America Online to raise ISP rates

Basic rate to rise $1.95 per month

AOL Time Warner said Tuesday it plans to raise America Online’s rates this summer, a move it has been hinting at for months and one that will pull hundreds of millions of dollars of additional cash flow into its coffers.

The leading Internet service provider will tack $1.95 to its basic rate for unlimited service, bringing the monthly fee to $23.90 starting with the July billing cycle.

UBS Warburg analyst Chris Dixon figures the price hike, its first in three years, will bring in an incremental $35 million a month, or $300 million in annual cash flow, with minimal subscriber defections.

He said the move demonstrates “management’s ability to pull levers in the core subscription business.” That flexibility, plus the unit’s fast growth, is one reason AOL Time Warner CEO Gerald Levin frequently refers to America Online as the conglom’s crown jewel. AOL has nearly 30 million subscribers.

Analysts have speculated AOL Time Warner needed the price hike to meet the aggressive postmerger growth targets it set out for Wall Street. Levin and chairman Steve Case, however, have said the targets — $40 billion in revenues and $11 billion in cash flow this year — didn’t include higher AOL subscription fees.

AOL said in a statement that the price increase will help fund improvements in its service, where it has invested $3.5 billion over the past three years.

AOL shares rose 1.13% to close at $57.24