In a week of major changes, it was hard to determine which was bigger: Steve Case's kickoff or Bill Gates' handoff.
The proposed merger announced this week between America Online Inc. and Time Warner Inc. promises a broad and pervasive alteration of the Internet landscape, affecting not only AOL, Time Warner and their customers but also their competitors and the technology, media and entertainment industries. IT executives agreed, saying the proposed conglomerate proves that the Internet has arrived for real.
"If people didn't take the Internet seriously, we wouldn't have seen this merger and price tag," said Brian Moura, assistant manager for the city of San Carlos, Calif. "AOL recognizes that the modem era is over, and it must get into the high-speed world quickly before other players attain a critical mass."
Just how quickly depends on several factors. AOL and Time Warner wasted no time this week setting the wheels of change in motion. The companies appointed a four-person transition team, headed by AOL CEO Bob Pittman, charged with restructuring the companies' operations and future services.
When and if those services become a reality depends on federal legislators in Washington, who vowed to scrutinize the proposed merger.
Already at work
Even before the merger is completed, the partners plan to begin enhancing services, said officials from both companies, including Time Warner Chairman and CEO Gerald Levin and Case, chairman and CEO of AOL. The improvements include giving Time Warner's 320,000 Roadrunner customers access to AOL's Instant Messenger, Digital City and search capabilities. The partners will jointly promote separate broadband Internet access services, including cable modem, digital subscriber line, wireless and satellite.
The two also will make the AOL-Time Warner cable TV network available for business customers and consumers as a cable telephony platform with Instant Messenger capabilities, said AOL officials in Dulles, Va.
The access issue is one that could snarl the deal within regulatory channels now, and among competitors later. AOL, which championed open network access, now finds it is defending itself as a potential cable network powerhouse.
AOL and New York-based Time Warner "are committed to offering our customers a choice ... and we now have to turn that (commitment) into specific policies that will result shortly in negotiations with other (Internet service providers)," said Mike Luftman, vice president of corporate communications at Time Warner Cable, in Stamford, Conn.
Although Time Warner's 13 million-subscriber network was key for AOL, it's the far-reaching content that could give the new entity a huge edge over competitors.
Hello, Redmond?
Microsoft Corp. arguably faces the most pressure to react to the deal. Observers say Microsoft's media play, including The Microsoft Network, stands no chance against a company that combines AOL's 20 million subscribers with the vast media holdings of Time Warner.
"It's obviously a major threat to Microsoft," said Eric Kintz, project manager at Roland, Berger and Partners, a management consultancy in New York. "(AOL Time Warner) has the two pieces it needs for the future: access to broadband and access to content."
Microsoft's $5 billion investment in AT&T Corp. this year gives the software company the first part of that equation but not the second. Observers say Microsoft will try to merge with a content provider.
Such a strategy would face intense scrutiny because of Microsoft's antitrust trial. With reports surfacing last week that prosecutors may seek to break up the company, Microsoft will not be an attractive partner until that is settled. The AOL-Time Warner deal also raises question marks about Sun Microsystems Inc. because of the Sun-Netscape Alliance, formed after AOL acquired Netscape Communications Corp. in 1998.
IT executives predicted that Sun, of Palo Alto, Calif., will continue a heavy involvement in the partnership, eventually taking over all Netscape products with the exception of the Navigator browser.
"There's a capital 'S' in the Sun-Netscape Alliance," said Bob Whyte, chief technology officer of alliance customer PayMyBills.com Inc., of Pasadena, Calif. "You don't see 'AOL' in the Sun-Netscape Alliance name."
