The Federal Communications Commission slapped AT&T with a $100 million fine Wednesday, accusing the country’s second-largest cellular carrier of drastically slowing down Internet speeds for customers who signed up for “unlimited” data plans.
The decision marks the FCC’s most aggressive step to date to regulate Internet providers as Chairman Tom Wheeler follows through with his pledge to ensure that consumers have uninterrupted access to the Web. Although the enforcement action targets AT&T’s cellular business, other broadband providers fear it is a preview of the greater scrutiny the industry will face under a more assertive FCC.
AT&T’s practice affected millions of customers who saw their Internet service slow to the equivalent of dial-up speeds for up to 12 days a month, the FCC said. Thousands of AT&T customers complained as they struggled to browse the Web or watch movies on their smartphones, according to the agency.
The fine is the largest ever levied by the FCC and faults AT&T for failing to adequately disclose that unlimited customers faced “throttling” of their Internet speeds if the company determined they were using too much data.
“Consumers deserve to get what they pay for,” Wheeler said in a statement. “Broadband providers must be upfront and transparent about the services they provide. The FCC will not stand idly by while consumers are deceived by misleading marketing materials and insufficient disclosure.”
AT&T said it would fight the fine. “We have been fully transparent with our customers, providing notice in multiple ways and going well beyond the FCC’s disclosure requirements,” the company said in a statement.
But the FCC said that AT&T’s disclosures did not go far enough and that the company should correct its misleading statements.
If AT&T is unsuccessful in challenging the fine, the money will go to the U.S. treasury, not to customers. AT&T should allow customers to drop their unlimited data plans without incurring a penalty, the FCC said.
AT&T stopped offering unlimited data plans to new customers in 2010, but those who already had such plans were allowed to keep them. The company declined to say how many customers have unlimited plans.
Unlimited contracts were once common among cellular providers but fell out of favor as consumer appetite grew for smartphones and mobile Internet. The amount of mobile data used last year jumped 26 percent, according to CTIA, the wireless industry’s top trade group.
The explosion of demand for data has made offering unlimited service too expensive, industry analysts have said. The only way to keep up, they say, is to “throttle,” or cap, Internet access for customers who use too much data playing games or watching videos.
Most cellular customers now have a limited amount of monthly data and are hit with extra fees when they exceed the cap.
Before implementing its “throttling” policy in 2011, AT&T allegedly tested the idea with several focus groups. The more participants learned about the program, however, the less they liked it, according to the FCC. Consumers told the company that the policy was inconsistent with its promise of truly “unlimited” data. Yet AT&T went ahead with the policy.
This isn’t the first time AT&T’s unlimited-data policy has landed the company in hot water. The Federal Trade Commission sued the telecom company in October, alleging that 3.5 million users had their Internet service slowed to dial-up speeds. The case is pending, and AT&T has said it would fight the charges.
The FCC fine comes at an awkward time for AT&T as it tries to persuade the FCC to approve its $49 billion acquisition of DirecTV. The deal, which has been under scrutiny for more than a year, is considered essential to AT&T’s growth plans, including giving it access to valuable TV programming.
Consumer advocates said that while Wednesday’s decision is unlikely to jeopardize the deal, it reverses a long-standing perception that the FCC had gotten too cozy with industry.
“Big fines say, ‘Those days are over, and we expect you to behave,’ ” said Harold Feld, senior vice president of the advocacy group Public Knowledge. “As broadband is recognized increasingly as the critical service for people . . . we’re seeing the consumer-protection agencies within the government taking it a lot more seriously.”
The FCC fined AT&T under a transparency rule that was enacted in 2010 as part of its “net neutrality” authority — a set of powers aimed at preventing Internet providers from interfering with how content is delivered to consumers. A federal court struck down those regulations last year, except for the transparency provision, which requires broadband companies to explain their practices clearly to consumers. This year, the FCC passed a new version of net neutrality that is designed to police Internet providers even more closely.
The FCC’s aggressive oversight of AT&T will probably spread to other companies, industry officials fear. T-Mobile, for example, also slows Internet speeds for some of its unlimited customers in certain cases. The company, the country’s fourth-largest cellular provider, declined to comment. Meanwhile, the agency is expected to consider a complaint against Time Warner Cable alleging that the nation’s second-largest cable provider is unfairly charging content providers to access its subscribers.
Industry groups and officials declined to comment publicly on the AT&T fine but said privately that they were worried.
“This signals a very strong intention of the FCC and its enforcement bureau to make examples of [Internet providers] where they think there’s a problem,” said a cable industry official who spoke on the condition of anonymity in order to comment freely. “It’s a signal to say, ‘Watch out, because we’re coming.’ ”
Ensuring that consumers have adequate access to the Internet has become a cornerstone of Wheeler’s tenure. In February, the FCC knocked down state limits on city-run Internet services in Tennessee and North Carolina, putting more pressure on large Internet providers. The agency has also increased funding for schools and libraries that need help buying high-speed Internet.
On Thursday, the FCC is expected to expand Lifeline, a Reagan-era program that once subsidized only basic telephone service but under Wheeler could also cover the cost of stand-alone high-speed Internet subscriptions for the first time.