In order to offer better prices to customers, Sprint has allegedly under-collected and underpaid New York State sales taxes by $100 million. If the Attorney General’s allegations are true, Sprint could end up owing the state government as much as $300 million or more due to underpayment penalties. Sprint is denying the charges, claiming they’ve paid all taxes as legally required to do so.

The Attorney General, Eric Schneiderman, recognizes that if the suit is successful and Sprint must pay the penalty, it would be difficult for customers to escape the downstream effects. Just like any business, if Sprint is faced with an unplanned expense, they’ll need to come up with the difference elsewhere. That’s where customers who pay for services can help. Schneiderman says he wants the company, not the customers, to cover the cost of paying the back taxes.

That money is going to have to come from somewhere, however, and it’s not going to come from a reduction in executive salaries. While the Attorney General might have good intentions and companies should not be able to get away with deliberately and knowingly cheating on tax reporting, collection, and payment, I don’t see any way where the “company” can be penalized without hurting customers, shareholders, and employees.

Shareholders are already hurting; as of writing this article, the stock price is already down more than 4 percent. $300 million is a significant expense, even for a company that earned a revenue of $33.7 billion last year. The company actually didn’t profit on paper in 2011, and that certainly makes a $300 million fine sting more.

If a company over-collected and overpaid taxes, customers would be calling for refunds. A class action lawsuit would demand restitution. In this hypothetical situation as well as the actual lawsuit Sprint faces for underpayment, the set of customers is the unintentional third party of fraud. In both cases, the customer ends up suffering in the long run. Class action lawsuits barely benefit customers. The lawyers seem to do well, though.

In Sprint’s statement, the company claims they’re protecting their customers:

… [W]ith this lawsuit, the attorney-general’s office is claiming New York consumers, who already pay some of the highest wireless taxes in the country, should pay even more. We intend to stand up for New York consumers’ rights and fight this suit.

I find it hard to believe that any for-profit company has any interest in “standing up for consumers’ rights.” If Sprint doesn’t like the tax laws, they should do what all companies do: lobby for tax law changes that benefit them more. Of course, that wouldn’t work, because then Verizon Wireless and AT&T could also benefit from lower taxes. If the allegations are true, the company’s actions have nothing to do with Sprint’s defense of lower taxes for consumers. It’s about using any tactic possible, even illegal, to fight in a competitive market.

Give me a break. Does anyone really believe corporate marketing-speak?

Are you a Sprint customer? If so, did you choose Sprint due to their lower monthly service fees? Would you remain a customer if the fees increased — a likely result of this lawsuit, whether successful or not?

Financial Times

{ 4 comments }

Simplification is usually a good choice for finances whenever it is available, and the bulky wallet is due for a technological upgrade, simplifying back pockets of men’s jeans everywhere. I’ve received the occasional comment about my “George Costanza” wallet; as I collect receipts from my day-to-day transactions, the leather becomes increasingly distended. Google’s first in the United States on the train towards eliminating this particular bulge and lightening the load for those who carry cards and money in bags. In fact, Google re-purposed a clip from Seinfeld to tease the public about this forthcoming technology.

In Europe, this technology already exists, even if it isn’t ubiquitous yet: your mobile phone will be able to function as a payment mechanism with merchants who accept credit cards. New mobile phones will include a chip that securely transmits a credit card number of choice to a cashier’s receiver. Just like the PayPass or other credit card technologies that allow you to wave your plastic like a Jedi to pay for your groceries, cell phones carrying digital wallet applications will theoretically take the place of your bulky, card-filled wallet.

Despite strong marketing from Google and other companies getting ready to launch digital wallet services, there are still some barriers to this technology.

• Most phones do not contain the NFC (near-field communication) chip that makes secure wireless communication between the phone and a retailer’s receiver possible. In fact, the Google Nexus S is the only phone in the United States that contains this technology as of today.
• The Google Nexus S is only available on Sprint. Consumers who want to take advantage of this technology right away would need to leave Verizon Wireless or AT&T.
• Not all credit card companies are on board. Google Wallet is launching with help from Citi and MasterCard. Visa, American Express, and Discover will operate with slightly different technologies. They’ve made the details available to programmers, though, and the issuers may be included in future versions of Google Wallet, or they will sponsor their own, competing applications.
• Many people are still skeptical of security. I’ve often maintained that secure digital communication is more secure than handing your credit card to a waiter who disappears for five minutes, but there is a mistrust of credit card databases stored by financial companies. In order to use technology like this, you provide your credit card information to yet another third party.
• With more of your financial information in the hands of others, you are open for more and better-targeted advertisements and unsolicited offers. Using a digital wallet will certainly require your agreement with a document outlining terms of use, and that document will undoubtedly reduce your rights to privacy. Your credit cards know where you spend your money and how much. Do you also want Google to know?
• This service may replace your cash and credit cards, but that’s only part of your wallet. You may use your wallet to hold your identification and driver’s license, your health insurance identification card, your roadside assistance card, your mass transportation access card, your office security key, and your casino player’s club card, just to name a few. Some of these may be supported by Google Wallet and similar applications in the future, but some won’t.
• Until all merchants accept wireless transactions, you’ll still need to carry your credit and debit cards. In fact, even if a merchant accepts NFC payments, if the technology is a little old, it won’t accept payments from cell phones.
• My cell phone’s battery is generally dead by the end of the day. Without a wallet and without a back-up battery, how will you pay for an item with a phone that won’t turn on?

If you’re an early adopter of technology, feel free to jump on the bandwagon. Google Wallet is not quite ready for mass consumption.

{ 7 comments }

Earlier this year, AT&T announced its plans to acquire T-Mobile, a plan that would change the landscape of wireless service in the United States and pave the way for an industry dominated by two large players: the new AT&T and Verizon Wireless. Today, the U.S. Justice Department stepped in, issuing a complaint to block the acquisition.

T-Mobile is currently a lower-cost option for wireless service, and the acquisition would most likely result in less competition and higher prices. Earlier this year, the Department of Justice blocked a merger between H&R Block and TaxAct, and the move was questioned when deals like the one between AT&T and T-Mobile were allowed to continue. As we can see now, the government is attempting to take the anti-duopoly approach across industries.

The Comcast acquisition of NBC was a different type of acquisition, and the Department of Justice did not seek to block it. The unified company can now control media from their creation to delivery, and this type of vertical integration seems to not be seen as anti-competitive, even though it could result in increased cost for the consumer and content exclusivity where none existed before. Deals like the one between AT&T and T-Mobile or between H&R Block and TaxAct take a marketplace and offer the consumer fewer choices.

Sprint, the distant fourth player in wireless, lobbied the Department of Justice to block the merger. While the block may be in the best interest of consumers, it’s definitely in the best interest of Sprint, likely to be pushed out of the market after the proposed acquisition. If the shoe were on the other foot, and AT&T were to buy Sprint, T-Mobile would be the company seeking to block the deal on behalf of consumers.

Consolidations and acquisitions can be good for the economy when there are major inefficiencies. Capitalists, for the most part, don’t want the government stepping in to block he progress of business and the growth of corporate empires. In theory, if one company gets so large that the consumer is left with poor choices, the market will eventually correct itself with new players willing to meet the neglected needs of the consumer. But when the cost of becoming a large enough presence in a market dominated by one or two companies is prohibitive, as it most likely is for offering cellular service due to the necessary infrastructure, blocking an acquisition might be a better solution than waiting a decade, a generation, or more for new competitors to re-shape the consumer landscape.

In its own words, the Department of Justice explains the decision:

The Department filed its lawsuit because we believe the combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower quality products for their mobile wireless services.

Consumers across the country, including those in rural areas and those with lower incomes, have benefitted from competition among the nation’s wireless carriers, particularly the four remaining national carriers. This lawsuit seeks to ensure that everyone can continue to reap the benefits of that competition.

This isn’t the only acquisition of concern recently; Capital One was the winning bidder for ING Direct. Although the deal would make Capital One “only” the sixth largest bank in the United States when measured by deposits, the government and regulators are not taking this deal lightly, seeking more comments from the public.

Do you think the Department of Justice should block the AT&T acquisition of T-Mobile?

Photo: whiteafrican
Department of Justice

{ 11 comments }