A flaw in Telstra's pre-paid mobile billing platform led to SMS customers, including teenagers, being thrown into debt.
Ironically, pre-paid services are targeted at under 18 year olds who cannot enter into a mobile contract and customers who wish to control their spending more tightly.
A 48-hour billing delay in Telstra's communic8 pre-paid Short Message Service (SMS) meant hundreds of thousands of Telstra customers could potentially think their accounts were in credit, when in fact they'd slipped into negative territory.
The competition watchdog said Telstra's SMS customers, who were largely teenagers caught up in the SMS craze, incurred negative balances of up to AU$150.
Users often only realised they were in debt when they bought a recharge card which immediately soaked up the negative balance - in some instances the entire recharge card was consumed by the debt, according to the ACCC.
The Commission said it became aware of the problem when "parents went off the deep end" and complained to the watchdog.
"The ACCC supports the use of pre-paid products as they have the ability to allow consumers to control their spending and pay upfront," ACCC chairman Professor Allan Fels said.
"However these benefits may have been lost for some customers who used [Telstra's] SMS service."
Telstra claims to have taken measure to "ensure the integrity of the pre-paid concept".
The telco giant has shortened the time it takes for SMS text messages to be billed to a user's account - although it can still take up to 12 hours. Also, customers accounts are now blocked before they fall into a negative balance.
It's misleading and deceptive of Telstra to promote its prepaid SMS service as "no bills, no debts" and then allow customers to slide into debt, a spokesperson for the ACCC told ZDNet.
"Consumers ought not to be disadvantaged for problems with Telstra's billing," he added.
Therefore, the ACCC said Telstra should "wear the cost" of anyone it allowed to fall into a negative balance.
Telstra confirmed that it has "zeroed" the account of anyone who fell into a negative balance.
Forty percent of Telstra's new contracts are prepaid and are targeted to the youth segment, according to its spokesperson.
