AOL outlines plans going forward
America Online highlights its efforts to move into the broadband arena and meld CompuServe into its operations.
"They discussed their plans of how they will participate in broadband, with ADSL or cable modems or both, and how, from a cost perspective, this will be beneficial," said Abhishek Gami, vice president of Nesbitt Burns.
As previously reported, AOL has talked to Time Warner's high-speed access service, Road Runner, about merging the services of the two companies or at least expanding its own service by taking advantage of Road Runner's technology. The "urge to merge" is fueled by the need to build critical mass, as only about 110,000 customers get Net access via cable despite rapid growth in the industry's infrastructure.
Gami said that AOL may look at handling the billing, technical support, and marketing for its members who decide to use their service via a cable modem. The company may work a deal to get a portion of the monthly cable subscriber fees. As a result, AOL won't have to worry about supplying and maintaining the infrastructure to support those members.
Cable or ADSL members, meanwhile, will be able to cut Internet-access costs, as cable connections are significantly cheaper that AOL's current connections via telephone lines.
But Shaun Andrikopoulos, an analyst with BT Alex Brown, said heightened expectations of an AOL/Road Runner deal may be premature.
"It's premature to place your bets on ADSL or cable companies, or how they will use their war chest," he said. "But whichever way broadband access goes, AOL will be a player."
Cable modems and ADSL are nascent markets, Andrikopoulos noted, pointing out that AOL may serve as a catalyst to drive mass-market adoption of the technology.
Despite the speculation, however, few analysts changed their earnings estimates for the company, said Rob Gowen, a spokesman for First Call.
One analyst raised his fiscal 1998 estimate to a profit of 85 cents from 84, while another lowered his estimate to a profit of 93 cents from 95. No changes were made on AOL's third-quarter estimate of 25-cent-a-share profits.
AOL currently is putting into motion its plans for its recently acquired CompuServe online service, which will retain its independent identity even though it now will run on AOL's backbone.
The company plans to develop new branding for the service by developing slogans and running ads on television and in newspapers, Gami said.
CompuServe was added to AOL's stable as part of a three-way merger that also included WorldCom (WCOM). Under the terms of the deal, CompuServe's online operations were combined with those of AOL, and its backbone network is to be absorbed by WorldCom.
The online giant had $500 million in cash on hand during its last quarter, and is expected to receive another $200 million from the divestiture of its ANS network to WorldCom, Andrikopoulos said.