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AOL tunes in $1.5 billion satellite TV deal

LOS ANGELES -- America Online Inc. is connecting to the largest U.S. digital satellite TV service with a $1.5 billion investment in DirecTV creator Hughes Electronics Corp.

The deal gives AOL a new high-speed Internet option and is expected to boost AOL TV, the company's interactive television product.Executives also hope the agreement will help increase the subscriber base of DirecTV, the largest U.S. satellite TV service, and provide a boost to its DirecPC satellite-based Internet service.

"It benefits American Online across all fronts and puts more pieces in place for the next wave of interactive services," said Steve Case, AOL's chairman and chief executive.

Even with the satellite deal, AOL is not limiting its alliances, Case said.

"I don't think this precludes in any way, shape or form our ability to work with telephone companies or cable companies or anyone who can provide any piece of the puzzle of this broadband tapestry," Case said in a conference call with reporters. "We want to provide the best set of choices to the widest audience possible."

Analysts consider access to cable -- with its wide reach into American households -- crucial to AOL's campaign to convert to high-speed Internet delivery. Cable companies have resisted calls for them to allow open access to AOL and other Internet service providers.

"They can't not have a cable deal. Not having that would be a difficulty for them," said Sajai Krishnan, an analyst with Booz Allen & Hamilton. "Cable is going to be a strong play in the consumer market."

AOL has also made several deals with phone companies such as Bell Atlantic Corp. and SBC Communications Inc. to provide high-speed services over phone lines.

Last month, AOL and Hughes agreed to jointly develop a set-top receiver that would allow DirecTV customers to subscribe to AOL TV, an interactive service that would combine Internet access with Hughes' entertainment programs.

AOL TV already is available to DirecTV subscribers. Under the new deal, interactivity would expand to include new content and features.

For example, viewers would be able to execute an online stock purchase while watching a financial program or buy a video cassette of a movie they are watching.

By cross-branding with AOL, DirecTV will be in a better position to compete with cable operators, said Krishnan.

"This goes a long way in helping from a marketing perspective and bundling perspective, to make this total package more attractive. They're competing with cable companies that are going to be offering digital cable, Internet and even telephony in some parts of the country," he said.