FTC sues AT&T over throttling, claiming it jilted millions of unlimited plan users

AT&T’s controversial throttling policies have attracted the ire of the Federal Trade Commission, which earlier this month won a $105 million settlement with Ma Bell over the carrier’s alleged SMS cramming policies. The FTC is now coming down on AT&T’s long-held policy of restricting mobile data speeds on customers it deems are abusing their unlimited mobile data plans.

The FTC obviously doesn’t see such activities as abuse, but rather as customers getting the unlimited service they paid for. The agency is specifically accusing AT&T of not adequately informing its unlimited plan customers that throttling is in effect and what it entails – even as the unlimited customers renewed their contracts. According to the complaint, customers subjected to throttling who then canceled their service were then subject to early termination fees.

“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 an FTC statement. “The issue here is simple: ‘unlimited’ means unlimited.”

[company]AT&T[/company] stopped offering unlimited plans to new customers in 2010 when it introduced the first tiered smartphone data plans, but all of the customers who had unlimited plans were grandfathered in and could keep them as long as they retained uninterrupted AT&T service. As the iPhone and Android devices drove mobile data usage through the roof, AT&T introduced throttling as a means of limiting traffic on those accounts.

On a conference call, Ramirez stated that the agency acted in part because AT&T’s throttling was not limited by a desire to manage networks, and that it throttled customers even at times of low traffic.

Ma Bell has claimed that the policy, which temporarily restricted speeds on unlimited users when they hit rather hazily defined monthly limits, impacted only those customers consuming an extraordinary amount of data. It turned out an “extraordinary amount of data” equaled as little as 2.1 GB a month in some cases, even though AT&T has long sold bigger-bucket tiered data plans for cheaper rates than its unlimited offer.

According to the FTC, AT&T has throttled 3.5 million individual customers on the grandfathered plans a total of 25 million times since the policies went into effect.

AT&T took issue with the commission’s characterization of its throttling policy — which AT&T calls “network management” — but it was particularly incensed by the claims that it didn’t properly notify its customers that the policies were being implemented and how they worked. Wayne Watts, AT&T senior EVP and general counsel, issued the following statement shortly after the FTC dropped its bomb:

“The FTC’s allegations are baseless and have nothing to do with the substance of our 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.

We have been completely transparent with customers since the very beginning. 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.”

Regardless of how this legal fight turns out, it’s becoming very clear that federal regulators are taking a much greater interest in the carriers’ billing and network policies. The mobile industry’s traditional overseer, the Federal Commission Communications, worked closely with the FTC on the complaint just as the two worked closely on the SMS settlement.

Ramirez refused to confirm whether the FTC is investigating other carriers over throttling, but also did not rule out the possibility. “We are concerned about companies living up to commitments they make,” she said, adding that the FTC and FCC may instigate more investigations.

[company]Verizon[/company] has also come under fire for its throttling policies, and earlier this month was set to introduce new LTE restrictions on unlimited data plan customers. At the eleventh hour Verizon canceled those plans, though, which likely had something to do with heavy criticism not just from consumers but from FCC Chairman Tom Wheeler.

The FTC authorized the AT&T action in a unanimous vote and filed the complaint in San Francisco at the U.S. District Court for the Northern District of California.

This post was updated several times on Tuesday as more information became available.