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AOL to Give Refunds to Subscribers

By David Hilzenrath and Jennifer Ordonez
Washington Post Staff Writers
Tuesday, January 30, 1997; Page A01

America Online, the country's largest computer online service, agreed yesterday to give refunds or credits to nearly all of its 8 million subscribers as compensation for weeks of problems in connecting to the overloaded service.

The company offered the refunds, which customers must request, to settle a dispute with attorneys general of about 36 states, many of whom contended that AOL had promised unlimited time online and then failed to deliver.

Under the agreement, AOL will give a credit for one month of future service to any subscriber who writes to request one, the company said. That would be worth as much as $19.95, depending on what billing plan the person uses.

Alternatively, the company will issue retroactive refunds for December and January worth a combined maximum of $39.90 per customer. The exact amount would depend on the amount of time spent connected. Customers who spent more than 15 hours per month online would be ineligible for the monthly refunds [Details, Page A12].

"The company became a victim of its own popularity," Illinois Attorney General Jim Ryan said at a news conference in Chicago. "America Online, to its credit, came to the table quickly and tried to address these concerns."

Ryan, whose office coordinated the multi-state negotiations, said, "We believe that this agreement in principle is fair. . . . It protects consumers while allowing America Online to continue to provide a popular service to millions of subscribers."

Robert W. Pittman, chief executive of America Online Inc.'s AOL Networks subsidiary, praised the settlement -- AOL's third in the past year to resolve consumer complaints. "I think what this says is we are focused -- single focused -- on meeting our customers' needs in the face of this sort of unprecedented popularity," he said.

The dispute grew from a pricing plan that Dulles-based AOL introduced in December, offering unlimited use of its service for a flat monthly $19.95 fee, as an alternative to charging customers per hour after they exceeded an allotted number of hours online. The shift resulted in a surge in consumer demand that swamped its computer network and many subscribers have been shut out when attempting to use it.

Several class action suits were filed against the company.

Even before the $19.95-a-month, all-you-can-eat pricing took effect, AOL had predicted consumers would encounter more busy signals, but executives said the demand turned out to be far greater than they had anticipated. The average subscriber spent much more time online doing things such as sending electronic mail, surfing the Internet, reading news and sports, and carrying out typed conversations with other subscribers in "chat rooms."

AOL said last week that it could accommodate as many as 3.5 percent of its subscribers at the same time. Many other companies that provide Internet access can accommodate 10 percent of their subscribers at once, analysts say. AOL is adding capacity but predicts problems will persist through spring.

An AOL source, speaking on condition of anonymity, estimated the refunds and credits would cost the company no more than $25 million. Pittman declined to comment on the cost.

Regulators said AOL would suspend its advertising during February, and would include in future ads a disclaimer about potential access problems as long as the service is unable to handle the demand.

AOL also agreed to make it easier for customers to cancel their subscriptions by publicizing an address and fax number for that purpose. Regulators had argued that AOL inadequately publicized the mailing address and that many subscribers have been unable to reach the company by phone to stop the automatic monthly charges to their credit cards.

Those calls are typically answered in two minutes, AOL said, but a Washington Post reporter was disconnected three times yesterday before anyone ever answered -- and then only after spending about 35 minutes on hold.

Larry Risley of Arlington, who uses AOL to research mutual funds, said the settlement "doesn't reflect the hours that I spent trying to get on" the system. "I'm disappointed in the regulators for accepting this," Risley said.

But investors welcomed the news, boosting AOL's stock $2 a share in trading yesterday, to $37.25. The confidence arose "probably because the uncertainty is gone," said Neeraj Vohra, a stock analyst for Wheat First Butcher Singer Inc. in Richmond.

Some analysts predicted only a small percentage of subscribers would take the trouble to request refunds or credits.

Overseas customers and those using free trial subscriptions -- about 1 million people altogether in December -- would not qualify for refunds, an analyst said.

© Copyright 1997 The Washington Post Company

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