DirecTV: Unauthorized Retention Practices Inflated Brazil Subscriber Count

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DirecTV CEO Mike White.

The company led by CEO Mike White says its DirecTV Latin America unit now also expects higher customer churn in Brazil "due to increased competition, economic and other factors."

Satellite TV giant DirecTV said Thursday that it has been probing the use of unapproved subscriber retention practices at the Brazil unit of its DirecTV Latin America business.

In a regulatory filing, the company, led by CEO Mike White, said its Sky Brasil arm should have reported 100,000 fewer subscribers at the end of 2012 and 200,000 fewer at the end of March.

As of May 31, the firm reported that its Brazil subscriber count declined by about 130,000 compared with the end of April to about 5.21 million.

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DirecTV estimated that as a result of the updated subscriber counts it would take a pre-tax charge of approximately $25 million in the second quarter "to reflect the write-off of capitalized installation costs and subscriber-related equipment held by the terminated subscribers."

DirecTV also said that "due to increased competition, economic and other factors," the company now believes that Sky Brasil's ongoing churn rate would be higher than previously anticipated.

"The company has determined that, beginning in 2012, certain employees of Sky Brasil directed activities, which are inconsistent with Sky Brasil's authorized policies for subscriber retention and churn management," the filing said before providing some color on the unapproved customer retention tactics.

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"These activities, which included improperly crediting various subscriber accounts to reduce or eliminate balances owed by such subscribers, had the effect of artificially reducing churn and increasing the Sky Brasil subscriber base during portions of 2012 and 2013," DirecTV said.

"As a result of the company's internal investigation, the identified improper activities have been terminated and subscribers who would, but for such improper activities, have previously ceased receiving Sky Brasil service are being terminated as subscribers pursuant to Sky Brasil's authorized policies," it added.

A DirecTV spokesman said that the internal investigation into the issue is ongoing. Potential personnel decisions will be made after the probe is completed, he said.

DirecTV Latin America has been a fast-growing part of the satellite TV company's business.

Twitter: @georgszalai