Strike up the bandwidth

AOL's efforts to woo Internet customers are off to a mixed start

By Lisa Singhania ~ The Associated PressNEW YORK

en Yrungaray grew up on America Online. But when he decided to upgrade to high-speed Internet service, he went elsewhere.

"AT&T Broadband had all the features that I needed, and it was less expensive," said the 22-year-old Provo, Utah, college student.

That's not what America Online wants to hear.

The online giant is counting on its high-speed Internet service to reverse declining revenues and allay fears that its business is deteriorating.

A new strategy announced in December stakes future growth on AOL Broadband, which the company says will feature offerings -- including magazine articles, news video and musical performances -- unavailable for free anywhere else on the Web.

Analysts are skeptical. AOL Broadband tends to be pricier and, so far, little different from such aggressive competitors as Microsoft and EarthLink.

AOL has been slow to develop the broadband service, in part because doing so hinges on the cooperation of other divisions of parent company AOL Time Warner Inc., analysts say.

"This battle is AOL's to lose," said Gerald R. Faulhaber, a professor of business and public policy at the Wharton School of Business. "They are getting into it too late. Two years ago, they could have been the king of broadband."

AOL executives declined to be interviewed for this story, but spokeswoman Anne Bentley said the company has "made significant strides on the programming side and there's more to come."

Analysts aren't impressed. They say the online service's still dysfunctional relationships with other AOL Time Warner siblings make prospects murky.

"AOL has not had a lot of cooperation from the other divisions ... and I don't think that has changed," said analyst Jonathan Gaw of technology research firm IDC Inc. "Look at Time Warner Cable. They still have RoadRunner out there, which in many ways competes with AOL, and that just shouldn't be."

RoadRunner is Time Warner Cable's in-house broadband product.

Although AOL has offered high-speed service for years, its marketing has been halfhearted.

Until recently, AOL dial-up subscribers got few pitches about broadband and there was no national ad campaign. As of last year, only 2.7 million of AOL's 26 million U.S. subscribers were high-speed customers.

Granted, other Internet service providers weren't offering stellar services last year either. But some are now. Competition is also coming from third parties. Last week, Major League Baseball and ABC News announced for-pay webcasting offerings.

Perhaps AOL's biggest broadband splash to date has been some exclusive music video performances, along with a new music service that lets subscribers burn 10 songs onto a CD for $17.95 a month.

The company also plans to offer unique content from People and Time magazines, CNN and other AOL Time Warner properties. Only AOL Broadband members would get such offerings for free with their subscriptions.

Price considerations

Question is, can AOL satisfy consumers on price?

AOL Broadband subscribers generally pay a minimum of $55 a month for high-speed America Online service. That's $5 to $10 more than the cost of a high-speed connection alone, which also provides Internet and e-mail access.

At the same time, Microsoft, EarthLink and Yahoo! are also touting premium high-speed services. In many cases, their products cost less and are comparable to, if not better than, AOL's.

EarthLink, for example, is running a $21.95 monthly introductory broadband offer for Time Warner Cable customers in most markets -- undercutting AOL's price by more than 50 percent.

And, although MSN, AOL and EarthLink each showcase special features such as spam-blocking, analysts say there is still no clear standout. That could change as the next generation of MSN and AOL products, expected late this year, come out.

Analysts say AOL's toughest competition may eventually come from cable and other telecommunications companies. After all, the telecommunications companies operate their own broadband infrastructure. Because it does not, AOL must cut distribution deals with others, including Time Warner Cable. Microsoft has a similar problem.

"The telecommunication companies are retailing and bundling Internet services themselves and, in some cases, able to charge less," said Joe Laszlo, an analyst with Jupiter Research.

But AOL does have one significant asset that analysts say should not be underestimated: millions of loyal dialup customers inclined to stick with the familiar -- including Linda Kennedy.

"We're comfortable with AOL. We know how it works and it's easier for us to get what we need," said Kennedy, an executive assistant in Fremont, Calif., an AOL dial-up customer who chose AOL Broadband after considering competitors including AT&T. "And I think the service is a lot better than what else is out there."