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The nation's fastest growing cell phone carrier is about to meet the Federal Trade Commission in a courtroom, and the fallout could be more than a few fines -- the PR hit from allegedly cramming bogus fees on customers' bills could cost the company dearly.
The FTC announced earlier this week that it filed a complaint [PDF] against T-Mobile, accusing it of knowingly passing along unauthorized fraudulent third-party charges to consumers, while taking a thirty-five to forty percent cut. The charges would be hidden in bills that were dozens of pages long, and the refund rate was only 40 percent, according to the agency.
What is Third-Party Cramming?
Third-party cramming is where "premium services," such as text-message subscriptions for flirting tips or horoscopes, are tacked on to a person's cell phone bill. According to the FTC, these charges were frequently unauthorized, and to make matters worse, they would only be listed as generic "usage charges" throughout most of the bill.
In order to find the exact itemized charge, T-Mobile customers would have to dig through dozens of pages to find the actual charge listed in a "Premium Services" section, where it would be listed in an abbreviated form, such as "8888906150BrnStorm23918." Even then, the abbreviation did not explain that the charge was for a recurring third-party subscription supposedly authorized by the consumer.
In one example, on the FTC's website, the charge was buried 123 pages deep into a customer's bill.
What Was T-Mobile's Cut?
According to the FTC, T-Mobile made "hundreds of millions" of dollars through its thirty-five to forty percent cut. The agency also alleges that the company was aware of the bogus charges for years, yet continued to profit off of the third-party scams.
Why This is Dangerous for T-Mobile
T-Mobile has been doing ridiculously well lately, in terms of subscriber growth. By cutting two-year contracts completely, and adding tons of other features (unlimited music streaming, free international calling, data roaming, and texting, and more) through it's "Uncarrier" marketing push, the company added more than 4.4 million subscribers last year alone, making it the fastest growing carrier in the nation.
But the contract-free push, while great for getting customers in the door, makes it just as easy for them to leave. And if this cramming controversy is as big of a PR hit as it seems, it might turn current and potential customers away.
In a blog post earlier this week, CEO John Legere called the FTC's complaint "unfounded and without merit." He also stated that the company stopped billing for these Premium SMS subscriptions last year, and launched a "proactive program to provide full refunds for any customer that feels that they were charged for something they did not want."
Ars Technica points out that T-Mobile's move to end cramming came only after regulators and officials from 45 states pressured the major carriers to agree to stop billing for third-party premium text services.