AOL to offer free e-mail service

AOL on Wednesday made its boldest effort yet to ditch its reputation as an internet dinosaur reliant on a dying dial-up connection business by making its aol.com e-mail addresses free to people signing up for high-speed broadband from other providers.

The move marks AOL’s attempt to square up to Yahoo, MSN and Google – its biggest online competitors – which have long provided free e-mail and other services and have been snatching AOL’s millions of departing customers.

The push is also a last effort to turn AOL, the “new media” giant thatacquired “old media” company Time Warner in 2001, into a growth business capable of lifting Time Warner’s flagging shares.

The plan, unveiled by Jeff Bewkes – number two at Time Warner and heir apparent to Dick Parsons, chief executive – and Jonathan Miller, AOL chief, is risky. AOL’s income from its 18m US dial-up subscribers, although declining, accounts for 80 per cent of its income, which was $2bn in the last quarter alone.

However, a planned $1bn in cost cuts, and the anticipated growth in online advertising revenues due to an expected rise in AOL’s internet audience, means that Time Warner does not expect AOL’s profits to fall this year and even expects them to rise from next year.

“This is finally a strong move from us that will hurt our competition,” said Mr Bewkes. “We are going to stop sending our members to our competitors.”

Stronger-than-anticipated gains in AOL’s advertising revenues in the second quarter – up 40 per cent relative to last year to $449m – and investor relief that the plan was not expected to hurt profits lifted Time Warner’s shares 2.5 per cent to $16.66.

AOL, which is second only to Yahoo in US internet usage, said its e-mail users were also its most active online users, and doing nothing would result in a further 30bn to 40bn page view losses this year. In addition, it has found that broadband users are more active on the internet than dial-up customers.

The free e-mail will be available from September to any internet users around the world.

Measures such as a $20bn share buyback and cost cuts have failed to lift Time Warner’s shares, mainly due to concerns about AOL’s future.

AOL’s US dial-up subscribers have fallen by 3m in the last year alone, and a further 1m customers departed in the last quarter, in spite ofthe difficulty of closing an account.

Time Warner – which also includes the Warner Brothers and New Line studios, and cable channels CNN and HBO – reported net income of $1bn, or 24 cents a share, for the second quarter.

Revenue from its cable business, its most profitable arm, rose 15 per cent to $2.7bn. Its Time Inc publishing business disappointed amid declines in magazine subscribers. Mr Bewkes said cost controls would remain key in this business.