December 3, 2002 3:35 PM PST

AOL to restructure broadband deals

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NEW YORK--America Online plans to restructure existing agreements with major telephone carriers and its corporate cousin Time Warner Cable as part of an overall shift in its broadband ambitions.

Executives with the AOL Time Warner online division did not elaborate on the status of these talks, but the relationship between AOL and its telecommunications partners, Verizon Communications, Qwest Communications, BellSouth, SBC Communications and Covad, could be affected by the move.

"We are in the process of revising our DSL deals," Jonathan Miller, chief executive of the AOL division, said on Tuesday at AOL Time Warner's analyst and investor day here.

Similarly, AOL will try to restructure its carriage agreement with Time Warner Cable. Executives are trying to renegotiate the deal for more favorable economics, similar to AOL's deal with cable giant AT&T Comcast. Time Warner currently offers AOL and its own Road Runner cable ISP to its subscribers.

As part of its revamped broadband strategy, also unveiled here Tuesday, AOL is trying to strike deals with cable and phone companies to bundle AOL as a part of their broadband offerings. AOL will also promote its "Bring Your Own Access" plan, which charges $14.95 a month to people accessing the Internet from their own broadband provider.

AOL currently buys DSL and cable lines in bulk from these companies and sells an AOL-branded broadband service for $54.95 a month. AOL manages billing, customer service and installation, similar to the operations for its narrowband ISP.

The shift from broadband provider to broadband partner underscores the difficult financial realties hitting AOL in an increasingly high-speed world. Over the past year, AOL has watched its growth in its narrowband subscriber base stall, partially from people upgrading to outside broadband providers. AOL also revealed that its broadband business suffers from thin profit margins compared with those of its narrowband business.

AOL's broadband bet
Success will depend on looking beyond
proprietary content, Forrester says.

Forging ahead with partnerships will not be easy, especially among DSL providers. Major telecommunications companies Verizon and Qwest already have deals to bundle Microsoft's MSN as the front-end to their services. SBC has a similar deal with Yahoo.

AOL's Miller acknowledged the competitive landscape and left the door open for the company to exit these DSL deals altogether and focus on striking cable agreements.

"It appears they have deep relationships with the DSL players, so it makes the cable players more interested in us," Miller said during a press conference, referring to Microsoft and Yahoo.


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