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AT&T's (T) DirecTV Receives $3.95B Fine for Deceptive Ad Suit

Zacks Equity Research

U.S. telecom behemoth AT&T Inc.’s T DirecTV deceptive advertising lawsuit filed by the Federal Trade Commission (FTC) in Mar 2015, is currently on trial in the federal court. The FTC wants the company to pay upto $3.95 billion as monetary relief for affected customers.

The trial became functional from this Monday with opening arguments in U.S. District Court in Oakland, CA, and is scheduled to last 20 days.

FTC lawyer Jacob A. Snow clearly pointed out that 33 consumers were deceived by the company during the span of 2007-2015.  As a result of sign-ups and deceptive practices, DirecTV is estimated to have made $3.95 billion.

FTC’s Claims

AT&T’s DirecTV was charged for misleading customers through false marketing campaigns and not disclosing all its terms, which violated one of the FTC’s Acts. The company advertised only the first 12-month-subscription fee in a two-year contract. Moreover, it did not mention a $480 fine, in case of an early cancelation of the contract. Also, FTC claimed that DirecTV’s website was confusing and did not convey any detailed information related to any purchase. The agency accused the company of misleading customers about free three-month trials of premium channels such as HBO and Showtime.

Recent Lawsuits

Last week, the United States International Trade Commission (ITC) announced its decision to investigate a complaint filed by chipset manufacturer, Qualcomm Inc. QCOM against tech giant Apple Inc. AAPL for infringing six of its patents covering various aspects of mobile phone technology. ITC had mentioned about establishing a deadline for finalizing its probe within the next 45 days.

Earlier, Qualcomm had settled a licensing dispute with BlackBerry Ltd. BBRY by paying $940 million. This is in relation to the over-payment by BlackBerry to Qualcomm in royalty payments from 2010 to 2015 under terms of a licensing deal.

Bottom Line

Lawsuits or legal proceedings, along with related fines, act as major dampeners for any company’s financials and long-term growth. These charges affect the company’s credit ratings. To remain clean in every aspect, a company should avoid illegal business practices and other similar activities. Major regulatory bodies such as the United States telecom regulator, Federal Communications Commission (FCC), or the Mexican telecom regulator, Federal Telecommunications Institute (IFT), approve different deals, mergers and acquisitions. They can also punish the players when caught violating a business norm or engaging in illicit and unlicensed dealings.

We hope AT&T will easily recover from its DirecTV trial as it is anticipating the integration of the satellite operator’s core operations to drive new products like DirecTV Now. Recently, both AT&T and the Communications Workers of America (CWA) have finally approved a four-year contract with the telco’s Pacific Bell and Nevada Bell subsidiaries. This new agreement was signed on Jul 14, after extensive discussions between AT&T, the CWA and a federal mediator provided through the Federal Mediation and Conciliation Service.

 Price Performance and Zacks Rank

In the past three months, AT&T’s shares have returned 1.87%, but failed to beat the 5.05% growth of the industry to which it belongs.

AT&T currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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