AOL Hopes to Ring Up Upgrades

Since broadband Internet prices have been dropping for more than a year, I was shocked to get an e-mail from America Online last week announcing that it was hiking my fee for dial-up service.

The added $2, boosting the monthly rate for unlimited Internet access to $25.90, amounts to a 9 percent increase. It seemed all the more surprising because I thought AOL had effectively devalued its content by deciding to give it away for free at the revamped AOL.com.

Who would pay more for something worth less? Not me. I'm betting millions of other AOL subscribers won't, either.

The thing is, AOL is making the same bet. In fact, the rationale behind its first dial-up increase in four years is to push more subscribers into upgrading to broadband, according to Joe Redling, AOL's president in charge of access.

"We are being very aggressive now in pushing them as we introduce this new price plan," Redling said. "We find our members on broadband increase their usage of AOL and stay on the service longer."

Over the past four weeks, AOL has announced new partnerships with cable and phone companies to resell the carriers' high-speed Internet connections and bundle them with AOL software -- mostly for $25.90 a month, AOL's new dial-up fee. Gee, if slow-speed AOL costs the same as high-speed, which are you going to choose?

AOL broadband partners include all four big regional phone companies -- Verizon, BellSouth, Qwest and AT&T (formerly SBC) -- along with cable providers Charter Communications and AOL's sister, Time Warner Cable.

But any way you slice it, boosting dial-up prices carries risks for Time Warner's new-media subsidiary.

Even after 7 million subscribers have fled AOL in recent years, dial-up fees still account for the lion's share of its $8.3 billion in annual revenue. And there are no guarantees that customers switching to broadband will opt for one of the "AOL High Speed" bundles.

Hiking dial-up rates might make customers angry enough to give up their AOL e-mail addresses, sever ties, and buy broadband directly from a phone or cable provider. In some cases, that might cost slightly more than if purchased through AOL, but many broadband carriers offer low introductory prices that can offset the difference. And it's a good bet that high-speed rates will change next year, anyway, because the industry is in the throes of a price war.

Yet it's easy to see why AOL is willing to risk driving away customers. It's going to lose people no matter what it does, and after a shocking four-year slide, AOL has less to protect than it once did. The Dulles-based Internet pioneer is no longer the leading player in either online access (now featuring phone giants versus cable companies) or online advertising (now featuring search giants Google versus Yahoo).

Back in its 2002 heyday, AOL's U.S. subscriber count peaked at 26.7 million, a tally that plummeted to 19.5 million by the start of this year. Today, fewer than 14 million pay full price for dial-up service. Nearly 6 million buy high-speed Internet access directly from a broadband provider and pay AOL's bring-your-own access rate of $14.95 a month. That allows them to keep their AOL.com e-mail addresses and use the company's special software.