Internet giant AOL increases prices

America Online is raising the cost of its primary Internet service by 9% in a move that could generate an additional £350m annually for the media giant.

Analysts said that AOL should see very little customer defections from the move, however, citing the higher charges subscribers are already paying for the premium content the world’s largest on-line service offers.

From July, customers who subscribe to AOL’s Unlimited Use plan will pay £16.70 a month in the US, an increase of £1.35 a month.

About 75% of AOL’s 29 million customers subscribe to the unlimited plan, analysts said.

Major competitors said they plan to keep their prices the same, and will use the increase in an attempt to syphon off price-conscious AOL members.

"I think this may be a catalyst for AOL customers to evaluate their options," said Bob Visse, a product manager for Microsoft’s MSN service. MSN, a distant second behind AOL with more than five million subscribers, charges £15.30 a month in the US.

Analyst Christopher Dixon with UBS Warburg said he expects AOL to experience very few defections, because the vast majority of its customers are not price-sensitive and already pay a premium to take advantage of AOL’s products and services.

"It’s their first price increase in three years," he said. "It underscores the flexibility they have in setting pricing plans."

AOL’s other pricing plans will not be affected by the change. AOL subscribers can pay as little as £3.50 a month for a plan that allows three hours of on-line time per month or as much as about £28 a month, depending on the company’s contract with local telephone providers, for a broadband plan that provides high-speed service.