AOL Rolls Out Low-Rate Broadband Plans

NEW YORK – America Online Inc. may be focusing lately on expanding free offerings on its advertising-supported Web sites, but that doesn't mean it has given up on its declining Internet access business.

AOL announced Friday it has forged partnerships with leading broadband providers to provide high-speed AOL subscription packages for just a few bucks more than dial-up. The move comes two years after AOL largely abandoned the market for such offerings.

"There's been a big shift in economics," said Joe Redling, president of AOL's access business. "The market's gotten very competitive, and broadband pricing has come down."

With the new deals, consumers in much of the United States will be able to buy an AOL broadband package for about $26 a month, just two dollars more than the $24 unlimited dial-up service and far less than the $55 package AOL offered two years ago.

In BellSouth Corp. (BLS) territories, the price will be $30.

In some cases, though, AOL will be offering a lower-end service at half or less than typical broadband speeds.

Besides the high-speed connection, subscribers of the new packages get AOL e-mail addresses with unlimited storage (AOL's free e-mail service uses "AIM.com" and limits storage to 2 gigabytes). They also get parental-control and security software.

Redling said that while AOL may make less per subscriber than before, the company is hoping to keep each customer longer, generating greater long-term revenues. He said turnover had been high with the $55 package.

Dave Burstein, editor of the industry newsletter DSL Prime, described the announcement as a "defensive move so as not to lose all their customers."

With some providers offering high-speed service for as little as $15, he said, AOL risked further losing its customers.

As of Sept. 30, AOL had about 20 million U.S. subscribers, down from a peak of 26.7 million in September 2002. About 75 percent are on dial-up.

Over the past year, AOL has been making most of its offerings available on the Web to nonpaying users as well, figuring that if it couldn't make money on a subscription, it could at least take advantage of the booming online advertising industry.

Redling said the new broadband deals would not only prevent subscriber defection but also help boost usage and hence advertising.

According to the Pew Internet and American Life Project, those with broadband at home are 52 percent more likely than dial-up subscribers to use the Internet on a given day, and the typical broadband user spends about 23 percent more time online daily.

Thirty-seven percent of residential broadband users say they go online several times a day, compared with just 16 percent for dial-up. Furthermore, 37 percent of dial-up users log on only once or twice a week.

AOL's broadband deals are with the four remaining Baby Bells — BellSouth, Verizon Communications Inc. (VZ), AT&T Inc. (T) and Qwest Communications International Inc. (Q) — and with Time Warner Cable, which like AOL is a unit of Time Warner Inc. (TWX).

AOL said most of its current customers will be served by at least one of those companies.

The AOL service provides download speeds of 1.5 megabits per second — fairly typical for broadband — through AT&T and BellSouth. With Verizon and Time Warner, it is a limited-speed, 768-kilobit offering.

No information was immediately available on Qwest, whose deal closed on Friday.

Some of the offerings will begin Monday, with the rest a week later, AOL said.

Redling would not rule out further deals in which providers help AOL video and other bandwidth-intensive content run smoothly, possibly better than those of rivals, but he said AOL has not yet had such discussions with the partners.

Yahoo Inc. (YHOO) has similar bundling deals with AT&T, Verizon and BellSouth. Customers get a co-branded home page along with premium features such as more mail and photo storage.

Prices vary: AT&T's, for instance, start at $30 following a six-month trial at $17. Verizon's main package is $30 after three months at $22, though it has a $15 limited-speed offering. BellSouth's Yahoo package will launch later this year.