AOL, SBC Ally on ADSL Service

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San Antonio-based regional Bell operating company SBC
Communications Inc. has fired the latest shot in the battle for supremacy in the
high-speed Internet arena by forming a strategic alliance with America Online Inc. for its
ADSL service.

The deal is similar to the one signed in January between
AOL and Bell Atlantic Corp. According to the SBC deal, AOL will provide high-speed
Internet access to its customers in SBC territory via the RBOC's
asymmetrical-digital-subscriber-line technology.

SBC has customers in California, Texas, Missouri, Nevada,
Oklahoma, Arkansas and Kansas.

Pricing for the ADSL upgrade has not been officially set,
but AOL has said that it expects it to be about $20 per month, in addition to AOL's
monthly charge of $21.95.

SBC mainly offers ADSL through its Pacific Bell subsidiary,
which serves California. Pacific Bell offers two tiers of ADSL service: "Option
IV," which has downstream speeds of 384 kilobits per second and 128 kbps upstream;
and "Option V," which has a downstream rate of 1.5 megabits per second and 384
kbps upstream.

Option IV is currently priced at $59 per month, or $39 if
the customer commits to a full year of service, excluding Internet-service-provider
access. Customers can also get Option IV for $49 per month with Pacific Bell's own
ISP access.

Option V is priced at $149 month-to-month and at $129 per
month for a full year. Option V does not include ISP service.

Which tier will be included in the AOL deal — or if
both will — has not yet been determined, SBC spokesman Brian Posnanski said.

The deal marks another step in the aggressive strategy by
SBC to rapidly deploy ADSL service throughout its territory. In January, the company
announced a plan to make ADSL available in 8.4 million homes by the end of 1999. The
service is currently available in 2 million homes in the company's territory.

AOL has about 16 million subscribers nationwide.

"We think that this is the year for ADSL,"
Posnanski said, adding that ADSL service should be available to AOL customers in the fall.
"This gives us a significant distribution arm for ADSL. We're trying to make it
as available and affordable as we can."

This is the second RBOC pact that AOL has signed this year
regarding ADSL service, and it won't be the last.

The SBC and Bell Atlantic deals would make ADSL service
available to about 53 percent of AOL's subscriber base. And the company said it is
talking with a number of providers, including ADSL and cable companies, about similar
arrangements.

"This [SBC] agreement is another step in our strategy
to give our members a broad range of high-speed choices," said Tom Ziemba, a
spokesman for AOL. "We're still talking to a number of other providers,
including DSL and cable. This [deal] doesn't mean that we have chosen DSL as our
broadband of choice. We're keeping our options open."

In fact, Ziemba said that in the future, it is conceivable
that AOL could have agreements in the same town with both the telco's ADSL service
and the cable company's high-speed modem service.

"That could certainly happen," he said.
"Neither of our DSL agreements is exclusive. We anticipate announcing more DSL
agreements, and cable agreements, as well."

Ziemba added that marketing the service could include
online advertising from both AOL and SBC.

At least one analyst believes that if AOL uses the same
strategy with ADSL that it has with other products — putting up a full-screen ad
every time a customer logs on to the service — it could have a significant impact.

"If AOL promotes the ADSL upgrade like it did for
56-kbps modems, that can be a pretty powerful marketing tool," said Michael Harris,
president of Kinetic Strategies, a Phoenix-based research firm.

However, Harris doesn't see ADSL as a threat to
cable-modem service, particularly because cable modems have such a commanding lead in the
race for subscribers.

According to Kinetic, there were about 40,000 subscribers
to ADSL services in the United States at the end of last year. In contrast, @Home Network
has at least 330,000 subscribers in North America, and Road Runner has about 180,000 U.S.
subscribers.

But Harris stressed that the RBOCs should not be taken
lightly.

"It would be a mistake to underestimate DSL,"
Harris said. The better strategy [for cable-modem companies] is to continue doing what
they have been doing." MCN

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