Tuesday, December 7, 2010

How Sprint loses millions monthly

Between 2005 and present day, Sprint lost (and probably continues to lose) between $6 and $12 million monthly in revenue due to a number of organized fraud rings out of the New York area that involves indirect authorized and unauthorized Sprint dealers, Sprint contractors as well as Sprint employees and management.

This was accomplished in a number of ways but the base of it all was exploitation of Sprint’s notoriously unreliable billing system to create large but completely unprofitable accounts. In fact, these supposed customers actually cost Sprint millions of dollars monthly in roaming fees, workforce hours spent handling the constant calls from the dealers and invalid commissions paid to staff who profited from keeping these accounts on the books. 

The way this came to be is that back in the early 2000’s, Sprint launched an unlimited plan when the customer subscribed to Sprint’s Complete Sense plan which bundled home service as well as cellular. Originally, the plan was supposed to be either $130 for the first line and $100 for each additional line, or $95 for the first line and $75 for each additional line, depending on where the customer was among other criteria such as limit of 5 lines total on the plan per account. Things like text messaging, data, roaming were not included in this deal which was revolutionary for its time. Through a series of loopholes in the system which were identified but suspiciously never completely fixed, the dealers and their group of associates found a way to add hundreds of lines at prices as low as a few cents to one main line. A brief explanation of how this worked is as follows. On every phone line in the billing system, there are a series of plan codes, usually referred to inside Sprint as “SOCs” (Service Offering Codes) which dictated whether lines could share with other lines as well as every single service involved with cellular usage. Put the wrong SOC on the wrong line and you could create a billing nightmare requiring hours of research, corrections and sometimes, hundreds of thousands of dollars worth of credits that would have to be applied by someone at the VP level. Or, if you knew that if you swapped an improper code in on each line, you could potentially create a 100 line account that paid perhaps as little as 10 to 15% of what a customer should normally pay.

There were literally hundreds of these accounts that the group controlled personally as well as tens of thousands more that they either set up or were put together by unscrupulous or careless Sprint employees. The way that they made so much money off all of these accounts was to target people with poor or no credit as well as members of their own community with promises of cheap service. First they would demand a deposit on service or account “setup” fees and sell the customer a previously used phone. After ordering the line with a normal plan code and a brand new phone (usually a high end PDA with worldwide roaming capability, they would call Sprint or get in touch with one of their contacts on the inside and get the plan code to be changed to yet another free or $10 code. Upon delivery of the new phone, they would swap out the used phone to the line, and then sell the new phone out of their shop or on Ebay/Craigslist. In fact, it is believed that a cell phone “recycling” charity in the Spring Valley, NY area actually uses the phones donated to them to sell back to customers on these accounts. The same person operating this charity was also listed as an owner on a cellular dealer group terminated by Sprint for fraud in 2007.

This fleecing was so blatant that the unauthorized dealers advertised themselves as Sprint dealers and promoted their “deals” in local flyers and community papers. By the time the loopholes were partially fixed in 2008-2009, Sprint was missing between 6 to 12 million dollars a month in lost potential revenue. However, the problem was never completely repaired and Sprint decided to only half-heartedly identify and terminate problem accounts. Instead of sending payments to Sprint, thousands of customers would pay monthly to the dealers, who in turn paid Sprint as little as 10% of the money they had taken in. They weren’t just making massive profits off cell phone services; wireless internet cards were quite popular. These were cards that should have come with a minimum $59 monthly fee but usually their cost was less than $10, thanks to the same plan code exploitation. Many worldwide phones were also rented out to customers who were traveling internationally and the dealers could charge that person one rate but pay Sprint next to nothing on the invoice due to codes that had been manipulated in the billing system.

In addition to the lost revenue from service and preventable monetary adjustments, Sprint and their customers  were losing probably close to a million or more a month in cell phones that were either fraudulently obtained or ordered for next to free lines that Sprint would never make any money on. It was also a daily occurrence for corporate and small business accounts like FedEx, DirectTV, UPS or ADT (now Broadview) to be targeted by callers pretending to be the owners or authorized users of the accounts who would then order brand new cell phones which would be shipped to a number of addresses around the country but mostly to addresses in and around the Tri-state area. The most notorious address was 544 Park Avenue in Brooklyn as well as other dead addresses which only led Sprint to believe that UPS delivery drivers were also in on the deal.

Under most circumstances, a scheme like this would have been rapidly sniffed out but it took literally years for Sprint’s multiple departments to shut down, or at least stem the bleeding that occurred from this scam. Part of it was poor communication amongst various departments but a major piece of it was a combination of incompetence and actual collusion with the group from New York by Sprint’s own employees. Sprint’s fraud department would terminate 3rd party dealers who they could prove were committing outright “resale misconduct” (the approved term by Sprint’s legal division) but they had a much harder time fighting a well organized group of fake storefront owners and accounts with addresses that eventually traced back to storage units and abandoned warehouses. They also had to deal with a faction of Sprint workers that were determined to keep these accounts on the books, no matter what the cost to the company. These employees often undid the work that the fraud and legal departments had spent months on. Problem accounts would be identified with special notes by legal which would be promptly removed by those who wanted to ensure their survival. Some accounts would be instantly terminated or suspended when evidence of service resale was found, only to be turned right back on by supervisors determined to make commissions at any costs.

Often when an account would reach a credit class limit which stopped more phone lines from being added to one of these invalid plans, the dealers would simply contact one Sprint supervisor in particular who would manually change the credit class without proper review by the corporate credit review department. Safeguards that had been put in place to make sure customers were credit-worthy and that accounts were profitable were bypassed for the sake of making more commission as well as probable kickbacks. There was a large amount of money that could be made doing this. In addition to base salary, Sprint’s “account retention” department employees could make up to $3,000 monthly extra in bonuses to keep accounts from cancelling. Just marking a couple of the large fake accounts as “saved” each month could max out a rep on bonuses. In one call center, there was at least one team whose supervisor was believed to be in collusion with the ring and his employees almost invariably maxed out every single month on commissions. In fact, it was common knowledge around the entire center but when other reps and their supervisors stumbled across evidence of employee cooperation with the fraud ring and reported it, they were harassed and often denied promotions. It wasn’t just call center employees who were involved, it was also believed that corporate store and back office employees were giving account security information to the fraud ring so that they could then call in and place fraudulent orders for equipment. At a couple call centers, employees had even been approached in the parking lots and offered large sums of cash for their login information, including passwords.

It was often said that the callers “knew our own system better than we do” and that was true because not only did they have the cooperation of customer service agents but also because of the fact that an employee of the company who built billing codes for Sprint was also involved. They were eventually investigated by Sprint’s corporate security department in 2009 and terminated for this. It seemed to be a weird coincidence that as quickly as Sprint’s billing investigations found and closed the abused codes, new ones would be built within hours and quickly distributed. Some were specially designed it seemed, for no other purpose than to be used on these accounts. In fact, it was common for people to call in and ask for code “PDSXXXX” within 24 hours of it being created. It was a billing system game of “whack a mole” with millions of dollars on the line.

In 2007, Sprint finally terminated one major group of dealers that operated out of Brooklyn, New York but new dealers popped up within days to take their place. The original abused codes were mostly shut down and Sprint began moving their accounts from their old, loophole-ridden system known as “P2K” to a new billing system that was used by Nextel prior to the merger in 2005. It was believed that the invalid accounts would be caught in the migration and forced to be corrected due all of the new limitations in the new software. However, as the change began, the problem was not solved. In fact, it exploded due to new plan codes being built in the new billing system in order to accommodate the patch-worked accounts that should have been caught and terminated before the transition over. These new plan codes were then given out to the dealers as fast as they were created and circulated amongst employees who knew how to work the system to maximize their commissions as well as supervisors and managers who had the same intent.

It was no accident that month after month, the same supervisors and managers led their call centers in “account saves” when many of them had a working relationship with a group that was taking the company for millions of dollars monthly. Often, when faced with evidence of employee misconduct by Sprint’s fraud and compliance team, customer service managers and their directors refused to terminate those workers. After all, they were making their numbers look good even though they were essentially paying these representatives to undermine profitability and potentially expose the company to civil or criminal litigation
Eventually, some of the Sprint staff involved was forced to resign or were fired after a report on the issue went all the way to the executive level, but some were just moved to other positions in the company as the company persisted in trying to sweep the whole issue under the rug with minimal outcry. The problem has not been completely fixed as of today, Sprint continues to lose millions monthly, and corporate accounts continue to be the target of various crime rings in search of cell phones to sell on the internet. Employees who blew the whistle and warned upper management of the issue were often harassed, denied promotions or terminated on other grounds in order to ensure silence. As of now, Sprint has not commented publicly on the matter and is not likely to do so.

*DISCLAIMER* This is a blog and the opinion of the author thereof. The author is not employed by Sprint or any of it's contractors, vendors or dealers.


  1. Great info and very, very true.

  2. When I wrote this article, I didn't realize it was going to get this kind of coverage. I Googled the title and found it's been reposted on a couple of other sites. Traffic has been amazing. I did see someone say that alot of stuff was left out and that is true. Perhaps I should go more in depth but we'll leave that for another time.

  3. A great piece of writing and handling of complex details. You did a very good job and it will be interesting in any fallout that follows. If nothing else, it might make a good plot for a novel or a film. But corporate heads should roll from this damning expose. el

  4. Great Article. A very good write. Thank You.

  5. This is quite damning considering Sprint's recent smart phone price increase. It reminds me of a corrupt gov't that can't get it's own house in order so it raises taxes on it's constituents to stem the losses.

  6. Heh, having been a Sprint (Nextel) customer for over 10 years, this explains a LOT of the issues I've had since the merger. It would take me days to explain all the billing "errors" that have occurred on my account and the absolutely horrendous customer service I've received on countless occasions. Fortunately, it seems like in the last year or so, things have slowly started to change and in the last few months, change dramatically. Here's hoping it continues to happen and they start weeding out the lousy, dishonest employees and start treating loyal long-time customers in the way they should be treated.

  7. Good thing i dont use sprint so i dont care. Dont get mad close your account.

  8. Dealer sells phone to 1 customer, dealer gets commission. Dealer sells actual phone and plan to a customer, the customer may or may not keep it. Keeping a real customer satisfied is not the easiest thing to do. If the dealer created 10 fake accounts a month using SOC codes and discount socs with combo percentages off that were never designed to be stacked 10 to 15 discounts on one single account so that the monthly recurring charges for phone were like 10 to 15% of what a normal customer would pay and the credit class of the account was high enough then the account would get billed 2-3x before credit would close it for non payment, but by that time the dealer would of gotten paid for commission. So you take a dealer who is opening thousands of normal account a month and with real people's customer satisfaction and their commission he is doing okay, average 50% then the commission from these super accounts which for business could be hundreds of lines deep would generate the dealer a few extra thousand dollars a month $4000 to $10,000. However they would only be a small percentage of his business in total lines so his fraud rating would not be that high because he had a lot of legitimate business then his small amount of fraud still had him taking thousands from the company. This was multiplied by thousands of dealers across the US but mostly in NY, CA, and Florida. These accounts would close, but new one's would open up, so that more money could be made. Then you take the people inside sprint like the reps, sups, mgrs, site directors, and even executive management. They would make commission by retaining these account and keeping the company in the black. so while reps and sups were saving account. They might make multiple commissions by even saving the same account 2x, 3x, 4x, 5x in the same 90 day period. The more saves, the more satisfied customers. This is keeping the company in the black. So the managers, and executive management wanted the company in the black, so they just over looked the problem. A lot of this has been corrected in the last year. Almost all the loop holes mentioned eventually got shut down. I can guarantee you their is still gaming of systems going on, but it has been significantly reduced. It was a crazy period for sprint; I know as I was there. I have to say to the author who posted this - KuDOS my friend. I never really expected to read this, but since you put it out there; it has to be said. Sprint can certainly defend itself and I am sure it will, but the truth is the truth no matter what they say.