We Aren't Fa-mi-ly! TWC vs. AOL

After five years, Time Warner Cable has finally consented to allow its sister division, AOL, to be delivered over its cable pipes.  Of course, Time Warner Cable is not about to replace its own also-ran regional broadband service (Road Runner) with AOL's premiere national brand.  Yes, doing so would enable Time Warner shareholders to save gobs of money by eliminating software, data center, email, advertising, and customer service costs, but it would also mean that Time Warner Cable would actually have to embrace AOL as a partner instead of a competitor.  As Carl Icahn has observed, Time Warner divisions don't do that.

And then there's VOIP.  With its strength in online communications and 20 million pre-existing subscriber relationships, AOL is ideally positioned to compete effectively with Skype, Vonage, and others in the VOIP market.  Of course, this would mean also competing (sort of) with Time Warner Cable--and, at Time Warner, intra-divisional competition is only allowed if it's the old Time Warner divisions competing with AOL.  As Julia Angwin noted in a December WSJ story, AOL has yet to roll out its soft-phone VOIP offerings in Time Warner cable markets to avoid competing with Time Warner Cable's VOIP offering, thus depriving itself and its parent of the opportunity to gain a major soft-phone foothold in such markets. 

Never mind that this is the only period in history AOL will ever have a chance to break into the soft-phone market and never mind that Time Warner Cable doesn't have a soft-phone offering.  (Some) intra-divisional competition will not be tolerated!

At times, it seems the only one of Time Warner's 85,000 employees who is happy that AOL is still a division is CEO Dick Parsons.  Time Warner Cable management certainly isn't, Jeff Bewkes certainly isn't, and it's a safe bet that AOL management certainly isn't.  So here's hoping that at least one of Icahn's proposals finds its way toward becoming reality.

Disclosure: Unfortunately, I own TWX.

Comments

[B]

Who don't you join Icahn and advise his team on unlocking the value of this mess? I suspect you have a tremendous amount of intellectual capital to add to their team! Maybe you can unlock the value of your shares with direct input into a strategy!

[googsgreatesthits]

you know TWC is scared. big debate at TWC about which recycled AOL app will wind up in Google Pack 2.

[Lincoln]

It's more than just a competitive factor that prevents the integration of AOL into TW broad band. Market preference also influences greatly. Your typical road runner customers are not on the same level as a typical AOL customer. Big disparity exists between the technical savvy of the two groups. Many Road Runner customers can setup a home LAN, and configure the router to work with the cable modem within a reasonable amount of time by themselves. How many AOL customers can do the same? Most tech savvy consumers will simply switch to something else if TW forces the AOL junk upon them. AOL does not have a base among the advanced PC users at all.

[nelsonal]

Time Warner divisions haven't gotten along for their mutual benefit since the merger in question was Time, Inc and Warner Bros. I recall an article a few years ago that was talking about a massive amount of infighting (and a decent level of self/side dealing between the WB networks and Turner's Cable channels. Some cartoon that had been generating substantial returns on Cartoon network was moved over to the WB because the decision maker had a stake in several WB broadcastors.
Two years ago Lincoln's statement was definitely true, but today I'm not as sure that broadband is still a symbol of tech elite.