Federal regulators are accusing DirecTV of misleading consumers about the cost of its satellite TV service.
According to the lawsuit filed by the Federal Trade Commission on Wednesday, DirecTV advertised a discounted package of TV channels for "12 months," leading many consumers to assume they were signing a 12-month contract. But in fact, the package required a two-year contract—it was only the discounted rate that lasted for 12 months, the FTC said. Prices jumped as much as an extra $45 per month in the second year, and consumers faced early-cancellation fees of up to $480, according to the lawsuit.
Those details were often buried in fine print or obscured by other text in the ads, according to the federal charges.
Additionally, the FTC claims that DirecTV tricked consumers into paying for premium channels such as HBO and Showtime. The satellite TV company offered the channels "free for 3 months," but failed to adequately disclose that it would automatically begin billing customers for the channels after the trial period ended, according to the commission.
"DirecTV misled consumers about the cost of its satellite television services and cancellation fees," FTC Chairwoman Edith Ramirez said in a statement. "DirecTV sought to lock customers into longer and more expensive contracts and premium packages that were not adequately disclosed. It's a bedrock principle that the key terms of an offer to a consumer must be clear and conspicuous, not hidden in fine print."
DirecTV is denying any wrongdoing and is vowing to fight the charges in court.
"The FTC's decision is flat-out wrong, and we will vigorously defend ourselves, for as long as it takes," the company said in a statement. "We go above and beyond to ensure that every new customer receives all the information they need, multiple times, to make informed and intelligent decisions. For us to do anything less just doesn't make sense."
The FTC is asking a federal court to order DirecTV to stop running the allegedly misleading ads and to force the company to provide refunds to consumers. Those refunds could amount to "many millions of dollars," according to the FTC.
Consumer advocacy groups are applauding the FTC for going after the nation's largest satellite TV company.
"You can just imagine the TV ad: 'I'm Rob Lowe, and here's the price you'll pay for DirecTV. And I'm Hidden-in-the-Fine-Print Rob Lowe, and we're actually going to jack up your bill,'" said Delara Derakhshani, the policy counsel for Consumers Union, the advocacy arm of Consumer Reports.
It's bad timing for DirecTV to clash with federal regulators because it is also asking the government to approve its $48.5 billion merger with AT&T.
But Paul de Sa, a senior analyst for Sanford C. Bernstein, predicted that the FTC crackdown is unlikely to influence the outcome of the deal with AT&T, which is under review by the Federal Communications Commission and the Justice Department.
"Presumably whatever settlement or outcome that is reached with the FTC will be sufficient without the need for a condition backstop, and I doubt it matters for the antitrust review," de Sa explained.
—This article has been updated with comments from DirecTV and Consumers Union.