Loring Wirbel sums up the merger:
Mergers reshape the broadband landscape
By Loring Wirbel
EE Times
(01/10/00, 3:44 p.m. EST)
DULLES, Va. ? The nature of broadband consumer access changed radically Monday through two unexpected mergers in the Internet community. America Online Inc. offered the equivalent of $166 billion in stock to merge with Time Warner Inc., and Craig McCaw's NextLink Communications Inc. offered to acquire specialized digital subscriber line carrier Concentric Networks Inc. in a stock offering worth $2.9 billion.
Though the latter deal is a fraction the size of the one that will create AOL Time Warner, it represents an unusual merger of NextLink's fiber optic backbone and wireless last-mile access with Concentric's current DSL properties and future research efforts in stratospheric airborne broadband Internet access plans.
AOL and Time Warner (New York) said they had discussed a merger since October, which makes it surprising that no word of a potential deal had leaked out before the companies' official announcements early today (Dec. 10). Equally surprising was the extent to which all executives present for a Monday morning press conference stressed the issue of rapid and egalitarian broadband rollouts, as well as equal-access policies for Internet service providers (ISPs) to cable TV systems, before discussing the financial prospects of the deal.
Time Warner vice chairman Ted Turner set an unexpected tone for the conference when he said he wanted the merger to be judged by whether AOL Time Warner was a "socially conscious" company. Time Warner president Richard Parsons said that a top goal for the combined company would be "offering broadband services domestically and worldwide in a manner to help close the digital divide." The combined company will have a valuation of $350 billion and anticipated annual revenues of more than $40 billion.
Executives no doubt recognize the importance of fast rollouts and open access to help lessen the impact of any Justice Department probes. AOL Time Warner will include such properties as CNN, TBN, Time, People, HBO, CompuServe, TBS, and Warner Music Group. Yet AOL chairman Steve Case, who will serve as chairman of the combined entity, said executives believed they are pulling together two complementary companies, where any possible monopolistic overlaps will be minimal.
Case threw down the gauntlet to AT&T Co. and other cable TV multi-system operators when he said that providing open cable access for any ISP, not just for AOL, will be a key goal of the two-way digital networks Time Warner had been building out. Time Warner chairman Gerald Levin, who will serve as chief executive of AOL Time Warner, said that the company's digital buildout of two-way cable will be completed this calendar year, and the company will prove by its actions how serious it is about open access.
Case said AOL Time Warner will look at all broadband-access methods for all types of platforms, rather than focus on cable modems for the PC. The top goal for the company this year will be to "move the Internet beyond the PC to the television, the telephone and any of a number of mobile devices," Case said.
Both Case and AOL president Robert Pittman stressed the complementarity of marketing entertainment services, particularly in music, where Pittman said the relevance of providing digital files for Time Warner's artist catalogs could prove more important than the rise of the compact disc in the 1980s. The companies made no mention of Secure Digital Music Initiative encoding, however, reflecting the fact that AOL is a big player in MP3 encoding through its acquisition of Winamp Inc., and is likely to take a much more open approach to digital distribution of music.
Beyond wireless access
Almost lost in the furor over AOL Time Warner's creation, NextLink's acquisition of Concentric (Cupertino, Calif.) indicates the degree to which the new company founded by McCaw Cellular founder Craig McCaw, does not want to be pigeonholed as a wireless Internet access company. NextLink (McLean, Va.) is making an offer for Concentric based on a 20-day average of trading price in NextLink's common stock, which would make the deal worth at least $2.9 billion.
Concentric is a competitive local exchange carrier focused on data delivery over DSL, though it also offers Web hosting and virtual private network services, making it a partner and partial competitor to the likes of Northpoint Communications Inc., Covad Communications Inc., and Rhythms NetConnections Inc. Jim Southworth, director of advanced network services and technologies at Concentric, has been a visionary in broadband access, serving as chairman of the DSL Forum and pushing Concentric to get involved with the HALO network for airborne Internet access.
NextLink chairman and chief executive Dan Akerson told a press conference Monday (Jan. 10) that many analysts had wondered why NextLink didn't just build out an additional DSL infrastructure to enhance its fiber backbone. Concentric, he said, had filed to be a CLEC in all 50 states, and had developed a reputation as a good broadband Web host, and thus fit well with NextLink's plan to be a Local Multipoint Distribution Service leader. Both companies focus on broadband access to small businesses and branch offices, though both had been exploring consumer residential access opportunities as well.
Concentric was founded in 1991, went public in 1997, and now has 1,500 employees. Its backbone, which is heavily based on asynchronous transfer mode switching, allows Concentric to offer fine-grained quality-of-service packet prioritization through the use of more than 420 national points of presence. Concentric serves as a backbone aggregation service to all-date networks from Covad and Northpoint, even though it operates as an end-to-end DSL service provider.
Concentric launched broadband wireless local loop experiments in late 1999 with Wavepath Inc., which itself was acquired by Proxim Inc. two weeks ago. Concentric also had started discussions with Angel Technologies Inc., sponsors of the HALO aircraft using stratospheric wireless links for Internet access. Thus, linking in to NextLink's LMDS infrastructure will be a natural outgrowth of where Concentric already was headed, said Concentric chief executive Henry Nothhaft.
Nothhaft noted that another key relationship that can be expanded through the merger with NextLink was Concentric's alliance with Chorio Inc., an application service provider who also has close ties to Sun Microsystems Inc. Concentric provides backbone service for Chorio's Web and application hosting, Nothhaft said, and could provide the experience for NextLink to move further toward hosted services.
Nothhaft said that users should expect the combined company to act as a full facilities-based carrier, providing frame relay, ATM, and Internet Protocol services to customers at all levels in both companies' footprints.
Akerson said that the name of the merged company will be NextLink, though the Concentric subsidiary brand will be retained. Nothhaft will become a vice chairman of NextLink. |
