AOL sows its high-speed seeds around AT&T
By Corey Grice
Staff Writer, CNET News.com
July 22, 1999, 12:10 p.m. PT
In the Darwinian world of the Internet, America Online and AT&T are following different paths in their similar quest to become king of the high-speed jungle.
AOL, the world's largest Internet service provider, is quietly creating a patchwork of broadband Net access technologies, despite its high-profile campaign to gain access to cable TV wires. Through investments in digital subscriber lines (DSL) and satellites, AOL is attempting to reach out to millions of potential high-speed Internet users.
At the same time, AT&T is placing all its eggs--roughly $120 billion in recent acquisitions--in one basket: cable.
AOL's various broadband deals will give it access to a whopping 31 million households in just three years--on top of its base of nearly 18 million dial-up subscribers. By contrast, AT&T could potentially reach upwards of 25 million homes once its various cable acquisition deals close.
Who will take first place in this broadband race depends on a couple of factors. Some analysts believe AT&T is best positioned to rule the high-speed Net, since owning its own networks gives it more control over the technology.
"AOL is in the back seat while AT&T is driving," said Bruce Kasrel, an Internet service provider analyst at Forrester Research. "Sure AOL has lots of potential customers, but will we see the phone companies deliver on DSL? We'll see."
Yet AOL could find Quote Snapshot
July 22, 1999, 12:25 p.m. PT
America Online Inc. AOL
110.0000 -5.0625 -4.40%
AT&T Corp. T
55.0000 -0.7500 -1.35%
Bell Atlantic Corp. BEL
65.0625 -0.4375 -0.67%
SBC Communications Inc. SBC
57.3750 -0.7500 -1.29%
Hughes Electronics GMH
58.1250 -0.6875 -1.17%
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itself in a comfortable position at the top if cable modem technologies don't take off as some market watchers expect.
"AOL's in a decent position because they don't care which platform they use," Kasrel said. "AT&T is in a little worse position because if DSL really takes off, they can't be as flexible."
Staying ahead
Already the leading dial-up modem ISP, America Online wants to position itself as a high-speed Net player, as analysts expect higher profit margins and increased e-commerce revenue from broadband Net offerings. Plus, broadband services may begin to chip away at AOL's core dial-up business if Net users migrate toward faster technologies.
"If cable takes off, that puts [AOL] in a pretty big catch-up position. That's a position they're not used to being in," said Forrester's Kasrel.
To be sure, AOL would like to jump on the same coaxial cable TV wires AT&T and others are using to deliver high-speed Internet access. The company is vigorously seeking new regulations that would force cable TV networks open to competitors. However, AT&T, after acquiring Tele-Communications Incorporated and MediaOne Group, does not want AOL or any other ISP using its pricey wires.
Blocked from cable--at least for the near-term--AOL has instead looked to other broadband partnerships and investments to market its popular proprietary content service.
"Our strategy has been to present the mass-market consumer with a choice of convenient, easy-to-use broadband choices whether its DSL, cable, or satellite," said AOL spokeswoman Wendy Goldberg. "We want to make sure AOL is available on all platforms."
AOL recently invested $1.5 billion in Hughes Electronics' DirecTV, a satellite TV service. Additionally, DSL deals with Bell Atlantic, SBC Communications, and Ameritech will give AOL access to consumers over a high-speed technology that is the prime competitor to cable modems.
As DSL moves more into the consumer market, AOL will have access to a serious pool of potential subscribers. Bell Atlantic says its DSL service now reaches 6 million homes, while SBC's digital subscriber lines are expected to be available to 9.8 million homes by the end of the year. AOL's newest partner, Ameritech expects to reach 8 million homes with its DSL offerings by the end of 2001, according to the company.
Yet several of the Baby Bells, including BellSouth and US West remain outside AOL's sphere of influence. While each does allow smaller ISPs to connect to their DSL services, each has said they would prefer not to see their own high-speed Internet brands subsumed under AOL's brand.
"We will continue to talk to them," said Sol Trujillo, US West's CEO. "But we want to manage our own customer relationship. What we want to do is deliver our own experience to the customer."
AOL's satellite deal with DirecTV gives the company access to 7.4 million potential customers, according to a spokesman. The online giant also will have some limited cable modem service via Ameritech, GTE, and other smaller cable operators.
Cable crunch
AT&T Broadband & Internet Services, the company's cable unit, declined to give specific figures for "homes passed," or the total number of households that can potentially receive its service.
According to Dataquest, AT&T claims more than 17 million homes passed following its merger with TCI, and will add another 8.5 million when it closes its deal with MediaOne. After the company completes its previously announced deals with Comcast, Lenfest Communications, and other cable affiliates, its potential subscriber base should increase.
Recent cable mergers and partnerships will allow AT&T to market local voice service, a $110 billion business annually, to consumers using ubiquitous cable TV lines. But the company, via a stake in Excite@Home, also hopes to rake in revenue from data, which is expected to be a fast-growing business.
Also, AT&T, by buying its partners, stands to get a higher percentage of revenue than AOL, which has only entered into strategic business deals.
Yet cable Net technology has already run into some hurdles. Excite@Home, the cable modem service used by AT&T, has experienced several network-related service problems, including slow or intermittent service, in the past year.
News.com's John Borland contributed to this report.
Related news stories
• AOL, Ameritech ink high-speed DSL deal July 21, 1999
• AOL makes a $1.5 billion bet on satellites June 21, 1999
• AOL works its way around cable TV May 11, 1999
• AT&T, Microsoft point to new world order May 10, 1999
• AOL, Bell Atlantic raise speed limit January 13, 1999
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