AOL hanging up on dial-up customers?

news analysis If you didn't believe America Online was serious about being a broadband Web portal, believe it now.

AOL recently informed customers that beginning next month, AOL will charge dial-up subscribers $25.90 per month. The price won't be that much of a shock, since it's $2 more than those dial-up customers are paying now. More important, it's equal to what high-speed DSL (digital subscriber line) or cable subscribers pay to get AOL services such as e-mail and customer support along with high-speed Internet access.

The price jump shows just how important it is to the Internet giant to get more of its customers onto broadband. It has led to an obvious question for longtime AOL customers: Who wouldn't move to broadband when it costs the same price?

"Given their overall strategy in the Web portal business, (AOL) wants fewer, if any, dial-up customers," said Allen Weiner, an analyst at Gartner. "I think it is part of a strategy to basically shake out of its base the people who are likely high-speed subscribers."

AOL makes no bones about the fact that it is trying to encourage people to upgrade to faster service so they can better view the bandwidth-intensive content on the AOL site. "The hope is that we'll be encouraging users to upgrade to broadband because a majority of them will be able to get high-speed connections," said AOL spokeswoman Anne Bentley.

But the move could anger some price-sensitive, casual Internet users who will resent paying more for a slower service, Weiner said. "Disincentives are a tragically bad way to go about things," he added.

Of course, that may not be a serious concern to the planners at AOL. It has been losing dial-up subscribers for several years as prices for high-speed access have dropped, from 26 million U.S. subscribers in 2002 to 19.5 million in 2005. DSL is priced between $15 and $40 or higher per month, compared with dial-up prices of $4 to $10 a month.

About 5 million people in the U.S. pay $15 per month for an AOL subscription and then pay a different Internet service provider for high-speed Internet access under AOL's Bring Your Own Access plan, Bentley said. By bundling high-speed access and AOL service for $25.90 a month, AOL is offering a package alternative to members who are now paying for their AOL service and high-speed access separately.

"All about broadband"
AOL announced in late January a new coast-to-coast high-speed network and has been signing deals with providers for its bundled offering. AOL's ISP partners include DSL providers BellSouth, Verizon, AT&T and Qwest, and cable providers Time Warner Cable and Charter Communications.

"I'm sure one of the clauses in AOL's deal with broadband partners was a fairly hefty commitment as far as how many customers would make the switch," said Joe Laszlo, a senior analyst at JupiterResearch. "Two dollars removes any sort of price-related inertia that their dial-up customers might feel."

AT&T and Verizon have succeeded in using price cuts to lure customers away from dial-up, while cable companies have been competing more on speed than price.

"This is yet another example of how AOL is becoming a company that's all about broadband," said Will Richmond, president of consulting firm Broadband Directions. "There's no question that all the forecasts point to the dial-up subscriber count decreasing in the next few years. AOL understands that."

In August AOL launched a new AOL.com portal, that opens up to any Web surfer content that used to be available only to AOL subscribers. This enables AOL to better compete for lucrative online advertising with Google, Yahoo and MSN.

AOL's affiliation with Time Warner and other subsidiaries also enables it to focus on video and other multimedia content, which can be painful to experience on dial-up.

In addition to Web, local, video, image, music and shopping search, AOL's Web site offers video on demand, AOL radio programming, tons of entertainment and other news, as well as AIM Triton, a communications service that includes instant messaging, e-mail, SMS mobile text messaging, voice and video chat.

AOL is not overly concerned about losing customers over the price increase, Bentley said. "We still offer the most comprehensive package" including round-the-clock customer support, access to an AOL e-mail account and unlimited e-mail storage, she said.

The company will work on "other pricing options" for the small number of dial-up subscribers who do not have broadband service available in their area, Bentley said.

One reason some people will hesitate to leave AOL is because they don't want to lose the e-mail address and screen name they've had for years.

"AOL's (customer) base has been with AOL for a long time and has long-established relationships with people," Laszlo said. "Your online identity is defined by your e-mail address and online or screen name. AOL does community very well."

Laszlo and Weiner said they don't expect e-mail addresses and screen names to become portable in the way that phone numbers are for phone-service customers who move to different carriers.

"E-mail addresses inherently are tied to the provider in the way that a phone number is not tied to a wireless carrier or phone company," Laszlo said.

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