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January 28, 1997updated 05 Sep 2016 12:24pm


By CBR Staff Writer

When sorrows come, they come not single spies, but in battalians. Shakespeare nearly always got it right, as America Online Inc is ruefully reflecting in the wake of an almost unprecedented sequence of misfortunes. The line of people banging on the company’s Dulles, Virginia doors would be enough to tempt a company that had built its house on solid granite make straight for the nearby international airport and catch the first flight out of the country, but America Online’s house is built on the most insubstantial of sand. Despite the fact that it has a roll of over 8 million subscribers, the churn rate is desperately high and the whole edifice could be swept away almost overnight if that army of subscribers decides that the company no longer adds enough value to what is offered by the army of fly-by-night Internet access providers. And it is the company’s attempt to compete with said cheap’n’cheerful service providers that is the source of all its present woes. In December, the company abruptly switched its charging model to the flat $19.95 for unlimited access provided by the here-today-and-gone-tomorrow Internet service companies – a charging model that is anyway under fire from a growing army of critics who say it does not adequately reflect the costs imposed by the Internet on the phone companies that provide the infrastructure.

By Tim Palmer

But the effect of the new charging model was to create unsatisfiable demand – not only did the company add 500,000 new subscribers in December alone, but the new terms also encouraged America Online subscribers to remain on-line for much longer than formerly, with the result that its network infrastructure and resources are hopelessly overstretched, subscribers and regulators are firing writs at the company from every direction, and America Online has even been reduced to the absurdity of pleading with its subscribers to cut back on their prime-time usage of its network: chief executive Steve Case asked subscribers to limit their usage during peak hours and use flash sessions to read and write electronic mail off-line. Now its subscribers are complaining that they can’t even cancel their America Online accounts, because the 800 numbers are continuously busy, and if they sent requests to cancel by electronic mail, they were told to call one of those unobtainable 800 numbers. And last week, even the electronic mail went on the blink, and for an hour on Thursday a glitch meant that those 8 million subscribers couldn’t access their mail for one two-hour period first thing on Thursday, and another at lunch time that lasted over an hour. The company explained that it had had to replace a board in one of the servers that manages electronic mail, and that there had also earlier been a power supply problem. The company is winning very little sympathy from the authorities, and also on Thursday, attorneys general from 20 states met in Chicago to respond to the welter of consumer complaints about America Online’s poor service.


The meeting was called to determine whether an agreement could be reached that would provide some relief for America Online customers, who feel the company is not living up to its pledge to provide unlimited service for $19.95 a month, said Dan Curry, spokesman for Illinois Attorney General Jim Ryan. America Online told Reuters it had a constructive meeting with the prosecutors and that it was co-operating with them and addressing their concerns, but the shares fell $2.625 to $37.25 as it became clear that the law enforcement big guns were taking the complaints very seriously. We’ve seen a great deal of complaints in a short period of time, said Michael Hering, Massachusetts assistant attorney general for consumer protection, who joined Thursday’s meeting by phone. He said that it’s a possibility the attorneys general would file a joint consumer fraud lawsuit. Washington State said its Consumer Protection Act allows the state to seek court injunctions, civil penalties of up to $2,000 per infraction, consumer restitution and reimbursement of state costs, while New York State Attorney General Dennis Vacco said he did plan to sue the company it its negotiations with the prosecutors broke down. He said a lawsuit would allege the company engaged in deceptive sales practices, false advertising and fraud in selling on-line services.I’m not interested in contrition, I’m interested in restitution, Vacco declared at a bandstanding press conference. The threats from the attorneys general follow a whole string of class action lawsuits filed by disaffected subscribers. Competitors, needless to say, are circling what they hope will soon be a carcass, and on Sunday, CompuServe Corp ran its first-ever commercial aired during the Super Bowl ad, a 30-second television spot called the Busy Signal. And AT&T Corp cliams its WorldNet Internet access service is already gaining new subscribers that are dissatisfied America Online defectors. Its latest advertising stresses the reliability of its service, notwithstanding an outage of 19 hours last week at its managed service for corporate users. America Online’s own efforts include increasing to $350m from $250m the amount it plans to spend upgrading its network. It is also adding customer service personnel, decreasing its marketing, both on the advertising and the free disks fronts. But chairman Steve Case said on the CNBC cable television channel that he was not considering making refunds to unhappy subscribers. He said the company was doing all it could to fix the problems and that he understood the frustrations, but as for refunds, It is not something we are considering: most customers have seen a tremendous price cut, they have doubled their usage with the new $19.95 a month flat charge. The reason we went to unlimited pricing is because our customers asked for it: once they are online, they don’t have to worry about the clock ticking. We did say there will be a surge in demand and there will be some busy signals. It will probably take us a few months to build out our capacity. But Roger McNamee, a partner at the Integral Partners fund in Menlo Park, California, speaking at a conference this month – Every customer is now dissatisfied. And, just to make the company’s week complete, on Friday, it was announced that a Florida woman is suing America Online, alleging the service had created a home shopping network for paedophiles and child pornographers.

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