Sears to Help AOL Sell Broadband

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America Online Inc. and Sears, Roebuck and Co. announced a
strategic partnership last Tuesday to help drive Internet access, broadband and eventually
connected-home appliances like Internet-ready refrigerators into the mass market.

"As we looked at potential partners, we knew this
[deal] was a very important part of our online strategy," Sears Online vice president
and general manager Dennis Honan said.

AOL brings not only a popular online service and large
subscriber base, but also an "AOL Anywhere" focus that aligns nicely with the
types of products and services Sears is famous for, he added.

In the deal, AOL will become Sears' preferred -- but
not exclusive -- Internet-service provider. A co-branded AOL service will deliver
proprietary content, including a special "AOL Instant Messenger" that will allow
Sears customers to communicate in real time with Sears' customer-service
representatives.

Sears customers will also be able to review and pay their
bills online, and AOL customers will be able to pay for their online service with their
Sears credit cards.

The instant-messaging feature will allow a CSR to schedule
service appointments in real time if, for example, the dishwasher is making a "weird,
rattling noise" and the online CSR determines that a repair is needed, AOL spokesman
David Theis said.

If a customer asks for recommendations on the best
dishwasher for $299, he added, the new Web site can forward to the customer an online link
to a picture of the appliance in question.

The companies also said they would develop home-improvement
content for broadband customers. Earlier this month, Sears announced that it would partner
with Bob Vila on a Web site that will link online home-improvement projects with
electronic-commerce sales of tools and home appliances from Sears.

The special Sears/AOL online service is expected to launch
in the second quarter of this year. All 858 Sears stores plan to demonstrate the
co-branded Web site.

Sears also plans in-store demonstrations of broadband
technology. The retailer has not yet announced which broadband platforms it will initially
demonstrate. "We'll look at what's available in certain geographic
areas," Honan said, whether it's cable modems, digital subscriber lines or
satellite.

According to The Yankee Group senior analyst Emily Meehan,
broadband is an important component of AOL's deal with Sears, and one that's not
found in a number of retailer/ISP agreements announced in recent months.

"A significant amount of churn for traditional ISPs
today is attributable to [their customers upgrading to] broadband," Meehan said.
"To control customer churn, it will be extremely important for AOL to be able to
offer broadband's high speeds and always-on capability."

Even first-time ISP customers may require broadband if
they've grown accustomed to a certain online speed because they've used the
Internet at work, Meehan said.

Customers upgrading to broadband from dial-up typically
prefer to keep their current ISPs not only to maintain their e-mail addresses, but also so
they don't need to re-customize their home pages, she added.

Honan could not say whether the deal with AOL would have
any impact on Sears' relationship with direct-broadcast satellite providers EchoStar
Communications Corp. and DirecTV Inc.

Sears sells EchoStar's Dish Network hardware, but not
DirecTV's. DirecTV plans to deliver an "AOL-TV" service later this year.
EchoStar already sells Microsoft Corp.'s WebTV Networks service through its
"DISHPlayer" system.

"The agreement with AOL is not exclusive," Honan
said. "We'll let the market and our customers decide" which products they
want.

Sears will also train its installation team to service and
install broadband and home-network technology.

The companies are discussing the specifics of developing
Internet-ready appliances, Honan said, adding that Sears is most interested in the
appliances it already sells. He envisions Sears customers being able to connect their
air-conditioning, laundry and kitchen appliances to an online network for energy
management and diagnostics.

In January, Sears announced that it would partner with Sun
Microsystems Inc. to develop Internet-connected appliances.

"The market for home connectivity will develop as the
market for broadband develops," Honan said. He predicted that 28 million U.S. homes
would have access to broadband within the next two years.

The deal announced last week does not encompass marketing
Time Warner Cable following the merger of AOL and Time Warner Inc., the parties said last
week.

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