Hope AOL does better. Look at this article.
At Home Purchase of Excite Puts Pressure on AOL, Analysts Say
Dulles, Virginia, Jan. 21 (Bloomberg) -- America Online Inc., the world's largest online service, is under greater pressure to provide high-speed Internet access through cable TV lines following At Home Corp.'s proposed $7.5 billion acquisition of Excite Inc., analysts say.
At Home's high-speed cable connection transmits data over the Internet to personal computers up to 100 times faster than traditional phone-and-modem connections. At Home bundles the connection with content such as news and music for between $30 to $50 a month. By purchasing Excite, At Home gains stronger content, which could help it attract more subscribers.
America Online needs to offer high-speed access to its more than 15 million subscribers because consumers want faster Internet and online connections. AOL has a partnership with top U.S. local telephone company Bell Atlantic Corp. to offer high- speed phone connections, but analysts say that it also must offer fast connections through cable lines because that technology may prove more popular with consumers.
''To get true global coverage, they need both'' high-speed phone and cable service, said William Blair analyst Abhishek Gami, who rates America Online a long-term ''buy.'' At Home's acquisition of Excite is ''clearly a threat'' to America Online.
Currently, high-speed phone and cable lines are used by few households because of higher costs and because the services are aren't widely offered throughout the U.S. Cable-modem companies such as At Home say that their technology is better than high- speed phone lines because it's faster. Phone companies say their technology is more reliable because cable-modem data transmission can slow down if too many customers are using the cable network at once.
Cable Modems
America Online is most likely to ally with a cable-modem service to sell high-speed access to its customers, said Friedman, Billings, Ramsey & Co. analyst Ulric Weil, who covers AOL. Buying a cable-modem operator is unlikely because AOL wants to be a media company rather than operate hardware and networks, he said.
America Online has talked to high-speed Internet cable- access providers, said AOL Interactive Services President Barry Schuler, who declined to name the companies.
It's more likely that AOL would strike a partnership with No. 2 cable-modem company Road Runner, Gami said. Road Runner and At Home control about 90 percent of the market, according to Michael Harris, president of Kinetic Strategies Inc., a cable Internet research firm. Road Runner is a joint venture between Time Warner Inc. and MediaOne Group Inc.
At Home is less likely to partner with AOL now that it has Excite, and prior discussions between At Home and AOL haven't been productive, Gami said.
AOL's Schuler said that the company is in no rush. Although high-speed Internet access will one day be popular with consumers, it's still years away from appealing to the mass market, he said.
''We're growing like crazy'' which means that cable-modem and high-speed phone Internet connections aren't taking customers away from America Online, Schuler said. ''We think that there is a technology choice, and because (high-speed phone access) is open, that's the one to pursue.''
America Online considers high-speed access an ''upgrade market,'' meaning that the technology appeals to a small percentage of current Internet subscribers who want faster speeds and are willing to pay more for it, Schuler said.
At Home
At Home, with 330,000 subscribers as of Dec. 31, maybe be small now, but analysts predict that millions of consumers will want to get online through high-speed cable lines in the next few years. At Home's largest shareholder is TCI Communications Inc., the No. 2 U.S. cable operator, which AT&T plans to acquire this quarter. At Home gains content, services and millions of potential customers through Excite.
Road Runner has had discussions with America Online about a partnership, although it hasn't held recent talks, Road Runner spokeswoman Sandy Colony said. America Online's partnership with Bell Atlantic doesn't rule out an alliance with Road Runner, she said.
''We're open to doing a commercial deal with (AOL) and with anyone,'' At Home spokesman Matt Wolfrom said. At Home said in November that its talks with America Online had stalled.
Still, analysts say that an AOL-At Home combination is unlikely. Discussions between At Home and America Online came to a halt over disagreements in how America Online would be able to use the high-speed Internet cable connection.
AOL Protests
America Online wants to bundle its content to the cable- modem access and charge its customers once for the service, which is how it sells its Internet service via phone lines now. AOL leases phone network capacity from companies such as MCI Worldcom Inc., and then sells the connection bundled with AOL's content to subscribers for $21.95 a month.
At Home Chairman Tom Jermoluk said last November that talks with America Online had stalled because AOL was ''insisting that At Home be a dumb pipe.'' At Home wants to keep its control over customers; a partner such as AOL might instead be presented on At Home's service as a premium ''channel,'' similar to cable-TV movie channels. That means At Home might, for instance, offer its subscribers an America Online ''channel'' for an extra $5 more than its base rate of $30 to $50.
America Online has taken its cause to the Federal Communications Commission and local municipalities. AOL Chairman Stephen Case has been lobbying for the unbundling of cable systems. That way, America Online and other Internet service providers would be legally entitled to resell high-speed cable access.
''We believe it would be better for the market if there was open access on the cable front,'' said AOL's Schuler. ''We think that it hurts the market overall and it will take longer'' for cable modems to take off with consumers.
Direct PC
Some analysts have speculated that AOL might strike an alliance with DirecTV, the largest U.S. satellite television provider, or its sister company, DirecPC, which provides Internet access at 400 kilobits a second via satellites.
''An alliance between AOL and DirecTV could increase the data offering for DirecTV and give AOL another distribution channel -- satellites,'' noted Armand Musey, a C.E. Unterberg, Towbin analyst, in a research brief this week.
Musey and other analysts say it's unlikely that America Online would buy Hughes, the world's largest satellite maker, because America Online wants to be a media company and not own satellite manufacturing operations.
Spokesman for DirecTV and DirecPC declined to comment on reports that AOL might partner with them. AOL's Schuler declined to comment on the satellite companies.
Taken in its entirety from Bloomberg
Georgiagn |
