This just in:
Is AOL Throwing In The Towel In The Cable Fight?
(NYSE: AOL)
June 22, 1999
by Kevin Prigel
America Online announced that it will invest $1.5 billion in Hughes, owner of multiple satellite technology firms. Hughes' best known service, DirecTV, currently has 7 million subscribers, while the lesser known DirecPC has 100,000 subscribers.
Many analysts and reporters have bought into the theory that AOL is utilizing satellite technologies to circumvent the cable route. However, the real key to this deal lies in one point mentioned by Steve Case, AOL's CEO, on this morning's conference call, "One third of the country will have no broadband options [other than satellite], even five years from now."
In 5 years, approximately 79.8 million Americans will live in metropolitan areas. That means that outside of the metropolitan bounds, cable and DSL will only service 111 million Americans. Over 95 million US citizens, 47% of the non-metropolitan population will have satellite as their only broadband access means.
Looking into the figures makes this look like a lot more than a way around cable. This is a means for AOL to continue to reach every person in the country locally, with equal access at an equitable price. This is not AOL throwing in the towel in the high-speed cable fight.
The recent roll out of AOL service on GTE's cable networks has shown that open access on cable networks is not only possible, but as easy as switching the long distance carrier on your home phone. That should give weight to AOL's open-access argument, and put a major dent in the AtHome/AT&T/Cable player argument that open-access is too costly to be feasible.
Also, the DSL tests are performing much better than cable. I spoke with a communications engineering director who admitted that all-inclusive communications packages like Sprint's ION are working seamlessly, while cable tests are experiencing major problems. If DSL wins the technology battle, all of this cable fighting may be useless.
Finally, as everyone already knew, this deal with Hughes seals a distribution channel for the AOL TV service. The service, which will launch early next year, will allow e-commerce, interactive community, and information alongside traditional TV programming.
So what do you need to take from this deal in summary? America Online is simply extending the reach and dominance of its brand. AOL will be able to offer broadband access to 95 million Americans who otherwise could not access a broadband channel, and reach 7 million DirecTV subscribers with its AOL TV service.
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