AOL's 'frequent and painful' revisions shake confidence. (Media & Technology).

It's no wonder that companies like AOL Time Warner Inc. have been stingy with information: The more they tell, the more we question.

Wall Street analysts, unnerved by a series of revelations in recent weeks, are writing acerbic reports about the company they lauded when America Online Inc. acquired Time Warner Inc. just 15 months ago.

"We are throwing in the towel, taking our numbers to a more bearish case, given the frequent and painful revisions required by the AOL division," declared Jeffrey Logsdon, an analyst for Gerard Klauer Mattison & Co., after AOL Time Warner recently reduced its financial goals for 2002.

Investors are most concerned about the America Online unit's ability to rebound from a slump in advertising, and its failure to gain access as an Internet service provider to any cable-television systems other than those operated by Time Warner affiliates.

Devil in details

Other uncertainties have cropped up in partnerships described in new detail in the 10-K filed at the Securities and Exchange Commission, including a contract to buy an additional 11 percent stake in the WB Television Network in January 2003 for terms that weren't disclosed.

AOL Time Warner, which already owns 67 percent of the WB, will purchase the stake held by key employees, including Jarnie Kellner, the executive who became chairman of its Turner Broadcasting System in March 2001.

For the first time, 10-K readers learned the magnitude of losses incurred at Road Runner, a high-speed Internet access service launched by Time Warner and other partners before AOL acquired Time Warner last year.

In the 10-K, the company also revealed that it is negotiating to restructure a partnership with Advance Publications Inc. and Newhouse Broadcasting Corp. If they decamp, AOL Time Warner could lose more than 2 million of its 12.8 million cable-TV subscribers and possibly as much as $530 million in earnings before interest, taxes, depreciation and amortization, or Ebitda, in the estimate of Merrill Lynch analyst Jessica Reif Cohen.

A restructuring of the partnership might also prompt AOL Time Warner to consolidate its share of losses from the Road Runner venture, which amounted to $226 million in 2001.

The losses aren't reflected in the company's Ebitda. AOL Time Warner, which owns 80 percent of Road Runner, treats the venture as an equity investment because Advance/Newhouse has some blocking rights over management decisions.

More than anything, analysts hate to be caught unaware of factors that crimp Ebitda, because it is the preferred yardstick at many media companies.

AOL Time Warner has unveiled several such surprises since the beginning of the year, beginning with the news that $320 million of Ebitda generated in 2001 by the Iplanet alliance with Sun Microsystems Inc. will not recur because the deal was terminated.

Although Sun Microsystems disclosed the news in a November filing, many AOL Time Warner investors didn't find out about the development until Jan. 7, when the company reduced its 2002 forecast for Ebitda growth to 8 percent to 12 percent.

AOL Time Warner just lowered its forecast further, to a range of 5 percent to 9 percent.

Time Warner has jolted Wall Street repeatedly since its chief executive, Gerald Levin, abruptly announced in December that he would depart in May. Last week, CEO-elect Dick Parsons hosted the conference call about first-quarter earnings, limiting management's comments to a half-hour and fielding questions for another 30 minutes.

The company wouldn't disclose how many AOL Broadband subscribers it has gained since it started its service to high-speed data customers in 19 markets served by Time Warner cable systems last fall.

It has in excess of 3 million broadband subscribers if it counts those who use AOL for Internet access on DSL, or digital subscriber lines, and customers who maintain an AOL account even though they pay an ISP provider like Road Runner or EarthLink for their high-speed connection.

Consumers who use other ISPs can subscribe to the AOL service without Internet access at a lower monthly rate, but most continue to buy the unlimited-use plan for $23.90 a month, either through ignorance, inertia or a desire to have dial-up telephone access.

No takers?

Company executives have skirted the issue of their failure to reach any deals with other cable-TV systems to offer AOL Broadband as on Internet service provider.

Many investors think it is imperative for AOL to reach a distribution agreement with Comcast Corp., the No. 3 cable operator. Comcast will catapult to No. 1 if its pending acquisition of AT&T Corp.'s cable division wins regulatory approval.

Comcast, however, might extract concessions or demand that AOL buy back AT&T's 25.5 percent stake in Time Warner Entertainment Co., at a price expected to exceed $10 billion. The limited partnership, formed in 1992, owns Warner Bros. studio, Home Box Office, a majority of the WB and most of AOL Time Warner's cable-TV business.

"On TWE, we remain in discussions, and I have nothing really new to report on that front," Parsons said. "We have no requirement to buy back AT&T's stake. I believe we will be successful, however, in working out a solution that will be constructed in a manner that is sensitive in protecting our balance sheet with strategic benefits for AOL Time Warner as well as for AT&T Comcast."

And what might that be? The Wall Street Journal reported the company is considering an initial public offering of its cable-TV systems, to raise money to buy out AT&T Comcast while keeping a majority of the cable business.

If the story was a trial balloon, it didn't help AOL Time Warner's stock, which traded below $19 for the first time since the merger.

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