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November 23, 1998

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Subject: Re: Congress to scale back FCC over these kinds of deals?
Author: HIHOZE

Spirit & RB:

Okay - Agree. If what you said was based on a partnership or revenue sharing deal between AOL and ATHM then of course, I agree with the post. But here's the rub:

The fact of the matter is ATHM and AOL have been in talks for quite some time. Those talks went nowhere. Several months ago, Tom Jermoluk and his team visited Steve Case & Co. at AOL headquarters in Dulles, VA. They were "dissed" big time by Case. The meeting broke up with ATHM walking out. AOL tried to dictate terms to ATHM as though ATHM didn't exist and had no real barganing power.

Since that time the door has been kept open. Jermoluk is a true diplomat. A few talks have taken place but nothing happened and they are now basically off.

The Hang Up: Who controls the first page.

AOL has gotten big by virtue of the free, public service telephone network, PSTN. It was the only viable way to connect to the net and to their credit they created a wonderful and family oriented network. When one dials up AOL, they use an AOL interface, see an AOL welcome page, go to content controlled by AOL and pretty much never leave AOL. THIS IS THE POWER OF THE FIRST PAGE.

  "The fact of the matter is ATHM and AOL have been in talks for quite some time. Those talks went nowhere."

Case knows it. We all know it. If ATHM has a service that is so fast, and has such a technical advantage that one would leave the PSTN to go cable, the ownership of that customer begins right there. When the customer sees an @Home icon, sees an @Home welcome page, uses @Home content, e-mail service, etc. the customer becomes an @Home customer and Mr. Case knows it.

I have been saying since June that America@Home and America@Work sounds and looks great. This is a marriage that one would hope for. The problem is more than likely one of EGO. I do believe that Mr. Case is a driven man. No problem there. AOL is his baby and he is rightfully proud of it. The 1st page is the most important page and he just can't see it saying anything but AOL. That was and is the problem.

Now the competition is becoming one between technology creators, Cable vs DSL-Telco, vs Satellite, not users such as RR, @Home and AOL. I have said this many times before and I think it is breaking down along those lines.

AOL has signed a deal with MCI-WorldCom for rolling out a national DSL program. MCI needs those 14 million AOL customers to guarantee a market for the expense and a ROI. Cable would have liked AOL to come to @Home for the same reason. That's why AT&T was trying to buy AOL. It would have brought a potential 14 million customers to cable and away from the telcos.

  "Washington, D.C. is the front line. Lawyers and lobbyists are plying their skills and huge dollars are being spent on politicians, communities, community charity, and so forth."

With AOL aligning with the telcos, I believe the chances for RB's comments to happen have become more and more remote. In turn, it has made a deal with Time Warner Cable and Time Warner Cable Telephone, Media One Cable and all the other cables such as Comcast and Cox, with AT&T all the more likely. The lines are being drawn and partners aligned. This competition for bundled voice, data and video services is fast becoming cablenet vs dsl-telco.

Washington, D.C. is the front line. Lawyers and lobbyists are plying their skills and huge dollars are being spent on politicians, communities, community charity, and so forth. The FCC decision to unbundle and "kill kable" or keep bundled and alive is the mission of both sides.

At this point I want a favorable FCC decision for AT&T-TCI and a deal with Time Warner. If either of these two things happen, @Home will soar. With cable bandwidth and Time Warner adding content, @Home will be a real contender if not a new ISP Champion.

Robert


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