SBC Communications Inc. is leveraging its national
broadband-data-deployment strategy through a strategic commercial and investment
relationship with Internet-service provider Prodigy Communications Corp.
The deal -- in which SBC will take a 43 percent stake in
Prodigy (worth about $900 million) -- matches one of the most aggressive Bell purveyors of
digital-subscriber-line service with a venerable Internet brand the companies said is a
key to widespread consumer acceptance.
Many observers said the phone companies have fallen short
on mainstream consumer appeal as they try to market DSL, which boasts a larger coverage
area than rival high-speed Internet-access services offered by cable, but which has picked
up only about 300,000 subscribers, or about one-quarter of cable's total.
SBC already took the first step toward becoming the
nation's biggest broadband-services provider through its recently announced $6
billion "Project Pronto" asymmetrical DSL strategy to build a footprint covering
77 million consumers.
The Baby Bell also has a nine-month-old marketing deal to
provide high-speed access to customers of America Online Inc., the nation's largest
ISP, in SBC's seven-state regional operating territory.
But using Prodigy's name and resources as its flagship
consumer DSL product adds a crucial element to the plan, executives said, by giving SBC a
vehicle to outsource consumer Internet access to a better-known brand.
"Prodigy was one of the first consumer-oriented
services to offer things like online shopping and banking, to distribute a Web browser, to
have standardized e-mail addresses," Prodigy chief technology officer Bill Kirkner
said. "What SBC gets is a company that's better at understanding how this
technology will be used by consumers."
Prodigy will manage SBC's 650,000 dial-up,
integrated-services-digital-network and DSL subscribers, boosting its own managed
subscriber base to about 2 million. Prodigy will also be the only ISP that SBC markets to
consumers and businesses in its 100 million-person service area, with a three-year goal of
adding 1.2 million new Prodigy customers.
And Prodigy will make DSL its preferred broadband
Internet-access platform, even in non-SBC markets, using SBC as its preferred provider for
Internet-backbone service, access and other network infrastructure.
Kirkner said Prodigy's goal was to make itself
available to customers regardless of access platforms, adding that DSL was a
"premier" platform that the company considered more appealing to consumers than
cable-modem service in terms of online security and data bottlenecks.
"I think it is preferable in many ways," Kirkner
said, "but cable is an evolving medium. If there are customers who want to access
over cable, we'll try to provide that."
Prodigy already had DSL relationships with Bell Atlantic
Corp. and reseller Covad Communications Group Inc., plus a DSL-resale agreement with SBC.
The ISP is already working on a suite of broadband-oriented
applications that take advantage of the higher bandwidth and "always-on"
features of DSL and of SBC's phone network, such as an online call-waiting indicator
and new services like desktop videoconferencing.
Analysts said the Prodigy deal was a continuation of the
strategy SBC has already launched through partners such as Covad to grab broadband
customers through a variety of channels other than its own.
"You would think they will look to continue migrating
some of those outsourced relationships with some of the DSL folks, as well," said
Brent Bracelin, DSL analyst with Pacific Crest Securities. "Clearly, they are looking
to accelerate their broadband penetration through existing channels."
Prodigy itself is also expanding its customer base, adding
more potential customers for SBC. The company earlier this month announced the all-stock
buyout of FlashNet Communications, a national ISP based in Forth Worth, Texas, marking
Prodigy's third acquisition since a February initial public stock offering.
Besides the 43 percent stake, SBC gains three seats on
Prodigy's nine-member board of directors, which will include three members designated
by Prodigy's principal stockholders, Carso Global Telecom S.A. de C.V. and Teléfonos
de Mexico S.A.
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