How High Will AOL Rates Go?

ByABC News
May 31, 2001, 2:07 PM

June 4 -- America Online has raised its rates again. But will the nation's dominant Internet service provider now lose customers? And how much higher can rates climb?

For the moment, most Internet industry analysts are saying AOL by far the biggest, most-profitable Internet service provider in the United States will not lose business because of its 9 percent, $1.95-per-month hike, which takes effect in July.

"I don't think it's going to slow them down," says Paul Noglows of investment bank J.P. Morgan in New York. "I think they're being judicious."

"Some price increases are more painful [for consumers] than others," adds John Corcoran of investment bank CIBC Oppenheimer in Boston. "But AOL hasn't had a price increase in years and they've added a lot of services."

Still, the increase, coming four months after the federal government approved the Virginia-based online giant's purchase of Time Warner, has raised eyebrows among some consumer watchdogs.

"When AOL first announced its plans to acquire Time Warner, [CEO] Steven Case ticked off a list of benefits," says David Butler of the Consumers' Union in Washington. "Somehow, a rate hike didn't make his list."

Justifying the Price

On May 22, AOL announced it would raise its monthly fee for unlimited Internet access to $23.90, a hike that could translate into a windfall of more than $400 million for the company in the next 12 months.

About 18 million of AOL's 23 million users in the United States use its standard plan, and will be affected by the hike. After the last fee increase, which in early 1998 lifted its basic rate from $19.95 to $21.95, relatively few subscribers canceled their service, and industry analysts don't expect this one to cost AOL much traffic either.

"There's still a remarkable amount of inertia out there," says Zia Daniell Wigder, research director of Internet research firm Jupiter Media Metrix in New York. "People don't want to switch their e-mail addresses, and they get used to their services, their chat rooms."