AT&T supervisors urged sales reps to create fake DirecTV accounts to make the online video service seem more successful than it actually was, a complaint alleges.
AT&T "promote [ed] and reward [ed] account fraud" like creating fake accounts and registering AT&T customers on DirecTV Now "without the customer knowing," the lawsuit claims.
The new allegations were made Friday in an amended complaint as part of a lawsuit filed against AT&T in April in the US District Court for the New District of New York. The lawsuit alleges that AT&T lied to investors to hide DirecTV Now's failure.
"AT&T misunderstood the true state of DirecTV Now and hid the associated risks," the amended complaint states. DirecTV Now's inevitable failure was later made clear when subscriber numbers began to fall, the amended complaint says:
The dramatic decline in subscription numbers for DirecTV Now was a materialization of the risks associated with: incorrect sales practices, such as setting up fake accounts, which predictably, subscribers canceled these accounts when they realized they were billed for a service they did not use; aggressive use of promotional campaigns to artificially maintain subscriber levels; and sell the product at irrationally low prices that will eventually need to increase.
As we previously reported, the lawsuit seeks certification of a class consisting of all people who acquired AT&T common stock in connection with the acquisition of Time Warner Inc. and all persons who purchased AT&T stock between October 22, 201
AT&T TV biz freely
When Ars was contacted by Ars yesterday, AT&T said it would "fight these baseless allegations in court," but it gave no specific answer to the new allegations.
AT&T must defend itself against the lawsuit while the TV business is in rapid decline despite the acquisition of DirecTV and Time Warner. AT&T told shareholders last week that it expects to lose about 1.1 million TV customers in the third quarter of DirecTV satellite and U-verse cable TV services. It does not include DirecTV Now, which was recently renamed "AT&T TV Now."
AT&T launched DirecTV Now in November 2016 with discounted prices starting at $ 35 a month. DirecTV now built a subscriber base of 1.86 million at the end of Q3 2018, but that figure dropped to 1.34 million by June 2019 following a series of price increases.
The complaint states that AT&T and executives including CEO Randall Stephenson violated the Securities Handle by making false and misleading statements about the performance of DirecTV Now. The plaintiff requests compensation for investors.
Ex-employees claim shady tactics
The amended complaint cites 17 confidential witnesses who used to work for AT&T and another who worked for an AT&T contractor. Witnesses include sales reps and consultants, sales managers, an assistant vice president of sales, members of DirecTV Now's product analysis team, a leading financial analyst, a regional director of sales operations, an operations director, a product developer, a financial analyst, and a senior strategic price manager. They worked for AT&T in various parts of the United States, including: Hawaii; Michigan, Pennsylvania; New Jersey; California; an AT&T regional office covering Alabama, Louisiana and Mississippi; Georgia; Oregon; and Idaho.
CW-1 (Confidential Witness 1), a sales representative for AT&T in Hawaii from 2015 to June 2018, described a practice of creating fake DirecTV Now accounts for customers. The complaint states:
CW-1 reported that he was "trained to manipulate" sales of DirecTV Now when customers activated new mobile phones. According to CW-1, when a wireless customer had to enter the store to get a new phone, the customer traditionally had to pay an activation fee to upgrade their phones. Following the launch of DirecTV Now, CW-1 and his colleagues were taught to convert the activation fee into up to three subscriptions to DirecTV Now and waived the hidden fee.
CW-1 and other sales reps told customers that there was a $ 35 Activation Fee and that their purchase followed one to three months of DirecTV Now for free, the complaint states. CW-1 and other AT&T employees "would then waive the activation fee on AT&T's system, but would not tell the customer that they did so. Instead, CW-1 and his colleagues would charge the activation fee to the customer, but use that money to DirecTV Now subscription. "
The complaint continues:
CW-1 added that when DirecTV Now ran a campaign, sales reps were taught to create up to three accounts with that $ 35 activation fee, and would do so using "fake" email accounts for extra accounts, and "deceiving" the customer's credit card for each account. CW-1 added that AT & T's system was designed to allow this and did not require email accounts to be verified, allowing store personnel to "put any" email address in their systems and run the same credit card for multiple accounts.  CW-1 further informed that when the estimated trial period was over, he and his colleagues should manually cancel the subscriptions so that the customer would not be charged. CW-1 explained that they would do this through a back end system, without the customer ever knowing it. CW-1 added that they would keep a "log" detailing the customer's information, the fake email addresses and the date they needed to cancel. According to CW-1, the log was kept on the notepad feature of an iPad so that he could manually log in and cancel the accounts. CW-1 added that sometimes customers would continue to be charged on their credit cards without their knowledge, but most times CW-1 and his colleagues would go into the accounts and cancel them manually to remove the repeated charge.
CW -1 stated that this practice began in 2017 and "that he and his colleagues were able to get subscriber growth & # 39; explode & # 39; using these sales tactics," the complaint states. Each seller originally got a target of 8 to 10 new DirecTV accounts each month, but that "quickly increased to 20-30 new accounts per sales rep, each month," the complaint states.
CW-1 further claimed "he heard from AT&T staff from both the west and east coasts of the United States that they had been asked to create fake accounts in the same way he had," the complaint says.
Same tactics reported in other states  Other confidential witnesses told similar stories, according to the complaint.
CW-2, who worked for AT&T as a senior sales consultant in Michigan, "said that they would try to set up DirecTV now, but it was very difficult" and that sometimes the customer would say they didn't want the product , but they will continue to add it to the account anyway without telling them, "the complaint said.
CW-5, New Jersey retailer AT&T stores, reported that "in December 2017, a Big E Manager sat him down and explained that management followed a certain sales area to get customers to sign up for DirecTV Now, even if the customer did not understand what they were registering for, it is stated in the lawsuit. "CW-5 explained that this includes telling the customer that they were charged for one thing, but in reality allocating this cost in the system to DirecTV Now."
Alleged false statements to investors
The lawsuit shows what it calls many "false and misleading statements and omissions" in statements to investors between September 2016 and September 2018. With these false and misleading statements, AT&T "created an impression of a situation related to DirecTV Now that differed materially from the one that actually existed, "the complaint said.
For example, AT&T continued to hint at the anticipated success of DirecTV Now throughout most of 2018 , even after "AT&T conducted an internal investigation into fake sales practices and DirecTV Now that found widespread fraudulent account creation by AT&T employees," the complaint states. In September 2018, Stephenson told investors that "the customer base for [DirecTV Now] has been very resistant to price developments as we introduced new functionality in the platform, cloud DVR and more streams."
AT&T finally began to reveal the truth about DirecTV Now's appearance in October 2018, the lawsuit states. It was then that AT&T "announced a dramatic rollback in the DirecTV Now business that they claimed was the result of a decision to" rationalize "the pricing of the product," the complaint states. Further disclosures allegedly made it clear that "AT&T had engaged in aggressive marketing activity and brought together a massive group of highly marketed customers who all but insured DirecTV Now would not be profitable."
The new findings and disclosures "partially revealed the falsity of AT & T's previous statements about DirecTV Now and constituted a materialization of previously hidden risks regarding DirecTV Now," the complaint states.
Despite these disclosures, Stephenson told investors in December 2018 that the service had 2 million customers, the complaint states. But DirecTV Now had not actually reached 2 million customers, since it lost 267,000 customers in Q4 2018 after reaching a peak of 1.86 million, the complaint says.
"The defendant conveyed to the market that DirecTV Now continued to grow while the opposite was true," the complaint states.