In a damning report out today, the Federal Trade Commission charged telecom operator T-Mobile with earning "hundreds of millions" by charging its customers for fraudulent services offered from third parties without authoriziation.
The claim centers around the practice of "cramming," where wireless carriers turn to third-party companies who provide "premium" SMS services. Consumers are often unknowingly billed for these services, which use deceptive advertising and hidden fee listings, the FTC claimed. For T-Mobile, these included content for flirting tips, horoscope information or celebrity gossip that cost as much as $9.99 a month, the commission said.
T-Mobile knowingly hid these charges from consumers and took roughly 35% to 40% cuts of the amount billed to consumers, according to the FTC suit filed in Seattle. The regulators claimed that number totaled in the "hundreds of millions."
"We know that much was unauthorized," Jessica Rich, the FTC Consumer Protection Director, said on a call with the media. "T-Mobile disregarded tell-tale signs of fraud."
When consumers complained of the charges, T-Mobile refused to provide refunds, Ms. Rich added. "There were oodles of complaints," she said.
The FTC said the charges began as early as 2009 and continued until December 2013. In March 2013, T-Mobile initiated its "Uncarrier" campaign, a sweeping marketing initiative billed by the company as focused on consumers.
The campaign has succeeded in winning over subscribers from the larger wireless carriers. Last month, T-Mobile announced a series of new features focused on the strength of its network's data and consumer services.
In November 2013, T-Mobile announced it would ban third-party promotional services, along with Sprint and AT&T. The FTC said the move alone was inadequate.
"There are other types of third-party billing they engage in," Ms. Rich said of T-Mobile. "In addition, they have not refunded the millions of dollars to consumers. Our lawsuit will be seeking that remedy."
The FTC said it engaged in settlement discussions with T-Mobile but was unable to finalize the talks.
T-Mobile did not return requests for information as of press time.
Update: T-Mobile CEO John Legere released a statement on Tuesday afternoon calling the FTC complaint "unfounded and without merit." The FTC, he wrote, "has chosen to file this action against the most pro-consumer company in the industry rather than the real bad actors." On the media call, Ms. Rich would not comment on whether the FTC is bringing similar charges against other telecom operators.