delivered to consumers more quickly and efficiently through this merger 36 V. THE COMMISSION'S PAST RULINGS, COMBINED WITH THE PARTIES' COMMITMENT TO OPEN ACCESS, PRECLUDE ANY FINDING THAT THE PROPOSED MERGER COULD THWART-OR EVEN DAMPEN-INTERNET ACCESS SERVICES COMPETITION 39 A. The FCC's Analysis and Conclusions in AT&T/TCI Belie any Need to Rule on a Precise Market Definition in Order to Find this Merger in the Public Interest 41 B. The Proposed Merger Will Have No Appreciable Anticompetitive Effect on the Provision of Internet Access Services, and Thus the FCC Need Not Resolve the Market Definition Issue 43 1. Assuming first a broadly defined market including both narrowband and broadband Internet access services, the proposed merger presents no harm to the thriving competition in Internet access services 44 2. Even assuming a separately defined broadband Internet access market, the proposed merger will have no significant anticompetitive effects and will enhance consumer welfare 45 VI. CONCLUSION 49 INDEX OF ATTACHMENTS America Online, Inc. 1998 Annual Report; Summary of AOL Investments in Publicly Traded Companies Tab 1 Time Warner Inc. 1998 Annual Report Tab 2 Memorandum of Understanding Between Time Warner Inc. and America Online, Inc. Regarding Open Access Business Practices, dated February 29, 2000 Tab 3 Testimony of Steve Case, Chairman and CEO, America Online, Inc. on AOL Time Warner Merger: (1) United States Senate, Committee on the Judiciary, February 29, 2000; and (2) United States Senate, Committee on Commerce, Science and Transportation, March 2, 2000 Tab 4 Testimony of Gerald M. Levin, Chairman and CEO, Time Warner Inc. on AOL Time Warner Merger: (1) United States Senate, Committee on the Judiciary, February 29, 2000; and (2) United States Senate, Committee on Commerce, Science and Transportation, March 2, 2000 Tab 5 AOL Time Warner Inc., SEC Form S-4, Registration Statement, filed February 11, 2000 (Proxy Statement) Tab 6 Merrill Lynch, In-Depth Report: "AOL Time Warner: You've Got Upside!" February 23, 2000 Tab 7 PaineWebber, Company Analysis: "AOL Time Warner: A Merger that Defines the New Digital Age," March 1, 2000 Tab 8 Goldman Sachs, Internet Media: "America Online/Time Warner (AOL/TWX): Perfect Time-ing," March 10, 2000 Tab 9 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Applications of America Online, Inc. ) CS Docket No. 00-30 and Time Warner Inc. for ) Transfers of Control ) To: The Commission SUPPLEMENTAL INFORMATION America Online, Inc. ("AOL") and Time Warner Inc. ("Time Warner") (collectively, the "Applicants") hereby provide this supplement to the information contained in their Applications for Transfers of Control and associated Public Interest Statement, which were filed with the Commission on February 11, 2000. I. INTRODUCTION AND SUMMARY The Applicants' Public Interest Statement provided information pertinent to Commission consideration of the proposed merger of AOL and Time Warner, including discussion of the transaction's public interest benefits and lack of any anticompetitive impact. Additional information has been developed since that initial filing-by the Applicants, by independent analysts, and in press reports-that allows us to update the record in this proceeding and further address certain questions raised by the Commission's staff. The parties have, of course, already submitted one significant update: the Memorandum of Understanding ("MOU"), which outlines their mutual commitment to provide consumers with choice from among multiple Internet service providers ("ISPs") via the merged entity's broadband cable systems. That document, entered into on February 29, 2000, and filed with the Commission the next day, is discussed further herein, as are other noteworthy data and developments. Specifically, this submission addresses the following topics: ? Further details concerning the assets and lines of business of each of the Applicants, including specific information relating to AOL's limited investment in General Motors Corporation (the ultimate parent of DirecTV). As reflected in the Public Interest Statement, a review of these assets and lines of businesses confirms that the Applicants operate in largely complementary, not overlapping, spheres-and that, therefore, the proposed merger does not present an anticompetitive combination. ? Further details and analysis concerning the public interest benefits of the proposed merger. As reflected initially in the Public Interest Statement, this information supports the Applicants' showing that Commission approval of the proposed transaction will serve the public interest by fostering more rapid development of broadband products and services, including facilitating the integration of traditional media and the Internet, and by leading the way to resolution of the "open access" issue in the marketplace. The Applicants' commitment to consumer choice from among multiple ISPs, as well as to vigorous development of alternative broadband platforms, significantly advances policymakers' goals. ? Further analysis concerning the appropriate analytical framework for considering competition issues in the Internet access marketplace. This discussion details how the Commission's prior analysis and marketplace developments together demonstrate that this merger will not reduce competition, but rather will enhance consumer choice in Internet access, however the market for such services might be defined. II. AS ORIGINALLY DESCRIBED AND FURTHER DETAILED HEREIN, THE PARTIES' ASSETS AND LINES OF BUSINESS ARE LARGELY COMPLEMENTARY AND PRESENT NO ANTICOMPETITIVE COMBINATION As set forth in the Public Interest Statement, the proposed merger brings together two companies that have operated in largely separate and non-overlapping spheres. While Time Warner's cable and broadcast interests historically have been subject to FCC regulation, AOL's Internet-based business has operated essentially outside of the agency's regulatory ambit. It is not surprising, then, that this merger is fully consistent with Commission rules and policies and requires no rule waivers. As described more fully below, the complementary nature of the AOL and Time Warner lines of business ensures that the proposed merger will not negatively affect competition in any way. In particular, Section II.B below demonstrates the lack of anticompetitive effects in multichannel video programming distribution (where AOL has only a small indirect interest in DirecTV), while Section V shows the lack of anticompetitive effect with regard to the provision of Internet services. The following information supplements that contained in the Public Interest Statement by providing a more detailed description of the lines of business of each of the merger parties, as well as a detailed discussion of the nature of AOL's limited, indirect interest in DirecTV. A. Additional Details Concerning The Parties' Assets And Businesses Confirm That The Two Companies Largely Operate In Different Spheres 1. America Online, Inc. A worldwide provider of interactive services, Web brands, Internet technologies, and electronic commerce services, AOL has two major lines of business: Interactive Online Services and Enterprise Solutions. AOL's Interactive Online Services business is, in turn, comprised of the Interactive Services Group, the Interactive Properties Group, and the AOL International Group. ? Interactive Services Group-develops and operates branded interactive services: ? The Company's flagship AOL service is an Internet online service serving more than 21 million members worldwide. In addition to access to all content available over the Internet, AOL members are provided with access to more than 15,000 chat rooms, up- to-the-minute news reports, and information concerning topics such as personal finance, health, travel, sports, and entertainment. The AOL service provides parents with a special "Kids Only" Feature that includes AOL's Parental Controls. AOL members also have access to other services, including e-mail, instant messaging, and keyword searching. ? CompuServe, acquired by AOL in 1998, is an Internet online service designed for value-conscious adults who go online for the first time. CompuServe serves more than two million customers. ? AOL's Netscape Netcenter is an Internet portal serving 27 million registered users. Netscape Netcenter provides content, services, and search and directory tools, including MyNetscape, which allows users to customize their Internet start page; Internet Keywords searching capability; Netscape - AOL Instant Messenger, which allows users to exchange personal messages instantly and privately over the Internet; WebMail, a free, permanent e-mail account accessible from any Internet connection; calendar services; and Netscape Site Central, which allows users to create a website. ? AOL.COM Web site is an Internet portal offering any Internet user content, features and tools, including AOL NetFind, an Internet search and rating tool, and the AOL Instant Messenger Service, which allows any Internet user to communicate in real- time with friends and family. ? Netscape Communicator client software, including the Netscape Navigator browser, allows consumers to search the Internet, and provides one-click access to music, shopping, and information gathering services. Netscape Communicator services include Netscape Messenger, which allows users to send and receive e-mail; Netscape Composer, used for Web-based word processing; and Netscape AOL Instant Messenger. ? AOLTV is a proposed interactive service designed to enhance the television viewing experience by not only bringing popular AOL features and services (such as e-mail, Instant Messaging, and chat) to consumers' TV sets, but also offering content and information tailored to the specific programming being viewed. AOLTV is expected to debut later this year. ? Interactive Properties Group-consists of an array of branded properties that operate across multiple services and platforms, including: ? Digital City, Inc., a local content network and community guide on the Internet. Digital City, which began providing local content regarding Washington, D.C. in 1995, now has a presence in more than 60 cities across the United States. Among the features provided are employment guides, dining guides, movie guides, real estate guides, auto shopping guides, and community event guides. ? ICQ, a communications portal providing instant communications as well as chat technology. ICQ, which was acquired by AOL in 1998, is an innovator in providing real-time communications services over the Internet. Other services include ICQ Mail, ICQ Search, ICQ Now! (which offers a table of contents designed to help navigate ICQ's member-created content), and ICQ Personal Assistant Tools (which provide users with reminders, "virtual" post-it notes, alarms, greeting cards, and a daily planner). ? MovieFone, Inc., acquired by AOL in 1999, is a movie guide and ticketing service that is provided both online and through interactive telephony. ? Internet music brands Spinner.com, Winamp, and SHOUTcast provide online music services. Spinner.com is an Internet music hub offering access to the Spinner Web- based player and Spinner Plus, a 1.3 megabyte downloadable player that works independently of a listener's Web-browser. Winamp is a music player for Windows, supporting all music formats, including MP3, CD, AudioSoft, Audio Explosion, MOD, and WAV. SHOUTcast is a Winamp-based distribution streaming audio system that enables users with the Winamp high-fidelity audio player and a dial-up Internet connection to provide or tune into Internet streaming audio. ? AOL International Group-oversees the AOL and CompuServe services and joint ventures outside the United States (including Australia, Austria, Brazil, Canada, France, Germany, Hong Kong, Japan, the Netherlands, Sweden, Switzerland, and the United Kingdom), as well as the Netscape Online service in the United Kingdom. Globally, members are able to access these services in more than 100 countries. ? Enterprise Solutions-consists primarily of the Netscape Enterprise Group, which provides businesses with a range of software products, technical support, consulting, and training services designed to assist them in providing services to their customers in the electronic commerce markets. These products and services enable businesses and users to share information, manage networks, and facilitate electronic commerce. The software is based on industry-standard protocols that can be deployed across a variety of operating systems, platforms, and databases and be interconnected with traditional client/server applications. Netscape Enterprise Group provides services and features such as: ? Electronic Commerce Infrastructure, which provides a flexible, scalable foundation on which customers can build and manage their extranet or Internet applications or use Electronic Commerce Applications. ? Electronic Commerce Applications, which enable businesses to link and manage online trading communities of suppliers, distributors, and customers. They also enable organizations to create more secure Internet commerce sites and exchange information with trading partners. ? AOL also has entered into a number of ventures with other companies serving a broad range of Internet and related industries. For example, to accelerate the growth of electronic commerce, AOL entered into a strategic alliance with Sun Microsystems, Inc. to develop and market client software and network application and server software for electronic commerce, extended communities, and connectivity. The Netscape Enterprise Group operates the Company's part of the alliance. The products developed, which will be sold by the alliance under the brand name "iPlanet," include e-commerce infrastructure software such as messaging and calendar software; Web, application, and directory software; and security services such as certificate management, firewall, and remote access. Also offered are e-commerce applications for online business-to-business transactions, procurement, sales, and billing. 2. Time Warner Inc. Time Warner is a worldwide media and entertainment company. Time Warner's principal business objective is to create and distribute information and entertainment throughout the world. Time Warner classifies its business interests into the following fundamental areas: ? Cable Networks, consisting principally of interests in cable television programming, including TBS Superstation, TNT, Cartoon Network, CNN News Group, and Home Box Office; ? Publishing, consisting principally of interests in magazine and book publishing and direct marketing. Time Warner's magazines include Time, People, Fortune, Money, Entertainment Weekly, and Sports Illustrated. Time Warner's book and publishing operations include Warner Books, Little Brown, and Time Life Inc.; ? Music, consisting principally of interests in recorded music and music publishing, including Warner Music Group and its labels Atlantic, Elektra, Rhino, Sire, Warner Bros. Records, and Warner Music International; ? Filmed Entertainment, consisting principally of interests in filmed entertainment production and distribution, television production, and television broadcasting, including Warner Bros., New Line Cinema, Castle Rock, Warner Home Video, Telepictures Productions, and the WB Network; ? Cable, consisting principally of interests in cable television systems which pass approximately 20,650,000 homes and serve approximately 12,630,000 subscribers. Additional information regarding the various business activities of Time Warner is set forth in its most recent Annual Report. Further details as to Time Warner's ownership interests in certain communications-related lines of business are set forth below: ? Cable Systems-Time Warner's cable system operations are held through three principal entities, each of which is managed by Time Warner Cable: Time Warner Entertainment Company, L.P. ("TWE"), Time Warner Entertainment - Advance/Newhouse Partnership ("TWE-A/N") and TWI Cable, Inc. ("TWI Cable"). The subscriber breakdown by entity is as follows: Entity Basic Subscribers TWE 4,181,504 TWE-A/N 6,674,732 TWI Cable 1,794,797 TWE is a limited partnership of which approximately 74.49 percent of the residual equity is held indirectly by Time Warner. The remainder is held by MediaOne Group, Inc. in the form of a limited partnership interest. TWE-A/N is a general partnership owned by TWI Cable, TWE, and Advance/Newhouse Partnership. Time Warner's partnership interest in TWE-A/N, through TWE and TWI Cable, is approximately 67 percent. TWI Cable is an indirect wholly owned subsidiary of Time Warner. ? Cable Programming: Time Warner's cable programming networks consist primarily of domestic and international basic cable networks and pay television programming services. Time Warner's cable programming operations are conducted through three principal divisions: Home Box Office ("HBO"), CNN News Group, and TBS Entertainment. HBO offers premium programming channels such as Home Box Office and Cinemax, and is wholly-owned by TWE. CNN News Group includes CNN, CNN Headline News, CNN/SI, CNNfn, and related services. TBS Entertainment includes TBS, TNT, Turner Classic Movies, Cartoon Network, and Turner South. CNN News Group and TBS Entertainment are indirectly wholly owned by Time Warner. In addition, Time Warner Cable operates, alone or in partnerships, 24-hour local news channels in New York City, Tampa Bay, Orlando, Rochester, and Austin. ? WTBS(TV): Superstation, Inc., the licensee of WTBS(TV), is indirectly wholly owned by Time Warner. The ownership structure of Superstation, Inc. is set forth in greater detail in the FCC Form 315 filed with the Commission on February 11, 2000. ? The WB Television Network: The WB Television Network is a limited partnership whose managing general partner is WB Communications, a division of TWE, which holds approximately 66 percent of the partnership interest. ? Road Runner: Road Runner, which provides high-speed Internet access and content optimized for broadband networks, currently is available in cable systems passing over 13 million homes and has over 550,000 subscribers, of which 330,000 are in communities served by Time Warner Cable systems. Road Runner is a joint venture among Time Warner (through TWE, TWE-A/N, and TWI Cable), affiliates of Media One Group, Inc., Microsoft Corp., Compaq Corp., and Advance/Newhouse Partnership. Time Warner holds an indirect 40 percent ownership interest in Road Runner. ? Time Warner Telecom: Time Warner Telecom provides facilities-based competitive telecommunications services primarily to commercial/business customers. Time Warner indirectly holds 48 percent of the equity of Time Warner Telecom Inc., a publicly traded corporation that holds certificates to provide telecommunications services in 12 states. B. AOL's Non-Attributable Investment In The Ultimate Parent Of DirecTV Is Spurring The Development Of Broadband Services Delivered Via Satellite Without Posing Any Threat To The Multichannel Video Programming Distribution Marketplace The merger of AOL and Time Warner will not adversely affect competition among multichannel video programming distributors ("MVPDs"). Time Warner, with attributable interests in cable systems serving approximately 13 million subscribers, is a significant MVPD. But AOL is not. This fact is in no way contradicted by AOL's small, non-voting interest in the General Motors Corporation ("GM"), which (through its subsidiary Hughes Electronics Corporation, "Hughes") controls a direct broadcast satellite service ("DBS") provider, DirecTV. As described below, this non-voting, attenuated, and insubstantial interest provides no opportunity for the merged entity to affect DirecTV's day-to-day operations, much less video programming competition generally. Analysis under relevant FCC rules confirms that AOL's investment does not constitute an attributable interest in DirecTV and gives no cause for concern. To the contrary, by helping to facilitate the development and deployment of new broadband services such as DirecPC high-speed Internet access, AOL's investment in GM promotes competition and the public interest. 1. AOL invested in GM to advance its pro-consumer "AOL Anywhere" strategy by accelerating the development of satellites as a competitive broadband platform AOL seeks to reach consumers utilizing multiple devices by any and all means: dial-up, xDSL, cable, wireless, and satellite. In pursuit of this goal of "AOL Anywhere," AOL and Hughes announced a strategic alliance in June 1999 to develop and market digital entertainment and Internet services nationwide via satellite. As part of that agreement, AOL invested $1.5 billion in GM, the parent company of Hughes, to accelerate the development of DBS as a platform for the next generation of Internet services. The investment was not intended to, and does not, provide any opportunity for AOL or the merged entity to participate in DirecTV's video programming operations. AOL's investment is thus pro-competitive in two important ways. First, it promotes the development of the satellite broadband platform as an alternative to other technologies, a long-held goal of the Commission. Second, it advances the development of a broadband platform with a nationwide footprint, thus promoting the potential for all Americans to gain access to the Internet no matter where they live. 2. AOL's investment in GM produces these pro-competitive broadband benefits without raising any offsetting concerns for the video marketplace AOL's non-attributable investment in GM does not implicate any of the Commission's concerns regarding MVPD competition. As discussed more fully below, AOL's investment is presently in the form of a preference stock of GM which (absent very limited circumstances) provides AOL with no voting rights. Second, even after AOL's preference stock would convert to a class of GM stock with voting rights, its voting interest in GM would be well below any threshold for attribution. Therefore, any concerns over horizontal concentration and the ability of the merged entity to use the DirecTV interest to impede competition in the MVPD marketplace are not credibly triggered by AOL's investment. a. AOL's current interest provides it with no voting rights in GM AOL's non-voting, indirect interest in DirecTV is of no consequence under FCC rules. AOL's investment in GM is currently in the form of GM's "Series H 6.25% Automatically Convertible Preference Stock" (the "Preference Stock"), which, as the name implies, pays annual dividends at a rate of 6.25 percent. The Preference Stock does not, however, provide its holder with voting rights in GM, except in the most limited circumstances. On this basis alone, then, AOL's current interest is clearly non-attributable. b. Even upon conversion to a form of GM stock with voting rights, AOL's interest in GM would be well below any relevant attribution threshold and would remain non-attributable Even when converted, AOL's interest would not be attributable under any potentially relevant Commission attribution rule. The Preference Stock is convertible into shares of GM's Class H common ("GMH") stock. GMH stock is a publicly held tracking stock, the outstanding shares of which track the economic performance of Hughes. In the aggregate, the publicly held shares track approximately 35 percent of the economic value of Hughes. The remainder of that value is retained by GM. Holders of GMH stock have no direct rights in the equity and assets of Hughes, but rather have rights in the equity and assets of GM. Neither GMH shareholders in general, nor AOL in particular, has the ability to appoint any board members to GM, Hughes, or DirecTV. Rather, Hughes remains a wholly owned subsidiary of GM and is subject entirely to GM's operational control. Each share of GMH stock provides its holder with a voting interest equivalent to 0.6 of a vote of a share of GM Common Stock. Accordingly, upon conversion to GMH stock, AOL's voting interest in GM would be approximately 1.76 percent, an interest too insubstantial to be deemed cognizable under any arguably relevant FCC attribution rule. 3. Even if AOL's investment in GM led to the unprecedented conclusion that DirecTV should be attributed to the merged entity, AOL Time Warner still would not breach the Commission's still stayed horizontal ownership rules As detailed above, AOL's investment in GM is in no way cognizable under any pertinent FCC rules, and thus it cannot reasonably be found to pose any cause for concern. Moreover, even assuming that this interest were somehow considered attributable, the total number of MVPD subscribers served by the merged entity plus DirecTV would not breach the 30 percent limit set forth in the Commission's (stayed) horizontal ownership rules. Time Warner serves approximately 13 million subscribers. DirecTV, meanwhile, serves 8.2 million subscribers. The combined total number of subscribers served by these two separate entities, 21.2 million subscribers, constitutes approximately 25 percent of the total number of MVPD subscribers nationwide. Thus, even if DirecTV's subscribers are inappropriately attributed to the merged entity, AOL Time Warner would still be well within the 30 percent ownership cap. * * * In sum, AOL's non-attributable investment in GM-designed to promote the development of broadband Internet services delivered via satellite-is procompetitive. Moreover, the level of AOL's interest, which currently is in the form of a non-cognizable, non- voting preference stock, would be far too insignificant-even upon conversion-to be deemed attributable under the (stayed) cable ownership cap or any other set of rules applied in the cable context. Accordingly, there is simply no risk that AOL's limited interest in GM, even after the proposed merger, could adversely affect consumers. III. THIS MERGER ADVANCES AOL'S LONG-STANDING COMMITMENT TO THE DISTRIBUTION OF ITS ONLINE SERVICE USING A WIDE RANGE OF TECHNOLOGIES This merger advances AOL's long-standing commitment to employing the full range of available platforms for the delivery of the AOL service. Even before its merger with Time Warner was announced, AOL was actively pursuing non-exclusive agreements with digital subscriber line ("DSL"), wireless, satellite, and cable providers, despite the fact that its service is already available via dial-up connection nationwide. The merged AOL Time Warner looks forward to offering the AOL service over its broadband cable systems, as quickly as possible, subject to existing contractual commitments. This will move AOL further toward its goal of being available across all technologies and to as many consumers as possible, where, when, and how they want to be reached. These systems, however, pass only approximately 20 percent of homes nationwide. Accordingly, AOL Time Warner will continue to strive to make the AOL service available on as many different facilities as possible-including alternative broadband facilities within Time Warner's local cable franchise areas. A. The Success Of The "AOL Anywhere" Strategy Depends On The Availability Of The AOL Service Wherever And However Consumers Might Wish To Obtain It AOL's corporate strategy is to offer "AOL Anywhere." AOL has sought to make the full range of its interactive brands, services and features available to consumers across a range of products and devices. Through "AOL Anywhere," AOL's members, online consumers of its other Web brands, and millions of other consumers will be able to access popular AOL features whenever and wherever they need them-from the Web and when using their television, Internet- ready phones, handheld computers, and other personal wireless devices. A key focus of this strategy-and, indeed, of AOL's overall business strategy-is the ability to reach as many consumers as possible, in as many ways as possible. Subscriber revenues, obviously, are a function of the number of customers. Similarly, advertising revenues are linked to the number of "eyeballs" that advertisers' messages will reach. And e-commerce revenues are derived on a per-transaction basis. Thus, for a whole host of reasons, the economic model upon which AOL's corporate success is based depends upon widespread distribution of the AOL service. B. In Recognition Of These Business Imperatives, AOL Has Long Committed Itself To A Broad Diversity Of Platforms Consistent with the goal of "AOL Anywhere," AOL has entered into non-exclusive agreements with providers using a broad range of facilities in order to ensure that all consumers who want to access its service-no matter where they live, no matter what device they use to access the Internet, and no matter what access platform they employ-will be able to do so. AOL's purpose for negotiating these agreements is to create a "broadband tapestry" capable of delivering AOL's service through a range of technologies. To that end, AOL has entered into a broad range of non-exclusive agreements, including: Satellite. As described in greater detail above, AOL has formed a strategic alliance with Hughes Electronics Corporation to make its high-speed Internet service, "AOL-Plus," available nationwide via the DirecPC satellite Internet network, on a non-exclusive basis. DSL. AOL has formed non-exclusive strategic alliances with SBC Communications Inc. (including the former Ameritech), Bell Atlantic, and GTE to provide broadband access to the AOL service via the phone companies' DSL offerings. As AOL President and Chief Operating Officer Robert W. Pittman has stated, "AOL is strongly committed to finding new ways to offer our members added access to high-speed options. By partnering with telecommunications leaders like [SBC], and exploring all means of access, we are delivering on the promise of the interactive medium and helping to make broadband access a reality for the mass market consumer." Wireless. AOL recently announced non-exclusive agreements with Sprint PCS, Nokia, Motorola, Research in Motion, BellSouth, and Arch Communications to make the AOL service one of the choices that will be accessible via wireless devices (including wireless phones). These wireless announcements are a major step forward for the AOL Anywhere strategy-making it possible for consumers to access the AOL service anywhere, any time. Cable. Stephen Case, AOL Chairman and CEO, noted in his recent testimony before the Senate Commerce Committee that AOL "from day one" has pursued the goal of consumer choice from among multiple ISPs over broadband cable systems. And irrespective of the Time Warner merger, AOL will continue to seek the ability to serve customers passed by the broadband facilities of other cable operators. C. The Merger In No Way Alters The Platform-Agnostic Foundation Of The "AOL Anywhere" Strategy-Including Within Time Warner's Local Cable Franchise Areas AOL's commitment to a multitude of broadband delivery options-including within Time Warner's cable service areas-is in no way diminished by this merger. Indeed, AOL must continue to pursue as many broadband delivery options as possible in order to reach every potential customer, both inside and outside of Time Warner's local cable franchise areas. Within Time Warner's local franchise areas, a substantial percentage of consumers do not subscribe to cable and thus are perhaps less likely to subscribe to cable modem service on a stand-alone basis. Further, Time Warner's cable systems reach less than 20 percent of the nation's homes passed by cable. And nationwide, one of every three consumers do not now subscribe to cable-a figure that does not take into account the fact that many cable subscribers may wish to obtain broadband Internet services over facilities other than cable. AOL thus does, and will continue to, rely upon a multiplicity of other providers-including DSL, satellite, wireless, and other cable operators. Moreover, while AOL Time Warner is encouraged by AT&T's pledge to provide consumers with a choice among multiple ISPs and hopes that other cable companies will join in providing such consumer choice, AOL nevertheless remains committed to a diversity of delivery options. Consequently, the possibility of future deals with other cable operators has no effect upon AOL's continuing commitments to satellite, wireless, and DSL. For all of these reasons, AOL Time Warner remains committed to making the AOL service available via the broadest range of technologies possible. AOL Time Warner thus will continue to provide the AOL service over alternative facilities, both beyond and within its own cable service areas. AOL's strategy is to deliver on what consumers want-and that means giving consumers choices in terms of how and where they connect. Limiting distribution of the AOL service would undermine the long-standing "AOL Anywhere" strategy and be a poor business decision. IV. ADDITIONAL DATA AND ANALYSIS CONFIRM THAT THE PROPOSED MERGER WILL SERVE THE PUBLIC INTEREST BY BRINGING CONSUMER CHOICE, INNOVATION, AND MOMENTUM TO BROADBAND AND NEXT- GENERATION SERVICES The goal of this merger is not simply to market existing AOL and Time Warner products and services under one corporate banner. Rather, AOL and Time Warner have committed to this merger because their shared vision for serving consumers in the coming Internet Age calls for more than simple cooperation on a specific product or service offering. Maximizing the potential of each company requires fully integrating both into a single, transformed enterprise. As Gerald Levin, Time Warner Chairman and CEO, testified before the Senate Commerce Committee, the leaders of AOL and Time Warner saw the merged entity as something much bigger than the sum of its parts: [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 the speed and immediacy of broadband across all delivery platforms, wired or wireless, thus unlocking the fullest possibilities of interactivity. In the same vein, Steve Case, Chairman and CEO of AOL, told investors, "[M]ake no mistake: This merger is not just about putting different forms of media together. It is about creating something new and powerful-a truly mass-market interactive company providing services on a global level that will become even more central to people's lives." As AOL and Time Warner explained in their Public Interest Statement, the merger promises (and has already begun) to deliver substantial benefits to consumers and competition. These benefits-whether in the form of more consumer choice among Internet services delivered via cable or more advanced products and services reaching the marketplace-will help drive the next generation of information, entertainment, communications, and e-commerce opportunities for consumers. A. The Parties' Unsurpassed And Demonstrated Commitment To Consumer Choice From Among Multiple ISPs Significantly Advances The Public Interest By Expediting The Resolution Of The Open Access Debate Our Public Interest Statement asserted that the AOL Time Warner merger would likely hasten a marketplace solution to the open access issue. Less than three weeks after submitting our public interest showing, AOL and Time Warner took an important first step toward achieving this objective by entering into a Memorandum of Understanding setting out the framework under which AOL Time Warner will offer consumers a choice of ISPs on its broadband cable systems. Through their commitments, the parties have demonstrated that this merger will promote the public interest by increasing consumer choice and, ultimately, accelerating broadband deployment. 1. AOL and Time Warner have committed to providing consumer choice among multiple ISPs on AOL Time Warner's cable systems At the heart of the MOU is the parties' commitment to ensuring that consumers will be able to choose from among multiple ISPs for high-speed Internet service over AOL Time Warner's broadband cable systems. The details of the MOU confirm that this commitment is real and meaningful. Significantly, 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. The parties also have committed to offer a diversity of ISPs. AOL Time Warner will not place any fixed limit on the number of ISPs with which it will enter into commercial arrangements. Moreover, AOL Time Warner will offer those ISPs the choice to partner on a national (i.e., on all AOL Time Warner cable systems), regional, or local basis, in order to facilitate consumer choice among ISPs of different size and scope. Importantly, AOL Time Warner will not control the nature of the ISP's relationship with customers. Both the cable operator and the ISP will 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 Internet service directly to customers. When an ISP sells broadband Internet service directly to a customer, it may, if it so chooses, bill and collect from the customer directly. The MOU also makes clear that AOL Time Warner will allow ISPs to provide video streaming. The MOU is compelling evidence of AOL and Time Warner's joint commitment to the principle that providing consumer choice is integral to achieving the full potential of the merged company, as well as the Internet marketplace. While the MOU is subject to existing Time Warner obligations, AOL Time Warner is committed to providing a choice of ISPs as quickly as possible, and will work with its Road Runner partners to try to achieve that goal even before its current obligations expire. 2. The AOL Time Warner MOU represents tremendous marketplace progress in advancing open access AOL and Time Warner view the principles embodied in the MOU as the foundation of their Internet access policy and believe that the resulting benefits to consumers will be profound. Industry observers agree-the MOU has been widely heralded as a turning point destined to resonate throughout the industry and drive the promotion of a vigorously competitive marketplace for broadband Internet services. The merging parties themselves clearly appreciate the broad importance of their agreement. Steve Case described the MOU as a "significant step forward today toward making open access a reality for consumers in the marketplace" and "exactly what we believe our two companies can achieve when we work together: providing new choices for consumers and value in the marketplace." He continued: Choice, competition, and innovation have been the factors driving the Internet's explosive growth to date. Now, with this framework, we are poised to make it easier, more attractive, and more affordable than ever for consumers to sign up for high-speed, always-on Internet service, with all of the benefits that has to offer. Gerald Levin articulated this same vision: We know Time Warner consumers want choice and innovation in cable Internet service, and we are going to deliver it to them- access to AOL as well as to a variety of other ISPs . . . . Today's announcement is another step forward in delivering on the promise of the interactive medium and helping make broadband access a reality for every consumer. The MOU is thus significant not just for the choice of broadband Internet service it is bringing to subscribers of Time Warner's cable systems, but also because it creates an additional public interest benefit: momentum for similar action throughout the cable industry. Indeed, the merging parties have been outspoken about their expectation that other cable operators will follow their lead. When the MOU was announced, Mr. Levin said: I look forward to the rest of the cable industry following this same path of choice and innovation, which I believe will greatly accelerate consumer adoption of cable broadband services. Mr. Case expounded on this idea in recent testimony before the U.S. Senate: 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. AOL and Time Warner are not alone in the view that the MOU is likely to spur other cable companies to achieve marketplace arrangements that facilitate consumer choice among multiple ISPs. Chairman Kennard called the MOU "a significant step in the right direction" of "find[ing] business solutions to consumer demand as an alternative to intervention by the government." And the trade press recently reported that: Cable-industry sources said the AOL-Time Warner deal "turns the heat up" on Cox Communications Inc., Comcast Corp., Cablevision Systems Corp. and Charter Communications Inc. to join the open-access crusade. Independent financial analysts have reached the same conclusion regarding the widespread impact of the MOU. 3. The AOL Time Warner merger and its commitment to providing consumers' choice among multiple ISPs will only enhance the marketplace pressure that the Commission has already found to be fueling competitive broadband deployment By demonstrating the power of consumer choice to fuel demand for broadband Internet service, the AOL Time Warner merger also will heighten competitive pressure for deployment of broadband by all technologies. The inevitable consequence is that, in order to stay competitive, providers of alternative broadband platforms such as DSL, satellite, and fixed wireless must accelerate their own development and deployment plans. The Commission has recognized this pattern, understanding that competition among rival technologies is one of the primary forces that drives deployment of broadband services. As the FCC continues to observe, "it is widely believed that incumbent LECs' recent moves to offer broadband to residential customers are primarily a reaction to other companies' entry into broadband." Chairman Kennard elaborated on this point in a speech last September: And this pickup in growth [of DSL deployment] is a function of one thing: competition. The regional Bell companies know that for the first time in the history of this country they are facing a serious, facilities-based competitor in their backyard: the residential marketplace. And that is the cable television industry. And it is the prospect of that competition that is going to really jumpstart broadband deployment in this country. In the same vein, FCC Cable Bureau Chief Deborah Lathen recently stated that the "deployment of cable modems has spurred the deployment of DSL, and this competition has resulted in lower prices and greater choices for consumers." Industry observers likewise have noted that the merger will trigger a major step forward in the deployment and adoption of broadband. As one account stated it, the deal may well set off a chain reaction among local phone companies, long-distance giants, other cable providers and wireless carriers to step up their high-speed Internet strategies. The financial community agrees. Merrill Lynch, for example, noted that "the merger will only help to accelerate cable's rollout of high speed data and new services . . . ." The same is true for the deployment of other platforms. Analysts have concluded that the availability of AOL Time Warner's service on broadband cable "should also put pressure" on local exchange carriers "to become more aggressive in rolling out DSL." In addition, AOL and Time Warner believe that, in two related ways, their merger will help prompt the availability of broadband services to all Americans. First, the companies' commitments to this important social goal, combined with Time Warner's ongoing comprehensive broadband deployment efforts and AOL's ability to make new technologies and services accessible and attractive to even the most inexperienced users, should greatly accelerate the adoption of broadband access across all segments of society. Second, the merged entity's introduction of widely appealing broadband offerings will help spur providers of other broadband technologies and services to deploy and market their own services more widely in order to compete directly with AOL Time Warner. In summary, the broadband access deployment benefits of the merger will be far- reaching, and the irreversible course of open competition fostered by this merger is-with the MOU-already underway. The continuing payoff for consumers lies in the actions that AOL Time Warner will spur among other ISPs and broadband providers as they seek to join in the emerging broadband marketplace boom. B. This Merger Significantly Advances The Public Interest By Bringing Together Complementary Skills And Resources To More Rapidly And Effectively Offer Consumers The New Content, Products, And Services That Broadband Promises As explained in the Public Interest Statement, combining AOL and Time Warner's resources will allow the new entity to spearhead the convergence of traditional media and online technologies. The two parties bring the experience, incentive, and resources necessary to develop together an array of new services and products in a marketplace that is filled with promise-but also with risk and unpredictability. Yet, as Goldman Sachs plainly states, "the risks of the combined company are lower than for the individual companies." With this merger, consumers will more rapidly see products and services that range, as discussed below, from familiar information and entertainment content delivered in a new way to interactive or wholly new and innovative consumer offerings. 1. The spectrum of new consumer offerings Just how will AOL Time Warner advance the delivery of all the benefits that the broadband marketplace promises? Detailed business plans are still being developed, but what AOL and Time Warner together make possible is acceleration of the development and availability of (1) established media offerings made more widely available and accessible online; (2) new, interactive forms of media content more fully tailored to and enriched by the Internet; and (3) wholly new forms of information, entertainment, communications, and commerce. AOL Time Warner's development of these new content services, coupled with the merged company's strategy of making its offerings broadly available across multiple technologies, will add further depth and diversity to the already stunning chorus of "voices" to be heard via the Internet. Certainly the merged entity will be well placed to integrate traditional and new media. Observers have widely hailed the prospect of AOL using its demonstrated skills to enable technology-reluctant users to participate in the Internet revolution by ensuring that these consumers can easily find and enjoy the online versions of the many content offerings (magazines, books, video, etc.) that they already trust and value, including Time Warner's popular brands. Indeed, Time Warner has found that this transaction would "accelerate[ ] Time Warner's Internet distribution plan by several years." But even beyond the existing Time Warner library, commentators have applauded how the deal will promote generally the development of next-generation content: "Deals like AOL Time Warner will accelerate the creation of digital content not only at Time Warner, but also at other traditional media companies." Furthermore, the merged entity expects to infuse its traditional and trusted sources of information and entertainment with interactivity, thereby transforming the consumer experience. By internalizing under one roof their collective Internet know-how and media expertise, AOL Time Warner can bring consumers content that is not merely re-purposed for the Internet but rather is born of the online medium and its rich capacity for interactivity. In their merger-related filings with the Securities and Exchange Commission, moreover, the Applicants noted that one factor motivating the merger was the existence of "cost efficiencies in launching and operating interactive extensions of Time Warner brands." The merger will also help spur the development and delivery to the marketplace of next- generation products and services-wholly new content offerings specifically designed for delivery via broadband and supporting interactive components. As Goldman Sachs noted, the merged entity can quickly respond to and inspire "rapidly morphing user habits as users re- examine their daily activities through `Internet-enabled glasses.'" Similarly, Merrill Lynch, after examining the merger, concluded that one of the strengths of the combined entity will be its ability to develop and promote new interactive services: "[AOL Time Warner] is in a better position than either entity is separately to drive the evolution of interactive services to the next level-breaking the convergence logjams that, in many sectors of the media and communications industries, are inhibiting the growth of the medium." 2. A compelling illustration: "The Online Music Revolution" Among the examples of new products and services that the proposed merger should deliver quickly to consumers is Internet-delivered music. Hilary Rosen, President of the Recording Industry Association of America, has noted that the merger "brings together . . . a tremendous wealth of music assets and a group of people who have mastered the art of making things simple on the Internet." Indeed, many analysts believe that "the Internet revolution and its influence on e-commerce, marketing, digital delivery, and distribution will have a profound impact on the structure, growth, and traditional operating models of the music industry." In particular, independent observers widely agree that AOL Time Warner is poised to have a substantial, positive effect on overcoming the technical and financial complexity that has hindered the development of downloadable music. Or, as the Washington Post put it, [t]he push toward digital music just got a shove. America Online Inc.'s proposed merger with Time Warner Inc. may vastly hasten the online music revolution, say record industry specialists, and could transform the race to find new ways to sell and distribute music over the Internet . . . . "This [the merger] will speed up how fast the digital music market emerges," said Andrea Fleming, a spokeswoman for Liquid Audio, referring to the AOL-Time Warner deal. Part of the reason that online music distribution has not yet achieved widespread availability is the lack of inter-industry standards on software and encoding. AOL Time Warner's combined expertise can help expedite the development of a technological platform which will permit consumers, legally and securely, to download music over the Internet. Together, AOL and Time Warner can build quickly on steps now underway to bring consumers a world in which music downloading is easy and convenient-allowing them to sample music before purchasing it, and to obtain news about musical releases that fit their personal interests. The Applicants fully expect the upshot to be not just a "music revolution" but also the advancement of the broadband revolution. Independent analysts agree that a burgeoning online music marketplace also will hasten the consumer transition to broadband Internet access. In order to download music faster and more efficiently, consumers will desire the greater bandwidth capacity which broadband access can provide. 3. Boundless possibilities for new consumer services In addition to the prospects for online music, this merger holds promise for advancing the roll-out of ventures now in development, as well as those in the conceptual stages. As PaineWebber observed in its analysis of the transaction, the new company will be well- positioned "to define and create yet-to-be imagined new businesses which [will] evolve as technologies are introduced and as the Internet continues to develop." For example, AOL is developing a new service called AOLTV which is intended to enhance the traditional television viewing experience by adding an exciting new element of interactivity. A leading attribute of this new offering will be its ability to extend and directly link the community aspects of AOL to video programming, thereby making television viewing more entertaining and useful for millions of viewers. Among other activities, subscribers will be able to join online chats with others watching the same television program or be able to simultaneously watch television programs and send instant messages. Moreover, AOLTV holds the promise of allowing subscribers to instantaneously obtain more information about the television programming they are watching with a simple click. A viewer could obtain the voting records of the candidates while watching a Presidential debate, to cite but one example. In short, AOLTV will give customers the capability to integrate Internet-enabled interactivity into their television viewing experience. Even before this merger was proposed, the planned roll-out of AOLTV was viewed as a promising expansion of the "AOL Anywhere" initiative to make AOL services available over a broad range of devices. With the added expertise in television programming and distribution that Time Warner will bring to the table, AOLTV promises to be a service that is both highly appealing and useful to consumers. And with this merger's promotion of competitive broadband development, the prospects for an enhanced, next-generation AOLTV that could even more seamlessly and robustly integrate Internet and video services become even more foreseeable. Because of the AOL Time Warner merger, a host of other new products and services likewise can be expected to move more readily and promptly from drawing board to market. Of course, as PaineWebber points out in its analysis of the merger, "[t]oday it is difficult to see what the new digital world will look like." Nevertheless, among the promising next-generation products that analysts suggest the merged company is well positioned to pursue and expedite are personalized jukeboxes and news clipping services; voice-activated web surfing; Internet-enabled voice communications; personalized video services; virtual communities centered around off-line magazines; and downloaded music. The companies welcome the challenge of bringing the future closer to consumers in a way that enriches their lives; once fused together, AOL Time Warner will be well-suited to deliver on that goal. * * * In sum, the public interest benefits of the proposed merger are both tangible and significant. The discussion below makes clear that they would not occur as rapidly if AOL and Time Warner had not chosen to merge their operations into one, wholly new entity. 4. These benefits will be delivered to consumers more quickly and efficiently through this merger As explained in the Public Interest Statement, AOL and Time Warner-relying on their collective experience across the media and communications industries-concluded that a merger would efficiently and effectively enable the two entities to transform themselves to compete vigorously in the rapidly evolving media/communications/Internet marketplace. Specifically, both companies came to the conclusion that the merger is the best means to: ? create the first fully integrated media and communications company for the Internet age; ? act as a catalyst both to accelerate the growth of each company's current businesses and to create new business opportunities; ? bring compelling and attractive new offerings to consumers as quickly as possible.; and ? fully realize the cost savings and efficiencies, as well as the growth potential, that would stem from mixing and transforming the resources and operations of both companies. For its own part, Time Warner concluded that the merger would be the best way to bring consumers enhanced access to a broad selection of the company's high quality content and interactive services-and at a more accelerated pace than could otherwise be achieved. Time Warner also concluded that uniting the creative and journalistic talents of its employees with the technological expertise in the AOL ranks would position the combined company to offer consumers products and services particularly suited to interactive media. Similarly, AOL concluded that, through a merger, Time Warner's resources would advance the development of next-generation broadband services and the "AOL Anywhere" strategy-both results a net plus for consumers. In addition, AOL recognized that common ownership of Time Warner's cable systems will expand the broadband availability of AOL's own interactive and next-generation services. The magnitude of the proposal was not underestimated by either company. The merger's potential is much more than just providing consumers with a single defined product or service in a predictable business environment. Rather, AOL and Time Warner have made a considered, and indeed compelling, judgment that the type of sweeping innovation and transformation they wish to achieve requires the full integration embodied by this merger. It certainly would be impractical for the parties to try to negotiate a series of contracts or joint venture arrangements to account for the far-reaching and unprecedented undertaking contemplated by this transaction. Furthermore, where two parties such as AOL and Time Warner are operating in an environment defined by ever-evolving technologies and services, individual contractual relationships would be especially difficult to negotiate and much less efficient than the full integration offered by a merger. Because there is no way to predict precisely what technologies and services will develop and be demanded by consumers in the future, it would be difficult, if not impossible, to forecast the appropriate parameters of a limited contractual relationship. Thus, the most efficient option-and the one that holds the most promise for consumers in the shortest period of time-is for AOL and Time Warner to become one company with unified goals for meeting consumer demand and needs across every product and service they do or could potentially offer. Independent analysts agree that, as AOL and Time Warner stated in their Public Interest Statement, a merger is the most reliable vehicle for these two companies to bring new services and products to consumers quickly in what all agree is a risky, albeit exciting, marketplace. Goldman Sachs observed that a merger offered the only way for AOL and Time Warner to fully integrate their operations and allow the merged entity to set aside considerations concerning individual lines of business in order to concentrate on the good of the whole: "In the past, each company had self-interest at heart, arguing that its assets were more important to the equation. This often prevented either company from maximizing its growth. This limitation is no longer an issue." Moreover, analysts note that mergers are reliable vehicles for delivering new products and services to consumers as quickly as possible. Here, the specific business arrangement- i.e., the merger-to which AOL and Time Warner have committed will uniquely enable the combined entity to develop and offer a broad range of services to the public. As noted above, these services are not limited to the accelerated migration of Time Warner content onto the Internet, though that is a merger-specific benefit which will rapidly occur. Nor are these services limited to the development of interactive versions of that content, though one of AOL's strengths is its ability to create new and readily accessible content tailored to the online experience. Instead, the AOL Time Warner merger offers all of these benefits plus a wholly new and, by- definition, still-under-conception wave of broadband-enabled services that will revolutionize people's lives. V. THE COMMISSION'S PAST RULINGS, COMBINED WITH THE PARTIES' COMMITMENT TO OPEN ACCESS, PRECLUDE ANY FINDING THAT THE PROPOSED MERGER COULD THWART-OR EVEN DAMPEN-INTERNET ACCESS SERVICES COMPETITION As explained in our Public Interest Statement, the AOL Time Warner merger will produce no anticompetitive effects in the provision of Internet access services. However defined, Internet access is more competitive today than when the Commission last reviewed it, and it will become even more so as this merger facilitates consumer choice among multiple ISPs delivered over cable systems. Indeed, FCC Cable Bureau Chief Deborah Lathen recently stated, "We have not seen any signs of a market failure that would justify regulation at this point . . . . We see competition flourishing and thriving." The following discussion reviews the Commission's analysis of this marketplace in its AT&T/TCI Order; applies the agency's findings and reasoning to the AOL Time Warner merger; and demonstrates that the proposed merger will indeed promote consumer choice in Internet access services, whether the relevant market is broadly or narrowly defined. As discussed below, the Commission rejected any potential concerns about Internet access competition (including those of AOL) raised in the AT&T/TCI merger. In that proceeding, the FCC found that the highly competitive Internet access marketplace would not be harmed by AT&T's acquisition of TCI's cable systems-even though those merging parties had in place contractual provisions affording exclusivity to their affiliated broadband Internet provider, @Home. The Commission, finding abundant competition no matter how the market was viewed, essentially dismissed as academic the debate among commenting parties over how to define the precise market at issue. A fortiori, the AOL Time Warner merger cannot reasonably be found to cause any anticompetitive effect on Internet access-and the need for any specific market definition is thus even more academic. By offering multiple, unaffiliated ISPs over its cable systems, AOL Time Warner will empower Internet users to choose among a wider variety of products and providers. Accordingly, the Commission, by its own reasoning, now faces a merger that will render a marketplace already found abundantly competitive to be even more so-and so the agency again has no need to adopt a precise market definition: ? If broadband and narrowband Internet access services are understood as being part of the same product market, there are countless firms in that market, barriers to entry are low; market concentration will not be significantly increased; and the merger will not have any significant anticompetitive effect. ? If broadband and narrowband Internet access services are viewed as separate product markets, this merger will not eliminate any significant existing competition; market concentration will not be significantly increased; and consumer choice among ISPs will be promoted. A. The FCC's Analysis and Conclusions in AT&T/TCI Belie any Need to Rule on a Precise Market Definition in Order to Find this Merger in the Public Interest In approving the AT&T/TCI merger-and rejecting efforts to define the precise market at issue-the Commission found competition among existing Internet access providers so vigorous as to be not threatened even by the merged company's exclusive arrangements with its affiliated Internet provider. A review of the underlying facts of the AT&T/TCI merger, the FCC's lines of analysis, and the agency's ultimate findings leaves no room for a contrary Commission ruling on this merger. The previous merger presented the FCC with a major facilities-based communications/ Internet company (AT&T) proposing to acquire control of the nation's largest cable operator (TCI) and its affiliated broadband Internet provider (@Home). AT&T had a significant narrowband ISP (WorldNet) and pre-existing plans to offer facilities-based Internet access service using an alternative (fixed wireless) technology. TCI offered broadband Internet access over its cable systems subject to an exclusive agreement with @Home. Notably, the merging parties there did not commit to offer consumers a choice of unaffiliated ISPs over their cable systems. Faced with these facts, the FCC concluded that-no matter how the relevant market was defined-the merger would engender no adverse effects in the competitive Internet access marketplace that warranted any agency action. The Commission's own words best reveal its findings and reasoning:  "Effect on Competition. To address the specific issues raised by parties opposing the merger or seeking conditions, we must first consider whether the merger is likely to produce any adverse competitive effects in residential markets for Internet access services."  "Market Definition. We do not need to determine at this time whether narrowband and broadband Internet access services provided to residential and small business customers are sufficiently different to support the conclusion that they are in separate markets. As we explain in the following paragraphs, even if we were to assume that they are in separate markets, we would reach the same conclusion concerning the issues raised by parties opposing and commenting on the proposed merger."  One Market Analysis: "Currently, there are a large number of firms providing Internet access services in nearly all geographic markets in the United States, and these markets are quite competitive today. Accordingly, if all Internet access services were included in the market definition, we would conclude that the merger is unlikely to adversely affect the public interest in competitive markets for Internet access services."  Separate Market Analysis: "Even if we were to consider a market defined to include only high-speed Internet access services, we would still conclude that the merger is unlikely to adversely affect the public interest in a competitive market. Although AT&T/TCI together might be able more quickly to deploy high-speed Internet access services and win a significant number of residential Internet access customers, it appears that quite a few other firms are beginning to deploy or are working to deploy high-speed Internet access services using a range of other distribution technologies. Moreover, even if broadband Internet access services were deemed to constitute a separate market from dial-up Internet access services, AT&T is not a more likely entrant than AOL or other leading ISPs (including the incumbent LECs, which have facilities of their own) that are currently providing services using narrowband transmission. Accordingly, the merger does not eliminate any scarce assets or capabilities; in fact, a partnership between AT&T and TCI is precisely the kind of arrangement by which AT&T (and other ISPs) could be expected to provide higher-speed Internet access services."  Benefit of Merger: "Finally, while the merger is unlikely to yield anticompetitive effects, we believe it may yield public interest benefits to consumers in the form of a quicker roll-out of high-speed Internet access services." The FCC thus dismissed any concerns related to these issues-and any associated need to adopt a precise market definition-based, it appears, on three fundamental findings: (1) Internet access is competitive, whether viewed as a whole or separately; (2) the merger would not harm this competition; and (3) the merger might even promote the public interest by accelerating deployment of broadband services. B. The Proposed Merger Will Have No Appreciable Anticompetitive Effect on the Provision of Internet Access Services, and Thus the FCC Need Not Resolve the Market Definition Issue The Commission's reasoning and analysis in its AT&T/TCI Order necessitates the same conclusion here: the agency need not resolve the market definition issue to find that this merger poses no harm to Internet access competition. Moreover, the AOL Time Warner merger presents a compelling new factor-as described above, AOL and Time Warner together have committed to offering consumers a choice of multiple ISPs, including AOL, over Time Warner's broadband cable systems. This merger therefore will only benefit consumers of Internet access services. Nevertheless, and without prejudice to the Applicants' position that the purported markets need not be further defined here, we explain why both of the alternative market analyses discussed below would support this conclusion-as the Commission itself has specifically recognized. 1. Assuming first a broadly defined market including both narrowband and broadband Internet access services, the proposed merger presents no harm to the thriving competition in Internet access services A broadly defined Internet access market, comprised of both narrowband and broadband Internet access providers, can only be found more competitive today than when the Commission assessed it one year ago. This business has grown considerably; as Chairman Kennard noted recently, there are roughly 80 million Internet users in the United States. The Commission's finding that there are "a large number of firms providing Internet access services in nearly all geographic markets" is even more true today. In essentially every city and town across the country, consumers have a choice among a broad array of ISPs. Barriers to entry are low, and new providers are entering the Internet access business continually. This new entry creates a vibrantly competitive Internet access marketplace that prompts ISPs to offer new products and to otherwise distinguish their offerings. The resulting Internet access marketplace is remarkably diverse, enabling consumers to choose among a number of attributes-price, speed, technical and customer service, ease of use, and platform delivery-to find the specific offering that best suits their needs. For example, 1stUp.com, NetZero, and Spinway.com have begun offering Internet access services free-a notable competitive development just since the FCC last made its assessment. Any effect this merger would have on horizontal concentration among providers of Internet access services is de minimis. Road Runner is not, of course, solely controlled by Time Warner. The incremental addition of Road Runner subscribers to AOL's would, in any event, have very little impact on concentration in a market so defined. There simply are too many competing ISPs and too few subscribers to the Road Runner service to create any significant effect. The only impact this merger will have on the broad Internet access marketplace is positive. Pursuant to the MOU, consumers will have a choice of ISPs, including AOL, in obtaining broadband Internet access services over Time Warner's cable systems. 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 received over its cable systems. The merger therefore promotes consumer welfare by increasing consumer choice among competing Internet services and provides strong competitive pressure on other cable operators to offer similar choice to consumers. 2. Even assuming a separately defined broadband Internet access market, the proposed merger will have no significant anticompetitive effects and will enhance consumer welfare Even assuming arguendo that the FCC were to find a separate market for broadband Internet access services, this merger would have no anticompetitive effects. Such a market is more competitive today than when the Commission looked at this issue a year ago, and this merger will only promote consumer choice of ISPs. Under such an analysis, AOL's narrowband offerings and Road Runner's broadband offerings would, by definition, not overlap. On this basis, this merger would neither eliminate significant existing competition nor increase market concentration. The Commission found over a year ago that competition in broadband Internet access posed no cause for agency concern, particularly because new providers "using a range of other distribution technologies" were poised to join cable and DSL offerings. Since then, new entry, new commitments, and technological advances have strengthened the Commission's analysis. Chairman Kennard has acknowledged this healthy development in competition, noting a significant increase in DSL deployment and progress among providers of wireless and satellite broadband offerings. For instance, Rhythms NetConnections, Covad, and Broadband Digital Group have all begun to offer Internet access via DSL in various regions. Early DSL providers have expanded the geographic areas in which their DSL service is available for the use of their own and others' Internet access service offerings, and many have made public commitments to further accelerate their pace of deployment. Finally, as the Commission anticipated last year, new technologies have moved closer to becoming widely available. For instance, Teligent, NextLink, MCI WorldCom, and AT&T have announced or are beginning to deploy fixed wireless broadband Internet access services; Gilat Satellite Networks recently announced plans with Microsoft to begin trials of satellite-based broadband Internet access in several cities; and iSky also plans to provide a satellite-based service to all of North America by late 2001. Under its AT&T/TCI analysis, the Commission could only find that competition is growing. The primary effect of the AOL Time Warner merger on any separately defined broadband Internet access market, just as for a more broadly defined market, will be to enable consumers desiring cable modem service over Time Warner's systems to choose among multiple ISPs- without first purchasing services of an AOL Time Warner affiliate. This, in turn, will provide strong competitive pressure on other cable operators (and other broadband technologies as well) to provide similar choice to consumers. As broadband consumers choose among a variety of ISPs, they will benefit from the kind of competition among service providers that has fueled lower prices and a diversity of products in narrowband Internet access offerings. Thus, given that (1) competition among broadband Internet access providers has increased and is likely to intensify within the next two years; (2) this merger will have no impact on concentration in a separately defined broadband Internet access market; and (3) the merging parties will enable consumers to choose among multiple ISPs for broadband cable Internet access service, the FCC has all the more reason to conclude here, as it did in AT&T/TCI: "Even if we were to consider a market defined to include only high-speed Internet access services, we would still conclude that the merger is unlikely to yield anticompetitive effects . . . [and] may yield public interest benefits." * * * The FCC already has determined that competition in the Internet access marketplace is not harmed even when a cable merger would not afford consumers a choice of ISPs offered over cable facilities. Yet the AOL Time Warner merger dispenses with any such basis for challenge. By offering multiple ISPs over the merged entity's cable systems, this merger will enhance consumer choice and will in no way constrain competition for Internet access services. VI. CONCLUSION For the reasons set forth in the Public Interest Statement, as supplemented by the data and analysis supplied herein, the Commission should expeditiously grant the Applicants' request for consent to the transfer of control of their FCC licenses to the proposed new company. Creation of AOL Time Warner will deliver several interrelated benefits to consumers and thereby serve the public interest. As discussed, the merged company will develop and offer an enticing array of new broadband services to consumers, including next-generation interactive mixes of pictures, text, video, voice, and sound, on its own facilities as well as those of others. Moreover, the new company will address the open access issue in the marketplace by offering consumers choice among ISPs on their cable systems. These consumer benefits-more content choice and more ISP choice-will operate together to spur demand that will, in turn, fuel the pace of broadband facility deployment by all providers. Given these pro-consumer benefits of the merger, and its lack of any anticompetitive impact, the FCC should act promptly to approve the proposed transaction. Respectfully submitted, AMERICA ONLINE, INC. TIME WARNER INC. ____________________________ ____________________________ George Vradenburg, III Jill A. Lesser Steven N. Teplitz America Online, Inc. 1101 Connecticut Avenue, N.W. Suite 400 Washington, D.C. 20036 (202) 530-7883 Timothy A. Boggs Catherine R. Nolan Time Warner Inc. 800 Connecticut Avenue, N.W. Suite 800 Washington, D.C. 20006 (202) 457-9224 Richard E. Wiley Peter D. Ross Wayne D. Johnsen Wiley, Rein & Fielding 1776 K Street, N.W. Washington, D.C. 20006 (202) 719-7000 Aaron I. Fleischman Arthur H. Harding Craig A. Gilley Fleischman and Walsh, L.L.P. 1400 Sixteenth Street, N.W., Suite 600 Washington, D.C. 20036 (202) 939-7900 March 21, 2000 Time Warner Inc./AOL Time Warner Inc. Transfer of Control Applications and Public Interest Statement for Various Services including: Broadcast, Broadcast Auxiliary, Section 214 Authorizations, Domestic Fixed Satellite (Part 25), Low Power Television (Part 74), Aviation Services (Part 87), Cable Television Relay (Part 78), Private Land Mobile (Part 90) and Fixed Microwave (Part 101), filed February 11, 2000 ("Public Interest Statement"). See Letter from Christopher J. Wright, General Counsel, Federal Communications Commission, to Arthur H. Harding, Esq. and Peter D. Ross, Esq., Counsel for the Applicants, CS Docket No. 00-30 (filed March 9, 2000). Memorandum of Understanding Between Time Warner Inc. and America Online, Inc. Regarding Open Access Business Practices, February 29, 2000 ("MOU") (Tab 3). Public Interest Statement, at 1. The Time Warner licenses at issue are those for its broadcast station and those ancillary to the operation of its cable systems. Public Interest Statement, at 1. A copy of AOL's most recent Annual Report is attached (Tab 1). AOL also has made strategic investments in a number of Internet-related companies. See "Summary of AOL Investments in Publicly Traded Companies" (Tab 1) for a list of public companies in which AOL has made investments that constitute an ownership interest of five percent or more. In addition, AOL's limited investment in the ultimate parent of DirecTV is discussed more fully below. AOL has entered into a merger agreement with MapQuest.com, Inc., which provides online destination information solutions, pursuant to which MapQuest would become a wholly owned subsidiary of AOL. In Europe and Australia, AOL service is offered pursuant to a joint venture with Bertelsmann AG. Bertelsmann AG and AOL recently agreed to restructure their ownership interests in AOL Europe and AOL Australia; it is the parties' intention that AOL will purchase Bertelsmann AG's interest in the joint venture at some point during the next three years. The companies at the same time announced a new strategic global alliance under which AOL will distribute Bertelsmann's media content and e-commerce properties over AOL's services worldwide. See "Bertelsmann and America Online Announce $250-Million, Four-Year Alliance to Expand Distribution," America Online, Press Releases, March 17, 2000, available at . Time Warner also holds interests in certain Internet-related and digital media businesses, such as web sites Entertaindom.com, CNN.com, ALLPolitics.com, CNNfn.com, CNNSI.com, and CartoonNetwork.com. On January 24, 2000, Time Warner and EMI Group plc announced that they had signed definitive agreements to combine their recorded music and music publishing businesses into a global joint venture to be owned equally by Time Warner and EMI Group. The 11-member Warner EMI Music board of directors, controlled by Time Warner, will consist of six Time Warner designees and five EMI designees. The transaction is subject to certain conditions, including regulatory consents and EMI Group shareholder approval, and is expected to be completed by the end of 2000. Time Warner 1998 Annual Report ("TW Annual Report") (Tab 2). This includes certain cable systems managed, but not wholly owned, by TWE, such as Texas Cable Partners and Kansas City Cable Partners. "America Online and Hughes Electronics Form Strategic Alliance to Market Unparalleled Digital Entertainment and Internet Services," America Online, Press Release, June 21, 1999. See id. ("Under the agreement, [AOL] will make a $1.5 billion, strategic investment in a General Motors equity security . . . . GM will immediately invest the $1.5 billion in a security of Hughes under similar terms where it will be employed to implement the strategic alliance . . . ."). GM has a current market capitalization in excess of 50 billion dollars. Hughes is also the parent company of DirecPC, a service that provides Internet access via satellite at downstream speeds up to 400 kilobits per second (with telco return). One of the goals of the strategic alliance is to provide AOL's high-speed Internet service, "AOL-Plus," via DirecPC. Id. See, e.g., Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, 14 FCC Rcd 2398, at 2401 (1999) ("As Congress directed, we intend to ensure that broadband capability is being deployed on a reasonable and timely basis to all Americans. We are encouraged that, as the demand for broadband capability increases, methods for delivering this digital information at high speeds to consumers are emerging in virtually all segments of the communications industry-wireline telephone, land-based (`terrestrial') and satellite wireless, and cable, to name a few."). See General Motors Corporation, SEC Form 8-K, Appendix D at Section 3(i) (filed August 24, 1999) ("GM, SEC 8-K, Appendix D"). ("Holders of outstanding Series H Preference Shares will be entitled to receive, subject to the rights of holders of Preferred Stock of the Corporation and of holders of . . . Preference Stock or other class of stock of the Corporation or series thereof ranking senior to the Series H Preference Shares in respect of dividends and distributions, . . . cumulative cash dividends at the per share annual rate of 6.25% of the per share stated value . . . ."). Holders of Series H Preference Shares are entitled to vote in the following limited situations: (1) where the corporation proposes to "amend, alter, or repeal any of the provisions of its Certificate of Incorporation or [the Certificate of Designations of Series H 6.25% Automatically Convertible Preference Stock] so as to alter or change the powers, preferences or special rights of the Series H Preference Shares so as to affect them adversely;" and (2) where the Corporation has "failed to declare and pay or set apart for payment in full the Preferential Dividends accumulated on the outstanding Series H Preference Shares for any six quarterly dividend payment periods, whether or not consecutive, and all such accumulated preferential dividends remain unpaid." Id. at Section 5. Under the Commission's general attribution standard, non-voting stock interests are not attributable. See, e.g., Review of the Commission's Cable Attribution Rules, CS Dockets No. 98- 82 and 96-85, FCC 99-288, at 3 (rel. Oct. 20, 1999). Similarly, convertible interests are not deemed attributable until converted. See, e.g., 47 C.F.R.  76.501, Note 2(h). AOL's 2,669,633 shares of preference stock would automatically convert to GMH stock on June 24, 2002. The exact conversion rate in June 2002 would be determined by the price of GMH stock at that time. See GM, SEC 8-K, Appendix D at Section 6. AOL also can elect to convert its shares prior to that date. Based on the current price of GMH stock, AOL's Preference Stock would (in June 2002 as today) convert to GMH stock at a ratio of 8.0645:1. GM, SEC 8- K, Appendix D at Section 5. See General Motors Corporation, 2000 SEC Form 10-K, Item 8, at Note 18 (filed March 13, 2000). Note that, under the rules adopted by the Commission for competitive bidding in the DBS service, only a "voting stock interest amounting to 5% or more of the outstanding voting stock of a corporate DBS licensee or permittee will be cognizable." Revision of Rules and Policies for the DBS Service, 11 FCC Rcd 9712, 9800 (1995). Thus, under the only attribution standard ever employed by the FCC specifically for DBS interests, AOL's indirect interest in DirecTV would likewise not be treated as cognizable. The votes of the 156,667,112 outstanding shares of GMH stock combined with the votes of the 640,208,136 shares of GM Common Stock would produce a total of 734,208,403 votes. Based on the conversion factor discussed above, AOL's 21,529,255 shares, converted at the .6 ratio, would thus constitute a voting interest of less than 2 percent of the total votes in GM. See, e.g., 47 CFR  76.501, Note 2. Applicants acknowledge that, in 1998, the Commission initiated a proceeding considering the potential adoption of a DBS/cable cross-ownership rule. In the Matter of Policies and Rules for the Direct Broadcast Satellite Service, IB Docket No. 98-21, 13 FCC Rcd 6907 (Feb. 26, 1998). Both the statutory horizontal ownership provision and the Commission's implementing regulations remain the subject of judicial review. See Daniels Cablevision, Inc. v. United States, 835 F.Supp. 1 (D.D.C. 1993), appeal pending sub nom. Time Warner Entertainment Co. v. FCC, No. 96-5272 (D.C. Cir.) and Time Warner Entertainment Co. v. FCC, 93 F.3d 957 (1996), reh'g en banc denied, 105 F.2d 923 (D.C. Cir. 1997). "DirecTV Announces Record February Customer Growth," DirecTV, Press Release, March 7, 2000, available at . See The Kagan Media Index, February 25, 2000 at 8 (concluding that there are 82.6 million MVPD subscribers nationwide). "America Online and Hughes Electronics Form Strategic Alliance to Market Unparalleled Digital Entertainment and Internet Services," America Online, Press Release, June 21, 1999. "Ameritech, America Online Ink Pact for High-Speed DSL Access," America Online, Press Release, July 21, 1999. "America Online Goes Wireless," America Online, Press Release, Feb. 28, 2000. See Levin Testimony (Commerce Committee) (Tab 5). "Statement of Steven M. Case, Chairman and Chief Executive Officer, Concerning Q2 FY00 Quarterly Results," America Online Corporate Web Page, Jan. 19, 2000, . While AOL and Time Warner are confident that their merger will produce substantial and widespread public interest benefits, Commission precedent does not require definitive quantification of the public interest effects in this case. Rather, as the FCC has plainly stated, it pursues a "sliding scale approach" in circumstances such as that presented by this proposed merger: "[W]here, as here, potential harms are unlikely, Applicants' demonstration of potential benefits need not be as certain." Application of WorldCom, Inc. and MCI Communications Corporation for Transfer of Control of MCI Communications Corporation to WorldCom, Inc., 13 FCC Rcd 18025, 18137 (1998). See MOU (Tab 3). "America Online And Time Warner Announce Framework For Agreements To Offer AOL Service and Other ISPs On Time Warner Broadband Cable Systems," AOL - Time Warner Joint News Release, February 29, 2000. Id. Id. Testimony of Steve Case, Chairman and CEO, America Online, Before the Committee on the Judiciary, United States Senate, February 29, 2000. Steve Case and Gerald Levin both spoke before the Senate Judiciary Committee, as well as before the Senate Commerce Subcommittee on Telecommunications on March 2, 2000. See generally "Case Testimony" (Tab 4), "Levin Testimony" (Tab 5). Statement of FCC Chairman William E. Kennard on the MOU Between AOL and Time Warner, FCC News Release, February 29, 2000. "Access Plan Turns Up Heat on MSOs," Multichannel News, March 6, 2000, at 75. For instance, Merrill Lynch & Co. has predicted that AOL's ownership of one of the largest MSOs will help pave the way for commercial resolution of the so-called "open access" issue as opposed to regulatory intervention . . . . We would expect the merger to, in turn, push other major cable operators to consider establishing deals with AOL or other Internet service providers . . . . Merrill Lynch, In-depth Report: AOL Time Warner, February 23, 2000 at 9, 15 ("Merrill Lynch") (Tab 7). As reflected in this submission, Merrill Lynch and a number of other independent financial analysts who specialize in the media and Internet marketplaces have produced substantial and detailed studies of the proposed merger since the applications in this proceeding were filed. These analyses corroborate much of what the Applicants set forth in their Public Interest Statement. AOL and Time Warner understand that the Commission would find benefits in reviewing these analysts' insights and so, for the agency's convenience, copies of the full reports are attached as a courtesy. See Merrill Lynch (Tab 7); Goldman Sachs, Internet Media, AmericaOnline/TimeWarner: Perfect Time-ing, March 10, 2000 ("Goldman Sachs") (Tab 9); PaineWebber, Company Analysis, AOL Time Warner, March 1, 2000 ("PaineWebber") (Tab 8). Nevertheless, because these analyses were, of course, not subject to the editorial control of either Applicant, their submission should not be deemed to constitute endorsement or adoption by either AOL or Time Warner of the data and views therein. See, e.g., Seth Schiesel, A Rush to Provide High-Speed Internet Access, The New York Times, Jan. 12, 2000 ("Even as cable television companies across the nation are upgrading their systems to deliver advanced Internet services, local phone companies are racing to beat them to the punch using D.S.L., a technology that transmits huge volumes of digital data over standard phone lines."). Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, CC Docket No. 96-98, at n. 624 (Third Report and Order and Fourth Further Notice of Proposed Rulemaking) (rel. Nov. 5, 1999); see also AT&T/TCI Order, at 94 (describing the "range of distribution technologies" for providing broadband Internet access that already were or would soon be available to the public). Chairman William E. Kennard, "Consumer Choice Through Competition," Remarks before the National Association of Telecommunications Officers and Advisors, Atlanta, GA, September 17, 1999, available at ; see also Chairman William E. Kennard, "The Unregulation of the Internet: Laying a Competitive Course for the Future," Remarks before the Federal Communications Bar, Northern California Chapter, San Francisco, CA, July 20, 1999, available at ("Where cable modem service has been introduced, DSL has followed."). Deborah A. Lathen, Chief, Cable Services Bureau, Remarks before the National Governors' Association, February 27, 2000, available at . Seth Schiesel, A Rush to Provide High-Speed Internet Access, The New York Times, Jan. 12, 2000. See also id. (quoting Daniel P. Reingold, chief telecommunications analyst for Credit Suisse First Boston, as stating that "[t]he race to provide broadband access will only accelerate from here"). Merrill Lynch, at 9 (Tab 7). Merrill Lynch, at 28 (Tab 7). As Mr. Case testified before the Senate Judiciary Committee, "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." Case Testimony (Tab 4). Goldman Sachs, at 2 (Tab 9). As noted in the Public Interest Statement, AOL and Time Warner intends to make the combined company's content and services available to consumers on a variety of devices through any and all means of access, including cable, DSL, satellite, and wireless. Nor will AOL Time Warner deny its own subscribers ready access to content from other providers- such an approach would be simply untenable in today's Internet environment. Public Interest Statement at 3. AOL Time Warner Inc., SEC Form S-4, Registration Statement, filed February 11, 2000 at 37 ("Proxy Statement") (Tab 6). Christopher Charron, A Look at the AOL Deal; Cheered: Anything, Anywhere, for Anyone, The Washington Post, Jan. 16, 2000. Proxy Statement, at 33 (Tab 6). Goldman Sachs, at 1 (Tab 9). Merrill Lynch, at 11 (Tab 7); see also id. at 10 (discussing four possible views of the proposed merger and advising that its analysis suggests the merged entity is in a "great position" to become a "leading platform for and provider of consumer-oriented interactive services- services that we expect to evolve far beyond the rudimentary PC-based activities popular today"); id. at 14 (stating that the merger "should allow the new entity, over time, to introduce new products and services" ). David Segal, Deal May Make Online Music Pay, The Washington Post, January 12, 2000, at E1. See Goldman Sachs, at 13 (Tab 9). See, e.g., Merrill Lynch, at 11 (Tab 7); PaineWebber, at 9 (Tab 8) ("As secure audio streaming standards are developed, we anticipate . . . lower[ed] risks associated with producing new artists.") David Segal, Deal May Make Online Music Pay, Washington Post, January 12, 2000, at E1. PaineWebber predicts that "as high-speed connections to the Internet proliferate, within seven years the Web will become a critical part of the music distribution chain-and that, accordingly, the merger will allow the new company to keep pace with this development." See PaineWebber, at 8 (Tab 8); see also Goldman Sachs, at 13 (Tab 9) (merger will help address issue of lack of demand to drive broadband facilities penetration). PaineWebber, at 6 (Tab 8). PaineWebber, at 6 (Tab 8). See Proxy Statement, at 31 (Tab 6); id. at 34-35 (Tab 6). See Proxy Statement, at 31-33 (Tab 6); id. at 35-36 (Tab 6). See Proxy Statement, at 32 (Tab 6); id. at 36 (Tab 6). AOL acknowledged the cost efficiencies that would stem from launching and operating interactive extensions of Time Warner brands. Proxy Statement, at 33 (Tab 6). Furthermore, Time Warner recognized that the combination of its strong international presence with AOL's global interactive services will further strengthen the combined companies' position in the international marketplace. Id. at 36 (Tab 6). See Proxy Statement, at 35 (Tab 6). See Proxy Statement, at 36 (Tab 6). See Proxy Statement, at 32 (Tab 6). See Proxy Statement, at 32 (Tab 6). Goldman Sachs, at 2 (Tab 9). "During 2000, given the near-year-end closing of the transaction, both companies should benefit due to their cooperative `prenuptial' relationship. Business decisions that would have been stymied by `who's getting the better end of the deal' mentality should progress with relatively little friction." Goldman Sachs, at 21 (Tab 9). "Open Access Rivals Debate Next Moves in Broadband Battle," Communications Daily, March 10, 2000, at 9. Applications for Consent to the Transfer of Control of Licenses and Section 214 Authorizations from Tele-Communications, Inc., Transferor to AT&T Corp., Transferee, 14 FCC Rcd 3160, 3205-06 (1999) ("AT&T/TCI Order"). Id. Id. (citations omitted, emphasis added). Id. at 3206 (citations omitted, emphasis added). Id. (emphasis added). Without endorsing either of the market definition formulations addressed below, the Applicants demonstrate herein this merger would cause no anticompetitive effects under any analysis. William E. Kennard, "Internet: The American Experience," Conference on "Internet and Telecommunications: The Stakes," Paris, France, January 28, 2000, available at . AT&T/TCI Order, at 3206. As noted above, the record before the FCC in the AT&T/TCI proceeding presented a variety of arguments regarding market definition. AOL did not address the merging parties' assertion of a single retail market encompassing both the narrowband and broadband Internet access services. AOL submitted an economic analysis suggesting that last-mile broadband and narrowband data transport services be viewed as separate inputs. However, as explained supra, the FCC did not accept, or even consider decisionally relevant, this analysis or any proposed market definitions. AT&T/TCI Order, at 3206. See, e.g., Chairman William E. Kennard, "Consumer Choice Through Competition," Remarks before the National Association of Telecommunications Officers and Advisors, Atlanta, GA, September 17, 1999 ("The telephone companies are starting to deploy [DSL] much more aggressively. Between the end of March and the end of June of this year the number of DSL lines doubled to nearly 200,000 and it is expected to double again by the end of the year."); id. ("I am convinced that we will have a wireless broadband pipe. The wireless companies are starting to show up at the broadband party . . . . And the satellite industry, as many of you know, is starting to roll out broadband offerings as well."); Chairman William E. Kennard, "The Road Not Taken: Building a Broadband Future for America," Remarks before the National Cable Television Association, Chicago, Illinois, June 15, 1999 ("Wireless companies like Motorola and Nextel have announced partnerships with other firms; satellite companies like DirectTV, Lockheed Martin, and TRW have made moves to provide broadband through their technology; and DSL providers have entered into deals with Prodigy, AOL, and Microsoft."). See also Letter from William E. Kennard, Chairman, Federal Communications Commission, to Mr. Kenneth S. Fellman, Esq., Chairman, Local and State Government Advisory Committee, 14 FCC Rcd 13292 (released August 10, 1999). For example, GTE, which introduced DSL service only a few months before the Commission released its AT&T/TCI Order, expects by the end of this year to triple its current subscriber base, offer DSL from 1,000 wire centers, and have more than 8 million ADSL- qualified telephone access lines. "GTE introduces new self-install DSL kit, paving way to triple DSL subscribers this year," GTE, News Release, March 2, 2000, available at . Similarly, SBC has expanded the availability of its DSL service to millions of additional homes and businesses in the past year alone and, through its "Project Pronto" initiative, plans to increase the service's reach from the current 10 million to an estimated 77 million Americans during the next three years. "SBC First to Surpass 100,000 DSL Subscribers," SBC, News Release, November 4, 1999, available at . Teligent plans "wide-scale deployment" of its fixed wireless broadband Internet access service beginning this spring. Fred Dawson, "Broadband Wireless Gets To The (Multi)Point," Interactive Week, March 16, 2000, available at . Chris Oakes, "Fast Connection Sans Cables," Wired News, Mar. 14, 2000, available at . MCI Worldcom recently announced trials for its own fixed wireless service, with plans to offer the service in more than 100 cities by the end of next year. "MCI WorldCom Announces `Fixed Wireless' Service Trials," MCI WorldCom, News Release, Mar. 7, 2000, available at . See Ex Parte Submission of Joan Marsh, Director, AT&T Federal Government Affairs, CS Docket No. 99-251 (filed Dec. 15, 1999) (Presentation by Lew Chakrin, AT&T Vice President, Consumer Product Management). See "Microsoft, Gilat in broadband satellite deal," IDGnet, February 18, 2000, available at . "Frequently asked questions," iSky, visited March 20, 2000, available at . AT&T/TCI Order, at 3206. 50 50 iii 50