AT&T hit with proposed $100M FCC fine over throttling of customers with unlimited plans

The FCC is proposing to fine AT&T Mobility (NYSE: T) $100 million for not being transparent enough with its grandfathered unlimited data plan customers about how and when their speeds would be reduced if they use too much data. The fine is the largest the FCC has ever proposed.

The action comes after the Federal Trade Commission sued AT&T in October 2014 over the practice of throttling the data speeds of such customers and not being transparent enough about it. AT&T is fighting to have that lawsuit dismissed and the court case is ongoing.

In a document known as a "Notice of Apparent Liability," which basically lays out the charges and allegations of wrongdoing against AT&T, the FCC is accusing AT&T of violating the transparency rule of its 2010 Open Internet order on net neutrality. Although a federal court tossed most of those rules out last year before the FCC drew up new ones, the court let the transparency rule stand and it has been in effect since 2011.  

"Consumers deserve to get what they pay for," FCC Chairman Tom Wheeler said in a statement. "Broadband providers must be upfront and transparent about the services they provide. The FCC will not stand idly by while consumers are deceived by misleading marketing materials and insufficient disclosure."

A senior FCC official said in a briefing with reporters that although AT&T disclosed its throttling policy in a July 2011 press release and notices to customers, it did not provide information on when or after using how much data customers would see their speeds throttled, how much their speeds would be reduced or how those speed reductions would affect their ability to use apps on their phones.

The FCC official said that AT&T violated the transparency rule because its disclosures were not sufficient to give consumers an informed choice about their plans. The official noted that customers saw their speeds reduced to 512 Kbps, 20 times less than the maximum LTE data speed AT&T advertises of 5-12 Mbps. The official also noted that consumers on the grandfathered unlimited plans had their speeds throttled for 12 days on average.

According to the FCC official, AT&T conducted focus groups about the throttling policy in 2009 and 2010 and found that consumers felt that the throttling was inconsistent with the concept of "unlimited" and that they disliked the policy the more they found out about it.

The FCC and AT&T could still try to come to a settlement in the case, the official said. Additionally, the $100 million fine could be reduced in the final determination. 

AT&T said it would contest the FCC's findings. "We will vigorously dispute the FCC's assertions," the carrier said in a statement. "The FCC has specifically identified this practice as a legitimate and reasonable way to manage network resources for the benefit of all customers, and has known for years that all of the major carriers use it. We have been fully transparent with our customers, providing notice in multiple ways and going well beyond the FCC's disclosure requirements."

FCC Commissioner Ajit Pai dissented from the move by the FCC and excoriated the commission. "Because the Commission simply ignores many of the disclosures AT&T made; because it refuses to grapple with the few disclosures it does acknowledge; because it essentially rewrites the transparency rule ex post by imposing specific requirements found nowhere in the 2010 Net Neutrality Order; because it disregards specific language in that order and related precedents that condone AT&T's conduct; because the penalty assessed is drawn out of thin air; in short, because the justice dispensed here condemns a private actor not only in innocence but also in ignorance, I dissent," he said in a statement.

Commissioner Michael O'Rielly also dissented and said in a statement that the FCC is "imposing a rigid standard that is based on a subjective opinion of what notification, in hindsight, should have been provided. This is not consistent with the word or spirit of the 2010 Open Internet Order, which states that, 'although we may subsequently determine that it is appropriate to require that specific information be disclosed in particular ways, the transparency rule we adopt today gives broadband providers some flexibility to determine what information to disclose and how to disclose it.'"

AT&T now has 30 days to formally respond to the FCC. The agency is looking for four things from the company in its written response: any measures that the company has taken to provide redress to consumers; how AT&T is correcting any "misleading statements" regarding its unlimited data plans; how it can inform its customers about its "previous violations" of the transparency rule; and whether it will provide its customers an opportunity to opt out of their unlimited plans without a penalty. The FCC commissioners will then evaluate the response before voting on a final decision. 

In May AT&T changed its policy and said it will throttle the data speeds of customers on legacy unlimited data plans only when they are connected to congested cell sites, regardless of the kind of smartphone they have.

Previously, customers who had 3G or HSPA+ phones as well as legacy unlimited data plans were throttled for the remainder of their billing period after they exceeded 3 GB of data in a month, but only "at times and in areas that are experiencing network congestion." However, while LTE customers with grandfathered unlimited plans did not see their speeds throttled until they reached 5 GB of data usage in a month, their speeds were slowed down for the remainder of their billing cycle at all times--regardless of whether the network was congested. That discrepancy is now no longer the case.

There are not many customers who still have legacy unlimited data plans from AT&T. The carrier said that at the end of the first quarter around 87 percent of its postpaid smartphone subscribers were on usage-based data plans (tiered data plans, Mobile Share and other plans).

For more:
- see this release
- see this FCC document (PDF)

Related articles:
AT&T keeps fighting to get FTC lawsuit over its data throttling thrown out
AT&T changes data throttling policy for customers on unlimited plans, will only throttle when network is congested
AT&T may be fined by FCC over throttling practices
AT&T to make throttling policy the same for LTE, HSPA+ subs with unlimited plans
T-Mobile agrees to disclose more info about actual speeds when customers are throttled
FTC sues AT&T over data throttling policies, says 3.5M customers have been throttled 25M times


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