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AOL Gets a Broadband Boost

Millions of homes will have access to AOL's high-speed service through a deal struck with AT&T Broadband.

Scarlet Pruitt, IDG News Service

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AOL Time Warner said Wednesday that it is restructuring its long-standing cable partnership with AT&T in a deal that will not only allow the Internet and media giant to create a cable subsidiary that could go public as early as next year, but would create the first third-party broadband cable carriage agreement for America Online.

The deal effectively unravels the companies' partnership in Time Warner Entertainment, allowing AOLTW to assume complete ownership of the company's content assets, including Warner Bros. and HBO, and create a new cable and television subsidiary, dubbed Time Warner Cable. AOLTW plans to put the new subsidiary up for Initial Public Offering once the restructuring is complete.

As part of the deal, AT&T Broadband and Comcast, which have announced plans to merge and form AT&T Comcast, have agreed to make the existing AOL High Speed Broadband access service available on their systems.

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AOLTW said that it expects AT&T Comcast to reach over 10 million homes within two years of the completed merger, reaching key markets such as Seattle, Boston, Nashville, and Indianapolis. AOLTW said that the high-speed AOL service could be rolled out to an additional 9 million AT&T Comcast clients in the future, provided both parties are happy with the partnership.

AOLTW hopes that the broadband deal breathes new life into its flailing Internet unit, which has had trouble sparking significant subscriber growth in recent quarters.

Under the deal, AT&T will exchange its current stake in Time Warner Entertainment for $2.1 billion in cash and $1.5 billion in AOLTW stock for a 21 percent stake in Time Warner Cable. This will leave AOLTW with 79 percent of the new cable entity, expected to serve approximately 10.8 million subscribers.

Both companies' board of directors have already approved the agreement.

Stock in AOLTW inched up .23 percent to $13.36 a share following the news Wednesday morning.

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