July 24, 1997 7:00 PM PDT

Online giant still on hook

Critics say America Online (AOL) took a step in the right direction today when it dropped plans to give out members' telephone numbers to business partners. Still, they warn that the online giant has a ways to go before they are satisfied.

Privacy experts, law enforcement officials, and a groundswell of angry members are concerned about how AOL informs members of policy changes; whether the company guards (or violates) member privacy; and how it uses member information to market or sell goods and services.

This week's telephone number snafu may just be the beginning.

While AOL chief executive Steve Case is trying to comfort the company's 8.5 million members who are worried about their online privacy, critics are stepping up their ever-vigilant search for other potential violations, carefully inspecting AOL's business practices.

They are being especially careful to go over AOL's new terms of service (TOS) copy with a fine-tooth comb. That is where a member discovered that AOL had planned to give member telephone numbers to its partners.

When problems are found, many members are bringing them to the attention of the press and public.

Privacy experts are focusing on the way AOL keeps track of its subscribers and the kind of information it gives out to others. For instance, one found a related problem in AOL's TOS: plans to share members' surfing habits with the same business partners with which the online company had planned to share phone numbers.

According to the new terms of service, "AOL may use such information (navigational and transactional information) as criteria for developing member lists for companies with which AOL has a contractual marketing and online relationship."

That worries privacy experts as much, if not more, than the possibility of giving out members' phone numbers. Moreover, attorneys general from several states are more concerned that AOL failed to inform its members about the potential changes set out in the company's TOS.

Most critics agree that if AOL had taken direct steps to tell its members about its plans with its business partners, then the company could have avoided this publicity debacle. Instead, it simply posted its new terms of service on July 1, which were slated to take effect July 31. Most members say they had no idea that these were even posted.

While some watchdogs who inadvertently discovered the new terms examined the lengthy document, it took one eagle-eyed reader to discover the section where AOL said that it would start giving out numbers to its partners.

"We are concerned about the manner in which they changed their terms of service," said Lori Corral, a spokeswoman for the office of Chicago's attorney general, who has been at the forefront of applying legal pressure on AOL.

New York's attorney general's office, which also has been a legal thorn in AOL's side, contacted the company today about the policy, according to Jennifer Farina, a spokeswoman for that office. The concern was the same: notification and lack thereof.

"We were concerned AOL was changing its policy without notifying its customers, [without] giving them the opportunity to opt out if they didn't want their names and telephone numbers revealed to other companies," she said. "We will continue to monitor their activity and to be sure that their customers are again being given the opportunity to either consent or not consent to this practice."

This issue comes only months after AOL agreed to changes in its pricing practices. Attorneys general from most states had threatened AOL with legal action because they said the online service instituted pricing changes without properly informing its membership. A coalition of attorneys general met with AOL, resulting in an agreement in which the company stepped up notice to customers. They also said they would continue watching AOL, the world's largest online service.

Attorneys general won't be the only ones keeping an eye on the company. "I'm assuming that once again AOL is forced to toe the line by the actions of its members," said AOL member Irene Gendron in an email. "As members, we have to not give AOL the benefit of the doubt and we must be forever vigilant in protecting our financial and privacy rights. AOL loves to play chicken. They do whatever they think they might get away with."

In a "community update" posted this afternoon, Case acknowledged that AOL should have been more "proactive" in informing members about the terms of service changes. "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."

But while telling members that AOL has decided against giving phone numbers to its partners, he downplayed the plan. "We never intended to make our members' telephone numbers available for rental to telemarketers. The only calls we intended for you to receive would have been from AOL and a limited number of quality-controlled AOL partners."

It is true that AOL never said it would make member telephone numbers available to nonpartners. But at least one of the "quality-controlled partners" that would have had access to the numbers is CUC International, a telemarketing firm that is paying $50 million for the privilege of selling and marketing its services to AOL customers.

Furthermore, while AOL will not give phone numbers to partners, it will continue to call members itself to market products. It was not clear whether company staff would be telemarketing its own products or if it would also be marketing products for partners, a concern of Electronic Privacy Information Center attorney David Sobel.

"AOL is considering having its own employees call members," he said. "If the net result is the same invasiveness, I'm not sure how much that difference will make to the average subscriber."

Since the phone number plan came to light, though, critics such as Sobel have been carefully reading over the changed terms of service. EPIC has found other changes that raise privacy flags: AOL intends to share information about its members' surfing habits with its partners.

Both the new and the old terms of service state that AOL has the right to "collect and store certain navigational and transactional information." In other words, AOL can store information about where its members surf and spend time and money on the service.

AOL says it will not disclose that information to third parties (except when subpoenaed), but the new terms of service state that AOL may use that information to develop member lists "for companies with which AOL has a contractual marketing and online relationship."

That means it can use information about surfing habits to add to its already detailed profile of members. AOL already combines information it has about members with outside databases to get a more complete personal profile about its customers. The addition of surfing habits could make those lists even more valuable to marketers interested in sending highly targeted ads to consumers.

"The fear that many people have had about the collection and use of online information is no longer hypothetical," Sobel argued. "AOL is monitoring the ways in which subscribers use the service and is using that information for marketing purposes."

"The combined effect of phone numbers based upon this personal information was terrible," he added. "Removing the telephone aspect makes it a little less egregious, but this revised policy continues to raise significant privacy concerns."

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