America Online is to raise prices by 10 per cent to cope with a three-fold increase in usage and cut 500 jobs from in its new subsidiary Compuserve to turnaround its substantial losses.
Steve Case, AOL's chairman and CEO, said the price rise of $2 to $21.95 per month was necessary to keep up with the increase in usage time which had gone from 7 hours to 23 per month since the introduction of unlimited use pricing.
"The pricing change will help AOL continue to make the necessary investments to provide the best possible Internet on-line experience, while keeping pace with the cost of our members' rise in usage," he said.
AOL recently bought Compuserve's on-line service, in the process selling the network infrastructure to telco Worldcom.
As part of its amalgamation into AOL, 500 jobs are to go at Compuserve, although the service will stay separate from AOL's and remain at its base in Ohio as AOL committed to at the time of the purchase.
At the same time, an internal reorganisation will take place to streamline the infrastructure into three divisions. The company also said it was considering the sale of Compuserve's Internet access unit Sprynet.
With over 11 million AOL members, the price rise could generate significant revenue. The company claimed it had already invested $700m last year in developing its infrastructure but there still remains some dissatisfaction amongst customers with speed and wait time for access.
The price hike also raises the question of whether competitors such as Microsoft's MSN and AT&T's Worldnet will follow AOL's lead or try to poach members by maintaining existing price levels.
MSN currently offers unlimited access for $19.95. A representative said the focus for MSN was to move away from subscriber-based revenue towards advertising and commerce sources. MSN is shortly to announce its Start initiative where extra content moves onto the Internet proper.
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