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

To: Pruguy who wrote (16125)	5/9/1999 5:20:00 PM
From: jhg_in_kc	Read Replies (1) \| Respond to of 41369

I received this excellent post on the MSFT thread in re AOL not controlling its own destiny. Any thoughts, one and all? To: jhg_in_kc (22337 ) From: Bill Fischofer Sunday, May 9 1999 10:29AM ET Reply # of 22399 Re: Utilities and ISPs This is a somewhat belated response but is topical given the recent T/UMG deal. Read AOL's recent 10-K (available at aol.com on the AOL webite) and it shows the following: America Online, Inc., including its subsidiaries ("America Online" or the "Company"), is the global leader in the interactive communications and services medium, with approximately $2.6 billion in revenue during fiscal 1998, including $2,161 million of online service revenues and $439 million of advertising, commerce and other revenues. In other words, over 83% of AOL's revenue last year came from its ISP business, and less than 17% was from advertising and related "placement" fees. As a result, their fundamental problem is clear: Over 80% of AOL's revenue is generated by a wire over which it has no control. As long as data traffic represented a small portion of overall telephone usage, the telcos were prone to ignore it. But as residential data usage grows and eventually overtakes voice traffic, it stands to reason that the companies that actually own those wires and are responsible for their maintenance are going to want an increasing share of that business. Thus to survive in the ISP business over the long haul involves owning and maintaining the physical wiring that reaches each home. The only entities positioned to do that are the phone companies, cable companies, and (possibly) electric utilities. It is irrational to assume that these utilities will allow another entity to indefinitely profit from their infrastructure without being able to participate in this revenue stream. Thus over the long haul the ISP business is just another utility with all the characteristics of a utility. In fact, it represents a fabulous growth opportunity for existing telco and cable utilities, which is why they are now moving with increasing determination in this direction. But as I stated earlier, the ISPs are just providing the access ramps. The real value is where you go and what you do once you're on the net. The real difference between AOL and MSN is that even though both today are trying to be ISPs, AOL is also a destination. AOL allows me to access it via the net (even though it would prefer that I access the net via AOL) whereas MSN does not. Therefore unlike the MSN model, which is fatally flawed, AOL is technically able to deal with the emerging reality even if the adjustment will involve some wrenching transitions. Getting out of the ISP business for AOL would probably be a greater psychological shift than their transition from hourly metering to flat-rate billing but my guess is that is exactly what will happen. I'm not aware of any data which would indicate what percentage of AOL's subscriber base is using their "bring your own access" plan, but this is the key number to watch going forward. If AOL is adjusting to the new realities that number should grow over time.

To: Pruguy who wrote (16125)	5/9/1999 5:45:00 PM
From: TARADO96	Read Replies (1) \| Respond to of 41369

DLJ remains most positive of AOL's broadband strategy: May 06, 1999 DLJ roots for AOL By Charles Dubow Indexes (May 7, 1999 05:00 PM) DJIA 11032.00 +85.00 +0.78% S&P 500 1345 +12.95 +0.97% NASDAQ 2503.62 +31.34 +1.27% EW YORK. 12:30PM EST—In a conference call held this morning by Donaldson, Lufkin & Jenrette, Internet analyst Jamie Kiggen addressed several of the issues that are concerning investors about the future of AOL (nyse: AOL) following the completion of AT&T's (nyse: T) $54 billion acquisition of Denver-based cable company MediaOne (nyse: UMG). The primary concerns are that in the aftermath of the MediaOne deal, AOL, the nation's largest online service, will find it harder to offer high-speed Internet connections. MediaOne was originally the acquisition target of Philadelphia-based cable operator Comcast (nasdaq: CMCSA), which was prepared to pay $48 billion for the company. When AT&T made its unsolicited bid, Comcast brought in a number of potential partners to rescue the deal, one of which was AOL. Having a stake in MediaOne would have given AOL the broadband cable it so badly wants. Having missed out on MediaOne, DLJ's Kiggen sought to reassure analysts that AOL was still on solid ground. By 2005 DLJ estimates that there will be 65 million households with broadband access in the U.S., a 95% penetration rate of all homes with a PC. It is still too early to say with certainty whether cable or DSL (digital synchronous line) will become the dominant broadband technology. "We think AOL's broadband strategy is a very sound one," said Kiggen. "They are pursuing a platform neutral strategy and are bringing a lot of assets to the table regardless of which companies they partner with." Kiggen points out that AOL's biggest asset is its 19 million customers. "AOL is bigger than any other subscription-based business in the world," he says, predicting that the company will ramp up to 50 million customers by 2005. Because of AOL's infrastructure and ability to administer its immense client base, the company also brings unique intellectual capital to any potential partner. According to Kiggen, broadband providers, whether cable, DSL or wireless, will need to look to AOL for scalability. "It's not a technology issue," he said. "It's not about how to get to the Internet but what you do once you get there." Kiggen went on to speculate about the possible partnering relationships AOL could make for itself. In the cable industry, he thinks AOL would be best off linking with one of three companies: AT&T, Comcast or Time Warner (nyse: TWX). As far as DSL partners went, Kiggen pointed out that AOL already has relationships with Bell Atlantic (nyse: BEL) and SBC (nyse: SBC) and is in discussions with long distance carrier MCI WorldCom (nasdaq: WCOM). AOL has also been working on a wireless alternative with Hughes (nyse: GMH). "The assets AOL has built over the past 10 years will be very hard to reverse-engineer or replicate," said Kiggen. "We expect them to get through their near-term market static very soon and expect their strategy to change very little. Whoever wins the platform battle, AOL will be there because they're bringing in the customers and that's where the money is."