AT&T faked the numbers for its DirecTV Now streaming service ahead of the company’s Time Warner merger, according to a lawsuit filed by investors, Bloomberg reported. The suit alleges the media giant pressured employees to boost DirecTV Now’s numbers by secretly adding the product to existing customers’ accounts. It also claims the company touted DirecTV Now’s user growth, when in reality, subscribers were leaving as their promotional periods ended and the service’s price hikes were limiting new sign-ups.
The suit says a variety of tactics were used to promote the idea that DirecTV Now was growing organically. For example, it claims that employees were taught how and encouraged to convert activation fees that customers typically had to pay to upgrade their phones into DirecTV Now subscriptions. This involved the customer being told the fee was being “waived,” when instead the customer was charged anyway and the payment was applied to up to 3 DirecTV Now accounts using fake emails.
One former employee even said that around 40%-50% of customers he dealt with in early 2017 were complaining about being charged for DirecTV Now, which they had never signed up for. This was supported by other employees, the suit cites, and was a directive that came top from upper management to the sales channel.
In addition, the suit speaks to overly aggressive sales quotas, high churn from deeply discounted promotions, technical issues, and unsustainable pricing. It noted how AT&T finally disclosed that by the end of 2018, none of the 500,000 heavily discounted DirecTV Now subscribers remained on the service, and subscriptions had dropped by 267,000 as a result. In April 2019, it reported another 83,000 subscribers had left the service, and in July, 168,000 had abandoned it.
But ahead of the Time Warner merger, AT&T touted the service’s success, the suit said. It didn’t disclose any of the risks associated with DirecTV Now, despite SEC obligations. The plaintiffs believe AT&T should have noted what made its stock risky, including the fact that DirecTV Now was not profitable, its growth had been dependent on aggressive promotions, and it faced severe technical challenges.
“By buying AT&T’s securities at these artificially inflated and artificially maintained prices, the Class members suffered economic losses, which losses were a direct and proximate result of Defendants’ fraudulent conduct,” the suit states.
“We plan to fight these baseless claims in court,” an AT&T spokesperson said in a statement.
DirecTV Now had a rough start to begin with, having suffered heavily from glitches, including freezing, buffering, and more. While that can happen at first with new streaming services, AT&T’s glitches were bad enough that many wanted to cancel.
TechCrunch reported in 2017 how customers complained they weren’t able to get refunds from AT&T, even though they weren’t able to use the service as promised. Some had even filed complaints with the FCC, we found. In January, we also noted how the service’s price hikes and promotional packages ending led to a sizable loss of subscribers and that AT&T was “losing the cord cutters.”
The filing of the lawsuit comes at a time where AT&T has seen much upheaval. This month, activist investor Elliott Management Corp. disclosed its $3.2 billion stake in AT&T and criticized the company’s acquisition strategy. It also suggested that AT&T should sell some assets that don’t fit its future direction, like the DirecTV satellite service and Mexican wireless business. AT&T CEO Randall Stephenson defended the company’s $85 billion acquisition of Time Warner today, in response to this criticism.
The full complaint is below.