California and 5 Other States Sue WorldCom
California and five other states sued WorldCom Inc. on Thursday, accusing the nation’s second-largest long-distance phone company of tricking thousands of customers with deceptive advertising and other fraudulent tactics to capture new business and boost sales.
The complaints are part of a nationwide crackdown against telephone fraud, with other states filing lawsuits Thursday against long-distance market leader AT&T; Corp. and No. 3 Sprint Inc. Those complaints also allege that the phone companies misled consumers about fine-print restrictions and add-on costs in their long-distance service plans.
Only last month, WorldCom agreed to pay a record $3.5 million to the federal government to settle “slamming” complaints compiled by the Federal Communications Commission. It also recently paid $100,000 to federal regulators to settle allegations of misleading advertising for its 10-10-321 dial-around long-distance unit.
But state officials complained that they saw no change in WorldCom’s business practices, so they filed their own suits.
California, Connecticut, Maine, Minnesota, Missouri and New Jersey filed lawsuits Thursday against WorldCom. Connecticut and Illinois filed separate lawsuits against Sprint, while Connecticut, Maine and Idaho filed similar consumer fraud complaints against AT&T.;
An additional seven or more states are expected to also file fraud cases soon against the long-distance companies, according to Richard Blumenthal, Connecticut’s attorney general.
In the California suit, the state cited WorldCom and its MCI unit for switching customers’ long-distance plans without permission--a practice known as “slamming,”--and for billing customers for unauthorized charges--an illegal action termed “cramming.”
MCI’s “5-cents everyday” calling plan didn’t make the advertised rate available to customers as promised, California’s lawsuit says. MCI also charges a “federal universal service fee” of up to 7.2% on state-to-state and international calls, although the government does not set that rate or require MCI to collect that fee, according to the suit.
More than 8,000 California consumers have filed complaints with the state against Clinton, Miss.-based WorldCom/MCI since 1998, the largest number of complaints against any long-distance carrier operating in the state, according to the California Public Utilities Commission.
“The major carriers have heavily promoted their pennies-per-minute plans, but have given consumers minimal information about the actual fees and charges that consumers must pay,” said David Butler, a spokesman for Consumers Union. “The dirty little secret is that, before you make any calls, you have to pay a stack of fees and charges . . . and that means most consumers don’t make enough calls each month to benefit from the plans.”
A spokesman for WorldCom declined to comment, citing a corporate policy of not discussing pending litigation. Representatives for AT&T; and Sprint defended their advertising as clear and accurate.
California’s lawsuit, filed by Atty. Gen. Bill Lockyer and the PUC, seeks more than $20 million in punitive damages, as well as consumer refunds and court-mandated restrictions to prevent further abuses by WorldCom, which also does business under its MCI brand.
In its complaint, California accused WorldCom of using false and misleading advertising for long-distance calling plans, and its nationwide directory assistance service.
“We believe that the company took unjust advantage of customers and undermined other businesses through the use of illegal and unfair tactics,” Lockyer said.
Throughout the country, WorldCom has developed a reputation among regulators for triggering a steady stream of customer complaints.
In 1999, the company further irritated regulators by suing the FCC to block tough new anti-slamming rules and then leading an industry effort to substitute a slamming enforcement system controlled by the long-distance companies themselves.
Ultimately, that plan was rejected in favor of reinstating the FCC rules, which include strict state enforcement as well.
“I think [these suits] send a loud message to the telecommunications industry that they need to clean up their act,” said Regina Costa, an analyst at the Utility Reform Network, a San Francisco-based consumer advocacy group.
“It’s also a sign that regulators are waking up to the fact that competition isn’t perfect and that there are serious problems for consumers.”
Regulators and others recently have turned their attention to the ever-present advertising for long-distance phone service, an issue at the heart of most of the cases filed on Thursday.
California’s case highlights WorldCom/MCI’s advertising for its nationwide directory assistance service, which the company says can get consumers any phone listing “anywhere in America.” That statement is false, the suit says, because the company’s database does not contain every telephone listing in America. The company also neglects to mention that users are charged 99 cents even when the requested number cannot be found.
Several of the lawsuits cite ads for WorldCom’s 5-cents-a-minute service plan, which carries a $2.95 monthly charge, a $5 monthly minimum requirement, plus a variety of fees. In addition to glossing over those details, the ads do not make it clear that the 5-cents-a-minute rate applies only to long-distance calls that cross state lines and are placed on weekends and between 7 p.m. and 7 a.m. on weekdays. Long-distance calls placed at other times cost 15 cents per minute.
The lawsuits filed against Sprint and AT&T; accuse those companies of selling calling plans with similar material omissions and misleading advertising. Sometimes the phone companies disclose the other charges in fine print flashed across television screens, but the state attorneys general contend that disclosure is inadequate.
For example, the complaint in Illinois cites Sprint’s “1000 weekends” plan as misleading because the company advertises it as giving consumers calls for as little as 2 cents a minute. But Sprint charges $20 a month for the plan, no matter how many minutes a customer talks, so the actual per-minute cost can be substantially higher. In addition, the plan charges a much higher rate of 10 cents a minute for weekend long-distance calls made within the state.
“This kind of consumer deception literally hits people by the minute in their everyday lives,” said Blumenthal, the Connecticut attorney general. “People use the telephone and depend on it for virtually all of their daily activities.
“Our hope is that these actions get [the companies’] attention and get them to change their practices.”
