AOL DUMPS BROADBAND ACCESS FOR CONTENT, SERVICES FOCUS

AOL is getting out of the broadband ISP business, but it hasn't given up on broadband. Instead, AOL is trying to affect that elusive transition from fat pipe provider to broadband content and services provider — a transition many in the industry have tried with little success.

If five years of marketing DSL and cable modems has taught the industry anything, it's that the selling points of broadband have come down to two things: speed and price. Even AOL, while no longer offering broadband access except through sister company Time Warner Cable, is still using the speed mantra in its advertising. What makes AOL think it can get consumers to view it as a clearinghouse of content and broadband features instead of a high-capacity pipe provider? The main reason appears to be because it failed to become the latter.

While AOL hasn't released specific numbers, company officials said the vast majority of its 3 million AOL Broadband users access its portal through an independent broadband ISP instead of buying one of AOL's resold DSL and cable access packages. Whether because of difficulties juggling multiple resale agreements or because it couldn't convince consumers of the value proposition of its pricey $55-per-month offer, the reasons the bundle never took off now seem irrelevant. AOL discovered several million subscribers were willing to pay $15 a month to use the AOL portal.

“It's become a different market for us,” an AOL spokeswoman said. “The sweet spot for us is to provide a more complete broadband package other than just a fast connection. It was natural for us to phase out the connectivity part of the service.”

The appeal of AOL's new services may not be as strong as the inertia effect, said Jonathan Hurd, analyst with Adventis. Many of AOL's former dial-up customers wanted to make the transition to broadband with their screen names and e-mail address intact. The key for AOL is to build off that, and develop broadband services and content that are just as compelling as its narrowband services like AOL Instant Messenger.

“That's the broader strategic context here,” Hurd said. “The first wave of early adopting consumers has flattened out. The next wave will be driven by services. The benefit of broadband won't be speed itself. Speed will only be the means to deliver broadband services and content.”