AOL Case Points to a Trend: Breaking Up Is Hard to Do

America Online Inc. agreed Wednesday to pay $1.25 million to settle allegations that its customer service representatives ignored cancellation requests in a case that highlighted how far companies were willing to go to keep customers.

AOL, the world’s biggest Internet service provider, withheld bonuses from “retention consultants” who could not change the mind of nearly half of those who called to cancel, according to a settlement agreement between the company and New York Atty. Gen. Eliot Spitzer. With thousands of dollars in monthly bonuses at stake, some customer service agents who couldn’t persuade a customer to stay simply didn’t process the cancellation order, Spitzer said.

Although AOL’s case was extreme, aggressive tactics for keeping customers are becoming increasingly common, say consumer advocates who field complaints from people frustrated with how difficult it can be to cancel a wide range of services.

Providers of phone and Internet plans, credit cards and cable TV as well as newspapers and magazines do everything they can to keep customers from leaving. Stiffer competition and the national Do Not Call list, which blocks more than 100 million phone numbers from telemarketers, make it harder for many businesses to win new customers -- so they’re trying harder to hold on to the ones they have.

Their tools: pushy customer service agents, hidden charges and early-termination fees.

“It’s very clear that these are blockades keeping consumers from making competitive choices to move to another company,” said Morgan Jindrich, who runs a Consumers Union website dedicated to airing gripes about telecommunications industry practices.

Jindrich, for instance, said she tried to cancel her cable TV service because she was moving. The automated phone prompts eventually led to an instruction to leave a recorded message with her name, address and date she wished to have her service suspended.

Five months later, she’s still waiting.

However difficult it might be, even being able to switch to a company’s rival is a relatively new phenomenon, the result of explosive growth in a host of services. For instance, when phone service was a monopoly, the only option that disgruntled customers had was to go without a phone. Before satellite TV, unhappy cable subscribers were left with dusting off their rabbit-ear antennas.

Now, though, cable companies vie with satellite operators for subscribers. Phone companies struggle to keep customers from defecting to wireless phones or Internet phone call plans. AOL, once the easiest way to get online, has watched its subscription base fall as the rollout of high-speed Internet access trumps its standard dial-up service.

Long before Wednesday’s settlement, AOL had earned a reputation as notoriously difficult to cancel. Frustrated members have dubbed its customer service “AO-Hell.”

AOL, owned by Time Warner Inc., has reason to fight for every customer. Although still the largest online service, AOL has lost nearly 6 million customers in the last three years -- falling to 20.8 million subscribers in the U.S. during the second quarter from a peak of 26.7 million in September 2002.

Spitzer’s office launched the investigation after about 300 New Yorkers complained that AOL kept charging for service after they had requested a cancellation.

Dulles, Va.-based AOL did not admit wrongdoing in the Spitzer case, nor had it in previous settlements with the Federal Trade Commission and Ohio’s attorney general over similar allegations. The company agreed to provide refunds for as many as four months of service to New Yorkers who file claims. It will also change its customer service practices nationwide, including an end to tying bonuses to minimum “save” rates and use of an independent company to verify cancellation requests.

AOL spokesman Nicholas J. Graham said that many Internet companies designate certain employees to field calls from customers intending to cancel and that those employees can often allay members’ concerns by suggesting new price plans or services.

“We have provided them with a compensation structure that provides incentive to help them solve members’ problems,” Graham said.

Edmund Mierzwinski, consumer program director for the U.S. Public Interest Research Group, said many telephone providers, banks and other companies hire consultants to train call center workers not only to field complaints, but also to use those complaints to sell the customer more services.

“Everyone has a right to make money,” Mierzwinski said. “But what they’re doing is taking disgruntled customers and converting them into longer-term customers by some sleight of hand.”

Some sly customers use this to their advantage, negotiating a lower price in exchange for staying on.

But in their effort to keep customers, companies sometimes just tick them off even more.

Technology magazine Wired faced a backlash last month when collection agencies began sending threatening letters, seeking $12, to subscribers who had let their subscriptions lapse. Editor in Chief Chris Anderson said those customers had signed up for an automatically renewing subscription, but he said the practice was “a poor way to treat customers” and promised to stop it immediately.

Although perfectly legal, the tactic that rankles consumer advocates the most is the early-termination fees imposed by mobile phone providers.

Phone companies say they charge these fees -- generally $150 to $240 -- to recoup the costs of providing lower monthly fees and free or heavily discounted phones. They also note that customers could choose plans without such early-termination fees but that clients often don’t want to pay the extra monthly cost.

“Early-termination fees equal lower monthly wireless rates,” said Joe Farren, a spokesman for CTIA-The Wireless Assn., a trade group representing the mobile phone industry. “The suggestion that we should have a model whereby people can cancel and walk away with a free phone is just untenable.”

But consumer advocates said the fees were a powerful way to keep customers locked in. High-speed Internet providers have taken the cue from wireless phone providers, Jindrich of Consumers Union said, and cable TV companies are sure to follow.

“The different industries have different ways to do it,” said Mierzwinski, referring to customer retention. “The cellphones have a bigger hammer than a lot of others do: the early-termination penalty.”

Most companies that offer subscription services deliberately make it much easier to sign up than to cancel, said Charles Golvin, a principal analyst for Forrester Research who follows consumer telecommunications. Financial analysts and investors closely watch the rate at which companies’ customers cancel their service each quarter.

“I won’t necessarily ascribe evil intent to this,” Golvin said, “but if they make it a little more difficult for you to get out of that service, even for a month or two, then that’s better for their financials overall.”