They have reached the "serious discussion" phase, said at least two executives familiar with the conversations.
The primary focus of the discussions is AOL's Digital City concept. So far, AOL has launched two Digital Cities, Washington and London. The sites are meant as cyberspace community-meeting places.
Besides chat areas, the sites carry information about jobs, restaurants, entertainment and shopping.
THE KEY TO INVOLVING PEOPLE
TCI President John Malone "is a big believer that the key to getting people involved in the online world is local content that they care about," said one of the executives.
Mr. Malone told Advertising Age earlier this year that getting local advertisers with online offerings to advertise that presence on local TCI cable systems was a strategy his company was going to pursue.
Local online classified advertising is another area TCI wants to pursue, insiders say.
Hooking up with AOL would allow TCI to build its localism concept quickly across the country with a partner that has a branded identity in the marketplace, the second executive emphasized. The deal would allow AOL to tap into TCI's huge base, which will soon have access to high-speed cable modems.
Also, TCI co-owns @Home, a service intended to provide high-speed access to the Internet through a series of servers located in local communities. Neither TCI nor AOL would comment.
TCI owns 20% of the Microsoft Network, which would seemingly preclude a TCI/AOL alliance, but the second executive said "MSN's new strategy of becoming Internet-based has really opened up options for TCI."
DOES MALONE REALLY WANT IT?
He added: "Could [Microsoft Chairman Bill] Gates ultimately kill the deal? Maybe. But if Malone really wants it, don't bet against him."
Ironically, other sources say Microsoft is itself looking to close deals for local content.
So could the final deal be an AOL/TCI/Microsoft one?
"I wouldn't think so," said the second executive.