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Why AOL holds all the keys

America Online is leveraging everything it has, from its Time-Warner merger to customer-controlling client software, to undermine rival ISPs

America Online may be dealing from a stacked deck in a bid to undermine rival Internet service providers (ISPs), say several AOL customers and ISPs.

Indeed, AOL is attacking rival ISPs on four fronts. First, the company's pending merger with Time-Warner sets the stage for broadband Internet services via Time-Warner's cable network. It also gives AOL access to loads of content. Next, AOL is quietly hedging its cable bet with an aggressive move into the DSL market. The final and most controversial step involves AOL's new client software, which allegedly cuts off customer connections to rival ISPs.

Galaxy Internet Services (GIS) filed suit against America Online on April 4, claiming version 5.0 of AOL's software "attempted to eliminate competition in the Internet Service Provider Market" by preempting the existing dial-up settings of other ISPs' customers. There "is no legitimate business justification for the features of AOL 5.0 which cause it to interfere" with subscribers accessing other ISPs, the suit says.

At least a half dozen other ISPs have expressed interest in joining GIS's suit, according Doug Brooks, one of GIS's attorneys.

"They're all pretty much fed up with the financial losses incurred through excessive tech-support calls from customers who want to fix what AOL 5.0 has done," he says. "When customers find out that AOL now works but their ISP apparently doesn't, they blame the ISP."

The suit seeks compensation from AOL for excessive tech-support costs and lost business, plus an injunction to force AOL to take steps to prevent future customer confusion.

Other lawsuits in various courts

GIS isn't alone in taking AOL to court. In February, lawyers filed a class-action suit in US District Court in Alexandria, Virginia, on behalf of an estimated 8 million AOL 5.0 users. The suit asks the court to halt distribution of AOL 5.0, unless there is "full disclosure of the effect of its operation on other software" and urges the judge to force AOL to "disgorge all monies it has earned from the distribution of AOL 5.0."

ISPs CapuNet, Digizen and Millkern Communications filed a similar class-action suit on February 8 in Baltimore City Circuit Court on behalf of 6,000 ISPs.

Prodigy Internet Services, with 2.2 million users, has not yet joined any suit but has sent a formal demand to AOL for reimbursement of administrative and tech-support costs and for a "patch" to prevent disruption of its services.

Other suits have been filed in various state courts, according to Brooks, who says AOL reportedly is preparing a motion to consolidate all of the suits in an unspecified federal court.

AOL: 'It's the user's fault'

AOL spokespersons did not respond to requests for comment by press time. In the past, AOL has stated that "few" users have complained about losing other ISP connections, and it's the user's fault when it happens.

AOL has said that its software lets users make AOL "their default Internet connection, but only if they make the choice to do so."

According to several AOL customers, users who click "yes" have their existing dial-up networking clients replaced by AOL's. Customers who click "no" still can access AOL via another ISP--an option that the AOL installation utility doesn't mention.

"We've had over 400" calls from irate customers cut off from their GIS accounts by AOL 5.0, says GIS president Bob Carp.

This isn't the first time that a vendor allegedly has used "install-and-switch" software tactics to undermine Internet rivals. Software historians will recall that CompuServe, now an AOL subsidiary, caused similar problems for users and ISPs with its installation software as early as 1990. Microsoft and Netscape use similar "make us your default" schemes in the Internet browser wars. Even Sm@rt Reseller's staff can't make Lotus Notes v4.5x stop making itself the default client for mail-to URLs.

Meanwhile, AOL is hedging its broadband cable push with a massive DSL effort--which is part of the company's AOL Plus service. The strategy involves delivering DSL services today and AOL-Time-Warner cable and DirecPC services tomorrow. AOL is providing these services in partnership with the Baby Bells. At an estimated price of $21.95 (£13.87) a month for DSL, CLECs and ISPs could find it extremely difficult to compete on a price/performance basis. While AOL Plus is still just being rolled out, the threat is clear.

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