AOL Makes Bold Moves, Wall Street Applauds
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AOL (NYSE:AOL) found a way to pay for its network upgrade: hike monthly access fees by two dollars creating $198 million bonanza according to our number crunching.
That was the news coming hot off the modem as AOL's Steve Case explained the hike in rates wouldn't add to AOL's (NYSE:AOL) bottom line but would help pay for its ambitious network upgrade costs.
The fee hike, more AOL news, and a tout from Goldman Sach's Internet analyst Michael Parekh, sent AOL shares ballistic.
How to Raise $200M in One Move
|The $2 Hike|
|AOL members (millions)||11.00|
|Monthly fee||$ 21.95|
|Old fee||$ 19.95|
|Per member annual @ $19.95||$ 239.40|
|Per member annual @ $21.95||$ 263.40|
|If 75% on unlimited (millions)||8.25|
|Total annual @ $19.95 (millions)||$1,975.05|
|Total annual @ $21.95 (millions)||$2,173.05|
|Net difference (millions)||$ 198.00|
|© Mecklermedia, analysis|
While we expect some AOL users to leave the service because of the higher price, many will probably eat the $2 difference. Still, in an industry that has newcomers from the Web challenging its access position, AOL may have created an opening for rivals that charge less--namely Mindspring (NASDAQ:MSPG) and Earthlink (NASDAQ:ELNK).