In its first lawsuit addressing so-called data-throttling, the Federal Trade Commission accused the telecommunications giant of misleading smartphone customers by slowing the speed of their data usage without properly notifying them.
"If you make a promise about unlimited consumer service, we expect you to fulfill those promises," said Edith Ramirez, the agency's chairwoman.
Instead, she said, AT&T charged mobile customers "for so-called unlimited data plans that were, in reality, not unlimited at all."
AT&T denied it did anything wrong, calling the agency's allegations "baseless."
The suit, filed Tuesday, alleges that AT&T deceived its wireless customers and seeks millions of dollars in refunds for a practice that still continues. Unhappy customers who canceled their plans were charged early-termination fees that typically were hundreds of dollars, Ramirez said.
Beginning in October 2011, AT&T began restricting the data speeds of unlimited data plan customers who exceeded a monthly usage threshold that initially was as low as 2 gigabytes, the agency said.
Smartphone customers can hit that monthly limit by streaming standard definition video for 10 hours and surfing the Web for 55 hours, according to AT&T's data calculator.
Customers who exceeded the level had their data speeds slowed 60% to 95% for the rest of the billing period.
When the data-throttling began, about 14 million AT&T customers had an unlimited data plan, which cost $30 a month, the agency said. Its investigation found that since then, at least 3.5 million of those customers experienced data usage slowdowns a total of more than 25 million times.
"Consumers have been complaining about throttling for years," said Delara Derakhshani, policy counsel for Consumers Union. "We're glad the feds are going after companies that are ripping people off."
Wayne Watts, AT&T's general counsel, said the FTC's decision to sue the company was "baffling."
AT&T "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," Watts said.
From the start, Watts said, AT&T added notices to the bills of unlimited data customers saying it planned to reduce some users' data speeds and issued a news release about the change as well.
The July 2011 news release said that starting that Oct. 1, "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. These customers can still use unlimited data and their speeds will be restored with the start of the next billing cycle."
Affected customers are notified by text message beforehand, and only about 3% of AT&T customers have experienced slower speeds, Watts said.
The practice, which continues, is explained on the Wireless Support section of the company's website under the heading "About reduced data speeds."
But Ramirez said the notifications were "inadequate and inconspicuous" and did not provide "full and adequate information about the extent of data-throttling and impact on services."
The problem was not reducing the data speeds but changing the terms of customers' contracts without proper notification, she said.
"We are concerned about companies living up to commitments that they make," she said.
In 2010, AT&T stopped offering unlimited data plans to new customers but allowed existing customers with the plans to continue them, the suit said.
Company focus group research into slowing data above certain thresholds found that consumers "thought the idea was 'clearly unfair,'" and one participant said it "seems misleading to call it unlimited," the suit said.
The focus group researchers advised the company "don't say too much" in marketing such a program, the suit said.
Ramirez said the agency's investigation found that the way AT&T implemented the data slowdowns "had nothing to do with any type of network congestion."
The suit is the second agency action involving AT&T this month.
On Oct. 8, AT&T agreed to pay $105 million, including $80 million in refunds, to settle federal and state investigations that the company illegally billed mobile phone customers for unauthorized ring tones and other services.
That case involved the Federal Communications Commission, which also worked with the FTC on the data-throttling investigation.
The FCC "has been actively investigating throttling practices" since the agency's chairman, Tom Wheeler, sent letters last summer asking major wireless companies about data-throttling, said FCC spokesman Neil Grace.
In August, Public Knowledge, a consumer advocacy group, complained to AT&T and the other major wireless providers — Verizon Wireless, Sprint Corp. and T-Mobile US Inc. — that they weren't clear about when data throttling kicks in.
"No company should promise one thing and deliver another," Michael Weinberg, Public Knowledge's vice president, said Tuesday.
©2014 the Los Angeles Times
