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How AT&T and T-Mobile may be overbilling their prepaid customers

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Federal regulators may have approved AT&T's bid on Thursday to merge with California-based Leap Wireless, a.k.a. Cricket — a deal that will add 5 million customers to AT&T's rolls. But fans of Cricket's service may have a reason to be wary of their new corporate overlords.

That's because prepaid customers on AT&T are routinely being billed extra for minutes they don't appear to be using. If true, that means their available credit is being drained at unexpected rates — often without their knowledge — requiring that they buy more credit, more often. Critics allege the practice amounts to a subtle program of consumer fraud that, in the aggregate, delivers big bucks to wireless carriers.

According to the Switch's hardware tests, as well as a formal complaint lodged with federal regulators, wireless companies are reporting longer call times than what a customer's device will show. In the case of one AT&T subscriber, the network added as many as 33 seconds to his call after he hung up, allowing AT&T to bill him for an additional minute of usage. The Switch's tests also turned up a similar phenomenon with T-Mobile's prepaid phones.

Wireless operators generally charge customers a full minute's worth of airtime for every fraction of a minute used. That's uncontroversial. For example, a call that lasts for 1 minute and 10 seconds will be treated as 2 minutes. But it now appears that even calls that end before a minute is up are also getting treated as two-minute calls. Device testing shows the same holds true no matter how long you talk. One call that I made using an AT&T Go Phone should have been billed at two minutes. Instead, the account was charged for three.

It's unclear how widespread the practice is. Nor does it take place with every call. But even an occasional occurrence might have outsized effects. At the end of 2013, AT&T had 7.4 million prepaid customers. T-Mobile claimed 15.1 million. If each of those customers experienced the accounting problem just once per year, it would amount to $740,000 in annual revenue for AT&T. In T-Mobile's case, that figure would balloon to nearly $5 million.

'A pattern of abuse'

Last March, Georgia-based AT&T subscriber William Fogal noticed a discrepancy between the call records reported by his prepaid phone and the usage history reported by AT&T on its Web site. In a filing to the Federal Communications Commission, Fogal alleged that he was being overcharged by AT&T for his airtime. As an example, he cited one 29-second call he made on March 4, 2013. Fogal included a photo of the record on his phone.

Fogal then matched that call record to what was displayed on AT&T's Web site. Where he expected the call time to read "29 seconds," it read "1 minute and 2 seconds" instead. And rather than being charged $0.10 for a single minute under AT&T's advertised rates, Fogal was charged double for two minutes.

In an e-mail to the Washington Post, Fogal called the two photos part of a "pattern of abuse" and "a massive consumer fraud designed by AT&T to steal money from their customers."

When reached by the Post, AT&T issued the following statement:

The time displayed on the phone does not necessarily reflect the actual start and end periods recorded for the time charged to the customer. A call’s time begins when you press the send button. And, a call’s time ends after you press the end button and your phone’s signal to disconnect is received by the network and the call disconnect signal is confirmed.

Additionally, AT&T added that accessing voicemail and transferring calls could also add to "chargeable time."

Further testing

I decided to test Fogal's claims myself. Over the course of several weeks, I purchased prepaid phones from AT&T, T-Mobile and Verizon — the three national carriers that charge prepaid users by the minute. (Sprint does not, asking customers to pay upfront for a pool of minutes that then gets used up over time.)

Each device came with some starter credit. I began with AT&T, setting my own phone beside the prepaid phone. Then I dialed my own number. It didn't take more than a second for my non-prepaid phone to start ringing. I picked up the call, and watched as the timer counted the seconds. After some time, I hung up. The call terminated instantly on both ends, with no delay. Then I repeated the process as many as a dozen times for each phone, attempting to determine when I might be overcharged, if at all.

Not every test resulted in an overcharge. But I determined that calls lasting between 49 and 59 seconds would consistently be counted as two-minute calls by AT&T. In the image below, a 51-second call on the phone was recorded as 1 minute and 2 seconds, resulting in a $0.20 deduction from my account. AT&T's stated rate is $0.10 per minute, indicating I was billed for two minutes' worth of usage.

A longer call, which my phone recorded as 2 minutes and 53 seconds, was counted as 3 minutes and 3 seconds by AT&T's Web site — resulting in a charge for a four-minute call.

The overbilling was ongoing as recently as Monday, when I tested the phone again.

Even if we accept AT&T's argument that there's a delay between when I hit "send" and when the network detected the signal, and a similar delay when I hit "end," that was hardly my experience during the tests. A one-second delay might have been plausible. An 11-second delay is not, and it would have been noticeable on the phone that received the call. Yet when I ended the call from one phone, the line dropped dead instantly on the other. From where the consumer sits, it's hard to see how AT&T's "chargeable time" excuse holds up.

What's more, AT&T makes registering for its Web site optional. As you saw earlier, the Web site lays out in detail what AT&T says is your usage history. Some prepaid customers may not have Internet accounts from which they can check their online bill against their phone. And if that's the case, there may be customers out there who are getting charged extra without ever being the wiser.

AT&T actually deserves a great deal of credit (no pun intended) for having a Web site for prepaid customers at all. T-Mobile does not. To determine whether they're being charged accurately requires users to check their balance both before and after they make a call. Here's what that process looked like for me, in photos. (Unlike AT&T's $0.10 per minute, T-Mobile's prepaid rate is $0.33 per minute.)

As you can see, I started with $7.66 of credit. Next, as before, I placed a call to my iPhone. Here's the call record, which shows a 54-second call.

After hanging up, I checked the balance from my phone (no Web site, remember). My balance had dropped by $0.66, as though I had been on the phone for two minutes.

In response to my questions, T-Mobile offered a statement not unlike AT&T's:

T-Mobile’s ‘Pay As You Go’ prepaid options provide customers the added flexibility of managing costs and consumption more easily. Customer charges are based on total usage and deducted from their balance. Customers are charged $.33/per minute. If a customer exceeds (1) minute, they will automatically be charged for an additional minute. Total charges are calculated based on the total time of the call, including: set-up, call, and hang-up time. From a billing perspective, a customer is charged from the start of their transaction (hitting send) to the end of their transaction (hanging up), not just the actual talk time.

In my T-Mobile tests, however, I also failed to see any evidence that the "total time of the call" exceeded what the phone itself displayed. Any delays I did see weren't nearly long enough to account for the time added to my call.

So what's going on?

You may be wondering what happened to the Verizon phone. It turns out that Verizon did not behave the same way as AT&T and T-Mobile did (though as they say, your mileage may vary). Both the Verizon prepaid phone and the company's Web site reported the same amount of airtime used, no matter how close I got to 59 seconds in my calls.

This has a couple of implications. For starters, it undermines the idea that network latency — the kind that AT&T and T-Mobile say produces excess charges — is something we have to live with. Consumers should rightly expect networks to respond promptly to "send" and "end" signals, and Verizon appears to recognize that where the other two carriers do not.

Second, and to give AT&T and T-Mobile the benefit of the doubt, it could be an honest mistake or a technical limitation that's causing the addition of airtime. AT&T and T-Mobile do, in fact, share a common network technology: They're both GSM-based networks, whereas Verizon uses CDMA, a different technology. Whether GSM is the culprit here is unclear; I've got no evidence either way. It's just a theory.

Interviews with multiple telecom analysts, however, all elicited the same reaction: confusion.

"I haven't heard anything like this in the last 10, 20 years," said Jeff Kagan, an independent analyst. "Unfortunately, I'm stumped. I don't know what to tell you."

Kagan speculated that the prepaid network is timed differently from the postpaid network, or that the phones aren't synced to the network time. But, he added, "This is the first call I've gotten on this kind of thing. I'm just guessing."

What now?

Fogal says he's filed complaints with the Securities and Exchange Commission, the House Oversight Committee and even the California attorney general's office. (AT&T offered this response to the California AG.) He also filed a complaint in the FCC's AT&T/Leap Wireless proceeding, which obligated the commission to consider his allegations ahead of its approval of the merger. An FCC spokesman, Neil Grace, declined to comment Wednesday, citing the open proceeding.

Despite all that, Daniel Berninger — another telecom analyst and a former AT&T Bell Labs employee who helped design VoIP technologies — has a gloomy outlook for consumers who may be affected by the charges.

"In the prepaid world, they definitely try and find ways to rip you off," he said. "That includes gift cards, calling cards — it's a very dark world. At the same time, they can run you around in circles saying these are very complicated systems. And they'd be right."