AOL Time Warner Merger - DOC

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					     AOL Time Warner Merger

           Prepared for:

Athens AOL Time Warner Management

           Prepared by:

         Courtney Tucker
          Briana Jenkins
          Hilary Gilway
          Stefanie Walsh
        Roberta Wainwright

          Date: 3.7.2001
Team Four
Copeland Hall
Ohio University
Athens, Ohio 45701

March 7, 2001

Athens AOL Time Warner
28 Station Street
Athens, Ohio 45701

Dear Chairman of the Acting Board of Overseers of the Athens Time Warner Cable
Company, Dr. James Perotti, Dr. Arthur Marinelli, Prof. Larry Rogers, Prof. Greg Waller:

After thorough research of your company, evaluating its assets and industries at national
and local levels, we have assembled a comprehensive consulting report that identifies the
benefits and drawbacks of your recent merger and how it will be realized in the City of
Athens by 2003.

The report will address AOL Time Warner’s current role in the entertainment and
telecommunications industries by highlighting and evaluating the operating, financial and
tax synergies on the national and local scope.

In consulting AOL Time Warner’s role in Athens, we have researched the benefits, and
future outcomes that could result from the merger, taking into consideration the
anticipated problems and solutions. This report not only supports AOL Time Warner’s
prospects in the future, but also demonstrates the company’s opportunity to grow and
develop new technologies in comparison to its competition.

Through research and reflection, we have expanded our outlooks on the
telecommunications and entertainment industries and gained consulting experience in the
field of enhanced technology. We have appreciated this opportunity to work with you and
look forward to seeing the AOL Time Warner merger succeed.


Team 4

Hilary Gilway     _________________       Roberta Wainwright ________________
Briana Jenkins    _________________       Stefanie Walsh        ________________
Courtney Tucker _________________

                                                   Table of Contents
Executive Summary ................................................................................................... iv
Introduction ..................................................................................................................1
Competition .................................................................................................................2
Broad Scope of AOL Time Warner Merger..............................................................3
           Operating Synergies ...........................................................................................3
                      International Components ......................................................................3
                      Management ...........................................................................................3
                      Employees ..............................................................................................4
                      Cross Promotion.....................................................................................4
           Financing Synergies ...........................................................................................5
                      Stock Price .............................................................................................6
                      Financial History....................................................................................6
                      Pro Forma Financials .............................................................................7
           Tax Synergies.....................................................................................................7
Local Scope in the City of Athens, Ohio ....................................................................8
           Operating Synergies ...........................................................................................8
                      Cross Promotion.....................................................................................8
                      Demands of Increased Accounts ............................................................8
                      Cable Franchise Ordinance ....................................................................9
                      Potential Customers ...............................................................................9
           Financing Synergies .........................................................................................10
Conclusion ..................................................................................................................10
References ...................................................................................................................11
Appendix A .................................................................................................................14
Appendix B .................................................................................................................17
Appendix C .................................................................................................................18
Appendix D .................................................................................................................19
Appendix E .................................................................................................................20
Appendix F .................................................................................................................21
Appendix G .................................................................................................................22
Appendix H .................................................................................................................28
Appendix I ..................................................................................................................30

                                 Executive Summary

In the following report, we will demonstrate the key benefits and potential problems that
have developed as a result of the merger. We will begin exploring the operating,
financing, and tax synergies that effect the overall merger of AOL Time Warner.
Subsequently, we will outline the benefits to the city of Athens using the same criteria
mentioned above. In an effort to recognize and implement potential strategies, we have
offered suggestions as to how the local AOL Time Warner can utilize its resources most

The primary benefit of the AOL Time Warner merger is the accessibility of AOL’s
customers to Time Warner and vice versa. This mutually beneficial relationship
encourages each company to market its extensive product and service mixes to the
other’s customers. AOL Time Warner will also be able to bundle the products and
services together to entice customers into purchasing AOL Time Warner’s version of
ones they might already have. Once the customers switch to AOL Time Warner’s
products and services, it hopes that the customers will have a sense of brand loyalty for
its products.

Other important benefits both internationally, nationally and locally include the
  Revenues are projected to rise
  Facilitate creative thinking by combining the conservative nature of Time Warner
     with AOL’s innovation.
  One stop shopping
  International business will account for over one third of revenues
  Improved management and corporate culture
  Technological advances

Although AOL Time Warner benefits from the merger, there are also a number of
potential problems. It must be aware of these problems in order to anticipate what it
could do to prevent the problems from occurring. AOL Time Warner will be able to
develop strategies and solutions that will ensure future success and avoid potential


Recently, the more prominent companies in Corporate America have been established as
a result of the combination of two separate entities. Often, the companies have similar
product and service lines, but more and more one can see a movement into mergers of
companies from different industries.

Mergers provide many benefits for the consumer as well as the company, but present
obstacles along the way. Unsuccessful mergers are common because of the drawbacks;
in fact, approximately 66 percent of mergers are unsuccessful (, 2001).
However, the AOL Time Warner merger is going to within the 40 percent that do succeed
because of the unique combination of assets. ―No other Internet company has AOL’s
exposure and subscription fees, and no other media company has Time Warner’s
combination of magazines, TV production, and cable network assets.‖ (Shearer, 2000).

In comparison to the national scope, to fully realize the benefits for Athens, Ohio, we
must first understand how this merger is going to affect the overall telecommunications
and entertainment industries. We will explore the operating, financing, and tax synergies
that have exploded as a result of this merger. Then, we will investigate the benefits of
these same synergies, as they are applicable to the Athens area. We will demonstrate the
benefits to consumers and the company, what obstacles they might encounter, and how
AOL Time Warner will overcome these obstacles nationally and locally.


The AOL Time Warner merger presented a number of different entertainment mediums.
Upon doing so, the newly merged company had many industries that were blending
together. These industries include but are not limited to the following: broadband, cable
modem, net access, digital cable television, and Internet online music. In order to obtain
a competitive advantage in each of the aforementioned industries, AOL Time Warner
must be aware of how efficiently it is operating.

The broadband industry is currently striving as it makes new steps in providing numerous
services such as e-commerce, distance education and training, entertainment, and real
time game playing, etc. Joe Lazlo, an analyst at Jupiter Communications, said, ― We
believe that the AOL Time Warner merger will have a defining impact on the growth of
broadband services and will shape consumers alternatives for gaining access to online
information and entertainment‖ (Shearer, 2000). Their services are provided through
cable modems, DSL, wireless and other recently developed technologies. According to
analysts, the broadband market is going to consist of approximately 18 million
households by 2003, which accounts for about 28 percent of the country’s online
households ( 2001).

Cable modems are becoming increasingly popular due to the high-speed connection and
constant accessibility that it offers. In other words, there is no dial up necessary to get
onto the Internet. Analysts project the market will reach $1.2 billion in 2005 with

approximately 30 million subscribers. However, cable access is slightly more expensive
than other forms of access, thus leading to a majority of consumers that are hesitant to
pay the extra costs. For example, there are four cable modem customers for every one
DSL customer ( 2001). The services provided by cable modems are
expected to consume a major share of the consumer subscriber market. In areas where
cable and DSL have less of a foothold, wireless and satellite are expected to thrive.

Another area of concern for AOL Time Warner will be digital cable services. At the
moment, a limited number of companies exist who are providing a majority of this
service in the United States. Included in this list are some of AOL Time Warner’s major
competitors such as AT&T and Comcast. As this industry continues to grow, the recently
merged company will be forced to find different ways to compete so that AOL Time
Warner can maintain its competitive advantage.

Digital music must also be considered during an industry analysis. Within this market
there appears to be a great deal of growth for the future. According to analysts, annual
average online music sales in the United States are expected to reach $75 per buyer by
2003, while the global market for online music sales will rise to $6.7 billion (


Although AOL Time Warner is a leader in the industry, it continues to face fierce
competition from other companies. With America Online boasting over 27 million
members and Time Warner with roughly 13 million subscribers, both companies have
become models for competing in the telecommunications and entertainment industries
(Fraser, 2000). Companies like AT&T and other digital subscriber lines (DSL) offer
customers Internet Service Providers similar to AOL.

Competing in the entertainment sector are companies like Disney, Viacom, Fox, Sony
and Universal Studios. Among the many competitors in the telecommunications industry
were widely known names such as Yahoo, MSN, and AT&T (See Appendix A.) This
intense competition will require that AOL Time Warner remains focused on the needs of
individual customers in each industry. Many feel that AOL Time Warner will be able to
outperform each of these companies because of the content offered.

However, when this merger was originally considered, there was speculation that the
company would dominate each of the industries in which it operated. To avoid this, the
Federal Trade Commission (FTC) set up guidelines that AOL Time Warner must uphold;
otherwise it will face legal sanctions (See Appendix B.). The Federal Communications
Commission (FCC) is responsible for ensuring that the stipulations established by the
FTC are upheld by AOL Time Warner. (See Appendix C.)

                     Broad Scope of AOL Time Warner Merger
                                  Operating Synergies
International Factors

The merger will give AOL Time Warner a competitive advantage globally, allowing it to
expand its businesses and brands to international markets. In the next five years, AOL
Time Warner plans to acquire more than one-third of its revenue from international
outlets (, 2001). With potential expansion, AOL Time Warner will become
a stronger corporation, increasing revenue and recognition around the world.

AOL Time Warner has also agreed to abide by the Safe Harbor provisions of the Private
Securities Litigation Reform Act of 1995 (Lexis-Nexis, 2000). The safe harbor
provisions were adopted after the European Union presented the issue of the abuse of a
customer’s personal information. This included solicitation over the Internet and even
the exchange of personal information between companies in countries that did not abide
by the safe harbor principles (Jenkins, 2000).

The primary drawbacks concerning international expansion are the government
regulations of individual countries. Since Europe has a united regulatory body, the
European Union, any company that plans to have European operations, the EU must also
investigate the possible anti-trust (Harbert, 2001). Even if the US government approves
the merger, the EU does not necessarily have to agree with the same decision.

Another concern is the marketability of Time Warner’s products in foreign countries.
The access provided by AOL is easily marketable to foreign customers because of the
ease of use. If AOL can continue to keep its prices competitive, even in the foreign
market, then the ISP service should continue to be successful. A potential problem lies
within the content provided by the Time Warner portion of the merger. If foreign
customers find that music, magazines, and films are too specific to the American culture,
then a different strategy needs to be implemented. AOL Time Warner does has the
option to purchase international magazine and film companies, but increasing its size will
put AOL Time Warner more at risk for being scrutinized as a monopoly.


With the marriage of two mega-media companies, management has many challenges to
face. The integration of two separate companies, including their employees, their core
values, and their corporate cultures, is a difficult task. In hopes to avoid cultural
conflicts, AOL Time Warner has appointed a transition team. This team, headed by AOL
CEO Bob Pittman, works on merging the internal structures and cultures of the two
separate companies into one. Finally, the team will also be responsible for restructuring
the companies’ operations and future services (, 2000).

If the transition team does not function effectively, AOL Time Warner may not have the
potential to succeed. If the inner values instilled in the employees from the individual
companies differ, there will be no harmony among them, which could result in a lack of

efficiency. This could cause the company’s position in the marketplace to decline, and
ultimately terminate its existence.

The senior management had to quickly make necessary changes. A factor benefiting the
transition is that few overlapping jobs exist. In order to adapt, employees will need to be
aware of the new goals and visions of AOL Time Warner. It will be necessary for upper-
level management to implement them rapidly in the daily work of the employees so that
they may adjust to handle the company’s new growth.

It will not be necessary initially for senior management to cut thousands of employees to
bring together the two companies. Some termination of employment and relocation will
occur, but the companies prefer to avoid removing experienced, quality employees.
Offering early retirement for employees who have been with either company for an
extended period of time has been an option. According to Mary Mosquera’s article, AOL
Time Warner Merges Staff with Unemployment, the majority of the job cuts resulted from
combining website operations and information technology systems. The job eliminations
totaled about 3 percent of the entire workforce (, 2001).


Prior to the merger, AOL had approximately 1,200 employees and had a strong
commitment to each of them. The employees worked under favorable conditions,
encouraged by the management, to excel and maintain AOL’s status as a number one
competitor. Upper level management worked toward employee satisfaction by providing
conveniences such as a casual environment and dry-cleaning (Mosquera, 2001). AOL’s
treatment of its employees differed from Time Warner’s because of the smaller number
of employees and less regimented work environment. Time Warner was unable to
provide the personalized benefits due to the conservative nature of the company.

The merged company will be dealing with 85,000 employees, therefore AOL’s former
treatment of employees will be difficult to provide. AOL Time Warner will have to
evaluate extensively how the differing treatment of employees will affect the
environment it’s attempting to create.

AOL Time Warner plans to transfer its employee compensation from cash to equity by
declaring plans for a stock-option grant to employees. "The compensation philosophy of
the company is shifting from that of a traditional media company -- cash salary and bonus
based on divisional performance -- to that of a technology company," said Henry
Blodget, a Merrill Lynch Internet analyst (Investext, 2001). AOL Time Warner wants to
use this new philosophy to encourage a sense of ownership for employees in the company
with hopes to increase productivity.

Cross Promotion

With the merger of an Internet media giant, AOL and cable giant Time Warner cross
promotion opportunities look to be infinite. The number of potential customers for AOL

Time Warner has greatly increased as well as distribution channels, customer, and cross-
promotion reaches the far ends of media spectrum. The newly merged company’s
Advertising Council will make those opportunities into realities. With members like Jed
Petrick, executive vice president of media sales for Warner Bros.; Paul McNicol, senior
vice president of interactive marketing, AOL; and others, potential strategies for cross
promotion have been developed during monthly meetings. Some advertiser executives
yearn for every cross platform deal to be a custom proposal; however, this is contrary to
some who feel the need for cross-media templates (Fine, 2001).

AOL Time Warner can now directly advertise, sell, and distribute its products on the
Internet (See Appendix H for a list of products and services.). AOL will have access to
Time Warner’s cable lines to develop itself in marketing and service areas. Thus, AOL
will provide faster service to customers remaining competitive as an Internet service
provider. Most importantly, AOL and Time Warner will gain access to one another’s
extensive customer lists (Cunningham, 2000).

Despite some conflicts of interest amongst the advertising executives, the key to
promoting the new company will be combining content, platform delivery, and marketing
this content across all mediums available as a result of this merger (Darby, 2000). For
instance, AOL software CDs will be stuffed in print publications of Time Warner’s
Money. Time Warner films and music artists will be referenced throughout AOL’s
Internet site and more heavily through AOL’s dial-up service. Finally, consumers will be
able to buy their AOL service, renew magazine subscriptions, and pay for cable service in
one bill (, 2001).

                                  Financing Synergies

The present valuation equations determine the company’s financial stability. (See
Appendix D for all mathematical equations.) After a merger, the determination of the
present valuation is necessary to evaluate how beneficial the merger will be to the
combined companies. Specifically for the AOL Time Warner merger, CFO J. Michael
Kelly of the newly merged company estimates, ―Cash flow will grow an eye-popping
50% annually‖ (Gunther, 2001). AOL Time Warner has three main options in order to
increase the present valuation of the company:
                           1. Increase total cash flows
                           2. Decrease interest on debt and equity
                           3. Realize cash flow benefits more quickly.

In order for AOL Time Warner to increase the total cash flow, it must identify its core
competencies. Once they have been identified, the portions of the merged company that
do not match the core competencies can be sold off through a process called divestiture.
Divestiture can be defined as the sale, liquidation, or spinoff of a corporate division or
subsidiary (, 2000). The cash earned from the sale of the division directly
increases the cash flow of the company. This, in turn, increases the present valuation of
the merged company as determined by the mathematical equation.

A company like AOL Time Warner also has the option of decreasing interest on debt and
equity to increase the overall present valuation of the company. Since interest on debt is
less expensive to a company than equity, AOL Time Warner should attempt to utilize the
most cost effective strategy. The interest on debt is less expensive because interest on a
loan is tax deductible. Using the company interest rate equation after taxes, the company
deducts the percentage of interest that is tax deductible to determine the overall tax rate
on debts.

The other method AOL Time Warner could implement, although not the most cost
effective, is to reduce the interest rate on equity. The paid return on equity is determined
by the security market equation. This equation factors in the amount of risk undertaken
by a company in addition to various market conditions. Since investors typically expect
some type of return on investments in the form of dividends, AOL Time Warner is
obligated to distribute these funds. The monies distributed to the shareholders are not tax
deductible; therefore, the rate at which they distribute dividends is the final rate.

AOL Time Warner can also realize the cash flow benefits sooner than they would have as
separate companies. For example, Time Warner had a project prior to the merger where
the profits were intended to be realized in ten years. Because of the accessibility AOL
has to an Internet audience, the merged AOL Time Warner will be able to reap the profits
from that project sooner. The increase in cash from revenues will allow the cash flow for
the merged company to be realized by AOL Time Warner sooner then expected.


When a merger occurs it is not unusual for the stock price of the business acquiring
another company to decrease, and the stock of the company being acquired to increase.
Fortunately, this typical circumstance did not happen between AOL and Time Warner.
Time Warner’s stock was at $52 per share as of January 1, 2001. By January 11, 2001,
the day of the merger, the stock price shot up to $71 per share. This was about a $20 per
share increase within 11 days. AOL’s stock prices increased also. The price went from
$39 on January 1, 2001 to $47 per share on the day of the merger. This is an approximate
increase of eight dollars per share. The typical stock drop did not occur, which shows a
positive outlook for AOL Time Warner’s future (, 2001).

Financial History

America Online’s revenues have increased dramatically from $2,600 million in 1998 to
$6,886 million in 2000. They generate most of their revenues through membership and
usage fees, which accounted for 64% of sales in 2000. A good portion of revenues, 29%,
also comes from advertising and commerce. AOL’s net income has steadily increased
from $92 million in 1998 to $1,232 million in 2000 as well. Additionally, their total cash
flow has been rising. It went from $224 million in 1998 to an amazing $1,595 million in
2000 (Standard & Poors, 2001).

When looking at Time Warner’s financial history one can see a significant increase in
revenues. They doubled by going from $14,582 million in 1998 to $27,333 million in
1999. Time Warner’s 2000 revenues were not available, but they were expected to
increase 8 percent. The company’s net income from 1998 to 1999 rose dramatically from
$168 million to $1.960 million. Additionally, cash flows rose from $806 million to
$4,437 in 1998 and 1999 respectively. Time Warner’s net income and cash flows for
2000 were also not accessible (Standard & Poors,2000).

Considerable increases in the above numbers are due to Time Warner’s decision to
consolidate the income statement and balance sheet items with Time Warner
Entertainment Co. for financial reporting purposes. Time Warner, including, Time
Warner Entertainment, is one of the largest U.S. operators of cable television systems,
and is one of five companies that dominate the worldwide market for recorded music.
(Standard & Poors, 2000).

Pro Forma Financials

On January 11, 2001 America Online acquired media giant Time Warner in a transaction
valued at over $106 billion. Pro Forma financials have been released as if the merger had
actually occurred on January 1,1999. These results reflect reclassifications of each
company’s historical financials to conform to the company’s combined Pro Forma
financial statement. Pro Forma revenues for 1999 equal $32,525 million, total earnings
before interest, taxes, depreciation and amortization (EBITDA) is $8,175 million, and
total net income is a loss of $2,446 million. When looking at Pro Forma results for 2000
total revenues are $36,213 million, EBITDA equals $8,267 million, and there is a net loss
of $4,384 million (, 2001).

These Pro Forma financial statements show some astounding results. Revenues have shot
up to the $35 billion range. Previously, AOL and Time Warner were making only
approximately $6 billion and $27 billion, respectively, as individual companies.
Unfortunately, both years show a loss in net income. However, since this is a new
merger, it is not unusual for it to take time for AOL Time Warner to establish itself as a
new company.

The goal of the newly created company, AOL Time Warner, is to become the world’s
most valuable and respected company. After reading what the company’s new CFO, J.
Michael Kelly, has to predict about future revenues and cash flows, one can see why the
previous statement is true. Kelly predicts $40 billion in revenue for AOL Time Warner in
2001, which should grow by 12 percent to 15 percent. He also forecasts $11 billion in
EBITDA, which is projected to grow 25 percent annually (Gunther, 2001).

                                     Tax Synergies

Despite all the scrutiny from the US government regarding anti-trust regulations, AOL
Time Warner will actually receive numerous benefits from the government concerning
annual tax breaks. Since AOL and Time Warner are uniting as one entity, it will be taxed

as one company. Even if the tax percentage rate is, for some reason, significantly higher,
it is guaranteed to be less then the combined taxation of the separate entities.

Streamlining the responsibilities of its employees is also a critical factor concerning the
taxation benefits. Even though AOL Time Warner has only decreased its total workforce
by approximately 3 percent, it saves them federal, state, and local tax monies spent on
each employee. The federal government also requires that employers pay into
workman’s compensation and unemployment funds for each employee. By developing
an efficient system to operate the newly merged company, AOL Time Warner is able to
save more money than the weekly wages of terminated employees.

                        Local Scope in the City of Athens, Ohio

Although the overall scope of the AOL Time Warner merger is important, it is also
equally as important to analyze the effects from a local perspective. Just as benefits of
the merger are present on the national and international levels, benefits will also be
present in the city of Athens. Fortunately, for the city of Athens, the majority of products
and services offered in the area have already been sampled in other communities. This
will allow the customers to experience the full benefits from products offered in the area
because AOL Time Warner will experience fewer technical difficulties.

                                  Operating Synergies

Cross Promotion

Cross promotion will also benefit AOL Time Warner customers in the Athens city area.
Time Warner Cable has a cable franchise ordinance for providing cable to the city. Its
current users will be likely to sign up for AOL cable Internet access, which will be
provided in the future through the Time Warner cables. In a recent survey of Athens city
residents, a trend can be seen demonstrating the demand for these types of services. (See
Appendix E for the survey questions.) Over 60 percent of the surveyed population stated
that they would be willing to increase monthly bills for faster Internet access and pay
more for additional television channels. (See Appendix F for survey results.)

When 416 residents were surveyed, 317 said they would be interested in paying one
monthly bill to cover both cable and Internet service. AOL Time Warner can bundle
products and services together offering special prices. This type of promotional activity
encourages customers to try new products and services that they would not typically
purchase. AOL Time Warner believes that the customers will be pleased with the
products and services so much that they continue to subscribe.

Demands Of Increased Accounts

As AOL Time Warner develops its merger in Athens, one aspect of the business it must
consider is whether AOL Time Warner will be able to handle the increased customer
demand. In the past, AOL has had issues with customer satisfaction in regards to people

actually being able to sign on, remain on, and download things at an efficient rate
(Meeks, 1997). Hopefully, AOL Time Warner will have the capabilities to manage the
peak load problems, which can be defined as a disruption in the transfer of information at
times during the day when usage is higher than normal.

Upon arriving in Athens, AOL Time Warner will have a strong customer base with the
number of students and faculty affiliated with Ohio University, not to mention the actual
residents of the city. After recognizing the potential accounts in the area, will AOL Time
Warner be able to perform efficiently? Since it has been forced to revamp its methods in
the past to ensure customer satisfaction, one could assume that AOL Time Warner will be
able to work out any complications that may exist in order to maintain customer

Cable Franchise Ordinance

A distinct benefit of the AOL Time Warner merger is the acceptance of franchise
monopolies in the cable television industry. A cable franchise ordinance is the exclusive
authority of a company to provide service in a predetermined geographical area. Under
this type of structure, the customers in the geographical area do not have the option as to
which carrier will provide them with cable service (, 2000). Time Warner, in the
Athens area, has been given permission by the Athens City Council to provide cable
services in the Athens city area.

Although a provision of the merger document approved by the FTC states that the AOL
Time Warner cables must be accessible to at least three other ISPs, Time Warner still has
the sole right to the cable television revenues (, 2000).

Potential Customers

Through the increased distribution channels that AOL Time Warner cables provide in the
Athens city area, the number of potential customers has risen. Customers, especially
those subscribing to AOL, can take full advantage of the cable access. AOL Time Warner
can provide its customers with everything from cable television to Internet access and
movies to magazine subscriptions. Whether Ohio University college students are
watching television, conducting research, chatting online, or just surfing the Internet, they
present a major source of revenue for the local AOL Time Warner business.

Likewise, being a college-town, Athens city is densely populated with young adults in the
age range of 18yrs-25yrs. During the 2000-2001 academic school year, there are 12,296
off campus students affiliated with the University, according to the Office of Institutional
Research at Ohio University, (2000). Each of these students has academic requirements
that tend to involve Internet research. Since the market is comprised of many college
students, they might be more willing to accept and try upcoming and developing
technologies (See Appendix I on Technologies.). From these observation, AOL Time
Warner has numerous potential customers coming solely from the university, not
including faculty, staff, and other Athens city residents.

                                    Financing Synergies

Considering the increased promotional attempts made by AOL Time Warner, the Athens
area should reap the monetary benefits through an increase in the total number of
accounts. Since customers will be able to receive cable television, Internet access, and
magazine subscriptions from the same company, many busy college students, professors,
Ohio University employees, and Athens city residents will be encouraged to take
advantage of this opportunity.

The demand for the increase in the number of accounts in the Athens city area will
require AOL Time Warner in Athens to maintain a reliable workforce to ensure total
customer satisfaction in the area. AOL Time Warner will require each of its employees
to read, understand, and sign an employee agreement, which will protect both the
employer and the employee. The employer will be ensured that any intellectual property
and company secrets are not inappropriately used. The employee is guaranteed to receive
an annual salary, quoted in the document, along with any other employee benefits
available to him/her (See Appendix G for Employment Agreement.).


Despite the school of thought that believes that mergers of two large companies is
virtually impossible to make a success, AOL Time Warner will be able to overcome that
stigma. AOL Time Warner has invested a lot of time, money, intellectual capital, human
capital, and effort in order to ensure that the cultural and technical components of the
merger survive. To demonstrate the philosophies shared by AOL Time Warner, Mr.
Steve Case, the new Chairman of the board states:

       We’ve always said that America Online’s mission is to make the Internet as central to
       people’s lives as the telephone and television, and even more valuable, and this is a once
       in a lifetime opportunity to turn this promise into a reality…By joining forces with Time
       Warner, we will fundamentally change the way people get information, communicate
       with others, buy products and are entertained—providing far-reaching benefits to our
       customers and shareholders (Lexis-Nexis, 2000).

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Hamm, S., Rosenbush, S., Hof, R., Grover, R., and Siklos, R., (2000 January). So Who’s
Next?. BusinessWeek. [On-line]. p46-47 (Available): ABI-Inform
Harbert, T. (2001 January). Separating Suitors. Electronic Business[On-line]. p70-72.
(Availavle): RDS Business & Management Practices.

iTVNews. (2000). Retrieved 22 February 2001 from

Jenkins, B. (2000). The Recent Developments In the Safe Harbour Principles Established
By the European Union and the United States [On-line]. Retrieved 6 March 2001 from

Lexis-Nexis. (2001). The Walt Disney Company. [On-line]. p1-7. Retrieved 24 February
2001 from…5=9d34a542d5d5f9582152ef977c373269

Lexis-Nexis. (2001). Viacom. [On-line]. p1-6. Retrieved 24 February 2001 from…5=179e6bd546cfec2229of674dcfb5830

Lexis-Nexis. (2001). AOL Time Warner Inc. [On-line]. Retrieved 22 February 2001 from

Lexis-Nexis. (2000 January). From the Canada News Wire. [On-line]. Retrieved 18
February 2001 from Lexis-Nexis

McKegney, M. (2001 February): AOL Time Warner’s Cross-Media Game. Adageglobal
[Online] p 11 (Available): OhioLink.

Meeks, Brock N. ―Jacking in from the "Devil's Own Dialtone," CyberWire Dispatch 28
Jan 1997

Mermigas, D. (2001 February 5). Electronic Media. Crain Communications, Inc.
[Online], p 25-27 (Available): Lexis-Nexis.

Mosquera, M. (2001). AOL Time Warner Merges Staff With Unemployment. Retrieved
22 February 2001 from

MSN (2001). Retrieved 6 March 2001 from


RedHerring. (2000, March). Fixed Wireless won’t conquer the world. Retrieved 4 March
2001 from

RedHerring. (2000, December). Will the market welcome AOL Time Warner?. Retrieved
19 February 2001 from

Rothenburg, R. (2000, January 17). The AOL Time Warner Marriage is a Calculated Bet
on Convergence. Advertising Age [Online]. V72 p 32-34. Chicago: (Available): ABI-

Roadrunner. (2000). Retrieved 3 March 2001 from
Shearer, B. (2000, March). AOL/Time Warner sparks speculation on the future of media.
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2001 from

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Verizon (2001). Retrieved 3 March 2001 from

Yahoo! (2001). Retrieved 6 March 2001 from

ZDNet (2000). Retrieved 28 February 2001 from,4586,2673935,00.html

                                     APPENDIX A


When AOL Time Warner merged it was confronted with many more competitors in a
variety of industries. Among these competitors were large production companies
            A similar product line to the pre-merged Time Warner,
            An assortment of Internet Service Providers,
            And wireless phone providers.
Although AOL Time Warner is now much larger than the majority of these companies, it
must be aware of the strict competition competitors will provide. It must also be willing
to make the necessary advances to maintain its competitive advantage.


Viacom like AOL Time Warner operates in many mediums, from movies and television
to publishing and the Internet. Included in their product mix are Blockbuster, CBS,
MTV, radio stations, cable networks, theme parks, and publishing companies
(, 2001). Currently, Viacom is lacking a strong Internet presence. Recently,
they have been increasing online business, but unfortunately they did not meet the
performance goals previously anticipated. According to Mel Karmazin, the acquisition
of an Internet company will improve Viacom’s stock. He claims that if it is a possibility,
then he will make it a reality, but only after careful consideration (Grover, 2000).


Disney is one of the biggest names in the entertainment field. They are the third largest
media and entertainment conglomerate in the world behind AOL Time Warner and
Viacom. Operations include movies, broadcasting, the Internet, and theme parks
(, 2001). At the moment, they have a strong advantage because of the content
they provide in the New Media world. They also have decades of experience in cross
selling; utilizing its theme parks, cable TV, and networks to promote its films. Disney is
having difficulties developing a broadband strategy, making it more difficult to gain a
definite advantage over AOL Time Warner (Grover, 2000).

AT&T Wireless

With the joining of AT&T and MediaOne Group, the company has become one of the
largest cable operators in the United States. They have connections with more than 25
percent of the country’s cable customers. The AOL Time Warner merger could
encourage AT&T to join with other content companies. AT&T doesn’t have a lot of
Internet access, since the WorldNet is only a fraction of the size of AOL. In order to
remain a competitor to AOL Time Warner, they are most likely going to have to take a
look at alliances that will provide more content to the company. According to telecom

analyst Brian Adamik, ―The content distribution model is very powerful. It will cause
telecom companies to wonder if owning a pipe alone is enough.‖ (Grover, 2000)

AT&T Broadband offers a variety of services in the telecommunications industry.
Competing with AOL Time Warner, they provide basic and premium cable services,
roadrunner Internet access, digital cable and digital music (, 2001).


Frognet is an Internet provider that offers full service and a multimedia development firm
focusing on e-commerce for the World Wide Web. They act as an Internet Service
Provider and are widely used in the Athens area (, 2001).


Yahoo! has the advantage of being the largest portal on the Web, attracting 120 million
visitors a month. It has a $94 billion plus market cap that gives them tremendous buying
power. Yahoo! is looking to continue its current strong relationships with content
providers as opposed to buying a content company. If Yahoo! continues to pursue this
strategy, it may be left behind. In addition, it does not currently offer Internet access
services and, therefore, cannot directly compete with AOL as an ISP (Grover, 2000).

Yahoo! is expecting revenues of $1.2 billion in 2001, however the company feels that
there are some potential risks that they will be facing. These risks and uncertainties
     A slower spending environment for advertising sales
     Actual increases in demands by customers for Yahoo!’s services
     The ability to successfully change the customer mix among Yahoo!’s advertising
     Dependence on third parties for technology, content, and distribution (,


Verizon mainly competes with AOL Time Warner through their DSL Internet connection
services and Verizon online. Their DSL services provide customers with the ability to
access the Internet at a fast rate and remain online until the computer is shut off.
Verizon’s DSL service is one that is dedicated to providing a local connection between
the individual customer and the Verizon serving office; in other words, the DSL
connection is not shared with other neighboring customers. Verizon also offers a
wireless mobile web service that provides the wireless carrier the access to a personalized
website directly from their handset (, 2001).

Recently, Verizon started its own online service that allows customers fast connections to
the Internet with fewer busy signals and local access in most areas. Once on the Internet

a service known as one-click web channels is provided, making navigating the web easier
and more efficient. The Verizon online service is comparable to that of AOL and is
approximately $7 less. Operating under high standards, Verizon online, is rated as
performing above the industry by Inverse Network Technology, an independent firm that
measures the overall performance of ISP’s (, 2001).


MSN, another competitor of AOL Time Warner, acts as an ISP and an ASP. They offer a
full service package including: high speed DSL and access to the Internet that is always
accessible. Since the line is not shared, MSN is able to guarantee a dedicated bandwidth
connection, meaning the speed will not be reduced during peak usage (, 2001).

MSN provides high-speed satellite access for those customers who are unable to utilize
DSL. Through satellite service, content can be sent and received over satellite without
phone lines. Services are not lessened with the use of the satellite, rather, the same
features provided through dial-up connections, along with many more, are available
(, 2001).

Core com/Eurekanet

By transforming a copper phone line into a broadband pipe, CoreComm DSL, a local
competitor of AOL Time Warner, can deliver download speeds 27 times faster than
standard dial-up speeds. They offer Internet access that is always available, with no
delays or busy signals. CoreComm DSL includes services such as: a DSL line with
constant connection, ADSL, choice of connection speed, and 3 email accounts, to name a
few (, 2001).

  Internet Providers in                Services                       Prices
AOL Time Warner               Road Runner                   $39.95/month
                              ISP                           $24.95/month
Frognet                       56k Dial-up                   $19.95/month
                              ADSL                          $19.95/month
Eurekanet                     56k Dial-up                   $19.95/month
MSN                           56k Dial-up                   $21.95/month
                              DSL                           $39.95/month
                              Satellite                     $59.95/month
Verizon                       DSL                           $39.95/month
                              Online                        $19.95/month

                                   APPENDIX B

                            The Federal Trade Commission

The Federal Trade Commission, known to many as the FTC, has an extremely important
function in the American regulatory system. The FTC’s primary objective is to enforce
federal antitrust and consumer protection laws. The FTC strives to prevent the market
and consumers from suffering any negative consequences caused by the domination of
high-powered companies in different industries. Consumers are its main priority
ensuring protection from illegal or unethical business practices; therefore, the FTC
emphasizes the importance of consumer education (

The specific conditions that the FTC required AOL Time Warner to abide by are
necessary to encourage a competitive environment in the telecommunications and
entertainment industry. The following are the specific conditions agreed upon by AOL
Time Warner concerning its merger:

      Required to open its cable system to competitor ISPs, which includes access for
       three local ISPs in every area that AOL/Compuserv services;
      Prohibited from interfering with content passed along the bandwidth contracted
       for by non-affiliated ISPs that AOL Time Warner has agreed to carry;
      Prevented from discriminating on the basis of affiliation in the transmission of
       content, or from entering into exclusive arrangements with other cable companies
       with respect to ISP services or interactive TV services;
      Required to market and offer AOL's digital subscriber line (DSL) services to
       subscribers in Time Warner cable at the same retail pricing as they do in those
       areas where affiliated cable broadband ISP service is not available
      Required to permit other services to access AOL’s Instant Messaging techniques.
       (, 2000).

                                    APPENDIX C

                        Federal Communications Commission

The Federal Communications Commission is a federal regulatory body presiding over the
telecommunications industry. It serves to ensure that companies in the industry
appropriately abide the conditions set by the FTC. The FCC has regulatory control over
the telecommunications industry, which includes Mass Media, Common Carrier,
Wireless, International and Cable Television Services. The FCC focuses on a few main
areas that include, but are not limited to Third Generation (3G) Wireless Communication,
Regulatory Fees, a Transaction Team, and Broadband technology.

The 3G Wireless communication systems will provide access though radio links to a
variety of conventional telecommunications networks. It will also provide users of
mobile communication the ability to access these communication methods through the
wide range of wireless technology. The FCC also serves to collect the Regulatory Fees
            Fund the enforcement of anti-trust regulation decided by the FTC
            Assist the development of policies and rules for the companies in the
            Maintain user information
            Fund international activities.

A Transaction Team has been established by the FCC to perform a variety of functions.
Mainly, the transaction team verifies that the licenses involved in a merger have been
handled appropriately. The team also is involved in reviewing and improving the
evaluation process of a merger. Finally, the FCC has been monitoring the recent
developments in broadband technologies in order to encourage competition in all of the
potential markets (, 2001).

                                    APPENDIX D

                                  Financial Equations

Capital Strucure

Assets = Liabilities + Equity

Present Valuation

P0= __CF1___ + ___CF2___        +………___CF___
     (1+i)1      (1+i)2               (1+i)

Company Tax Rate After Taxes

Tax rate after taxes= Kd* (1-T)

Security Market Line Equation

ks= krf + (km – krf) 

ks= rate of return
krf= risk free rate
km=S&P 500 market
= Beta

                            APPENDIX E

                   AOL Time Warner Survey

1.    What is your age (18-25, 26-35, 36-45, 45+)?
2.    Do you have cable?

3.    What is your current cable package (basic – 26 channels, standard
      – 36 channels, or standard service package – 62 channels)?

4.    Do you have any premium channels? If so, how many (1 - 5)?

5.    Do you have a computer?

6.    If not, are you planning on getting one in the near future?

7.    What is your current Internet Service Provider

8.    Are you satisfied with the speed of your current ISP?

9.    Would you be willing to pay more for an ISP that is 50X faster
      than a regular service?

10.   Are you interested in paying $10 extra a month for about 200
      more channels (this includes better sound and picture quality as

11.   Would you be interested in having one bill for your cable and
      Internet Service Provider?

                                        APPENDIX F
                Project # 3 Survey Results of 416 Athens City Residents
 Question 2       Yes            No
   18-25          228            27
   26-35           55             2
   36-45           40             3
    45+            50            11

Question 3    26 Channels   36 Channels   62 Channels
   18-25           29            47            143
   26-35            7            29            16
   36-45           12            14            12
    45+            13            19            15

 Question 4       None            1             2        3        4       5
   18-25           116           32            28       17        7       11
   26-35            25          3+1             7        1        2       4
   36-45            21            6             4        6        1       1
    45+             24            5             6        5        1       5

 Question 5       Yes            No
   18-25          212            20
   26-35           47             9
   36-45           36             6
    45+            51             8

 Question 6       Yes            No
   18-25          12              6
   26-35           3              5
   36-45           4              2
    45+                           2

 Question 7    Eurekanet      Frognet         AOL       MSN      Other
   18-25           3             56            90        20       42
   26-35           2             12            21         8        3
   36-45                         10            17         4        5
    45+                          12            23         8        9

 Question 8       Yes            No
   18-25          118            95
   26-35           26            23
   36-45           21            16
    45+            28            20

 Question 9       Yes            No
   18-25          165            54
   26-35           38            14
   36-45           30            11
    45+            32            17

Question 10       Yes            No
  18-25           162            57
  26-35            37            17
  36-45            28            14
   45+             22            29

Question 11       Yes            No
  18-25           194            30
  26-35            46             7
  36-45            39             4
   45+             38            14

                                      APPENDIX G

                              Employment Agreement Analysis

The following employment agreement has been established to verify that all terms of the
contract between AOL Time Warner and the employee are mutually understood, and that
no discrepancies exist. With the recent merger, AOL Time Warner has found that it will
be necessary to hire a new marketing employee in the area. This new employee will be
responsible for the development of new marketing strategies and local advertisement.

There are many provisions included in this agreement that AOL Time Warner feels are
necessary. It includes various standard provisions, for instance: agreement to employ and
be employed, description of employees’ duties, binding effect of agreement, signature
section, etc. Within these are many significant provisions such as: Term of Employment,
Compensation of Employee, Nondisclosure of Information, Covenants of Employee, and
Non-Competition. These are the most important components necessary to protect the
employers from any legal repercussions.

Term of Employment
Section 4 of the agreement states that the contract is an ―at will‖ agreement under Ohio
law. This means that the employer or the employee is able to end the agreement at any
time for any reason. For the contract to actually be terminated, there must be a written
notification from one party to the other stating his/her intentions. This provision is
important because it clears up any disagreement there may be if either party decides to
terminate the contract, preventing any legal controversy.

Compensation of Employee
Section 5 of the agreement says that the new marketing employee will receive a $40,000
salary, and will be paid twice a month on the 1st and the 3rd Friday. It also states that the
employer shall reimburse the employee for any necessary expenses incurred while
traveling. The employee may additionally receive pay increases or bonuses at the
employer’s discretions, is eligible to participate in the fringe benefit program, and also
has two weeks of paid vacation per year. This provision is necessary so it is clear to the
employee what benefits and compensation are available to them.

Nondisclosure of Information
Section 8 of the agreement states that the employee will not at any time, in any fashion,
form, or manner directly or indirectly disclose information pertaining to any aspect of the
company. This is very important because any company information released to
competitors could cause significant harm to AOL Time Warner. It is critical that the
employee understands how vital it is that all company information must be kept entirely

Covenants of Employee
Section 9 of the agreement states that the employee cannot in any way try to convince
other employees to leave AOL Time Warner during his/her employment or up to two
years after termination of employment. Also, at the time of termination the employee
must destroy any confidential information he/she may have in their possession. This
provision is important because it is crucial that the employee does not possess any
important information when leaving the company.

Non-Competition Agreement
Section 9 of the agreement says that when the employee is terminated, the employee must
not attempt to take away customers from the employer in any area within 200 miles of the
company for a period of two years. This provision is essential because it protects the
employer from the employee trying to compete against AOL Time Warner in the area of

                            EMPLOYMENT AGREEMENT

This Agreement made and entered into this __7__ day of ___March__, 2001__, by and
between AOL Time Warner._ ("Employer"), and __Courtney Tucker __ ("Employee").
The parties recite that:

A. Employer is engaged in ____telecommunications and entertainment services______
and maintains business premises at   28 Station St. Athens, Ohio  .

B. Employee is willing to be employed by Employer, and Employer is willing to employ
Employee, on the terms and conditions hereinafter set forth. For the reasons set forth
above, and in consideration of the mutual covenants and promises of the parties hereto,
Employer and Employee covenant and agree as follows:

  Employer hereby employs Employee as a __marketing representative__ at the above-
mentioned premises, and Employee hereby accepts and agrees to such employment.

  Subject to the supervision and pursuant to the orders, advice, and direction of
Employer, Employee shall perform such duties as are customarily performed by one
holding such position in other businesses or enterprises of the same or similar nature as
that engaged in by Employer. Employee shall additionally render such other and
unrelated services and duties as may be assigned to him from time to time by Employer.

  Employee shall at all times faithfully, industriously, and to the best of his ability,
experience, and talent, perform all duties that may be required of and from him pursuant
to the express and implicit terms hereof, to the reasonable satisfaction of the Employer.
Such duties shall be rendered at the abovementioned premises and at such other place or
places as Employer shall in good faith require or as the interests, needs, business, and
opportunities of Employer shall require or make advisable.

  This is an employment agreement "at will" under Ohio law. Either Employee or
Employer may terminate this agreement at any time, for any reason with or without
cause. Termination of this agreement shall be complete upon the terminating party
tendering to the other party written notice of his intent to terminate this agreement.

A. Employer shall pay Employee, and Employee shall accept from Employer, in full
payment for Employee's services under this agreement, compensation at the rate of
$40,000 per year, payable twice a month on the 1st and 3rd Friday of each month while
this agreement shall be in force.

B. Employer shall reimburse Employee for all necessary expenses incurred by Employee
while traveling pursuant to Employer's directions.

C. Employee may, in the sole and absolute discretion of the Employer, from time to time
receive increases or bonuses in his pay.

D. In addition to the compensation Employee receives hereunder, Employee is eligible
for participation in the fringe benefit programs established by Employer on fulfillment of
the eligibility requirements for each program. Employer may, without notice, modify or
discontinue any fringe benefit program, which it maintains.

E. Employee is entitled to a paid vacation of two weeks per year.

  Employee shall devote all of his time, attention, knowledge, and skill solely and
exclusively to the business and interests of Employer, and Employer shall be entitled to
all benefits, emoluments, profits, or other issues arising from or incident to any and all
work, services, and advice of Employee. Employee expressly agrees that during the term
hereof he will not be interested, directly or indirectly, in any form, fashion, or manner, as
partner, officer, director, stockholder, advisor, Employee, or in any other form or
capacity, in any other business similar to Employer's business or any allied trade, except
that nothing herein contained shall be deemed to prevent or limit the right of Employee to
invest any of his surplus funds in the capital stock or other securities of any corporation
whose stock or securities are publicly owned or are regularly traded on any public
exchange, nor shall anything herein contained by deemed to prevent Employee from
investing or limit Employee's right to invest his surplus funds in real estate.

  Employee shall make available to Employer all information of which Employee shall
have any knowledge and shall make all suggestions and recommendations that will be of
mutual benefit to Employer and Employee.

  Employee will not at any time, in any fashion, form, or manner, either directly or
indirectly divulge, disclose, or communicate to any person, firm, or corporation in any
manner whatsoever any information of any kind, nature, or description concerning any
matters affecting or relating to the business of Employer, including, without limitation,
the names of any its customers, the prices it obtains or has obtained, or at which it
sells or has sold its products, or any other information concerning the business of
Employer, its manner of operation, or its plans, processes, or other date of any kind,
nature, or description without regard to whether any or all of the foregoing matters would
be deemed confidential, material, or important. The parties hereby stipulate that, as
between them, the foregoing matters are important, material, and confidential, and
gravely affect the effective and successful conduct of the business of Employer, and its
good will, and that any breach of the terms of this section is a material breach of this

A. Employee shall not, directly or indirectly at any time during her employment with
Employer, and for a period of two (2) years after termination of the Employee-Employer

       1. Solicit or attempt to solicit any Employee, agent or contractor of
       Employer to leave the employment of Employer; or

       2. Assist or attempt to assist any person, firm or corporation in any way to
       solicit any Employee, agent or contractor of Employer to leave the
       employment of Employer.

B. At such time as the employment relationship between Employee and Employer has
terminated, Employee shall:

       1. Promptly return to Employer, or at Employer's option, destroy all
       Confidential Information and any documents related to the Intellectual
       Property, including all copies of documents, notes or materials made by
       Employee or at her direction; and

       2. Certify in writing to Employer that she has so complied; and

       3. Not use Confidential Information or Intellectual Property or transact
       business in a manner in any way based upon or utilizing Confidential
       Information or Intellectual Property.

C. Commencing on the effective date of this Agreement and continuing for a period of
two (2) years after termination of Employee's employment with Employer, Employee,
either individually or in partnership or jointly or in conjunction with any person or
persons, firm, association, syndicate, company or Employer, as principal, agent,
shareholder, or in any other manner whatsoever shall not solicit, divert or take away, or
attempt to solicit, divert or take away, any customers of Employer, or call upon
communicate, advise or consult with, write or respond to, or inform any customer, client
or account of Employer, for the purpose of soliciting, selling or recommending
conflicting products and service (whether or not such customer, client or account was a
customer, client or account previously contacted by Employee while employed by
Employer), in any area in which Employer (or its agents or representatives) sells its
products and services not to exceed two hundred miles (200) from the outer limits of
Athens County in any direction. This covenant not to compete shall be effective
regardless of the reason why Employee was terminated even if such termination was
arbitrary, capricious or wrongful.

D. In the event that any or all of the restrictive covenants shall be determined by a court
of competent jurisdiction to be unenforceable by reason of their geographic or temporal
restrictions being too great, or by reason that the range of activities covered are too great,

or for any other reason, they should be interpreted to extend over the maximum
geographic area, period of time, range of activities or other restrictions as to which they
may be enforceable.

E. The provisions of this Section Nine shall survive the termination of this Agreement by
thirty (30) years.

  In spite of anything contained in this agreement to the contrary, Employee shall not
have the right to make any contracts or commitments for or on behalf of Employer
without first obtaining the express written consent of Employer and shall have no
authority to write checks on behalf of the Employer. In the event the Employee enters
into any agreement or writes any check on behalf of Employer that is not specifically
authorized in writing by Employer, Employee shall indemnify Employer for any costs
incurred by Employer in connection with such agreement or check.

  No waiver or modification of this agreement or of any covenant, condition, or
limitation herein contained shall be valid unless in writing and duly executed by the party
to be charged therewith. Furthermore, no evidence of any waiver or modification shall be
offered or received in evidence in any proceeding, arbitration, or litigation between the
parties arising out of or affecting this agreement, or the rights or obligations of any party
hereunder, unless such waiver or modification is in writing, duly executed as aforesaid.
The provisions of this paragraph may not be waived except as herein set forth.

  All disputes arising out of this agreement are to be submitted to arbitration, in the
County of Athens, State of Ohio pursuant to the rules then of the American Arbitration
Association. The decision in arbitration shall be conclusive and binding on the parties.

  This agreement and performance hereunder shall be construed in accordance with the
laws of the State of __Ohio___.

 This agreement shall be binding on and inure to the benefit of the respective parties and
their respective heirs, legal representatives, successors, and assigns.

Executed on the date first above written.

__________, Employer

__________, Employee

                                    APPENDIX H

                                Products and Services

Below is a list of the different products and services that AOL Time Warner provides to
consumers. It includes different services such as subscriptions, cable, movies, music,
home videos, recorded music, printed music, books, magazines, online shopping
programs, kids stuff, and company branded products. Interactive services include
networks, online publishing, filmed entertainment, music and the cable system

AOL 6.0 Internet Service Provider
 Serves more than 27 million members worldwide
 1.2 Million peak simultaneous users
 166 million e-mails daily
 245 million stock quotes daily
 7.3 billion Web URLs served daily
 64 minutes online per member daily
 656 million instant message a day

   Subscriptions include America Online includes Digital City and MapQuest; the new
       AOLbyPHONE; the AOL and portals; the
       Netscape 6, Netscape Navigator and Communicator browsers; AOL Moviefone,
       the nation's No. 1 movie-listing guide and ticketing service; AOL@School, a free
       online learning tool for K-12 classrooms; and and NullSoft's
       Winamp, leaders in Internet music. i-Planet E-Commerce Solutions, a Sun-
       Netscape Alliance, provides easy-to-deploy, comprehensive e-commerce
       solutions for the Net Economy.
              AOL Anywhere provides AOL By Phone, AOL Mobile Services, Instant
               Messenger on Spring PCS, Wireless Web, AOLTV, Instant AOL, AOL
               Plus, Handheld Organizers, AOL Mobile Communicator, People & Chat,
               Search and Privacy Protections.
              CompuServe 5.0
              ICQ
              AOL Instant Messenger
              AOL International provides AOL and CompuServe offering multiple
               services in 16 countries in 8 languages

   Cable Includes HBO Direct Ordering and Road
   Movies include, New Line Cinema Store, Warner Home Video, Total E, Columbia
    House, DVD, HBO DVD, Moviefone
   Music Online includes Winamp and Spinner
   Home Videos include Time Life Videos, This Old House videos, This
    D.A.V.E.(direct audio video express), Warner Bros. Records, Elektra Records Store,
    Columbia House, New Line Cinema Store, Warner Home Video, Warner Bros. Video
    Club, Turner Classic Movies, HBO Home Video

   Recorded Music includes Atlantic Records, The D.A.V.E, Elektra Records Store,
    The Reprise Store, Rhino Records, Warner Bros. Records Music Store, Warner Bros.
    Studio Store, and Warner Classics International
   Printed Music includes SongXpress, Warner Bros. Publications Music Shop,
   Books include Book-of-the-Month Club, Columbia House CD-ROMs, Little, Brown
    and Company, DC Comics comic books, Oxmoor House Books, Warner Books,
    Sunset Books, Time 100 Bookstore, Cooking Light Books, Martha Stewart books,
    Progressive Farmer books, Southern Living books
   Magazines include Asiaweek, BabyTalk, Coastal Living, Cooking Light,
    Entertainment Weekly, Fortune, Health, Hotdots, Life, Money, Parenting Magazines,
    People, Progressive Farmer, Southern Living, Southern Accents, Sports Illustrated,
    Sports Illustrated for Kids, Sunset, Teen People, This Old House, Time, Time for
   Online Shopping includes Columbia House, Shop@Netscape, Shop@Compuserve, Total E
   Kids Stuff includes AOL@School applies America Online's hallmark focus on
    convenience and ease-of-use to help educators make the most of online learning and
    provides a series of safe, age-appropriate learning portals with easy-to-follow links to
    online content selected by educational experts. Also, there is Warner Bros. Studio
    Store, Sports Illustrated for Kids, DC Comics for Kids, Children’s Book Nook,
    AcmeCity, HBO Family, Atlanta Braves Merchandise
   Company Branded Products include Comedy Central Store, New Line Cinema
    Store, Warner Bros. Store, Warner Bros. Studios Facitilities, Coastal Living House
    Plans, Progressive Farmer General Store, Southern Living Marketplace, Sports
    Illustrated Merchandise, This Old House Store, Atlanta Braves Merchandise, Atlanta
    Thrashers Merchandise

 Networks include Turner Entertainment Networks, CNN News Group, Home Box
   Office and The WB Television Network
 Publishing includes Time Inc. and Time Warner Trade Publishing
 Filmed Entertainment includes Warner Bros. and New Line Cinema
 Music is Warner Music Group
 Cable System is Time Warner Cable

                                      APPENDIX I


Application Service Provider (ASP)

An Application Service Provider (ASP) provides applications to any client’s device,
ranging from mobile phones and other personal handsets to PCs and other windows or
non-windows based terminals. Applications can range from Windows office productivity
applications to enterprise financial and other functional applications. By connecting to an
ASP, one can utilize multiple office sites to perform advanced computer applications
through the Internet or a private network. One generally pays for applications and
information with a fixed monthly subscription bill (, 2000).


Bandwidth is the amount of frequency spectrum available or needed to transmit data over
a medium such as cable or air through an electronic device. A larger amount of data can
be transmitted per second with a higher bandwidth (, 2001).


Broadband is defined as evolving technologies that provide consumers with a signal
switched facility that offers integrated access to voice, high speed data services, video-
demand services, and interactive delivery services. It has a very high bandwidth and can
carry large amounts of data rapidly (, 2001).

Cable Modem

A cable modem is a device that connects a set top box or computer to a cable TV
network. A cable modem is attached to a computer through a Network Interface Card
(NIC). The cable modem allows a computer to be connected to the Internet through an
existing Cable network connection. Because a cable modem connects into a cable TV
network, it shares the same bandwidth available proving both offices and homes with the
same access speed. It does not require a phone line and works in a similar manner to a
standard computer modem (, 2000).

Digital Cable

Digital cable is the delivery of television signals digitally over fiber optic cables. A
digital cable terminal connects to the TV as a converter that changes digital signals so
that televisions can show them. The digital signals are received from a processing center
that interprets them, and then converts them to an analog signal so that digital cable
works with the television. Digital cable services allow providers put more video and data
into present channels allowing providers to create sharper pictures (,

Digital Television (DTV)

Digital television is the action of transmitting and receiving broadcast television signals,
digitally or ―over the air‖ allowing broadcasters to provide new and higher quality
services such as clearer resolution and improved sound quality. It is based on Advanced
Television System Committee (ATSC) standard A/53. It allows many programs to be
used concurrently through one-television channel and supports digital data services with
television and audio programming (, 2001).

Direct Broadcast Satellite (DBS/DISH)

DBS/DISH is high-powered satellite that transmits or retransmits signals, which are
intended for direct reception by the public. The signal is sent to a small earth station or
dish located at homes or other buildings (, 2001).

Digital Cable Video

Digital Cable Video is a service that provides customers with a universal remote unit that
controls the cable box, most TVs and VCRs. It also gives customers the option to order
on demand pay-per-view services and other video service (, 2001).

Digital Music

Digital music supplies audio hook-up cables to its customers that work with both analog
and digital audio outputs and can be easily connected to an individual’s stereo. In result,
individuals can receive digital music directly from their speakers (,


DSL is a high-speed, always connected Internet access that doesn’t tie up the phone line.
Utilizing a normal copper telephone line and digital coding, DSL is able to create a
connection to the Internet from your computer. ―DSL usually offers bit speeds that range
from 300 kbps to 1.54 mbps. It uses twisted pair local loops and is limited by the loop
length that must be less than 18,000 feet.‖ (Roycroft, 2001) In order to work effectively,
DSL services require splitting one’s telephone line into three channels: one for telephone
traffic, upstream data, and downstream data (, 2001).

DSL is offered in a variety of forms, each of which operates at different speeds.
   Asymmetrical digital Subscriber Line (ADSL) is designed primarily for
       residential areas
   High-Speed Digital Subscriber Line (HDSL) offers fast upstream and downstream
       data transmission
   ISDN Digital Subscriber Lines (IDSL)
   Symmetrical Digital Subscriber Lines (SDSL)
   Very High Bit Rate Digital Subscriber Lines (VDSL) (,

High Definition Television (HDTV)

HDTV is a television system that provides vertical and horizontal resolution
approximately twice that of existing television standards and audio quality equivalent to
that of compact discs. In order to benefit from HDTV, an individual needs to buy a
HDTV compatible television that will receive and convert the digital television signals
(, 2001).

Interactive Television

Interactive television is domestic television with interactive facilities usually facilitated
through a 'back channel' and/or an advanced terminal. Services distributed to interactive
TV include online access through the television for home shopping, digital video
broadcasting to Internet, movies on demand, video telephony and others (,

Internet Service Provider (ISP)

An internet service provider is a company that sells Internet access software, while
allowing users to access the internet through telephone lines, cable, satellite, wireless or
other technologies. This then takes them to the main backbone internet and then to their
remote locations (, 2001).


A modem is a modulator demodulator, a device that turns digital information that
computers use into analogue information that can be passed through ordinary telephone
lines (, 2001).

Road Runner

Road Runner is a high-speed online service that provides access to the Internet locally
and nationally reaching download speeds up to 50 times faster than a normal dial-up
connection. It provides five e-mail accounts, personal web pages, and the option to access
and register up to seven computers that are all accessible at the same time
(, 2001).


Fiber to the Curb (FTTC) is the installation and use of optical fiber cables directly to the
curbs near homes and businesses. It acts as a replacement for normal telephone lines,
giving customers high bandwidth and making it possible to get online sites with no delay.
At the moment fiber to the curb is being implemented very slowly since it is quite costly.
However connections such as DSL, which is less costly, and Cable modems are being
installed readily (, 2000).

Wireless broadband

Wireless broadband is currently in the growing process, but companies are hopeful that it
will become more powerful and less expensive in the near future. Capable of being
separated into two areas, fixed wireless and satellite services, wireless broadband
operates at speeds 50 times faster then other services (, 2001).

Fixed wireless involves the process of delivering signals form stationary/fixed antennas
to those mounted on the sides of homes. It is offered by many companies including but
not limited to World Com, Sprint, Winstar, and Nextlink. Fixed wireless is provided in
two different forms, MMDS and LMDS (, 2001).

Multi-channel Multi-point Distribution Service (MMDS) is currently an analog service
providing about 33 channels of programming to subscribers. The benefits of MMDS
include flexibility, rapid development, lower systems costs, excellent picture quality, and
uses less equipment. Fixed wireless will cover rural and suburban areas that do not
currently receive service through connections such as DSL. Wireless has already
established itself and MMDS is a more recent, digitized version that can beam data and
Internet traffic along with television signals. It is also able to operate at high-speeds and
is always accessible (, 2000).

On the other hand, Local Multi-point Distribution System (LMDS), or cellular TV, has
been used primarily for delivery of video programming from local and cable channels,

but is also capable of delivering telephony and Internet services. LMDS has been
developed to deliver wireless cable services that offer high quality picture, and can
accommodate voice, data, and video simultaneously along with supporting interactive
services. Costs are estimated to be 25 percent of cable costs, but the primary drawback is
that the terrain of the Athens area can interfere with the signals necessary to receive
MMDS and LMDS (Graham, 1996).

Satellite Internet services is basically Internet access from outer space. It works by
beaming signals from a satellite to an antenna mounted on the side of the roof of homes.
Although it offers great speed in Internet access there are some drawbacks to the satellite
services. These drawbacks include:
     The antenna must be facing the satellite delivering the signal
     A modem and phone line is needed in order to send things upstream since a
        satellite is only able to send information down stream (,


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