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Prodigy to unveil overhaul
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March 24, 1998: 6:09 p.m. ET
Can its higher-speed Internet service and low price take a bite out of AOL?
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NEW YORK (CNNfn) - Prodigy Internet will unveil a major overhaul of its Internet service on Wednesday. But is it too little too late for the company that once was king of the online world?
Prodigy's main strategy is twofold: provide customers with uniform high-speed service, and keep charges at a low $15.75 per month for users who prepay for one year.
The company's 56 kilobits-per-second data-handling threshold means its customers would need to use some of the fastest modems on the market.
Prodigy Internet has 430,000 subscribers. By contrast, leading online service provider America Online (AOL) boasts 13 million subscribers, including those of CompuServe, which AOL acquired in January.
The revamped service will have a new "channels"-based interface, designed in partnership with Excite, the Internet search-engine company. Channels organize Web-site content into categories that simplify browsing.
The timing of Prodigy's price cut seems right, since AOL recently increased its rates from $19.95 a month to $21.95. That increase goes into effect on April 1.
Analysts, however, are skeptical about Prodigy's chances.
Clay Ryder, chief analyst at Zona Research Inc., doesn't believe this is a last-ditch effort by Prodigy to stay alive. But he isn't convinced that it can be profitable by charging $15.75 a month.
"It's well below the break-even point," Ryder said. "They're going to have to have really good volume."
Keith Benjamin, an analyst at BancAmerica Robertson Stephens, puts it more bluntly.
"I still think it's hopeless," he said. "The fact that they're still alive at all is a testament to the inertia or laziness of people who don't want to change their e-mail address."
Benjamin said Prodigy's pricing scheme will not be sufficient to take away a substantial slice of AOL's customers.
"The price is misleading because most AOL customers have at least two people on an account," he said. "On Prodigy and other services, you have to pay extra to add another user."
Prodigy, however, believes the retooled service will thrive. Jim L'Heureux, Prodigy's senior vice president, said the company has "created a business model" that will allow it to make a profit even as it charges low rates.
"We've outsourced all our content, we sold our network and are leasing it back, and we went to a third party for all our customer support," he said. "We capped our total costs to $8 per subscriber per month, so we can make a profit by charging $15.75 a month."
Prodigy sold its network to Houston-based SplitRock Services last summer.
L'Heureux added that Prodigy has put itself in a position to steal a good chunk of disgruntled AOL customers.
"When you look at the customer satisfaction rate of AOL, it's remarkably low," he said. "By providing an alternative, they will leave." 
-- by staff writer John Frederick Moore
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