Senate committee: Mobile phone 'cramming' widespread, profits carriers

Mobile carriers have pulled in hundreds of millions in profits through third-party charges tacked onto customers' bills without their consent, according to a report from a U.S. Senate committee.

The carriers have been slow to act against scammers tacking third-party charges onto mobile bills even after thousands of complaints by customers and investigations by multiple state attorneys general during the past six years, said the staff report from the Senate Commerce, Science and Transportation Committee, released Wednesday.

While the mobile industry has suggested unauthorized third-party billing -- often called cramming -- is a minor problem, the practice has been "widespread and has likely cost consumers hundreds of millions of dollars," according to the committee staff report.

Third-party billing on mobile phone bills has been "a billion dollar industry that has yielded tremendous revenues for carriers," the committee report said. The four largest U.S. carriers -- AT&T, Sprint, T-Mobile and Verizon -- generally take 30 to 40 percent of the cut for third-party services, often tacked on as charges of less than US$10 a month, but continuing indefinitely, the report said.

Those four carriers had assured the committee they were taking "robust" steps to combat a minor problem with mobile cramming when the committee began asking about the issue, said Senator John "Jay" Rockefeller, a West Virginia Democrat.

"There is now overwhelming evidence that these statements were just not true -- cramming on wireless phones has been widespread and has caused consumers substantial harm," Rockefeller said in a statement.

Carriers had little incentive to crack down on third-party billing schemes, said Senator Richard Blumenthal, a Connecticut Democrat. "I don't think the telephone companies were happy or content that crammers were defrauding their customers," he said. "But they almost certainly welcomed the revenue that third-party billing was generating for them."

Mobile carriers have taken several steps to end cramming, countered Michael Altschul, senior vice president and general counsel at mobile trade group CTIA. Last November, the large U.S. carriers agreed to stop billing for most premium short message services [PSMS], one of the major third-party billing options, he said.

Carriers are also actively monitoring for third-party billing fraud and keeping a close eye on short-code campaigns on mobile phones, Altschul said. CTIA and its members have developed guidelines for third-party billing, but found that "trust alone was not sufficient to ensure compliance," he said. "The industry recognized that wireless customers and carriers were being victimized by determined fraudsters who crafted elaborate schemes to defeat the industry's self regulation and third-party monitoring."

Blumenthal asked what segment of the mobile industry should take responsibility for monitoring third-party billing. Carriers are taking responsibility, Altschul said.

After the carriers ended support for third-party PSMS billing, customer complaints about unauthorized billing have fallen dramatically, with less than 2 percent of third-party billing now generating complaints, Altschul said.

There's been "wrongdoing at every stage" of the third-party billing market, Blumenthal said, including carriers, billing aggregators and companies providing content such as horoscopes or celebrity gossip.

The committee report suggested carriers have been slow to react to cramming.

"The wireless industry was on notice at least as early as 2008 about significant wireless cramming concerns and problems with third-party vendor marketing tactics, yet carriers' anti-cramming policies and sometimes lax oversight left wide gaps in consumer protection," the committee report said.

In some cases, carriers allowed third-party vendors to continue billing consumers even when more than 50 percent of vendor revenues were refunded because of customer complaints, the report said.

The committee's report and hearing came just weeks after the U.S. Federal Trade Commission filed a complaint against T-Mobile USA accusing the carrier of making millions of dollars on third-party billing while ignoring many customer complaints.

T-Mobile has disputed the FTC's allegations.

The FTC's action against T-Mobile is the agency's first against a carrier, although it has filed about 30 complaints related to cramming in the last 15 years.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's email address is grant_gross@idg.com.