Originally created 01/17/97

AOL swamped with new unlimited pricing plan; some users sue



Imagine hearing that your favorite restaurant was offering a low-price, all-you-can-eat deal with the same quality food it has always served. No doubt you'd rush right over to fill up a plate.

Now imagine finding a sign on the restaurant's door saying, "All seats are full, please try again later." Only the sign never came down.

That's what has happened to many customers of the world's most popular online computer service, America Online. The service launched a $19.95-a-month unlimited-use plan in December, prompting hails of praise from subscribers. Since then, though, rants have replaced raves as subscribers have found themselves unable to use the service because its phone lines are overloaded.

The modem "traffic jams" have prompted three lawsuits against the company, two filed Monday in California and New York, and a third filed last month in Chicago. The lawyer in at least one suit, the California case, is seeking class-action status on behalf of all of America Online's 7.5 million customers. The plaintiffs, five men from the Los Angeles area, are seeking an estimated $20 million in compensatory damages (for all members who have problems) plus unspecified punitive damages, attorneys' fees and an agreement by AOL to stop soliciting new members.

Although this is the first time such problems have led to a court fight, other online services have fielded complaints of poor service. And the problem will likely get worse as more services offer unlimited-use plans.

So far, AOL is gracious, apologetic - and firm in its refusal to accommodate the demands.

Saying it expects to prevail in the lawsuits, AOL essentially has asked customers to bear with it during the unexpected strain on its system. Meanwhile, the service still invites new members to sign up.

"Certainly, we want them (people experiencing problems) ... to get in touch with us and talk to us about it," said spokeswoman Tricia Primrose.

Those people should call (800) 827-6364.

In some cases, Primrose said, customer-service representatives might grant partial refunds. But subscribers must detail their problems over the phone while a representative reviews their use of the system. "On a case-by-case basis, our customer-service representatives can give refunds," she said.

One problem, though: Getting through to a representative by telephone might be as tough as getting through by computer. Attempts Wednesday produced a polite apology for the access problems, a lengthy menu of touch-tone button options, then - after a message saying a live person would come on to help - a statement that all operators were busy.

So what should subscribers do?

Primrose suggested dialing in to the service during off-peak hours (peak hours are 7 p.m. to midnight EST). The system was available during repeated tries during the early afternoon Wednesday.

Once on, Primrose said, do two things: Find a list of alternative access phone numbers for your area and print them out for backup later; and read updates in AOL Insider, an ombudsman-style column that has been addressing the problems.

For AOL's part, the Virginia-based company is scrambling to catch up with its own popularity. The service announced Oct. 29 that it would launch the unlimited-use plan in December. While AOL began adding modems and telephone lines to gear up for the launch, new subscribers began hitting the network early.

Some numbers:

- Customers have been using AOL for an average of 32 minutes a day, more than double the average in September. World Wide Web "hits" from AOL, which measure the use of Web sites by AOL members, have tripled in that time, to 180 million a day, Primrose said.

- Officials said America Online will spend $250 million by June to add modems, phone lines and other hardware to its system. Workers are adding 12,000 modems, bringing the total to more than 200,000 (the modems can serve multiple customers).

- The customer-service staff will increase 25 percent over the next few months. The staff already numbers more than 4,000, up 40 percent from last July.

"We're working around the clock to keep up with the demand," AOL Chief Executive Steve Case wrote to subscribers Jan. 3.

An interesting sidelight: The law offices of Louis Marlin, the Los Angeles-area attorney leading the California case, are getting a taste of the strain AOL has suffered.

Calls from AOL subscribers were coming in so often Wednesday that a receptionist said all she could do was take messages and "someone will try to call back."

The following is the text of a letter to AOL members from Steve Case, Chairman and CEO of America Online, Inc.

I know that you may have had great difficulty connecting to AOL in recent weeks, so I wanted to let you know what we're doing to address the problem.

But first, I want to emphasize that we take our responsibilities to members very seriously. We realize that you expect AOL to be easy to use -- including easy to connect to -- and we understand how it feels to encounter repeated busy signals. We all dial in from our homes at night, just like you do, so we see the problems firsthand. And many of us also dial access numbers in different cities during prime time, to personally see how the demand affects our members.

So we are well aware of the extent of the problems. And we're working day and night to fix them -- as quickly as possible. That's the ç1 priority at AOL now. Bob Pittman, President and CEO of AOL Networks, and I are spending almost all of our time on this.

How did this happen? Let me give you a little background on what happened, and then I'll focus on what you care most about, which is what we're doing about it.

When we decided last fall to introduce unlimited use pricing, we were well aware that usage would increase substantially. We did some consumer testing and operations modeling to generate usage forecasts, and we began building extra capacity in advance of the December launch of unlimited pricing. We thought that there would be some problems with busy signals during our peak periods in some cities, and that's what I advised you in my December community update. But we expected those problems to be modest, and not too long in duration.

In addition to ramping up system capacity prior to launch, we also cut back marketing efforts. In December, for example, we cut our direct mail efforts in half. We did this because we wanted to make sure we could handle the demand from existing members before we reached out to welcome new members.

But clearly we didn't go far enough. Usage is exceeding our most aggressive forecasts. Much of this is due to unlimited pricing, but what really surprised us was the surge of usage we saw just prior to unveiling the new pricing. In November, the month before we launched unlimited, AOL members spent 60 million hours online -- double the 30 million hours they spent per month during the summer. Then in December, usage skyrocketed, to more than 100 million hours. This month, we expect to generate at least 125 million hours.

Also, despite the marketing cutbacks, we experienced a surge in new memberships -- we added 500,000 new members in December, making it our biggest month ever. The reason for this is a lot of former members came back to AOL, and strong word of mouth drove interest among prospective online users. So even though we tried to slow growth, we experienced a surge. These new members accounted for a relatively small portion of our base (since we now have 8 million members), so their usage in and of itself hasn't created the demand problem, but it sure hasn't helped.

So members started using AOL more before unlimited went into effect, and then even more (a lot more) after unlimited began. And member growth jumped. That has created the frustrating delays many of you now experience.

Today, we announced a series of steps we are taking to deal head on with this problem.

First, and most important, we're increasing the size and the pace of our system capacity expansion.

We had previously planned to spend $250 million through June to expand our system capacity; we're now upping that to $350 million. It takes time to add additional system capacity, as we rely on hardware companies to build equipment and telephone companies to install circuits. But these companies recognize the critical nature of this problem, and are working closely with us to accelerate our deployment plans. We therefore expect to add 150,000 new AOLnet modems by June, an increase of 75%. What that means is by June we will be able to handle roughly 6 million more sessions each day. In addition, we will be breaking ground next month on a new 180,000 square foot data center. And we're increasing our promotion of the "Bring Your Own Access" option, which is a good solution for people who already have an Internet connection at work or school or from an Internet Service Provider.

Second, we are beefing up our customer support staff to serve you better. We've already increased that staff to close to 4,000 people, but we'll be adding 600 more by June to serve you better. Soon, we'll offer a dedicated toll-free line you can call to get updated access number information, so you can quickly learn about new access numbers as we add them.

Third, we're significantly reducing our marketing efforts.

While most of the demand surge is coming from existing members, we want to make sure we're doing everything we can to serve you before we attract more new members. So for the time being, we're going to stop airing our "Jetsons" television advertising, and we're sharply reducing our distribution of trial disks -- including halting mailings to the cities with the most severe busy signal problems.

That's what we're doing, right now and there are other steps we are considering.

There's also something you can do to help, and that is to moderate your own use of AOL a bit, during our peak evening periods. Although we of course want you to enjoy all that AOL has to offer and benefit from unlimited use, during this transitional period it would be helpful if you were sensitive to the needs and frustrations of your fellow members. Some people have told us that because it is difficult to get online, once they are online, they never want to sign off -- even when they aren't using it. While that's understandable at one level, it is obviously problematic at another. Just as you would be sensitive about using a public phone booth if others were waiting in line to use it (although you are entitled to use it as long as you want, most people are considerate of the people waiting to get a turn), it would be helpful if you could be considerate of the needs of other members of the AOL community. Use AOL as much as you want during the day, but try to show some restraint at night during the next few months when we're in this transitional mode.

There are other things you can do and you can get this information by going to the AOL Insider. For example, you can learn about how to switch to a different access number. Or, you can learn about FlashSessions, which enables you to download your email automatically. Instead of checking your email at night before you go to bed (when the system is at its busiest), you can set up FlashSessions to dial in to AOL automatically in the morning, before you wake up, and download your mail -- so it will be waiting for you when you get up. These tips can be useful all the time, but especially useful during peak usage hours.

I know this is frustrating. I hope you will bear with us as we work around the clock to deal with this challenge. We are aware of the problem, we do understand the nature of it, we have solutions, and we are carrying them out as rapidly as we possibly can. It will probably take us through the Spring to fix the problem. But we will -- and in many locations and time periods we expect to make great strides much sooner.

We understand you joined AOL because you expected it to be the best Internet online service. I want to assure you that we are doing everything we can, as quickly as we can, to address your concerns.

Thank you for your patience and support.