• by Ross Fadner , March 11, 2004

When America Online in late January quietly decided to stop selling broadband Internet access under its own brand name, some industry observers saw the move as yet another sign of the company's flawed broadband marketing strategy. On Thursday, flagging a change in course, the Time Warner unit filled the void by announcing a deal to partner with cable giant Covad Communications Group to market broadband access.

The deal lets AOL market broadband services supplied by other providers such as Covad in exchange for sales commissions. Some industry pundits see the Covad deal as yet another sign of AOL's late entry into the broadband market. The Dulles, Va.-based company has for more than two years been in the process of transforming its business model to a mostly content-driven, ad-supported community.

Charles Hoffman, president and CEO of Covad, says that the companies expect benefits neither could achieve on its own, citing AOL's premium content, security features, and communications tools, and Covad's nationwide Digital Subscriber Line (DSL) network.

Under the agreement, AOL will sell Covad's DSL service for $34.95 per month. To receive the full suite of AOL features, customers will have to pay an additional $14.95 per month.

It could be a hard sell, says Jed Kolko, vice president, Forrester Research, because the combined $50 package is far from the most price-competitive broadband offering in the market today. Some telecom providers charge $30 a month for DSL service, while most cable TV providers offer reduced-cost six-month promotions or cheaper combined-service packages for the higher-speed cable broadband service.

Kolko adds that AOL's decision to team up with Covad was probably the right move for it to make, since cable and telecom providers already had large pre-existing networks from which to offer high-speed service. Kolko cites the strength of AOL's brand and its loyal customer base as factors that could help it lure more distribution partners. "[AOL] can definitely influence prospective buyers over which broadband provider to use," he says.

However, Kolko is quick to point out the crucial difference between the AOL-Covad offering and services from SBC Communications and Yahoo! and Verizon Communications and MSN. AOL/Covad's competitors' portal services are included in their respective packages, while AOL and Covad offer no discount packages. Kolko says this price arrangement is "too high," and adds that the deal will only attract existing AOL subscribers. Even so, he says, they "should have had a discount package, or at least made the premium service free for an introductory period to make sure their loyal customers would crossover."

While Kolko concedes that partnering with broadband distributors was the right move for AOL, he says the Covad deal is "not the best execution."

Lisa Hook, president of AOL Broadband, says the company is currently negotiating similar marketing deals with broadband providers.