Telstra has agreed to pay a AU$10 million penalty over the management of premium direct billing (PDB) services after the Australian Competition and Consumer Commission (ACCC) took action against the telco.
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.
"Telstra has admitted that it made these representations and agreed to consent to orders in the Federal Court, including declarations that Telstra breached the ASIC Act, and to make joint submissions in relation to the imposition of pecuniary penalties totalling AU$10 million," the ACCC said.
"Telstra has also committed to offer refunds to affected customers."
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.
"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 Chair 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."
Telstra has said it has already issued refunds worth around AU$5 million, and will contact the remainder of affected customers, which the ACCC said could be worth an additional "several million dollars".
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 on Monday.
"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."
Shadow Communications Minister Michelle Rowland welcomed the consumer watchdog's "scrutiny of this area".
"Consumers need greater transparency about third-party billing arrangements and how they are represented," Rowland said in a statement.
"The industry also needs to do more to discourage these types of shifty business models."
The Australian Federal Court has yet to decide whether the proposed AU$10 million penalty is appropriate.
The announcement follows direct carrier billing services provider Impelus last month saying it will 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 had "without success" attempted to resolve the issue with Telstra.
"Impelus' strong position is that Telstra has a continuing obligation to provide it with the services after March 2, 2018, and intends on initiating proceedings in the Supreme Court of New South Wales to seek injunctive or expedited final relief to prevent Telstra from ceasing to provide it with the services," Impelus said in a statement to the Australian Securities Exchange (ASX) in February.
"The company is extremely disappointed with Telstra's decision after having shared such a long and successful relationship in DCB for more than four years."
Impelus 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, which the ACCC has now said was part of its response to consumer complaints.
"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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