AT&T Settles FCC Cramming Probe for $7.75 Million

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By Lydia Beyoud

Aug. 8 — AT&T Inc. Aug. 8 reached a $7.75 million settlement with the Federal Communications Commission to resolve an investigation into whether it allowed third-party fraudsters to charge unauthorized services to fixed-line phone customers' bills, a practice known as cramming ( In re AT&T Servs., Inc., FCC, DA 16-771, order 8/8/16 ).

The FCC's investigation arose from the U.S. Drug Enforcement Administration's own probe into two sham phone directory service companies based in the Cleveland area: Discount Directory, Inc. (DDI) and Enhanced Telecommunications Services (ETS). The investigation was related to drug crimes and money laundering, according to an FCC news release and the consent order. .

During a DEA raid, agents discovered financial records on the phone bill scam affecting thousands of small businesses. AT&T received a fee from the fraudulent companies for each charge AT&T placed on customers' bills.

The FCC found that AT&T did not require proof from the companies that they had customer authorization to bill for the directory services.

“A phone bill should not be a tool for drug traffickers, money launderers, and other unscrupulous third parties to fleece American consumers,” FCC Enforcement Bureau Chief Travis LeBlanc said in the release, which was issued the same day the settlement was reached.

Under the settlement, AT&T will pay $6.8 million in customer restitution going back to 2012 and a $950,000 fine to the U.S. Treasury Department. The total amount of the settlement is less than two-tenths of a percent of the company's $4.8 billion free cash flow in the second quarter, according to the company's most recent financial report.

Additionally, AT&T will cease billing for nearly all third-party products and services for its wireline customers as part of the settlement.

AT&T Response

AT&T confirmed it had terminated its contracts with the two companies in June 2015. “Consistent with industry practices, AT&T wireline telephone customers have been able to purchase certain telecommunications services from third parties and have charges for those services billed on their telephone bill,” an AT&T spokesman told Bloomberg BNA via e-mail.

“We have implemented strict requirements on third parties submitting charges for AT&T bills to ensure that all charges are authorized by our customers; indeed, those requirements go beyond the requirements of FCC rules and impose safeguards that the FCC proposed but never adopted.

“Nonetheless, unbeknownst to us, two companies that engaged in a sophisticated fraud scheme were apparently able to circumvent those protections and submit unauthorized third-party charges that were billed by AT&T,” the spokesman said.

Other Telecom Carriers Implicated

Though AT&T was the only wireline provider named in court documents related to the DEA's investigation, other telecommunications carriers were also involved in the fraud scheme, according to a complaint in forfeiture filed by the Department of Justice in the U.S. District Court for the Northern District of Ohio—Eastern Division.

An FCC spokesman declined to comment on whether or not it was investigating other carriers.

In the last five years, the FCC has taken action on more than 30 enforcement actions against telecom carriers as a result of cramming or unauthorized carrier switches.

To contact the reporter on this story: Lydia Beyoud in Washington at

To contact the editor responsible for this story: Keith Perine at

For More Information

Text of the order and consent decree is at .

Text of the news release is at

Text of the Ohio court complaint is at

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