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ZDNet: Why AOL holds all the keys

Apr 18, 2000, 23:07 (0 Talkback[s])
(Other stories by Steven J. Vaughan-Nichols, David Hakala)

"America Online is leveraging everything it has, from its Time-Warner merger to customer-controlling client software, to undermine rival ISPs."

"Indeed, AOL (NYSE: AOL) is attacking rival ISPs on four fronts. First, the company's pending merger with Time-Warner sets the stage for broadband Internet services via Time-Warner's cable network. It also gives AOL access to loads of content. Next, AOL is quietly hedging its cable bet with an aggressive move into the DSL market. The final and most controversial step involves AOL's new client software, which allegedly cuts off customer connections to rival ISPs."

"Galaxy Internet Services (GIS) filed suit against America Online on April 4, claiming version 5.0 of AOL's software "attempted to eliminate competition in the Internet Service Provider Market" by preempting the existing dial-up settings of other ISPs' customers. There "is no legitimate business justification for the features of AOL 5.0 which cause it to interfere'' with subscribers accessing other ISPs, the suit says."

"Meanwhile, AOL is hedging its broadband cable push with a massive DSL effort--which is part of the company's AOL Plus service. The strategy involves delivering DSL services today and AOL-Time-Warner cable and DirecPC services tomorrow. AOL is providing these services in partnership with the Baby Bells. At an estimated price of $21.95 a month for DSL, CLECs and ISPs could find it extremely difficult to compete on a price/performance basis. While AOL Plus is still just being rolled out, the threat is clear."

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