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July 27, 2000


Re: En Banc Hearing, Applications of America Online, Inc. and Time Warner, Inc. for Transfers of Control (CS Dkt. No. 00-30)

Since its announcement, the proposed merger of America Online and Time Warner has assumed almost mythic proportions among regulatory, legislative and business circles, particularly here in Washington. As a policy and analytical exercise, this transaction has proven to be irresistible, both to those who applaud its promise and to those who fear the merged entity's potential power. By seeking to combine some of the most unique and valuable assets in both communications and content, the parties have spread before policymakers, advocates, competitors and pundits a smorgasbord of tasty issues for us to sample or devour, as we choose.

This merger is particularly challenging to review; not so much because of its formidable size, but because of its novelty. Normally, when the government reviews a merger, it focuses principally on existing products, services and markets. It takes a snapshot. But here, we are faced with a merger that is born from a revolution that is in its infancy, and the merger's great promise and possible dangers rest principally in the future-a future that changes rapidly and often unpredictably. It is very difficult to grasp the effect of this combination on consumers in markets that have barely emerged, or have yet to be created even. Thus, the Commission will struggle with how to deal with necessarily abstract issues and will face tough questions as to when to yield to the market's judgement and when to embark on a government-crafted solution.

In this vein, I would caution that identifying possible problems that result from this merger is not the same as having a workable regulatory solution. We should keep squarely in mind that regulation imposes significant costs on producers and consumers. Valid rules require valid and stable economic and technological assumptions that may be difficult to come by in this innovating space. The hurdles of enforcement are substantial. Additionally, we should recognize that regulatory intervention necessarily directs the course of a market and may distort it by diverting capital away from certain enterprises and towards others. Whether this is wise in a burgeoning, rapidly changing, innovation-driven market is subject to question.

Finally, a word about who we are and what we can do. It is important to emphasize that many of the interesting challenges, questions, and concerns that might arise from this combination are not within the scope of our review, nor are we empowered to address any and all such questions. Along these lines, I would repeat the caution of the Chairman and many of my colleagues in their public statements, that we do not regulate the Internet. While our authority does extend to much of the infrastructure that affects Internet service, we must react cautiously and perhaps skeptically to invitations to intervene in matters that involve Internet content, products and services. It is extremely important, then, that we quickly focus on the matters that will inform our decision and not dawdle too long with issues that do not lend themselves to an FCC regulatory solution.

In order to help us achieve such focused review, I submit that the decision whether to attribute significant (or any) weight to a particular factor in our public interest merger review should rest on the following principles:

Jurisdiction: Does the Commission have authority even to consider a factor?;

Institutional Competence: Our core function is setting communications policy, and any actions we take should rest squarely in that realm. Our actions must rely on our unique expertise in setting such policy and we should be prepared to yield to other processes or other institutions vested with Congressional authority where appropriate;

Merger specificity: We are reviewing the combination of two companies. Purported harms should flow from, or be aggravated by, the merger in order to justify blocking, or conditioning the transfer. This agency has the power to make rules that generally apply to an industry. We should not use a merger proceeding to impose conditions on one company in an industry, if the putative harm identified is not specific to the merger, or is an issue of general applicability involving the interests of many parties other than the applicants; and

Regulatory restraint: Regulatory intervention can raise costs, distort market development, impede the flow of capital and be a nightmare to manage and enforce. Particularly, when dealing with vibrant markets in their infancy, we should be very reluctant to accept the propriety of a regulatory solution, even where the possibility of an acute problem exists. Putative problems can be highly speculative in such a market and we should be cautious in pursuing rules on so speculative a foundation. Parties opposed to aspects of this merger must do more than highlight possible problems; they must attempt to demonstrate why a regulatory tool available to us is a necessary solution.

In conclusion, I would merely point out that this may be the only time that the Commissioners jointly and publicly discuss this application before rendering a decision. My goal is to obtain as much information as I can about how the various issues raised by the parties fit into the analytical framework I have just outlined. I thank the parties for their assistance in helping me attain that goal.