AOL to Announce Joint Venture, Expansion into China

America Online is poised to announce the creation of a joint venture company with Legend Holdings Limited, the leading PC manufacturer in China. The move marks the first important milestone toward delivery of AOL services to the Chinese mainland. Each company will reportedly contribute $100 million USD to the joint venture, initially providing support services for Legend customers through its FM365.com Web portal. Upon China's accession to the World Trade Organization, the joint venture plans to take an equity stake in Legend's ISP business, establishing the operation of AOL Internet service in China.

With over 22 million people online in China and the Chinese language quickly approaching a majority on the Internet, Legend makes a powerful partner for AOL. Legend is the top distributor of new PCs in the Asia Pacific region, paving the way for wide adoption of joint services via inclusion of AOL software. FM365.com also provides significant reach for AOL, peaking at 25 million daily page views.

AOL brings to the table its technology and expertise, mentioning goals to introduce AOL features to FM365.com and focus on e-commerce. Opportunities exist for mobile expansion as well, with over 100 million mobile phone users in China.

According to documents viewed by BetaNews, marketing plans for the joint venture include a Web pop-up on FM365.com, access to services via an Internet button on shipped PCs, real estate in an online services folder, and a desktop icon - space AOL has been struggling to attain from Microsoft.

China is not the first country outside of the United States where AOL offers or plans service. Across the Atlantic, the company operates AOL Europe in nine countries. Most recently, AOL Latin America began servicing locations including Mexico, Brazil and Argentina, with expansion into Puerto Rico slated for June. In January, AOL announced that it had surpassed 5 million members outside of the United States.

Governmental restrictions prevent AOL from operating in mainland China, so the joint venture will initially be unable to provide AOL-branded Internet service. However, China's expected entry into the World Trade Organization will bring about more open regulation, which should allow for the launch of AOL China and competition to China Telecom.

The company's previous foray into China, AOL Hong Kong, debuted in September 1999. The new joint venture will be AOL's first move onto the mainland; reports indicate AOL will keep the two services separate.

Legend will reportedly control 52 percent of the joint venture company, with AOL holding the remaining 48 percent. Both companies will have equal participation on the board and involvement in management decisions. An official announcement is expected to take place in Beijing next week.

Neither AOL nor Legend could be reached for comment by press time.