AOL, Gateway in broad Internet partnership

America Online and Gateway 2000 have teamed up in a wide-ranging alliance that calls for Gateway to offer AOL's Internet access service with all of its PCs, and effectively turns over to AOL the Gateway.net access service.

America Online and Gateway 2000 have teamed up in a wide-ranging alliance that calls for Gateway to offer AOL's Internet access service with all of its PCs, and effectively turns over to AOL the Gateway.net access service.

AOL has agreed to invest US$800 million in Gateway during the next two years as part of the deal. Meanwhile, Gateway will make a commitment to spend $85 million marketing its products and services through AOL's channels.

The companies also plan to codevelop Internet access devices and home networking products for consumers, the first of which they plan to release in a few months. They didn't provide specifics but said the products will entice users to surf the Web using other devices besides PCs.

The broad alliance also calls for the two firms to build a cobranded online software store, which will be designed to complement Gateway's existing Gateway.com online hardware store.

The agreement, the first of its kind between the two firms, represents an aggressive effort to boost the sale of Gateway and AOL's products and services. It should also make it easier for consumers who buy Gateway PCs to get on the Internet using AOL's service, and simplify the Internet experience as a whole for users, according to the two companies.

Customers who buy a Gateway PC will be able to choose what type of Internet access service they want with it, and have the required software preloaded on their machine before it's delivered to their home, the firms said.

The deal is expected to close by year's end, subject to the standard regulatory approvals.

The companies will bring to bear their considerable sales and distribution channels to promote each aspect of the alliance, including the online stores, the planned Internet and networking products, and their respective access services.

Specific financial details of the alliance weren't disclosed, although the companies said they will "share in the economics" of the new subscribers to Gateway.net and AOL who register through Gateway's sales channels and retail locations.

AOL will provide the network operations, registration, billing and customer service for Gateway.net, which the companies said currently has more than 600,000 subscribers. The service will retain the Gateway.net brand, which AOL said furthers its strategy of broadening its infrastructure across multiple brands.

To encourage still more users to get online, the companies will create computer and Internet training programs for their customers, and collaborate to offer broadband services in the future. The firms also said they will explore international opportunities, although they weren't more specific.

"Together, we'll offer world-class products, services and brands at every point in the Internet value chain -- from PCs, other connected devices and home networks to the full package of interactive services and training," Jeffrey Weitzen, Gateway's president and chief operating officer, said in a statement.

America Online will take a related pre-tax charge of $30 million in the quarter in which the deal closes. Gateway expects to take a pre-tax charge of $26 million in the fourth quarter of this year for a combination of restructuring charges, transition costs associated with the transaction, and costs incurred to build Gateway.net infrastructure.

Also today, AOL reported its financial results for its first fiscal quarter, ended Sept. 30.

AOL said income more than tripled in the quarter, helped along by 1.1 million new members who signed up for its service during the period.

Net income totaled $184 million, or 15 cents per diluted share, up from $50 million, or 4 cents per share, in the same period a year ago.

First quarter revenues rose to $1.5 billion, up 47 percent from last year's first quarter, while advertising, commerce, and other revenues reached $350 million, doubling during the September quarter in fiscal 1999, AOL said.

On Sept. 30 AOL had a worldwide total of 18.7 million AOL and 2.2 million CompuServe members. The addition of 1.1 million new subscribers in the first quarter is a record for such a period, the company said.

The company also has more than 45 million registered users of its free ICQ instant messaging service, nearly 70 million of AOL Instant Messenger including the service's Buddy List feature, and 20 million of Netscape Netcenter.

Operating income jumped 244 percent in the quarter, to $265 million, or 18.1 percent of revenue, up from 7.7 percent a year ago.

AOL sees future expansion opportunities in "the emerging world of multiple devices and high-speed access networks," Steve Case, AOL's chairman and chief executive officer, said in a statement.

Gateway, in North Sioux City, South Dakota, can be reached at +1-605-232-2000 and http://www.gateway.com/. In Dulles, Virginia, America Online can be reached at +1-703-448-8700, and on the Web at http://www.aol.com/.

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