FCC to fine AT&T $100M for deceiving customers over unlimited data plan

Welcome to the new era of Net neutrality, AT&T.

The wireless carrier, second largest in the US by number of subscribers, faces a fine of up to $100 million after the Federal Communications Commission determined that it misled customers about its unlimited mobile data plans.

The FCC alleges that AT&T slowed service for 4G LTE subscribers to its unlimited data service when they exceeded more than 5 gigabytes of data in a month. AT&T, the agency says, dropped speeds to as low as 512 kilobits per second, which is about 5 percent of what it advertised for its 4G LTE service, and also failed to adequately notify its customers that they could receive slower-than-advertised speeds.

By "falsely labeling" these plans as allowing unlimited data usage, AT&T is violating the 2010 Open Internet Transparency Rule, the FCC said. The agency also alleges that the company failed to sufficiently inform customers of the maximum speed they would receive.

This is the first time that the FCC has taken action against a company for violating any of its Net neutrality rules. The Transparency Rule was the only part of the agency's original 2010 strictures that survived a legal challenge after a federal court decision in January 2014. The FCC adopted new Open Internet rules in February of this year, and they went into effect just last week.

Net neutrality is the principle that all Internet traffic be treated equally, and the latest regulations are based on a redefinition of broadband that lets the government regulate Internet infrastructure as a public utility. Among other things, the rules prohibit broadband providers from blocking or slowing traffic on wired and wireless networks.

"Consumers deserve to get what they pay for," FCC Chairman Tom 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."

The $100 million fine is the largest the FCC has ever proposed for violating one of its rules.

AT&T claims it had notified customers about its policy in multiple ways. It also said that the FCC seemed to have found the practice within bounds.

"We will vigorously dispute the FCC's assertions," the company said in a statement. "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."

A senior official of the FCC said that AT&T's customer notifications were insufficient because they did not provide customers with enough information to make informed decisions. For instance, the company did not tell consumers how much they could expect their service would be slowed, nor did the company offer enough information about what would trigger the company to "throttle" or slow the service.

In October 2014, the Federal Trade Commission sued AT&T over the same issue, also alleging that the company's policy was deceptive.

The fine against AT&T over throttling of speeds could end up lower than the proposed $100 million. The agency must still get approval through its own internal judicial process to set the fine. AT&T is also likely to fight the charge in court.

Unfortunately for customers, any money that AT&T pays will not be returned them -- instead, it will go to the US Treasury. A senior FCC official, though, said that as part of this action it is asking AT&T to establish a plan to compensate affected subscribers.

Last year, AT&T agreed to pay a fine of $105 million to the FTC and to state governments to settle charges over a practice known as "cramming," or allowing third parties to put unauthorized charges on customers' bills. On top of that, the company agreed to pay $5 million to the FCC.

A brief history of unlimited data plans

AT&T began offering unlimited data plans in 2007, and it stopped offering these plans to new customers in 2010. Since that time, the company has allowed existing customers to keep their unlimited plans, but in 2011, it began a policy through which it would limit the speed of the service when customers reached a certain threshold of usage.

The "Maximum Bit Rate" policy capped the maximum data speeds for unlimited customers on AT&T's 4G LTE service after they used a 5GB of data within a billing cycle. The FCC says the capped speeds were much slower than the normal network speeds AT&T advertised and significantly impaired the ability of AT&T customers to access the Internet or use data applications, such as streaming video or accessing Web pages, for the remainder of the billing cycle.

The FCC also took issue with the fact that service was being slowed for AT&T customers even when the wireless network was not congested. AT&T has since amended its policy and says it only slows service for customers who exceed the 5GB limit when the network is overcrowded.

The agency says it has received thousands of complaints from customers of AT&T's unlimited data plan, who said they felt misled by the company's policy. Consumers also complained that they could not cancel service without having to pay early-termination fees.

Republican FCC commissioners Ajit Pai and Michael O'Rielly voted against the proposed fine, arguing that it's not clear that AT&T violated the 2010 transparency rule as it was intended. Pai also said in a lengthy statement that the FCC "simply ignored" the many disclosures that AT&T made to customers about its throttling policy. He also questioned the amount of money the FCC plans to fine AT&T.

"In the end, this case is really just a regulatory bait and switch," Pai said his statement. "A once-approved network management practice is now out of favor and carries with it a $100 million penalty."

Update at 11:40 a.m. PT: This story was updated with information from a senior FCC official and with additional background about the agency's actions. An update also clarifies that the fine has only been proposed and has not been finalized.