BUSINESSWEEK ONLINE : JANUARY 24, 2000 ISSUE
COVER STORY A Little Help from the Feds How can a Net company that has never covered a war or made a movie swallow a premiere news and entertainment conglomerate? In part, America Online Inc. (AOL) can thank government policy for helping it get a stock valuation that lets it absorb Time Warner Inc. (TWX) How so? Web traffic, like long-distance calls, must use the local phone network to reach customers--a service for which long-distance providers until recently paid local carriers as much as $30 billion per year. But back in 1983, the Federal Communications Commission exempted data carriers--then, an ''infant industry''--from those fees. That meant annual savings of $5 billion to $7 billion, according to Legg Mason Precursor Group. Although the infant has grown up, the exemption still stands, letting AOL and other Internet service providers offer unlimited surfing for roughly $20 a month. ''The day [AOL] started offering flat-rate service, demand went through the roof,'' recalls online consultant George Sacerdote. The fees ''would have bankrupted them,'' he says. Another boost has come from the federal moratorium on Net taxation. These breaks mean more customers, more ads, and a market capitalization that allows an upstart to buy a giant. By Norm Alster in Boston _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Welcome to the 21st Century COVER IMAGE: Men of the Century: Bob Pittman and Steve Case TABLE: How the Giant Fits Together Running the Numbers on the Deal TABLE: One Stab at Valuing the Stock Commentary: Is This Baby Built for Cyberspace? A Little Help from the Feds So Who's Next? ONLINE ORIGINAL: Loving AOL--Before Time Warner ONLINE ORIGINAL: AOL-Time Warner Creates "negative Synergy" INTERACT E-Mail to Business Week Online

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