By Dan Heilman / CIO Today. Updated July 02, 2014.
Those puzzling, voluminous lines of charges on cell phone bills might soon cost a carrier instead of the consumer. The U.S. Federal Trade Commission Tuesday filed a lawsuit alleging that T-Mobile has padded its profits in recent years with charges concealed on its bills and not ordered by its customers. It's an illegal billing practice known as cramming and the FTC is not amused.
In a civil complaint filed in federal court in Seattle, the FTC alleges that T-Mobile charged consumers monthly fees from third-party merchants offering bogus text message subscriptions for things like flirting tips, horoscopes, and celebrity gossip. The complaint alleges that T-Mobile kept charging for the services even after subscribers complained, and that the company typically retained between 35 and 40 percent of the fees.
“T-Mobile knew about these fraudulent charges and failed to stop them or take any action,” FTC consumer protection director Jessica Rich told reporters on a conference call. The U.S. Federal Communications Commission (FCC) is also investigating T-Mobile’s alleged cramming, she added.
T-Mobile said the suit is without merit. In a statement, T-Mobile CEO John Legere said the company stopped billing for premium texting services in 2013 and created a program for customers to receive full refunds.
Settlement Talks Stalled
T-Mobile has worked recently to reverse years of subscriber losses. Despite gains in postpaid subscribers last year and in the first quarter of 2014, T-Mobile lost $151 million in the first three months of the year.
That market pressure might conceivably have been behind the alleged billing shenanigans, theorizes one market analyst we consulted.
“Good or bad, these are the kind of things companies do when they’re faced with shareholder pressure to increase value,” said Atlanta-based wireless analyst Jeff Kagan. “At this point, I’m inclined to give T-Mobile the benefit of the doubt, because we don’t have all the facts yet and this kind of thing is far from isolated.”
The FTC suit didn’t itemize the number of customers affected by the alleged overcharges or the total value of the charges, Rich told reporters. She added that the commission had been in settlement talks with T-Mobile before the suit was announced, but didn’t reach an agreement. The FTC’s goal is to secure refunds for all consumers affected.
Will It Matter?
The lawsuit comes as T-Mobile tries to reverse its fortunes via an aggressive marketing campaign branding itself as the “un-carrier” -- that is, spurning typical wireless carrier behavior by eliminating contracts, dropping international roaming charges and offering to pay competitors’ customers $650 to switch over to its service.
The suit also coincides with T-Mobile finalizing a $32 billion merger with Sprint, a deal which, if approved, would unite the nation’s third- and fourth-largest carriers.
Analyst Kagan says that while the FTC suit might cause T-Mobile some embarrassment, the long-term effects should be minimal.
“Typically, when a company gets caught doing this kind of thing, they get slapped on the wrist, they issue some refunds, and they move on,” says Kagan. “This won’t put them out of business. It isn’t the end of the world.”