AOL's chance to get up to speed

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Seven million subscribers have dumped America Online since late 2002 as customers jump to speedy broadband rivals or cheap dial-up alternatives. What's AOL's latest brainstorm? Raise the price. Just a way to milk remaining users of a fading franchise? Actually, there's a bigger idea here that can work if AOL doesn't fumble the execution.

The strategy: Raise the standard monthly dial-up price by two bucks to $25.90-but entice users to switch to AOL broadband for, in many markets, the same price as dial-up through deals struck with the four Baby Bells (AT&T, BellSouth, Qwest, Verizon) and two cable services (sibling Time Warner Cable and Charter).

Time Warner chief Dick Parsons' pitch: "We're trying to actually accelerate the transition of our narrowband customers who are inclined to leave for broadband anyway. ... We're actually going to push them into those new broadband relationships." The payoff: Ongoing subscription revenue, opportunity for AOL's growing ad sales, a chance to sell premium services.

AOL broadband schemes are nothing new. AOL has had DSL deals with phone companies since 1998; Time Warner Cable has offered AOL since '01. But as AOL twisted and turned on strategy, its U.S. subscriber base plunged 27% from the '02 peak of 26.7 million to 19.5 million at year-end '05.

AOL this year announced new deals with broadband partners and insists it has the pieces in place for the big switch. There are obstacles: Deals vary among partners so AOL can't promote one nationwide price, and partners have other offerings that compete with AOL; customers will hammer AOL if the partner's connection doesn't work; dial-up discounters will pick off users who balk at the price hike.

But the upside is huge: the chance to get millions of users up to speed and to give AOL's subscription business a second life. Like AOL's 1996 switch from hourly to flat-rate pricing, this could fundamentally change how AOL's massive base uses the Internet and demark the end of an early stage on the Net. Dial-up is over; broadband is the mainstream. AOL is late, but better late than never.

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