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Time Warner increases stake in Road Runner

The cable and media giant says it will restructure its ownership in the Road Runner high-speed Internet service.

2 min read
Time Warner said Monday that it would restructure its ownership in the Road Runner high-speed Internet service and reduced its earnings growth target.

At 1 p.m. PST, the close of regular trading, shares of Time Warner were down $9.47, or 13 percent, to $63.25. The company said America Online's earnings are on track.

The cable and media giant said it will increase its stake in Road Runner as part of a deal struck between AT&T, one of the other shareholders in the service, and the U.S. Justice Department.

Under the agreement, the 20 percent stake in Road Runner held by Microsoft and Compaq Computer will be redeemed, and Road Runner will distribute nearly all of its assets to Time Warner and its affiliates, and to AT&T Broadband.

Time Warner expects to recognize a one-time restructuring charge of $20 million to $40 million in the fourth quarter of 2000.

The restructuring will end Road Runner's exclusive agreement with Time Warner Cable, clearing the way for Time Warner to offer multiple Internet service providers on its systems. The exclusive agreement was originally set to expire at the end of 2001. As part of the Federal Trade Commission's approval of the AOL-Time Warner merger, which came Thursday, the company must open its cable Internet network to at least three competing ISPs.

Questions remain, however, about Road Runner's ongoing role in AOL Time Warner. The combined company is expected to offer its own branded cable Internet access service, a similar service by EarthLink and two other ISPs.

Starting in April, AT&T Broadband will continue to offer the Road Runner service to its cable customers for a transitional period of up to 15 months under a new service agreement with Time Warner Cable's new Road Runner company.

Time Warner on Monday also lowered its earnings growth projections for fiscal 2000. The company expects earnings before interest, taxes and amortization to grow 11 percent for the full year 2000, compared with previous expectations of 12 percent to 13 percent growth. Advertising revenue will be in the mid-teens, according to the company.

Time Warner is expected to report earnings of 20 cents a share, according to earnings tracking firm First Call/Thomson Financial.

The shortfall was blamed on weaker cable network advertising revenue, weaker music sales, and disappointing box-office sales.

On the bright side, AOL said it is "on track to post record growth in the December quarter." The company also said membership growth and advertising and commerce revenue are on track. AOL is expected to report earnings of 14 cents a share, according to First Call/Thomson Financial.

News.com's Corey Grice contributed to this report.