Starting this month, dial-up subscribers to America Online's unlimited plan will see their rates bump up two bucks to $25.95 a month. Price increases are a way of life. You see the slow creep in everything from your cable bills to your college tuition. You shouldn't, however, see it in an online service.
As broadband providers keep lowering their rates now that the early adopters are onboard, the old-school dial-up providers should know better than to charge too much for their services. Rival Earthlink (NASDAQ:ELNK) is charging $21.95 a month for its unlimited service. Bargain-priced provider United Online (NASDAQ:UNTD) offers unlimited connections for as little as $9.95 a month through its NetZero and Juno outfits.
So what's AOL thinking here? The Time Warner (NYSE:TWX) subsidiary has spent the past year beefing up its spam filters and antivirus protection, but it has also gone the other way on some fronts. The company has abandoned its proprietary message boards and newsgroup readers in favor of slower Internet-based options.
Users have voted with their final "Goodbye" screens. Usage peaked in September of 2002 with a subscriber base of 26.7 million users, but every passing quarter since then has seen a lower subscriber count. The dwindling base stands at 19.5 million today.
Hiking its monthly fees now seems to be akin to ringing the "last call" bell to weed out the last of those fiddling about in a drunken stupor. What's that line in Semisonic's "Closing Time" song?
"You don't have to go home, but you can't stay here."
Then again, AOL isn't completely out to lunch on this move. Just as folks are shuffling out of the service, AOL is ready with a cab to shuttle users over to a beefed-up AOL.com outside its gated community. It's also marketing a high-speed DSL service, and guess where it's priced at? That's right, it's $25.95 a month.
AOL is sending a pretty clear message to its dial-up users: By pricing its slower phone-line-hogging service at the same price as its Web-based broadband service, it's shooing those folks toward its own speedier offering.
The problem is that once people taste high-speed online access -- and a Web browser becomes their new online Sherpa -- it's not long before the AOL welcome screen as a homepage is substituted with Google.com, CNN.com, or even Fool.com. At that point, the fat-margin advertising revenues that AOL has been using to cushion the blow from the dial-up defections will be harder to come by. AOL will become just another commodity provider with its access-providing service.
What then? The bar will be closed. The subscribers will have sobered up. Few will be around to hear AOL offer to buy the next round.
Time Warner has been a longtime Motley Fool Stock Advisor recommendation.
Longtime Fool contributor Rick Munarriz has been an AOL subscriber since 1992, but he doesn't own any of the stocks mentioned in this story. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
