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Technology Stocks : America On-Line (AOL) -- Ignore unavailable to you. Want to Upgrade?

To: Vendit™ who wrote (5477)	2/22/1999 8:32:00 PM
From: robert duke	Read Replies (4) \| Respond to of 41369

Hey everyone Read this!!!!!!!!!! SHED NO TEARS FOR AOL @Home's recent high-profile merger with portal site Excite and the steady growth of Time Warner's Road Runner Internet service has turned up the heat on AOL's broadband efforts. Not surprisingly, the growth of broadband services like RoadRunner and @home have left some AOL investors feeling uneasy. To complicate matters, cable operators are refusing to give ISP's like MindSpring and AOL open access to their high-speed cable networks. Does this mean Steve Case and the crew at AOL are doomed? Don't bet on it. Skeptics argue that without access to the cable operators' broadband pipes, AOL will lose those customers that fall under the spell of high-speed Internet access as provided by rivals like @home and RoadRunner. This is a legitimate concern, but critics should underestimate neither the resiliency of AOL nor the telcos' growing desperation to catch up in the broadband wars. AND, there remains the possibility that AOL will forge a cable partnership with either @home or Road Runner. Despite the media hype of the rapid growth of broadband, the number of broadband users is a drop in the bucket compared to the millions of traditional dial-up modem users. The cable vs. DSL (digital subscriber line) war has only just begun. MCI WorldCom, Bell Atlantic and GTE still need a hook for their DSL offerings, and consumer-friendly AOL could be their ticket-to-ride. AOL's marketing savvy coupled with the telcos' customer base would be a formidable force in the broadband battles to come. BATTLING BACK AGAINST TCI What is AOL doing to fight back? Currently, the company is lobbying the FCC and Congress to force the combined AT&T-TCI to open its cable networks to rivals. The FCC, however, has yet to warm up to either AOL's suggestions or those of The OpenNet Coalition, a lobbying body formed by leading ISP's and telcos. Success looks less than likely; the AOL-lead coalition took another major hit this week when the FCC approved the proposed AT&T-TCI merger. So why shouldn't AOL investors worry about AOL's future? First and foremost, America Online DOES, in fact, have a broadband strategy. In April of last year, AOL began conducting field trials with GTE, Bell Atlantic and WorldCom for high-speed access to AOL via xDSL. This was the company's opening move toward figuring out which pricing plans would be best received by high-speed access consumers. Then, in mid-January this year, Bell Atlantic and AOL announced a partnership that would provide AOL customers in Bell Atlantic's east coast territory with the option to upgrade their Net access connection to DSL starting mid-year. More importantly, the two companies announced a combined pricing plan of $40 a month for the new AOL/Bell Atlantic DSL service. That's a nice monthly price, but the main drawback to DSL has always been that initial installation costs can soar as high as $400 a subscriber. This AOL/Bell Atlantic DSL deal serves as simply another field-test for AOL (albeit on a much larger scale). AOL's ultimate broadband connectivity partner is MCI WorldCom. WHY MCI WORLDCOM AND AOL? Last March, as part of the sale of Compuserve's assets to AOL and WorldCom, AOL chief Steve Case joined WorldCom's board of directors. AOL took over Compuserve's online service while WorldCom purchased the company's communications network. AOL also agreed to a wide-ranging, long-term agreement to buy network services from WorldCom. Later, to receive regulatory approval for its proposed $40 billion mega-merger with MCI, WorldCom was forced to sell its Net backbone and consumer access service. None-the-less, the company maintained its strong business Internet component (via subsidiary UUNet) and didn't hide the fact that it planned to one day jump back into the consumer Internet access game. That day has arrived. In January, WorldCom unveiled its new consumer Internet offering dubbed MCI WorldCom Internet. And to whom did WorldCom turn for content? You guessed it - AOL. City guide network Digital City and wholly-owned subsidiary Compuserve will provide customized content packages to MCI WorldCom Internet users. A special version of AOL's Compuserve will also serve as the default homepage for the new MCI WorldCom Internet service. How does this impact AOL's broadband plans? While MCI WorldCom is rebuilding their consumer Internet service from scratch, the company has been among the most aggressive telcos in rolling out high-speed Internet services. WorldCom plans to have over 600 national points of presence for their DSL service by the end of March. This aggressive roll-out schedule and content deal with AOL suggests that WorldCom has a major partnership plans in the works. Once MCI WorldCom has its DSL service points of presence in place, it would not be surprising to see the company cut a national DSL deal with AOL - similar to that struck by Bell Atlantic. If AOL pulls back their failed lobbying efforts with the FCC, we may well see a large scale MCI WorldCom-AOL partnership unveiled before the end of this year. AT&T's @Home and Time Warner's RoadRunner may be doing a victory dance today, but never discount such consummate deal makers as WorldCom's Bernie Ebbers and AOL's Steve Case. These power-brokers understand how to make things happen and they will undoubtedly strike again. It might appear that WorldCom and AOL lost the initial broadband match late in the first round, but just ask fallen AOL competitors like Prodigy, Delphi and Compuserve about AOL coming out of the corner. Then ask failed MCI bidders GTE and BT what it's like to get in the ring with WorldCom. With nine rounds to go in this broadband battle, @Home and RoadRunner had best stay on their toes. It's going to get a lot rougher. A wide-ranging AOL - MCI WorldCom broadband partnership could bring the cable companies to their knees.