Was It Right for AT&T to Slow Down Some Customers’ Internet Speed on Their Smartphones?

Last week, the Federal Trade Commission filed a complaint in the federal court for the Northern District of California against AT&T, alleging the network giant hobbled millions of customers’ smartphones with dramatic reductions in speed (“data throttling”) despite promising them unlimited data.

The commission asserts that AT&T deliberately deceived its customers into renewing contracts and was fully aware its marketing could lead people to believe they were paying for a service—limitless data—the company had no intention of delivering.

For the FTC, that misrepresentation—and the general opacity of the data throttling program—constituted “unfair or deceptive acts or practices in or affecting commerce,” under section 5(a) of the FTC Act, and led to substantial injury to AT&T’s customers.

From 2007 until 2010, AT&T sold the iPhone, paired with an optional—and later mandatory—contract for unlimited data. Millions signed up for service contracts which were advertised, according to the FTC, as offering a limitless amount of data to power all the web surfing/email writing/GPS navigating the iPhone offered.

AT&T reversed course on mobile data in 2010, offering new customers the “tiered” plans that most users are familiar with today. Plans range from a few megabytes to 30 or more gigabytes. Existing customers were grandfathered in, and to this day AT&T allows those unlimited users to renew their two-year unlimited data contracts.

But in 2011, AT&T decided to begin slowing the Internet speeds of those same “unlimited” customers if they used large amounts of data. The pace of this data throttling could slow a phone by up to 95 percent. That would reduce a new LTE iPhone 6, ordinarily able to stream high-definition movies from Netflix, to something more akin to a dial-up router. The average throttled user would have to endure these speed reductions for 12 days out of a month, or 40 percent of a billing cycle.

Customers got a single notice of the policy in a 2011 billing statement that advised if they were “in the top 5% of users” they should expect to see data speed reductions. Thereafter, they were advised by text message or email if their data usage was nearing the threshold. AT&T continues to renew “unlimited” contracts without making it clear that customers are either subject to throttling or that throttling could render many of their phones’ core services largely useless.

AT&T argues that throttling is just a standard data management practice, necessitated by the burden on its network from explosive growth in data demand. It makes a reasonable point: As a service provider, the company has a vested interest in making sure its services are readily available for the most people.

In fact, a clause in every user’s contract specifically allows AT&T to modify or terminate the service of anybody who uses data in a manner that “adversely impacts network or service levels or hinders access to the wireless network,” among other prohibited activities.

That clause might be read to give AT&T the authority to throttle data, but user contracts never indicate that using too much data is a prohibited activity. And if the contract is read that broadly, AT&T ostensibly could throttle any customer whose usage, if lessened, could have a beneficial impact on network traffic. The whole concept of a data usage contract would be undermined.

AT&T told customers that to be throttled, they had to be among the “top 5% of users.” That suggests a threshold that would shift over time as data usage changed on the network. Yet, from the beginning, the threshold has been a set cap—initially a paltry two gigabytes, later raised to three and five gigabytes for 3G and LTE phones, respectively. Those figures never varied, regardless of how much data the top 5 percent of users were consuming, which would seem to bolster the FTC’s claim that AT&T was saying one thing and doing another.

AT&T certainly seems to be pushing people onto the company’s tiered plans (or forcing customers to pay early termination fees if they want out of their now-limited “unlimited” contracts). Tiered plans never see their data usage throttled—despite customers being able to consume upwards of 10 times more data than a throttled “unlimited” customer. The only difference: Those on tiered plans pay more for the service.

This begs the question: Is AT&T’s problem with unlimited contracts actually based on supply problems, or did it simply find a new way to monetize its network? The answer is: probably a little of both. But if AT&T set out to misrepresent and undermine its “unlimited” contracts, then it clearly has stepped over a legal line.

The FTC is suing to win refunds for the “numerous” individuals who paid early termination fees to escape their now-limited “unlimited” contracts. The complaint does not give specifics but says AT&T “collected substantial early termination fees from unlimited mobile data plan customers” who had no choice but to pay or endure the throttling.

Is throttling a breach of contract, or simple network management? We’ll have to watch this case closely to find out.