AOL pricing may draw suits
America Online may face legal action if it does not satisfy complaints by states about its new pricing plan, according to a letter obtained by CNET.
The letter, sent by the attorneys general of 17 states and one U.S. territory, informed the largest online service that its new pricing plan may violate laws prohibiting unfair and deceptive trade practices.
"We would like to obtain America Online's assurances that it will not implement the new plan for current members who do not affirmatively order it until our concerns have been resolved," the letter states.
AOL spokesman Michael Gross said the company will respond to the letter today or tomorrow but will not delay its pricing plan, which goes into effect December 1.
"We hope when we clarify what it is that we're doing that we'll address their concerns," Gross said. "We're confident that our pricing is very fair."
If the concerns have not been resolved before the pricing plan goes into affect, AOL could face lawsuits, said Jack Norris, chief of special prosecutions for the Florida attorney general.
That could hurt bottom-line profits, according to AOL's filing with the Security & Exchange Commission . The filing states that "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."
The letter, written on the Illinois attorney general's letterhead, was signed by the attorneys general of Arizona, Arkansas, California, Connecticut, Florida, Hawaii, Illinois, Iowa, Massachusetts, Michigan, Minnesota, New York, Pennsylvania, Tennessee, Texas, Vermont, Wisconsin, and Guam.
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.
AOL plans to automatically roll everyone paying $9.95 for five hours a month and $19.95 for 20 hours a month to the $19.95 for unlimited hours plan starting December 1, unless they request that their plan stay the same. That, the letter states, could violate a so-called negative option law that forbids charging people for goods and services that they have not knowingly ordered.
"As we understand it," the attorneys general wrote, "this plan to convert America Online's members from their $9.95 per month plan to a $19.95 per month plan appears to be a negative option sales plan.
"We understand that America Online's terms of service purport to authorize America Online to modify its terms of service. However, we do not believe that this conversion plan is authorized by the terms of service. The $19.95 per month plan is not a modification of the $9.95 per month plan, but a completely different plan, as evidenced by the fact that the $9.95 per month plan will continue to be offered to current members."
Gross acknowledged that "this is a price change," but he emphasized that AOL is "doing everything possible to make sure everyone knows its happening." That includes online announcements pervading the service and postcards that AOL plans to send to all its members, he said.
AOL now has two pricing plans: $9.95 for five hours and $19.95 for 20 hours. With each of these models, the company charges $2.95 for every additional hour for online access.
On December 1, the pricing will change to one of two plans: $4.95 per month for three hours plus $2.50 for each additional hour or $19.95 per month for unlimited Net access. If customers want to stick with the $9.95 monthly plan, they have 90 days to call a toll-free number.
"It's a new price," Gross said. "When the Wall Street Journal raises its price, it raises the price. In this case, it's not necessarily an increase. We're really going overboard to ensure nobody's unhappy."
He emphasized that members have long complained about AOL's pricing structure and, in general, are quite pleased with the new prices.
But the letter does not address the fairness of the prices themselves--just the manner in which the changes were made.
"If America Online is able to comply with our requests in a timely fashion, we will be able to postpone taking direct action in this matter, and be able to more fully consider America Online's views," the letter concludes.