America Online – 16 March 1999
4
Analyzing The Impact of Broadband Adoption on AOL's U.S. Subscriber Growth
1996A 1997A 1998A 1999E 2000E 2001E 2002E 2003E
Est. Total U.S. Online Households 15,151 21,833 28,810 35,100 41,950 49,000 56,800 65,000
Est. Dial-Up 15,122 21,623 28,010 33,000 37,000 40,000 42,000 42,000
Est. Cable 19 50 500 1,300 3,000 6,000 10,000 15,000
Est. xDSL 0 20 100 400 1,200 1,800 3,000 5,000
Est. Satellite/Wireless 10 140 200 400 750 1,200 1,800 3,000
Est. AOL Subs. (N. America only) 7,479 9,771 13,261 16,841 20,547 24,040 27,405 30,000
AOL % of Total 49% 45% 46% 48% 49% 49% 48% 46%
AOL % Y/Y Grow th 31% 36% 27% 22% 17% 14% 9%
CONSERVATIVE CASE:
Assumes AOL Subscribers are 100% Dial-Up (AOL Gets No Cable, xDSL, or Satellite/Wireless Subscribers)
AOL % of Dial-Up 49% 45% 47% 47% 47% 47% 49% 50%
AOL % of Cable 0% 0% 0% 0% 0% 0% 0% 0%
AOL % of xDSL 0% 0% 0% 0% 0% 0% 0% 0%
AOL % of Satellite/Wireless 0% 0% 0% 0% 0% 0% 0% 0%
Resulting U.S. AOL Subscribers 7,479 9,771 13,261 15,510 17,390 18,800 20,580 21,000
Projected U.S. AOL Subscribers 7,479 9,771 13,261 16,841 20,547 24,040 27,405 30,000
Shortf all/Excess (1,331) (3,157) (5,240) (6,825) (9,000)
Necessary AOL % of Dial-Up* 49% 45% 47% 51% 56% 60% 65% 71%
BASE CASE:
Assumes AOL Gets 50% of Dial-Up and 33% of Cable, xDSL, and Satellite/Wireless Subscribers
AOL % of Dial-Up 49% 45% 47% 50% 50% 50% 50% 50%
AOL % of Cable 33% 33% 33% 33% 33% 33% 33% 33%
AOL % of xDSL 33% 33% 33% 33% 33% 33% 33% 33%
AOL % of Satellite/Wireless 33% 33% 33% 33% 33% 33% 33% 33%
Resulting U.S. AOL Subscribers 7,479 9,771 13,261 17,188 20,134 22,970 25,884 28,590
Projected U.S. AOL Subscribers 7,479 9,771 13,261 16,841 20,547 24,040 27,405 30,000
Shortf all/Excess 347 (414) (1,070) (1,521) (1,410)
Necessary AOL % of Dial-Up* 49% 45% 47% 50% 53% 56% 58% 60%
AGGRESSIVE CASE:
Assumes AOL Gets 60% of Dial-Up and 50% of Cable, xDSL, and Satellite/Wireless Subscribers
AOL % of Dial-Up 49% 45% 47% 50% 50% 53% 57% 60%
AOL % of Cable 50% 50% 50% 50% 50% 50% 50% 50%
AOL % of xDSL 50% 50% 50% 50% 50% 50% 50% 50%
AOL % of Satellite/Wireless 50% 50% 50% 50% 50% 50% 50% 50%
Resulting U.S. AOL Subscribers 7,479 9,771 13,261 17,550 20,975 25,700 31,340 36,700
Projected U.S. AOL Subscribers 7,479 9,771 13,261 16,841 20,547 24,040 27,405 30,000
Shortf all/Excess 709 428 1,660 3,935 6,700
Necessary AOL % of Dial-Up* 49% 45% 47% 49% 52% 54% 55% 56%
*Market-share of total dial-up subscribers in each case that AOL w ould need to have to hit our projections.
Full Year
Source: Merrill Lynch Internet Research.
[AOL] MLPF&S was a manager of the most recent public offering of securities of this company within the last three years.
Opinion Key [X-a-b-c]: Investment Risk Rating(X): A - Low, B - Average, C - Above Average, D - High. Appreciation Potential Rating (a: Int. Term - 0-12 mo.; b: Long Term - >1 yr.): 1 - Buy, 2 - Accumulate, 3 - Neutral, 4 -Reduce,
5 - Sell, 6 - No Rating. Income Rating(c): 7 - Same/Higher, 8 - Same/Lower, 9 - No Cash Dividend.
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