Federal government to AT&T: Rethink unlimited. Image source: AT&T

The Federal Communications Commission continues to stake out pro-consumer positions to the detriment of major telecommunications companies. Earlier this year, the agency took what was considered a pro-consumer stance on Internet service providers by applying the Title II "common carrier" designation to them in order to enforce net neutrality. And the recent fine against AT&T (NYSE:T) for throttling unlimited data plans is another strong decision in this vein. But while many will be quick to blame the recent net neutrality decision for the fine, the FCC is actually using a prior ruling to fine AT&T. 

To be fair, this year's common carrier designation was certainly a strong move, but the FCC specifically did not enforce the most burdensome provisions of Title II regulation -- most notably rate regulation and no new taxes or Universal Service Fund fees. The end result is a strong classification upgrade to solve a problem (banishing websites that didn't pay for delivery to a "slow lane") that Charter CEO Tom Rutledge stated didn't really exist.

If the Title II designation change sounds like a rather bureaucratic move on behalf of the FCC, that's because it is. In 2010, the FCC drew up comparatively benign rules and designations to enforce net neutrality with its Open Internet Order, which aimed to make fixed and mobile broadband providers be transparent and not block legal websites, and for fixed broadband providers not to unreasonably discriminate against traffic.

In what in hindsight is considered a major strategic blunder, Verizon (NYSE:VZ) sued the FCC over its 2010 Open Internet Order and got all but the transparency clause thrown out, making the legislation mostly toothless and leaving the agency with no regulatory recourse to enforce net neutrality. The lawsuit essentially forced the FCC to apply Title II designation simply to regulate ISPs. Ironically, it is that 2010 Open Internet Order the FCC is using to fine AT&T $100 million under the remaining transparency clause -- not this year's Net Neutrality ruling.

Transparency apparently means "unlimited data means unlimited data"
The issue at hand is transparency and the definition of unlimited. The FCC alleges that AT&T's practice of intentionally slowing the speeds for unlimited data subscribers after a certain amount of data was used amounts to a lack of transparency by the company. And while the designation of what constitutes "unlimited" is probably more nuanced than former President Bill Clinton's "it all depends on what the meaning of 'is' is," it appears the FCC has a pretty strong basis for the fine.

For AT&T's investors (of which I am one), even if you vehemently disagree with the fine, you have to question how management handled the situation. The federal government telegraphed its intentions when announcing an inquiry into AT&T's policy of throttling grandfathered unlimited data consumers in November -- less than a month after broaching the subject with Verizon. In what appears to be a much wiser move than with the Open Internet Order lawsuit, and AT&T's handling of the federal inquiry, Verizon quickly changed course when the FCC questioned its unlimited data plan throttling policy and appears to be $100 million richer as a result.

To be fair to AT&T, there's an argument against these unlimited data plans. If your network is under strain from unlimited data hogs, and you can't monetize the added traffic, it could lead a bad experience for all participants as the company cannot invest and build out its network. But that doesn't appear to happen here -- management commented that this throttling only affects 3% of its customers. And while $100 million is a drop in the bucket to AT&T, only amounting to 0.5% of total capital expenditures last year, I'd rather the company spend the money on building out its network rather than paying unnecessary fines.