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Yahoo, AOL still looking for broadband gold

Analysts say the $37 billion deal between US West and Global Crossing won't offer much to Internet leaders looking for a broadband play in a rapidly consolidating telecommunications industry.

The $37 billion deal between US West and Global Crossing won't offer much to Internet leaders looking for a broadband play in a rapidly consolidating telecommunications industry, analysts said today.

The merger, once approved by federal regulators, will combine local phone company US West and undersea fiber-optic cable concern Global Crossing. Long distance newcomer Frontier will also join the fold once its separate merger deal with Global Crossing is approved.

By joining forces, the three companies will create a $75 billion telecommunications powerhouse able to compete more effectively with the likes of AT&T and MCI WorldCom.

But despite its broad new scale, the company hasn't made itself much more attractive to Internet companies like America Online or Yahoo, which are scrambling to find partners who hold the broadband connections to consumers' homes, analysts said.

"It might make them a little more attractive," said Bruce Kasrel, an industry analyst with Forrester Research. "But this deal is really more of a business-focused play than a consumer-oriented play."

AT&T's recent cable acquisitions will allow the company to bring its services directly to nearly 60 percent of homes, using the cable networks to transmit voice, high-speed Internet, and video services. Mergers of the big local phone companies, such as Bell Atlantic and GTE, or SBC Communications and Ameritech, are creating networks that each would reach close to a third of U.S. homes.

By contrast, the Global Crossing-US West merger puts together an attractive string of local, national, and international assets--but doesn't significantly expand US West's ability to connect to consumer households.

As a result, Net companies still will be interested in partnering with US West, but the merger won't make the combined firm much more attractive to bandwidth-hungry Internet players, analysts said.

"I really don't see that at all, unless they go out and buy some other kind of dominant local phone company," Abhi Chaki, a senior analyst with Jupiter Communications.

Broadband deals
US West is still a key potential partner for America Online and Yahoo, however.

AOL has already struck deals with the largest local phone companies, SBC Communications and Bell Atlantic, to carry its online services over the Baby Bells' high-speed DSL service. Sources say AOL has been negotiating with US West to continue its strategy of reaching high-speed deals with all the major local phone players.

Although US West's service area covers just 10 percent of the U.S. population, the company has rolled out DSL services more quickly than its peers, and services about 40 percent of the country's total DSL subscribers. This makes it a particularly attractive partner for AOL.

The addition of Frontier's local telephone service to the US West mix might make any such deal slightly more attractive for the likes of AOL. But Frontier has done very little with DSL, and has shown little inclination to reach out to the consumer or residential market, Chaki noted.

Yahoo too has been discussing a partnership with US West, according to its president Jeff Mallett.

"US West could be a partner," Mallett said in a recent interview.

Whether the merged company gives Yahoo more incentive to ink a deal remains to be seen. But an agreement could be facilitated by Yahoo's existing relationship with Frontier, which provides back-end Web infrastructure services to Yahoo.

From Yahoo's standpoint, inking deals with broadband providers such as the Baby Bells is a priority. The Web portal potentially could face stiff competition from its rival Excite, which was acquired by cable access provider @Home. Since @Home's largest shareholder is AT&T, Excite stands to benefit from the telco's massive cable networks, which will be able to reach close to 60 percent of all U.S. households.

Yahoo says it is too early to endorse one broadband technology platform, preferring to embrace a number of different options. The company says it plans to announce deals later this year where a telco or cable access company will bundle Yahoo as the default home page for a broadband offering.

Chaki said he expected to see America Online complete its own DSL deal with US West before the close of the Global Crossing merger, closing talks that have been ongoing long before this week's rash of deals.

"It's really business as usual," Chaki said.