March 6, 2000 Arthur H. Harding, Esq. Fleischman and Walsh, LLP 1400 Sixteenth Street, N.W., Suite 6000 Washington, DC 20036 Peter D. Ross, Esq. Wiley Rein & Fielding 1776 K Street, N.W. Washington, D.C. 20006 Re: AOL/Time Warner Application for Consent to Transfer of Control, CS Docket No. 00-30 Dear Mr. Harding and Mr. Ross: As you will recall, Commission staff met with you on February 9, 2000, to discuss the proposed merger of AOL and Time Warner. I understand that the staff emphasized the need for your application to include substantive information and arguments to support your claim that the merger will benefit the public, so that the public comment process and Commission review will operate efficiently. An initial review of the application reveals that you need to provide additional information and supporting arguments. I understand that you acknowledged at the February 9 meeting that your application is likely to engender extensive public interest and comments. Neither commenters in this proceeding nor Commission staff can provide an informed evaluation of the application without relevant information and arguments from the applicants. Failure to produce the materials until the reply comment stage would necessitate an additional comment cycle, with a concomitant waste of resources and time by the Commission and all the parties. In order to assist the Commission in reviewing the transfer of control applications in an efficient and expeditious manner, therefore, please amend the application by providing the relevant information and arguments as described below. Once an adequate application is filed, we will issue a public notice seeking comment on your application. As an initial matter, the application should provide specific information regarding the applicants' assets and lines of business, including the applicants' and other owners' percentages of ownership interests and rights in these properties. In this connection, I would note, as an example of your failure to provide relevant information, the application's treatment of AOL's interest in broadcast satellite service. You note that "AOL made a strategic investment in General Motors," which owns DirecTV, and argue that "there is simply no risk that AOL's limited interest in General Motors Corporation, when combined with Time Warner's cable system ownership, could adversely affect consumers." App. 3, 17. That may well be correct. But in the absence of any information concerning the extent of AOL's interest in GM, neither we nor commenters can intelligently evaluate that claim. We would urge you to look closely at your application to remedy similar failures to provide relevant information. With regard to analysis of the proposed merger's competitive impact, we understand that you wish to reserve the right to argue that certain issues are irrelevant to the Commission's analysis under the public interest standard. However, the application should include fully-developed arguments and information to substantiate those specific assertions that the applicants have made regarding the potential benefits and lack of potential harms from the proposed merger. We have a number of specific suggestions in this regard, and would ask you to look closely at your application to identify others. ? A key issue is whether there are separate markets for narrowband and broadband last-mile conduits. In footnotes 19 and 20 of your application, you seem to assume that these are not separate markets, since you say that "Road Runner currently provides Internet access to 555,000 customers, a de minimus [sic] fraction of U.S. Internet users." At other places in your application, however, you highlight the distinctions between broadband and narrowband access, and contend that "[t]he merger will also act as a catalyst for the development of the next generation of multi-media interactive services." App. 11. Please explain your position on this important market definition issue. ? The application states that "AOL and Time Warner mutually commit to further the Commission's vision of a marketplace solution whereby consumers have the choice of multiple ISPs over broadband cable systems," but adds that "there are significant details surrounding the implementation of a multiple ISP approach over cable systems which need to be worked out." App. 15. Plainly, there will be significant comment on this open access issue, and we think everyone would be better served if you provided more specificity sooner rather than later. The Memorandum of Understanding filed last week is a useful step in this direction. ? You state that "AOL Time Warner has no rational economic incentive to limit the distribution of the AOL service," even "within its cable services areas." App. 13. Further explanation of that assertion would be useful. ? You assert that the merger will result in numerous public benefits, such as ensuring "that the merged company's new, high-quality content and interactive services are widely accessible and attractive to all potential users" and expanding "Internet communication, interactivity, and convenience to devices beyond the personal computer." App. 12, 13. It is difficult to evaluate such claims without supporting explanations. ? You state that the claimed benefits cannot be achieved without the merger because "joint ventures or even looser cooperative arrangements inevitably founder." App. 14. In light of the examples of joint ventures and strategic alliances (such as the recently announced joint initiatives to provide wireless internet service) please explain further why the proposed merger, rather than some "looser cooperative agreement" is necessary to achieve the benefits here. Thank you for your prompt attention to this matter. Please provide your revised application to the Cable Services Bureau. If you have any questions, please do not hesitate to contact To-Quyen Truong in the Bureau (418-7200) or Jim Bird in the Office of General Counsel (418-1700). Sincerely, Christopher J. Wright General Counsel cc: Deborah Lathen James Bird To-Quyen Truong 3 1