WASHINGTON-The New York City Department of Consumer Affairs last week brought a lawsuit in state court against Nextel Communications Inc., Sprint Corp. and T-Mobile USA Inc. for allegedly deceiving consumers in advertising cell-phone equipment and services.
The lawsuit was filed July 21 in New York Supreme Court.
“You can’t promise a great deal in the headline and hide the true costs in the fine print,” said Jonathan Mintz, DCA acting commissioner. “If a cell-phone company promises free long distance, consumers should get free long distance-period. Consumers rely on advertising as a shortcut through the often-confusing maze of wireless options, and the city’s law provides protection to ensure those ads are truthful. While clamoring for competitive consumer attention, these major cell-phone companies crossed the clear line between promotional gimmicks and deceptive advertising. It doesn’t matter whether the business is selling cars, tax services or cell phones, everyone has to follow the same rules.”
The DCA said it pursued claims against AT&T Wireless Services Inc. (subsequently purchased by Cingular Wireless L.L.C.), Cingular and Verizon Wireless for deceptive advertising. However, the DCA said those carriers settled and agreed to fully comply with the New York City Consumer Protection Law in their marketing.
“Verizon led the industry in committing to comply with the Consumer Protection Law and settling claims, and we are pleased that others followed,” said Mintz.
The New York City Consumer Protection Law broadly defines deceptive and unfair trade practices, among other things, by requiring the type size used in print ads to be clear and conspicuous to readers. It prohibits practices that have the capacity, tendency or effect of deceiving or misleading consumers, according to the DCA.
“This rule, as applied to Nextel, is overbroad and violates Nextel’s right to free speech. The Department of Consumer Affairs has put Nextel in a position where it must defend its constitutional right to advertise in a truthful and straightforward manner, and Nextel is prepared to do so,” said Nextel in a statement. “Nextel’s manner of advertising entry-priced phones is truthful and straightforward, and that, if anything, the Department’s proposed alternative would make Nextel’s advertising confusing and not helpful to consumers.”
Sprint, awaiting expected approval from U.S. officials for it proposed $35 billion acquisition of Nextel, said it was disappointed the DCA opted for litigation.
“Sprint fully complies with federal, state and local regulations, and we had been negotiating in good faith with the department to resolve any of their concerns about our advertising. It’s unfortunate the department has chosen to take court action rather than to continue the negotiations,” said a Sprint spokeswoman.
T-Mobile USA did not reply to requests for comment.
The DCA said it intensified monitoring of wireless industry advertisements in fall 2003 as part of a joint effort with the New York City Department of Information Technology and Telecommunications to track industry practices and cell-phone service citywide. After months of monitoring company ads, and despite numerous discussions with company representatives to correct and clarify the ads, DCA said it found the carriers to be in violation of city law.
Last year, under settlements with the 32 states, Verizon Wireless, Sprint PCS and Cingular Wireless agreed to provide coverage maps to consumers, give consumers at least two weeks to terminate service contracts without incurring penalties, and to change the way they advertise and sell their services and coverage.
In 2003, the mobile-phone industry embraced a voluntary code of conduct governing carriers’ business practices and their relationships with consumers.
In its lawsuit, the DCA charges:
- Nextel deceived consumers by advertising “all incoming calls are free,” but a tiny, multiline footnote at the bottom of the advertisement indicated “an additional access charge of either $.10 per minute multiplied by the number of participants on the call … or a monthly flat fee,” would be charged to the consumer if he or she signed up for the advertised calling plan.
- Nextel further deceived consumers by advertising “plans starting at $10 per month” or “powerful phones starting at $24.99” without clearly describing different service plans or products, and without adequately disclosing either the highest price of the advertised plan or an “average price” as required by law.
- Sprint deceived consumers by advertising “nationwide long distance included. Every minute, every day,” but a tiny, multiline footnote at the bottom of the advertisement indicated a charge for long distance, including the phrase “… an additional $0.25 per minute for long distance.”
- Sprint further deceived consumers by advertising that “instant savings require in-store purchase and activation of a new line …” but a tiny footnote at the bottom of the advertisement stated, “Requires in-store purchase and activation of two new lines of service on eligible plans.” In the same ad, Sprint deceived consumers by advertising a “free” cell-phone offer forcing consumers to look at the fine-print footnote to find that the offer required “… a two-year Sprint PCS Advantage Agreement.”
- T-Mobile deceived consumers by advertising “free long distance” and “free roaming,” but a tiny, multiline footnote at the bottom of the advertisement indicated, “Billing of roaming charges and minutes of use and services may be delayed” and “Call duration may be limited.” RCR
