Litigations and regulatory charges are not new to the telecom industry and this time around it is T-Mobile USA Inc. (TMUS - Analyst Report) that has been accused by the Federal Trade Commission (FTC) on grounds of unauthorised billing. On Tuesday this week, the U.S. authorities lodged a complaint against T-Mobile USA for cramming, which is a practice of imposing unauthorized charges on telephone bill deceptively.
The news affected the stock price of T-Mobile USA, which traded low and ended at $33.41 on Tuesday closing.
Reportedly, T-Mobile USA was charging customers for text messages services like horoscopes or celebrity gossip, which often cost $9.99 a month upon subscription. According to FCC, T-Mobile USA received 35% to 45% of the amount. However, what was significant here was that T-Mobile customers did not sign up for these paid services or authorise any such payment. However, they were wrongly charged and shown as subscribed without any prior knowledge.
In addition, FTC mentioned that T-Mobile USA misled customers by billing the third party charges under use charges and premium services, not disclosing the amount.
FTC remains concerned that such malpractices are still in play despite T-Mobile USA along with other players like Verizon Communications Inc. (VZ - Analyst Report) , AT&T, Inc. (T - Analyst Report) and Sprint Corporation (S - Analyst Report) having already agreed to a pact that forbids them from charging customers for third-party services unless instructed by the user himself.
In this new litigation, the Federal Communications Commission has also joined hands with FTC and is reportedly coordinating with the latter in the whole investigation.
While T-Mobile USA, the fourth-largest U.S. mobile operator, boasts cheaper and economical pricing policies, we believe an indictment like this is likely to hamper its reputation going forward. In defence, the company has shown significant concern toward the issue and reportedly announced that it is fast resolving the problems faced by the customers in question by helping them process refunds. Meanwhile, the company has stated that it has stopped billing customers for the text message services.
T-Mobile USA currently has a Zacks Rank #2 (Buy).