AOL: Fast Access, Whatever It Takes
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By Jim Seymour
Special to TheStreet.com
3/11/99 4:04 PM ET
Looks like America Online (AOL:NYSE) isn't relying on the courts to make sure it can provide fast Internet-access connections to its 16 million-plus customers. Though AOL has been all over @Home (ATHM:Nasdaq) and @Home's new parents/partners, the former TCI and uber-carrier AT&T (T:NYSE), in courts across the land to try to get AOL access to @Home's fat pipes, it's also making side deals to offer that kind of fast hookup through new business partners.
Two months ago, the news was the AOL-Bell Atlantic (BEL:NYSE) deal, which allows AOL and Bell customers from Maine down to Virginia to access AOL through Bell Atlantic's ADSL lines. Customers pay a premium of $20 a month over their regular AOL charges, neatly giving them fast access right at the $40-a-month level that @Home and Time Warner's (TWX:NYSE) RoadRunner service has found is the sweet spot for residential fast access.
Now AOL and SBC Communications (SBC:NYSE), formerly known as Southwestern Bell, have inked a similar pact, one that extends the areas in which AOL can be accessed via ADSL to SBC's customers in California, Texas, Arkansas, Kansas, Oklahoma, Missouri and Nevada. Both companies estimate that the pricing will be about the same as in the AOL-Bell deal: around $40 a month. Of course in the never-quite-there-yet world of the Internet and telecom, those SBC customers can't actually buy that service yet; it's coming real soon now, SBC says, in all those areas except Nevada -- where it will be available, oh, someday.
AOL's move is smart on several levels. First, it simply has to be able to deliver its service over something faster than plain ol' telephone service's dialup maximum of 56Kbps. Second, the courts and the FCC seem increasingly unlikely to require the existing fast-access powers to allow competitors on their lines. And third, for both AOL and its new telco partners, existing customers are a naturally predisposed group to sell into.
For the RBOCs, AOL gives them a name brand they can hang on their new ADSL services. The public has no idea what "ADSL" means, nor, in most cases, what "fast access" is and why they might want it. Even if telco customers aren't presently AOL customers, the ring of that increasingly familiar brand name will draw them to the service.
Cable operators have missed a chance here. If instead of reserving their lines exclusively for themselves they had moved aggressively to adopt similar AOL bundle deals, they could have increased their signup rates and enjoyed the same warm glow that the AOL brand will bring to telcos' ADSL marketing.
But the cable outfits, led by @Home, have insisted they're not just pipes, but information sources all their own -- "content" players, not just carriers and subcarriers -- and say they want to control the proprietary content they deliver to their customers.
This brings up an interesting question, over which friends in the business and I have argued loud and long: Does anyone buying @Home or RoadRunner service really care what kind of content the cable company is going to push down the pipe to them? Is it even an issue in the buying decision to sign up for fast access?
Not a chance, sez I. Early adopters buy the first fast-access service available in their neighborhoods. They don't give a hoot about what @Home and RoadRunner want to show them; they want espn.com, TheStreet.com and the rest of it. If they don't even worry about the difference between cable access and phone-company xDSL service, they sure aren't going to get caught up in debates over the merits of @Home's home-page services vs. a telco's home-page goodies.
But later -- and in many areas now, not that much later -- when a competing fast-access service becomes available, customers who signed up for the first available service will demonstrate their usual ennui, their usual resistance to change, the normal human tendency to stay with what they've got. Pricing will matter some; the newcomer will be able to snatch a certain percentage of customers with lower prices. (Here the telcos' ADSL pitch has a natural advantage since an ADSL link not only gives you fast Net access, but also, effectively, a second phone line for voice, fax or whatever. Cable-access systems could do that, too, but won't, at least in their near future.)
But a really striking difference in the native content available over the alternative fast connection could be a tie-breaker in the switch-or-not game. If a telco can come into a RoadRunner or @Home area and say, "Not only do we give you a better price, but also a second phone line for free and you can get fast AOL service!" that could make a difference. Maybe a big difference.
On the other hand, if RoadRunner or @Home (or both, in a new merged entity that looks increasingly likely) already had an AOL bundle in place, it would be much harder for the telco-come-lately to snatch those customers.
But the myopia of @Home and RoadRunner has tossed away that opportunity.
A dark horse in the race for fast-access content could be PointCast. After years of stumbling around in the "push" woods, a baffling refusal to sell to Rupert Murdoch's News Corp. (NWS:NYSE ADR) for $400 million, an aborted IPO last July and, two weeks ago, the departure of former PacTel whiz kid Dave Dorman, who'd been brought in deliver the IPO or at least a new-market focus, PointCast has been quietly preparing a "new markets" play.
Widely understood to be a custom version for telcos of an @Home-like content package, under the name Project Newnet, the PointCast ploy seems increasingly like a last-ditch lurch before a fire sale.
I have almost no hope for PointCast, which has for years squandered every opportunity it has encountered. But if an ADSL-focused RBOC or two want an alternative to AOL as a house content service, PointCast would like to hear from them ... quickly. Just why an RBOC would want to affiliate with PointCast rather than with the biggest name in the online business remains to be answered.
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