AT&T – Unsustainable Business Practices

Blog Post Authors: Ho Yin Cheung (hcheung@sfmslaw.com); Nicolas A. Lussier (nlussier@sfmslaw.com )

Investors in AT&T opposed a motion to dismiss their complaint on January 17, 2020. In their opposition brief, plaintiffs defended their complaint against the telecommunications giant, stating that they were “painstakingly” specific in their allegations that AT&T misrepresented the volume of subscriptions to its “DirecTV Now,” on-demand television service to investors and shareholders between 2016 and 2018.  The opposition brief also responded to AT&T’s argument that investors indiscriminately claimed, in their complaint, that the company had made misleading statements.

The complaint, involving more than a dozen confidential witnesses (including several involved in the scheme itself), describes a practice within AT&T of artificially inflating the reported number of paying subscribers to DirecTV Now.  Specific acts alleged in the complaint include “sneakily running the customers’ credit card without their knowledge” in order to create fake DirecTV Now accounts, as well as the use of unsustainable business practices (such as heavily discounted products and product giveaways) in order to prop up the number of subscribers.

Plaintiffs’ complaint further states that, due to such unsustainable business practices, as many as 65% of DirecTV Now promotional subscribers would cancel their service before becoming fully paying users of the service.  Plaintiffs assert that this issue of subscriber turnover was concealed from investors in order for AT&T to justify representations indicating the platform was profitable and gaining subscribers.

In its announcement of financial results for the third quarter of 2018, AT&T leadership reported net additions of 49,000 new subscribers to DirecTV Now, a significant decrease from prior quarters.  Immediately following the announcement, the price of AT&T stock fell 8% and continued to drop as more negative information about DirecTV Now’s sales techniques became public.

In their motion to dismiss plaintiffs’ complaint filed in November, 2019, the AT&T defendants asserted that plaintiffs had employed a “kitchen-sink approach” in their complaint by claiming that virtually every statement made to investors by AT&T was misleading.  To this end, the investor plaintiffs replied in January, 2020 that their allegations are “painstakingly specific” and describe the “exact tactics” used to maintain subscriber growth figures between 2016 and 2018.

The case is before U.S. District Judge Valerie E. Caproni in the Southern District of New York.

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