Texas sues Sprint Nextel over ‘false, misleading and deceptive’ billing

Texas made good on its threat to sue Sprint Nextel Corp., asserting the No. 3 mobile-phone carrier’s imposition of a new fee violates the state’s deceptive trade practices law and a 2004 industry settlement with state attorneys general around the country.
“Sprint Nextel has defrauded its customers and violated a court order, blatantly disregarding the laws of the state of Texas,” said Attorney General Greg Abbott. “Texans will not tolerate Sprint Nextel’s unlawful business practices. Once again, the office of attorney general is taking decisive legal action to crack down on Sprint Nextel’s false, misleading, and deceptive acts.”
The lawsuit was filed in state court in Austin.
“At this time, we can’t discuss this matter because it’s the subject of pending litigation. Sprint Nextel strives to serve its customers in a fair and transparent manner,” said John Taylor, a company spokesman.
Abbot said Sprint Nextel began charging Texas customers a 1-percent fee in January, claiming it was necessary to reimburse the carrier for a state-imposed tax. Sprint Nextel, according to Abbot, describes the fee as a “Texas Margin Fee Reimbursement,” wording the lawsuit alleges is deceptive because the tax does not become effective until Jan. 1, 2008, and has not been set at a 1 percent rate.
Abbot said Sprint Nextel violated a court-approved agreement prohibiting it and other national mobile-phone carriers from implying their discretionary fees are required by the government. The pact, backed by 32 state attorneys general, stems from a 2004 investigation into cellular industry business practices. Under the court order, mobile-phone carriers are required to clearly separate government-mandated charges from those imposed at the operators’ discretion.
The cellular industry in 2003 adopted a best-practices voluntary code of conduct.
Abbot’s lawsuit, which requests temporary and permanent injunctions against Sprint Nextel, asks the court to halt the alleged deceptive billings and to compel the carrier to reimburse all customers who paid this fee. The suit also seeks civil penalties of $20,000 per violation under the Texas Deceptive Trade Practices Act.
RCR Wireless News reported this week that Texas Comptroller Susan Combs warned Sprint Nextel it could be audited and sued if it continued to collect fees from subscribers to cover the cost of the state’s revised franchise tax. Sprint Nextel refused, arguing the law is on its side.
The Texas Margin Tax was passed last year to address a funding shortfall for public education in the state, and it became a flash point in Gov. Rick Perry’s successful re-election bid.
Sprint Nextel views the Texas fee dispute as an improper state assault on wireless regulation. States cannot regulate mobile-phone rates, but can oversee other terms of commercial wireless service.
Indeed, the issue of state oversight of wireless service continues to pop up across the country. Sprint Nextel and T-Mobile USA Inc. later this month plan to ask the Supreme Court to review a lower court decision that concluded state regulation of line-items on wireless bills is not pre-empted by federal law. The Federal Communications Commission ruled in 2005 such state oversight is federally pre-empted.
Elsewhere, the FCC Chairman Kevin Martin wants the agency to declare that early-termination fees are a component of wireless rate structures and therefore off limits to states.