AOL Price Increase Threatens ISPs

Tuesday, January 22nd 2002, 12:00 am

By: News On 6

NEW YORK (AP) _ America Online Inc. is raising prices 50 percent for customers who reach its service via other Internet providers, a move analysts say could wind up herding more business over to AOL and hurting smaller service providers.

In March AOL will raise its monthly fee from $9.95 to $14.95 for its ``Bring Your Own Access'' service, which gives a million or so AOL users access via a separate Internet account.

The company, by far the world's largest online service provider with 33 million subscribers, last increased the rate for new Bring Your Own Access customers in October.

AOL's latest price increase will add to the pressure on independent Internet service providers struggling to keep customers from defecting to AOL and Microsoft Corp.'s MSN Internet Access, said Daryl Schoolar, an ISP analyst with Cahners In-Stat Group.

``This is definitely going to hurt the small guys who can't compete on the content,'' Schoolar said. ``AOL is forcing customers to decide what's important. A lot of these ISPs are going to find that part of their customer base wants the content.''

Schoolar said 200 smaller ISPs went out of business last year, the first year that saw a drop in number of U.S. Internet access companies.

Many AOL customers using outside ISPs will simply choose to pay an extra $8.95 a month to adopt AOL's full dial-up service, and drop an independent Internet provider that typically charges $15-$20 per month, Schoolar said.

Although AOL will chase away some subscribers by raising its prices, Schoolar said the increase is large enough to boost revenues. ``This will work to their overall benefit,'' he said.

The price increase could also backfire.

AOL subscribers might choose to drop AOL altogether in favor of Internet-only access provided by companies offering more reliable or faster connections than AOL, said Michael Gartenberg, an analyst with Jupiter Media Metrix.

AOL emerged near the bottom of U.S. ISPs in an August survey in Consumer Reports magazine. Sixty percent of AOL users answering the survey reported an interruption in their connection during the previous month, the worst rating among all ISPs examined by the magazine.

AOL also raised subscription fees last year for its unlimited dial-up service by $1.95, to $23.90 per month, becoming the most expensive major online provider in the United States.

Gartenberg said subscribers who may leave AOL include sophisticated Internet users who merely want to retain an AOL e-mail address but prefer to use the Internet directly, not through AOL.

``These are folks who have ISP accounts and who've outgrown AOL but keep it around as a convenience,'' he said. ``At $10 a month, it was no big deal. But this may cause people to cut their ties with AOL once and for all.''