AOL Could Be Left Behind at High Speed

The deal between AT&T; and MediaOne Group to create a giant cable group blanketing the nation poses a potential threat to America Online, which could find itself left behind as the world begins its jump to high-speed cable Internet access, according to some analysts.

AOL, the largest Internet service provider in the world, with more than 17 million members, built itself on the concept of bringing the once-esoteric world of cyberspace into the average home. But the MediaOne deal would give AT&T; direct or indirect ownership of cable systems accessible to 62% of all homes in the nation--a fat pipeline into the very heart of AOL’s home turf.

AT&T;’s cable network could allow the company and its potential partner, Microsoft, to leapfrog over AOL’s older system of low-speed modem connections into the world of high-speed access with offers of video, music and other forms of next-generation Internet entertainment.

“It’s a bad, bad deal for AOL,” said Liza Draper, analyst with venture capital firm McQuillan Ventures. “Now AT&T; has gobbled up like 60% of the cable market. Cable is the last monopoly. They don’t have to open up their network to anyone.”

Michael West, head of MWest.com, a market analysis and consulting firm, said that in the hyper-speed world of the Internet, AOL’s lack of a cable network has made it vulnerable to being an antique with no way to jump into the future.

“AOL has been the big cheese in this market and now they’re kind of out of the action,” West said.

AOL countered Wednesday that predictions of its demise were premature. By the end of the day, the stock market seemed to agree that while the AT&T; development was a concern, it was a long way from being a decisive shot. AOL shares had dropped earlier in the day to as low as $115.50, but they later recovered to close at $129.75, up $2.63, in part due to comments from AOL Chief Operating Officer Bob Pittman, who reassured analysts that the company is prepared for the battle over high-speed access.

The company has already launched its own high-speed access initiative in partnership with regional Bell telephone companies SBC Communications and Bell Atlantic, employing a different technology (known as DSL or ADSL) that uses telephone lines.

DSL can provide higher access speeds than cable. However, cable, because of its omnipresence in residential neighborhoods, has been seen as the more likely near-term option for the home.

Kathy Bushkin, a company spokeswoman, said that whether DSL or cable wins, the ultimate battle means little to AOL, which she described as “technology agnostic.”

“We’re trying hard to provide access through other technologies--ADSL, wireless and satellites--and we will continue to work with cable,” she said.

Bushkin added that the whole issue of high-speed access is something for the distant future. Even the most optimistic estimates project that cable, DSL and other high-speed access technologies will be a small portion of the market for many years.

West, of MWest.com, agreed that the race for broadband dominance is still in its early stages and that there are many other pieces that would have to come into play for AOL’s position to be threatened.

West said the most worrisome prospect is AT&T;, the cable companies and Microsoft joining together to provide a kind of one-stop Internet, video, cable and telephone service. But he added that there is no guarantee those companies would--or could--pursue such a grand unification of services.