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AOL: Private firm or public trust?

A major reason that America Online has drawn so much wrath is that people view it as a public utility, not a private company.

Complaints of poor service are hardly new to large companies, but rarely do they draw the attention of legal authorities, let alone the attorneys general of half the states in the Union.

So why is America Online (AOL) suffering so much wrath? The answer, in many ways, has more to do with public perception of AOL than the company itself.

The fact is that despite its youth and highly competitive market, the No. 1 online service is often seen by its 8 million members more as a public utility than a private company.

"AOL has gotten to the status of a quasi-utility--it's so big, and you can't get some of their services [such as proprietary content] elsewhere," said Barry Fraser, a lawyer for the Utility Consumers Action Network, a consumer group that tracks utilities. "This has put more pressure on AOL, and they are getting more scrutiny than others."

But don't shed any tears for the company, consumer advocates say. "I think it was an indefensible decision to start collecting people's money before they could connect them," said Jamie Love, director of the Consumer Project on Technology.

The attorneys general of 37 states have alleged that it didn't deliver on a promise to provide reliable service to many of its customers, and nearly a dozen members have filed class-action lawsuits on the same grounds. Those actions followed an out-of-court settlement last fall over accusations that AOL had overcharged some customers.

Consumer groups hope that a quick settlement in the latest legal rounds, expected in light of yesterday's tentative deal to offer AOL customers refunds, will send a message to other online services and ISPs. "I think it's a step in the right direction," said Audrie Krause, founder of NetAction, an online activist group.

Added Fraser: "It's good that states are looking at online services and their practices. There are no standards, no laws, and no guidelines."

The attorneys general plan to continue cracking down on Internet abuses.

States haven't always been so lucky in teaming up to crack down on perceived abuses by mass marketers, said a spokesman for Public Citizen. In 1992, for example, states lost in their decade-long bid to get airlines to tighten up their advertising practices. Then the chief complaint was that round-trip air fares and surcharges were not clearly identified in ads.

The case went to the U.S. Supreme Court, and the court sided with the airlines, ruling that they were governed by federal, not state, laws. That made it tough for states to enforce any guidelines.

Despite all the bad publicity, some experts say AOL may actually benefit from the increased visibility and so-called mind share.

While consumers have complained about busy signals, advertisers have not necessarily been disappointed: The busy network means that more people are online longer and are viewing their ads.

"It certainly has positioned them as a leader of online services," said Jeff Raleigh, national manager of Hill & Knowlton, a top public relations firm. "If they react quickly enough and continue to improve their content, this isn't going to hurt them in the long run."

Senior writer Janet Kornblum contributed to this report.