Just days after reaching a $105 million settlement with the Federal Trade Commission (“FTC”) and other U.S. government agencies over mobile cramming, AT&T once again finds itself in court with the FTC.  On October 28, 2014, the FTC filed a federal court complaint against AT&T, charging the telecommunications giant for data throttling and misleading their mobile unlimited data plan customers.  Data throttling is an industry practice where a wireless or broadband carrier decides to slow down the transmission of the Internet to its consumers when the network becomes congested.  With AT&T, throttling occurs when customers who use “excessive” amounts of data have their data speeds suddenly slow down at AT&T’s discretion for the remainder of the billing cycle.

Primarily concerned with the transparency of AT&T’s unlimited data plan, the FTC accuses AT&T of violating the FTC Act by changing the terms of its unlimited data plan without notice while its customers were still under contract.  In an issued statement, FTC Chairwoman Edith Ramirez said, “AT&T promised its customers ‘unlimited’ data, and in many instances it has failed to deliver on that promise. The issue here is simple: ‘unlimited’ means unlimited.”  The FTC claims that AT&T emphasized “unlimited” in its marketing while failing to inform customers of data throttling, which results in an 80 percent to 90 percent reduction in network speeds.  The commission estimates that AT&T has throttled at least 3.5 million customers, totaling more than 25 million times.

Denying these claims, AT&T responded, “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.”  The second-largest U.S. wireless provider argues that it announced the changes to its unlimited data plan in a national press release and sent customers bill notices to suffice the notice requirement.

For the past few years, AT&T has claimed that its wireless network cannot handle the 5 percent of unlimited data customers who consume excessive data, which usually occurs by streaming video or music or playing games.  In July 2011, AT&T placed speed limits on excessively used unlimited data plans, slowing down the network connection from high-speed LTE to 2G, which is comparable to the speed of a dial-up modem.  At first, this form of network management only limited the top 5 percent of its heaviest users, but AT&T soon included any unlimited users who accessed 5 gigabytes of data in a billing cycle.

Since 2010, AT&T has ceased to offer an unlimited data plan but had allowed existing customers to “grandfather” these services.  Today, very few unlimited data customers remain as AT&T has begun to phase out these grandfathered plans.  AT&T has employed data throttling as a business tactic to push grandfathered unlimited data customers over to one of its more profitable tiered data plans with set allowances of data.  This industry practice infers that the true purpose of these grandfathered data plans is to function as a temporary business strategy to build and maintain a loyal customer base.  Once customer loyalty is established, these wireless service providers start to phase out these grandfathered plans with little backlash from its customers, who seldom stray to other carriers or eventually return.

The industry practice of data throttling, however, is unacceptable and has gained the attention of both the Federal Trade Commission and the Federal Communications Commission (“FCC”), who also went after Verizon for data throttling.  Created to protect consumers, these commissions have focused on the problem of wireless providers misleading consumers in their marketing of unlimited data.  “Unlimited” means unlimited, and consumers have a reasonable expectation to data without any limitation to network access or speed.  Ultimately, AT&T has materially misrepresented their unlimited data plan, such that the courts are likely to rule in favor of the FTC.

Bio:     Linda is a Staff Member of the Journal of High Technology Law.  She is currently a 2L and Trustee Academic Scholar at Suffolk University Law School with a concentration in Business Law and Financial Services.  She holds a B.A. in Political Science from the University of Connecticut.

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