AOL-Microsoft? Not Likely, Just Logical

If Bill Gates bought the online albatross, he'd acquire the subscribers to make MSN a winner. And Time Warner? Its stock would soar

Even before the dot-com bubble burst, the Internet service provider (ISP) business had turned into a dogfight. Microsoft's MSN service, with as many as 9 million customers, has relentlessly chipped away at worldwide leader America Online. Still, with 35 million subscribers, the AOL service has held onto a commanding lead.

AOL is the only ISP to ever make significant profits, and it would seem to be in an impregnable position -- except for some serious problems. Its operating earnings have been dwindling by the month, and, in 2002 they fell 38%, to $1.8 billion, as revenues shrank 5.5%, to $8.6 billion, from the year before. The culprit: precipitously slowing subscriber growth due to a tardy rollout of broadband.

That has punished the earnings and stock price of parent company AOL Time Warner (AOL ), which on Jan. 29 reported a $33.5 billion writedown of goodwill in the Internet service, reflecting its decline in value since AOL merged with Time Warner two years ago. Worse, in the view of many analysts, America Online is accountable for some $8 billion to $9 billion of AOL Time Warner's $27 billion in debt -- which the parent company is hastily trying to reduce by putting various properties on the block.

News source: BW Online