Aug. 12 (Bloomberg) -- Time Warner Inc.'s America Online unit on Sunday will start selling discounted personal computers to consumers who agree to buy AOL dial-up Internet service for a year, its latest move to stem customer defections.

The ``AOL Optimized PC'' will sell for $299.99 and include an Intel Corp. Celeron chip, Microsoft Corp. software, a Lexmark Corp. printer, speakers, a 56K modem, a monitor, keyboard and mouse. Customers are required to subscribe to America Online's dial-up Internet service for $23.90 a month, or $286.80 a year.

Chief Executive Richard Parsons is seeking to attract new business from people without Web access to help revive growth at America Online, the No. 1 Internet service provider. AOL lost 3.9 million dial-up customers in the year ended in June, New York- based Time Warner said in an Aug. 2 regulatory filing.

``It will definitely get these customers connected and maybe hooked on AOL,'' said Giri Cherukuri, head trader at Lisle, Illinois-based Oakbrook Investments LLC, which owns Time Warner shares among its $1.2 billion under management. He said the offer won't be enough to reverse AOL's subscriber losses.

America Online also is trying to ease the declines in dial-up subscribers by selling its ``AOL for Broadband'' service to customers with high-speed access from cable-TV or telephone companies. America Online gained 2 million high-speed customers during the second quarter, when its overall subscribers slipped 7.5 percent to 23.4 million from 25.3 million a year earlier.

Target Markets

The AOL Optimized PC is targeted at black, Hispanic and older consumers who don't use the Internet as widely as others, said Kenn Turner, an America Online senior vice president overseeing the product. He said the company is justified in asking customers to commit to a year of America Online service since they are getting the hardware so cheaply.

``I categorically deny the service is expensive,'' Turner said in an interview. ``This is an incredible deal.''

Discount dial-up service is available from competitors including EarthLink Inc.'s PeoplePC unit for about $10 a month.

America Online's PC is cheaper than what big PC makers are offering on their Web pages. Dell Inc., the world's biggest PC maker, is selling a similar package for $467, while second-ranked Hewlett-Packard Co. offers one for $450, and Gateway Inc.'s package goes for $700.

Emachines, owned by Gateway, sells one for $399 without a printer. Wal-Mart Stores Inc. sell PCs by Microtel Computer Systems for $299 without a monitor or printer.

``Sure, they get a good deal on the hardware, but they are being asked to pay a high price for their dial-up service,'' said Joseph Laszlo, an analyst with Jupiter Communications Inc. in New York, who doesn't own shares of Time Warner or any computer companies.

Debut at Office Depot

America Online executives declined to say how many PCs the company was planning to ship. The machines will be assembled by companies including Systemax Inc. of Port Washington, New York, said Eric Greenman, another American Online executive heading up the project.

America Online will begin selling the computers through Office Depot Inc. stores on Sunday. They will be available at other stores within the next two weeks.

``It's simply a way to reach a non-traditional customer,'' said Angela Kohler, an analyst with Pittsburgh-based Federated Investment Advisors in Pittsburgh, which owns 2.8 million shares of Time Warner among its $27 billion in assets. ``To have that relationship established may be important down the road.''

Lower Internet Use

The Pew Internet and American Life Project, a Washington- based research organization, estimates that 68 million U.S. adults use the Internet in a typical day. Pew's data show that 67 percent of whites go on line, compared with 43 percent of blacks and 59 percent of Hispanics. About 25 percent of people aged 65 and older use the Internet, Pew said.

``If you look at the trends, it just screams at you,'' AOL's Turner said.

At the end of last year, EarthLink's PeoplePC business quit offering a package of a computer and Internet service that's similar to what America Online is selling.

``The program did not contribute meaningfully to gross subscriber additions to justify the business effort,'' said Dan Greenfield, a spokesman for Atlanta-based EarthLink.

PeoplePC began offering its service in 1999. The company was acquired by EarthLink in 2002.

To profit from its offer, America Online will need to persuade customers who buy the PCs to keep their subscriptions beyond the first year, Jupiter's Laszlo said.

``AOL will make money on this deal if they can hold onto their customers beyond the one-year commitment.''

To contact the reporter on this story: Jonathan Berr at jberr@bloomberg.net

Last Updated: August 12, 2004 00:02 EDT