The future of AOL LLC is set to be revealed after its owner Time Warner Inc promised to disclose the business strategy for its internet unit in early August.
There has been intense speculation surrounding AOL, and specifically its European operations for some time now, with a number of parties expressing an interest in acquiring the operation. AOL has 5.9 million customers in Europe, mostly from three markets: the UK, Germany, and France.
The UK is its largest European market with 2.2 million customers. There is also a small operation in Spain. AOL is the UK’s third-largest ISP with 2.2 million customers, of which 1.3 million are broadband customers and the rest dial-up.
The mainland European operations are moving away from an ISP model to a portal-based business, similar to the US. However the biggest problem for Time Warner is the fact that AOL is simply losing too many customers during the move from dial-up to broadband, as customers seek more competitive and less restrictive offerings.
In the US, a Wall Street Journal report recently said that AOL would lose up $2bn in subscriber fees as it offers more free services. However, Time Warner has dismissed these reports. Recent media reports appear to be based on unauthorized disclosures, including of incomplete and largely erroneous financial information, it said. The company cautions investors not to draw conclusions regarding AOL’s future strategy until the company’s presentation on August 2.
Shares in Time Warner fell 2% after the Journal said plans to stop charging internet users for many of its services could cost the company in the short-term, but could ultimately yield higher profits as it benefits from an online advertising boom.
Various reports said AOL was contemplating giving away its email and other services free to customers who have broadband or dial-up service from another provider, but would continue to charge its own dial-up customers. Under the proposal, AOL would waive its subscription fees to everyone except its own dial-up customers, who would continue to pay as much as $25.90 a month for the services.
If AOL goes ahead with its proposal, as much as $2bn may be lost in subscriber fees, based on reports that AOL expects 8 million of its existing dial-up customers would take it up on its offer.
There is little doubt that AOL executives are desperate to stem the exodus of subscribers. At the end of the first quarter the company had 18.6 million US subscribers, compared to 21.7 million in the same quarter a year ago. At the end of 2002, there were some 26.5 million AOL subscribers.