MANHATTAN (CN) - Major cellphone carriers conspired to set up a system under which entities that send a high volume of text messages must lease expensive five-digit phone numbers and pay exorbitant transmission, connectivity and content review fees, generating an extra $2.3 billion a year for the conspirators, a marketing company claims in a federal class action.
Lead plaintiff Club Texting claims Verizon Wireless, AT&T, Sprint Nextel and other major cell phone companies monopolized the application-to-person text message market and derived "supra-competitive profits from their conspiracy."
Application-to-person text messages are messages sent by businesses, nonprofits and other organizations to customers, contributors and subscribers, usually at high volume.
Club Texting claims the defendants "conspired to set up a system in 2003 under which persons transmitting A2P SMS [application-to-person short message service] could not use inexpensive ten-digit telephone numbers, but were forced to use 'common short codes' ('CSCs') - five-digit (and later six-digit) numbers - at materially higher lease and transmission charges with additional fees for connectivity and content review, all of which resulted in substantial overcharges to persons transmitting A2P SMS ('CSC lessees') and materially higher revenues for the carrier defendants and other defendants." (Parentheses, but not brackets, in complaint).
New York-based Club Texting provides a platform for marketing services via text messaging. It claims it leased nine such "short codes" from the defendants and paid supracompetitive fees to reach the defendants' customers by text message.
"The carrier defendants used their control of defendant CTIA - The Wireless Association (the 'CTIA'), the trade association to which the vast majority of the carriers in the United States belong, to cause the CTIA to issue guidelines and rules calling for the use of five-digit (and later six-digit) CSCs for transmission of A2P SMS, inhibiting the use of standard ten-digit numbers for transmission of A2P SMS, and imposing volume limits on text messages sent from ten-digit numbers," (7) the complaint states.
Club Texting says the carriers used CTIA, which they control financially, to establish Neustar, the only entity that can issue short codes, and to force consumers to send high-volume messages through a limited number of affiliates called "connection aggregators," so they can charge senders unnecessary fees at various levels.
It claims cell carriers used Neustar and their co-conspirators to control per-message transmission prices and to block text messages sent from lower-priced 10-digit phone numbers.
And it claims the defendants audit the content of application-to-person text messages and, without explanation, block message senders when the content is deemed to be noncompliant, forcing senders to reserve and pay for new short code numbers.
"The establishment of the CSC system, which generates approximately $2.3 billion in revenues annually and continues to this day, has permitted the defendants and co-conspirator Neustar to jointly control and anti-competitively exploit the transmission of A2P SMS and to eliminate the lower-priced ten-digit telephone number alternative for use in A2P SMS transmission," the complaint states.
Club Texting claims that Neustar, which pays millions of dollars in royalties to cellphone carriers, charges $500 a month for randomly selected short codes, and $1,000 a month for those selected by the lessee, in contrast to the $1 or less per month charged for rental of a 10-digit code.
"Neustar has generated approximately $15 million in the last year from the leasing of random CSCs and $20 million from the leasing of specific CSCs, a portion of which profits it has remitted in royalties to the CTIA," the complaint states.
"Neustar's revenues from CSCs have increased by millions every year for the last five years as a result of increases in the number of registered CSCs."
Club Texting claims the carriers charge additional fees for content reviews, which can cost as much as $2,700 per program brief, without guaranteeing transmission of the message content.
It claims their affiliates, the "connection aggregators," charge unnecessary connectivity fees and high per-message fees, which they split with the carriers.
And it claims the rates are arbitrary, cannot be negotiated and have not changed since 2003.
Club Texting seeks class certification, treble damages for violations of the Sherman Act and wants the monopoly stopped.
It is represented by Gregory Arenson with Kaplan Fox & Kilsheimer.
Named as defendants are Cellco Partnership dba Verizon Wireless, AT&T Mobility, Sprint Nextel Corporation, T-Mobile USA, U.S. Cellular Corporation, CTIA - The Wireless Association, connection aggregators ClearSky Mobile Media, Ericsson IPX, MBlox Incorporated, Syabase, Soundbite Communications, Syniverse Technologies, Upoc Networks, Vibes Media, 3Cinteractive, and content auditor WMC Global.
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