AOL Makes it Official; Now it's Mostly Free and Ad Supported

AOL Shifts to Free Web Services

Time Warner Inc. on Wednesday said its AOL unit will no longer charge high-speed Internet users for e-mail and other Web services in a gambit to attract more viewers and boost online advertising.

AOL, the online division of the world's biggest media company, is undertaking its fourth overhaul in five years as it competes with Web search and advertising leaders Google Inc. and Yahoo Inc.

Shares in Time Warner rose 2 percent.

The largest U.S. provider of Internet access has steadily lost subscribers to high-speed services offered by cable operators and phone companies, and hopes to counter that trend by tapping a burgeoning online ad market.

The AOL transition is set to be completed in early September. High-speed subscribers who have paid about $15 per month to use AOL's Web services will now get them for free.

AOL will still offer its slower dial-up Internet access and its Web features for about $26 per month but will not aggressively market the service.

The free services will include e-mail, instant messaging, a local phone number with unlimited incoming calls as well as safety and security features.

AOL aims to hold on to individuals who are considering moving to other Internet access services but want to keep their AOL e-mail accounts and other features, the company said.

"This is the next logical step for AOL to capitalize further on the explosive rise in broadband usage and online advertising," said Time Warner President and Chief Operating Officer Jeff Bewkes.

AOL's future is key to Time Warner, whose stock hit a two-year low in July and faces investor pressure to extract more value out of the Internet division.

On Wednesday, Time Warner also posted a second-quarter profit versus a year-ago loss on more digital phone and high-speed data customers and strong growth in online advertising.


AOL, which has 17.7 million U.S. subscribers, has kept the e-mail addresses of former members from the last two years and will offer the free services to them and to new users.

Time Warner is due to discuss details of its plans for AOL during a conference at 11 a.m. EST. The company said the changes at AOL would not materially affect its 2006 full-year forecasts.

AOL had already made clear it sought to change into an ad-supported network providing information and entertainment as its Internet access business steadily lost subscribers.

It also lost 976,000 subscribers in the quarter from the first quarter and more than 3 million subscribers from a year ago. Total revenue dropped 2 percent to $2 billion in the quarter.

But AOL's ad revenue rose 40 percent from a year ago. The company's Web sites drew an average of 113 million viewers in the United States during that period.

"Online ad growth was strong. Trying to understand what really drove that ... is key to the prospects of AOL's new strategy," said Richard Greenfield, analyst at Pali Capital.

The stock was up 34 cents to $16.59 on the New York Stock Exchange.

Copyright 2006 Reuters Limited.

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