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America Online boosts Internet fee

Risking the wrath of its customers, the Web's leading access service will increase its charges nearly $2 a month to help offset capital costs.

By DAVE GUSSOW

© St. Petersburg Times, published May 23, 2001


America Online will raise its monthly rate $1.95 for unlimited Internet access starting in July, a move that is aimed at boosting its bottom line but that may cost it some subscribers.

AOL, by far the largest Internet access service with more than 30-million subscribers, said the "modest price increase" to $23.90 a month will help pay for improvements to its service, such as the planned release this year of Version 7 of its software.

Additionally, AOL says it has spent more than $3.5-billion to upgrade the service in the past three years as the number of subscribers mushroomed and their time online grew. Analysts had expected the move.

"That's been our history, to invest in our infrastructure," AOL spokeswoman Ann Brackbill said. "There's a lot of under-the-hood stuff, staying ahead of the curve as far as infrastructure is concerned."

The rate increase also is expected to bring in up to $600-million more a year that will help AOL's parent, AOL Time Warner, meet or beat ambitious revenue and profit goals.

"AOL might be pricing itself out of the market," said Dick Rybak, 78, a retiree in East Lake who may look for a cheaper alternative. He has been with AOL for six years and concedes that it might be tough to move on.

"It's a case of once they hook you, they got you," Rybak said, suggesting the company has an attitude of "What's two bucks more?"

The $2 may be enough for Peter Restante to think about another service. "If it's going to go up that much, I'll definitely change," said Restante, 70, a retiree in Bradenton. "I'm on a limited income."

However, despite problems with AOL's service cutting him off in the middle of surfing, even Restante hesitates about making a switch. One problem, he says, is that a group of friends across the country gather daily for an online chat on AOL.

Switching your Internet service provider means changing your e-mail address, a daunting inconvenience for many people. Many other AOL users, especially teenagers, are hooked on its Instant Messaging system, which AOL has refused to open to competitors.

AOL's rate increase comes on the heels of other Internet service providers boosting their charges, including Verizon Online, which increased fees for its digital subscriber line service this month.

It's another indication that competition no longer is keeping a lid on consumer costs. In fact, consumers will find a different scene from the last time AOL raised its rates in 1998, from $19.95 to $21.95 a month, when it had 11-million subscribers. Then, competitors such as Earthlink tried to take advantage of the move with advertising campaigns to attract consumers unhappy about paying more. AOL's growth slowed, but only for a while.

This time, some of those same competitors may follow AOL's lead and raise rates, though none specified their plans Tuesday. Already this year, Internet access services such as Netzero and Kmart's Bluelight.com that had been offering free access had to start charging or limiting free hours.

Analysts said AOL should have few customer defections from the move, however, citing the higher charges subscribers already are paying for the premium content that the world's largest online service offers.

"It's their first price increase in three years," analyst Christopher Dixon with UBS Warburg said. "It underscores the flexibility they have in setting pricing plans."

Consumers looking for alternative providers will find most rates in the $20-a-month range. Microsoft's MSN, No. 2 with more than 5-million subscribers, charges $21.95 a month for dial-up service over traditional phone lines. It may keep that rate to attract AOL defectors. No. 3 Earthlink, with about 4.8-million subscribers, charges $19.95 and is considering its options. Juno Online Services offers a premium, unlimited-access service for $14.95 a month.

High-speed cable services such as Time Warner's Roadrunner are about $40 a month, and Verizon is emphasizing a $49.95-a-month plan for its fast digital subscriber lines.

One less expensive alternative in the Tampa Bay area is Internet Junction, which has unlimited dial-up access for $9.95 a month.

"We've had that price since we opened in 1996," said Mary Rickert, vice president of marketing, "and we intend to keep that price for the foreseeable future."

The company, which has more than 20,000 residential and business subscribers in six counties, gets a lot of phone calls when other providers raise rates, such as after AOL's increase in 1998 and Verizon's this month, says Rickert, who expects a similar reaction to AOL's latest price increase.

"Sometimes people just need that impetus to move to us," she said.

Shares of AOL Time Warner rose 64 cents to $57.24 in trading on the New York Stock Exchange. -- Information from Times wires and files was used in this report. Dave Gussow can be reached at gussow@sptimes.com or (727) 445-4228.

Other services

The current cost of other dial-up services:

Microsoft's MSN: $21.95

Earthlink: $19.95

Juno Online: $14.95

Internet Junction: $9.95

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