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Hughes’ DirecTV, AOL pact dissolved

Alliance ends due to changes in business climate

NEW YORK — Hughes Electronics’ DirecTV has ended a 4-year-old strategic alliance with America Online, pulling the plug on Internet service AOL Plus and taking a $23 million charge, according to a filing Monday with the Securities and Exchange Commission.

Pact started to unravel by mutual consent in December when AOL said it would stop marketing AOL TV, a stand-alone service DirecTV was helping to launch. Neither AOL TV nor AOL Plus, available via DirecPC Internet access technology, resonated with consumers. DirecTV has about 10,000 AOL Plus subscribers.

A spokesman for Hughes said the business climate has changed radically from the go-go, convergence days in mid-1999 when the deal was signed. Also, at that time, he noted, “AOL did not have any cable investment and was concerned with competing with cable modems.” The drive to compete was tempered by the AOL Time Warner merger, which aligned America Online with the nation’s second largest cable operator.

The dissolution of the pact releases Hughes from a commitment to spend up to $1 billion in sales, marketing and promotion on AOL services.

Broadband focus

Troubled AOL has been paring down to focus its energies on the core challenge of creating a must-have broadband service in the face of heavy competition.

DirecTV has shelved plans to make Internet access widely available — something it had hoped to pursue if it merged with smaller competitor EchoStar. Regulators nixed that deal last fall, and both companies say it’s too expensive to go it alone. DirecTV recently closed down its DSL service. However, it still offers a two-way, high-speed Internet service via satellite to 168,000 subscribers who pay $60 a month in addition to their satellite TV bill.

As a result of the charge, Hughes said cash flow will fall $4 million short of previous estimates to $668 million. Operating losses will be $5 million wider than anticipated at about $400 million.

Hughes, DirecTV and AOL agreed to explore the possibility of new business relationships, according to the SEC filing.

AOL Time Warner, seeking to sell noncore assets and pay down debt, recently sold a stake in Hughes to Bank of America for $800 million.

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