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Law scrutinizes new AOL pricing

America Online discloses that it has received a letter from attorneys general in 15 states expressing concern about its plan to change over to a new pricing structure as of December 1.

America Online (AOL) disclosed today that it has received a letter from attorneys general in 15 states expressing concern about its plan to change over to a new pricing structure as of December 1.

The attorneys general are concerned about AOL's methods for implementing the new pricing, according to a filing the online service made with the Securities and Exchange Commission. The inquiry is another public relations blow to AOL, which recently settled a class-action lawsuit alleging that it overcharged customers for its online service.

"The announcement that AOL would convert all of its customers to a new program at a higher price...without the customer affirmatively ordering the new program took us all by surprise," Al Shelden, deputy attorney general for California, said today.

The states on the letter included California, New York, Florida, Texas, and Illinois, CNET learned. Most states have a so-called "negative option" law that says you can't charge people for goods and services that they have not affirmatively ordered, the lawyers noted.

"We're aware of the issue and certainly are looking at what's going on," said Janice Marich, spokeswoman for the Attorney General's office in the state of Washington. State workers who are online "did bring up the issue and raised some questions."

The irony lies in the fact that the new pricing scheme is supposed to decrease the overall cost of the service for many users by providing an unlimited-use option. But the company intends to roll over all customers to the new pricing as of next month whether they've requested it or not. The company has tried to post notices about the new pricing in its many online forums, but some customers feel AOL should have given them a choice.

The company's filing summarized: "In November, the company received communications from certain regulators concerning its announced plan to change pricing. These regulators have expressed concern about the company's proposed method of implementing the pricing changes and the adequacy of notice to subscribers."

AOL now has two pricing plans: $9.95 for five hours and $19.95 for 20 hours. With each of these plans, the company charges $2.95 for each additional hour for online access.

On December 1, however, the pricing will change to one of two plans: $4.95 per month for three hours plus $2.50 for each extra hour or $19.95 per month for unlimited Net access.

Consumers who don't request a plan will automatically be switched to the $19.95 rate for unlimited Net access. That could be a savings to many members, but to others it would represent a doubling of rates--from $9.95 to $19.95 monthly.

AOL has defended its plans for notifying consumers, saying it is notifying customers by way of online forums, as well as snail-mail postcards. If a customer wants to stick with the $9.95 monthly plan for 90 days, they can call a toll-free number.

The company said it plans to respond to the letter, summarizing these actions that it is taking. It remains optimistic that no further legal action will be taken. The company thinks it can overcome any legal objections, but if company executives guess wrong it could hurt the companies financial returns.

According to AOL's SEC filing, "the company believes that if one or more regulators or others were to take action against the company, [the company] would prevail. However, if the company were not to prevail, a negative outcome with respect to such suits could have a material adverse effect on business."