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. |
