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AOL Cutting More Than 700, Most in Virginia

By David A. Vise
Washington Post Staff Writer
Tuesday, November 2, 2004; Page E01

America Online Inc. is preparing to fire more than 700 employees in early December -- mostly at the company's Northern Virginia headquarters -- a cost-cutting move tied to the firm's continuing loss of subscribers to faster or cheaper Internet services, according to officials familiar with the decision.

Roughly 5,000 of AOL's 13,000 U.S. employees are based in Northern Virginia.

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Inside AOL headquarters, rumors of cuts abound, in part because some employees already have been advised by supervisors to polish their résumés and begin looking for new jobs. The company has yet to decide exactly what jobs to cut. Top management has asked division heads to identify possible reductions and explain how the losses would affect programs and services, possibly sparing some workers and targeting others.

Senior AOL officials declined comment yesterday on the impending job cuts. Those who discussed the matter said they would only do so anonymously, citing the imminent release of financial results. Time Warner Inc., America Online's parent, plans to announce third-quarter earnings tomorrow morning, when the company is likely to face questions from Wall Street analysts about AOL's financial performance and the division's efforts to reduce spending.

While this is not the first time that America Online has cut employees, the latest reductions appear to be the firm's biggest round of local job cuts in recent memory. In December 2003, AOL cut 450 jobs, virtually all in California, after reducing its regional call center workforce by 400 people in the spring of 2003.

The difficulties stem from the slide in subscribers. Since peaking at 26.7 million subscribers in the third quarter of 2002, AOL has lost 3.3 million customers in the United States. The service derives much of its revenue from subscribers who pay $23.90 per month to access the Internet over dial-up telephone lines, as well as to use e-mail, instant messaging, news and various other features.

About 4 million AOL users access the Internet via high-speed connections, paying prices ranging from $14.95 a month to $24.95 in addition to what they pay their service provider. The customers who have been leaving America Online typically have signed up for high-speed connections through their cable or telephone provider, or have signed up for bare-bones, $9.95 a month discount Internet service through United Online Inc.'s NetZero or one of its affiliates.

The belt-tightening at AOL is partly the result of an in-house goal that the unit provide about $1 billion in cash annually to Time Warner. As a result, AOL must cut spending, since its projections for revenue from advertising and subscriptions show little or no growth.

Already, America Online has cut hundreds of millions of dollars in computer network and telecommunications costs, and further reductions in the cost of these services are anticipated during 2005. The company also has become increasingly reliant on outside contractors but may have to make less use of these people as well.

At the same time it is reducing the size of its workforce, AOL is hoping that its acquisition earlier this year of Advertising.com will help it boost online ad revenue. The leading online players, including Yahoo Inc., which competes with AOL for users and provides free e-mail, have posted substantial increases in ad revenue as the total amount of corporate spending to promote products and services on the Internet has risen dramatically.

In the second quarter of this year, AOL showed an increase in advertising revenue for the first time since 2001. That surge, in combination with cost controls, helped the firm boost operating income by 13 percent.

America Online is planning to introduce the newest version of its software, dubbed AOL 9.0 Security Edition, later this month. The company, which ran a high-profile national television advertising campaign during the Major League Baseball playoffs and World Series, announced last week that it intends to become the first major Internet service to give away free antivirus protection to all of its subscribers.

The company also beefed up its AOL.com Web site and launched a special search engine for comparison shopping called Pinpoint.


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