Telstra faces $10m penalties in ACCC probe

The ACCC has commenced proceedings against Telstra, alleging that it made false or misleading representations to customers regarding a third-party billing service known as ‘Premium Direct Billing’ (PDB).

In a statement released this morning, the ACCC said that Telstra has conceded that it made the false or misleading representations and has “agreed to consent to orders in the Federal Court, including declarations that it breached the ASIC Act, and to make joint submissions in relation to the imposition of pecuniary penalties totalling $10 million”.

The ACCC has brought the proceedings under a standing delegation of certain of ASIC powers.

The Federal Court will decide whether the orders sought, including the proposed penalties, are appropriate.

The telco will offer refunds to affected customers and has completely ceased operating the PDB service.

During 2015 and 2016, thousands of Telstra mobile phone customers unknowingly signed up to subscriptions or charges with third parties, without being required to enter payment details or verify their identity. Telstra has admitted that more than 100,000 customers may have been affected and charged.

“Telstra has admitted that it misled customers by charging them for digital content, such as games and ringtones, which they unknowingly purchased. Many Telstra customers paid for content they did not want, did not use, and had difficulty unsubscribing from,” ACCC Chairman Rod Sims said.

“Telstra knew that the Premium Direct Billing service it operated led to large numbers of its customers being billed for purchases made without their knowledge or consent. Despite this, Telstra continued to bill customers, making substantial revenue from the service at the expense of customers,” added Sims.

“When customers contacted Telstra to complain many were directed to third parties, even though Telstra knew that they had difficulty getting a refund from third-party suppliers, or cancelling their subscription. Customers were often left frustrated and out of pocket as a result of Telstra’s conduct,” he said.

Telstra has acknowledged its internal processes for dealing with these issues were inadequate.

So far, the telco estimates that it has provided refunds totalling at least $5 million.

It has also said that it will review any future complaints in light of the Federal Court action and deal with those customers in good faith.

Further refunds might total in the order of several million dollars.

“The ACCC is aware that other carriers offer similar third-party billing services to their customers. We are monitoring complaint levels and will take enforcement action in relation to these carriers if we believe they are breaching the law,” Sims said.

In its statement, the ACCC said that it and Telstra have agreed on the following facts:

• Until October 2017, Telstra had earned about $61.7m in net revenue from commissions on premium billing services charged to more than 2.7 million mobile numbers.
• Since July 2013, Telstra has been operating its PDB service. The service allows Telstra customers to purchase digital content from third-party developers that sell their content outside usual app marketplaces like Google Play or the App Store. Charges are automatically applied to Telstra customers’ pre-paid or post-paid mobile accounts.
• Telstra did not adequately inform customers it had set the PDB system as a default on customers’ mobile accounts and that if customers accessed content through the PDB service, even unintentionally, they would be billed directly by Telstra.
• Telstra was aware from early 2015 to at least June 2016, not least because it received a large number of calls disputing such charges, that the operation of the PDB service had led to a significant number of its customers unintentionally purchasing and being billed for PDB content subscriptions without their knowledge or consent. The number of affected customers was in the order of tens of thousands and possibly in excess of 100,000.
• Telstra failed to implement the identity verification safeguards for the PDB service which it used for other third-party subscription services to authorise the charges (such as the customer entering a PIN or signing into an account).
• Telstra was aware that family members such as children were at risk of inadvertently subscribing on a family member’s phone.

Image credit: ©stock.adobe.com/au/kantver

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