The past year has been rough for Sprint (NYSE:S). While the company does have a promising new CEO in Marcelo Claure, who looks like he might be able to reverse the company's fortunes, the No. 3 wireless carrier has little else to cheer in 2014.
This was a year in which Sprint saw a deal to merge with T-Mobile(NASDAQ:TMUS) fall apart. The company also added four more quarters to its streak of 11 during which it lost subscribers. The company heavily promoted its much-maligned "Framily" plan, which Claure eliminated almost as soon as he took office in August.
While Claure's decisive actions have created some enthusiasm for the company's future, Sprint still has one more hurdle to face before 2014 ends. The Federal Communications Commission looks set to hit the carrier with a $105 million fine for "cramming," the practice of placing unauthorized charges on customers' cell-phone bills, according to a Reuters report. The penalty would be the largest fine ever levied by the FCC, and it would equal the size of a settlement paid by AT&T in October to settle similar charges with the FCC and Federal Trade Commission.
What the FCC is charging
The FCC believes Sprint billed customers for services including horoscopes, text message alerts, sports scores, ring tones, and other unwanted add-ons that customers did not authorize, The Wall Street Journal reported. The paper cited an anonymous source within the federal agency:
According to the official, the FCC's probe focused on a three-month window from August to October 2013, during which they said Sprint received almost 35,000 complaints from consumers about the unwanted charges. The FCC alleges Sprint's actions were a willful violation.
To fine Sprint, the FCC needs a majority of its five commissioners, and three have already indicated they support the fine, according to the paper. If the fine is approved, the money would be doled out to consumers based on how much each account was overcharged.
It's not just Sprint and AT&T
In addition to the Sprint and AT&T cases, the FTC is also suing T-Mobile over cramming, but the company is fighting the charges aggressively and released a statement on its website declaring innocence:
We have seen the complaint filed today by the FTC and find it to be unfounded and without merit. In fact, T-Mobile stopped billing for these Premium SMS services last year and launched a proactive program to provide full refunds for any customer that feels that they were charged for something they did not want. T-Mobile is fighting harder than any of the carriers to change the way the wireless industry operates, and we are disappointed that the FTC has chosen to file this action against the most pro-consumer company in the industry -- rather than the real bad actors.
Sprint has not made any effort to declare its innocence, and the company turned down requests from multiple news organizations to comment on the charges.
What this means for Sprint?
With Sprint and T-Mobile locked in a struggle to win customers from industry leaders, AT&T and Verizon, this bad publicity and the resulting fine will likely hurt Sprint's reputation with consumers, even though the alleged cramming occurred under the previous CEO. Though T-Mobile faces similar charges, the company's strong denial and pro-consumer moves it has made with the Un-carrier campaign make it more likely for the public to overlook any possible wrongdoing.
This is not a death blow for Sprint, but it's a stumbling block for Claure as he attempts to change how people see the company. This will make luring in new customers just a little more difficult. Claure may be leading a new Sprint, but this fine will have consumers thinking "just another sleazy wireless company," and that will be a tough reputation to shake.
Daniel Kline owns shares of Apple. He is a Sprint customer who has never noticed any extra charges on his bill of the type detailed above. The Motley Fool recommends Apple and Verizon Communications,. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.