AOL goes for broadband subscribers

AOL, the internet group owned by Time Warner whose turnround is regarded as key for the performance of the media group, is trying to stem a decline in its internet subscriber customer base by offering users high-speed internet access through deals with telecoms groups.

From on Monday, AOL will offer high-speed internet access via BellSouth, AT&T and Qwest Communications. In addition, AOL said on Friday it had expanded existing deals with Time Warner Cable and Verizon Communications.

The internet group, whose profitable dial-up subscriber base has been shrinking as more internet users switch to high-speed access, will offer high-speed internet access and content and security features for $26 to $30 per month.

The push to move dial-up customers more quickly to broadband could cost AOL in the short-term but is aimed at increasing value longer-term. AOL, which last year relaunched its free portal and has improved its content in an effort to boost audience to attract more advertising, believes that new broadband users linked to AOL will add to the traffic on the AOL portal.

“It pressures AOL’s profitability but [is] potentially a positive longer-term if AOL executes on its programming and ad growth efforts,” said Doug Mitchelson, analyst at Deutsche Bank.

Jeff Bewkes, president and chief operating officer at Time Warner, who this year took over responsibility for AOL, said recently that the internet business could start to increase its subscriber base again. The high-speed internet announcements are part of this drive.

Time Warner will release its year-end results on Wednesday. Analysts will be watching what the media group says about AOL, and they are hoping that the internet division’s results will be split between the declining dial-up subscriber business and the ad-driven portal business.

The portal business could be set for strong growth if AOL is able to capture its share of the rapidly expanding online advertising market. If the AOL portal performs well, analysts said the valuation multiples applied to it could lift the entire valuation of Time Warner, which is regarded as having limited growth prospects and whose shares have lagged together with those from other media giants.

“AOL’s long-term value will increase as it replaces high churn dial-up subscribers with deteriorating economics with lower churn, broadband customers,” said Spencer Wang, analyst at JP Morgan.

Dick Parsons, chairman and chief executive of Time Warner, is under pressure to find ways to lift the group’s share price. Carl Icahn, the activist shareholder, is planning a proxy fight for control of Time Warner and wants to break up the conglomerate.