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Aol losses 1m subscribers { June 4 2003 } Original Source Link: (May no longer be active)
http://www.washingtonpost.com/wp-dyn/articles/A10134-2003Jun3.html?nav=hptop_tbhttp://www.washingtonpost.com/wp-dyn/articles/A10134-2003Jun3.html?nav=hptop_tb
AOL Subscriber Defections Continue, Top 1 Million
By David A. Vise
Washington Post Staff Writer
Wednesday, June 4, 2003; Page E01
America Online has lost more than 1 million dial-up customers since the dramatic decline in its subscriber base began late last year, sources familiar with the figures said yesterday.
The Dulles-based firm is rapidly losing customers to NetZero and other lower-priced bare-bones Internet services, as well as to higher-priced high-speed cable and telephone providers.
America Online's problems are the "one negative" at AOL Time Warner Inc. these days, according to Wayne H. Pace, the corporation's chief financial officer. Speaking at a media conference this week, Pace said the falloff in subscribers is much steeper than AOL had projected, and he said the only way for the Internet unit to meet cash-flow targets for the year is to cut costs relentlessly.
"We're taking a lot of money out of network costs," Pace said, describing the expense of operating the computers and phone lines used by the online service. "We are still investing in the new products and services that we think will take care of the AOL business."
Customers are fleeing the $23.90-per-month AOL service for low-cost providers led by United Online Inc., which owns NetZero, Juno and other bare-bones services that charge just $9.95 a month for Internet access. While America Online is shrinking, United Online is adding subscribers at an annual rate of 50 percent.
Meanwhile, most computer users signing up for higher-priced fast Internet connections at home are buying directly from cable and telephone companies, which continue to avoid deals to share profits with America Online. In response, America Online has launched an effort to persuade customers to keep their AOL service as they move to new high-speed providers, by offering an add-on service for a reduced monthly fee of $9.95.
Analysts say AOL's growth in the high-speed segment has been sluggish, and the company is hoping to stir more interest by mounting a $35 million marketing campaign for AOL's broadband service.
About half of the customers leaving America Online are signing up for high-speed services, while 20 percent appear to be leaving for low-priced alternatives, according to Youssef Squali, an analyst with First Albany Corp. He said America Online has not developed any "traction" in the high-speed arena, even though it has been marketing its "bring your own access" plan aggressively.
"The America Online story at this point continues to be cost containment more than growth or expansion," Squali said.
Price cutting by Verizon and some other high-speed Internet providers, which have lowered monthly fees from about $50 to $35, poses a new challenge to America Online. With the drop in prices, America Online's $23.90-per-month dial-up subscribers are "squarely in the crossfire," according to a new report from Credit Suisse First Boston Corp.
The report yesterday warned that any accelerated loss of dial-up subscribers could jeopardize AOL Time Warner's effort to run the division as a "cash cow," which is projected to generate about $1 billion this year.
"We believe there is potentially significant risk," the report said.
With roughly 26 million customers in the United States, America Online remains the nation's largest provider of Internet access. But over the past two quarters, the company has lost more than 700,000 dial-up subscribers. Squali said First Albany is now projecting that America Online will lose hundreds of thousands of additional dial-up subscribers this quarter and more than 1 million subscribers in 2003.
AOL missed an opportunity to launch a low-priced service to compete directly with United Online and its subsidiaries, which will increase their subscriber rolls this year to 2.4 million customers from 1.6 million, he said.
Still, the America Online brand name remains strong. "It does have a lot of value, but the value is withering away," Squali said. "You either have to have a clearer path to broadband migration or truly slow the decline in your dial-up base and save those profits."
When second-quarter results are released next month, analysts will be watching closely to see whether AOL's high-speed strategy is enabling it to add subscribers in that segment, even as it loses dial-up business.
© 2003 The Washington Post Company
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