AOL Time Warner effort questioned

To grasp why America Online hasn't yet convinced consumers to log on from mobile phones and other Web-connected devices, talk to Sonna Kim.

The 31-year-old management consultant's mobile phone can access America Online services, yet she doesn't use the feature.

"It seemed like a waste of money to use it on my cell phone," said Kim, who pays Sprint PCS US$5 a month for wireless Web service. She would have to pay US$23.90 more each month to get America Online on her cell phone.

AOL Time Warner Inc's three-year old "AOL Anywhere" services offer the largest Internet provider via televisions, hand-held computers and mobile phones. High prices and longer times to download information from the Internet than from personal computers have kept consumers from signing up, analysts and researchers said.

AOL Time Warner needs to spur use of these services to boost growth at America Online, as half the US population is online, analysts said. The number of new customers accessing the Internet through personal computers may slow in the next several years, they say. PC sales fell 1.9 percent in the second quarter from a year earlier, the first decline since 1986, according to market researcher Dataquest Inc, a unit of Gartner Inc.

Indicative of the high prices is America Online's e-mail pager from Research in Motion Ltd, analysts said. The device costs US$330, and consumers must also pay a monthly fee of US$19.95 in addition to America Online's US$23.90 charge for PC service. America Online plans to introduce a lower-cost version of the pager later this year, said Barry Schuler, chief executive of America Online.

He said the price hasn't been set yet.

"It's absolutely necessary for the company to develop this franchise because at some point in the future it may be a big revenue generator," said Charles Crane, a strategist at Victory SBSF Capital, which owns AOL Time Warner shares.

America Online will remain a predominately PC-based service for the next three-to-five years until the services and devices become cheap and fast enough to appeal to consumers, said William Blair analyst Abhishek Gami, who rates AOL Time Warner shares "strong buy." America Online's growth is slowing. Revenue at the unit, which accounts for 23 percent of AOL Time Warner's sales, rose 13 percent in the second quarter, down from 17 percent in the first quarter.

"The Internet is reaching full maturity on PCs," said Peter Ashkin, president of product strategy at America Online. "Right now, we're struggling in finding the right way to provide" services over other types of devices, he said.

America Online, which has more than 30 million subscribers who primarily get online through PCs, needs to develop these new services so that products will be available as more consumers seek out the devices, America Online's Schuler said.

"There's no doubt in my mind that as we look ahead five to 10 years from now, there will be many different ways people get onto the Internet from besides in front of a computer," he said.

Jupiter Media Metrix Inc, an Internet research company, estimates that 96 million US consumers in 2005 will connect to the Web through cellphones and other wireless devices, compared with 4.1 million last year.

That means there could be more people accessing the Web while away from PCs in four years than at PCs. About 80.2 million homes will have Internet access in 2005, according to Jupiter.