Sprint Nextel Corp. will pay $30 million to settle a class action lawsuit accusing it and AT&T Corp. of overcharging customers for assessments that help pay for subsidized phone services.
A U.S. district judge has given preliminary approval to the settlement and has scheduled a March 3rd hearing on whether to give it final approval. Under the settlement, qualified business and residential customers will receive prepaid telephone calling cards with a face value of $25 million.
The five-year-old antitrust case comprises dozens of class action lawsuits that were filed nationwide and eventually consolidated in federal court in Kansas City, Kansas. The lawsuits alleged that Sprint and AT&T conspired with each other and their chief competitor at the time, MCI, to overcharge customers by passing on more than 100% of the Universal Service Fund (USF) fee to business and residential customers.
The USF was set up by Congress through legislation to help cover the cost of getting service to high-cost rural areas, low-income customers, schools, libraries, and rural medical facilities. Carriers that provide interstate or international service are required to contribute to the fund. The "contribution factor" – a percentage of gross revenue from interstate or international calls – is set by the Federal Communications Commission.
Although carriers aren't required to pass the assessment along to customers, most do. Sprint described the surcharge on bills as a "Federal Universal Service Fee" or "Carrier Universal Service Charge."
AT&T described it as a "Universal Connectivity Charge." The settlement ends the litigation against Sprint only. The litigation is continuing against AT&T, which, because of its larger market share, faces greater exposure than Sprint. Those eligible to receive benefits under the Sprint settlement include long-distance customers who paid Universal Service Fund charges from and after August 1, 2001.
The settlement affects all Sprint long-distance residential and business customers, all MCI long-distance business customers, all AT&T long-distance business customers, and AT&T long-distance residential customers in California only.
AT&T and MCI customers are included because liability in antitrust actions is "joint and several," meaning that any one company can be held liable for the damages owed by all the companies in a case and vice versa.
Sprint and MCI customers will be eligible to participate in any settlement reached by AT&T with the plaintiffs. Eligible customers who paid the USF overcharges at any time between August 1, 2001, and March 31, 2003, will get prepaid phone cards with nominal face values of $50. Eligible customers who paid the overcharges after March 31, 2003, will get cards with nominal face values of $20. The cards are to be priced at per-minute rates no higher than Sprint's best commercial rates for those denominations.
The settlement was reached just days before the same federal judge approved a $57 million settlement in another class action lawsuit against Sprint alleging the company engaged in age discrimination when, during a round of layoffs a few years ago, it targeted workers 40 years of age and older.
The settlement also comes after Sprint disclosed in a regulatory filing a few weeks earlier that it had agreed to settle yet another class action lawsuit. That one was over the recombination of its tracking stocks in 2004.