Federal Court orders Telstra to pay AU$10m fine

In addition to providing refunds of AU$5 million ahead of 'several million' more, Telstra has been ordered to pay AU$10 million in penalties for making false or misleading representations to more than 100,000 customers.
Written by Corinne Reichert, Contributor

The Australian Federal Court has ordered Telstra to pay AU$10 million in penalties for making false or misleading representations to consumers on the management of its premium direct billing (PDB) services.

The Australian Competition and Consumer Commission (ACCC) had taken action against the telco on the matter, with the court on Thursday holding by consent that Telstra misled customers and breached the ASIC Act.

According to the ACCC, between 2015 and 2016 Telstra made false or misleading representations to consumers by charging more than 100,000 customers for PDB subscription services who had not requested them or had the ability to opt out of them.

"Thousands of Telstra mobile phone customers unwittingly signed up to subscriptions without being required to enter payment details or verify their identity. By introducing and operating the Premium Direct Billing service, Telstra generated substantial profits by exposing customers to unauthorised charges," ACCC Chair Rod Sims said.

"Telstra was aware that children were at risk of inadvertently subscribing on a family member's phone. The AU$10 million penalty imposed by the court recognises the seriousness of Telstra's conduct. In the ACCC's view, such conduct falls below community expectations for appropriate corporate behaviour."

Telstra has also provided around AU$5 million in refunds to customers, with the ACCC estimating another several million dollars will be refunded; ceased operating the PDB service; and will review future related complaints in good faith.

"The ACCC is now examining the third-party billing services offered by other carriers and will not hesitate to take enforcement action if we believe they are breaching the law," Sims added.

Telstra had in March admitted to making the false or misleading representations and agreed to consent to Federal Court orders involving pecuniary penalties of AU$10 million.

PDB services had allowed customers to charge game, app, and video purchases to their mobile bill until Telstra last year announced that it would cease such services as of March 3, 2018.

Australia's incumbent telco had earned around AU$61.7 million in revenue from PDB until October 2017, according to the ACCC, and from early 2015 to mid-2016 received "a large number of calls disputing such charges".

"Our customers have the option of buying things online that can be charged to their Telstra bill, and for their convenience we aim to make it as simple as possible. It is clear for this specific type of service, we did not get that right," group exec of Consumer and Small Business Vicki Brady said last month.

"A large proportion of customers who decided to subscribe to a service were happy with it; however, the number of complaints received over time shows there were issues with the PDB service that needed to be addressed ... Telstra took a number of steps to improve our processes but acknowledge we could have done more and done it faster."

The announcement follows direct carrier billing services provider Impelus earlier this year saying it would seek injunctive relief from the Supreme Court of New South Wales to prevent Telstra from banning its services.

Impelus, which provides mobile and digital communications products and services, said it was "extremely disappointed with Telstra's decision after having shared such a long and successful relationship in DCB for more than four years".

It added that the sudden cessation of services by Telstra would materially impact its FY18 earnings before interest, tax, depreciation, and amortisation (EBITDA) by between AU$550,000 and AU$680,000, as well as its revenue.

Telstra had announced in December that it would halt DCB services.

"From 3 December 2017, you will not be able to subscribe to new digital content, apps, or services from other companies through Premium SMS or Telstra Carrier Billing. This is because we're phasing out Premium Service subscriptions," Telstra said at the time.

Still being charged to customers' Telstra bills are Google Play, Windows Store, AirG Chat, AFL or NRL apps, Apple Music, Foxtel Now, Telstra TV, Telstra Play, Caller Tones, other Telstra subscription content, and one-time charges such as online voting, competition entries, and donations.

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