Saying it needs more money to keep upgrading its service, America Online announced a price increase on Monday that will push its US$19.95 monthly fee up to $21.95, beginning in April.
The $2 hike ought to fund some sweet upgrades, as the service stands to gain about $22 million in monthly revenues - or $264 million annually from the price increase, assuming it maintains its current 11 million subscribers.
At the same time, CompuServe, which was bought by AOL last year, announced a restructuring that inlcudes 500 layoffs, the suspension of "C" - its plan for a Web-based service, and close scrutiny of its SpryNet Internet service provider to see just what the company can do with its assets.
AOL’s stock surged with the news, jumping up by nearly $7 to its all-time high of $105.43 in early afternoon trading.
"Our members have told us - and their usage demonstrates - that they want us to continue to provide AOL on an unlimited basis," said Steve Case, AOL’s chairman and CEO, in a statement. "The pricing change we are announcing today will help AOL continue to make the necessary investments to provide the best possible Internet online experience, while keeping pace with the cost of our members' rise in usage."
The company says it has spent some $700 million on service upgrades over the last year and added more than 1,000 customer service representatives.
"AOL members now spend on average more than 23 hours a month online compared with just 7 hours before unlimited use pricing was introduced," Case added. "Each additional minute our members spend online adds to our cost of delivering unlimited-use service. Revenues from advertising, commerce, and other sources continue to grow as anticipated, but they are not yet able to cover the growth in member usage," he said.
The CompuServe reorganization came after a comprehensive review of the Columbus, Ohio, company’s operations, including redundancies with the existing AOL infrastructure. The company will upgrade its connection software as part of the changes taking place.
"Our revitalization program will enable us to take full advantage of AOL's scale, resources, and experience to improve CompuServe and make it more competitive in the US market," said Mayo S. Stuntz Jr., president of CompuServe Interactive Services.
