América Móvil's U.S. MVNO, TracFone Wireless, agreed to pay $40 million to the Federal Trade Commission to settle charges that it duped millions of consumers by advertising unlimited data service and then throttling customers' speeds or cutting their service off entirely when they exceeded certain data allotments. The FTC said TracFone did not properly disclose its throttling practices.
This is the second time the FTC has gone after a carrier over its data throttling policies. The FTC has brought a similar 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 has said the lawsuit does not have any merit and the case is continuing.
The FTC's complaint against TracFone alleges that starting in 2009, TracFone advertised prepaid monthly mobile plans for about $45 per month with "unlimited" data under its various brands, including Straight Talk, Net10, Simple Mobile and Telcel America.
"The issue here is simple: when you promise consumers 'unlimited,' that means unlimited," Jessica Rich, director of the FTC's Bureau of Consumer Protection, said in a statement.
Starting today, customers who had a Straight Talk, Net10, Simple Mobile, or Telcel America unlimited plan before January 2015 can visit www.ftc.gov/prepaidphones to file a claim for a refund. Refunds will be paid to consumers whose data service was slowed or cut off. The FTC said subscribers who had an unlimited plan but are unsure if their data service was slowed or cut off should still file a claim to find out if they are eligible for a refund. In addition to the $40 million available for refunds, the FTC said TracFone "is prohibited from making further deceptive advertising claims about its mobile data plans, and must clearly and conspicuously disclose any limits on the speed or quantity of its data service."
According to the FTC's complaint, TracFone marketed "unlimited" plans under its name brands through TV and radio commercials, print advertisements, in-store displays and other media.
The FTC alleges that TracFone regularly either throttled consumers' data speeds or cut off their data entirely, and in some cases terminated customers' service. In September 2013, TracFone provided some clarity to its data throttling policies for its Straight Talk and Net10 brands, explaining that it would throttle subscribers down to 2G speeds after they use 2.5 GB of data. The FTC says those disclosures "were often not clear and conspicuous" and that the disclosures "were in very small print or on the back of packages or cards where consumers were likely to miss them."
"This case is about false advertising," Rich said during a conference call with reporters, according to Re/code. "It's not about throttling. We're not challenging throttling in and of itself."
She added that as long as throttling practices are properly disclosed, carriers can continue the practice. "If it's clearly disclosed, if a company advertises unlimited, but very clearly discloses their practices with regard to throttling, we would not challenge that action."
TracFone has since increased its threshold before throttling to 3 GB of usage in a 30-day period, at least for its Straight Talk plans, but the company does not disclose the threshold for its Net 10 plans.
According to the Associated Press, a TracFone spokesperson did not respond to an email requesting comment.
The complaint alleges that there was no technical reason for TracFone to limit data speeds, such as to reduce network congestion, but that internal company documents showed that TracFone's data policies were created to "reduce the high costs associated" with providing the unlimited data that it had promised. TracFone leases capacity on the networks of Verizon Wireless (NYSE: VZ), AT&T, Sprint (NYSE: S) and T-Mobile US (NYSE:TMUS), and would likely need to pay carriers more if its subscribers used more data capacity.
According to the FTC complaint, throttled customers often saw speeds slowed by at least 60 percent and sometimes even 90 percent, significantly impairing their ability to engage in online activities like streaming video.
The FTC alleges that TracFone varied its data limits, but generally slowed data service when a customer used 1 GB to 3 GB. TracFone suspended data service at 4 GB to 5 GB of usage. When consumers approached TracFone's limits, they would often receive a call that warned them about their "excessive data usage" but did not disclose TracFone's data limits, according to the FTC's complaint.
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