FCC to fine AT&T $100M for slowing speeds

An AT&T store in New York's Times Square. AT&T is being sued by the government over allegations it misled millions of smartphone customers who were promised unlimited data but had their Internet speeds cut by the company, slowing their ability to open Web pages or watch streaming video. (Photo: Richard Drew, AP)

The Federal Communications Commission said Wednesday it plans to fine AT&T Mobility $100 million for misleading customers about its “unlimited” mobile data plans, imposing the agency’s largest proposed fine ever in alleging that the carrier “severely” slowed down the data speeds for customers with such plans.

AT&T failed to adequately notify its customers that they could receive speeds slower than the normal network speeds AT&T advertised, the FCC said. AT&T’s actions also violated the FCC’s 2010 Open Internet Order, a set of rules that regulate telecom service providers’ conduct, the agency said.

If customers used more than 5 gigabytes of data for the month, the carrier slowed its data transmission speeds to levels that made using mobile apps difficult or impossible, said an FCC official, who requested anonymity to discuss the agency’s actions in detail. AT&T no longer sells unlimited plans to new customers, but those who subscribed to the plans when they were still in market can continue to claim their right to use as much data as they want.

With demand for mobile data exploding, wireless carriers have tightened access to their networks for heavy users as a way to manage traffic and boost revenue.

In recent years, they’ve introduced tier-pricing for varying levels of data allotments, charging higher fees for those who go over monthly limits. And for the carriers that still offer “unlimited” data plans, cutting back on speeds after a certain amount of used data — a practice known as “throttling” — has become more common, though the practice typically comes with a consumer notice.

The FCC’s action follows a lawsuit filed by the Federal Trade Commission in October, charging AT&T for allegedly violating the FTC Act by failing to adequately disclose the throttling of unlimited data plans. The case is still ongoing.

Shares of AT&T rose 0.32% Wednesday to $34.80.

In a statement, AT&T said it “will vigorously dispute the FCC’s assertions.”

“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,” AT&T said. “We have been fully transparent with our customers, providing notice in multiple ways and going well beyond the FCC’s disclosure requirements.”

In a note posted on its website, dated July 29, 2011, AT&T told customers that smartphone customers with unlimited data plans “may experience reduced speeds once their usage in a billing cycle reaches the level that puts them among the top 5% of heaviest data users.”

The FCC official said the disclosure wasn’t sufficient as it lacked details on when the slowdown kicks in and to what speeds it will be reduced.

“It’s important to understand that this is not an exercise in being clever,” said Harold Feld, senior vice president of consumer advocacy group Public Knowledge. “The FCC imposes this because people increasingly depend on broadband. This is not a washer on a limited warranty. This is not a game.”

With the FCC’s issuance of its “notice of apparent liability,” AT&T has 30 days to respond. The FCC will review the response and issue its final resolution. AT&T then would be required to pay the fine.

“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.”

In a dissenting statement, Michael O’Rielly, one of five FCC commissioners, said the FCC’s finding that AT&T violated the Open Internet Order — particularly a provision that requires telecom companies to clearly notify customers of service terms — “is tenuous at best.”

“The 2010 Open Internet Order created a flexible approach by which broadband providers could determine the best means to inform their subscribers of their service terms and network practices,” O’Rielly wrote. “However, here we are imposing a rigid standard that is based on a subjective opinion of what notification, in hindsight, should have been provided.”

AT&T, which introduced unlimited data plans in 2007, implemented its “maximum bit data rate” policy four years later, capping the maximum data speeds for unlimited customers after a certain amount of gigabytes are used, the FCC said.

The customers who were subject to speed reductions were slowed for an average of 12 days per billing cycle, it said.

With plans to phase out its unlimited data plans, AT&T conducted focus group studies in 2009 and 2010 and found that customers reacted negatively to data caps, the FCC official said.

Since AT&T’s change in 2011, the FCC says it has received “thousands of complaints” from AT&T’s unlimited data customers. Customers also complained about being locked into long-term contracts on unlimited data plans that throttle and having to pay early termination feeds if they wanted to cancel them.

The FCC will review the option of possibly allowing such customers to abandon their AT&T contracts without a penalty, the FCC official said.

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