Blockbuster merger to boost broadband

When you combine Time Warner's network and AOL's marketing and open-access philosophy, cable access to Internet should grow, say analysts.

Consumers dreaming of high-speed access to the Net may find their dreams coming true a bit sooner, thanks to the merger of America Online and Time Warner, said analysts on Tuesday.

"Certainly, the addition of the premiere ISP (Internet service provider) to the broadband market can't do anything but accelerate cable modem deployment," said Michael Harris, president of broadband researcher Kinetic Strategies in Phoenix, Arizona.

AOL and Time Warner rocked the Internet world on Monday when they announced a $162bn (£100.44bn) stock deal to merge the two companies.

The buyout of Time Warner means AOL's network infrastructure gains Road Runner, a high-speed cable network with about 300,000 cable modems. With only 1.8 million cable modems installed in North America, AOL is now the biggest provider of cable Internet access on the continent.

From a broadband perspective, AOL couldn't have chosen a better partner than Time Warner. The media giant has converted more than 85 percent of its cable infrastructure to Internet-capable high-speed networks.

Now the company has to attract customers to pay for that expansion. "It makes it imperative for them to gain more customers," said Clay Ryder, chief analyst at Internet watcher Zona Research of Redwood City, California. "The question is whether they can put the capital up as needed in the time necessary."

The potential: Almost 20 million households passed by Time Warner's cable lines. That has at least one researcher doubling his projections on broadband usage. Gary Schultz, president of the Multimedia Research Group, now thinks there will be 26 million broadband users in 2004.

Signing those customers onto new two-way services is where the combination of AOL's marketing prowess and Time Warner's customer base could be far more powerful, said Kinetic Strategies' Harris. "Beyond infrastructure, AOL has the marketing abilities to attract (those) new users."

Moreover, AOL committed on Tuesday to keeping the cable lines open to all Internet service providers, not just itself. "They are going to be ISP agnostic," stressed Ryder. "As a result, that sets an expectation of an open market place," and that could mean faster adoption by users.

Such expansion could come with a host of problems, however. Competitor WebTV Networks -- which uses the Internet to offer an enhanced TV service -- thinks the AOL megacorporation will drive rivals together. "Our ability to partner with all the things that AOL doesn't own improved yesterday," said Robert Schoeben, senior director of marketing for the Palo Alto, California company.

Moreover, AOL has had struggles finding technical service people to install the networks and avoiding bottlenecks. "They are going to have to work really aggressively to scale to the broadband world," said Kinetic Strategies' Harris. "But I think AOL has learned their lesson and there won't be a similar meltdown."

It's that track record that has Harris hopeful: AOL has already shown that they have what it takes to compete in the open market. "They have proven in the dial-up market -- which is a completely open network -- that they can grow and become the biggest ISP," said Harris. "I don't think they will adopt a closed philosophy now."

"In the next 24 months cable will be the way to get to the consumer," he said.

AOL seems ready to make the connection.

For full coverage, see the AOL-Time Warner News Roundup.

What do you think? Tell the Mailroom . And read what others have said.