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CenturyLink (CTL) Faces Major Setback: Is $12B Fine Lurking?


Per a recent Bloomberg report, CenturyLink Inc. CTL might be charged with a fine-cum-damage recovery cost of $12 billion in response to a class-action lawsuit by the entire group of customers affected by its alleged sales incentive scheme.

The new lawsuit, filed in the Central District of California, includes Heidi Heiser's suit as well as similar accusations posted on social media and consumer review websites by those who accused CenturyLink of fraud, unfair competition and unjust enrichment. The fine amount may vary from $600 million to $12 billion, based on the company’s 5.9 million subscribers.

Discontent was expressed by existing customers who complained about being charged more than what was quoted initially. The subscribers were often charged for services they never opted for. Some of the complaints mentioned that the company observed a monopolistic rule in certain areas of Alabama. This they feel is an illicit move.

This class-action lawsuit is in relation to a recently filed lawsuit by CenturyLink’s former employee, Heiser, in the Arizona State Superior Court. Heiser claimed that the company fired her on invalid, unreasonable and unethical grounds. Due to such controversies, shares of CenturyLink closed down 4.56% at $25.72 on Jun 16, 2017 and further traded down 1.40% at $25.36 on Jun 19, 2017.

As we know, CenturyLink is very close to completing its merger with Level 3 Communications, after the approvals from more than 15 states and territories and also from the shareholders of the companies. This had a notable impact on the shares of Level 3 Communications Inc. LVLT, which ended at $62.03 down 2.77% on Jun 16, 2017 and declined to $61.45 (down 0.94%) on Jun 19, 2017.

Heiser’s trail on being honest and open about the company’s malfunctions and illegal business activities to increasing sales by deceiving customers, led to her dismissal from CenturyLink. On a shocking note, the company stated that she was fired on grounds of dropped calls.

Despite such disputes, CenturyLink is hopeful of achieveing the highest ethical standards for itself and its employees. This it feels cannot be disrupted by an incorrect termination suit.

The company claimed to have "an Integrity Line in place, 24 hours a day, seven days a week" for any such issues. Heiser’s failure to report to the Integrity Line on a prior basis is being strongly pointed out.

Class actions are common after such debatable and controversial allegations against large companies. Earlier, CenturyLink was penalized for similar issues with Wells Fargo.

Comcast Corp. CMCSA, the leading cable multi-service operator (MSO) in the U.S. is said to have reportedly lost against TiVo Corporation TIVO over a patent licensing dispute. DISH Network Corp. DISH was penalized by the U.S. District Judge for the Central Illinois District, Sue Myerscough, with a fine-cum-damage recovery cost of $280 million to be paid to the U.S. government and four states, in relation to the eight-year-old ‘robocall’ telemarketing lawsuit.

Price Performance and Zacks Rank

CenturyLink is the leading regional wireline service provider of communications and data services nationwide and offers hosting, cloud and information technology services. CenturyLink carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past three months, share price of CenturyLink has gone up 8.56% while the Zacks-categorized Wireless National industry has declined 6.39%.

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