Phone Frustration: FTC Files Suit against AT&T for Deliberately Slowing Phone Speeds of “Unlimited” Plan Users

Author: Ashley Clever, Contributing Member, University of Cincinnati Law Review

Frustration with technology often causes one to wonder if there is an electronic conspiracy raging war against technology users. Usually these thoughts are ridiculous, fabricated only by an overly-unreliable copy machine that seems to always jam minutes before an important deadline or by an iPhone that works perfectly until the day the newest version is released and then mysteriously begins to freeze, making the owner want to upgrade. But some worries about an elaborate electronic conspiracy might actually be well-founded, and the Federal Trade Commission (FTC) recently filed a complaint against AT&T Mobility Company (AT&T) for reducing the data speeds of users who had an “unlimited” phone plan.[1]

Nearly all smartphone users have experienced excruciatingly slow data speeds at various points in time, but most would wrongfully associate this relative speed with network availability—how strong the connection is to the network and how much traffic the network is experiencing. What they do not realize is that companies like AT&T are deliberately reducing phone speeds to prevent users from being able to download large amounts of data on their unlimited data phone plans.

Protecting American Consumers: The Federal Trade Commission Act

The Federal Trade Commission Act[2] established the Federal Trade Commission, which seeks to prevent unfair methods of competition and unfair or deceptive acts or practices affecting commerce.[3] The FTC is a bipartisan federal agency that protects consumers and promotes competition by stopping unfair, deceptive, or fraudulent practices in the United States marketplace, and by keeping prices low and the quality and choice of goods and services high.[4] Congress granted enforcement authority under the Act to the FTC, allowing it to file suit against companies or individuals who violate the FTCA, and the FTC investigates cases both on its own initiative and based on complaints received from consumers.[5]

The FTC has broad power to gather and compile information regarding organizations, business conduct, and any person, partnership, or corporation whose business affects commerce.[6] The FTC can file suit against anyone who fails to comply with their orders or against any person or entity whose practices are unfair.[7]

“Unlimited” Phone Plans

Every phone plan seems to boast the best network for a remarkably low price—so long as the consumer signs a long-term contract. With the growing dependence on smartphones and technology, many users find that they need a large amount of data usage in their monthly phone plan.

In June of 2010, AT&T ceased offering the unlimited mobile data plan to customers and now only offers unlimited talk and texting.[8] AT&T now boats a “Mobile Share Value Plan with Unlimited Talk & Text,” including “tiered levels of data usage, increasing as the monthly price increases, starting at $20 per month for 300 MB and rising to $375 per month for 100 GB, with the suggested plan costing $100 per month for 15 GB of data.”[9] By the time AT&T stopped offering the unlimited mobile data plans, which first became available in 2007 when AT&T became the exclusive provider for the Apple iPhones, millions of customers were already locked into an “unlimited data” contract.[10]

This plan enticed customers to switch mobile data providers, often buying out their existing contracts if they agreed to sign a long-term contract in exchange.[11] AT&T also required all iPhone customers to purchase an unlimited data plan when purchasing a new iPhone.[12] While AT&T has stopped offering their unlimited data plan, existing customers are asked to renew their contract for an unlimited mobile data plan, and millions of AT&T’s unlimited data plan users have opted to keep their unlimited phone plan rather than switch to a tiered mobile data plan or to switch providers. AT&T’s subsequent actions caused the FTC to file suit.

FTC Files Complaint against AT&T

On October 28, 2014, the FTC filed a complaint against AT&T in the Northern District of California, asking for a permanent injunction and equitable relief.[13] The complaint alleged that in July 2011, AT&T began reducing their data speed for unlimited mobile plan users, a practice known as “data throttling.”[14] If an unlimited data plan user exceeded a limit set by AT&T during the billing cycle, the speed that the user’s phone received data was drastically reduced, bottlenecking or throttling the user’s data speeds.[15]

In October 2011, the data usage threshold for AT&T to throttle phone speeds for customers varied based on the geographical market, with the threshold as low as 2 GB of usage per billing cycle in areas like New York City and San Francisco, capping speeds at 128 kilobytes per second (Kbps) after the user reached her data “limit.”[16] The throttling program was modified in March 2012, setting a uniform data usage threshold of 3 GB per billing cycle for users of the 3G network (iPhone 3G, 3GS and 4 users) and 5 GB per billing cycle for the LTE network (iPhone 5, 5S, 6, and 6 Plus users).[17] Customers on the 3G network had their data speeds capped at 256 Kbps once they had downloaded 3 GB of data, with users of the LTE network had data speeds capped at 512 Kbps.[18] Typical speeds for an uninhibited device range from 700 Kbps to 1.7 megabytes per second (Mpbs) for 3G devices and 5 to 12 Mbps for LTE devices.[19] This means that users experienced an 80-90% decrease in speed under the original throttling practices and a 60-85% decrease in speed under the revised version, with up to a 90-95% decrease in LTE devices.[20]

AT&T even used an internal focus group to research the understanding of the throttling program and the unlimited data plans. The researchers concluded that the reaction was very negative, as consumers felt it was clearly unfair and “unlimited should mean unlimited.”[21] The consumers felt it was misleading and researchers advised the company that to avoid negative feedback they should not say too much regarding the practices.[22]

The FTC also alleged that AT&T was aware of third-party research showing that at 256 Kbps, two-thirds of customers were unsatisfied with webpage render time and at 128 Kbps, 93% of customers were unsatisfied with webpage render time.[23] Thousands of consumers submitted written complaints to the FTC and the Better Business Bureau about AT&T’s data throttling practices, and AT&T received more than 190,000 customer calls relating to its throttling practices.[24]

In its complaint, the FTC stated that speed reductions were not determined by real-time network congestion or network capacity but that once the data threshold had been met, data download speeds were significantly reduced until the end of the billing cycle, in which AT&T restores the data speed for the customers back to full speed until they again reach the specified data threshold.[25] Since October 2011, the FTC stated that AT&T has throttled customers more than 25 million times, affecting more than 3.5 million unique customers.[26] The FTC also specified that most customers’ phone speeds are throttled for an average of twelve days in the last thirty days of the billing cycle.[27] The FTC asked the court for injunctive and monetary relief, to stop AT&T from continuing these practices, to mandate disgorgement of all profits gained from these practices, and to provide monetary damages to users or to order rescission or reformation of the contracts.[28]

The Right to Data Usage

Currently, the FTC has only filed its complaint asking the court for permanent injunction of these practices and equitable relief. As for AT&T customers—they must be sure to read and re-read the small print of contracts—the friendly sales representative “Lily” from the AT&T commercials may not be as nice as she seems.

On average, customers experience throttled data for twelve days out of a thirty-day billing period—nearly half of their phone usage! In any bargain, the terms of both sides must be clear. In these unlimited data contracts, AT&T is deceiving consumers into believing that they may download truly “unlimited” data for a set price per month. In reality, AT&T is punishing customers for using the data that they rightfully bargained for in making their monthly payments. These practices are deceptive and need to be stopped or be made plainly clear to customers. Indeed, these throttling practices are unfair to customers and should be banned. Phone companies should not be able to manipulate the data speeds of users who have the right to download unlimited data. In downloading data, users are merely trying to recoup the money invested into the phone plan by adequately using as much data as possible per month, which the companies now make impossible.

It is unjust and inequitable to tamper with download speeds, knowing that consumers will believe that it is caused by network congestion and not by corporate executives trying to prevent users from exercising their contractual rights. By signing a contract and giving a company money for “unlimited” data, users in turn should be given the right to download unlimited data for the same low rate. These throttling practices impede this right by preventing users from downloading the data they desire, and so the district court in California should agree with the FTC and find these practices unfair to consumers, inherently deceptive in nature, and enjoin them.

 

[1] Federal Trade Commission v. AT&T Mobility LLC, Case No. ___ (N.D. Cal. 2014), available at: http://www.ftc.gov/system/files/documents/cases/141028attcmpt.pdf.

[2] 15 U.S.C. §§ 41-58.

[3] Federal Trade Commission Act, Federal Trade Commission, http://www.ftc.gov/enforcement/statutes/federal-trade-commission-act (last visited November 19, 2014). The Act established the Federal Trade Commission, formed in 1914 by President Woodrow Wilson. The FTC is also empowered to seek monetary redress and other relief for conduct injurious to consumers, to prescribe trade regulation rules defining with specificity acts or practices that are unfair or deceptive, and establishing requirements designed to prevent such acts or practices, to conduct investigations relating to the organization, business practices, and management of entities engaged in commerce, and to make reports and legislative recommendations to Congress. Id.

[4] What We Do, Federal Trade Commission, http://www.ftc.gov/about-ftc/what-we-do (last visited November 19, 2014). The Commission is headed by five Commissioners which are nominated by the President and Confirmed by the Senate (no more than three commissioners can be of the same political party) and each serve a seven-year term. Commissioners include Edith Ramirez, the Chairwoman of the Commissioners, Julie Brill, Maureen Ohlhausen, Joshua Wright, and Terrell McSweeny. Id.

[5] Id. The FTC was granted investigative authority under 15 U.S.C. § 43, which states that the Commission may “prosecute any inquiry necessary to its duties in any part of the United States.”

[6] Id. The FTC may subpoena information and documents and can require annual or special reports from companies or individuals and can file suit after giving notice and a thirty-day grace period. Suit may be filed for any action which is deemed to be “unfair or deceptive acts or practices affecting commerce” which are likely to cause reasonably foreseeable injury in the United States or to involve material conduct occurring within the United States. The FTC does not have however, have the authority to investigate or prosecute banks, savings, or loan institutions, and federal credit unions. Id. See also 15 U.S.C. §46(b).

[7] 15 U.S.C. §45. Practices are considered “unfair” if they cause or are likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and is not outweighed by countervailing benefits to consumers or to competition. Id.

[8] Federal Trade Commission v. AT&T Mobility LLC, Case No. ___ at p. 3 (N.D. Cal. 2014), available at: http://www.ftc.gov/system/files/documents/cases/141028attcmpt.pdf.

[9] Wireless Plans, AT&T, http://www.att.com/shop/wireless/plans/mobileshare.html (last visited Nov. 19, 2014).

[10] Id. The unlimited mobile data plan offered to customers in 2007 was initially only $20 per month, later increasing in 2008 to $30 per month, and this price has continued ever since. Id.

[11] Id.

[12] Id. This provision started with the iPhone 3G and has continued for subsequent versions of the iPhone. Id.

[13] Federal Trade Commission v. AT&T Mobility LLC, Case No. ___ at p. 3 (N.D. Cal. 2014), available at: http://www.ftc.gov/system/files/documents/cases/141028attcmpt.pdf.

[14] Id. at ¶ 15 and 18.

[15] Id.

[16] Id. at ¶ 16. Kbps stands for kilobytes per second.

[17] Id. at ¶ 17.

[18] Id. at ¶ 18.

[19] Id. at ¶ 19. Mbps stands for megabytes per second.

[20] Id. at ¶ 20.

[21] Id. at ¶ 21.

[22] Id.

[23] Id. at ¶ 22.

[24] Id. at ¶ 23.

[25] Id. at ¶ 26.

[26] Id. at ¶ 27.

[27] Id.

[28] Id. at Prayer for Relief, p. 13.

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