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S. HRG. 106–1090 AOL & TIME WARNER MERGER HEARING BEFORE THE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION UNITED STATES SENATE ONE HUNDRED SIXTH CONGRESS SECOND SESSION MARCH 2, 2000 Printed for the use of the Committee on Commerce, Science, and Transportation ( U.S. GOVERNMENT PRINTING OFFICE 78–185 PDF WASHINGTON : 2004 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001 VerDate 0ct 09 2002 08:00 Mar 04, 2004 Jkt 078185 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 S:\WPSHR\GPO\DOCS\78185.TXT JACK PsN: JACKF SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION ONE HUNDRED SIXTH CONGRESS SECOND SESSION JOHN MCCAIN, Arizona, Chairman TED STEVENS, Alaska ERNEST F. HOLLINGS, South Carolina CONRAD BURNS, Montana DANIEL K. INOUYE, Hawaii SLADE GORTON, Washington JOHN D. ROCKEFELLER IV, West Virginia TRENT LOTT, Mississippi JOHN F. KERRY, Massachusetts KAY BAILEY HUTCHISON, Texas JOHN B. BREAUX, Louisiana OLYMPIA J. SNOWE, Maine RICHARD H. BRYAN, Nevada JOHN ASHCROFT, Missouri BYRON L. DORGAN, North Dakota BILL FRIST, Tennessee RON WYDEN, Oregon SPENCER ABRAHAM, Michigan MAX CLELAND, Georgia SAM BROWNBACK, Kansas MARK BUSE, Republican Staff Director MARTHA P. ALLBRIGHT, Republican General Counsel KEVIN D. KAYES, Democratic Staff Director MOSES BOYD, Democratic Chief Counsel (II) VerDate 0ct 09 2002 08:00 Mar 04, 2004 Jkt 078185 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 S:\WPSHR\GPO\DOCS\78185.TXT JACK PsN: JACKF C O N T E N T S Page Hearing held on March 2, 2000 .............................................................................. 1 Statement of Senator Abraham .............................................................................. 38 Statement of Senator Breaux ................................................................................. 7 Statement of Senator Bryan ................................................................................... 6 Statement of Senator Burns ................................................................................... 1 Statement of Senator Cleland ................................................................................. 7 Statement of Senator Dorgan ................................................................................. 5 Statement of Senator Gorton .................................................................................. 4 Statement of Senator Hollings ............................................................................... 3 Prepared statement .......................................................................................... 3 Statement of Senator Rockefeller ........................................................................... 6 Statement of Senator Stevens ................................................................................ 30 Statement of Senator Wyden .................................................................................. 4 WITNESSES Berman, Jerry, Executive Director, Center for Democracy and Technology ...... 51 Prepared statement .......................................................................................... 53 Case, Steve, Chairman and CEO, America Online ............................................... 8 Prepared statement .......................................................................................... 11 Kimmelman, Gene, Co-Director, Washington Office, Consumers Union ............ 64 Prepared statement .......................................................................................... 66 Lande, Robert H., Senior Research Scholar, American Antitrust Institute ....... 90 Prepared statement .......................................................................................... 91 Levin, Gerald, Chairman and CEO, Time Warner, Inc. ....................................... 13 Prepared statement .......................................................................................... 16 (III) VerDate 0ct 09 2002 08:00 Mar 04, 2004 Jkt 078185 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 S:\WPSHR\GPO\DOCS\78185.TXT JACK PsN: JACKF VerDate 0ct 09 2002 08:00 Mar 04, 2004 Jkt 078185 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 S:\WPSHR\GPO\DOCS\78185.TXT JACK PsN: JACKF AOL & TIME WARNER MERGER THURSDAY, MARCH 2, 2000 U.S. SENATE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC. The Committee met, pursuant to notice, at 10:35 a.m. in room SR–253, Russell Senate Office Building, Hon. Conrad Burns pre- siding. OPENING STATEMENT OF HON. CONRAD BURNS, U.S. SENATOR FROM MONTANA Senator BURNS. The Committee will come to order. I would like to welcome everyone here today to this hearing, which concerns an issue of critical importance to the future development of the Inter- net, the proposed merger of two massive players in the Internet ac- cess and media content fields, and that has to do with America On- line and Time Warner. The purpose of the America Online-Time Warner merger would be, or the proposed merger, I should say, would be the largest merger in history. The amount of money involved is staggering. The initial price on the January 10 announcement was over $156 billion. This Committee takes its oversight role very seriously, particu- larly when scrutinizing a combination of such unprecedented scope. Of particular importance in fulfilling the Committee’s due diligence duty is a close examination of the potential effects on consumers of such an immense company. AOL has about 21 million subscribers today, which is about six times larger than the nearest competitor for Internet service, and that is MindSpring. Time Warner is the Nation’s second largest cable provider, with a vast array of video, music, and print content that pervades America’s every-day life. From the checkout stands in the afternoon to the couch at home in the evening, clearly the proposed combined company has the po- tential to use the vast power for the good of America. However, while the proposed merger before this Committee has the potential to provide consumer benefits, we also know the difference between potential and reality. While the combination of Time Warner’s enormous treasure trove of content and America Online’s 21 mil- lion subscribers could provide exciting new services, several serious public policy issues are raised by the creation of such a potentially dominant entity. In assessing the potential future effects of the proposed merger, it is usually most helpful to look at the current market behavior (1) VerDate 0ct 09 2002 08:00 Mar 04, 2004 Jkt 078185 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\WPSHR\GPO\DOCS\78185.TXT JACK PsN: JACKF 2 of the players involved. With this in mind, I am particularly trou- bled by the recent developments in the instant messaging area. In- stant messaging is a real time chat format which allows users to communicate quickly and cheaply with each other. America Online alone has over 45 million registered subscribers, and after its 1998 purchase of ICQ, the major alternative instant messaging system, currently commands over 80 million messaging users overall. These users generate nearly a billion messages a day, far more than the entire mail volume of the United States Postal Service. The mode of communications is especially popular with young people, who favor it over traditional telephone conversation in many cases. As we all know, what has made the U.S. telephone network the envy of the world, and a tremendous positive economic force, it is the fact that it is available everywhere to all users. The fact that anyone can access the network makes it vastly more valu- able to everyone. The spectacular growth of the Internet itself was made possible by the development of open networks, not closed systems. Unfortu- nately, in the instant messaging area, I fear we are headed in the other direction. Just yesterday my colleague, Senator Hollings and I were presented with a letter from all of the major competitors that offer instant messaging services stating that their products are being purposely blocked by the dominant provider of such serv- ices, America Online. This letter was signed by many companies, including AT&T, AltaVista, Prodigy, and others too numerous to mention here. This very Committee heard just last summer that serious efforts were being undertaken by America Online to deal in good faith with these interoperability problems so that all consumers could benefit. In a July statement issued by the chairman of the working group designed to solve these problems, AOL stated that it, quote, believes that users should be able to exchange messages regardless of which product they use. AOL also said it was, I quote, fast-tracking these efforts. Well, it is 7 months later, and these blocking problems are more evident than ever, and I look forward to the testimony of the witnesses to clarify these recent events. Another issue that many Members of this Committee will be in- terested in, I assume, would be the so-called open access. I followed with great interest the announcement on Tuesday of this week that AOL and Time Warner committed to give their broadband cable customers direct access to Internet service providers on a non- discriminatory basis. While I was never in favor of Government in- trusion and regulation of the cable networks, I applaud the efforts to reach privately negotiated settlements. I should add that while the memorandum appears to be a posi- tive first step, on
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