In re Applications for Consent to Transfer of Control of Licenses & Section 214 Authorizations by Time Warner Inc., CS 00-30

CourtFederal Communications Commission Decisions
PartiesIn the Matter of Applications for Consent to the Transfer of Control of Licenses and Section 214 Authorizations by Time Warner Inc. and America Online, Inc., Transferors, to AOL Time Warner Inc., Transferee
Decision Date22 January 2001
Docket NumberCS 00-30

In the Matter of Applications for Consent to the Transfer of Control of Licenses and Section 214 Authorizations by Time Warner Inc. and America Online, Inc., Transferors, to AOL Time Warner Inc., Transferee

CS No. 00-30

Federal Communications Commission

January 22, 2001


Adopted: January 11, 2001

MEMORANDUM OPINION AND ORDER

By the Commission: Chairman Kennard and Commissioner Ness issuing separate statements; Commissioners Furchtgott-Roth and Powell concurring in part, dissenting in part, and issuing separate statements; Commissioner Tristani issuing a statement at a later date.

TABLE OF CONTENTS

I. INTRODUCTION .................................................................................................................. 1

II. PUBLIC INTEREST FRAMEWORK ................................................................................... 19

III. BACKGROUND ................................................................................................................. 27

A. The Applicants ......................................................................................................... 27

B. Other Proceedings Relevant to the Application to Transfer Licenses. . .......................... 47

C. The Merger Transaction and the Application to Transfer Licenses ............................... 50

IV. ANALYSIS OF POTENTIAL PUBLIC INTEREST HARMS ................................................ 52

A. High-Speed Internet Access Services ......................................................................... 53

1. Background 62
2. Discussion 68
3. Conditions 126

B. Instant Messaging and Advanced IM-Based High-Speed Services. . ........................... 127

1. Background 133
2. Discussion .................................................................................................. 145
3. Condition ................................................................................................... 190

C. Video Programming ................................................................................................ 200

1. Electronic Programming Guides .................................................................. 203
2. Broadcast Signal Carriage Issues ................................................................. 207
3. Cable Horizontal Ownership Rules .............................................................. 209

D. Interactive Television Services ................................................................................ 215

1. Background ................................................................................................ 217
2. Discussion .................................................................................................. 233

E. Multichannel Video Programming Distribution ......................................................... 240

1. Common Ownership of DBS and Cable MVPDs .......................................... 243
2. Program Access Issues ................................................................................ 248

F. Coordination With AT&T ....................................................................................... 253

1. Background ................................................................................................ 255
2. Discussion .................................................................................................. 261

G. Other Potential Public Interest Harms ...................................................................... 273

V. ANALYSIS OF POTENTIAL PUBLIC INTEREST BENEFITS .......................................... 277

A. The Evidence ......................................................................................................... 282

B. Discussion .............................................................................................................. 298

VI. CONCLUSION .................................................................................................................. 311

VII. ORDERING CLAUSES ..................................................................................................... 312

Appendix A: List of Timely Filed Comments

Appendix B: Confidential Appendix

Appendix C: List of Authorizations and Licenses

I. INTRODUCTION[*]

1. In this Order, we consider the joint application ("Application")[1] filed by America Online, Inc. ("AOL") and Time Warner Inc. ("Time Warner") (collectively the "Applicants") for approval to transfer control of certain licenses and authorizations to AOL Time Warner Inc., a newly created company, pursuant to Sections 214(a) and 310(d) of the Communications Act of 1934, as amended ("Communications Act").[2] The licenses to be transferred include the cable television relay service ("CARS") licenses that are essential to the operation of the cable systems currently owned by Time Warner, which are in several respects the critical asset involved in the combination of the two firms. To obtain approval, the Applicants must demonstrate that their proposed transaction will serve the public interest, convenience, and necessity. [3] In this regard, we must weigh the potential public interest harms of the proposed merger against the potential public interest benefits to ensure that the Applicants have shown that, on balance, the benefits outweigh the harms.[4]

2. The proposed merger of AOL and Time Warner was, at the time of its announcement, the largest corporate merger in history. [5] The combination is remarkable not only for its size, but also for the nature of the companies and the assets they control. The proposed merger has attracted substantial public interest and has come under scrutiny by several bodies other than this Commission, including the U.S. Congress, the Federal Trade Commission ("FTC"), and the European Commission. The unprecedented nature of the merger creates more than the normal potential for controversy and confusion both about the merits and about the role of the Commission's review.

3. To minimize potential confusion, we begin with a summary overview of the foundation and context of our decision. We first describe the scope of the Commission's inquiry and its specific focus on potential consequences of approving the proposed transfers on the rules, policies and objectives of the Communications Act, and note several pervasive issues about whether and how those potential consequences should be addressed by this Commission in the context of reviewing license transfer applications. We then briefly note from the standpoint of the Communications Act the most significant aspects of the companies and assets that will combine if the transfers are approved. Having established this context, we describe the major issues that have been identified and will be discussed in the course of the decision.

4. As the Commission has explained in prior merger orders, this Commission and the Federal Trade Commission each have independent authority to examine communications mergers, but the standards governing the Commission's review differ from the FTC's standards.[6] The FTC must examine whether a merger will harm competition.[7] The Commission's review encompasses an examination of anticompetitive effects but also evaluates, as explained in more detail below, the potential impact of the proposed transaction on the rules, policies and objectives of the Communications Act. [8] Transactions that would violate the Act will be rejected. Transactions that would violate the Commission's rules may be allowed only if the Commission waives the rules in question. Transactions that do not violate the Act or the Commission's rules are examined to determine whether they would otherwise substantially impair or frustrate the enforcement of the Act or the objectives of the Act and whether the transaction would produce potential public interest benefits in furtherance of Communications Act policies. Among the major policies and objectives that may be affected by significant mergers are preserving and enhancing competition in related markets, ensuring a diversity of voices, and providing advanced telecommunications services to all Americans as quickly as possible. To gain approval, an applicant bears the burden of establishing that the potential for benefits to the public interest outweighs the potential for harms.

5. The balancing of potential harms and benefits to the public interest is particularly appropriate in the context of reviewing license transfer applications that are associated with significant mergers because such mergers are likely to create potential for both good and ill. For example, the same concentration of assets that may support technological innovation by providing sufficient capital to take the necessary risks or by reducing transaction costs may also allow the merged entity to create or enhance barriers to entry by its competitors. As a result of this ambiguity, the outcome most favorable to the public interest, in terms of the policies and objectives of the Communications Act, is often best achieved by allowing the transfers, and thus the associated merger, to proceed (thus obtaining the positive benefits of the combination), but only subject to certain conditions, either voluntarily agreed to or imposed by the Commission under its statutory authority, designed to minimize the potential harms or increase the potential benefits.

6. It is...

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