Project 3 

AOL Time Warner Consulting Plan

Prepared for Athens City Council

Introduction

AOL Time Warner, the worlds first Internet-powered media and communications company, will soon become an Internet Service Provider (ISP) in the Athens, Ohio. An arrival of this magnitude has many different factors that must be considered. With that in mind, you, The Athens City Council, came up with several different issues that were of some concern to the members. In an effort to help you get a better grasp of the AOL Time Warner Company, we examined the positives and negatives resulting from them entering the Athens community.  We were hired to develop a consulting plan to examine the many different areas that you have expressed concern over. This plan has been developed through extensive research; it will give a detailed report on what we have uncovered, and will also make recommendations about the future of AOL Time Warner in the Athens community.

Background Information

AOL

AOL was first founded as Quantum Computer Services in 1985. By 1994, after changing its name, AOL had a million subscribers and had listed its shares on the stock market. In the early years it was almost brought down by the problems of introducing unlimited access for a fixed monthly fee. As usage increased, so did capacity problems, making thousands of customers angry because they could not get their connection to work.

The problem was solved by a deal with MCIWorldCom, which led to investment in a much-expanded Internet backbone, and a merger with rival Compuserve. It further strengthened its position in 1998 when it acquired Netscape, an Internet browser company, for $4billion, in a deal that shook rival Microsoft. The company also had to fend off rivals, most notably the largest US telephone company, AT&T which tried to take over AOL before purchasing the cable company, TCI, in order to launch its own internet services.  Chief executive Steve Case, the 41-year-old former rock musician who fought for his company's independence, has now been able to merge on his own terms (news.bbc.uk, 2001).

Time Warner

Time Warner was created in large part by two previous giant mergers. The first was between Time Inc and Warner Communications in 1989. Both Time, the publisher of the magazine of the same name, and Warner, which includes Bugs Bunny among its stars, have a history stretching back about 75 years. The second mega-merger came with Turner Broadcasting in 1996, a move that saw CNN founder Ted Turner join the group as deputy chairman. The two mergers created a giant ready to play a leading role in all major media - at least in the days when the Internet was still an infant.

The merger with AOL will help the company to shore up its digital media ventures. But the company says that it has always been at the forefront of technological innovation.

In 1975 the company was a pioneer of satellite broadcasting, with the launch of the HBO television network in the US. It has also built considerable fiber-optic cable networks in the US, was one of the key players in the launch of DVDs, and includes in its stable the CD Now e-commerce site. But this latest merger, with Internet pioneer America Online, takes it into the Internet “big league”.  They are now in a prime position to take advantage of the growth of broadband delivery of television and Internet at home.

If content is what is required for the successful exploitation of the new information technologies, then Time Warner brings to AOL a vast array of household names from the media and entertainments industries.

The merger marks the coming together of traditional and new media to exploit the opportunities offered by each. It makes overwhelming sense for both AOL and Time Warner. Together they have the cocktail of ingredients to succeed in the Internet business - a strong customer base, appealing content, and ways to distribute it. AOL seeks to portray itself as a gateway to the Internet, with its homepage as the starting point for exploring the web. But it lacks its own content to attract more users to the service. As one of the world's leading media companies, Time Warner has a wealth of material, such as news, films and cartoons, that it could offer through the web. But it does not have the Internet presence or know-how to do this effectively.

The merger of America Online and Time Warner created the world's first fully integrated, Internet-powered, media, and communications company.  The Internet is becoming a critical everyday experience in people's lives.  AOL Time Warner will be able to inform, entertain and connect consumers in multiple ways over many hours a day using its one-of-a-kind set of brands in both networks and content (news.bbc.uk).

AOL Time Warner

This merger will launch the next Internet revolution, building on those technological advancements and making the most of them to benefit the consumers.  AOL Time Warner's assets will include the world's largest Internet dialup network, a whole array of cutting edge interactive technologies and cable systems that reach more than 20 percent of American households, making it the second largest system in the nation.  But there is another reason why this merger is so important, and it is not its size. It is really the company's potential for innovation and creation of new value and new choice for consumers. If AOL Time Warner is going to develop all of the Internet's great possibilities, they cannot just come up with faster, more affordable ways to deliver information.  AOL Time Warner must enrich and expand that information, making it even more central and more valuable to people's lives.

AOL Time Warner will offer an incomparable portfolio of global brands that encompass the full spectrum of media and content, from the Internet to broadcast and cable television, to film, to music, to magazines, and to books. Ultimately, this is about serving consumers. It will mean new kinds of opportunities for entertainment, and will mean new opportunities for shopping for a variety of products and services. It will also mean new opportunities to communicate, to learn about one another, and to learn about the world around them.

So what will this mean for AOL Time Warner’s core business?  The merger will speed the delivery of media-rich broadband Internet services to mass market consumers and drive the growth of advertising and e-commerce across all of the company’s combined brands. This is the first time a major Internet company has combined with a major media company, making the possibilities virtually endless (PBS, 2001).

Synergies

Many investors believe that AOL Time Warner is the best-positioned company to benefit from the convergence between media and communication. The company has a dominant accompaniment of assets, including brands that make contact with consumers more than 2.5 billion times each month, a strong distribution base, solid customer relationships, and unique content (Dain Rauscher Wessels, 2001). AOL Time Warner’s executive members continuously stress the synergies between the companies, and praise the creation of a film, Internet, cable, broadcasting, music and publishing business that users never need to leave. (Multichannel News, 2001). The management has also made decisions concerning the synergies of the recently merged company. The operation, tax, and financial synergies are the synergies that apply to AOL Time Warner.

Operation Synergies

America Online believes that the combined company will benefit from substantial operating synergies as well as major new business opportunities. Eliminating redundancies, combined activities and working in a new market are classified as operational synergies.

§         Eliminating Redundancies- AOL Time Warner plans to achieve its goal of cutting costs one billion dollars and generating new revenues from “synergies” this year. AOL Time Warner has moved itself into a serious cost-cutting mode. The company announced it would lay off 2,400 employees. Those reductions should save between $200 million and $300 million. Additional cost reductions are coming from a revamped executive compensation plan. Executives will now receive two-thirds of their salary in stock options and one-third in cash. By doing this, they will save $100 million in cash flows. The company also plans to eliminate the Time Warner Digital Media unit, saving $200 million dollars (Multichannel News, 2001). In one of the biggest shakeups in its 21-year history, CNN is revamping its newsgathering structure, cutting some 400 jobs and appointing three senior news executives (Lesix-Nexis, 2001). The CNNfn also lost several programs due to reducing costs at CNN (Multichannel News, 2001).

§         Combined Activities- With the combination of assets that transcend traditional categories, AOL Time Warner is uniquely placed to deliver the highest-quality products and service to consumers around the world. They will use interactivity to lead the transformation of the media and communications industries, and focus on connecting the dots for consumers in this new, converged world. Cross-promotions will include AOL software CDs stuffed in Time Warner print publications such as Fortune. Also planned is the promotion of Time Warner's films and music artists throughout the AOL site.  Additionally, Time Warner magazines will be promoted more aggressively through AOL’s dial-up service. By combining these activities, AOL Time Warner is able to drive down production and distribution costs, while building new promotional platforms (AOL Time Warner, 2001).

§         New Market- The AOL Time Warner merger has created a mass market. As mentioned before, these companies have a cocktail of ingredients, a strong customer base, appealing content and a unique way of distribution. As result of those unique assets, they will achieve success in the new market. The unmatched range and scope of customer relationships provide them with powerful opportunities to drive strong incremental advertising/commerce revenues and to cross-sell other products and service (AOL Time Warner, 2001). A cornerstone of America Online’s expansion strategy has been its campaign, aptly named “AOL Anywhere" (zdnet, 2001). The company believes that international revenues could ultimately rise to 50 percent of the total revenue, as compared to 17% currently attributed to international revenue (SEC, 2001). AOL currently has a stronger international market than Time Warner (AOL Time Warner, 2001). After the cross-marketing synergies, many opportunities will arise in the international market for Time Warner to explore. AOL will also be involved in the media market, and Time Warner will be involved in the Internet market. In the future, the merger may leave the company unmatched and unassailable in the world stage.

Tax Synergies

AOL Time Warner has an excellent and growing use of employee stock options, mainly to AOL employees who exercised stock options during the past few years. Because of this, AOL Time Warner probably will not have to pay federal taxes for year to come, if ever. In addition, AOL Time Warner obtained about $11 billion worth of future tax write-offs. To put that number in perspective, AOL Time Warner would have owed only $551 million in federal, state and foreign taxes had it merged in 2000. Now that the merge has completes, the company is giving options to its entire employee base. Its tax benefits could increase if the stock continues to do well in the market (Lexis-Nexis, 2001).

Financial Synergies

The merger between AOL and Time Warner will create a company valued at $350 billion. This makes it the largest merger in history.  AOL currently has a market capitalization of $163.4 billion, while Time Warner is valued at only $83.3 billion. AOL shareholders owned a 55 percent stake in the merged company, even though AOL’s value on the stock market is nearly twice that of Time Warner (bbc news, 2001). AOL Time Warner’s financial statement is strong and balanced, with an impressive balance sheet, a diverse revenue mix (subscriptions, advertising and content sales), distinctive operating margins, and significant free cash flow. In 2001, the company estimated a free cash flow of about $5 billion; this is more than two times of that the 2000 free cash flow. They expect the numbers will continue to grow 50 percent per year. Investors believe AOL Time Warner’s high free cash flows and strong consistent growth as financial measures, will be more fundamental in valuing this company’s growth. In addition, AOL Time Warner begins its corporate life carrying only $18.6 billion of net debt with $1.6 billion in liquid investment, versus a market capitalization of over $250 billion. The uniqueness and richness of AOL Time Warner’s should allow this company to shine in the near future (Salomon Smith Barney, 2001).

AOL Time Warner has structured itself into six segments: American Online, Cable, Filmed Entertainment, Networks, Music, and Publishing. The charts below show a brief overview of the revenues and EBITDA. (See appendix A for a financial statement and analysis of the six segments.)

Pro Forma 2000 Breakdown by Segment

                                                (Merrill Lynch, 2001)

Government Regulations

Telecommunication Act of 1996

The provisions in the Telecommunications Act of 1996 enacted a new type of system of broadcast television in the United States called digital television.  Digital television is TV that is of much higher sound and picture quality because of what the digital signal is composed of.  One is supposed to gain a better viewing experience from this new type of broadcast TV. 

In the legislative history of this provision, Congress stated that it did not intend to “confer must carry status on advanced television or other video services offered on designated frequencies” add that the “issue is to be subject of a Commission proceeding under section 614(b)(40)(B) of the Communications Act.”  Under rules adopted by the FCC last year, each existing analog licensee is eligible to apply to operate a new digital station serving the same geographic area and using 6MHz of spectrum.  Stations can transmit using any mix of digital TV standards including High Definition Television (HDTV)(Benton, 2001).

November 1998 marked the beginning of digital television broadcasts and a transition period will last at least until 2006.  During this transition, stations will have to air both analog and digital television signals.  Starting April 1, 2003, broadcasters will be required to simulcast at least 50 percent of their video programming on both the digital and analog signals.  In the following year, the broadcasters will be required to raise that simulcast percentage to 75 percent.  Finally, after April 1, 2005, the simulcast requirement will be that 100 percent of the signals aired will be both digital and analog.  After this transition period, licensees will cease analog broadcasts and return to the government’s requirement of 6MHz of signaling spectrum  (Benton, 2001).

Federal Trade Commission

The FTC voted to approve the companies' merger a year and a day after AOL company chairmen Steve Case of AOL and Gerald Levin predicted that the first merger of a traditional-entertainment giant and an Internet-age leader would sail past regulators (Broadcasting & Cable, 2001).  This commission is one that is involved in the enforcement of all antitrust and consumer protection laws.  Their goal is to make a safe buying environment for the consumers to be a part of.

Restrictions- In allowing the merger of AOL and Time Warner, the FTC came to the conclusion that several restrictions must be put in place.  These restrictions help to even the playing field for competitors and also keep the consumer safe and prices low.  The conditions set have been put in place for a term of five years.

The first regulation that AOL Time Warner must comply with before moving to the area, is the allowing of non-affiliated cable broadband ISP provider to be available to subscribers using Time Warner’s cable lines.  Until this happens, the AOL service cannot be offered.  In addition to that, the company must enter into two more contracts with non-affiliated ISPs within ninety days after the AOL service has been made available.  If the company does not meet these provisions within the time allotted, a representative will be assigned by the FTC to fulfill the regulations.  Currently AOL Time Warner has signed two contracts, one with Juno and the other with Earthlink, the third has yet to be decided.

Although AOL Time Warner must allow three ISPs to use their lines once they have made the move to Athens; future contracts with non-affiliated ISPs can be made at their discretion, allowing service to some but denying it to others.  In addition, AOL Time Warner may not in any way interfere with the content that passes through the lines of any and all contracted ISPs.

The other restriction imposed on the AOL Time Warner merger, is on that involves the pricing of the AOL DSL service.  The rule simply states that areas that do not currently receive the cable broadband or Road Runner, must receive the same price as areas that already have the DSL and Road Runner service offered to them (FTC, 2001).

Federal Communications Commission

Created by the Communications Act of 1934; the FCC is in charge of regulating all interstate and international communications by radio, television, wire, satellite, and cable.  It currently consists of seven different operating bureaus regulating all their different communication responsibilities.  Along with the regulating, they are also required to implement programs, process applications for licenses, analyze complaints, conduct investigations, and take part in commission hearings.  All of these jobs allow for the regulation of the communications world.

FCC Conditions- The FCC imposed the following conditions relating to the provision of residential high-speed Internet access over Time Warner’s cable systems after analyzing the potential effects of the merger.

§         Choice of ISP’s.  AOL Time Warner must open its cable systems to competitor ISPs.  Along with that, AOL Time Warner must allow customers to select a participating ISP by a method that does not discriminate in favor of AOL affiliates on the basis of affiliation.

§         First Screen.  AOL Time Warner must allow all unaffiliated ISPs to control the content of their customers’ first screen. AOL Time Warner may not require an unaffiliated ISP’s customer to go through an affiliated ISP to reach the unaffiliated ISP.

§         Billing.  Participating ISPs must be allowed to directly bill the subscribers to whom they have sold their high-speed Internet access services, if they choose to do so.

§         Technical Performance.  AOL Time Warner must offer the technical performance standards that it provides to its affiliated ISPs in a non-discriminatory manner to unaffiliated ISPs.

§         Rights to Disclose Contracts to the FCC.  AOL Time Warner may not enter into any contract with any ISP for connection with AOL Time Warner’s cable systems that prevents that ISP from disclosing the terms of the contract to the FCC under the FCC’s confidentiality procedures.

§         Enforcement Procedures.  With respect to any dispute concerning AOL Time Warner’s compliance with these conditions, the FCC outlined a number of procedures. These procedures are designed to resolve any disputes within sixty days of the filing of a complaint and to have them resolved by the Chief of the Cable Services Bureau.  The end result of this process is either sustaining or dismissing the complaint.

§         IM Conditions.  AOL Time Warner may not offer any AIHS steaming video applications that uses a Names and Presence Directory (“NPD”) over the Internet via AOL Time Warner broadband facilities until the company demonstrates that it has satisfied one of three pro-competitive options outlined by the FCC.  Also, AOL Time Warner must file a progress report with the FCC, 180 days from the release date of the order and every 180 days thereafter. This must describe, in technical depth, the actions it has taken to achieve interoperability of its IM offerings and other offerings. These reports will be placed on public notice for comment.

§         Contractual Agreement with AT&T.  AOL Time Warner may not enter an agreement with AT&T that gives any AOL Time Warner ISP exclusive access to any AT&T cable system.  Along with that, AOL Time Warner may not enter an agreement with AT&T that affects AT&T’s ability to offer any rates, terms or conditions of access to ISPs that are not affiliated with AOL Time Warner (FCC, 2001).  (See Appendix B for a detailed synopsis of FCC regulations.)

Benefits of AOL and Time Warner Merger

Initially, there was concern that a merger of such magnitude would trigger the potential for a monopoly, until the FCC mandated regulatory conditions. The question then arises,  “What can a merger of this magnitude can bring to the table?” The first section will briefly look at a few technological advancements involved, the next section will look at the macro benefits presented, and the final section will discuss some benefits on a micro level.

Technological Advancements

Digital Cable- Digital cable is a broadband technology, meaning it is an extremely fast alternative with extraordinary transfer capabilities.  Broadband offers an "always-open" connection to the Internet and cable services at a lightning fast pace.  AOL Time Warner plans to bring digital cable to the forefront of its services offered.  However, many people are still not aware of the distinction between analog and digital services.  It is believed that if you receive a digital signal, it is digital television.  In reality, the signal is converted back to analog and sent to the analog TV.  The difference is quite astounding.  Below are the details describing how the two are dissimilar.              

a.) Analog Television- A camera takes a picture at a rate of 30 frames per second. The camera then turns the picture into pixels, so a TV set will know how to display them.  The final signal is called a composite video signal, which contains the color and intensity of each pixel.  The amount of pixels that an analog TV set can project is about 10 times less than a High Definition (HD) television.  That is a difference you can see.  It is the process of interlacing that will not allow analog TV to work any better than it does.  Interlacing means that half of the picture is updated every 60th of a second; therefore, the frame is updated every 30th of a second (How Stuff Works, 2001).

b.) Digital Television- Digital applications compress the video and data information into 1's and 0's, or "bits" as they are called.  This compression for transmission is referred to as MPEG-2 compression.  The digital channel carries a 19.39 megabit-per-second stream of digital data that your digital TV receives and decodes.  This stream can be broken down into sub-channels to carry different programs.  The resolution of the digital picture is phenomenal.  The picture can be displayed in three formats:

§         480p- picture is 704 x 480 pixels, sent at 60 complete frames per second

§         720p- picture is 1280 x 720 pixels, sent at 60 complete frames per second

§         1080i- picture is 1920 x 1080 pixels, sent at 30 complete frames per second.

The "p" and "i" stand for progressive and interlaced, respectively.  Progressive format updates the picture every 60th of a second, and interlaced updates half of the picture every 60th of a second, as previously stated.  The 720p and the 1080i formats are high definition (HD) formats.  When HDTV is talked about, they are speaking of a digital signal in the 720p or 1080i format (How Stuff Works, 2001).

Internet Service- The cable modem allows for the "upstream" and "downstream" transferring of data to and from the cable company.  The cable modem takes the form of set-top converter when digital cable is also available. Cable companies usually utilize a fiber-optic to a coaxial medium to supply this connection to neighborhoods.  An FCC stipulation, in relation to Internet technology, is that AOL Time Warner must continue to develop and promote its DSL access.  AOL Time Warner is required to market DSL services to consumers at uniform prices, regardless of whether or not Time Warner cable Internet access (Road Runner) is available  (FCC, 2001). This proposed consent would be effective for a term of five years.  Below is a description of the Road Runner service, which is linked to the cable via the cable modem.

Road Runner- The merger will bring Road Runner cable modem service as an ISP provider.  However, other ISPs must have access to its cable system. Road Runner offers exceptional transfer speed.  The response rate is up to 50 times faster than dial-up modems.  Also, Road Runner does not involve the phone line at all. In fact, you could surf the Internet, watch TV, and talk o the phone all at once.  For Road Runner, every customer’s computer must have an Ethernet card, digital modem that can be internal or external, and the customized version of Microsoft’s Internet Explorer 5.0. 

On A Macro Level

The Time Warner audience has now been exposed to Internet users.  They deemed it better to join the online competitors rather than compete against them.  Since 1985, the number of hours watched by Americans under the age of 18 has fallen by more than a fifth (The Economist, 2001). This happened in part to more time being spent surfing the Internet.  Time Warner is now exposed to the nearly 30 million AOL subscribers and four-times that many instant-messaging users.  More importantly, the Internet market continues to grow as the television industry stagnates. 

The merger also provides benefits relating to the industry they are in.  Time Warner’s vast holdings in cable programming, movies, music and publishing give it unprecedented power to dominate both supply and delivery of media content.  Now with the AOL merger, these assets can possibly be distributed via the Internet at more attractive offers.  However, there is not a streaming video service currently available and AOL does not plan to offer such a service in the near future.  AOL Time Warner must open its network lines to competitors before they can offer advanced, IM-based (Instant messenger based) high-speed services that involve streaming video  (Time, 2001). This is not a current option, yet this emerging technology is a very enticing opportunity for future endeavors.

AOL’s Internet resources will drive the digital transformation of Time Warner’s divisions. Time Warner’s resources will advance the development of next-generation broadband services; as well as build subscription, advertising, and e-commerce growth throughout America Online’s brands and products.  The two companies’ complementary assets will act as catalysts to accelerate the growth of both subscription and e-commerce revenues, while also creating new business opportunities.

On A Micro Level

The City of Athens will benefit greatly now that AOL has merged with Time Warner Communications.  The Athens-area customers able to receive these benefits include off-campus students, faculty living in the Athens area, and residents.  This section will look at the separate Internet and cable benefits customers would receive from digital cable access, along with certain bonuses AOL Time Warner brings to a community.

§      Cable- An expanded lineup of television channels will be provided starting in mid-March.  This upgrade will still include analog cable TV (for those who do not want to purchase a HDTV to experience the “digital difference”) and digital cable service.  Some prices will be increasing, while others will be decreasing.  The digital service package will offer more than 200 channels.  (See Appendix C for complete package offerings.)  Digital cable includes an enhanced interactive program guide.  This guide allows a program to be watched while “channel-surfing” on the same screen.

§      Internet- AOL Time Warner will offer a broadband service for the Athens customers.  This will allow Road Runner services to come into the Athens area.  Included in the Road Runner package is: constant connectivity, five free email accounts, 5 MB of personal homepage space, access to Road Runner’s homepage exclusive content, and professional installation and service from Road Runner technicians.  Road Runner also offers a 30-day money-back guarantee, excluding installation fees

§      Community Benefits-   AOL Time Warner offers a wide variety of community programs and encourages community involvement.  They help to combat illiteracy, increase civil awareness, and enhance scholastic programs.  One such program is called “AOL@ School.”  Launched in the fall of 2000, AOL@ School provides helpful tools for classroom use.  Some of these tools are lesson plans, reference materials like encyclopedias and dictionaries, assistance in setting up individual homepages, a personal calendar program, and even calculators.  This program is currently only being implemented at East Elementary School in Athens, according to AOL’s website (AOL, 2001).  It is possible for this program to be extended to all scholastic environments in Athens for maximum results. (See appendix D for other community benefits offered by AOL Time Warner.)

Cable Competition

Local

The following is a list of local cable competition in the Athens area:

Berwick TV and Satellite systems

§         Direct TV-Total choice package $31.99:  100 channels

- Basic package            $21.99:  55-60 channels

Nelsonville TV Cable Co

§         Basic Package $18.50:  40 channels

§         With HBO $26.50

§         With Showtime $25.50

§         With Both $33.50

§         --$25.50 for a hook-up fee

Dish Network

§         Basic Package $21.99:  Top 50 channels

$30.99:  Top 100 channels

$39.99:  Top 150 channels

§         Movie package-HBO:  $12.99

§         Movie package-Cinemax:  $10.00

§         Everything package $69.99:  Cinemax, Showtime, HBO and basic channels

Pegasus Satellite TV

§         Select choice $21.99:  45 basic channels

§         Total choice $31.99:  100 basic channels           

National

AOL Time Warner’s biggest competitors, on a national level, include AT&T and DirectTV.  They also face competition with national cable companies such as Primestar, Comcast, Charter, Cox, Adelphia, Dish Network, Cablevision, and Pegasus.    

Internet Competition  

Local

Local Internet Providers in Athens include Bright.Net, Dragon Internet, Eureka Net, Frognet, Dialnet, and Verizon.  (Refer to Appendix E for a complete list of their services offered, prices, and phone company charges.)

National

There are dial-up and satellite services that can be purchased on the national level.  Dial-up networks include AOL, MSN, Earthlink, and Prodigy.  MSN charges $21.95 per month while the other providers charge $19.95 per month.  AT&T is also a competitor, which plans on introducing the 7/7 plan.  This is a new service that combines telephone, digital cable, and high-speed Internet service.   

Alternative Internet Methods

Digital Cable is only one way in which consumers can get quick Internet access.  There are many other options for service such as satellite, wireless Internet, DSL, free-space optics, and dial-up.  These different services vary in speed, cost, and technology.  These technologies are important to research because they are growing at a rapid pace to serve more customers, in every area.    

Satellite Services

Over 50 percent of Americans cannot obtain high-speed Internet access, or are simply frustrated with cable and phone companies’ broadband access (USA Today, 2001).  For these Americans satellite service can be an option to gain quick access to the Internet.  Two companies, DirecPC and StarBand offer satellite services.  Both companies offer quick downloading speeds comparable to DSL or cable modem systems.  Although the technology is evolving, upload speeds are still much slower then digital cable.

§         Company Information- DirecPC through a partnership with Pegasus Communication is gradually bringing out their services.  DirecPC comes from a 25-year old satellite company, Hughes Network Systems.  Plans for satellite foot upgrade, which will double current speeds, are underway (USA Today, 2001). 

StarBand began distributing their product last fall.  It offers reduced rates as part of a deal with MSN, as well as a package deal with the purchase of a Compaq computer at Radio Shack.  StarBand is built from an Isreali company, Gilat Satellite (USA Today, 2001).   

§         Costs- The costs for getting the services started are approximately the same for both companies.  A small satellite dish and modem costs approximately $400 with an installation fee of about $200.  Service is roughly $70 per month (USA Today, 2001).

§         Speed- USA Today conducted speed tests of each system and found that each performed well above the phone lines’ maximum of 56 kilobytes per second (USA Today, 2001).  The following chart shows DirecPC and StarBand’s sending and receiving data speed represented in KB per second.

Wireless Internet

Wireless Internet is a very attractive option to many consumers.  It provides “Internet-to-go” type access, giving people the option of logging on virtually anywhere, without cables or phone lines (USA Today, 2001). Though the idea is advanced, there are currently many disadvantages.  One consulting firm, Accenture, conducted a recent survey showing that consumers found wireless Internet difficult to use (USA Today, 2001).  Consumers complain that devices need bigger screens, better graphics, and easier ways to input and receive information (USA Today, 2001).  Cahners In-Stat Group predicts 1.4 billion subscribers will access the wireless Internet by 2004. As a result, billions of dollars are being spent to deliver infrastructure, access, and services (Smart Business, 2001). 

§         Company Information- Nokia, Motorola, and Ericsson, are leaders in the wireless phone industry.  The industry still expects to sell about 500 million phones this year, although slower sales growth is predicted.  AT&T Wireless, Cingular Wireless and Voice-Stream are planning to use WCDMA, a key third-generation wireless technology.  Sprint PCS and Verizon Wireless will use a different 3G technology, known as CDMA 2000 (Smart Business, 2001). 

§         Costs- Pricing for wireless access is already reasonable for most business users. Given these low costs, subscribers will sign onto the wireless web for e-mail alone.  According to the Cellular Telecommunications Industry Association, there are more than 90 million wireless users in the U.S; which is roughly 30 percent of the population.  As a result, the monthly average price for a wireless subscription has fallen from $80.90 in 1990 to $41.24 in 1999 (Smart Business, 2001).

§         Speed- Wireless cable offers third-generation (3G) networks, which will provide true broadband speeds typical of DSL or cable connection (Smart Business, 2001).  Most wireless networks today deliver 14.4Kbps to 19.6Kbps data streams, less than half the speed of a dial-up modem.  A few services are offering access as fast as 170Kbsp through server software enhancements; however, coverage for these services is limited (Smart Business, 2001). 

Digital Subscriber Lines (DSL)

DSL lets users connect to the Internet using regular telephone lines.  The speed of DSL surpasses that of a regular dial-up modem.  DSL allows consumers to leave their Internet connection open and still use the phone line for voice calls.  The company that offers DSL will usually provide the modem as part of the installation.  There are many disadvantages to DSL connection.  A DSL connection works better when you are stationed closer to the provider’s central office.  The DSL connection is faster at receiving data than it is for sending data.  This service is also not available everywhere (How Stuff Works, 2001).  Maximum DSL can reach 18,000 Feet from its hub.  For example, in Athens, the hub is located on West Washington Street and only stretches a little over 3 miles in radius.

§         Company Information- Companies such as Covad, Northpoint, Efficient Networks, and Netopia offer DSL services.  Currently the U.S. Federal Communications Commission regulates DSL to a maximum of 1.5 megabits per second.  Current technology can provide a maximum of up to 7 megabits per second.  Researchers promise even greater performance in the future with various protocols.  Companies will soon use these new technologies to better serve consumers (Howstuffworks, 2001).     

§         Cost- The costs associated with Internet service using DSL include installation and monthly charges.  A residential DSL connection is approximately $39.95 to $49.95 per month depending on location.  Business DSL service is somewhat more expensive due to the type of service offered.  Most offered is SDSL (Symmetrical DSL which offers the same upload and download speeds.  Since it offers a guaranteed speed for business, the cost is somewhat higher.  The normal charges of this service vary from $59.95 to $399.95 depending on the speed of service and the length of contract (everything DSL, 2001).

§         Speed- The following is a speed comparison chart to show the difference between a normal analog modem and DSL service:

(Everything DSL, 2001

Free-Space Optics

Free-space optics is a new technology that proposes a solution to the "last mile" problem in data communications.  Free-space optics links consumers' homes to broadband networks using lasers.  Optical fiber is not necessary because free space optics uses light rather than radio waves to send data.  A downfall to free-space optics is that the lasers can be lost during bad weather conditions.  In relation to weather conditions, high winds or fog can disrupt laser projections (WSJ, 2001). 

§         Company Information- The chief executive of the start-up company QuantumBeam proposed the idea of linking consumers' homes through laser technology.  U.S. companies, TaraBeam and AirFiber, are working on deploying networks throughout certain cities.  AirFiber is expected to launch commercial services this year.  A small company from northwest England, PAV, has already deployed 500 systems in Britain.  Lasers extend the university Internet to the campus cybernet cafe'.  PAV has recently been hired to link its broadband network to residential customers in Rome, Milan, Florence, Naples and Turin (WSJ, 2001).

§         Cost- QuantumBeam is planning on marketing free-space optics transmitters to consumers for less than $100, which should be on the market by the end of next year (WSJ, 2001).

§         Speed- The lasers are limited to 100 milliwats.  PAV sells units that transmit data at the speed of 100 megabits per second.  TeraBeam and QuantumBeam claim that their lasers are ten times faster, relaying the same information at one gigabit per second (WSJ, 2001). 

Dial-Up

The most popular way for people to gain access to the Internet is through a Dial-Up connection.  Dial-up allows the modem on a customer’s computer to connect, via the telephone line, to an ISP’s modem to establish an Internet connection.  Although the dial-up method is the cheapest method for connection, it is also the slowest.     

§       Company Information- Companies that offer local dial-up connection are DialNet, FrogNet, EurekaNet, Microsoft, America Online, and Verizon. 

§         Cost- Monthly service for a dial-up connection depends on location.  The prices vary but usually do not surpass twenty dollars a month (NetZero, 2001). 

§         Speed- Dial up connections max out at download and upload speeds of 56kbps (NetZero, 2001).

Marketing of AOL Time Warner

An important part of the AOL Time Warner merger to consider is the company’s marketing mix.  As a part of the marketing strategy, the marketing mix includes product, price, promotion, and place.  The following is a description on product and price of the services that AOL Time Warner will provide.

Potential Market

The potential market for AOL Time Warner is continually expanding.  The technology is rapidly advancing, allowing expansion into new markets.  Both individual consumers and businesses will be exposed to broadband technology as time passes.  Below is a chart diagramming the future outlook for broadband services over the next 5 years.

                     (Global Industry Analysis Inc., 2001)

Product

When AOL and Time Warner merged, several different products were made available to customers.  AOL is the Internet Service Provider while Time Warner provides all the media that they have access to, including filmed entertainment, publishing, networks, music, and cable.  The main product that AOL Time Warner is offering to Athens is its digital cable service.  As an ISP, AOL serves as a “doorway”, or a means to the World Wide Web.  Currently, AOL is offered in Athens as a dial-up service.  When the digital cable comes to Athens, the area will have the option of purchasing the Road Runner digital cable service as an ISP.  Time Warner is diligently converting their entire infrastructure to digital.  Through these cable lines, Internet service as well as television cable will be offered.  The digital cable services of Time Warner will provide better picture and sound quality for maximum viewing entertainment that is considerably noticeable.  (See appendix F for a list of subsidiaries/ current endeavors.)

Price

In order for AOL Time Warner to be successful in the Athens area, the pricing of the services that they will offer must reflect what customers will be willing to pay.  After an analysis of the compiled survey data, we found that 90 percent of Athens Internet users access the Internet via a dial-up connection.  It was also found that of this 90 percent, 55 percent were not satisfied with the speed of their ISPs.  Approximately 54.5 percent of the surveyed customers who were unhappy with their service would be willing to pay the AOL Time Warner a price of $39.95/month for better service and speed from the Road Runner Internet connection.  (See appendix G for survey results analysis.)

From the marketing standpoint, pricing is a function of cost, competition, and customers value.  Customer’s value will be discussed later in the marketing survey section.   Currently, AOL offers their dial-up service for a monthly fee of $21.95, which includes unlimited hours on the Internet.  This is the most popular package for AOL subscribers.  The price of the new service that AOL Time Warner will be providing in Athens, Road Runner, will be set at $39.95 per month. (See appendix H for cable services and prices in other cities.) The price for the basic digital cable service will be $33.95 per month.  The Road Runner Internet service is pretty much a flat rate across the United States.  However, the digital cable service is a bit more expensive in other larger cities. The reason for the increase in price here in Athens is simply because of demand.  In larger cities there is more demand and more people are willing to pay for digital cable.  AOL is supposedly going to raise their standard unlimited hour Internet access package by $2.  

Marketing Survey

A survey is one way to get a good representation of what customers value.  The first thing that we wanted to look at was, “who are the potential customers of this new digital cable service?”  After talking to someone at Computer Services Network, we found that Ohio University would never be a client of AOL Time Warner.  This would mean that we could not count the students who live in the Ohio University dorms.  We then decided that the main potential customers would be those people who lived in Athens such as non-students, individuals, families, households, profit/non profit local business and organizations.  This would also be our target market.       

After holding an intra-group meeting with other consultants, we decided that we would use a non-probability method to survey potential customers.  Our source would be the local Athens phone book and the Ohio University phonebook.  (For complete methodology of the survey, refer to Appendix I.)

Recommendations/ Future Outlook  

There are many aspects to analyze when evaluating AOL Time Warner’s position to enter the Athens area.  We firmly believe that there are certain issues that need to be addressed in order to make a rational decision.  AOL Time Warner would undoubtedly bring advantages to Athens, yet problems still would exist.  Issues that we feel need to be addressed are the “last mile” of fiber optic cable, contract length, and package options.

Last Mile

Broadband technology offers many favorable aspects as compared to dial-up and DSL services.  This system is made possible by use of fiber-optic cables.  However, a problem arises since the fiber-optic cable only extends to the neighborhood concentrator, or hub as it is referred to.  This problem is named the “last mile” since a coax medium connects the hub to individual subscribers.  As a result, the data speed is significantly reduced during the last mile.  The best solution to this problem is to re-wire every neighborhood with fiber-optic cable.  However, AOL Time Warner is reluctant to deal with the hassle of re-wiring the last mile because of the tremendous expense involved.  The city council should express concern regarding this issue.  If AOL Time Warner has no initiative to extend these fiber-optic networks to the individual subscribers, consumers will not be able to experience the true technological advancements the system offers.

Contract Length

The telecommunication industry is advancing at an incredible rate.  New technological innovations present alternatives to current methods, often outdating them as soon as they hit the market.  In a matter of weeks or months, certain technologies can even become obsolete.  This is a critical issue to evaluate.  If Athens were to bring AOL Time Warner in to provide digital cable services, would the product be worthwhile to invest in?  A contract length clause in the contract would provide an option for the City of Athens to explore new technologies, and more importantly have some bargaining power with AOL Time Warner.  At the bare minimum, an arbitration clause should be in the contract.  We would advise the City of Athens to implement further consulting in regards to this issue.

Package Options

There needs to be more investigation into what other cities, comparable to Athens, are being charged for the services they receive.  From the data we collected, the packages are sufficient and they are adequately priced.  However, as time changes, the monopoly granted to AOL Time Warner should be examined to ensure proper business activities.  Also, the council should look into what AOL Time Warner are willing to provide beyond the bare minimum.  This relates to the issue of free Internet connections in schools.  Schools have been granted one free Internet connection. However, is this one connection sufficient or do they need addition connections in the future?  If so, what will be the cost to the school system if another connection is needed?  If one Internet connection cannot support the school, then there definitely is a problem.  We firmly believe that the City Council should hire further consulting in this area.

Conclusion

It is our opinion that AOL Time Warner will offer unprecedented services to the Athens community.  The availability of high-speed Internet access will benefit both local consumers and businesses.  Athens will be more enticing to businesses that are looking to expand, on both a local and national level.  Consequently, the possibility of creating more jobs in Athens would increase as well.  A well-structured contract with AOL Time Warner will provide optimum benefits for both the company and the community.

American Online

America Online operates a host of other interactive services, including AOL, CompuServe, ICQ, AOL Instant Messenger, Netscape Navigator, and AOL Moviefone. AOL’s fourth quarter revenues of 2000 increased 27 percent to $2.1 billion. This is compared to $ 1.6 billion in the year before. Also, advertising and commerce revenues increased 71 percent. EBITDA was up 58 percent, totaling $652 million from $412 million.  During the fourth quarter, AOL gained an additional 2.1 million new subscribers, 850,000 of them international. This brings them to 26.7 million subscribers at year-end. In accordance with that, CompuServe added 213,000 new members, 3 million at year-end (Merrill Lynch, 2001).

Filmed Entertainment

Filmed Entertainment contains filmed entertainment and television production. Those including Warner Bros, Castle Rock Entertainment, Looney Tunes, New Line Cinema. In the fourth quarter of 2000, EBITDA declined16% to$183 million, as strong revenues from DVD-formatted releases were offset by the underperformance of many New Line Cinema movie (Merrill Lynch, 2001).

Cable Systems

Time Warner Cable is the nation’s second largest cable operator. They have more than 12.8 million customers’ nation wide. With over 90 percent of its subscribers in systems of 100,000 or more, this makes the systems highly clustered. Based on increased digital and high-speed Internet access revenues, along with advertising revenues, cable EBITDA increased 13 percent in fourth quarter 2000 to $767 million. Cable added 479,000 digital subscribers in the fourth quarter of 2000, for a total 1.7 million subscribers, a penetration rate of nearly 10 percent of all digital homes passed. AOL expects cable EBITDA growth to be inspired by increasing customer attention in digital services and high-speed Internet connections. AOL also attributes these increases to customer service (Merrill Lynch, 2001).

Networks

Networks including many of the strongest players in entertainment industry, including TBS Superstation, Network (TNT), Cartoon Network, Atlanta Braves, Atlanta Hawks, CNN, CNN Headline News, HBO, Cinemas, WB Television Network. Those are all connected to Turner Entertainment Networks. In the fourth quarter of 2000, revenues increased 4 percent to $1.8 billion, and EBITDA decreased slightly to $443 million. Advertising and commerce were essentially even (Merrill Lynch, 2001).

Music

Warner Music Group’s main record companies are Warner Bros. Records and Warner Music International. Music EBITDA decreased 10 percent to $178 million. Overseas had great performance in music EBITDA and higher income resulting from DVD manufacturing operations. All of this was offset by lower U.S. record sales (Merrill Lynch, 2001) 

Publishing

Time Inc. and Time Warner Trade Publishing are classified under the publishing category. The company publishes, many well-known magazines such as Time, Sport Illustrated, People, Entertainment Weekly, Fortune, and Warner Books. Publishing EBITDA grew 9 percent to $290 (Merrill Lynch, 2001).

 Appendix B

FCC’S CONDITIONED APPROVAL OF AOL-TIME WARNER MERGER

America Online, Inc. (AOL)

· AOL is the nation’s largest Internet Service Provider (ISP), with approximately 26million paying subscribers to whom it provides Internet access, online content

(including e-commerce services), e-mail and Instant Messaging (IM).

· AOL owns the two largest IM services, AIM and ICQ, which are free and available to non-AOL subscribers. By all market measures, AOL is by far the largest IM service.

· AOL has recently begun to provide interactive television services (ITV) that combine traditional video programming features with web-based and other interactive features, viewed and used by consumers through their TV sets.

Time Warner Inc. (Time Warner)

· Time Warner is the nation’s second largest cable operator, with approximately 12.6 million cable customers, and its cable systems pass approximately 20 million

households.

· Time Warner offers residential high-speed Internet access over upgraded cable facilities to its customers through Road Runner, which it owns. Currently, no other ISPs are available to Time Warner cable subscribers over the cable platform.

· Time Warner owns and operates some of the most popular video programming

networks, multiple sports franchises, magazines, music recording labels, a broadcast TV network, and companies that produce and distribute films and TV programming.

· As a result of the merger between AT&T and MediaOne, AT&T owns a 25 percent stake in Time Warner Entertainment (TWE), a Time Warner Inc. subsidiary. Time Warner owns the remaining 75 percent of TWE. TWE operates Time Warner’s cable systems as well as much of Time Warner’s content library.

PUBLIC INTEREST ANALYSIS OF THE AOL-TIME WARNER MERGER

·        The FCC examined the merger’s potential effects on (1) high speed Internet services, (2) services based on instant messaging, (3) interactive television services, (4) electronic programming guides, (5) carriage of television broadcast signals, (6) increased concentration among MVPDs, and (7) competition among MVPDs.

·        In analyzing the potential public interest benefits, the FCC determined that the applicants have demonstrated that the merger will result in benefits, but the nature and degree of these benefits are not sufficient to outweigh the potential harms that would result from the merger absent conditions.                                                                                              

·        The FCC found that consumers are likely to benefit from: the deployment of a wide range of broadband technologies to all consumers; direct stimulation of the cable broadband market and the probable indirect stimulation of alternative broadband technologies; acceleration of the transformation of traditional media products to digital platforms, aiding the development of advanced services.

TIMELINE OF FCC REVIEW OF AOL-Time Warner MERGER

March 27, 2000:         FCC review begins. FCC issues Public Notice seeking comment on AOL and Time Warner, Inc. merger application.

April 26, 2000:            Public comments due to FCC.

May 11, 2000:            Reply comments due to FCC.

June 9, 2000:              FCC sends letter to AOL and Time Warner attorneys requesting further information. 180-day clock stops on Day 75.

June 23, 2000:            FCC sends second letter to AOL and Time Warner attorneys

requesting further information.

June 26, 2000:            AOL and Time Warner attorneys respond to FCC’s June 9 request for

further information. Clock is restarted.

July 17, 2000:             AOL and Time Warner attorneys respond to FCC’s June 23 request for further information.

July 27, 2000:             FCC convenes an En Banc Hearing on the proposed AT&T-Media One

merger with panelists expressing a variety of views on the issues involved.

August 14, 2000:        FCC sends third letter to AOL and Time Warner attorneys requesting further information.

August 30, 2000:        AOL and Time Warner attorneys respond to FCC’s August 14 request for further information

Sept. 9, 2000:             Time Warner attorneys responds to FCC’s request for further information concerning technical questions about the Memorandum of Understanding dated February 29, 2000.

Oct. 11, 2000:             FCC General Counsel Christopher Wright stops the self-imposed

180-day merger review clock pending FTC action “because the factual basis for the FCC’s review of whether a license transfer is in the public interest may be affected by the [FTC’s] determination.

Dec. 14, 2000:                        FTC completes its review of the merger.

Dec. 19, 2000:            FCC’s Wright sends letter to AOL and Time Warner stating, “The

Commission will endeavor to take action as soon as possible.”

Jan. 11, 2001:             FCC adopts conditioned approval of AOL-Time Warner merger.

INTERNET SERVICES

In examining Internet services, the FCC concluded:

· Residential high-speed Internet service constitutes a discrete market that must be considered separate from the residential narrowband market.

· High-speed service includes features unavailable over narrowband and consumers

face costs in switching to the high-speed platform.

· The merger would give AOL Time Warner the ability and incentive to harm

consumers in the residential high-speed Internet access services market by blocking

unaffiliated ISPs’ access to Time Warner cable facilities and by otherwise

discriminating against unaffiliated ISPs in the rates, terms and conditions of access.

· The applicants’ non-binding proposed Memorandum of Understanding (MOU)

regarding access for unaffiliated ISPs to Time Warner’s cable systems is not sufficient to avert these harms.

· If left unfixed, the harms would frustrate or impair objectives of the

Communications Act, including “the continued development of the Internet” and the

deployment of advanced services to all Americans.

· The FCC noted that the FTC consent decree requires AOL Time Warner to negotiate

in good faith with any unaffiliated ISP seeking access to its cable systems and, thus,

the FCC reiterated that AOL Time Warner must engage with local and regional ISPs

in a good faith, nondiscriminatory manner.

Conditions

The FCC imposed the following conditions relating to the provision of residential high speed Internet access over Time Warner’s cable systems

Choice of ISPs:

·        AOL Time Warner must open its cable systems to competitor Internet Service

Providers (ISPs), per the Federal Trade Commission’s consent agreement.

·        AOL Time Warner must allow customers to select a Participating ISP by a method that does not discriminate in favor of AOL affiliates on the basis of affiliation.

First Screen:

·        AOL Time Warner must allow all unaffiliated ISPs to control the content of their customers’ first screen. AOL Time Warner may not require an unaffiliated ISP’s customer to go through an affiliated ISP to reach the unaffiliated ISP.

Billing:

·        Participating ISPs must be allowed to directly bill the subscribers to whom they have sold their high-speed Internet access services, if they choose to do so.

Technical Performance:

·        AOL Time Warner must offer the technical performance standards that it provides to its affiliated ISPs in a non-discriminatory manner to unaffiliated ISPs.

Rights to Disclose Contracts to the FCC:

·        AOL Time Warner may not enter into any contract with any ISP for connection with AOL Time Warner’s cable systems that prevents that ISP from disclosing the terms of the contract to the FCC under the FCC’s confidentiality procedures.

Enforcement Procedures:

·        With respect to any dispute concerning AOL Time Warner’s compliance with these, the FCC outlined a number of procedures. These procedures are

designed to resolve any disputes within sixty (60) days of the filing of a complaint and to have them resolved by the Chief of the Cable Services Bureau by either sustaining or dismissing the complaint.

INSTANT MESSAGING (IM)

In its analysis of Instant Messaging, the FCC concluded:

· The merger would combine an essential input of AOL’s dominant IM service (and of

future IM-based services), the names and presence directory (“NPD”), with assets of

Time Warner, including its cable facilities and Road Runner ISP.

· An IM provider’s NPD consists of a database of its users’ unique IM names, their

Internet addresses, as well as a “presence detection” function, which indicates to the

provider that a certain user is online, and allows the provider to alert others to this

information.

· The FCC notes that these features create a market with strong network effects.

· AOL, with by far the largest NPD, has resisted making its IM services interoperable

with other providers’ services.

· The merger, by bringing Time Warner’s cable Internet platform and content library

under AOL’s control, will give AOL Time Warner a significant and anticompetitive

first-mover advantage in the market for advanced, IM-based high-speed services

(“AIHS”). Potential AIHS applications include those using streaming video (lengthy,

high-quality one or two-way video).

· The merger would frustrate the objectives of the Communications Act by preventing

the emergence of a competitive and innovative market for advanced, IM-based

services. This would violate key Communications Act principles including the further

development of and healthy competition in the Internet and interactive services.

· The FCC did not establish an interoperability protocol. Rather, the FCC’s remedy

requires AOL Time Warner to follow a protocol developed by the industry or to

create a protocol with other IM providers pursuant to contracts. Thus, the FCC did not

create and will not review an Internet protocol.

IM Condition

The FCC imposed the IM condition to avert market harm now so that it would not

be required to regulate in the future.

·        Given AOL Time Warner’s likely domination of the potentially competitive business of new, IM-based services, especially advanced, IM-based high-speed services (“AIHS”) applications, the FCC ruled that AOL Time Warner may not offer any AIHS steaming video applications that uses a Names and Presence Directory (“NPD”) over the Internet via AOL Time Warner broadband facilities until the company demonstrates that it has satisfied one of three pro-competitive options outlined by the FCC.

·        AOL Time Warner must file a progress report with the FCC, 180 days from the release date of the order and every 180 days thereafter, describing in technical depth the actions it has taken to achieve interoperability of its IM offerings and other offerings. These reports will be placed on public notice for comment.

·        The IM condition will sunset five years after the release of the Order.

Showings:

1.         AOL Time Warner may show that it has implemented an industry-wide standard

for server-to-server interoperability.

2.         AOL Time Warner may show that it has entered into a contract for server-to-server interoperability with at least one significant, unaffiliated provider of NPD-based services. Within 180 days of executing the first contract, AOL Time

Warner must demonstrate that it has entered into two additional contracts with

significant, unaffiliated, actual or potential competing providers.

3.         AOL Time Warner may seek relief by showing by clear and convincing evidence

this condition no longer serves the public interest, convenience or necessity

because there has been a material change in circumstances.

CONTRACTUAL RELATIONSHIPS WITH AT&T

·        AOL Time Warner may not enter an agreement with AT&T that gives any AOL Time Warner ISP exclusive access to any AT&T cable system.

·        AOL Time Warner may not enter an agreement with AT&T that affects AT&T’s ability to offer any rates, terms or conditions of access to ISPs that are not affiliated with AOL Time Warner.

OWNERSHIP INTEREST IN GENERAL MOTORS AND HUGHES ELECTRONICS

·        To address concerns over AOL Time Warner’s indirect ownership interest in DirecTV and potential harms from cable/DBS (direct broadcast satellite) cross-ownership, the FCC ordered AOL Time Warner to notify the Chiefs of the Cable Services Bureau and International Bureau, in writing, of any transactions that increase the merged company's ownership interest in General Motors Corporation and/or Hughes Electronics Corporation, no later than 30 days after the transaction.

MISCELLANEOUS PROVISIONS

·        Compliance with all conditions imposed in the order is a binding condition of the grant of the Application.

·        The FCC denied the Petition to Deny filed by the Consumers Union, Consumer Federation of America, and Media Access Project, the Petition to Deny of Thomas Lewis Bonge, the Petitions to Condition filed by RCN Telecom Services and Gemstar, and all similar petitions except as otherwise discussed in this public notice.

·        The FCC denied the motion to consolidate filed by the Consumers Union, Consumer Federation of America, and Media Access Project.

Appendix C

Complete AOL Time Warner Cable Packages Available

Digital Access Package ($4.30)

Includes Music Choice with 40 channels of CD-quality, digital, commercial-free music.  Including: Jazz, Rock, Classical, Contemporary Christian, Gospel, Classic Country, and more.  Enjoy the variety and convenience of 38 Pay-Per-View channels.

Digital Variety Package ($6.30)

Includes the Digital Access package and 25 exiting Digital Variety channels like ESPNEWS, ESPN Classic, Speedvision, Game Show Network, Tooney Disney, and more.

Digital Movie Package ($8.25)

Includes the Digital Access Package and 10 Digital Movie channels.  Sundance channel, Encore Westerns, and the Independent Film channel are just a few of the choices. 

Premier Digital Package ($10.25)

Wraps the Digital Access, Variety, and the Movie Packages all into one complete entertainment package.

Expanded Premium Channel Selection

Choose from 7 channels of HBO, 5 channels of Showtime, 4 channels of Cinemax, 2 channels of The Movie Channel, and 6 channels of Starz!/Encore.

• One Premium channel- $10.95
• Two Premium channels- $19.95
• Three Premium channels-$26.95
• Four Premium channels- $32.95
• Five Premium channels-  $37.95

Digital Sports Packages

Many different sports packages are available through digital cable subscription, including ESPN Gameplan, NBA League Pass, and NHL Center Ice.

Appendix D

Other Community Benefits AOL Time Warner Offers

• E-Monitoring

America online recognizes the important role a mentor can play in the life of a child and believes that mentoring is essential to the future success of our children.  As a result, AOL has joined forces with the National Mentoring Program (NMP) to bring the benefits of mentoring to children and adults across the country through the power and reach of the online medium.  The goals of this partnership are to increase national awareness about mentoring, provide valuable online resources and information about mentoring (including a national mentor volunteer matching service), and to create and test a one-of-a-kind e-monitoring program.  This program will test the potential of the online medium to create meaningful mentoring relationships.

• Time To Read

AOL Time Warner supports a vital network of community organizations dedicated to improving reading and writing skills.  At the center of this effort is Time To Read, their largest and most acclaimed program, involving employees from every division.  Activities range from CNN Center in Atlanta to Warner Bros. Studio’s back lots in Burbank, California.

·        Cable in the Classroom

Time Warner Cable’s far reaching commitment to education began in 1989 when it founded Cable in the Classroom, an industry initiative to provide free cable connections, equipment, teacher workshops and commercial-free programming to all public and private K through 12 schools in the nation.  Time Warner cable now provides these services to 90% of the schools in the areas it serves, reaching well over 7 million students.

·        Drug Resource Center for Parents

America Online helped develop the Drug Resource Center for Parents in collaboration with the White House Office of National Drug Control Policy and the Partnership for a Drug-Free America.  The Drug Resource Center gives caring adults the information they need to help America’s youth reject illegal drugs.  The website also serves as an online drug prevention community, providing drug education, parental tips, local resources, and interactive connections to other parents.

Appendix E

Pricing for ISPs in Athens

Appendix F

List of AOL Time Warner Subsidiaries/ Current Endeavors

Internet Services

Television Channels

Production Agencies

Publications

Sports

Music

Appendix G

Survey Results- Percentages

54.5% of customers are unsatisfied with their Internet service

Payment

14.5% are willing to pay less than $20

31% are willing to pay $21-$30

27% are willing to pay $31-$40

12% are willing to pay $41-$50

15.5% are willing to pay more than $50

Users Surveyed

81.5% are off campus students

17% are Athens residents

1.5% are businesses

Appendix H

Cable Pricing 

Appendix I

Survey Methodology

Survey Questionnaire

  1.  Are you currently, or have you ever paid for an Internet provider?

  2.  Which Internet service do you use?

1. Frognet
2. Eurekanet
3. Dialnet (dial-up or DSL)
4. Dragonnet (dial-up or DSL)
5. Verison (dial-up or DSL)
6. AOL
7. Microsoft
8. Other ______________
9. Do not know

  3.  Are you satisfied with the current speed of your Internet connection?

  4.  How much do you pay per month for your Internet service

5.  How much would you be willing to pay per month for a faster service?

1. Greater than $50
2. $41-$50
3. $31-$40
4. $21-$30
5. Less than $20

6.  Are you an off campus student, Athens non-student resident, or a business?

Brief Instructions

The questions above can be worded in any way that you see fit to get the answer but they shouldn’t be too different. 

The first question is a filter question, if they answer no, then the survey is done and you should go on to the next person. 

List to the person the ISPs for question two and find out if it is dial-up or DSL for the three that offer both.

Question three should be a yes or no answer

Question four will be a raw number such as $19.95

For question five, start at the high end and work your way down until they say that they would be willing to pay that amount.

For most of us, question six can be figured out without asking.  Teams 3-8 will be surveying students.  Teams 1 and 2 will be residents, students, or businesses.  Ask if you need to but try to figure it out without having to ask.

Surveying Method

There will be 200 people sampled.  25 per team, 5 per person if that is what your team decides.  Each team has a section in a phone book:

·        Team 1:  1-38 in the Athens phone book (this is assuming that it starts on page one.  If not, team 1 and 2 should communicate with each other and figure out their page ranges)

·        Team 2:  3-77 in the Athens phone book

·        Team 3:  205-230 in the OU directory

·        Team 4:  231-255 in the OU directory

·        Team 5:  256-275 in the OU directory

·        Team 6:  276-300 in the OU directory

·        Team 7:  301-325 in the OU directory

·        Team 8:  326-end in the OU directory

In terms of how we actually went about conducting the survey, the method goes as follows:

There were 200 people that we had sampled.  There were 25 people to call per team, 5 per person.  The random number generated for a starting spot was two, so we started at the second person for each of our sections.  Then, the random number that we counted off was 13, so we would call every 13^th person after that.  The first question we asked was a filter question, meaning that, when answering this filter question, it would be decided whether or not to continue to ask the survey questions based on the response of the first.  If we found a person that could not be surveyed for some reason, we would then go to the next 13^th person.  If anyone went through his or her phone book section, they would keep a continuous count going through their section again.  If this continuous count repeated names, then we would use the third random number generated, 8, to count off people.  For those using the OU directory, we would only call off campus numbers, 589, and maybe 594, 593, or 592. We would then go on to the next person if we came across a 597 number because this indicates that this is a student who lives in the dorms and therefore, cannot be a part of the survey.

After calling all of the people on the list, we then complied the information together in an excel spreadsheet.  From here, every group shared their information and a complete data listing was made for the survey results, which could be then analyzed for our use.

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