Time Warner Reports Healthy VoIP Growth, Nears European AOL Sell-Offs

Time Warner's second-quarter 2006 results underline the rapid gains the company is making in the voice and bundled service area and the continuing challenges faced in its AOL business. At the end of June 2006 Time Warner Cable had penetrated some 9% of its addressable market with its digital phone service, with 1.6 million subscribers, and had continued to report strong digital cable and high-speed data additions to reach a respective 5.4 million cable broadband and 5.8 million digital cable subscribers by 30 June 2006. Time Warner Cable's gains have been stimulated by the provisioning of triple-play services, a trend which should be of concern to both fixed-line operators and pure-play VoIP providers such as Vonage (see World: 2 August 2006: Vonage Reports Rapid Subscriber Growth, But Questions Remain). Time Warner Cable will likely overtake Vonage as the United States' leading VoIP provider in the next year. The U.S. cable operators have launched their own VoIP services prior to fixed-line operators' entry into the video market (see United States: 2 August 2006: Verizon Reaches 375,000 FTTP Customers).

Time Warner's domestic cable business is faring well and will be boosted by the acquisition of new assets and the entry into the mobile market via a joint venture with Sprint Nextel (see United States: 1 August 2006: Time Warner, Comcast Complete Adelphia Acquisition). But the company is trying to turn around its AOL business from a declining dial-up subscriber base to a business model based on advertising and broadband uptake. AOL has failed to convert its dominance of the narrowband market to gains in the high-speed internet subscriber market, largely because of uncompetitive pricing. Broadband customers will now no longer pay for most AOL services (which could reduce revenues by an annual US$1 billion), such as software and e-mail, but it is far from clear whether customers who have since migrated to rival offers will go "home to AOL". AOL has been making efforts to widen its broadband reach (see United States: 8 May 2006: AOL to Resell Clearwire's Broadband Wireless Access Service and 30 January 2006: AOL Signs Deals in Renewed Attempt to Capture Broadband Market Share). The company is also ending its international broadband access aspirations through the sale of its European assets.

Outlook and Implications

• Sale of European Units Imminent: The company's planned disposal of AOL's European units went a step ahead yesterday when AOL's chief executive, Jonathan Miller, disclosed that the group was hopeful of finalising a deal before the end of the year. He confirmed that the group has shortlisted BSkyB, Carphone Warehouse, and Orange for its £650-million (US$1.22-billion) priced British unit. Similarly, KPN, Telecom Italia, Versatel, freenet.de, and United Internet are the leading contenders to grab the German unit while the group is in exclusive talks with French telecoms group Neuf Cegetel over the sale of AOL's French unit for around 300 million euro (US$382.8 million). Exclusive talks with Neuf Cegetel prevent Deutsche Telekom and Telecom Italia from snapping up AOL's French units and may force them to turn their attention to another French telecoms group up for sale—Tele2 (see France: 2 August 2006: Sale of Tele2 French Units Imminent, MVNO Reaches 300,000 Customers, United Kingdom: 2 June 2006: AOL Seeks Buyer for U.K. Operation, and Europe: 5 May 2006: AOL to Offload French, German Units).
• Aligning with the Market: Customers do not expect to pay for a service such as e-mail, and by making this and other services free AOL is aligning with the market. Customers to any broadband offering will now have free access to such services as "AOL’s integrated software; communications features, including AOL e-mail, instant messaging, a local phone number with unlimited incoming calls, and social networking applications; and safety and security features, such as parental controls," a press release noted. AOL plans to add new services to compete more effectively with the likes of Yahoo! and Google for internet users and encourage greater traffic towards its site. AOL will also continue to market its dial-up service via an enhanced package of US$29.95 per month, but also cheaper deals.