Originally created 01/29/97

America Online offering refunds to customers



NEW YORK - America Online is offering more than just apologies to customers who complain they get busy signals instead of the online service they paid for.

The nation's largest online service said Monday it is selectively giving refunds to customers who unsuccessfully attempt to log on during periods of heavy usage.

The move comes as America Online Inc. faces a rash of criticism from customers and state consumer-protection officials who say the company oversold a product that it couldn't reliably deliver.

Users are overwhelming the service's lines in response to a new pricing plan that charges subscribers $19.95 a month for unlimited online time, instead of $9.95 for the first five hours of usage and $2.95 for each hour thereafter.

Wendy Goldberg, a spokeswoman at the Dulles, Va.-based company, said America Online is offering refunds to customers on a "case by case" basis. The refunds to customers who call the company may take the form of free online service, such as extra months, instead of cash, she said.

Such refunds to dissatisfied customers had "always been our policy," Goldberg said. However, America Online chairman Steve Case said Friday in an interview with CNBC that the company was not considering any refunds in response to the latest criticism.

Several states have threatened to sue America Online unless the company provides refunds to customers. AOL also has been named in at least eight lawsuits brought by individual customers who say the pricing plan amounts to breach of contract.

Response to the company's new pricing plan far outpaced its ability to add new equipment to handle it. For some America Online users, the constant busy signals are more than an annoyance. They're disrupting business.

"When e-mail goes down, it's like severing an artery," said John Goodman, a public relations executive based in Scarsdale, N.Y.

He uses America Online to communicate with customers, and last week he couldn't send or receive e-mail for two hours due to a "brownout."

For businesses whose e-mail address ends in "aol.com," the company's recent woes are a convenient symbol of frustration with the broader Internet, the worldwide network that people can tap into with the proper equipment.

America Online's new pricing plan attracted not only hundreds of thousands of new subscribers, but a surge of usage as subscribers to the unlimited pricing plan stay logged on for many hours at a time.

In addition to annoying busy signals, the company also has been plagued with a rash of technical glitches such as e-mail brownouts as it attempts to upgrade its network to accommodate the new users.

The situation illuminates the business world's growing dependence on online and Internet services. Use from work surpassed use from home this past year, with 15.6 million people logging on from work or school compared with 10.3 million from home in September, according to Inteco Corp., a market research firm based in Norwalk, Conn.

"If I were to depend on America Online, as I had for nine months of the year in 1996, I would be a dead duck now," said Bob Djurdjevic, owner of Annex Research, a Phoenix-based high-tech market research and consulting firm.

Djurdjevic says that busy signals at America Online spurred him to switch to another online service, but that he has experienced other problems sending and receiving e-mail messages with his new provider.

The problems have hurt America Online as well, as several states have threatened to sue and the company's stock has tumbled in the last week.

"We had no idea of the incredible surge in demand we would see. It did exceed our wildest expectations," company spokeswoman Goldberg said.

America Online says it is spending $350 million to upgrade its network and add more customer support representatives.