Customers Say Aol Out Of Line Flat-Rate Pricing Leads To Busy Signals, Lawsuits

Overwhelmed with users taking advantage of its new $19.95-a-month flat rate, America Online is facing consumer lawsuits, state investigations and growing ill will, while it frantically tries to catch up with demand.

The problem is that so many people are going online - and staying online, because the flat price is so much more affordable than the old hourly rates - that many users trying to log in get busy signals for hours on end.

Things have gotten so bad that AOL’s chief executive posted a notice on the system Thursday, asking America Online’s 8 million members to please cut back on their online use while the service adds capacity.

“During this transitional period it would be helpful if you were sensitive to the needs and frustrations of your fellow members … just as you would be sensitive about using a public phone booth if others were waiting in line to use it,” Steve Case said.

AOL user Paul Katzer responded: “It strikes me as a little ludicrous. Here you are offering this plan, and then you can’t even project how much time people are going to spend online.”

Katzer, an information systems manager for eMotion Studios in Sausalito, Calif., has given up on the service for anything but e-mail. “AOL is useless for surfing. Even at 3 in the morning I can’t get in,” he said.

A 75 percent expansion in capacity is under way and should take care of the problem by summer, said Robert Pittman, chief operating officer for AOL Networks. Currently, AOL can accommodate only 260,000 users at one time.

The problem is that AOL’s usage has doubled since the flat-rate price was introduced in December, Pittman said. “The reality is no one’s ever built a dial-up network of this size,” he said from the company’s Dulles, Va., offices.

The increase in capacity might not come soon enough.

Several lawsuits have been filed by consumers against AOL in the past month - one in Los Angeles, three in New York and one in Detroit. All accuse the company of breaching its contract with subscribers and engaging in deceptive marketing practices and false advertising. The lawsuits seek class action status and unspecified damages.

Another lawsuit was filed Friday in Pittsburgh by a man who claimed AOL not only accepted too many customers to handle, but billed him improperly - from the moment his computer connected with AOL, even though he was unable to use the service for more than five minutes while the system checked his password.

In addition, attorneys general in California, Connecticut, Illinois, New York and Wisconsin are all looking into customer complaints.

“If you’re advertising unlimited access, we would like to ensure that for consumers it is unlimited access,” said Mark Carey, spokesman for New York Attorney General Dennis Vacco.

Jamie Love, director of Ralph Nader’s Consumer Project on Technology in Washington, said AOL should have anticipated the demand, which he said amounts to less than 17 hours a month per user.

“They’re offering a flat-rate service and yet they’re overwhelmed when people are using it less than 20 hours a month. That must mean they have complete morons in their planning departments,” he said.

To meet its expansion goals, AOL announced Thursday that it will increase its previously announced investment from $250 million to $350 million. The company also said it would sharply reduce marketing and advertising to slow the number of new users joining the system.

AOL stock fell 62.5 cents to $40.75 Friday on the New York Stock Exchange.