Web firm caught in popularity net

America Online, the world's largest Internet service provider, has become a victim of its own success. The company, flooded by overdemand, has agreed to refund millions of subscribers unhappy in recent weeks at their inability to log on when they want to.

The telephone lines have been clogged ever since AOL hit upon what seemed in December like the brilliant idea of allowing subscribers unlimited access to the service for a flat monthly rate of $19.95 (pounds 12.30). But, because local calls in America are virtually free, web junkies have been staying on and on and on-line, sending e-mail, surfing the Web and nattering in chat rooms.

At peak hours, which means usually the evening, only the lucky few succeed in getting through. For it turns out, as AOL confessed last week, that only 3.5 per cent of its subscribers can be on-line at any one time.

In response to an outcry by customers the attorneys general of 36 states initiated proceedings to hold AOL accountable. "You can't offer something to a subscriber and then not be able to deliver," said James Ryan, the attorney general of Illinois.

AOL could not but agree and will now be offering full refunds to customers in the US - but not abroad - who used the service for less than two hours either in December or January. As part of the agreement with the legal authorities, AOL will also suspend advertising in February to try and stop its customer base growing beyond the present figure of 8 million.

Interestingly, AOL's stock rose by $2 per share after the agreement was announced, the calculation having been that the company will not be paying out much more than $25m (pounds 15.4m) in compensation but will more than make up the shortfall in the long run by demonstrating its determination to forge a responsible relationship with its customers.

The competition, however, is happy. CompuServe, which lags far behind AOL in subscribers, launched a new television advertisement on Sunday. The screen went blank and you heard a telephone number being dialled followed by a busy signal, then again and then again.

Then a message appeared urging viewers to subscribe to CompuServe by dialling 1-888-NOT-BUSY.