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AOL-Time Warner could swallow Road Runner

In moving to buy Time Warner, AOL may have set in motion a series of events that could hasten the demise of cable Internet firm Road Runner as an independent entity.

In moving to buy Time Warner, America Online chief executive Steve Case may have set in motion a series of events that could hasten the demise of cable Internet firm Road Runner as an independent entity.

What was once thought to be a spin-off candidate is likely to be at least partially subsumed into the ever-larger and extremely potent AOL brand. In addition, Road Runner could very well become a chip in a much larger bargaining game over local cable-based phone service and other advanced services, according to analysts.

"It's pretty much bad news for Road Runner," Cahners In-Stat Group cable analyst Mike Paxton said. "I don't see a strong future for them. AOL is going to push Road Runner to the side pretty quick."

Many believe that privately held Road Runner--owned by Time Warner and cable operator MediaOne Group, among others--has had huge You've got Time Warner potential in a growing market for high-speed Net services, trailing only Excite@Home in subscriber numbers. But it doesn't carry nearly the same clout in the financial markets as its chief rival, often a closely watched metric of the recent Net stock phenomenon.

Road Runner had been plagued with an uncertain future even before the merger announced last week, having spent the last 18 months searching in vain for a permanent chief executive. The company settled on Microsoft financial chief Greg Maffei, but Bill Gates nixed the deal.

AT&T's proposed purchase of MediaOne--Road Runner's second-largest parent--has further complicated matters because of AT&T's existing stake in Excite@Home.

Road Runner deferred all inquires regarding the AOL-Time Warner merger to the companies involved. When asked whether AOL plans to scrap the Road Runner name in favor of its own well-known brand, AOL executives wouldn't say.

"I don't think the company has formulated a position on that," AOL general counsel George Vradenburg said.

Time Warner executives insist that they are committed to expanding broadband services. "We think that the Road Runner product and partnership are very important, and it is a priority for Time Warner Cable this year to roll out in many new markets," said Mike Luftman, a spokesman for Time Warner's cable unit. "We expect to more than double our total subscribers this year. I think that's pretty emblematic of our commitment to that business."

Luftman said it is too early to speculate on how AOL might integrate or revamp the Road Runner service.

Regardless, one analyst who asked to remain anonymous said Road Runner employees are "freaked" over the future of their firm. Analysts also suggest that persistent rumors regarding whether Excite@Home would buy Road Runner are likely to resurface.

"Whatever scenario emerges, Road Runner will be a fascinating pawn in the chess game," said Leslie Ellis, senior broadband analyst at Paul Kagan Associates, a cable industry research firm.

Clearly, coming to a final resolution won't be easy.

In addition to larger stakeholders Time Warner and MediaOne, both Microsoft and Compaq Computer hold minority equity stakes in Road Runner. MediaOne also has a significant stake in Time Warner, which affects its decision-making power.

AOL and AT&T have other interests as well. AT&T--aligned with Microsoft following the software giant's $5 billion investment--wants access to Time Warner's cable systems for local phone service. AOL, on the other hand, wants to tap AT&T's cable systems to provide high-speed Net access.

AT&T and AOL have sparred politically and legally over high-profile cable access policies for more than a year.

Puppet masters: Who controls the Net "Microsoft and AT&T are not necessarily the best friends of AOL in the world right now, and so it isn't completely clear what will happen (with Road Runner)," Excite@Home chief executive Tom Jermoluk said in a recent interview with CNET "You've got potential change of ownership issues, and exits, so the leverage may be with the outside partners."

Industry observers speculate that the wide variety of interests surrounding Road Runner could lead to an unexpected outcome.

"There's so many irons in that fire," Jermoluk said. "You've got AT&T trying to get a phone deal done with Time Warner. You've got AOL going in a different direction for long distance with its relationship with MCI. You've got some historical emotional issues. And you've got a lot of other partners who are willing to come in and say, 'Hey, don't leave us out.' So some pretty wild offers are going to be made."

Analysts speculate that the proximity of AOL and Road Runner, both located in Virginia, makes AOL's integration of Road Runner all the more likely. Kinetic Strategies president Michael Harris believes Road Runner may become the broadband network services division of AOL, working behind the scenes to deploy service and add additional cable partners.

Even if Road Runner continues to operate, analysts and industry executives doubt its brand name can live on. More than 20 million consumers use AOL's service and many more recognize the company as an Internet leader. By comparison, Road Runner's reach is limited and, until recently, half the company's customers knew the service as something called "MediaOne Express."