FCC Just Delivered a Smackdown to AT&T Over Unlimited Data Plans

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After receiving thousands of complaints, the FCC proposed a $100 million fine against AT&T for throttling supposed 'unlimited' data plans since 2011. In above photo, a man reads the digital edition of a newspaper on his iPhone using AT&T's network. (Robert Scoble / Flickr Creative Commons photo)
After receiving thousands of complaints, the FCC proposed a $100 million fine against AT&T for throttling supposed ‘unlimited’ data plans since 2011. In above photo, a man reads the digital edition of a newspaper on his iPhone using AT&T’s network. (Robert Scoble / Flickr Creative Commons photo)

When a phone company advertises “unlimited data plans” to consumers, it has to actually deliver them.

That was the argument put forth by the head of the Federal Communications Commission on Wednesday when he announced his proposal to fine AT&T, the second-largest mobile phone operator in the country, $100 million for allegedly deceiving customers about so-called “unlimited” mobile data plans.

The FCC has been aggressive recently in upholding so-called “network neutrality” rules that aim to treat Internet traffic as equal, and recently applied those rules so that it would govern mobile Internet traffic as well as traditional broadband Internet connections.

But the FCC’s action announced on Wednesday actually applied under old network neutrality rules that have been in place for the past five years. Although a federal appeals court overturned much of that network neutrality law last year, it upheld a portion of the law that required Internet companies like AT&T to be open and transparent about broadband Internet speeds.

Read more: How Your Phone Will Change Under New FCC Net Neutrality Rules

The FCC alleges AT&T violated that principle when it promoted “unlimited” data plans to customers without clearly telling them that connection speeds could be slowed, or “throttled,” once a customer uses up a certain amount of data.

The FCC says AT&T “falsely” labeled unlimited plans without telling customers they would experience slower connection speeds under a new “throttling” policy that was put in place four years ago. The agency said thousands of AT&T customers complained to the FCC once the company started throttling connections after 2011.

AT&T and other phone companies used to offer unlimited data plans as an incentive for customers to switch away from “free” basic phones toward more-costly smartphones. But the phone companies underestimated just how much data smartphone users would consume; the smartphone boom fueled by the release of the iPhone in 2007 and competing devices running Android led to most phone networks being overwhelmed by the sudden surge in data-hungry smartphones.

To combat this, AT&T and other companies began doing away with unlimited data plans. Around 2011, companies like AT&T and Verizon began offering tiered plans that gave customers a set amount of data to consume each month and charged customers fees when they went over those allotments. AT&T and Verizon allowed existing customers to keep their unlimited data plans — a process known as “grandfathering” — as an incentive to keep customers from switching phone networks.

Read more: Verizon’s Big Push Against Net Neutrality Backfires

The FCC’s proposal announced Wednesday targets AT&T’s handling of customers who were “grandfathered” in. Millions of customers are believed to have stuck with AT&T so they could keep their unlimited data plans, which did little to alleviate the company’s mobile data congestion. The agency alleges AT&T throttled data speeds without being upfront about it to customers.

“The FCC will not stand idly by while consumers are deceived by misleading marketing materials and insufficient disclosure,” FCC Chairman Tom Wheeler said in a statement released Tuesday.

The Federal Trade Commission (FTC) sued AT&T last year over the same issue, arguing that the company didn’t clearly disclose its practice of “throttling” unlimited data speeds when it billed customers and that such throttling violated the spirit of an unlimited data plan, the website Re/code reported.

AT&T responded to the FCC’s proposed fine by saying it has, for years, complied with the agency’s disclosure requirements and that the agency is targeting a network management practices that it previously said was a “legitimate and reasonable way to manage network resources for the benefit of customers.”

“[The FCC] has known for years that all of the major carriers use it,” the phone company said.

Matthew Keys is a contributing journalist for TheBlot Magazine

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