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Case Foresees Cable-Access Deal Soon

4/23/2000 8:00 PM Eastern

America Online Inc. chairman Steve Case last week said he was close to an open-access agreement with Time Warner Cable, but declined to give details.

AOL-which has been a big proponent of open access and was clamoring to gain access to cable customers even before it agreed to merge with Time Warner Inc.-said a deal could come as soon as the end of its fourth fiscal quarter.

"It is highly likely that we will complete a deal this quarter," Case said in a conference call with analysts. He declined to give specifics, but said details would be made available once an announcement was made.

"We are committed to the principle of open access," he said. "Now we're in the phase of trying to have a commercial agreement with Time Warner Cable. We think that's not too far out in the future, and we believe it will be a model that will be embraced by other companies."

AOL reported one of its best quarters ever, with revenue rising 47 percent to $1.8 billion and net income, excluding one-time gains, more than doubling to $271 million, or 11 cents per share, compared with $104 million (4 cents) in the same period a year ago.

Earnings before interest, taxes, depreciation and amortization, or cash flow, rose 120 percent to $492 million with a cash-flow margin of 27 percent. Advertising, commerce and other revenue climbed 103 percent to $557 million.

AOL said its subscriber base grew by 1.7 million during the quarter to 22.2 million. Subscribers are also using the AOL service an average of 64 minutes per day, an increase of 16 percent over last year.

Case said AOL and Time Warner are working together to develop new businesses, particularly around the "AOL Anywhere" strategy, which would make AOL services and content available to consumers across a wide range of devices.

On that point, Case said, AOL has made great strides in its wireless strategy, forming a key agreement with Sprint PCS. In addition, "AOL TV," "AOL Plus" and its agreement with Gateway Inc. to develop Internet appliances are all going strong, he said.

"For many years, people have been saying that convergence is just around the corner. Today, we believe we are at that corner," Case added.

Although Case said both AOL and Time Warner are making progress in integrating their operations, a report in The Wall Street Journal pointed to signs that the marriage is treading on some shaky ground.

The Journal said that last month, a group of AOL programmers made software called "Gnutella"-which allows users to illegally download music onto their PCs-available on its Web site. That sent Time Warner chairman Gerald Levin-Time Warner also owns Warner Bros. Music, a major music publisher-through the roof. After Levin's objections, the software was quickly removed from the site.

Case downplayed the Journal report and said top AOL and Time Warner executives meet regularly to discuss integration issues.

"I think we've really gotten to know one another better, and that's very important as we build this new company," he said. "We are taking this in a walk-before-you-run mode. We do expect to close on schedule in the fall."

September