AOL goes high-speed, again

AOL is once again bundling its Internet service with DSL service from Covad as it tries to keep subscribers from defecting.

America Online has revived its strategy of bundling high-speed access with its service to help curb the decline in its subscriber base.

AOL on Wednesday began offering its Internet service, which includes AOL e-mail and content, to customers in the Washington, D.C., area and Chicago over DSL lines from Covad Communications. The new service offers customers 1.5mbps download speeds for $29.95 per month if they sign a one-year contract. Customers who want 3mbps can get the service for $39.95 with a one-year contract. The service is currently available only in the two test markets, but the company plans to begin launching the service nationwide throughout this summer and fall.

The deal with Covad is a revival of a strategy AOL pursued three years ago. In 2002, AOL bundled its service with Covad and sold the combined DSL-AOL service for about 18 months. It then shifted its strategy and began selling a "Bring Your Own Access" plan, which allows customers to layer their AOL service on top of their existing broadband connection. Under this model, customers pay about $30 a month for DSL service from Covad on top of an additional $14.95 for the AOL service. Now customers will get the bundled package for about $30 per month.

"I think they realized that bundling the AOL service with the broadband connection was the most user- and customer-friendly way to offer the service," said David McMorrow, executive vice president of sales for Covad. "This version of the relationship is extremely positive for AOL customers looking for broadband services both in terms of service and cost since it offers a substantial savings."

Earlier this year, AOL also began offering its Internet service over the cable service of sister company . Consumers in Time Warner's service region can get AOL high speed for $29.95 for three months. The price then jumps to $39.95 for Time Warner Cable digital subscribers, and $44.95 for non-digital cable subscribers. This service includes download speeds of 5mbps. Because AOL has an exclusive deal with Time Warner Cable, consumers in the Time Warner region will not be able to subscribe to AOL's service over a Covad DSL connection when it becomes available later this year, said Tricia Wallace, a spokeswoman for AOL.

AOL still offers the Bring Your Own Access plan, but it has added bundling agreements with other providers such as Covad and Time Warner Cable. More are expected to follow.

"What we're trying to do with our partnership with Covad is give consumers a variety of ways to connect to our service that is convenient," Wallace said. "We're continuing to talk to other broadband providers throughout the country to make the service available through them too."

AOL, a division of Time Warner, has been trying to stem the flight of subscribers from its dial-up Internet service. In the last year alone, the company has lost roughly 2.3 million subscribers. The company has shifted its strategy to focus more on generating advertising revenue rather than holding onto subscribers. Later this summer, it plans to launch AOL.com , a Web portal that will provide consumers with much of the AOL content that's currently available only to paying AOL members.

"We're balancing our subscription strategy with advertising," Wallace said. "We hope that AOL.com will create a destination on the Web for our content, which will increase our audience."

Even though AOL has lost a significant number of subscribers over the past few years, it still has one of the largest Internet subscriber bases in the country with 21.7 members in the United States. AOL sees partnering with broadband providers as a way to keep subscribers who want to upgrade their dial-up service to faster speeds. And as SBC Communications cuts pricing on DSL service to $14.95-- well below the $23.90 fee for AOL's dial-up service--the need for a high-speed option is essential to make sure subscribers don't jump ship.

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