Rring…rrrring. Gotcha!

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Sharyl Attkisson is an investigative correspondent for CBS News.
In four short years, the ringtone industry has emerged from nowhere and has become a billion-dollar market. And just as fast, scam artists found a way to tap into the line. That's what's behind a major settlement of a fraud investigation announced today by Florida attorney general Bill McCollum, and it will impact cell phone customers nationwide.

Here's how it works: customers are charged for ringtones, wallpaper, joke-of-the-day, you-name-it on their cell phone bills ... charges they never authorized and services they don't want. The charges aren't properly identified on the bill as to what they are or where they came from.

If a customer does study his bill closely enough to catch the bogus fee and call the phone company to inquire, too often he's told that he "must" have subscribed to the service, that the charges are monthly and will go on indefinitely, and there's really no way to stop it. This has happened to an estimated untold millions nationwide.

When investigators from Florida's Attorney General office began probing into thousands of complaints filed in that state, they followed the ringtone money trail and discovered it led all the way to the major cell phone companies such as AT&T and Verizon, which are profiting in the alleged schemes to the tune of up to 45 percent of the bogus charges. And that probably explains why so many customers say their phone company made it difficult or impossible to wipe the charges off their bills. Here's what the attorney general's office learned about how it all works.

You search for "free ringtones" through Google or similar search engines.

The search results include sites that advertise ringtones that are "100 percent free," "complimentary," etc. … with no disclaimers.

You click on the site and maybe are prompted to click onto other sites. Eventually, you are asked for your cell phone number so you can be sent the "free" ringtones.

Typing in the number unwittingly "subscribes" you to a monthly service that's next to impossible to stop. You don't know it unless you study your next phone bill and, even then, it's hard to identify because it's not labeled as to what it is.

Peeling back the layers of who's involved and how much money they make reveals a complex Web of participants. Here's a simplified version:

  • There's an advertiser who puts the ads on the Internet and convinces you, using deceptive practices, to type in your cell phone number.

  • Once they have your number, they give it to the ringtone provider which pays $12-$18 for the "lead."

  • The ringtone provider subscribes you to a "service," (new ringtones every month, etc.) usually charging $9.99-$19.99 a month.

  • The ringtone provider sends the information to a billing "aggregator," which tells the phone company, such as AT&T, to put the charge on your phone bill.

  • The phone company, the billing aggregator and the ringtone company split the profits.

  • The longer they can keep the charges on your phone bill, the money they make.
  • In the settlement announced today, AT&T Wireless (formerly Cingular) has agreed to change ITS billing practices nationwide. Those obscure charges will now be clearly labeled on your cell phone bill. If you call to complain, the charges will be removed. The company will also police and be responsible for misrepresentations in those Internet ads promising "free" ringtones. And in Florida, where the case originated, AT&T will refund customers who believe they've been cheated over the past three years. The Attorney General says that could amount to somewhere between $10 million and $45 million. That's just in Florida!

    Why haven't the FTC and FCC taken very public steps to stop all this? It's hard to say.

    But without aggressive action on the part of federal agencies, Florida's Attorney General stepped in and took the reins.

    AT&T isn't the only company that's gotten in trouble. According to investigators, the other major cell phone companies, ringtone providers and their advertisers use strikingly similar tactics. As one observer put it: it's as if they've all gotten together at a ringtone convention to share the tactics of the scheme. That's why the Florida Attorney General also announced today that investigations are beginning into Verizon, Sprint/Nextel, Alltell and T-Mobile. Look for those companies to quickly try to get the monkey off their back by making quick settlements and agreeing to follow AT&T's lead in changing their ways. For customers: it's all good. As far as restitution if you live outside of Florida or are using a company other than AT&T: try filing a complaint with not only your phone company but also the FCC online at fcc.gov.

    Because of the very nature of the scheme, investigators say you may not even realize you've been cheated. Here are some of the ways those unuathorized charges may have been labeled, disguising what they really are:
  • "Direct Bill Charges""
  • "3rd Party Downloadable Content"
  • "Premium SMS Messages"
  • "Premium Text Messages"
  • "M-Qube"
  • "M-blox"

    So check your bill. Maybe they got you.

    But now, they're on the other end of the line ... and it's the Florida Attorney General who's calling.
    • Sharyl Attkisson On Twitter»

      Sharyl Attkisson is a CBS News investigative correspondent based in Washington.

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