Row with Microsoft won't hurt us: AOL

Reshma Kapadia

NEW YORK: The head of AOL Time Warner Inc.'s AOL unit said on Tuesday that

problems in current talks with rival Microsoft Corp. have been

"overstated," and insisted AOL would not be hurt if its software is

not included in Microsoft's new Windows XP operating system.

"We are confident our brand is fine," Barry Schuler told investors

and reporters after speaking at a CIBC World Markets conference here. "If

we have a deal, great. If not, fine. We don't use the desktop to sell AOL."

AOL and the software giant have been in talks over several issues, including the

role of AOL's software in Microsoft's Windows XP operating system that will be

released in October.

"They have a big opportunity to work with us on the roll out of

XP," Schuler said. "We will solve this problem. AOL will work on XP,

and we will continue to talk." The two are discussing the extension of a

five-year pact that expired in January, for AOL to make Microsoft's Internet

Explorer the default browser, or window onto the Web, for its 29 million

subscribers.

The expired pact had given AOL the prime placement on Windows helping the

company boost its membership base. Some analysts have said the deal hurt

Microsoft's own Internet service, MSN. Among the issues is instant messaging -

one of the most popular features on the Internet, especially among teens.

Microsoft has said it will integrate the ability to swap real-time messages into

its new operating system.

AOL dominates the instant messaging market with its popular ICQ and AIM

services, and its rivals have called for AOL to open up its system so users of

other services can exchange messages with AIM and ICQ users. While AOL has said

it is committed to interoperability, it wants to address privacy and security

concerns first.

Rivals such as Yahoo Inc. and Microsoft have joined forces in the last year

to create interoperability among their users, but they have yet to implement it.

Schuler said AOL is testing interoperability and plans to make an announcement

at some point. AOL said last summer during hearings for its $106.2 billion

purchase of Time Warner Inc. that it was testing interoperability.

He said messaging was one of the first steps in Internet telephony, an area

that will transform the industry and set the stage for the convergence that has

long been touted. Schuler called the current climate a "lull before the

coming storm," with the sector being transformed by the prevalence of

broadband, or high-speed Internet access, and home networking that allows

multiple users access to the Web at once.

Demand for digital music, interactive television and Internet telephony will

help the transformation, Schuler said. He said AOL Time Warner would launch its

first music subscription service by summer or late fall. AOL Time Warner is

currently conducting trials for video-on-demand so viewers can see shows like

HBO's "The Sopranos" when they want.

(C) Reuters Limited 2001.