Originally created 12/20/96

Flat-rate pricing keeps AOL's lines busy



SAN JOSE, Calif. - The busy signal is now the bane of many America Online subscribers, since the nation's largest Internet service provider instituted its $19.95 monthly flat-rate charge for unlimited access.

The company warned consumers before the Dec. 1 switch that "traffic congestion" was likely once its 7 million subscribers no longer had to pay for service by the hour. Even at that, the Dulles, Va., company has been working round-the-clock to add modems, network connections, phone lines and computers to accommodate a surge of 30 percent more daily online sessions.

Those online sessions are also lasting an average of 20 percent longer, a company spokesman said this week, indicating that users who experience difficulty in making connections are, in some cases, keeping lines tied up longer once they are successful.

"The demand surge has been terrific," said spokesman Steve Sigmund. "But, obviously, it's really important to us to increase the system capacity and upgrade service."

While company officials are touting the surge as evidence of great consumer interest in the $19.95 service, subscribers who have been trying in vain to connect, especially between 8 p.m. and midnight, have been swamping customer-service lines.

One customer-service representative recently said that subscribers have been experiencing difficulty connecting nationwide and that, despite the company's efforts to increase capacity, there is no realistic estimate on when the bottleneck will clear.

Mr. Sigmund said the company is suggesting that subscribers keep trying different AOL local access numbers. For example, he said, on Monday night during peak hours in San Jose, two of AOL's access lines were congested, but a third was able to handle additional users. (One way to find those numbers is through "Connection Help," an option displayed after going to Keyword: Member Services.)

AOL's surge comes amid the Internet's greatest period of congestion to date, as more online services and Internet service providers adopt the cut-rate $19.95 monthly pricing for unlimited service in order to stay competitive. CompuServe, the nation's second largest online service, recently bucked the trend when it pulled the plug on its low-priced unlimited access service, virtually ceding the market to AOL.

The pricing structure has many analysts forecasting poor financial outlooks for some companies that provide Internet access.

"This locks them into a maximum $20 a month revenue for each subscriber," Clay Ryder, senior industry analyst at Zona Research in Redwood City, said of AOL.

"If you're losing a nickel on everything you sell, it doesn't make sense to try to increase your volume of sales," he said.

Other companies that have moved to the unlimited service pricing say they have had better results by increasing capacity in anticipation of the surge in use.

AOL is in the midst of a $250 million upgrade, with much of that being spent to add modems, phone lines, computers and network connections. Since October, the company has added 30,000 modems nationwide, Mr. Sigmund said. That work enabled the company to recently handle a peak of 236,000 callers at once, more than triple the number of users it could handle a year ago.