BOSTON -- A new report, from technology research and consulting firm Strategy Analytics, says that an exodus of top executives, crushing debt, and the biggest annual loss in U.S. business history are only the beginning of the problems facing America Online. The report, titled, "Can AOL Bridge Its Broadband Gap?" predicts that the world's leading Internet service provider faces potentially huge revenue losses in the next few years as broadband becomes the predominant form of Internet access in the U.S. "Broadband subscribers account for only about a quarter of the U.S. online audience today," notes James Penhune, a director of the Strategy Analytics Global Broadband Practice. "But by 2005, we expect that half of all online homes will be using broadband connections, most of them provided by cable and telephone companies. AOL may be able to maintain a commanding share of the dial-up audience, but the overall size of this market will have declined significantly." Table 1: US Internet Households, 2002-2008 (millions)

Competition from broadband service providers isn't the only problem for AOL. Even if it succeeds in upgrading its current customers to broadband, the result will be hundreds of millions in lost subscription revenue. The company's new "Bring Your Own Access" plan lets consumers who get broadband access from cable or telephone companies add a high-speed version of AOL for an additional $14.95 a month. But since AOL's standard fee for dial-up service is $23.90 a month, each time a customer trades up to broadband it could cost the company nearly $9.00 in monthly revenue. The report speculates that the combination of a shrinking dial-up market and the diminished margins produced by broadband subscriptions revenue could cost the company nearly a billion dollars by 2005. AOL hopes to create new revenue by selling new premium services to its dial-up and high-speed subscribers. But so far few specifics have been revealed, despite the company's access to print, music and video content owned by the AOL-Time Warner media empire. "Broadband may be the future, AOL first needs to fix its core dial-up business," Penhune suggests. "Management should make the most of the service's huge base of subscribers by rebuilding ad revenues and establishing more premium services. They may also experiment with prices by adding less expensive options for new customers while boosting rates for the flagship service." Strategy Analytics Inc.