The analysts rang up AOL to cancel their $14.95 subscriptions and switch over to the new free AOL. After holding for about 18 minutes, which they noted is longer than the average five- to 10-minute wait, the customer-service rep told them "every second call we are receiving today is for free AOL." She typically receives 70-80 calls per day.
Less than a month
Based on their phone conversation, analysts Spencer Wang and Shubhashree Mukherjee calculate that at the current rate consumers are calling to receive AOL's free service, it will take less than a month for its 6 million existing broadband subscribers to make the switch. In fact, they estimate about 325,000 consumers are calling daily to switch, so it will take about 19 days to convert all 6 million broadband subscribers. (They do note that rate could slow if demand tapers.)
What does that mean? "We expect a significant acceleration in AOL's sub losses," Messrs. Wang and Mukherjee wrote in their report. "This could lead to a 2 million-plus reduction in AOL U.S. subs" in the third quarter of this year.
Critical to cut costs
Accelerating subscription losses isn't necessarily a bad thing, however. "Faster transition means AOL revenues will trough faster," they explain.
What is clear to everyone, including Messrs. Wang and Mukherjee, is how critical it is now for AOL to accelerate ad-revenue growth and cost cutting. In that vein, AOL announced plans today to reduce its global work force by as much as 25%, dropping some 5,000 employees within six months.
The news comes a day after Time Warner said it will stop marketing AOL's dial-up service -- a move that could save AOL more than $1 billion in marketing and operational costs, Credit Suisse analyst William Drewry estimated in a July 24 note.