Will AOL become the new Ma Bell?

Through its pending purchase of Time Warner, AOL stands to acquire coveted cable lines that will let it offer a full range of phone services.

NEW YORK -- While no one was watching, America Online Inc. has quietly become a force in the telephone business, piecing together a formidable collection of technologies and products that could one day make it the Ma Bell of the new millennium.

The company is hoping to place itself at the forefront of two important communications trends: cheap phone calls routed through the Internet and Web access via wireless phones. Many people believe the company's text-chatting services will eventually add voice capability. And through its pending purchase of Time Warner Inc., AOL (AOL) stands to acquire coveted cable lines that will let it offer a full range of phone services, plus video on demand, in many areas.

A company spokeswoman says AOL isn't ready to talk about its Internet telephony strategy. But in a recent speech, Steve Case, AOL's chief executive, said, "People will have the equivalent of AOL phones."

Acquisitions are one key. Recently, AOL has been in talks to gain control of Net2Phone Inc., a fast-growing Internet telephony start-up in Hackensack, N.J., in which it already has a sizable stake. Though that deal could still fall through, the two companies are already working to let users of AOL's two text-chatting services, ICQ and AOL Instant Messenger, make Internet phone calls to their online buddies using Net2Phone. AOL's vast directory of Instant Messenger and ICQ users could one day become something like an online phone book for setting up calls, analysts believe.

AOL also owns just under a 10 percent stake in Talk.com Inc., a company in Reston, Va., that sells AOL-branded traditional long-distance calling to AOL's online-service subscribers. So far, Talk.com has signed up 1.5 million customers, most of them for the AOL service.

To capitalize on the explosive growth of wireless access to the Internet, the company has teamed up with Nokia Corp., Motorola Inc. and other big wireless players to develop services that will let cell-phone users communicate with friends through mobile versions of AOL Instant Messenger and e-mail.

In December, AOL acquired Tegic Communications, a small company whose software makes it easier for users to punch out messages from cell-phone keypads.

AOL has also established a wireless division headed by Dennis Patrick, a former chairman of the Federal Communications Commission and a former wireless-industry executive. AOL executives say they may even consider offering an AOL-branded wireless service if they determine there's consumer interest.

"I wouldn't rule anything out," says Bob Pittman, AOL's president.

To be sure, nobody is expecting Internet calls placed through computers to replace traditional phone calls overnight. But many believe AOL and others will increasingly skim telephone calls from traditional phone companies as cut-rate online calls become more accessible.

And few doubt AOL's ability to crash the hugely profitable world of telephone service. After all, AOL boasts 21 million customers and has proven its ability to make complicated technologies simple for consumers to use.

It used to be that companies needed thousands of miles of underground networks to be a player in communications. But industry watchers expect AOL to gain a foothold in the voice market by leveraging current strengths, including consumer brand building, customer support and billing expertise.

More important is AOL's enormous power in Internet communications, including more than 100 million registered users who do online text chatting, with its potential to add a voice-based service. "The industry has realized in the last couple of months that the Internet is a natural means for voice -- and AOL is part of that," says Tom Evslin, chief executive officer of ITXC Corp., which sells Net telephony services to companies at about three cents a minute.

"This is a very natural extension for AOL. They have the right customers and they are the leader," says Evslin, who formerly headed AT&T's Internet services.

All this puts AOL on a collision course with companies whose core business is providing phone service, including AT&T Corp and regional Baby Bells. MCI WorldCom is citing AOL's growth as a long-distance company as a reason regulators should approve the company's merger with Sprint Corp. Yahoo! Inc., Microsoft Corp. and other Internet players are concluding they need to move into the phone business as well.

Many say AT&T, with its 65 million customers, is the only company that can seriously challenge AOL's increasing clout. AT&T had hoped to cut a deal with Time Warner to use its cable systems for phone service, to no avail. Now that AOL is buying Time Warner, it's unclear what will happen with that plan. Time Warner CEO Gerald Levin said in a recent session with analysts that "a lot has changed in the past year." Executives at AT&T say no deal between the companies will be struck before AT&T completes its acquisition of MediaOne Group Inc.

Before the Time Warner acquisition was announced, there was bad blood between AOL and AT&T. Last year, AOL's top executives escalated the debate over opening access to cable lines owned by AT&T and other cable companies. Despite speculation that the two companies would reach a compromise, AT&T Chairman C. Michael Armstrong and AOL's Case at times were barely on speaking terms.

Last week, Case said AOL was holding talks with AT&T about gaining access to its cable networks, but he didn't disclose a timetable and warned that it wasn't clear an agreement would be reached.

AT&T, for its part, insists that the interests of AOL and AT&T are more closely aligned than they have been in some time. John Petrillo, AT&T's top negotiator as its executive vice president of strategy and business development, says AOL's communications ambitions could be what finally forces a reckoning between the two giants.

NEW YORK -- While no one was watching, America Online Inc. has quietly become a force in the telephone business, piecing together a formidable collection of technologies and products that could one day make it the Ma Bell of the new millennium.

The company is hoping to place itself at the forefront of two important communications trends: cheap phone calls routed through the Internet and Web access via wireless phones. Many people believe the company's text-chatting services will eventually add voice capability. And through its pending purchase of Time Warner Inc., AOL (AOL) stands to acquire coveted cable lines that will let it offer a full range of phone services, plus video on demand, in many areas.

A company spokeswoman says AOL isn't ready to talk about its Internet telephony strategy. But in a recent speech, Steve Case, AOL's chief executive, said, "People will have the equivalent of AOL phones."

Acquisitions are one key. Recently, AOL has been in talks to gain control of Net2Phone Inc., a fast-growing Internet telephony start-up in Hackensack, N.J., in which it already has a sizable stake. Though that deal could still fall through, the two companies are already working to let users of AOL's two text-chatting services, ICQ and AOL Instant Messenger, make Internet phone calls to their online buddies using Net2Phone. AOL's vast directory of Instant Messenger and ICQ users could one day become something like an online phone book for setting up calls, analysts believe.

AOL also owns just under a 10 percent stake in Talk.com Inc., a company in Reston, Va., that sells AOL-branded traditional long-distance calling to AOL's online-service subscribers. So far, Talk.com has signed up 1.5 million customers, most of them for the AOL service.

To capitalize on the explosive growth of wireless access to the Internet, the company has teamed up with Nokia Corp., Motorola Inc. and other big wireless players to develop services that will let cell-phone users communicate with friends through mobile versions of AOL Instant Messenger and e-mail.

In December, AOL acquired Tegic Communications, a small company whose software makes it easier for users to punch out messages from cell-phone keypads.

AOL has also established a wireless division headed by Dennis Patrick, a former chairman of the Federal Communications Commission and a former wireless-industry executive. AOL executives say they may even consider offering an AOL-branded wireless service if they determine there's consumer interest.

"I wouldn't rule anything out," says Bob Pittman, AOL's president.

To be sure, nobody is expecting Internet calls placed through computers to replace traditional phone calls overnight. But many believe AOL and others will increasingly skim telephone calls from traditional phone companies as cut-rate online calls become more accessible.

And few doubt AOL's ability to crash the hugely profitable world of telephone service. After all, AOL boasts 21 million customers and has proven its ability to make complicated technologies simple for consumers to use.

It used to be that companies needed thousands of miles of underground networks to be a player in communications. But industry watchers expect AOL to gain a foothold in the voice market by leveraging current strengths, including consumer brand building, customer support and billing expertise.

More important is AOL's enormous power in Internet communications, including more than 100 million registered users who do online text chatting, with its potential to add a voice-based service. "The industry has realized in the last couple of months that the Internet is a natural means for voice -- and AOL is part of that," says Tom Evslin, chief executive officer of ITXC Corp., which sells Net telephony services to companies at about three cents a minute.

"This is a very natural extension for AOL. They have the right customers and they are the leader," says Evslin, who formerly headed AT&T's Internet services.

All this puts AOL on a collision course with companies whose core business is providing phone service, including AT&T Corp and regional Baby Bells. MCI WorldCom is citing AOL's growth as a long-distance company as a reason regulators should approve the company's merger with Sprint Corp. Yahoo! Inc., Microsoft Corp. and other Internet players are concluding they need to move into the phone business as well.

Many say AT&T, with its 65 million customers, is the only company that can seriously challenge AOL's increasing clout. AT&T had hoped to cut a deal with Time Warner to use its cable systems for phone service, to no avail. Now that AOL is buying Time Warner, it's unclear what will happen with that plan. Time Warner CEO Gerald Levin said in a recent session with analysts that "a lot has changed in the past year." Executives at AT&T say no deal between the companies will be struck before AT&T completes its acquisition of MediaOne Group Inc.

Before the Time Warner acquisition was announced, there was bad blood between AOL and AT&T. Last year, AOL's top executives escalated the debate over opening access to cable lines owned by AT&T and other cable companies. Despite speculation that the two companies would reach a compromise, AT&T Chairman C. Michael Armstrong and AOL's Case at times were barely on speaking terms.

Last week, Case said AOL was holding talks with AT&T about gaining access to its cable networks, but he didn't disclose a timetable and warned that it wasn't clear an agreement would be reached.

AT&T, for its part, insists that the interests of AOL and AT&T are more closely aligned than they have been in some time. John Petrillo, AT&T's top negotiator as its executive vice president of strategy and business development, says AOL's communications ambitions could be what finally forces a reckoning between the two giants.