AOL Slashing Costs

AOL told investors Wednesday it aims to cut operating costs by $1 billion next year as parent Time Warner (TWX Quote - Cramer on TWX - Stock Picks) relaunches the property as a free-content site.

The world's largest media company, which doesn't expect the changes to have a material impact on earnings, expects to save money by ending its marketing of its fading dial-up access business. The company didn't detail plans for any job cuts.

Time Warner is banking that making AOL free will help it gain users and advertisers from other portals such as Yahoo!(YHOO Quote - Cramer on YHOO - Stock Picks) and Microsoft's(MSFT Quote - Cramer on MSFT - Stock Picks) MSN.

Users have gone to those other sites was because they didn't want to pay AOL membership fees, Time Warner President Jeffrey Bewkes said in a conference call Wednesday with analysts and investors.

"Our members don't want to leave," he says. "We are going to stop sending our members to our competitors."

AOL Chairman Jon Miller said on a Wednesday morning conference call that savings will come from reduced subscriber-acquisition marketing costs and overhead.

"We now believe we can compete on the Web at scale," said Miller.

AOL also said it is in the process of offloading its AOL access business in Europe. Leadership said on the call that in France it had entered into exclusive discussions with large telco Neuf Cegetel.

The news came as AOL said consumers with broadband Internet connections won't have to pay for popular AOL services, including its security software and email.

"By making AOL service free, we will retain and grow membership and users," says Time Warner operating chief Jeff Bewkes. He says the move "fully aligns us with the explosive growth of broadband."

Time Warner rose 45 cents Wednesday to $16.70.