FOOL PLATE SPECIAL

The Future of AOL

Pacific Bell <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PAC)") else Response.Write("(NYSE: PAC)") end if %> became the first Baby Bell to offer its own flat-fee, all-you-can-eat Internet access service today -- although certainly the California local phone giant will not be the last. (Pacific Bell is soon to be acquired by SBC Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBC)") else Response.Write("(NYSE: SBC)") end if %>.) Fools will probably be besieged by Internet access offers from all sorts of people in the coming months. AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> and MCI Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MCI)") else Response.Write("(NASDAQ: MCI)") end if %> are already offering premium deals if you use their long distance service -- and this does not even begin to take into account the 300-plus regional providers of Internet access. Add to that the DataQuest survey released today that says there will be almost a million cable modems in use next year compared to about 13,000 for calendar 1996 and you have a lot of access providers set to compete with a purely commodity product in the coming weeks and months.

How does one survive in this hurly-burly, access-crazy world? Product differentiation. Pacific Bell has followed AT&T's lead there and will offer America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %> to its customers at a discount. Although it would appear America Online loses out by charging less money to Pac Bell customers, the fact that it does not bear network costs and foregoes subscriber acquisition costs really takes the sting out of it. With CompuServe abandoning their clunky interface and fleeing to the Web, many commentators have suggested America Online is actually behind the curve at this point. Ironically, this flies in the face of two significant differentiation decisions by big players in the Internet access leagues. When Comcast, TCI or Time Warner start to offer access as well, could America Online be part of their package as well? Definitely.

With CompuServe and Time-Warner's Pathfinder pairing off already, America Online will probably not go undefeated here. But when you can offer AOL cheaper as well as giving people the 'Net, you can get a lot of customers fairly quickly. The only potential drawback here is that America Online seems deadset on destroying its differentiating aspect -- quality content. With almost one site a day added to America Online's portfolio of Information Providers (IPs), how can they effectively promote *all* of this content? A few hours on the Welcome Screen and then consignment to one of the channels is not a plan. America Online management likens itself to the cable channels consistently. However, the same management would do well to reflect on whether the cable channels offer infinite programming or whether they are capacity-constrained by the number of hours in the day and therefore limit their "shows", allowing them to be more effectively promoted. The way America Online is going now, it wants to be the Web in spite of protestations to the contrary. Focusing on promoting their emerging brands rather than creating new ones pell-mell might be an excellent thing to include in this quarter's emphasis on operations.

UPS

CAI Wireless <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CAWS)") else Response.Write("(NASDAQ: CAWS)") end if %> continues to fly, up $1 1/2 to $14 1/2 after noting five days ago that it would test a wireless Internet access device. The fact that Microcom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MNPI)") else Response.Write("(NASDAQ: MNPI)") end if %> and US Robotics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: USRX)") else Response.Write("(NASDAQ: USRX)") end if %> already sell wireless connectivity devices is a fact that escapes many who have bought the stock.

People's Choice TV <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PCTV)") else Response.Write("(NASDAQ: PCTV)") end if %> also apparently is testing a wireless Internet access device, as demonstrated by the stock's $1 1/8 to $18 5/8 jump this morning.

Alex. Brown raised its rating on American Telecasting <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ATEL)") else Response.Write("(NASDAQ: ATEL)") end if %> from "buy" to "strong buy" today, boosting shares of the wireless cable company $1 11/16 to $14 9/16.

Boyd Gaming <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BYD)") else Response.Write("(NYSE: BYD)") end if %> was up another $1/2 to $15 7/8 today, still possibly benefiting from positive comments by Bear Stearns on Friday that lifting the gaming company from "neutral" to "attractive".

Whaddya wanna bet that food company-turned-connectivity company Diana <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DNA)") else Response.Write("(NYSE: DNA)") end if %> will issue another "no comment" today after its $4 7/8 to $108 3/8 rise? With 43% of the float sold short, this stock has become a battleground of liquidity between market makers.

If optical fiber company Spectran <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPTR)") else Response.Write("(NASDAQ: SPTR)") end if %> is up $1 5/8 to $23 1/4 on comparison with Optical Cable <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OCCF)") else Response.Write("(NASDAQ: OCCF)") end if %>, why is Optical Cable down $20 to $72?

Midcom Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MCCI)") else Response.Write("(NASDAQ: MCCI)") end if %> rose $2 1/4 to $11 1/2 after snagging William Oberlin of rival Frontier Corp. for its top spot, making him president and chief executive officer (CEO) over the weekend.

Nimbus <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NMBS)") else Response.Write("(NASDAQ: NMBS)") end if %> continues to thrive, up $2 1/2 to $11 3/4, on increasing coverage of the company by technophiles looking for the next great wave. The producer of CD-ROMs and audio compact disks is gearing up to produce digital videodisks as well.

CANSLIM-hit Youth Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: YSII)") else Response.Write("(NASDAQ: YSII)") end if %> popped another $1 1/8 to $29 today on heavy volume. CANSLIM is the investing approach popularized by Investor's Business Daily guru William J. O'Neil, looking for stocks with strong earnings and price momentum combined with attractive fundamentals.

Ariel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ADSP)") else Response.Write("(NASDAQ: ADSP)") end if %> popped up $1/8 to $15 1/2 today after it got the nod from Lucent Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %> to license their new multimedia operating system, similar to Sun Microsystems' Java.

Connectivity-equipment provider Tadiran <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TAD)") else Response.Write("(NYSE: TAD)") end if %> rose $2 1/8 to $26 3/4 after reporting earnings of $0.95 EPS, beating consensus estimates by a comfortable margin.

DOWNS

Intellicall <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ICL)") else Response.Write("(NYSE: ICL)") end if %> responded today to New York Stock Exchange inquiries, stating it knows of no material reason why its stock closed up 43% on Friday. Shares dropped $7/8 to $7 today.

Matrix Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MATX)") else Response.Write("(NASDAQ: MATX)") end if %> dropped a heart-stopping $7 1/4 to $19 3/4 today after it reported that its AccuSite product will be delayed due to unanticipated study results. Apparently the institutions did not want to stick around and finish the dance.

Baby Superstore <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BSST)") else Response.Write("(NASDAQ: BSST)") end if %> got thrashed for $8 7/8 to $26 1/4 after missing its $0.21 EPS earnings estimates by three cents. The high-profile specialty retailer had problems last quarter, as well.

SyQuest <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SYQT)") else Response.Write("(NASDAQ: SYQT)") end if %> continued to drop today, down another $1 1/8 to $9 3/4 as the company continued to aggressively issue press releases denying any buy-out is in the works.

PaineWebber slashed Paradigm Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRDM)") else Response.Write("(NASDAQ: PRDM)") end if %> to "neutral" from "buy", knocking the stock down $7/8 to $8 7/8.

SystemSoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SYSF)") else Response.Write("(NASDAQ: SYSF)") end if %> took a break today after a tremendous run last week, down $5 1/2 to $47 3/4. The company beat earnings estimates last week and announced Microsoft might not compete with its Systems Wizard product previously.

Systemix <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: STMX)") else Response.Write("(NASDAQ: STMX)") end if %> popped up another $1 3/8 to $17 1/4 as the market positioned itself hopefully for a higher offer after Sandoz offered to buy the company out at $13.50 a share on Friday.

KV Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: KV/A)") else Response.Write("(AMEX: KV/A)") end if %> dropped $1 1/2 to $14 3/8 today after the company switched auditors, saying that relations with Coopers & Lybrand were "incompatible".

Franklin Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FEP)") else Response.Write("(NYSE: FEP)") end if %> dropped $1 7/8 to $24 5/8 after the electronic publisher warned that next quarter's earnings would be below expectations.

Randy Befumo (MF Templar), a Fool
Selena Maranjian (MF Selena), another Fool