As a result of the deal's dissolution, Hughes will incur a $23 million pretax charge in its 2002 earnings. But the deal-scrapping will also free Hughes of a commitment to spend up to $1 billion on sales, marketing, development and promotions associated with joint products and services with AOL.
Hughes will continue to offer high-speed satellite Internet service to AOL broadband subscribers while the parties break apart their arrangement.
"If you fast-forward to today, the landscape has changed considerably. The convergence of TV and computers has not come to fruition the way it was envisioned, and Time Warner cable is one of our biggest competitors," Hughes spokesman Bob Marsocci said. An AOL representative declined to comment.
Forged in June 1999 when AOL announced it would investin Hughes, the deal was heralded as a giant step forward for satellite broadband service. AOL at the time was unsuccessfully trying to wedge its way into cable broadband service, but was continually skirted by cable companies unwilling to open their lines. AOL executives also said the deal would expand AOL's footprint to areas outside the reach of digital subscriber line (DSL) and cable broadband companies.
The joint service didn'tuntil October 2000, and it never gathered momentum despite piggybacking on AOL's strong Internet brand. In October 2002, AOL it would not extend satellite broadband service to its flagship online service AOL 8.0.
Hughes announced last December that it wouldits DirecTV DSL service, which had about 160,000 subscribers.
Then in January, AOLof its Hughes stake, totaling 80 million shares, or 8.4 percent of the company. Times are tough for AOL's parent company AOL Time Warner, which faces a $26 billion debt load and a tanking stock price. The AOL division expects online advertising to 40 percent to 50 percent this year amid attempts by a new management team to turn around the business.
Separately, Hughes said it will reduce a previously announced tax charge by $18.6 million to $92.8 million. The company attributed the reduction to scrapping of the AOL deal and the shuttering of its DirecTV Broadband operations.
Reuters contributed to this report.