Lawsuit against AT&T couldn't have come at worse time

Allegations that carrier cheats iPhone, iPad owners arrive on eve of Verizon iPhone debut


So you're an AT&T customer with an iPhone and you're deciding whether to switch to Verizon. Or maybe you plan to buy an iPhone, but can't decide which wireless carrier to go with.

(Also see: Is the Verizon iPhone deal a disaster for AT&T?)

Then, just nine days before Verizon Wireless becomes only the second U.S. carrier to sell Apple's wildly popular smartphone, you read this:

AT&T has "systematically" overcharged iPhone and iPad owners with capped data plans by inflating the amount of data they download and adding "phantom traffic," a lawsuit claimed last week.

The complaint, filed by Patrick Hendricks in federal court in California, claims that a "significant portion" of AT&T's $1.1 billion of wireless revenue gains last quarter came from the bogus charges and overbilling.

Citing evidence obtained by a consulting firm hired by Hendricks' attorneys, the lawsuit said that AT&T regularly overstates incoming data between 7% and 14%, and in some cases by as much as 300%.

A couple of things here. First, the obvious: These still are only allegations in a lawsuit, so the court system has yet to determine whether they're true. For its part, AT&T vows to "vigorously" fight the suit. (Good thing, because those "tepid" defenses rarely persuade a judge or jury.)

Secondly, it's not as if Verizon has a sterling reputation. Last October, the Federal Communications Commission levied a $25 million fine against Verizon -- the largest such penalty ever -- for charging "mystery fees" to 15 million of its customers over three years.

Of course, timing's the thing here, and the AT&T lawsuit is in the news on the eve of the iPhone's Feb. 10 debut in Verizon stores. AT&T already expects to lose iPhone customers to Verizon. The big question is how many. I've seen estimates that from 3 million to 3.5 million AT&T iPhone users will defect this year. I also recall a survey last fall from Deloitte suggesting that nearly half of all iPhone subscribers would switch to Verizon if given an opportunity.

This lawsuit, assuming it penetrates the public consciousness, is likely to sway fence-sitters. And I think it's fair to assume a reasonably large portion of the iPhone-shopping market will at least have heard of the lawsuit, because when you're trying to make an important consumer decision (like which carrier to lock into a 2-year contract with), you spend some time online doing research. AT&T's not Egypt; it can't just shut down the Internet, so people are going to read about these allegations. (Like you people now.)

Finally, here's a line from the complaint that you won't see in an AT&T ad:

"AT&T's billing system for iPhone and iPad data transactions is like a rigged gas pump that charges for a full gallon when it pumps only nine-tenths of a gallon into your car's tank."

In fact, you probably won't see it in a Verizon ad, tempting as it might be to "have fun with it." Glass houses and all that.

Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.

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