AOL-Time Warner Deal to Boost Cable 'Net Access

America Online Inc.'s US$350 billion mega-merger with Time Warner Inc. will likely kick into high gear the emerging broadband cable Internet access market.

In detailing the consumer-based alliance on Monday, the two companies have referenced a proposed corporate strategy that combines AOL's instant messaging platform with Time Warner's local telephony-over-cable initiatives.

Officials included no details of the corporate impact of the merger at the Monday press conference. Instead they aimed the merger's potential squarely at the consumer market.

Even so, the consumer fervor over the merger is likely to feed into the growing corporate zeal for broadband solutions to wire employees at home, analysts say.

AOL Time Warner boasts a combined revenue projection of about $40 billion during the first year, and the company will have 82,000 employees according to marquis executives who unveiled the deal on Monday.

High-profile brass at the company will include Steve Case and Gerald Levin, chairman and chief executive officer of AOL and Time Warner, respectively.

"This will speed the delivery of media-rich broadband services and drive the growth of [electronic]-commerce. This is the first time a major Internet company has combined with a major media and entertainment company," Case said.

Media mogul Ted Turner was also on hand for the debut of the merger. Turner, who will serve as vice chairman of AOL Time Warner, said that on Sunday night, he cast his vote - about 9 percent of Time Warner's outstanding stock - in favor of the merger.

"The excitement with which I did that matched the excitement I had 42 years or so ago, when I first made love," Turner said.

Part of Time Warner's appeal to AOL was the promise of a new distribution channel: Internet access via cable modem.

Analysts such as Telechoice Inc.'s Laurie Falconer confirmed that the merger is a direct boost for cable. "It is highly possible that this will bring the momentum the cable industry has needed," she said.

Even AT&T -- building out its own cable infrastructure largely through acquisition of TCI -- at least publicly welcomed the announcement.

"The proposed deal underscores the significance of broadband distribution, and it reconfirms the value of AT&T's considerable broadband assets," said a statement from the company.

But perhaps even more than the immediate gains to cable, Falconer and other industry watchers pointed to the ballyhooed merger as a boost to the entire broadband access market.

The merger may boost other broadband access methods, such as Digital Subscriber Line (DSL) service, analysts said.

The number of cable modems in play at the end of 1999 outpaced DSL, according to Telechoice's Falconer. But DSL is gaining swiftly, registering 100 percent growth nearly every quarter, she said.

The corporate quest to outfit remote workers plays largely into those numbers.

And the AOL Time Warner move could shoot cable up the list of alternatives for corporate technology officials, Falconer added.

"DSL is still the number one choice overall for a corporation since DSL gives you the ability to have private virtual connections," Falconer said.

"But this could have significant impact for corporations pursuing telecommuter programs, if they can work through security issues surrounding the cable modems. And if AOL and Time Warner manage their oversubscription issues," Falconer said.

Meanwhile, International Data Corp. analyst Stephen Harris said he does not see the merger as having any impact on the relationship between Sun, Netscape, and AOL.

"There isn't really any overlap," Harris said.

AOL, in Dulles, Virginia, is at www.aol.com/. Time Warner, in New York, is at www.timewarner.com/.

(Jennifer Jones is an InfoWorld senior editor. Dan Briody is an InfoWorld editor at large based in New York.)

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