Telstra misled customers over premium billing charges

26 March 2018

The ACCC has today commenced proceedings against Telstra, under a delegation of power from ASIC, alleging that it made false or misleading representations to consumers in relation to its third-party billing service known as “Premium Direct Billing” (PDB). 

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 $10 million. Telstra has also committed to offer refunds to affected customers.

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

During 2015 and 2016, thousands of Telstra mobile phone customers unwittingly 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.”

“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,” Mr Sims said.

Telstra has acknowledged its internal processes for dealing with these issues were inadequate and will refund customers affected by this conduct. Telstra estimates it has provided refunds of at least $5 million, and it will review any future complaints in light of this action and deal with those customers in good faith. The ACCC estimates further refunds may be in the order of several million dollars.

As part of this resolution, Telstra has ceased operating the PDB service entirely. 

“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,” Mr Sims said.

Notes to editors

Telstra customers are encouraged to check their Telstra mobile account and, if they believe unauthorised charges have been applied under the PDB service, they should contact Telstra to seek a refund.

Telstra has agreed to deal directly with complaints about the PDB service and provide refunds where it is apparent that the customer had signed up to PDB content without their knowledge or consent.

Telstra has also agreed to contact and offer refunds to affected customers (who have not already received a refund) it knows have already complained to the Telecommunications Industry Ombudsman (TIO) or to Telstra directly about subscription charges under the PDB service.

Background

The ACCC and Telstra have agreed on the following facts to be presented to the Federal Court for its consideration:

  • 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.

The ACCC proceedings allege that Telstra’s conduct contravenes the ASIC Act, as it concerns financial services and/or financial products. The ACCC has a standing delegation of certain of ASIC powers and functions for the purposes of investigation and commencement and conduct of any proceedings in relation to matters involving financial products and services provided as part of, or in connection with, the supply or possible supply of telecommunications services.

Release number: 
52/18
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