Surprise $2,000 Phone Bills Add to Scrutiny of Verizon, AT&T

Liz Szalay said she was shocked when she saw her 14-year-old son’s phone Verizon Wireless bill. He’d run up charges of $2,000 over two months for searching for and downloading songs.

“I would never have allowed my son to accrue such charges, if I had known,” said Szalay, a secretary in Niles, Michigan, who said she withdrew money from her 401(k) retirement plan to cover the expense. “What I did to prevent this from happening in the future was have his Internet access completely blocked by Verizon, but not before they made off with a boatload of money.”

The U.S. Federal Communications Commission may make it mandatory for carriers to warn customers before they get hit with high bills. Next week, the agency will consider requiring companies to alert customers when they approach limits on their contracts. Carriers including Verizon Wireless have fought against such requirements, saying they already give customers ways to monitor their usage.

Verizon, the largest U.S. wireless carrier, is also under investigation by the FCC for charging 15 million customers incorrectly for data. The Basking Ridge, New Jersey-based company said this week that it will refund the charges, incurred when software inside its phones received or sent signals or customers were mistakenly charged for Internet access. The cost to the company will be about $50 million, a person familiar with the matter said.

FCC spokeswoman Jen Howard declined to comment about further steps in the commission’s investigation. Marquett Smith, a spokesman for Verizon Wireless, declined to comment on the proposed legislation.

One in Six

The CTIA, the wireless industry association, has resisted the idea of legislation, saying it will cause “customer confusion and frustration” and that carriers already offer customers ways to control their usage. Subscribers can check their usage with online monitors or via text message.

“We have several measures in place that allow our customers to monitor their usage and protect against overages -- this is a proactive approach on Verizon’s part,” Verizon’s Smith said in an e-mailed statement. AT&T Inc., the second- largest wireless carrier, and Sprint Nextel Corp., the No. 3, deferred to the CTIA’s statement on billing practices.

One in six U.S. mobile-phone customers has faced unexpected monthly fees, according to a survey released in May by the FCC.

Music, Games

Data and talk time beyond a customer’s plan is generally more expensive. Verizon customers can use unlimited amounts of data on their phones if they sign up for a $30-a-month plan. Without a plan, the company’s customers pay $1.99 per megabyte of data so those who surf the Web regularly or download songs like Szalay’s son can pay substantially more.

Customers who stream music for five minutes a day can use 183 megabytes of data in a month, according to Verizon’s website, which would cost people without a data plan $364. Five minutes a day spent downloading games can use 440 megabytes.

Senator Tom Udall, a New Mexico Democrat, has also introduced legislation that would require Verizon, Dallas-based AT&T and other U.S. phone companies to warn customers when they have used 80 percent of their allotment.

“It’s difficult for the carriers to get up and argue against greater transparency on bills and notifications,” said Christopher King, an analyst at Stifel Nicolaus & Co. in Baltimore. “It’s becoming an issue on the front burner of regulators’ minds.”

Reputation

Customer complaints about billing have attracted more attention to the industry this year, and the carriers are risking a perception that they’re trying to take advantage of consumers if they don’t communicate better, Michael Robinson, a senior vice president of Levick Strategic Communications, said in an interview.

“Any time as a company you have the opportunity to touch your customer, you should take that,” Robinson said in an interview. “Looking at the opportunity to reach out and touch your customers is a good thing.”

Verizon Communications Inc., which co-owns the wireless company with Vodafone Group Plc, rose 28 cents to $33.36 at 4 p.m. in New York Stock Exchange composite trading. AT&T dropped 32 cents to $28.62.

To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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