- The Washington Times - Thursday, February 7, 2008

AOL yesterday took steps to shed the last vestiges of the dial-up Internet business that made its name in the 1990s.

Parent company Time Warner Inc. is spinning off the firm’s access service, preparing it for a possible sale as the meteoric rise of broadband has squeezed the Sterling, Va., Internet pioneer out of the picture.

The move did not surprise analysts, given AOL’s divestiture of its Internet-access properties overseas and its new business model centered on advertising. But for longtime AOL subscribers, it could signal the end of an era.

“I’ve grown accustomed to all the services, the ease of use that they offer,” said Ashu Saxena, a Fairfax soccer coach who has used AOL to connect to the Internet since the mid-1990s. Mr. Saxena upgraded from dial-up to broadband a couple of years ago but said he still subscribes to AOL’s legacy service because it’s “user-friendly” and affordable at $9.95 per month.

Kathy Norton Warren, a Chevy Chase therapist who is self-employed, has had the same e-mail address since signing up with AOL in 1992.

“It’s just worked for me,” she said, citing parental controls and the company’s early introduction of an unlimited-minutes package as some of her favorite features.

Analysts said Time Warner’s decision to separate AOL’s access business from its advertising and Web-portal businesses is a sign the company would like to sell the unit, which continues to hemorrhage subscribers.

“It’s not even a new move so much as the finality of it,” said James Goss, an analyst with Barrington Research in Chicago. “The bottom line is that, at some point, to split them totally increases their options of doing something with one business or another.”

Jeffrey Bewkes, who took over last month as chief executive officer of AOL parent Time Warner Cos., announced plans to split the two divisions during a conference call with analysts and reporters.

The company’s revenues fell 33 percent to $5.2 billion from $7.8 billion a year ago, Time Warner said yesterday. The company attributed the loss to a 52 percent drop in revenues from dial-up subscriptions. AOL, which once boasted more than 20 million subscribers, lost 3.8 million subscribers last year and now has 9.3 million in the United States.

The company offers broadband access in addition to dial-up service, but the company declined to say what percentage of its subscribers continue to cling to their slow dial-up connections.

AOL said 2007 advertising revenues grew 18 percent, or $345 million, to $2.2 billion. Industrywide, online ad revenues increased 21 percent last year, according to David Card, an analyst for Jupiter Research.

Signifying its commitment to chasing ad dollars, AOL is officially relocating its headquarters in April to the country’s advertising capital, New York. The company will maintain a large presence in its Sterling office, which employs 3,000 people, a spokeswoman said.

The Internet pioneer that gave millions of Americans their first Web experience also is focusing efforts on providing content for its Web portal. The company no longer charges users for e-mail and other services, a change it made in response to the prevalence of high-speed Internet access offered by phone and cable companies.

Mr. Goss said there could still be a market for dial-up access. “There are people who probably will want something less than a $42 cable bill to get e-mail,” but he noted it’s “not a market they want to be in.”

Barry Diller, the chairman of InterActiveCorp. (IAC) who once expressed interest in buying AOL’s Internet division, yesterday said he doubts IAC will buy the unit.

“I don’t feel the same way now,” he said on a conference call. “If AOL came down in price to something ridiculous, we probably would look at it. I just doubt we have very much interest in it.”

Mr. Bewkes yesterday said Time Warner is “open to any strategic moves that make sense.” But any potential acquisition or partnership for AOL might be less likely after last week’s offer by Microsoft Corp. to acquire Yahoo Inc. for $44 billion, a bid fueled by the software giant’s wish to challenge online-advertising leader Google Inc.

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