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January 14, 2000: 7:16 a.m. ET

AOL-Time Warner deal could offer fast access, varied features for Net users
By Staff Writer Michele Masterson
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NEW YORK (CNNfn) - Is America Online marrying Time Warner for its broadband pipes? Many consumers may not yet care, but cable and Internet industry watchers are keenly interested in the proposed mega-merger's impact in the high-speed Internet access market.
    Dulles, Va.-based AOL (AOL) has mail and a host of other services to complement its narrowband content. But it does not offer its 20 million subscribers a quick way to log on to the Internet and use bandwidth-intensive features.
    AOL users get online by connecting through telephone lines at agonizingly slow speeds, instead of using broadband services via cable or upgraded phone lines, which provide virtually instant connectivity.
    New York-based media giant Time Warner (TWX) -- the parent company of CNNfn -- does have cable, as in the No. 2 cable TV company in the country. Time Warner Cable has wired 21.3 million homes and also holds a stake in high-speed online service Road Runner of Herndon, Va. AOL has big plans for both.
    "We will accelerate the development of Time Warner's cable broadband assets by bringing AOL's hallmark ease-of-use to this platform," said AOL President and Chief Operating Officer Bob Pittman. "We expect America Online to help drive the growth of cable broadband audiences, and we will use our combined infrastructure and cross-promotional strengths to enhance the growth and development of both America Online and Time Warner brands around the world."
    The pairing between the two leaders in their respective industries could mean Internet users will have broadband services more readily available.
    The "always on" service through cable lines or upgraded phone lines will allow Web surfers to receive instantaneous Internet access that makes real-time content, such as stock quotes and sports scores easy to monitor.
    According to New York-based Jupiter Communications analyst Joe Laszlo, it also means Web surfers can take advantage of high-tech offerings that dial-up users have trouble getting due to the crawling speed of phone modems, such as video, music, Internet radio.
    Computer programs may also render some peripherals obsolete in the future. For example, Laszlo said that by being able to access some computer programs, users might be able to rent a program rather than go out and buy a CD-ROM.
Broadband poised for takeoff

    The broadband industry is in its infancy but is predicted to pack a punch in the Internet world. High-speed Internet access offered through technologies such as Digital Subscriber Lines (DSL) service, cable modems and Web TV were used by roughly 1.5 million households in 1999, or 5 percent of the Internet population, according to market analysts at Forrester Research in Cambridge, Mass.
    Broadband services can deliver Web page downloads as much as one hundred times faster than a 28.8 dial-up modem. A 2-megabyte file can be downloaded in 10 seconds, rather than 9.3 minutes using the 28.8 modem, according to Cox Communications in Atlanta. Users don't have to log-on and dial-up to get on the Web, but can click on an icon and are instantly connected.
    Forrester also sees the demand for broadband services on the upswing: in 1999, revenue for the services amounted to $740 million. By the end of this year, the number is expected to zoom to $2 billion, and by 2003, it's forecast to reach a whopping $8.8 billion.
    "Up until recently AOL was not a big believer in broadband," said Forrester senior analyst Bruce Kasrel. "They didn't have the cable access. Now, with Time Warner, they have access to all the cable outlets."
    However, Kasrel doesn't see the progeny of this union meaning much for consumers in the immediate future.
    "The impact is for the long-term," said Kasrel. "Users will see more integration between content and distribution after the first year or two after the merger."
Marketing matters

    One problem the broadband industry is facing is uneducated consumers who wonder why they should pay anywhere from $39 to $50 a month for cable modem access or $50 to $60 a month for DSL connectivity, said Jupiter's Laszlo. Yes, it would be nice if you could be online and download Web pages a little faster, but why pay more? AOL users currently spend anywhere from $4.95 a month for light usage to $21.95 a month for more features and time.
    Laszlo said that according to findings from his company's surveys, people are declining to bite into the bandwidth apple.
    "We see a fair amount of resistance...not a lot of interest to switch from dial-up to broadband," Laszlo said.
    "The AOL/Time Warner merger could really bring broadband from the cutting-edge, early adapter users to mass-market consumers, something AOL excels in," said Laszlo.
    By aggressively marketing the advantages of broadband service, such as the availability of scores of computer programs, AOL/Time Warner also has "the potential to become a significant player in the broadband market," according to Laszlo.
    Time Warner's Road Runner announced in early January that it tripled its customer base in 1999 and finished out the year with 550,000 customers, up from 180,000 from last year. Its service allows users to connect to the Internet at speeds more than fifty times faster than traditional telephone dial-up modems.
    Other Road Runner investors/partners include Englewood, Colorado-based Media One, Microsoft (MSFT), Compaq (CPQ) and Advance/Newhouse, which is a partnership of Advance Publications and Newhouse Broadcasting.
    Industry watchers say the leading broadband service provider right now is Excite@Home (ATHM). They point to its exclusive contract with AT&T (T), which gives it access to high-speed lines and other partners such as cable providers such as Comcast (CMCSA) and Cox Communications (COX).
Broadband for broadcasting

    Another spin is that TV viewers will see a greater impact than Internet surfers with the broadband efforts of AOL/Time Warner through interactive TV. Gerry Kaufhold, principal analyst at Cahner's In-Stat Group, a research firm in Scottsdale, Ariz., believes that the issue is not so much about faster Internet access, but getting content delivered straight to the TV.
    "AOL wants to be the CBS network of the Internet," said Kaufhold. "They want to be a broadcaster. Two critical issues to them are offering compelling media content in an extremely convenient way."
    Kaufhold cited the fact that there are three times as many TV viewers as Internet users.
    "This deal is really exciting for the TV viewers," said Kaufhold. "They'll be able to get whatever they want right off the TV. AOL won't be an Internet company, or even a media company, but (a) branded broadcast company."
    Kaufhold further stated that the only piece now missing in the AOL/Time Warner empire is a broadcast network, and thinks NBC is a potential partner. If that comes to pass, what then for America's Internet and TV denizens?
    Stay tuned. Back to top


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