AOL raises rates in the States
Published: 22 May 2001 16:17 BST
Internet giant America Online on Tuesday said it is hiking its subscriptions rate in the US by $1.95, a move widely anticipated by Wall Street as the company moves to meet near-term financial goals.
Beginning in the July billing cycle, AOL will charge users $23.90 for its monthly unlimited-use plan. This is the first time AOL has raised the price of its unlimited service since April 1998, the company said in a statement.
The price increase is intended to help AOL fund improvements to its service. AOL's other pricing plans will not be affected by the change.
AOL shares rose $1 to $57.60 on the news. Shares in other Internet service providers rose in anticipation that they will follow AOL in raising rates. Earthlink shares jumped $1.35 to $14.84 in early trading.
Wall Street had anticipated the price hike as one way that AOL Time Warner could add further backbone to its aggressive earnings estimates.
Chairman Steve Case has stated publicly that the company does need to raise rates to meet those targets. AOL Time Warner had stated revenue goals of $40bn and $11bn in earnings before interest, taxes, depreciation and amortisation (Ebitda) for the year.
Jordan Rohan, an analyst at Wit Soundview, estimates that AOL Time Warner would add $300m in cash flow to the second half of 2001 with the new rate hike.
"I don't think they need to increase rates to meet their numbers. I think they need to increase rates to beat their numbers," Rohan said.
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