FTC sues AT&T over data throttling policies, says 3.5M customers have been throttled 25M times

The Federal Trade Commission filed a lawsuit against AT&T Mobility (NYSE: T), alleging that the carrier misled as many as 3.5 million customers with legacy unlimited data plans by throttling their data speeds and changing the terms of their plans. AT&T said the lawsuit does not have any merit.

The FTC said in some cases customers had their data speeds reduced by nearly 90 percent. The lawsuit alleges that AT&T, "despite its unequivocal promises of unlimited data," started throttling data speeds in 2011 for its unlimited data plan subscribers, and that the carrier has throttled at least 3.5 million unique customers a total of more than 25 million times.

The heart of the complaint is that AT&T failed to adequately disclose its throttling policy. "AT&T promised its customers 'unlimited' data, and in many instances, it has failed to deliver on that promise," FTC Chairwoman Edith Ramirez said in a statement. "The issue here is simple: 'unlimited' means unlimited."

Ramirez also said AT&T wanted to keep longtime customers who had unlimited data plans and let them keep the plans but then changed the terms. "They stopped providing the service that customers understood they had purchased when they entered into their contract," she said, according to Reuters.

According to the FTC's complaint, AT&T's marketing materials highlighted the "unlimited" amount of data that would be available to consumers who signed up for its unlimited plans. Further, the complaint alleges that, even as unlimited plan consumers renewed their contracts, AT&T still failed to inform them of the throttling policies, and that when customers canceled their contracts after being throttled, AT&T charged those customers Early Termination Fees, which typically amount to hundreds of dollars.

AT&T said the lawsuit is "baseless" and does not have anything to do with the substance of its "network management" program. "It's baffling as to why the FTC would choose to take this action against a company that, like all major wireless providers, manages its network resources to provide the best possible service to all customers, and does it in a way that is fully transparent and consistent with the law and our contracts," Wayne Watts, AT&T's general counsel, said in a statement.

"We have been completely transparent with customers since the very beginning," Watts said. "We informed all unlimited data-plan customers via bill notices and a national press release that resulted in nearly 2,000 news stories, well before the program was implemented. In addition, this program has affected only about 3% of our customers, and before any customer is affected, they are also notified by text message."

In July 2011, AT&T said it would begin throttling the speeds of unlimited data subscribers who were among the top 5 percent of its heaviest data users. The carrier noted at the time that it was still providing unlimited service, just at slower speeds. However, AT&T's move created confusion among users, and sparked a number of online protests. The protests caught fire when users discovered they were being throttled after only 2 GB of data usage in a month--a lower threshold than the carrier's tiered, unthrottled plans.

Then in March 2012, AT&T clarified its policies and said it throttles users with unlimited data plans after they have hit 3 GB of usage on HSPA+ devices and 5 GB on LTE devices. If customers with unlimited plans dislike the throttling they can use Wi-Fi or switch to a different plan, AT&T says on its website.

AT&T, like other wireless carriers, has moved toward usage-based wireless plans that charge customers more for higher data usage. Sprint (NYSE: S) and T-Mobile US (NYSE:TMUS) still offer unlimited plans but they throttle customers' speeds in specific circumstances.

Interestingly, due to pressure from the FCC, Verizon Wireless (NYSE: VZ) earlier this month abandoned plans to throttle the data speeds of customers who are on legacy unlimited data plans who crossed into 5 percent of data users on Verizon's LTE network when they are on high-traffic cell sites.

On T-Mobile US' (NYSE:TMUS) Simple Choice plans, once a customer has used all of the LTE data included in their plan, their data speeds are automatically slowed to 2G speeds for the remainder of their billing cycle. The exception is T-Mobile's $80 per month unlimited plan.

On Sprint's postpaid service, the carrier notes that for its Unlimited, My Way or My All-in plans that "other plans may receive prioritized bandwidth availability" and that "streaming video speeds may be limited to 1 Mbps." Even for Sprint's (NYSE: S) new $60 unlimited plan, the carrier notes that "other plans may receive prioritized bandwidth availability. To improve data experience for the majority of users, throughput may be limited, varied or reduced on the network."

For more:
- see this FTC post
- see this The Verge article
- see this Reuters article
- see this Bloomberg article

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