BROADBAND
Everyone is crowing about AT&T's forays into high-speed data delivery and cable TV. To be sure, it's a coup for a telco, but what most people forget is that what's good for bandwidth is also good for America Online.
Take January's deal linking AOL's mighty marketing power with Bell Atlantic's high-speed DSL offering. This sent a very simple message: AOL needs DSL and cable Internet connections to continue growing. The company's 1 million-plus dialup connections provide the bulk of its revenues, but they also eat up much of what they bring in. And with flat-rate pricing driving usage up, the modem business model is only getting worse.
The crafty escape for AOL is moving subscribers away from dialup modems to solutions like cable and DSL. Not only are these networks technologically superior, but they also provide a tremendous new revenue opportunity. While America Online offers monthly service without an Internet connection for $9.95, the Bell Atlantic/AOL package is expected to sell for about $40 per month. Will Bell Atlantic get to see the entire $30 difference? Not likely. As a result, AOL gets both a high-speed service package and higher gross margins.
Despite AT&T's attempt to lock up the cable Internet market by scarfing up TCI (and by extension ISP @Home), don't expect Steve Case to be left holding the bouquet. Given AOL's Joe Six-Pack customer base, the company should move into the cable market soon. Once it does, look out: No one is better at pushing its product into living rooms. And when push comes to shove, America wants its AOL.
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