AT&T data throttling settlement was a consumer 'win'

There's no place like home for the holidays, we're told, and millions of us will travel for Thanksgiving celebrations. For those who have grown weary of the long security lines at airports and the dreaded disrobing at TSA checkpoints, it seems like the answer for a less stressful getaway is to just pick up a rental car and you're free to roam.

Imagine you've been speeding along for hours and you're almost to the holiday feast when suddenly the car shakes and speedometer reads 20 mph. You press the accelerator harder but no improvement -- still 20 mph. You check the gas gauge and there's plenty of fuel. You pull to the shoulder, get out and walk around the car; there's no flat tire. So you call the rental car company to report the problem. The customer service rep asks how he can help and you report that the car is stuck at 20 miles per hour.

"How many miles have you driven?" the service rep asks. Annoyed, you ask what difference that could possibly make -- your agreement gives you unlimited mileage.

"You've driven a lot of miles today, so we've reduced the maximum speed of your car to 20 miles per hour," the rep says, "but you can still drive as many miles as you want."

"What? That makes the car almost useless. I have to get to my family's house before dinner and at 20 mph, it will be the day after Thanksgiving before I arrive!" you reply.

That's exactly what AT&T Mobility decided to do to millions of iPhone mobile data users in 2011 when it began throttling speeds on its "unlimited" mobile data plans. Once a customer used 2 gigabytes of data in dense urban areas such as San Francisco and New York, AT&T capped the data speed at a pathetic 128 kbps or 256 kbps, depending on the particular technology used by the iPhone. The throttling caused a drop of up to 95% in data speeds. Customers who felt cheated were often locked into long term contracts and if they wanted to switch carriers before the end of the contract term, AT&T charged an early termination fee.

While touting its "unlimited" mobile data plans to retain customers, AT&T's throttling made everyday applications, such as web browsing, GPS navigation, and streaming video, crawl or become completely inoperable. AT&T's throttling caught the attention of the Federal Trade Commission, which in 2014 filed a complaint in the U.S. District Court for the Northern District of California lawsuit alleging that AT&T's practice was deceptive and unfair. Federal Trade Commission v. AT&T Mobility, LLC, 14-cv-04785-EMC.

Earlier this month, AT&T stipulated to a $60 million judgment to settle the case. The money will be distributed as a partial refund to current and former customers whose mobile data speeds were throttled by AT&T. As part of the settlement, AT&T is also required to prominently disclose in future marketing and advertising any material restrictions that it might impose on the speed or amount of data for any mobile data plan promoted as "unlimited."

In a statement about the settlement, FTC Commissioner Rohit Chopra referred to AT&T's throttling as a bait-and-switch scheme and said that "this Swiss-cheese service was not the unlimited deal that was promised." It was particularly ironic that AT&T was throttling data speeds while advertising its network as the fastest in the nation, Chopra said.

While the FTC settlement should be viewed as a pro-consumer victory, it took five years, and customers will be given a small credit on their bills likely worth a fraction of fees customers paid to terminate AT&T contracts early or to compensate them for lost time and productivity from reduced data speeds. Even worse, after the settlement, AT&T can still throttle data speeds, it just has to disclose it to consumers. With few competitors to choose from, disclosures won't be much help.

The FTC did what it could, but it doesn't have authority to prevent bad behavior. The FTC can only pursue legal action after the fact, and the FTC's authority is limited to pursuing unfair or deceptive practices affecting interstate commerce. 15 U.S.C. Section 45(a)(1). It is notable that the FTC Act explicitly bars the FTC from prosecuting unfair or deceptive practices of telecommunications carriers. 15 U.S.C. Section 45(a)(2). The only reason the FTC was able to proceed with the complaint against AT&T Mobility is the on-again, off-again regulation of mobile broadband as a regulated telecommunications service under the Federal Telecommunications Act

The Federal Communications Commission inadvertently stripped itself of authority to stop FTC actions against mobile broadband when it re-classified mobile broadband as an unregulated information service in its "Restoring Internet Freedom" order. 33 FCC Rcd 311. But given the FTC's limited authority to pursue deceptive practices, it isn't able to proactively prevent wireless carriers such as AT&T Mobility from engineering their networks in a way that distorts the market and harms consumers. As long as a wireless carrier doesn't mislead consumers about throttling or other network manipulation, the FTC can't stop it and the FCC won't.

So if you find yourself on a dark and stormy night unable to drive more than 20 miles per hour or use your mobile phone to download a video, you can pass the time by giving thanks that the FCC saved us from the yoke of "heavy handed" regulation when it restored internet freedom. 