America Online is committed to staying independent, founder Steve Case has assured employees, following reports that AT&T had made a bid.
Case sent an email to all employees following press reports that his company had rejected advances from the giant telco. Although he would not comment on whether talks had been held, he told workers: "We are committed to remaining an independent company, as this that is the best course for our customers, shareholders and employees."
He added that AOL has always been determined to stay independent and that this enabled it to form strategic partnerships with a whole range of telcos.
Analysts believe that AT&T would be prepared to pay a large premium to acquire AOL, the world's largest online services provider, and that if this fails, it will quickly turn its attentions to other similar providers. A wave of takeover attempts is likely to hit the online industry over the coming year, with all the large content providers and portal suppliers being possible targets.
AT&T, which already has marketing agreements with search engine providers Excite and Yahoo, has the cash to make a major acquisition, and needs to make up for the disappointing progress of its own Worldnet Internet service, which has only just over one million subscribers after two years in existence. AOL reaches 10.4 million households in the US alone - a quarter of all those with PCs - and has recently launched an aggressive European push following the acquisition of Compuserve's online interests.
But, despite its strong marketing machine, AOL may need to operate on an even larger scale to achieve sustained profits, which have so far proved elusive despite its $1.7 billion annual revenues. "It doesn't have the scale it would need to be an extremely profitable company," said Nicholas Donatiello, an analyst at Odyssey Ventures.
Other options exist beside straight takeover by AT&T however. AOL could look to far-reaching marketing partnerships - the main attraction of an AT&T tie-up would be that the telco would use the online service to market a wide range of services, thus giving AOL critical mass. Many believe such a deal will happen even if the takeover does not, with AT&T hoping AOL customers will be steered towards its voice network. But this seems to conflict with Case's comment today that he is "eager to establish alliances with a wide range of telecomms, media and technology companies".
AOL has already signed a marketing pact with IBM this week, under which IBM will bundle the online software wiht its Aptiva consumer PCs and Thinkpad notebooks. Users can access the pre-installed AOL software through a clearly displayed icon to gain access to Internet services. AOL has similar deals with Compaq and Packard Bell, as vendors race to market their home PC ranges on the basis of Internet access.
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