A rental car company prominently advertises “unlimited mileage.” You rent from them and everything is going fine until you’ve done a few hours of highway driving. That’s when the company tells you it’s changed its unlimited mileage policy. Since you’ve traveled more than 100 miles, they've restricted it so the car you contracted for won't accelerate over 30. The analogy isn’t perfect, of course, but it offers a broad-stroke introduction to the FTC’s complaint against AT&T Mobility for data throttling – the company’s practice of marketing “unlimited” smartphone data plans, but then restricting the data speed of customers who use more than a few gigabytes of data in a billing cycle.
In 2007, AT&T became the exclusive mobile data provider for the Apple iPhone. The company offered customers an unlimited mobile data plan for $20 a month, a fee that increased to $30 when the iPhone 3G was released.
A few years later, AT&T stopped offering unlimited plans to new customers and required them to buy tiered plans, which offered limited data and changed extra for anything over that. But by then, millions of customers had already signed up for unlimited plans. In addition, other companies started to offer data plans for iPhones. So to keep unlimited customers from switching, AT&T grandfathered their plans when they bought new smartphones.
In 2011, AT&T began reducing the data speed for customers with unlimited plans. Under its data throttling program, if a customer exceeded a limit set by AT&T, the company substantially reduced the speed of their device for the rest of their billing cycle. Initially, the data usage threshold varied from city to city – with thresholds as low as 2GB in markets like New York or San Francisco. Later, AT&T adopted a national policy to start slowing data speed down after 3GB on its 3G network and 5GB on its LTE network.
Just how much slower was the service to unlimited customers? According to the FTC, many consumers experienced a slow-down of 85%, 90%, or even 95%. As a result, lots of everyday uses – like web browsing, GPS navigation, or video streaming – range from significantly slower to pretty much inoperable. Customer complaints poured into the company, the Better Business Bureau, and government agencies. AT&T has received more than 190,000 customer calls about throttling.
The FTC’s lawsuit cites company documents that offer behind-the-scenes insights into how customers understood A&T's “unlimited” advertising claim. For example, the company had focus group research indicating that its throttling program was at odds with consumer understanding of an “unlimited” plan. Citing participants who thought the idea was “misleading” and “clearly unfair,” researchers noted, “As we’d expect, the reaction to [a proposed data throttling program] was negative; consumers felt ‘unlimited should mean unlimited.’” The researchers continued, “The more consumers talked about it the more they didn’t like it.” Their advice: “Saying less is more, [so] don’t say too much” in marketing communications about a data throttling program.
According to the complaint, AT&T was also aware of third-party research citing astronomically high rates of consumer dissatisfaction – in some cases, as high as 93% – with the speed throttled consumers experienced.
Couldn’t the speed and service reductions be due to real-time network congestion at a particular cell tower? The FTC says that isn’t the case and that throttled consumers are subject to this reduced speed even if they use their smartphone at a time when the network isn’t busy.
But doesn’t throttling apply to just a handful of mega-users? No. According to the complaint, since October 2011, AT&T has throttled its customers more than 25 million times, affecting more than 3.5 million unique users. What’s more, when customers are throttled, their data speed is reduced, on average, for the last 12 days of their 30-day billing cycle.
The FTC says that AT&T doesn’t adequately tell its unlimited customers about its data throttling program. For most of them, the only thing they got before renewing their unlimited plan – which includes hefty penalties for early termination – was a 2011 bill statement that said, “To provide the best possible network experience, starting 10/01/11, smartphone customers with unlimited data plans whose usage is in the top 5% of users can still use unlimited data but may see reduced data speeds for the rest of their monthly billing cycle. We’ll alert you if you near the top 5%. To avoid slowed speeds you may use Wi-Fi or choose a tiered data plan. Details@att.com/dataplans.” The FTC says that statement didn’t disclose just how substantially AT&T would reduce their data speed and the impact that would have on their ability to use their device. It also failed to adequately disclose that the speed reduction was due not to general network congestion, but rather to a limit intentionally imposed by AT&T.
The lawsuit – filed in federal court in San Francisco – charges AT&T with both unfair and deceptive practices. Count I alleges that AT&T advertised its data plan as “unlimited” and entered into contracts with consumers who reasonably understood they’d get the advertised benefit. But after locking them in to long-term contracts, AT&T diminished their service when they used more than a fixed amount of data in a given billing cycle. That, says the FTC, is an unfair trade practice.
Count II alleges that AT&T represented expressly or by implication that the amount of data consumers could access in any billing period would not be limited. But since imposing its data throttling program, AT&T has placed material speed restrictions on “unlimited” customers who use more than a fixed amount of data in a billing cycle. In light of the representations the company made, the FTC says AT&T’s failure to disclose that fact was deceptive.