AOL Hangs On To ISP Business -- Surprise!

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Everyone thought part of the AOL spinoff from Time Warner (TWX) would include the sale of AOL’s slowly dying Internet service provider business to somebody like United Online or Earthlink.

Nope — Not happening. Not yet.

From today’s press release announcing the spin-off: “AOL will also continue to operate one of the largest Internet access subscription services in the U.S.”

Though its revenues will decline some $500 million this year, AOL’s access business remains a cash cow. It generated $393 million during the last quarter alone.

The plan is to put that money toward growing AOL’s media business, MediaGlow.

Smart enough move, we think. Even shrinking by $500 million a year, the access business will remain a cash generator for at least five or six years. AOL could sell it — and take a big lump of the cash it would eventually see now — but that brings in bankers fees and would leave a newly independent AOL stripped to a much smaller, less profitable base during its first few quarters back on the public markets.

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