Yesterday, AOL gave the latest sign that its broadband plans are serious. The online giant said it would roll out digital subscriber line (DSL) service in all Bell Atlantic markets beginning this summer, signaling the first of many similar broadband deployments in the future. AOL will market the service, and plans to charge up to $20 on top of its standard monthly fee.
The deployment comes as no surprise, since AOL has taken many steps to prepare for a potential shift in the way consumers access the Internet--both from a technological and legal standpoint.
However, the company thus far has achieved far greater success in offering DSL rather than cable modem connections. Cable modems, with about 500,000 users at the end of 1998, have an early lead on DSL; subscriber figures vary widely, but most peg DSL use at fewer than 100,000 homes.
Last fall, AOL tapped Mario Vecchi to spearhead its broadband efforts from the technological side. Vecchi was the cofounder of Time Warner's cable Net access service Road Runner and was brought aboard to help upgrade AOL's network backbone in preparation for a high-bandwidth onslaught, according to industry analysts.
DSL is a technology that allows high-speed data transfers over standard copper phone wires. Many regional Bell operating companies (RBOCs) such as Bell Atlantic are using the technology to get into the lucrative data market.
AOL has emphasized that it remains agnostic to its choice of broadband technology--be it DSL or cable modems. AOL says it simply wants to sell subscriptions to its online service with an exponentially faster connection.
"AOL is firmly committed to offering our members every advanced broadband technology available in the marketplace once it becomes convenient, easy to use, and affordable enough for the mass market," said AOL spokeswoman Kathy McKiernan."
Potholes in the highway
AOL is currently embroiled in a legal battle with cable operators, who are unwilling to allow the online giant to resell access to their cable lines. Instead of controlling access and content, which currently is the situation with standard AOL dial-up accounts, AOL is forced to play second fiddle to cable access providers such as @Home and Road Runner.
"AOL's back in a situation where they have to cut deals with cable operators and service providers," said Michael Harris, president of Phoenix-based market research firm Kinetic Strategies.
Harris said AOL wants "front and center position" with cable access. However, companies such as @Home and Road Runner have inked contracts with cable companies that include exclusivity clauses, shutting out AOL and other ISPs from controlling the pipes, according to Harris.
As a result, cable access subscribers that want AOL can subscribe to the online service's "Bring Your Own Access" plan which, for an additional monthly fee, allows subscribers to access AOL content.
"This means AOL becomes a content channel, or they're a service within the service," Harris said. "And that's the position they already have right now."
A question of placement
AOL, which currently enjoys a 15 million-member subscriber base, knows it must get into the high-speed arena or suffer at the hands of rising competitors such as @Home and Road Runner.
The company's relationship with @Home, the leading cable modem service, is strained at best. The two companies have been in on-again, off-again negotiations for months over how to work together to offer both AOL's proprietary content and @Home's aggregated content and services to users. But those talks have fizzled.
AOL, along with other Internet service providers, is pushing the Federal Communications Commission and local governments for "open access" to TCI's cable wires as part of the merger. The ISPs want the right to pay TCI to use its expensive cable networks to deliver advanced digital services such as high-speed Net access. @Home already provides that service for TCI and 17 other cable operators.
But AT&T and TCI, and therefore @Home, are steadfast in their opposition to the controversial open-access requirements. And some speculate that the FCC will be unwilling to rule on the issue as part of the AT&T-TCI merger approval process, which could mean extended delays for AOL gaining access to the cable infrastructure.
Nevertheless, despite the roadblocks it has faced in the cable battle, some analysts say all is not lost for the online giant. Analysts point to AOL's mass market appeal as its primary selling point, and note that the online giant is a force that could potentially shift broadband in favor of DSL if it is shut out of cable.
"AOL is the only real mass consumer play out there in terms of access," said Patrick Keane, an analyst at market research firm Jupiter Communications. "If they can partner with a telco or an RBOC, that will go a long way."
"This may be a change of direction for the company," said Matt Page, director of consumer Internet research at Strategis Group, a telecommunications market research firm. "They're going to go over the telephone lines instead of the cable lines."
AOL's brand name recognition and strong subscriber base is a force to be reckoned with in the broadband Internet market.
"This puts [AOL] in a good position to compete with Road Runner and @Home, who did well in 1998," Page said. "This pairing is definitely going to be a big competitor rather than just an RBOC offering DSL."
Although telecommunications insiders argue over the merits of DSL or cable modems, analysts said consumers couldn't care less.
"It really doesn't make a difference to the end user if it's coming from AOL," Page said. "They'd rather just switch over to fast AOL than switch to a Road Runner."
Although the Bell Atlantic deal is not necessarily a signal that AOL is abandoning cable modems as a broadband delivery option, it is an endorsement of DSL, which some have speculated could go the way of ISDN without some careful marketing toward mass consumers.
"This will definitely be a good test case," Page said. "If this works we may see AOL switch from cable to DSL."