Telstra Corporation Ltd (ASX:TLS) pays the penalty for misleading customers

The market may be on course for a strong finish to the week but the Telstra Corporation Ltd (ASX: TLS) share price has missed out on the gains today.

In late afternoon trade the telco giant’s shares are flat at $3.19.

Why are Telstra’s shares underperforming today?

Investors appear to have cooled on Telstra today after the ACCC revealed that the company has refunded customers that were misled by its Premium Direct Billing’ (PDB) third-party billing service.

According to the release, Telstra has refunded a total of $9.3 million to the 72,000 customers it misled.

This is on top of the $10 million penalty that the Federal Court ordered Telstra to pay in April for making false or misleading representations about charges for digital content, such as games and ringtones.

ACCC chair Rod Sims stated: “We are pleased to see so many customers refunded by Telstra. It’s clear a large number were charged for content like ringtones and wallpapers that they did not want, did not use, and had difficulty unsubscribing from.”

Before adding that: “Following our action, Telstra has paid close to $20 million in penalties and refunds. This should serve as a warning to all telecommunication providers that misleading and deceiving customers will result in serious consequences.”

He also warned that the ACCC is conducting a detailed investigation into the third-party billing services of other carriers and that further enforcement action could follow.

Incidentally, the shares of peers Amaysim Australia Ltd (ASX: AYS), TPG Telecom Ltd (ASX: TPM), and Vocus Group Ltd (ASX: VOC) are also underperforming today and have sunk into the red.

Should you buy Telstra’s shares?

Overall, I feel this penalty is immaterial and shouldn’t influence your investment decision too much.

However, while I expect that the TPG-Vodafone Australia merger will lead to improved trading conditions, I still plan to hold off an investment in Telstra until it has provided an update on its dividend plans for FY 2019.

My concern is that a sharper than expected cut to its dividend could lead to its shares dropping notably lower.

As a result, instead of Telstra I would recommend investors check out this top dividend share in FY 2019.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited, TPG Telecom Limited, and Vocus Communications Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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