Friday, July 25, 1997

America Online backs out of plan to give out member phone numbers to marketers

By DAVID E. KALISH / Associated Press

NEW YORK (AP) - Bowing to angry protests from its members and state law enforcers, America Online Inc. on Thursday dumped a plan to hand over members' phone numbers to telemarketers seeking to pitch everything from discounted travel to long-distance telephone calls.

But in a move that could still irk its 8.5 million members, AOL said it would instead consider using its own employees, rather than the telemarketers', to make telephone sales pitches.

AOL intitially touted the decision to give out member telephone numbers as a "member benefit" that would bring them discounted products.

But on Thursday, word of the move unleashed a storm of criticism. Privacy advocates slammed it as an invasion of online privacy, particularly since the service previously had told its members that it wouldn't give out phone numbers. Members crammed the service's toll-free phone lines to complain, and New York State Attorney General Dennis Vacco publicly blasted the plan in an interview with CNBC.

Wall Street also blanched, pushing down AOL's stock more than 4 percent on the New York Stock Exchange by noon. The stock recovered after news that America Online had retreated from its position, and by late afternoon was down 2.6 percent, or $1.75 at $65.25.

The sharp reaction underscored the extreme sensitivity of privacy concerns in an age when detailed information can be spread quickly and easily. While publishers and marketers routinely share information valuable in selling products, critics said AOL would be pushing the limits of privacy by distributing phone numbers, many of which may be unlisted, without people's explicit consent or knowledge.

America Online, based in Dulles, Va., already rents outs its members' names and mail addresses to marketers.

Before retreating from its position, AOL had said it would make it easy for members to opt out of the plan before calls were to begin in the fall and would clearly state the change in policy. But critics said the move didn't go far enough. America Online had planned to combine the phone numbers with other personal information such as names and addresses as well as demographic profiles and buying habits obtained from other marketing databases.

"That's atrocious," said Robin Zachary, a magazine art director in New York who has been an AOL member for about two years. Zachary said that junk phone calls would be even more annoying than junk e-mail, constituting "an intrusion of my privacy."

Dave Kornbluth of Manhattan, who has been an AOL member for three years, said he currently gets about two telemarketing calls a month and would drop AOL if his membership led to more.

"I won't buy anything that's being solicited either," Kornbluth added.

Privacy advocates cautiously cheered AOL's retreat but worried about AOL making the telemarketing calls itself.

"It's just not acceptable for consumers' personal information to be used without their permission," said Jean Ann Fox, director of consumer protection for the Consumer Federation of America, a national coalition of consumer organizations.

"That is one of the nagging aggravations of this century - to be interrupted during dinner by another sales call."

AOL chief executive Steve Case, in an online statement to members, said that "upon further reflection, we today decided to change our plans" to make telephone numbers of AOL members available "from time to time" to AOL's marketing partners.

"We should have been clearer about the fact that we changed the terms of service, and about the rationale for the change," he wrote. "Obviously, by not being more proactive, we've generated a lot of confusion and concern."

A copy of the letter was distrubted on AOL Thursday. Case was traveling and not available for comment, AOL spokeswoman Tricia Primrose said.

As the nation's largest online service, AOL has come under unusual scrutiny this year from government officials and consumer groups. Earlier this year, it agreed to give millions of dollars in refunds to customers who had difficulty logging on because it had underestimated demand for an offer of unlimited access.

Thursday's retreat did not force AOL to renegotiate any of its marketing contracts, Primrose said. In exchange for helping to promote their products, AOL is receiving $50 million from CUC International Inc. of Stamford, Conn. and $100 million from Tel-Save Holdings Inc. of New Hope, Pa.

CUC operates a buying club that gives its members access to a wide range of discounted products. Tele-Save sells long-distance telephone service. Calls to the companies were not immediately returned.