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AOL chief faces the music
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January 24, 1997: 2:55 p.m. ET
Case defends performance as some states say they'll sue the online service
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NEW YORK (CNNfn) - America Online Chairman Steve Case Friday insisted the online service is doing all it can to handle the service's over-capacity problems.
"We obviously underestimated the demand unlimited pricing would create. We have taken steps in the past few weeks and communicated them to members," Case said Friday on CNNfn's Digital Jam .
The company in December announced an all-you-can-eat pricing system in an effort to spur revenue growth and its stock price. It previously had charged by the hour for usage.
But the plan proved too successful. It's prompted an explosion of usage that has swamped AOL's capacity, increased system outages and made it difficult for its customers to access the service.
Indeed, the online service suffered another e-mail outage Thursday. On Friday morning, New York Attorney General Dennis Vacco said he intended to sue the company.
"We're doing everything we can to meet the needs of members," Case said. "Hopefully, the attorneys general will agree with us."
The company has committed to spend $160 million on equipment upgrades to handle the surge in system demand. But Case admitted it would take a few months for the problems to be fully resolved.
Still, as a result of access problems, Case said AOL has pulled its advertising, cut its overall ad budget by 50 percent and stopped its direct mail campaign.
Vacco said Friday he has informed AOL it intends to bring a lawsuit "to stop allegedly deceptive business practices and to win refunds for its customers." The suits stem from the claim that AOL is charging for a service it is not providing.
AOL was informed of these charges on Thursday in its meeting with several state attorneys general in Chicago.
Under New York state law, AOL has five days to respond to the charges. Vacco said the state would not proceed with the lawsuit if AOL submits a suitable response and continues to work with officials.
In Illinois, the state attorney general is also working with AOL to resolve similar concerns. Illinois law allows a lawsuit to be filed without first notifying the defendant.
Case said AOL is in discussions with all the attorneys general and is hopeful that legal action can be avoided.
He said the recent access problems were atypical. Overall, he said, the company has provided a reliable service.
Asked why some of the now-famous Jetsons spots are still airing, Case said that may be because of cancellation time frames associated with ad buys.
Case said despite the company's best efforts, predicting demand is difficult in a market that's growing so rapidly.
"What is happening is a tidal wave in interest in AOL and the Internet. Consumers are relying on it to get information and to communicate.
"When we get through the next few months, we'll be able to build back the quality we've had."
Asked why AOL was having so much difficulty projecting demand and accommodating growth, Case said it was due to the astronomical increase in customers.
"The growth of the past few years suggests we do a pretty good job. Phone companies and utilities grow 5 percent a year - we're doing that in some weeks.
"We recognize the challenge is great because we want people to rely on AOL, use it to communicate, buy things and stay informed. The obligations and responsibility we have has been upped considerably. Over the next few months, we'll demonstrate we can handle the problems."
It remains to be seen if his customers give him the time he needs, but it's already clear that his competitors don't plan to.
CompuServe Friday revealed that it was buying a million-dollar television ad that would air just before Super Bowl featuring 15 seconds of a black screen and the sounds associated with an unsuccessful connection attempt.
Case would only say he looked forward to seeing the ad.
He said the problems they are having are a testiment to the successful service they are providing. (172K WAV) or (172K AIFF)
America Online stock dipped $1 to $36.25 in afternoon trading on the New York Stock Exchange. 
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