Telstra has been ordered by the Federal Court to pay penalties of $10 million for making false or misleading representations to customers in relation to its third-party billing service.
The decision comes after the third-party billing service, known as “Premium Direct Billing” (PDB), came under scrutiny by the Australian Competition and Consumer Commission (ACCC), which subsequently took action against the telco.
The ACCC revealed in March it had commenced proceedings against Telstra, with both parties at the time agreeing to jointly submit to the Federal Court that Telstra pay a penalty relating to the management of its Premium Direct Billing service of up to $10 million.
Indeed, Telstra admitted it had made false or misleading representations to 100,000 consumers in regards to its third-party billing service, which enabled mobile customers to purchase online content from third parties on a subscription or one-off basis and have it charged directly to their mobile bill.
According to the ACCC, Telstra earned about $61.7 million in net revenue from commissions on premium billing services charged to more than 2.7 million mobile numbers.
Telstra at the time agreed to consent to orders in the Federal Court, including declarations that it breached the ASIC (Australian Securities and Information Commission) Act. Telstra also committed to offer refunds to affected customers.
Ultimately, the court held that, by consent, Telstra had misled customers and breached the ASIC Act when it charged the customers for the digital content.
Specifically, the court found that in 2015 and 2016, Telstra did not adequately inform customers it had set the Premium Direct Billing service as a default on their mobile accounts.
If customers accessed content through this service, even unintentionally, they were billed directly by Telstra, the ACCC said.
“Thousands of Telstra mobile phone customers unwittingly signed up to subscriptions without being required to enter payment details or verify their identity," ACCC chairman Rod Sims said. "By introducing and operating the Premium Direct Billing service, Telstra generated substantial profits by exposing customers to unauthorised charges.
"Telstra was aware that children were at risk of inadvertently subscribing on a family member’s phone. The $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."
As part of the resolution it struck with the ACCC, Telstra has already ceased operating the PDB service entirely and plans to refund customers affected by its conduct.
According to the ACCC, Telstra estimates it has provided refunds of at least $5 million, and the company will review any future complaints in light of this action. The ACCC said it estimates further refunds may be in the order of several million dollars.
“PDB services have been recognised as an issue for the broader telecommunications industry and while we took a number of steps to improve our processes we acknowledge we could have done more and done it faster,” a spokesman for Telstra told ARN.
“We stopped providing new subscription-based services like these in December, and completely exited the service from 3 March this year.”
During the past month, the spokesman told ARN, a “dedicated team” has contacted many of the customers who have been impacted by this to apologise and to offer refunds.
“And this will continue over the coming weeks,” the spokesman added. “Customer experience is the number one priority and we know we don’t always get it right, so we will continue to take steps to rectify these PDB charges where they need to be addressed.”
Going forward, the ACCC is putting other telcos in its sights.
“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 said.
The court ruling comes just months after Telstra, along with several other of Australia's leading telecommunications and internet service providers, agreed to compensate tens of thousands of National Broadband Network (NBN) service customers who couldn’t receive the internet speeds they bought because their NBN connection was incapable of delivering it.