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AOL mulls free services: source

Time Warner Inc.'s AOL unit is considering offering its services, except for Internet access, free of charge to anyone with a high-speed connection, a source familiar with the plans said on Thursday.

The idea is one of several options AOL, once the biggest online services company, is considering to boost online advertising sales. It currently relies mainly on subscription revenue, but has been losing subscribers at a quickening pace to rivals including cable operators and telephone companies.

Many current subscribers have clung to AOL to keep their email addresses, but many former subscribers have left in recent years for free email services offered by Yahoo Inc. and Google Inc.

By giving away the service for free and letting people keep their email, AOL might retain the Internet traffic -- and ad revenues -- it would have lost to competitors.

Subscribers who want AOL's dial-up Internet access would still have to pay, the source said. AOL declined comment.

AOL wants to rely more heavily on online advertising and less on subscription revenue, which currently accounts for about 80 percent of total revenue, the source said, adding that no decision has been made.

Under the plan, AOL would stop charging subscription fees for services ranging from email to anti-virus protection for users with high-speed Internet access or a dial-up service from another provider, the source said.

AOL currently offers its services for free to Time Warner Cable's high-speed Internet subscribers, but the service is not heavily advertised.

Giving away AOL for free to all high-speed Internet subscribers could reduce revenue by about $2 billion, according to a report in the Wall Street Journal on Thursday.

But the move could help it generate more traffic to its websites and thereby boost online advertising, which is priced according to the volume of traffic a site generates. Email usage remains one of the Internet's biggest traffic drivers.

AOL saw revenue from online advertising rise 26 percent to $392 million in the first quarter of 2006, underscoring its strategy of giving away its services for free to boost traffic and ad revenue.

AOL lost about 835,000 U.S. subscribers in the first quarter, leaving a total of 18.6 million -- down from 26.5 million at the end of 2002.

Jonathan Miller, AOL Chief Executive Officer, presented the proposal to top Time Warner executives in New York last week, the source said, confirming the Journal report.

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