FCC plans to fine AT&T $100M over ‘unlimited’ data plans

The Federal Communications Commission plans to fine AT&T $100 million for misleading customers about what it said were unlimited wireless data plans.

The fine is in response to AT&T drastically reducing network speeds for phone customers who purchased an unlimited plan once they used a certain amount of data. The commission alleges that the wireless provider failed to properly tell customers about the policy.

AT&T offered unlimited data plans in the past but changed course in 2010 as smartphones became more prevalent. The company, however, allowed millions of existing customers to renew their unlimited data contracts.

{mosads}In 2011, those unlimited-plan customers began seeing data speeds slow by up to 90 percent after AT&T began implementing the model, known as throttling. The change spurred thousands of complaints.

“Broadband providers must be upfront and transparent about the services they provide,” FCC Chairman Tom Wheeler said in a statement Wednesday. “The FCC will not stand idly by while consumers are deceived by misleading marketing materials and insufficient disclosure.”

It is the largest proposed fine in the 81-year history of the telecommunications regulator, a senior official said. The proposed fine was calculated in part on how long users were being throttled, according to the official.

AT&T now has 30 days to respond to the agency’s claims — which were issued in a so-called “notice of apparent liability.”

The agency official said they expect AT&T to explain what they are doing to provide customers with redress and whether customers will be able to opt-out of the plans without a penalty. The case will then be adjudicated by the FCC’s commissioners.

AT&T disputed the FCC’s charges, saying it has disclosed the terms of its unlimited data plans to customers in billing statements, texts and online. It also asserted the FCC had endorsed the business model in previous net neutrality rules.

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

The commission’s two Republican members, Ajit Pai and Michael O’Rielly, dissented from the decision to propose the fine.

Calling the ruling “Kafkaesque,” Pai said that “the justice dispensed here condemns a private actor not only in innocence but also in ignorance.”

He accused his Democratic colleagues of ignoring disclosures made by AT&T about its throttling program and issuing a fine that was “drawn out of thin air.”

In the commission’s new net neutrality rules, which went into place last week, the FCC allows throttling for reasonable network management. But the FCC specifically said that excuse could not be used to “justify reneging on its promise to supply a customer with ‘unlimited’ data.”

The senior official said that the decision will not be connected to ongoing deliberations about AT&T’s proposed merger with DirecTV.

Action by the FCC had been expected since early this year, when AT&T revealed the agency’s enforcement bureau was “actively considering” whether the policy violated federal transparency rules.

The official said that in the weeks before the decision was made to propose the fine, AT&T made a change to its policy that stopped throttling users who were in not in high-traffic areas and therefore not causing network congestion.

The commission’s investigation found that the wireless provider’s notices to customers about the throttling policy were not sufficient.

The agency said Wednesday that AT&T slowed data for millions of customers for an average of 12 days of every billing cycle.

The company has acknowledged that the throttling creates difficulties for customers but argued the business model is above-board and transparent.

The Federal Trade Commission has also taken AT&T to court over the issue. In filings earlier this year, AT&T revealed the FCC was already looking into the throttling practice and asked a court to dismiss the FTC case because of a lack of jurisdiction, which the court denied.

This story was updated at 1:20 p.m.