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AOL faces broadband task
graphic December 5, 2001: 5:28 p.m. ET

New CEO's key challenge is broadband distribution, analysts say.
By Staff Writer Victoria Zunitch
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NEW YORK (CNN/Money) - Analysts Wednesday welcomed AOL Time Warner's choice of Richard Parsons as its new CEO, and said his most important challenge will be to secure strong broadband distribution capability to foster growth.

"He's coming in at what I think is a very interesting time for this company because clearly in order to grow this company, broadband distribution is key," said Linda Bannister, media analyst at Banc of America Capital Management.

Broadband carries more information, more quickly than currently used cable technologies, making it easier to distribute movies and other content. It is seen as the wave of the future for content distribution, which would bring with it ad revenues and e-commerce.

The broadband imperative

AOL and several companies, including Microsoft, Yahoo, SBC Communications, Cox Communications Inc. (COX: up $0.19 to $39.59, Research, Estimates) and Comcast Corp., are seeking the ability to deliver content to homes over broadband lines, either to disseminate their content, provide the distribution service, or both.

AOL Time Warner is also in a bidding war for AT&T's (T: down $0.02 to $17.57, Research, Estimates) broadband business against Cox Communications Inc. and Comcast Corp. Complicating the picture is Microsoft Inc.'s (MSFT: up $2.10 to $68.10, Research, Estimates) reported interest in financially backing both Cox and Comcast as a way to hedge the competitive risk that AOL would purchase the assets. At the same time, AOL is considered to be at a competitive risk, especially against Microsoft, if it doesn't gain broadband capability through the AT&T deal.

"We could be a couple of deals away from establishing the leader,"

said Peter Mirsky, media analyst for SG Cowen.

"We're paying very close attention to what's happening with AT&T because getting distribution in the broadband area is very important," Bannister said. "They don't have to own the asset, necessarily, but they have to have access." That could mean reaching an access agreement with the new owner, but if not, it means becoming the new owner, according to Bannister.

A more immediate task for Parsons, Mirsky noted, is to steer the company through the weak advertising market that has accompanied the U.S. recession. "That, to a certain extent is the company's game to lose, given the strength of its brands."

Praise for Parsons

AOL Time Warner (AOL: up $1.08 to $35.83, Research, Estimates), the world's largest media conglomerate and the parent of CNN/Money, said Wednesday that Jerry Levin would retire as CEO in May 2002 and that co-chief operating officer Parsons would succeed him. Robert Pittman, currently co-COO with Parsons, would become the sole COO and Steve Case would continue to serve as chairman of the company.

Most analysts were surprised by the timing of Levin's retirement, but they weren't necessarily surprised by the choice of Parsons. A change in CEO was expected at some point, and when Parsons and Pittman were named co-chief operating officers with the announcement of the AOL and Time Warner merger in January, 2000, the speculation was that the appointment could set up a horse race for the CEO job. But the two balked at the idea in a conversation with a reporter after the news conference, saying that they loved their assigned jobs and that the only better job might involve some form of retirement.

"Parsons has been around longer," noted Mirsky, who said he's not surprised by the naming of Parsons. "My impression of Parsons was that he was incredibly well thought-of, very diplomatic, and probably very well-received in D.C."

"He's held a lot of positions at the company and he's been Mr. Levin's top lieutenant for the past couple of years," Bannister said. Pittman, who became part of the conglomerate through his role on the AOL side of the merger, is a very strong operator and in a way, still "the AOL guy" for the company, she said.

As president and a member of the board of directors at Time Warner, Parsons ran the media group's content areas while also overseeing its human resources operations and public affairs.

Parsons' appointment marks his return to the CEO suite, and a return to the role leading a company through sharp challenges. Before joining the former Time Warner, he was chairman and CEO of Dime Bancorp (DME: down $0.72 to $34.00, Research, Estimates) and is credited with successfully steering the Dime through the closing years of the U.S. thrift crisis.

Before that, Parsons had a New York law career with Belknap, Webb & Tyler, having graduated as valedictorian of his 1971 Albany Law School class. His career in public service started even before leaving law school, working for New York State Governor Nelson Rockefeller and later serving as a senior White House aide under President Gerald Ford. He was named to President Bush's Commission to Strengthen Social Security in May, 2001 and serves as its co-chairman. graphic

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