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AOL and Cable Sibling Form Partnership

Time Warner Unit Gives America Online Speed, Stands to Gain Ad Revenue

By David A. Vise
Washington Post Staff Writer
Tuesday, February 1, 2005; Page E05

America Online Inc. and Time Warner Cable finally overcame their differences yesterday, putting in place a partnership to connect computer users to the Internet that was cited five years ago as a key reason for the $112 billion America Online-Time Warner Inc. merger.

Until yesterday, Dulles-based AOL actually competed against Time Warner Cable's high-speed Road Runner service, even though both are owned by Time Warner Inc. and are located only miles apart in Northern Virginia.

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Under the terms of the new partnership, the two companies will team up to provide high-speed Internet service in New York and other areas served by Time Warner Cable. The cable company will furnish the physical connections to the Internet while Dulles-based AOL provides e-mail services and other online content.

As part of the agreement, AOL will encourage its roughly 3 million dial-up subscribers who live in areas served by Time Warner Cable to keep their AOL accounts and upgrade to Time Warner's faster cable service.

The partnership is aimed in part at helping AOL stem the continuing loss of dial-up subscribers to faster or cheaper Internet services. And it is also designed to help Time Warner Cable grow faster by adding new users and garnering more ad dollars. AOL, which has a national online presence, will become the sole representative of both divisions for the purpose of selling online advertising; Time Warner's cable operations cover about 15 percent of the nation.

"It is long overdue," said David Card, an analyst with Jupiter Research. "They both work for the same parent company and report to the same guy. It is kind of remarkable that it took this long to put this deal together."

Don Logan, who oversees both divisions for Time Warner, said in an interview that the timing was right to make the partnership happen. AOL, he said, once believed it needed to be a one-stop shop for computer users, providing both the Internet connection and content. But as more and more dial-up subscribers have departed the service, the company has shifted gears to focus more on selling e-mail and specialized content to people regardless of who their Internet provider might be.

And Time Warner Cable, which once was growing rapidly, is experiencing slower growth because of stiff price competition from telephone firms offering high-speed computer access, making it more open to a deal with AOL that would help boost the division's revenue with the proceeds from advertising.

Logan pushed executives of AOL and Time Warner Cable's Road Runner division to meet face-to-face over a weekend in mid-December and hash out the details of a partnership that would work to their mutual benefit.

"The December meetings were a catalyst," said Logan, who is chairman of Time Warner's Media & Communications Group.


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