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AOL to be split into four units

America Online Inc. is undertaking a sweeping overhaul aimed at speeding decision-making just one month before the company plans to slash costs by firing more than 700 employees.
/ Source: a href="" linktype="External" resizable="true" status="true" scrollbars="true">The Washington Post</a

America Online Inc. yesterday put new leaders in senior posts and revamped its corporate structure, undertaking a sweeping overhaul just one month before the company plans to slash costs by firing more than 700 employees.

The far-reaching changes, directed by chief executive Jonathan F. Miller, will result in the departures of three of the Internet firm's most senior executives from its Dulles headquarters. In an e-mail to thousands of employees, Miller made it clear that he intends to shake-up an online giant that has been criticized for moving too slowly and not doing enough to foster teamwork.

In addition to making several personnel changes, Miller said he is splitting the company into four divisions and giving each responsibility for its own operations and financial performance.

"We are going to try to be much crisper in decision-making," Miller said in an interview. "It is about having clarity of mission and purpose."

Three executives — Lisa A. Hook, who headed the company's high-speed, or broadband, initiative; Vice Chairman Joseph A. Ripp, who oversaw technology and marketing; and Michael J. Kelly, who served as chief financial officer in the aftermath of the much-maligned merger of AOL and Time Warner, are all leaving America Online. Ripp is returning to AOL's parent company, Time Warner Inc., in New York, where he worked previously.

Aim is faster decision-making
AOL veteran Ted Leonsis will continue in the senior ranks as vice chairman. Leonsis, who also owns the Washington Capitals hockey team, will head a new division dubbed "Audience." It will focus on profiting mostly by selling advertising that reaches users of AOL's various Web sites and products, including AIM, AOL's free instant messaging service; Moviefone; Mapquest;; and a revamped Web site.

"I hope to pour a little accelerant on it," Leonsis said of his new responsibility. "There is no job here in the last dozen years I haven't done. I told Jon I would do whatever he needed me to do."

Miller said the new team would take charge immediately. In the past, AOL has been a "fractious company" that moved too slowly to make changes, Miller said. The more decentralized structure is aimed at facilitating faster decision-making and speedier implementation of initiatives.

"In the days ahead, when our transition to a new structure has been completed, we will have a streamlined organization with clear roles and responsibilities," Miller wrote in his e-mail. "It will take some weeks for full organizational detail to fall into place, and I know this will make people uneasy, especially at a time like this when we have announced plans for layoffs."

AOL has said it plans to fire more than 700 people in early December, more than half of whom work in Northern Virginia, where the company has about 5,000 employees.

Focus on Internet access
Of the other three newly created divisions, the biggest is called "Access." That division encompasses the various services AOL sells to get computer users online, whether it be through dial-up telephone connections or high-speed lines. The unit, to be headed by Neil Smit, who has been overseeing AOL's regional call centers, also includes CompuServe and Netscape ISP, the firm's discount Internet service, as well as Wal-Mart Connect, a partnership between the giant retailer and AOL that offers Internet access at budget prices.

The other two divisions are AOL Europe, headed by Philip Rowley, and Digital Services, headed by AOL's chief technology officer, John McKinley. The Digital Services division will focus on a variety of new premium services, ranging from phone service over the Internet to subscription music services such as MusicNet.

Miller praised Hook, who led AOL's entry into the broadband arena, and Kelly, and said both have agreed to remain with the company until the spring 2005 to ease the transition.

Hook, who has had a close relationship with Time Warner chief executive Richard D. Parsons, is interested in running a major business herself, Miller said.

Kelly served as chief financial officer shortly after AOL merged with Time Warner, and his aggressive efforts to cut costs rankled executives at the media company. He then headed up AOL's international division and now serves as president of AOL Media Networks, which include the company's Internet phone offerings.

Hemorrhaging subscribers
Although advertising at AOL has been improving in recent quarters, the company has continued to suffer subscriber losses, as users depart for cheaper or faster Internet services. In its third quarter, AOL lost 646,000 subscribers, bringing its U.S. subscriber base down to 22.7 million, some 2 million less than it had one year earlier.

Miller said the organizational and leadership changes stemmed from a report about America Online's strengths and weaknesses that he presented to Time Warner's board of directors last spring. Leonsis said the organization should reduce the number of overlapping responsibilities "which slowed us down in decision-making with so many shared resources."

Still, Leonsis cautioned, "You shouldn't interpret this as if we are making four companies in four buildings. It is to get clean shots at success."

The leaders of the four business divisions will report directly to Miller, who plans to meet with them weekly. Miller will also directly oversee executives for human resources, finance, legal issues, corporate communications and marketing.