The Federal Trade Commission today filed a lawsuit against AT&T for its practice of subjecting grandfathered unlimited data customers to speed throttles that dramatically cut speeds up to 90 percent after customers use more than 3GB of data on AT&T’s 3G network or 5GB on its 4G network. Thus far, according to the FTC, AT&T has throttled at least 3.5 million unique customers a total of more than 25 million times.

The FTC’s complaint alleges that the company failed to adequately disclose to its customers on unlimited data plans that, if they reach a certain amount of data use in a given billing cycle, AT&T reduces – or “throttles” – their data speeds to the point that many common mobile phone applications – like web browsing, GPS navigation and watching streaming video –  become difficult or nearly impossible to use.

“AT&T promised its customers ‘unlimited’ data, and in many instances, it has failed to deliver on that promise,” said FTC Chairwoman Edith Ramirez. “The issue here is simple: ‘unlimited’ means unlimited.”

FCC chairman Thomas Wheeler publicly complained about Verizon’s plans to start a similar throttling program on its wireless network, questioning the fairness of cutting speeds for certain customers while exempting others. Both Verizon and AT&T have claimed speed throttles are part of a fair usage policy that allows all customers to share its wireless resources. Broadband providers have often painted a picture of a “bandwidth hog” taking a disproportionate share of network resources away from other customers, but there is no evidence heavier users are creating conflicts for other users, especially as wireless carriers encourage customers to use more data.

From AT&Ts website

The logic of rationing Internet use for unlimited customers while providing unlimited access to those willing to pay usage-based charges escaped the FTC, which is what brought the suit.

According to the FTC’s complaint, AT&T’s marketing materials emphasized the “unlimited” amount of data that would be available to consumers who signed up for its unlimited plans. The complaint alleges that, even as unlimited plan consumers renewed their contracts, the company still failed to inform them of the throttling program. When customers canceled their contracts after being throttled, AT&T charged those customers early termination fees, which typically amount to hundreds of dollars.

The FTC alleges that AT&T, despite its unequivocal promises of unlimited data, began throttling data speeds in 2011 for its unlimited data plan customers after they used as little as 2 gigabytes of data in a billing period. According to the complaint, the throttling program has been severe, often resulting in speed reductions of 80 to 90 percent for affected users.

According to the FTC’s complaint, consumers in AT&T focus groups strongly objected to the idea of a throttling program and felt “unlimited should mean unlimited.” AT&T documents also showed that the company received thousands of complaints about the slow data speeds under the throttling program. Some consumers quoted the definition of the word “unlimited,” while others called AT&T’s throttling program a “bait and switch.” Many consumers also complained about the effect the throttling program had on their ability to use GPS navigation, watch streaming videos, listen to streaming music and browse the web.

The complaint charges that AT&T violated the FTC Act by changing the terms of customers’ unlimited data plans while those customers were still under contract, and by failing to adequately disclose the nature of the throttling program to consumers who renewed their unlimited data plans.

FTC staff worked closely on this matter with the staff of the Federal Communications Commission.

The Commission vote authorizing the staff to file the complaint was 5-0. The complaint was filed in the U.S. District Court for the Northern District of California, San Francisco Division.

One of the largest grocery chains in the United Kingdom is giving away free unlimited 16Mbps broadband for a year, including a free wireless router, as long as customers cover the usual monthly line rental fees.

The service is offered without a voice dialing plan, which means customers will pay for any voice minutes they use, except when those calls are to or from Tesco Homephone customers. Internet customers also receive a free year of Tesco Internet Security and UK-based phone support. The optional phone service also includes Caller ID, Caller ID blocking, and Directory Inquiries.

In fact, Tesco’s offer will actually be a money-maker for customers who already have home phone service because Tesco also includes Clubcard points on every bill, which can be redeemed on purchases made at the chain.

After 12 months, the price reverts to Tesco’s current standard offering: 16Mbps for $9.68 a month.

Tesco’s line rental charge, required on all landlines and DSL service costs $24.83 a month.

In comparison, CenturyLink charges $39.95 a month for 10Mbps service for a year before the price increases. But customers will pay considerably more than that, as that price does not include taxes, fees, and surcharges, including a Carrier Universal Service charge, National Access Fee surcharge, a one-time, High-Speed Internet activation fee, and state and local fees that vary by area and certain in-state surcharges. A monthly modem rental fee also applies.

Speed bump

More than half of AT&T’s wireless customers are paying at least $100 a month for 10GB or more of wireless data on AT&T’s Mobile Share Plans at the same time AT&T continues to throttle its legacy unlimited data customers who use more than 3GB of data on its 3G network or 5GB of data on its 4G LTE network.

AT&T claimed in 2012 it implemented its “fair usage policy” for unlimited customers to assure all could receive reasonable service during peak usage times when cell towers become congested.

AT&T also blames “a serious wireless spectrum crunch” for the speed throttling, implying access to more spectrum could help ease the problem. But there is a much faster way to overcome AT&T’s “spectrum crunch:” agree to pay them more money by ditching that $30 unlimited plan for a tiered plan.

John Stephens, AT&T’s chief financial officer, told investors Wednesday that nothing boosts revenue more than pushing customers into usage-cappped data plans that customers are regularly forced to upgrade.

“On the ARPU (average revenue per user/customer) story, I think the biggest issue with the improvement is people buying the bigger [data] buckets and buying – upping plans,” said Stephens. “We had over 50% of the customer base at the 10GB or bigger plans.”

Stephens added that AT&T benefited from customers upgrading to 4G LTE devices that are handled more efficiently by AT&T’s mobile data network.

Increased usage and upgraded data plans delivered a 20% increase in data billings over the last quarter.

Since 2012 AT&T has paid out more than $50 billion to shareholders through dividends and share buybacks. The company benefited from nearly $20 billion a year in free cash flow and asset sales over the last two years and is expected to repeat those numbers this year. Consolidated revenue at AT&T grew to $33 billion, up $800 million since the same time last year.

Miraculously, despite the “alarming spectrum crunch,” AT&T found more than enough spectrum to award its best customers with a “double data” promotion that turns a 15GB data plan into a 30GB plan, a 20GB plan to 40GB, a 30GB plan to 60GB, a 40GB plan to 80GB, or a 50GB plan to 100GB. Importantly, AT&T boasts its double data promotion won’t “explode” — their language for “expire” — on customers until their contract ends.

Lowering the bar on “unlimited use” customers.

“Those exploding offers — customers hate those offers,” said AT&T Mobility CEO Ralph de la Vega at a recent investor conference. “Unless they change their mind, we won’t offer those kinds of promotions.”

But de la Vega doesn’t mind leaving the company’s most loyal legacy customers in the penalty box if they cling to their grandfathered unlimited data plans. The throttles stay and the allowances have remained unchanged since first announced, despite the bountiful spectrum obviously ready and available to serve AT&T’s deluxe customers. Unlimited customers are regularly reminded they can easily avoid the throttle — just abandon that unlimited data plan. According to Stephens, more than 80% of AT&T’s customers already have.

The excuses for wireless speed throttles and killing off unlimited data plans at AT&T and Verizon Wireless don’t seem to wash with FCC chairman Thomas Wheeler, who demanded Verizon offer the “rationale for treating customers differently based on the type of data plan to which they subscribe, rather than network architecture or technological factors,” after it announced it was planning speed throttles for its remaining unlimited data plan customers. Verizon canceled the plan after Wheeler began scrutinizing it, but the throttles are still in place at AT&T.

AT&T’s 10GB Mobile Share Plan starts with a $100 data plan. Customers also pay:

• $10 a month for each auto-based smart-locator;
• $10 a month for each tablet, camera or game device;
• $15 a month for each basic phone;
• $20 a month for each wireless home phone replacement;
• $20 a month for each connected Internet device;
• $40 a month for each connected smartphone.

A family of four with four smartphones, a tablet, and AT&T’s wireless home phone replacement would be billed $290 a month before at least $39 in taxes, fees, and surcharges — well north of $300 a month for most.

T-Mobile has asked the Federal Communications Commission to investigate AT&T’s “artificially high roaming rates” charged when its customers travel outside of T-Mobile’s home service area.

T-Mobile is heavily reliant on AT&T for roaming service outside of major cities and the country’s smallest national wireless carrier complains AT&T is using their market power to put it at a major disadvantage, which could force new limits on roaming access in some areas.

T-Mobile provided examples of the damage already done by AT&T’s roaming rates:

“Limitless Mobile has severely restricted its customers’ access to AT&T’s network ‘for the sole reason that AT&T’s data roaming rates are too high and by continuing roaming access, Limitless could not maintain a commercially competitive retail wireless data offering to the general public,’” T-Mobile told the FCC.

The Rural Wireless Association noted that competing carriers “cannot sustain the provision of data roaming services if [they] must provide that service at a loss.”

The problem of data roaming rates is getting larger as carrier agreements are due for renewal at many mobile providers. Independent cellular companies are finding AT&T unwilling to renew at prices and terms comparable to their existing contracts. Instead, they face renewal rates that average a minimum of 10 and as much as 33 times higher than the national carriers’ retail rates.

For example, T-Mobile’s agreement with AT&T includes a data roaming rate that is now 150 percent higher than the average domestic rate that T-Mobile pays for data roaming.

This is one thousand percent higher than the data roaming rate negotiated between Leap Wireless and MetroPCS prior to their respective acquisitions, wrote T-Mobile.

With the stark price increases, carriers have begun imposing limits, including speed throttling and data caps, on customers when roaming on AT&T’s network.

Because of AT&T’s artificially high roaming rates, T-Mobile wireless customers roaming in South Africa have a better user experience than customers roaming on AT&T’s network in South Dakota, argues T-Mobile. Their speed is twice as fast, and their data usage is unlimited.

T-Mobile is asking the FCC to intervene by establishing some type of standard about what constitutes “commercially reasonable” roaming rates as part of its 2011 Data Roaming Order, designed to protect competition.

This year, carriers dependent on Verizon Wireless or AT&T to help deliver “nationwide coverage” are negotiating roaming access to the companies’ 4G LTE networks for the first time. Most roaming agreements used to only cover 3G service, delivered at a slower speed.

If carriers like Sprint and T-Mobile are unable to negotiate fair terms, both companies will be at a major competitive disadvantage, relegated to providing only regional coverage or charging higher prices for roaming service.

AT&T vice president of regulatory affairs Joan Marsh said T-Mobile’s request bordered on being illegal, in direct violation of the Telecommunications Act. Marsh argued T-Mobile and other carriers should be incentivized to build their own networks instead of relying on cheap roaming access from companies like AT&T. Marsh added any move by the FCC to set rates or benchmarks would be beyond the FCC’s mandate. Wireless carrier rates are deregulated and not subject to common carrier regulation.