RealTime IT News

AOL Makes Bold Moves, Wall Street Applauds

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  

AOL soared more than 12% yesterday to a new closing high of $110.438 after the leading online service announces key moves to: 1) raise unlimited monthly access by $2 to $21.95; 2) eliminate 500 Compuserve jobs as part of its acquisition and 3) reorganize much of the company to be run by former MTV guru Bob Pittman, who was promoted to president and chief operating officer. AOL/CompuServe now reports 13 million subscribers (11M AOL, 2M CSI).

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).