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The Internet: a look ahead
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January 19, 1999: 2:02 p.m. ET
Consolidation of Web portals and telecom companies expected to continue in 1999
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NEW YORK (CNNfn) - The proposed multi-billion dollar merger of cable Internet service provider @Home Inc. and Web portal Excite Inc. is the latest in a series of partnerships helping to bridge the gap between telecommunications companies and the fast-moving Internet sector, and many analysts say it won't be the last.
Dawn Simon, an analyst with Brown Brothers Harriman, said 1999 is shaping up to be the year when cable, telecom and Internet businesses unite to meet their common goals -- bringing fiber optic lines into the homes of the American consumer.
"The portals are definitely the first place where the next set of consolidation could occur," she said, noting the Lycos is well-positioned as a takeover target. "We think 1999 is probably going to be the year where these vertical integration plays come forward. The portal companies will first consolidate with television, cable or traditional telecom companies, and toward end of the year you'll find a way to aggregate more e-commerce companies around that entity."
The process, she noted, already has begun.
Walt Disney Co. 's (DIS) partnership with search-engine turned Web portal company Infoseek Corp. (SEEK) to develop a new Internet service that will compete with Yahoo! and Excite is a perfect example, she said.
Last June, NBC also acquired a minority stake in Snap!, an Internet portal service owned by CNET Inc.
And, of course, there's the $4.2 billion proposed marriage of America Online (AOL), the world's largest Internet service provider, and Web browser Netscape Communications (NSCP).
Simon noted the end goal of traditional telecommunications and cable television companies is to bring fiber optic lines into the homes, but building out that infrastructure is a costly proposition, estimated to require more than $1 billion in industry investments.
"There has been a disconnect in this industry, where the companies responsible for this infrastructure were not the companies with the high cash flow business models," Simon said. "The question has been how to finance that and the interim solution is to get broadband technology."
The combination of @Home -- which offers a broadband technology platform along with cable distribution agreements and an Internet backbone -- and Excite will provide such a solution.
"The network television and cable TV companies, and even the phone telecommunications companies, are all searching for content partners, and eventually portal companies with interactive marketing or a loyal registered user base that can be converted into subscribers," Simon said.
Because AT&T (T) plans to acquire Tele-Communications Inc.'s cable operations early this year, and TCI has an affiliate agreement with @Home, Simon says the company's marriage to Excite perfectly illustrates the "vertical integration" trend sweeping through the industry.
"What the AOL merger did, and what this highlights, is that there can be vertical integration of these companies," she said.
Once the initial phase of consolidation is complete, Simon said the likely next step will be for those combined companies to fold electronic commerce sites into the mix, sites that provide e-commerce in addition to registered users.
"Then, at that point, you'll have virtual shopping malls, which is a concept that people have already tried and failed at," she said. "But this is the year when we finally [have the ability to make it work]. Broadband is widely available and the number of users online has reached a critical mass." 
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@Home
Excite
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