America Online Inc., facing a growing threat from
cable's high-speed-data service providers, is preparing to do something about it
through initiatives bearing on both the content and access sides of its business.
While company officials refused to discuss plans, hints of
what's afoot can be found on several fronts: AOL is preparing to test the high-speed
access waters via telco digital subscriber lines, and it is exploring the possibility of
working with new cable-service providers.
At the same time, there appears to be little, if any,
chance of AOL teaming up with either of the top cable-data-service entities -- @Home
Network or the soon-to-be merged Time Warner Cable's Road Runner and MediaOne Express
"We've been in cable trials for over a year
now," said Wendy Goldberg, spokeswoman for AOL, declining to name the trial partners.
"Whenever a new platform emerges, we want to make sure that we understand how it is
going to affect our business."
Although AOL worked with Viacom Cable, since purchased by
Tele-Communications Inc., in that MSO's 1994 test of interactive services in Castro
Valley, Calif., the online company's current efforts do not involve any of TCI's
"They can't be working with any of our partners
because of the nature of our exclusive agreements with our customers," said a source
with @Home, speaking on background.
Nor has AOL developed any business arrangements with Road
Runner, despite expressions of interest from that group, sources said.
But regardless, AOL is definitely a factor in the online
experience of some cable-data customers in instances where cable providers support access
to AOL through their interfaces.
"We have thousands of customers who are accessing our
service over cable modems," Goldberg said.
In Portland, Maine, for example, Road Runner has "been
quietly promoting AOL access," said Rick Preti, general manager of the Road Runner
operation there. "We've demonstrated to our corporate people that AOL service
via Road Runner works nicely," he said. "I just click on the AOL icon and, boom,
As things stand now, Road Runner customers who want
high-speed access to AOL pay the standard monthly Road Runner rate ($39.95), plus a
service-only charge ($9.95) to AOL, avoiding AOL's access fee, which normally brings
the monthly subscription rate to $21.95 for unlimited usage.
AOL users can also opt to pay only $4.95 for a
five-hour-per-month usage level, on top of the Road Runner fee, which Preti described as
"a heck of a deal."
Nonetheless, Preti would like to see Road Runner capitalize
on its AOL connection by swinging a deal with the service that would lower the overall
cost of a combined subscription.
"I'd love to be able to get a wholesale rate on
AOL and pay for access for those who want it," he said, adding that no such deal
appears to be in the offing.
With Road Runner now taking close to 35 percent of online
customers in Portland -- and "closing in on the No. 1 service," according to
Road Runner president Tim Evard -- a cooperative deal with the cable group would seem to
make sense for AOL. But the service apparently has other ideas.
One option is partnering with other companies -- so-called
turnkey services -- that are seeking to provide cable operators with high-speed-data
services, but, unlike Road Runner or @Home, that don't have their own content. Such
an arrangement would give AOL freer reign to exploit in-house and third-party development
efforts aimed at supplying content that is enhanced for high-speed access, sources said.
AOL has approached at least one cable-service provider with
such a possibility in mind.
"We have 17 development companies that want to do
local content with us, including AOL," said David Gibbs, a founder of CATV.net, which
recently merged with HSAnet to form High Speed Access Corp., a cable-data-service company
targeting MSOs below the top 10 tier.
AOL is also looking at DSL access as a way to open a
high-speed conduit to its service. The company said field trials are getting under way
over DSL links in Birmingham, Ala.; Phoenix; the San Francisco Bay area; the northern
Virginia suburbs of Washington, D.C.; and Redmond, Wash. AOL is charging $49.95 per month
for the telco-line connection and service to "eligible" customers, meaning those
who can be served by DSL technology.
AOL is committed to supporting "a variety of broadband
technologies in partnership with a range of telephone, cable and wireless companies,"
said AOL CEO Steve Case, in a prepared statement. GTE Corp.'s Internetworking unit is
serving as AOL's service integrator in connections with local telcos.
On the wireless front, AOL's interactive-services unit
recently teamed up with the new-media unit of wireless-broadband company WinStar
Communications to develop business applications.
AOL's in-house content initiative -- which was
recently reinforced after Case decided not to spin it off -- has its sights set on some of
the same ideas that the leading cable-data-content suppliers are pursuing. These include
the use of video streaming at higher-than-normal online-frame and resolution rates, as
well as specially designed interactive gaming and education content, according to a source
close to those efforts.
"We're looking into development of enhanced
content with partners and within our own group, but I can't go into details,"
With its move into DSL and its arms-length stance with
major cable-data providers, AOL makes an ideal candidate for partnering with telcos, noted
Vern Mackle, an analyst with International Data Corp. "With 11 million customers, AOL
has a lot to offer as an anchor tenant for telcos that are looking to increase the appeal
of their high-speed access lines," Mackle said.
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