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Verizon completes its $4.4 billion purchase of AOL

The parent of the wireless carrier gains a set of new online advertising tools in the deal, as well as media sites such as The Huffington Post.

AOL Chief Executive Tim Armstrong has gained an expanded role following a merger with Verizon. Francois G. Durand/Getty Images

Verizon and AOL are officially hitched, on Tuesday closing a $4.4 billion tie-up that they unveiled last month.

AOL, which started as one of the most prominent pioneers of the early Internet, is now a subsidiary of Verizon Communications, the parent of the largest wireless carrier in the US. Despite that lesser role, Verizon's acquisition of the company could be seen as a victory for AOL Chief Executive Tim Armstrong, who helped make his firm a desirable target for purchase after it suffered a long decline into irrelevance.

Time Warner spun out AOL in 2009 following a roughly $160 billion combination nine years earlier that's now considered one of the biggest deal-making blunders in US corporate history.

For Verizon, the AOL deal allows it to take control of a set of online advertising tools Armstrong pulled together through acquisitions in the past few years. As smartphones have saturated the US market, Verizon now is searching for new places to grow, focusing its efforts on video, with plans for a new Internet-delivered video service later this year to bolster its Fios home broadband operations. AOL's online ad platform and media websites could help it pull together this new service. Last year, Verizon acquired Intel's Internet TV business after the chipmaker failed to get it off the ground.

Verizon executives say that AOL will be key to its much-anticipated mobile video service launching this summer. AOL will give Verizon global scale to offer a truly mobile video service, Marni Walden, executive vice president of product innovation and new businesses for Verizon, said on a call with reporters Tuesday.

Armstrong said that the opportunity for mobile video in the global market is huge. He added that AOL already has a network in place that Verizon will be able to leverage to extend its service to a global audience.

"We have global platforms running today that are true marketplaces for video," he said. From Australia to China to the US, Armstrong said, AOL has been able to provide its video content globally.

Walden didn't divulge too many details about the company's new mobile video service, but she offered a basic overview. The new service will include live content, such as sports and concerts. It will also include what Verizon calls "emerging" content or original Web-based content, which Walden said is especially important for the millennial generation and offers opportunities for multicultural programing.

She confirmed that the new service will offer a free version that will be supported by advertising, as well as a premium service that would require a subscription. She said that the company is confident its plans for offering video will not run afoul of new federal Net neutrality rules that prohibit wireless operators from favoring their own content over competitors' content.

Verizon CEO Lowell McAdam has been focusing his company's growth on video. James Martin/CNET

AOL continues to own a handful of media sites, including The Huffington Post, TechCrunch and Engadget, though there has been plenty of speculation since the tie-up was announced that Huffington Post and perhaps AOL's other media sites won't remain with Verizon. The carrier made no mention of these sites in its short release announcing the deal closing Tuesday.

The legacy dial-up Internet business at AOL, which is how the company first became a Web giant, is another lingering issue. While most of its former customers already switched to faster broadband connections, AOL revealed in its earnings report last month that it still has 2.1 million subscribers connecting to its dial-up service. AOL charges customers $20 per month for that service, making it the leading profit engine for AOL but also a shrinking part of its business.

Now under Verizon, Armstrong continues to lead AOL operations, and Bob Toohey, president of Verizon Digital Media Services, will report to Armstrong. Armstrong will report to Walden.

The Verizon-AOL deal is among a handful of multibillion-dollar tie-ups going on between cable, telecommunications and satellite providers, as these companies try to expand their presence with a customer base that's spending more of their time on mobile devices and watching videos on streaming services like Netflix. Among the biggest deals still in the works, AT&T last year unveiled a $48.5 billion deal for satellite-TV provider DirecTV, and Charter Communications is planning to merge with fellow cable companies Time Warner Cable and Bright House. Also, satellite provider Dish and wireless carrier T-Mobile are considering a merger, too.

Update 8:40 a.m. PT: This story was updated with comments from the company's conference call.

CNET senior reporter Marguerite Reardon contributed to this report.