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)


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)




Total annual @ $19.95 (millions)


Total annual @ $21.95 (millions)


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).

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