AOLTW to report on another tumultuous quarter

Just one day before AOL Time Warner (AOLTW) is set to release its first quarter 2003 results, reports surfaced Tuesday that a government probe into the company's accounting practices has widened even further.

The Washington Post reported in its online edition Tuesday that the U.S. Securities and Exchange Commission (SEC) is now scrutinizing a $100 million transaction between Inc. and the company's AOL Internet unit, as well as smaller deals with and Catalina Marketing Corp. The report comes on the heels of news last month that federal investigators, who initiated an inquiry into the company's accounting last year, had shifted their focus to two advertising deals the company forged with German media giant Bertelsmann AG.

An AOLTW spokeswoman declined to comment on the reports Tuesday.

The news, and its unfortunate timing, seems to characterize AOLTW's streak of tough luck, which has only intensified in recent months. Since wrapping up 2002 -- a year marked by an executive shakeup, dwindling AOL subscribers, the continuing decline of the company's share price and a nearly US$99 billion annual loss -- AOLTW has been hit with a fire at its new headquarters, an expanded financial probe, lawsuits alleging insider trading and the departures of vice chairman Ted Turner and chairman and AOL founder Steve Case.

And there's still the matter of the company's $29 billion debt. Although the media conglomerate announced this week that Viacom Inc. has agreed to acquire AOLTW's stake in Comedy Central for $1.2 billion in cash, getting the company completely out of the red will take some time.

With so many woes, many have been left to wonder which straw will break the camel's back.

Company watchers are hoping that AOLTW's first-quarter financial results, due out at 6 a.m. ET Wednesday, may provide some clues. In addition to reporting how its accounting investigations and debt reduction efforts are progressing, AOLTW is expected to comment on its new broadband push, which the company has painted as its big shot to turn it all around.

Jupiter Research Analyst David Card said that AOL's broadband effort is the right thing to do, but added that the company still faces a "huge, huge challenge."

AOL rolled out its new broadband service last month with a splashy new marketing campaign advertising its expanded news content, bolstered security features and pumped up communications tools. [See,"AOL to roll out enhanced broadband service" March 24.]

But to really stimulate high-speed subscriber growth, providers need to cut costs and create original programming and services to justify the upgrade to broadband, Card said. While most providers are scrambling to offer an enticing programming package, none so far have moved to drastically cut pricing.

Furthermore, AOL's current strategy of pushing "bring your own access" broadband -- with AOL providing the high speed content and services on top of another provider's access -- is not helping the price problem since subscribers to this service have two fees to worry about.

"AOL's bring your own access strategy only exacerbates the problem," Card said.

Still, the company has put on a determined face, saying that it is laser-focused on its broadband plan. And according to Card, its not too late, provided the company makes the experience worth the price.

"They are taking the right strategy but now they have to execute it," Card said.

Shares of AOLTW (AOL) traded up .78 percent to $13 Tuesday.

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