Earlier this week the Federal Trade Commission made a big move in protecting wireless customer data speeds. The FTC announced that TracFone, the nation's largest prepaid wireless carrier (which operates StraightTalk, Net10, Simple Mobile, and Telcel America) is paying $40 million to settle claims that the company throttled its "unlimited" data plans for users and even cut them off entirely.
The FTC said in a statement that internal documents showed the carrier slowed down customer speeds to "reduce the high costs associated" with unlimited data.
Many TracFone customers experienced throttled data speeds (60% to 90% slower) after just 1 GB to 3 GB of monthly usage -- well within the average American data usage -- and some customers were cut off from all talk, text, and data after 5 GB.
The FTC actually has no problem with carriers throttling data, but only if the terms are communicated clearly to customers. TracFone, on the other hand, marketed its data as unlimited and failed to explicitly notify customers that speeds would be lowered after a certain threshold was reached.
And TracFone is not alone.
This wireless behemoth may have throttled, too
The TracFone story is more than just a settlement between the carrier and the FCC, it also sets a precedent for the U.S. wireless industry.
"The issue here is simple: when you promise consumers 'unlimited,' that means unlimited," Jessica Rich, director of the FTC Bureau of Consumer Protection said in the statement.
And that leads us to AT&T (NYSE:T). Back in October, the FTC begain pursuing the No. 2 wireless carrier for throttling its unlimited customers as well (side note: the carrier no longer offers unlimited data plans, but some previous AT&T customers still have them).
Just as with TracFone, the FTC says AT&T may have throttled at least 3.5 million customers since 2011. Speeds have been slowed up to 90% after unclear data limits were reached -- sometimes after using just 2 GB -- according to the FTC.
AT&T has not shied away from the allegations and instead, released a statement earlier this month saying the FTC has no jurisdiction to bring a throttling lawsuit against them.
After TracFone just paid up $40 million, AT&T is going to have a hard time keeping up that argument.
No way out
But even if AT&T finds a way to avoid paying the FTC, the carrier still has to contend with the Federal Communication Commission.
The FCC is considering reclassifying wireless carriers as "common carriers," which could give the agency more regulatory power over wireless phone companies. If this happens, the FCC is unlikely to give AT&T a free pass on its previous throttling.
What we do not know is how much AT&T would possibly have to pay if forced to settle, or the allegations are proved. The FTC says at least 3.5 million unique customers have been throttled at least 25 million times since 2011. TracFone has to reimburse throttled customers, and AT&T would likely have the same fate.
For the most recent quarter, AT&T posted a net loss of $4 billion, so a settlement similar to the size of TracFone would be an inconvenience but certainly not crippling.
As the wireless carriers continue to battle with new offers and lower prices, you can imagine they're all keeping an eye on the future FTC ruling on throttling. Until then, you may want to jump on Wi-Fi when you get the chance, just in case.
Chris Neiger has no position in any stocks mentioned. 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 may not 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.
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