TELECOM Digest OnLine - Sorted: AOL Makes it Official; Now it's Mostly Free and Ad Supported

AOL Makes it Official; Now it's Mostly Free and Ad Supported

Reuters News Wire (reuters@telecom-digest.org)
Wed, 02 Aug 2006 14:53:47 -0500

AOL Shifts to Free Web Services

Time Warner Inc. on Wednesday said its AOL unit will no longer charge
high-speed Internet users for e-mail and other Web services in a
gambit to attract more viewers and boost online advertising.

AOL, the online division of the world's biggest media company, is
undertaking its fourth overhaul in five years as it competes with Web
search and advertising leaders Google Inc. and Yahoo Inc.

Shares in Time Warner rose 2 percent.

The largest U.S. provider of Internet access has steadily lost
subscribers to high-speed services offered by cable operators and phone
companies, and hopes to counter that trend by tapping a burgeoning
online ad market.

The AOL transition is set to be completed in early September. High-speed
subscribers who have paid about $15 per month to use AOL's Web services
will now get them for free.

AOL will still offer its slower dial-up Internet access and its Web
features for about $26 per month but will not aggressively market the
service.

The free services will include e-mail, instant messaging, a local
phone number with unlimited incoming calls as well as safety and
security features.

AOL aims to hold on to individuals who are considering moving to other
Internet access services but want to keep their AOL e-mail accounts
and other features, the company said.

"This is the next logical step for AOL to capitalize further on the
explosive rise in broadband usage and online advertising," said Time
Warner President and Chief Operating Officer Jeff Bewkes.

AOL's future is key to Time Warner, whose stock hit a two-year low in
July and faces investor pressure to extract more value out of the
Internet division.

On Wednesday, Time Warner also posted a second-quarter profit versus a
year-ago loss on more digital phone and high-speed data customers and
strong growth in online advertising.

YOU'VE STILL GOT MAIL

AOL, which has 17.7 million U.S. subscribers, has kept the e-mail
addresses of former members from the last two years and will offer the
free services to them and to new users.

Time Warner is due to discuss details of its plans for AOL during a
conference at 11 a.m. EST. The company said the changes at AOL would not
materially affect its 2006 full-year forecasts.

AOL had already made clear it sought to change into an ad-supported
network providing information and entertainment as its Internet access
business steadily lost subscribers.

It also lost 976,000 subscribers in the quarter from the first quarter
and more than 3 million subscribers from a year ago. Total revenue
dropped 2 percent to $2 billion in the quarter.

But AOL's ad revenue rose 40 percent from a year ago. The company's Web
sites drew an average of 113 million viewers in the United States during
that period.

"Online ad growth was strong. Trying to understand what really drove
that ... is key to the prospects of AOL's new strategy," said Richard
Greenfield, analyst at Pali Capital.

The stock was up 34 cents to $16.59 on the New York Stock Exchange.

Copyright 2006 Reuters Limited.

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