AOL touting prepaid Internet cards

Borrowing a page from phone companies, America Online has begun selling prepaid Internet access cards at certain retail stores.

Earlier this month, Target retail stores started selling AOL "starter kits," which include an AOL CD-ROM and 500 minutes of Internet access for $14.99. Consumers can also buy refill cards for 325 minutes at $9.99, 700 minutes at $19.99, or 1,200 minutes for $29.99.

AOL distributes CD-ROMs containing 1,025 free hours of Internet access for 45 days as its core incentive for new members. The difference is that the 45-day offer requires people to submit a credit card number. Prepaid customers, however, are not required to submit credit card information to AOL in exchange for access. The company said its pricing plan targets people who don't own credit cards or feel uncomfortable giving away their account information.

"Through research we found that this product appeals to those who don't want a commitment or a monthly fee," said AOL spokesman David Theis. "Some of them may not have a credit card or another billing method or may want to get online less frequently than unlimited usage."

The cards are offered in all Target stores, and refill cards can be purchased in all Western Union locations. Starter kits will appear in Office Depot stores starting next month.

The prepaid phone cards signal AOL's ongoing efforts to lure new subscribers to its industry-leading 35.3 million member base. AOL has a number of pricing plans, but most of its subscribers pay $23.90 a month for unlimited access.

Up until this year, AOL reported consecutive quarters of stellar subscriber growth. But for the last two financial quarters, growth has slowed. Last quarter, AOL subscriptions grew from 35.1 million, a fraction of the million-plus new members a quarter last year.

"I think AOL is trying to cover its bases when there's not a lot of growth in dial-up ISP," said Lisa Haas, an equity analyst at SoundView Technology Group.

Strategic overhaul
AOL executives on Thursday presented a strategic turnaround plan to parent company AOL Time Warner's board of directors. AOL Time Warner's stock has plummeted this year due to ongoing turmoil at the AOL division.

Exacerbating AOL's woes, AOL Time Warner announced in October that it will restate its numbers, reducing revenue by $190 million, following an internal audit of the AOL division.

AOL has taken steps in the last few months to improve its service in hopes of stemming subscriber defections. In October, Jonathan Miller, CEO of the AOL division, announced he would eliminate pop-up advertisements from the service.

Miller and other top AOL executives have also stated their intention to boost the company's broadband efforts and bring more exclusive content to the service.

Competitors are chipping away at AOL from many sides, from phone and cable companies offering broadband access, to longtime rivals Microsoft and Yahoo muscling their way into selling Internet access.

In July, AOL for the first time revealed metrics for its different subscription plans. The company said 26.7 million of its 35.3 million total subscribers pay the full $23.90 a month for unlimited usage in the United States; 3.6 million pay reduced fees such as its $14.95 "Bring Your Own Access" plan; 2.9 million are in AOL's free trial period; and 1.4 million get AOL through bundling deals with PC manufacturers.

Although subscriber growth has been anemic, there may be a silver lining, according to SoundView's Haas. Average revenue per user showed a slight increase, meaning AOL may be finding ways to make more money off its subscriber base.

"It behooves them to get more focused on which subscribers are more profitable to them as opposed to them getting big fast," Haas said.