The New York State attorney general has threatened to sue America Online for fraud, if the provider does not promise by this Thursday to refund customers unable to access its service.
The threat from attorney general Dennis Vacco came only 24 hours after 20 of his fellow state attorney generals met AOL officials in Chicago, to discuss the growing crisis facing the US? largest online service provider.
AOL?s problems stem from the introduction of a flat rate, unlimited access pricing policy in December. This has led to a massive increase in the number of subscribers and overloaded the AOL network infrastructure.
Some customers have already filed individual lawsuits against the company for promising to deliver a service that it cannot provide, but the New York State position escalates AOL?s problems significantly.
"Consumers should not be penalised for the faulty projections of AOL," said Vacco, who accused the company of being "persistently and repeatedly deceptive and fraudulent" during a Manhattan press conference on Friday. "You don't sell 10,000 tickets to a theatre that you have only 3,000 seats for," he added.
But in an interview with cable television network CNBC, AOL chairman Steve Case rejected Vacco?s demand that customers should be entitled to a refund. AOL later reiterated earlier statements that it was working with attorneys general across the US to address issues related to the crisis.
A spokesman for Jim Ryan, Illinois' attorney general would not comment on the progress the group had made in its bid to get AOL to provide "some relief to AOL customers who feel the company is not living up to its pledge to provide unlimited access for $19.95 a month".
But although the Chicago meeting was officially described as "constructive" by both parties, there were signs that AOL can expect further trouble from state officials with Washington likely to follow New York?s lead.
AOL has promised to spend $350 million upgrading its network to accommodate its new subscribers. Ironically this upgrade project merely added to AOL?s embarrassment last week when it resulted in a two-hour email failure - just as the Chicago meeting got under way.
Meanwhile rival suppliers are rushing to make the most of AOL?s problems. Compuserve used Sunday?s Superbowl - one of the most expensive advertising slots on US television - to run a 15-second commercial that simply showed a blank screen accompanied by a busy signal.
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