Unprecedented fine for reducing data speeds in “unlimited” data plans (apparently) without adequate notice to consumers

Here’s your philosophical question for the day: What does “unlimited” mean? Not sure? Take your time. Oh, and not to add any pressure or anything, but bear in mind that if you come up with the wrong answer, it could cost you $100 million. Does that help?

AT&T guessed wrong – at least as far as the FCC is concerned – when it described one of its mobile data offerings as “unlimited”. The result: a proposed $100,000,000 fine. Yup, eight (count ’em, eight) zeros, which is real money, presumably even for AT&T. In fact, it’s the largest fine ever imposed by the FCC, by a long shot.

The FCC obviously wants us all to know that it’s serious about enforcing its Open Internet rules.

What’s at issue here is the Transparency Rule, which provides that

a person engaged in the provision of broadband Internet access service shall publicly disclose accurate information regarding the network management practices, performance, and commercial terms of its broadband Internet access services sufficient for consumers to make informed choices regarding use of such services ….

For purposes of this disclosure rule, the Commission advised that the types of information to be disclosed would “likely include some or all” of the following: “network practices”, including “congestion management practices”; “performance”, including “expected and actual access speed and latency”; and “commercial terms”, including “monthly prices, usage-based fees, and fees for early termination”. The Commission also explained that “effective disclosure” would entail, at a minimum,

prominently display[ing] or provid[ing] links to disclosures on a publicly available, easily accessible website that is available to current and prospective end users … [as well as] disclos[ing] relevant information at the point of sale.

The Commission adopted the Transparency Rule in the 2010 Open Internet Order. The rule took effect in 2011. (While much of the 2010 Open Internet Order was eventually overturned by the D.C. Circuit in 2014, the Transparency Rule survived.)

How did AT&T get cross-wise with the rule? The problem started in June, 2007 – more than four years before there was a Transparency Rule – when AT&T began offering “unlimited” data plans. Those plans allowed customers to use unrestricted amounts of data, with no high-speed data caps or automatic speed restrictions. AT&T stopped offering unlimited plans to new customers in June, 2010.  However, it continued, and continues, to allow customers with “grandfathered” unlimited data plans to renew their plans on a month-to-month or term basis.

In 2011, AT&T implemented a Maximum Bit Rate (MBR) policy under which AT&T capped the maximum speed throughput that unlimited data plan customers experienced once they had used a set amount of data in a billing cycle. Under the MBR policy, the maximum speed would be capped when, during any particular billing cycle, 4G LTE customers had used five gigabytes of data or 3G and other 4G customers had used three gigabytes. 

The MBR rate supposedly didn’t reduce the total amount of data theoretically available to these customers; that remained at “unlimited”. But it harshly reduced the speed with which the data could be accessed: from 5-12 Mbps down to 512 kbps for 4G LTE customers, and from 1.7 to 6 Mbps down to 256 kbps for other customers. That’s just a few times the old “dial-up” speeds, and wholly insufficient for many broadband applications. Customers who went over the data cap had their speeds throttled for the remainder of their billing cycle, an average of 12 days.

The Transparency Rule doesn’t prohibit such limitations, but it does require appropriate disclosure of them. As noted above, the specifications for such appropriate disclosure as set out in the 2010 Open Internet Order are pretty limited – “prominent display”, inclusion on “publicly available, easily accessible websites”, disclosure at point of sale.

Did AT&T comply with the requirements of the Transparency Rule in marketing its “Unlimited Data” plan to its customers? To publicize its MBR policy to its “unlimited data” customers, AT&T:

  • issued a nationwide press release, reported by numerous national press, describing the reduction in speeds for customers going over the data caps;
  • put a one-time notice of the first page of bills for unlimited data customers;
  • for a number of months, sent text messages to unlimited data customers, warning them of speed reductions as they approached their data cap for that month; and
  • included detailed information about the MBR policy on a number of AT&T web sites.

Nevertheless, these disclosures apparently didn’t work well, as the FCC received boatloads of complaints from customers whose service was slowed down pursuant to the MBR policy. Those complaints triggered an FCC investigation which led to the $100 million Notice of Apparent Liability (NAL). To the majority of Commissioners (the two Republican Commissioners dissented from the NAL), AT&T’s notifications did not comply with the Transparency Rule because:

  • AT&T notified customers that its service speeds would be reduced under the MBR, but it did not disclose the specific reduced speeds: 256 or 512 kbps. Under the Transparency Rule, broadband providers are expected to disclose the “expected and actual access speed” of their services; and
  • AT&T’s one-time billing inserts and initial warning texts could easily be ignored or forgotten by customers as time went by.

And, perhaps most importantly, AT&T used the word “unlimited” to market its service.

According to the majority, “[t]he imposition of set data thresholds and speed reductions is antithetical to the term ‘unlimited.’” And because AT&T used the term “unlimited” while imposing just such thresholds and reductions, the majority concluded that that use was apparently “misleading and deceptive”. How often did AT&T use the term “unlimited”? A lot. Every monthly statement to each of its million-plus “unlimited” customers, as well as every renewal of an “unlimited” contract, used the descriptive “unlimited”, and each of those uses was, in the FCC’s view, a separate “misrepresent[ation]”. You can do the math. Since the Transparency Rule prohibits providers from “making assertions about their service that contain errors, are inconsistent with the provider’s disclosure statement, or are misleading or deceptive”, the Commission tentatively concluded that AT&T was in violation many times over.

Adding fuel to the Commission’s [f]ire was the fact that, in 2009, AT&T had conducted focus group marketing studies about its plan to slow down “unlimited” use customers. According to the Commission, “[c]onsumer reaction was negative”.  So, the FCC figures, AT&T knew that its use of the word “unlimited” would mislead customers, but AT&T continued to use it anyway.  (It also should be noted that it was the allegedly deceptive marketing of the service that led the Federal Trade Commission to separately bring an enforcement action in 2014 against AT&T for engaging in “unfair or deceptive” trade acts.)

Back to the philosophical question. If the amount of data downloaded by customers in this service program remained unlimited (and that is not contested here), but the throughput speed at which data could be downloaded is reduced once a customer reaches a monthly data cap, is the service “unlimited” or not? What does “unlimited” mean – or what should it mean? And does AT&T’s use of the word in this particular commercial and historical context override the disclosures that AT&T did make?

It’s a tough one. On the one hand, there’s no question that many consumers felt that they were deceived, and that AT&T could have done more to inform them of the MBR policy. But on the other, did the Transparency Rule require it to do so? The 2010 Open Internet Order did refer to the FCC’s “expect[ation]” that performance disclosures would include the “expected and actual access speed” of the service. But AT&T did take steps to disclose its MBR, steps that were not inconsistent with the Transparency Rule. Does this huge case really just come down to failure to specify the number of kbps of the reduced data throughput speed? As Commissioner Pai demonstrates in his dissenting statement to the NAL, AT&T can make a credible argument that it did what it was supposed to do. With $100 million on the table, we can expect considerably more action before these questions get resolved.

And speaking of that $100 million fine – it’s big, right? But how did the FCC arrive at that particular number? The statutory minimum fine for this kind of violation is $16,000 and, as the NAL notes, if you were to multiply that minimum by the number of “violations” (i.e., a figure well into the millions), the result would be “an astronomical figure”. Reluctant to go that far, the FCC in the NAL instead imposes the “reasonable, but still substantial” penalty of $100 million, which “represents a small fraction – roughly [redacted] percent – of the revenue AT&T generated from” the unlimited data service. Unfortunately, the number of AT&T’s “unlimited” plan customers and the amount of revenue that plan generated have been redacted from the NAL. So while we can certainly confirm that the proposed forfeiture is “substantial”, we have no way of determining whether it is “reasonable”. Tough and unprecedented calls sometimes have to be made by an agency, but Commissioner O’Rielly compared the way this fine was calculated to throwing a dart and seeing where it landed.

Where do things go from here?

AT&T has 30 days to file an answer contesting the finding of a violation and/or the amount of the forfeiture. No doubt AT&T will do that. My crystal ball says that, while there is a small chance that the FCC might reduce the amount of the forfeiture, regardless of anything AT&T may argue, it is extremely unlikely that the FCC will change its mind about its finding that AT&T violated the Transparency Rule. Accordingly, the next thing we can expect from the Commission will be a Forfeiture Order. AT&T will then have three options. It can: (1) pay the fine, accept defeat, and go about its business; (2) pay the fine and then appeal the FCC’s decision to a federal court of appeals; or (3) not pay the fine and wait for the FCC to ask the Department of Justice to sue AT&T for the money in federal district court. If the FCC were willing to play ball, some settlement might be reached, but at this point that, too, is unlikely: presumably AT&T had the opportunity to suggest some settlement during the course of the FCC investigation that led to the NAL. The fact that the NAL was issued (with a $100 million bottom line, to boot) strongly suggests that the parties are too far apart for a settlement. Rather, it seems most likely that this matter will be resolved in court. 

In the meantime, broadband providers would be wise to check their compliance with the Open Internet Transparency Rule, and all other Open Internet rules, for that matter. The sheriff’s just pulled a big gun out of his arsenal, and he obviously isn’t shy about using it.