Letter to FCC and FTC

September 14, 2000

The Honorable William Kennard

Chairman

Federal Communications Commisison

Washington, DC 20554

The Honorable Robert Pitofsky

Chairman

Federal Trade Commission

Washington, DC 20580

Dear Chairman Kennard and Chairman Pitofsky:

We are writing to encourage the prompt approval of the AOL/Time Warner merger. It has been almost a year since AOL and Time Warner announced their proposed merger. Their shareholders have already given their seal of approval, but we are still waiting for your agencies to complete your review of this merger.

Worse still, recent reports indicate that your agencies plan to use this merger as an excuse to extend your regulatory power over the Internet. With Congress, the Department of Justice, and even members of your own agencies advocating a hands-off approach to the Internet, it seems unwise at best to pursue broad regulatory objectives with your review of this merger. We urge you to use restraint and to remember the scope of your mission in reviewing this merger, especially where conditions you dictate might impose new regulatory burdens on our high tech economy.

The AOL/Time Warner merger marries the infrastructure of the old economy with the content and openness of the new economy. In the months since the merger was announced we have seen our telecommunications industry transformed. Global consolidation and entry of foreign competitors into U.S. markets is forcing American companies to evolve and compete in a global marketplace. Vivendi and Terra Networks are already actively involved in American telecommunications and Deutsche Telekom and Nippon Telephone and Telegraph on their way, we need to be sure that our regulatory polices do not put American companies at a competitive disadvantage in the global marketplace.

As the telecommunications marketplace becomes increasingly global, concerns over monopolistic control over the industry should diminish. About a year ago the FCC coined the term no-opoly to describe the broadband marketplace, because the market was in such an early stage that monopolistic policies were not the proper framework for the industry. Today the wisdom of their hands-off approach is borne out in the broadband numbers. There are more competitors in today’s broadband market than there were even one year ago, prices are falling across the board from DSL to satellite to cable, and wireless companies are looking to roll out third generation services that will bring broadband to cell phones and PDAs. In this dynamic competitive marketplace, it is clear that AOL and Time Warner represent only a small portion of the broadband market, and the longer they must wait for your approval, the smaller that portion becomes.

Some have suggested that the AOL/Time Warner merger may limit speech by blocking certain points of view, or promoting other points of view, but these concerns overlook or ignore the very nature of AOL’s success. AOL is an Internet media company and its success depends on its members having access to the wealth of information available on the Internet. By bringing the new economy model to the cable industry, AOL may actually increase the number of voices in the media. These new voices, propelled by an unhindered information economy, can innovate to offer greater choice and access to Americans as they compete for consumer eyeballs and dollars.

Still others express concern over AOL’s Instant Messenger program and its lack of interoperability with competing messenger services. While AOL enjoys a larger subscriber base than their competitors as a result of being the first to recognize the potential of instant messaging technology, both Microsoft and Yahoo have competing programs with over 10 million subscribers. A marketplace where competitors control nearly half the market hardly fits the model of a monopoly.

It is not anti-competitive for AOL to create a product that consumers choose to download and that in turn dominates in the marketplace. What is anti-competitive, however, is the campaign by their competitors to engage the power of government to force the winner to share the spoils. Competitors are more than welcome to create a competing standard, offer innovations over and above what AOL offers in order to lure customers away, or use their vast resources to cut a legitimate business deal with AOL for access. But if AOL is subjected to forced access, incentives for new business innovations and rival networks will cease and the network will soon resemble a lazy public utility. Regulators should practice restraint and allow the online messenger market to develop free from government distortions.

We urge you to approve this merger as quickly as possible and endorse the continued free and open nature of the Internet. We should be encouraging these innovative combinations of new and old economy companies, not stifling the next generation of Internet companies. Conditioned approval of the AOL/Time Warner merger sends the wrong message to the next generation of entrepreneurs by creating uncertainty that threatens to lock consumers into old-world media paradigms.

American entrepreneurs are competing in an increasingly global marketplace, and we must ensure that our regulatory policies do not place them at an unfair disadvantage in the global marketplace.

Sincerely,

James Gattuso

Vice President Policy and Management

Competitive Enterprise Institute

Grover Norquist

President

Americans for Tax Reform

Erick Gustafson

Director of Technology and Communications Policy

Citizens for a Sound Economy

Chris Wysocki

President

Small Business Survival Committee

James Plummer

Policy Analyst, Technology

Consumer Alert

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