Gateway Settles FTC Charges Over Free Internet Service

Gateway Inc., the second-largest U.S. direct seller of personal computers, agreed to settle charges that it misled consumers with promises of free Internet service, the Federal Trade Commission said Tuesday.

The San Diego-based company agreed not to misrepresent the cost of any Internet service it provides in promoting personal computer sales, the FTC said. Gateway also agreed to refund long-distance telephone charges incurred by subscribers who registered for its Gateway.net service between January and August 1999.

Juno Online Services Inc. reached a similar agreement with the agency, settling charges it made a variety of deceptive advertising claims to lure subscribers to its Internet service. Juno also agreed to refund some long-distance charges incurred by those who didn’t receive sufficient warning they would have to make toll calls to connect to the World Wide Web, the FTC said.

The FTC said Gateway failed to prominently disclose in advertisements that personal computer buyers could incur long-distance telephone charges of as much as $3.95 an hour if they took a “free” one-year subscription to Gateway.net. Gateway also was accused of failing to adequately warn consumers of the long-distance charges in ads promoting a $14.95-a-month Internet subscription.

The complaint against Juno accused the New York-based Internet service provider of incorrectly telling consumers they could cancel free trials of premium Internet service at any time without incurring extra charges.

Shares in Gateway closed off 6 cents at $17.69 on the New York Stock Exchange, while Juno closed up 5 cents at $1.48 on Nasdaq.