Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: FCC proposes $100 million fine against AT&T for data throttling practices on “unlimited” mobile plans, (Jun 18, 2015)

By Edward L. Puzzo, J.D.

The Federal Communications Commission (FCC) has proposed a $100 million fine against AT&T Mobility for “willful and repeated” violations of the FCC’s Open Internet Transparency Rule by throttling mobile broadband data speeds on a data plan advertised as “unlimited” once a certain data use threshold was reached, and by failing to disclose the speed reduction practices to “unlimited” data plan customers (In the Matter of AT&T Mobility, LLC, FCC File No. EB-IHD-14-00017504). Commissioners Ajit V. Pai and Michael O’Rielly dissented.

The Federal Trade Commission filed a lawsuit against AT&T over the same issue in October 2014. The FCC’s 2010 open Internet transparency rule was the only aspect of the agency’s 2010 open Internet rules that a federal appeals court left standing in a 2014 decision.

Under a “maximum bit rate” (MBR) policy adopted by AT&T in 2011, unlimited data service customers could experience a maximum speed cap “once they used a set amount of data in a billing cycle,” the FCC noted in the notice of apparent liability (NAL) for forfeiture and order adopted June 3 and released June 17. AT&T discontinued new offerings of its unlimited data service in 2010, but existing customers were grandfathered. The NAL redacts subscribership figures for the grandfathered service, but the Commission said in a press release that the investigation revealed that “millions of AT&T customers were affected.”

The order also directs AT&T to come into compliance with the transparency rule by individually contacting each unlimited data plan customer “via bill insert or other similar method, that AT&T’s disclosures were in violation of the Transparency Rule, and that AT&T is correcting, or has corrected, its violation of the rule with a revised disclosure statement.

“The revised disclosure statement must provide those customers with enough information to allow them to make informed choices about the purchase and use of their unlimited data plan, and must inform them that those unlimited data plan customers who choose to cancel their unlimited data plans after the revised disclosure is provided may do so without penalty. AT&T’s revised disclosure statement must include the maximum speeds to which it limits unlimited data plan customers’ service when applying the MBR policy, to the extent that any such maximum speeds remain in effect,” the order says. “In addition, by providing subscribers with an opportunity to opt out of the plan without penalty, we will prevent AT&T from continuing to reap competitive benefits and direct financial rewards from its violations of this disclosure requirement,” it says.

AT&T argued in an ex parte filing early this year that that its public announcement, subsequent media coverage, bill statement notices, and other disclosures more than satisfy the requirement in the FCC’s 2010 open Internet order for “a single disclosure” on a “publicly available, easily accessible website” and at the point of sale AT&T also pointed out in that filing that hat the FCC did not impose a financial forfeiture on T-Mobile US, Inc., over what the Commission viewed as a lack of transparency in the company’s practices in removing data throttles when customers ran speed tests.

The FCC said in the NAL, “Although AT&T asserts that it has provided ample disclosures about these policies, we find that these disclosures do not cure AT&T’s apparent violations of the Open Internet Transparency Rule. AT&T’s practices deprived consumers of sufficient information to make informed choices about their broadband service and thereby impeded competition in the marketplace for such services.”

“These reduced speeds—256 [kilobits per second for non-LTE customers] or 512 kbps [for LTE customers]—significantly impaired the ability of AT&T’s customers to use their data service. Although a customer may be able to send an email at these speeds, he or she may find it impossible to use AT&T’s data service in ways that most people today use smartphones—for instance, using mapping applications to get from one place to the next, streaming online video to catch up on television or news, or using video chat applications to stay connected with friends and family,” the NAL says. “Customers who were subject to the MBR policy had their speeds reduced for an average of 12 days per billing cycle,” the NAL notes.

The NAL says that the FCC has received thousands of complaints from AT&T’s unlimited data plan customers “alleging that they have had their speeds intentionally reduced, and who claim that they purchased an unlimited data plan and are not getting the services that they paid for. Although nearly four years have passed since the MBR was implemented and since customers supposedly were fully informed about the policy, the Commission continues to receive a steady stream of complaints from AT&T unlimited plan customers who were surprised about having their speeds reduced.”

A senior FCC official speaking to reporters on background today said that AT&T gave consumers no indication of precisely when they would experience reduced speeds under the MBR policy, what the specific speeds would be, and what effect this would have on their use of common apps such as the FaceTime video-calling app. The official also said that AT&T ignored information it uncovered in focus groups before implementing the MBR policy that consumer expectations about unlimited data service were inconsistent with the policy.

“Consumers deserve to get what they pay for,” said FCC Chairman Tom Wheeler. “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.”

“Unlimited means unlimited,” said FCC Enforcement Bureau Chief Travis LeBlanc. “As today’s action demonstrates, the Commission is committed to holding accountable those broadband providers who fail to be fully transparent about data limits.”

AT&T reaction. AT&T has 30 days to either make the payment or submit a written response arguing for the elimination or reduction of the proposed forfeiture. Regardless of which option AT&T takes, the order directs the company to file within 30 days a report of what measures it has taken in response to the order’s compliance directives. AT&T stated “We will vigorously dispute the FCC’s assertions. 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. We have been fully transparent with our customers, providing notice in multiple ways and going well beyond the FCC’s disclosure requirements.”

Dissents. Dissenting commissioners Pai and O’Rielly argued that AT&T’s disclosures did comply with the 2010 transparency rule. In his lengthy dissent, Commissioner Pai characterized the NAL as “Kafkaesque” for applying a “revised” rule retroactively, ignoring “inconvenient facts,” penalizing AT&T for a business practice that has enjoyed “years of implied approval,” and imposing “a penalty conjured from the executioner’s imagination.”

“Because the Commission simply ignores many of the disclosures AT&T made; because it refuses to grapple with the few disclosures it does acknowledge; because it essentially rewrites the transparency rule ex post by imposing specific requirements found nowhere in the 2010 Net Neutrality Order; because it disregards specific language in that order and related precedents that condone AT&T’s conduct; because the penalty assessed is drawn out of thin air; in short, because the justice dispensed here condemns a private actor not only in innocence but also in ignorance, I dissent,” Commissioner Pai stated.

Commissioner O’Rielly said, “The 2010 Open Internet Order does not specifically require the disclosure of exact speeds provided under congestion management policies. Instead, the disclosure needs to describe the ‘practices’ effects on end users’ experience.’ Therefore, AT&T’s website disclosure stating that subscribers affected by the MBR Policy would experience slower speeds that would likely be noticeable during video streaming, but would ‘still have a good experience surfing the Web, accessing email, and continuing to use an unlimited amount of data each month without incurring overage charges’ appears to meet this requirement.”

Commissioner O’Rielly added, “I also cannot agree with the forfeiture or compliance measures that are adopted in this NAL. I have previously raised concerns that forfeiture amounts are not based on any actual metric, and that is the case here. The NAL finds that AT&T has approximately [redacted] million unlimited consumers and presumes that they have all been harmed, even though not all of these customers were actually affected or experienced reduced data speeds under the MBR Policy. Luckily, the NAL does determine that multiplying [redacted] million consumers by the statutory maximum would come out to ‘an astronomical figure.’ But, instead of coming up with a common sense metric, the Commission threw a dart and came up with a $100 million forfeiture.”

Supporting FCC action. Some open Internet supporters applauded the FCC’s action. Sen. Al Franken (D., Minn.) said, “When a giant company like AT&T misleads millions of its customers, someone needs to hold them accountable—and I’m glad the FCC is working to do that. Americans increasingly depend on mobile broadband Internet services, and they have a right to be fully and fairly informed about the data plans they are purchasing. This announcement makes clear that the FCC takes its enforcement role seriously, and is committed to requiring the kind of transparency that broadband customers deserve. I applaud the FCC for taking this action.”

Harold Feld, senior vice president of Public Knowledge, noted that Public Knowledge had raised questions about data throttling practices by wireless carriers last August in letters it sent to AT&T, Verizon Wireless, T-Mobile USA, and Sprint Corp. “In the last 15 months, Enforcement Bureau Chief Travis Leblanc and Chairman Tom Wheeler have worked hard to regain the public trust that the FCC stands with consumers. For too long, carriers have laughed at the FCC’s consumer protection regulations and viewed the occasional fine as a cost of doing business. Unlike their dissenting Republican colleagues, Chairman Wheeler, Commissioner [Jessica] Rosenworcel and Commissioner [Mignon L.] Clyburn have sent a clear signal that the days of tolerating consumer rip-offs with finger-wagging warnings and a slap on the wrist are over—at least for now,” Mr. Feld said. “Big companies do not love consumer protection enforcement, and we will no doubt see these same companies running to Congress to put the leash on the FCC’s Enforcement Bureau. Hopefully, members of Congress will remember that the public needs a vigorous consumer watchdog, not an industry lapdog hampered by a choke chain,” Mr. Feld added.

Delara Derakhshani, policy counsel for Consumers Union, said, “Unlimited should mean unlimited, no excuses or loopholes. Not only does it seem clear that AT&T wasn’t providing the services that consumers expected and were paying for, but they also weren’t upfront with their customers about the extent to which their speeds were being slowed down. We agree with Chairman Wheeler that consumers should get what they pay for and we hope this sends a strong message that these type of practices will not be allowed. We applaud the Commission for taking action to hold AT&T accountable and hope to see their customers compensated accordingly.”

Opposed to FCC action. Not all observers approved of the agency’s action. TechFreedom President Berin Szoka said, “This settlement imposes massive penalties for conduct that was not illegal at the time. But the real story here is not about AT&T; it’s that the FCC is going to use massive fines as a sledgehammer to coerce companies into settling ‘Open Internet’ cases even as Title II regulations languish in court. If settling means $50 million instead of $100 million, or $100 million instead of $200 million, companies will settle routinely—and the courts will play no role in checking the FCC’s discretion. Thus, strict as the Order is on paper, it will become truly absurd in practice.” Mr. Szoka added, “It’s far from clear that AT&T’s so-called throttling actually made consumers overall worse off, since extreme bandwidth hogs slowed down congested mobile networks for everyone. But if the practice was harmful, or if AT&T actually deceived consumers about it, this is precisely the kind of practice that the FTC could have dealt with under its existing authority—without any need for the FCC to get involved or to take the draconian step of imposing Title II regulation on the Internet.”

FCC File No. EB-IHD-14-00017504; NAL/Acct. No. 201532080016; FRN: 0018624742

Companies: AT&T Mobility, LLC

News: ConsumerProtection Advertising FederalTradeCommissionNews