AOL sits out cable dance as AT&T courts MediaOne
By Eric Auchard
NEW YORK, May 6 (Reuters) - America Online Inc. <AOL.N>,
the No. 1 supplier of consumer Internet services, is looking
for partners to invite it to the next dance -- the competition
to deliver high-capacity Internet services to U.S. homes.
But AT&T Corp.'s <T.N> latest move to broaden its U.S.
cable network reach appears once again to have denied AOL
access to the upgraded cable television networks now seen as
the best hope of offering consumers high-speed Internet links.
America Online stock has sunk more than 26 percent since
last week as AT&T emerged the victor in its bid to acquire
MediaOne Group Inc. <UMG.N>. On Thursday, AOL fell another $10
to close at $119.75 in composite U.S. stock market trading.
Some analysts believe that for now, America Online must
content itself with gaining access to customers via a competing
set of partners -- the regional Bell phone companies, which are
slowly rolling out high-speed Internet links over phone lines.
Still, most analysts believe economics will eventually
force cable network operators, including AT&T, which will now
reach more than 50 percent of U.S. households, to strike deals
with independent Internet service providers like AOL.
"AOL is working on ways of striking a deal in the area,"
said Abishek Gami, a securities analyst with Chicago brokerage
William Blair & Co.
"Deals will be cut here because it makes economic sense,"
agreed a Washington D.C. communications lawyer and regulatory
expert who asked not to be named, referring to AT&T.
"The hard part is what the right structure of such a deal
would be," Gami said. "Clearly, they have to convince the cable
guys that going it alone is not the right way to go."
AT&T finalized the nearly $60 billion acquisition Thursday.
A related side agreement with Microsoft Corp. <MSFT.O>, AOL's
nemesis, calls for Microsoft to invest $5 billion in return for
a stake in the communications giant and a deal to use Microsoft
software to deliver interactive services over cable links.
The MediaOne deal gives AT&T cable access to half of U.S.
households when joined with the cable networks of its other
major acquisition, Tele-Communications Inc., and its joint
venture with Time Warner Inc. <TWX.N>
In response, AT&T stock roared up $5.06 to close at $61.87
in heavy New York Stock Exchange trading, $2 shy of its 1999
high.
Currently, America Online uses standard phone lines to
deliver Internet access to roughly 17 million U.S. subscribers
via its AOL and CompuServe services.
It obtains these connections at wholesale rates principally
from MCI WorldCom Inc. <WCOM.O> -- AT&T's arch-rival -- and a
range of other communications companies, such as the regional
Bell companies that dominate the U.S. local phone business.
For over a year, AOL executives have reiterated their
optimism that high-speed, constant Web connections will come
from all directions -- not just cable, but high-speed phone
lines, satellite transmission and wireless devices.
They combine such public pronouncements with traditional
back-room political arm-twisting in Washington D.C. to press
cable operators to open networks to Internet services like AOL.
Paradoxically, AT&T's growing power over the cable industry
-- and the potential this could trigger a regulatory outcry or
even a legislative response -- could indirectly boost chances
AOL and AT&T will strike a deal.
Its impasse with AT&T may push America Online to forge
closer ties with U.S. Baby Bell companies that can provide it
with high-speed Internet connections over standard phone lines
using a rival technology to cable modems known as DSL.
Already, America Online has agreed to such deals with Bell
Atlantic Corp. <BEL.N> and SBC Communications Inc. <SBC.N>, the
nation's two largest suppliers of local phone service.
But AOL has stressed that this is part of a strategy to
embrace all methods of ... |
