In the opening address to a US Court, the Federal Trade Commission called for AT&T’s DirecTV unit to pay a fine of $3.95 billion to settle claims that it made false-advertising claims, which attracted millions of customers. The suit has been running since March 2015 and was thought to have been settled by agreement, but it turns out that leaks which suggested this fell short of the mark, with the FTC saying that DirecTV failed to offer enough cash.
The supposed mis-selling went on from 2007 until 2015, as DirectTV grew from roughly 16 million customers to almost 20 million during that time, which with an ARPU of something above $100 a month at that time, its annual revenue growth was a shift from just under $15 billion to over $32 billion, so the suggestion that just $3.95 billion of that was due to suspect advertising is highly credible, if the case is proven.
The claim is that DirecTV didn’t adequately disclose that its cut-price 12-month package needed a two year commitment and the monthly bill rose by around $45 in the second year. It is also accused of not being up front with customers about the $480 fine they’d get if they broke the contract. Finally there was a failure to mention that any premium channels which were ordered on day one, would suddenly cut in at full price after 3 months. Something like 33% of customers when interviewed said they felt misled during the sales process.
The court is not likely to award anything like as high and the opening gambit from DirecTV was that if people felt deceived they would not sign up again, and yet the average subscription last for 5.5 years.
The case should last just a handful of weeks we are told. If a figure of similar magnitude to the FTC request is conceded, then AT&T is likely to have made provisions for such a “black hole” to claw back some of the money it paid to investors of DirecTV. The case was known about prior to the deal completion and a legal due diligence would have picked it up.
To our way of thinking DirecTV has been a failure since it was acquired by AT&T, with almost 1 million customers falling off DirecTV during the years to that it took to closer the deal, a number which has yet to be replaced, as AT&T now has a falling pay TV customer base even if you count in the cheaper DirecTV Now subscribers.