First Verizon (NYSE:VZ), and now AT&T (NYSE:T). It appears wireless providers have a problem with the definition of "unlimited," specifically when it comes to unlimited data plans. Earlier this month, Verizon backed down from its "network optimization" policy that caused legacy unlimited data plans to be "throttled," making room for new users who pay for data by the gigabyte. Verizon Wireless changed its mind after FCC Chairman Tom Wheeler penned an angry letter in regard to Verizon's policy.
Now it's AT&T's turn to draw the federal government's ire. This time it was courtesy of the Federal Trade Commission, which announced that it had launched a formal complaint on whether AT&T misled legacy unlimited-data customers by throttling their speeds up to 90% after those subscribers used "as little as 2GB of data." For those unfamiliar with data, 2 gigabytes are roughly 80 hours of surfing the Web, 100 hours of Facebook gazing, or 140 four-minute YouTube videos through the wireless provider's network.
The complaint further alleges that the company throttled 3.5 million unique customers a total of 25 million times and then collected early-termination fees from customers who cancelled their service as a result of slow data speeds. AT&T, unlike Verizon, appears to want to continue the policy of throttling customers. The company's senior executive vice president and general counsel, Wayne Watts, calls the FTC's allegations "baseless," saying that "this program has only affected 3% of their customers" and that "they are notified by text message." [In the interest of full disclosure, the author has received this text message.]
Why are wireless companies doing this?
There's a reason unlimited data plans are referred to as legacy plans at AT&T and Verizon -- they aren't offered anymore. And that's because data is now more important to wireless providers than talk or text. In fact, both AT&T and Verizon are now treating talk and text as essentially loss leaders and pricing wireless plans based on data.
For those not following the industry closely, this makes sense – data is a huge growth market for telecoms. In the United States, our mobile data traffic has been chugging along at over 60% growth over the past couple of years according to a report from Cisco Systems.
So those who originally signed up on an unlimited data plan were allowed to keep the service for both companies -- but ever since, it's been a contentious relationship on both sides, with AT&T and Verizon begrudgingly accepting those customers and unlimited subscribers wary of any change of terms and/or service updates.
Sprint and T-Mobile still offer unlimited data
And while the No. 1 (Verizon Wireless) and No. 2 (AT&T Wireless) wireless providers have decided that unlimited data is too good of a deal to offer, the No. 3 and No. 4 wireless providers don't. In fact, Sprint and T-Mobile US seek to provide unlimited data as a differentiator. Sprint's unlimited-data-for-life proposition is the strongest example of competing on data, although the company is still struggling with subscriber additions. T-Mobile, on the other hand, has done well under its brash CEO and "Un-carrier" initiatives and includes an unlimited data plan.
What AT&T needs to do
If AT&T's response is any indication, it isn't properly assessing the situation. While I understand the job of the general counsel is to defend the company, perhaps the company should revisit its strategy. Out of the top four carriers, AT&T now has the most repressive policy in regard to data consumption. As we move toward a world in which data matters more than voice or text, being seen as the worst data provider is a rather precarious situation to put oneself in.
AT&T itself said that "this affects only about 3% of our customers." However, the negative publicity extends to all current and prospective customers. After looking at the risk of losing its reputation as a top-notch provider, Verizon wisely retracted its throttling policy. I'd advise AT&T to do the same.
Jamal Carnette owns shares of Verizon Communications. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
In addition, Jamal Carnette has received the text message in question from AT&T but did not let that sway his professional opinion on this matter.