Federal officials on Tuesday sued AT&T, the nation’s second-largest cellular carrier, for allegedly deceiving millions of customers by selling them supposedly “unlimited” data plans that the company later “throttled” by slowing Internet speeds when customers surfed the Web too much.
The Federal Trade Commission said the practice, used by AT&T since 2011, resulted in slower speeds for customers on at least 25 million occasions – in some cases cutting user Internet speeds by 90 percent, to the point where they resembled dial-up services of old. The 3.5 million affected customers experienced these slowdowns an average of 12 days each month, said the FTC, which received thousands of complaints about the practice.
The legal action -- which AT&T immediately criticized and signaled it was prepared to fight -- is one of the most aggressive yet under FTC Chairwoman Edith Ramirez, a reserved former corporate lawyer who took office last year. In challenging one of the nation’s largest cellular providers, she also tread close to the jurisdiction of a sister agency, the Federal Communications Commission, which more regularly handles telecommunications issues but often has been criticized by consumer groups as being too cozy with industry and not aggressive enough in protecting customers’ privacy and pocketbooks.
“AT&T promised its customers ‘unlimited’ data, and in many instances, it has failed to deliver on that promise,” said Ramirez in a statement. “The issue here is simple: ‘unlimited’ means unlimited.”
She said that the FTC was seeking financial damages that could result in money being repaid to AT&T customers affected by the company’s policy of throttling. The suit, which was approved by the five-member commission in a unanimous vote, was filed in U.S. District Court in San Francisco.
The FTC found in its investigation that AT&T was aware that consumers saw throttling as inconsistent with promises of “unlimited” data. When the company explained the concept to focus groups, the FTC reported in its suit, customers grew upset. The company’s own researchers then urged AT&T’s marketers that “saying less is more” when it comes to selling such services.
The FTC lawsuit rested on its power to police deceptive marketing practices and prompted praise from consumer advocates, who long have complained that cellular carriers have larded the bills of their customers with unnecessary and deceptive charges. Throttling, they said, deprived customers of data they believed they had paid for, with little recourse against AT&T. The practice occurred even when AT&T’s network was not burdened, according to the FTC, which added that the company had received 190,000 customer calls regarding the practice.
“It’s absolutely outrageous,” said John Bergmayer, a senior staff attorney at Public Knowledge, an advocacy group based in Washington. “They’re not allowed to promise one thing and deliver another… Unlimited is not unlimited when you put limits on it.”
AT&T responded by calling the FTC’s allegations “baseless” and an intrusion into the normal network management practiced by all telecommunications providers. The company also noted that it had alerted customers about the throttling, by sending e-mails or texts notifying customers that they had crossed pre-set limits and would experience slower data speeds for the rest of the billing period.
“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,” said AT&T senior executive vice president Wayne Watts, “and does it in a way that is fully transparent and consistent with the law and our contracts.”
The lawsuit marks the second time this year that a major wireless carrier has been targeted for its treatment of customers on unlimited data plans. The FCC wrote a letter in July criticizing Verizon over a plan to throttle heavy users during periods of peak congestion. Verizon later backed down on that plan. The FCC said Tuesday that it was coordinating with the FTC on investigations into carriers slowing down unlimited data.
“Wireless customers across the country are complaining that their supposedly ‘unlimited’ data plans are not truly unlimited, because they are being throttled and they have not received appropriate notice,” said Neil Grace, an FCC spokesman. “We encourage customers to contact the FCC if they are being throttled by AT&T or other cellular providers.”
The lawsuit comes at an awkward time for AT&T, which is trying to convince regulators to approve its $49 billion acquisition of the nation’s largest satellite TV provider, DirecTV.
AT&T is also paying $105 million to settle charges from this month that it loaded consumers’ wireless bills with bogus third-party fees without their consent. Those fees, according to the FTC and the FCC, added “hundreds of millions of dollars” to AT&T’s bottom line over a five-year period and misled customers into thinking that they were being charged for AT&T’s own services.
FTC investigations take place behind closed doors and often result in out-of-court settlements, typically proceeding to legal action only when accords cannot be reached. The inability to agree on terms of a possible settlement suggests high stakes for AT&T, which like other cellular carriers relies increasingly on delivering data, rather than traditional phone calls, in making money from its customers. The company is the 14th-largest spender on lobbying in America, according to the Center for Responsive Politics.
In the lawsuit filed Tuesday, the FTC cited numerous consumers who alleged that AT&T failed to honor its commitments to unlimited data.
“This is a clear case of bait and switch,” one customer said, according to the FTC’s complaint.
“If [I’m] being punished for using my phone and plan as advertised[,] then I have lost a lot of respect for [AT&T],” said another.
The fight also touches on some larger issues, including the politically charged debate over “net neutrality,” which concerns whether Internet providers should be allowed to alter the speeds of various Internet traffic, potentially prioritizing the data flowing from favored corporate partners. Both of the Republican commissioners on the FTC, Maureen Ohlhausen and Joshua Wright, issued tweets on Tuesday afternoon saying that the AT&T lawsuit showed that the FTC already has the power to regulate certain abuses in Internet data flows.
“@ATT throttling case shows the @FTC can and will enforce broadband ISPs’ promises about traffic mgt. #NetNeutrality http:,” Ohlhausen said in her tweet.
Such arguments come amid larger turf issues between the FCC and the FTC, which regulates a broader group of industries and often is described as more aggressive in curbing the abuses of large companies.
“Under Ramirez, the commission is going to confront some of the most powerful companies in the country for their data and privacy practices,” said Jeff Chester, executive director of the Center for Digital Democracy, a consumer and privacy group based in Washington. “This is part of a much broader set of investigations going on at the FTC to look at how the digital data marketplace treats consumers… The FTC is stepping into an area where the FCC has failed to be an effective regulator.”
The FTC filed a complaint in July against T-Mobile, the nation’s fourth-largest cellular carrier, for allegedly “cramming” their bills with charges for “premium” services that customers often did not seek or understand.