AOL cable deal key to broadband strategy

AOL and ntl are keen to play down the significance of any merger talks, but analysts say a deal would give AOL a key broadband delivery vehicle

While AOL is busy playing down its talks with cable firm ntl, some commentators believe the deal could be core to the ISP's broadband strategy.

Industry watchers point out that the ISP is becoming increasingly frustrated with BT -- especially in regard to its broadband rollout -- and without a telco ally it could be looking to cable to help its high-speed Internet service along the way.

But AOL is keen to play down the significance of any discussions. "We talk to everybody about everything all the time," said an AOL spokesman. This line is echoed by ntl, keen to emphasise that the talks are at an early stage.

However, others think that, with all that content sitting around on the back of AOL's massive deal with Time Warner, the world's largest content company is looking around for a broadband platform to show it off.

"The chink in AOL's armour is the lack of a telco partner," pointed out Jupiter MMXI analyst Dan Stevenson. "AOL is looking ahead to broadband and is looking for a distribution channel. BT is not a suitable partner because it is rolling out ADSL very slowly whereas ntl and Telewest have been the surprise successes of broadband."

From ntl's point of view the deal would allow it to offer a whole range of new content to its customers. The more service it sells the better, because while it has not attracted the same publicity as BT, the firm is also weighed down by debt. Currently ntl has about 17,000 cable customers in the UK and, alongside Telewest, accounts for about 15 percent of the market. The partnership with AOL would mirror a content deal struck between Telewest and Flextech last year.

With only half the UK covered by cable, a partnership with ntl would not solve all of AOL's broadband headaches, and the current row with BT over the service levels and connections for ADSL looks set to continue.

Any deal struck between AOL and ntl would have implications for the broadband landscape in the UK, agrees Gartner Dataquest senior analyst Michael Halama. "It is very much wrapped up with the advance of broadband. From ntl's point of view it gets content to differentiate its service and AOL gets a distribution channel," he said.

Halama thinks it unlikely that AOL and ntl will strike an exclusive content deal but does think that ntl's ability to bundle TV, telephony and Internet services gives it a distinct advantage over rival telco BT. "BT doesn't have that tradition although it does have a new chairman with a background in content and broadcasting," he said.

For ntl, Forrester analyst Rebecca Ulth believes a content deal with AOL will pave the way for the cable firm to do what it does best -- lay cable. Ntl has pledged to spend around £8m on extending its cable network in the UK. "Ntl will be doing a number of third party content deals," said Ulth. "They will be able to concentrate on expanding the network and on distribution."

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