Shop-by-Phone Network Sues GTE for Fraud

Home Shopping Network, the video shopping pioneer, charged in a lawsuit Thursday that GTE Corp. had cost it at least $500 million in lost business by providing inadequate telephone service and selling faulty equipment.

Home Shopping’s suit, filed in a Florida state court, claims about $1.5 billion in compensatory and punitive damages from GTE, the nation’s largest independent telecommunications concern.

In the suit, Home Shopping, whose phenomenal early growth has recently slowed, alleged that it lost millions of customer calls and more than $500 million in sales in the fiscal year ended Aug. 31 because of the poor service and faulty telephone switching equipment installed by GTE.

It also alleged that GTE fraudulently misrepresented the equipment’s capabilities and engaged in a cover-up to prevent Home Shopping from discovering GTE’s failures. The cover-up and technical problems severely retarded Home Shopping’s growth for at least six months, the company said.

Stamford, Conn.-based GTE said it had not seen the suit and would not comment.

Home Shopping, which is based in Clearwater, pioneered the concept of selling merchandise on television. Viewers call in their orders by phone on a toll-free number.

The company’s sales rapidly increased to $160.2 million in fiscal 1986 and its stock enjoyed a meteoric rise on the American Stock Exchange, reaching as high as $47 at the end of last year.

However, Home Shopping has since released disappointing quarterly earnings reports, prompting industry analysts to say that the video shopping concept had passed its prime, and the stock has fallen to $12.75.

In a statement, company Chairman Roy Speer said Home Shopping discovered in April that “inadequacies in the GTE telephone system were keeping more than 50% of incoming customer calls from ever reaching Home Shopping operators and that GTE’s own records showed that thousands of calls were being lost.”

Despite this, “GTE failed to tell Home Shopping what was happening and continued to deny there was a problem,” Speer added.

Home Shopping also filed a motion requesting the court to order GTE not to destroy any evidence relating to the suit. Other defendants in the suit are GTE subsidiaries General Telephone Co. of Florida and General Telephone Communications Corp.

Last week, Home Shopping announced that it was restructuring to transform itself into a holding company with a range of diversified merchandising businesses.