America Online Slashes Its User Fees

Move by Computer Information Firm Could Signal Start of Price War

by Cindy Skrzycki

Wednesday, April 21, 1993

America Online Inc., the Vienna-based computer information services company, yesterday cut its monthly charges by 60 percent for all but the lightest users, going to a system of flat-rate pricing that it hopes will attract more subscribers.

America Online's announcement that it was switching to a $9.95 monthly fee for five hours of service also could be the beginning of a price war with a major competitor, Prodigy Services Co., which changed its price structure last week.

The company has been charging $7.95 for two hours of use and 10 cents per each additional minute.

The stock market reacted negatively to America Online's price cut, which is effective May 1. The company's shares were down nearly $5 in Nasdaq trading before recovering to close at $22, off 62 1/2 cents.

Analysts said the changes reflect the industry's search for the right formula to get more subscribers to use its services and to keep them for longer periods of time. Using a computer modem, some 3 percent of American households dial into services such as America Online to get stock quotes, electronic mail, weather and news.

"It's a good deal," Steven Sieck, vice president of electronic services for Link Resources Corp., a research and consulting firm in New York, said of America's Online's new pricing plan. "Prices will continue to decline because of competition and the cost of telecommunications."

America Online said the 90 percent of its subscribers who spend up to five hours a month on its services can take advantage of the flat price, which covers all of its operations. Starting July 1, additional time will cost $3.50 per hour, at any time of the day or night.

Last week, Prodigy, the nation's largest on-line computer service with some 2 million users, went from a flat rate of $14.95 a month to adding a usage fee for some services, a move that made some of its biggest users unhappy.

CompuServe Inc., the nation's second largest on-line computer service, which has also reconfigured its pricing, charges $8.95 for unlimited time for customers using 36 basic services. It charges hourly fees for other, time-sensitive services.

"We're trying to make it simpler and much more affordable," said Steve Case, president of America Online. "At the end of the day, customers' credit card statements will tell them how much they spent. They'll see $9.95. Period."

Jeoffrey Moore, a spokesman for Prodigy, said what America Online is doing is raising its minimum price for light users by 25 percent. "What they really didn't say is that they aren't comparable to Prodigy. It surprises us they still don't offer a flat rate plan like we do. Only four of our features are timed."

Moore also said there was no comparison in "richness or reach" between Prodigy's bulletin boards and those offered by America Online.

Prodigy's $14.95 plan now includes unlimited use of several hundred features, such as news, reference services and games. Two hours of special features that connect users to bulletin boards, airline schedules and some financial information are included in the flat rate, and then charges range from $3.60 to $4.80 an hour.

Nevertheless, Case noted that for most customers, America Online's new pricing plan will be less than half of what Prodigy charges based on the five-hour formula.

Recent changes in pricing by the companies illustrate how many computer users spend their time logged on to electronic services. They "chat" with other subscribers, tap into computer bulletin boards, check stock quotes and use electronic mail.

"Subscribers want more free hours bundled into a monthly charge instead of worrying about the meter ticking," Case said. "It's a little higher monthly fee, but a lot more free time."

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