AOL stock torpedoed by sputtering subs

Shares down 3.3% while rival Earthlink up 9.18%

NEW YORK — News Tuesday that AOL hit the 34 million subscriber mark was too little, and too late for Wall Street, which has grown steadily disillusioned with America Online and its corporate parent, AOL Time Warner.

Rubbing salt in the wound, AOL rival EarthLink gained access to 14 million more cable homes through a carriage deal with AT&T Broadband.

AOL Time Warner, which has been inching its way up from a 52-week low of about $22 last month, saw its shares dip 3.3% to $26.38 on escalating fears of slower growth at AOL — a unit AOL Time Warner execs used to describe as conglom’s crown jewel. Shares were nearly $60 last spring.

“The delay in hitting (the 34 million) milestone highlights our concerns that domestic growth is slowing dramatically, that international subscribers may not be picking up the slack and that churn may be increasing,” influential Lehman Bros. analyst Holly Becker wrote in a note to clients.

Meanwhile, EarthLink shares jumped 9.18% to $10.58.

AOL Time Warner was forced as a condition of its merger, which closed in early 2001, to open Time Warner’s cable lines to high-speed Internet providers besides AOL. So it inked deals to carry several ISPs, including EarthLink.

However, AOL still has no assurances that its own high-speed service will be carried on big cable systems outside of Time Warner’s. With the division under fire, the chief of AOL’s broadband unit was replaced last week.

AT&T Broadband execs said they’re in carriage talks with other ISPs, likely including AOL, but they declined to name names.

The merger conditions imposed on AOL Time Warner resulted largely from pressure by EarthLink and smaller ISPs that can’t survive in a high-speed world without access to cable lines. Many think similar restrictions should be applied to AT&T’s planned merger with Comcast. That combo, now being scrutinized by regulators, would create a cable juggernaut with more that 22 million subscribers. Time Warner has about 12 million.

Asked during a conference call if he plans to lobby for an open access caveat in the AT&T-Comcast deal, EarthLink CEO Gary Betty reiterated his support of openness, but (with a deal in hand) didn’t seem overly eager to take the issue up with the Department of Justice this time around.

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