AT&T (NYSE:T) has never quite understood what the word "unlimited" means.
The wireless company was more than happy to sell customers data plans that used the term, but were not quite unlimited. Instead, AT&T played fast and loose by slowing data after users crossed a monthly consumption threshold. Because the data was not shut off -- merely slowed dramatically -- the wireless carrier claims it was honoring its offer.
That, of course, would be like an all-you-can-eat buffet limiting customers who ate too much to one visit per hour while only allowing them to fill a tiny plate. Yes, you could stay all day and partake of the "unlimited" food, but following a promise technically is not the same as respecting it in spirit.
AT&T advertised one thing and delivered something else. The Federal Communications Commission thus has fined the company $100 million.
What the FCC did
The FCC fined AT&T for misleading its customers about unlimited mobile data plans. The agency's investigation found that the wireless carrier "severely slowed down the data speeds for customers with unlimited data plans," the FCC reported in a press release. The agency added that it found the company failed to adequately notify unlimited-plan customers that their data speeds could be slower than the normal network speeds AT&T advertised.
AT&T began offering unlimited plans in 2007, and at first they were truly unlimited. In 2011, however, the company "implemented a 'Maximum Bit Rate' policy and capped the maximum data speeds for unlimited customers after they used a set amount of data within a billing cycle," according to the FCC.
Speeds after a customer reached the cap were "much slower than the normal network speeds AT&T advertised and significantly impaired the ability of AT&T customers to access the Internet or use data applications for the remainder of the billing cycle."
Since 2011, the FCC has received thousands of complaints over this practice. That led to the agency charging the company with violating the 2010 Open Internet Transparency Rule by falsely labeling these plans as "unlimited" and by failing to sufficiently inform customers of the maximum speed they would receive under the Maximum Bit Rate policy.
"Consumers deserve to get what they pay for," said FCC Chairman Tom Wheeler in prepared comments. "Broadband providers must be upfront and transparent about the services they provide. The FCC will not stand idly by while consumers are deceived by misleading marketing materials and insufficient disclosure."
More importantly, perhaps, the $100 million fine sets a precedent for wireless companies to be held accountable for their advertising,
"Unlimited means unlimited," said FCC Enforcement Bureau Chief Travis LeBlanc. "As today's action demonstrates, the Commission is committed to holding accountable those broadband providers who fail to be fully transparent about data limits."
AT&T no longer sells unlimited plans, but it allows customers who already had them to renew them.
AT&T denies the charges
AT&T released a statement to USA Today saying it "will vigorously dispute the FCC's assertions." The company went on to explain its position:
The FCC has specifically identified this practice as a legitimate and reasonable way to manage network resources for the benefit of all customers, and has known for years that all of the major carriers use it. We have been fully transparent with our customers, providing notice in multiple ways and going well beyond the FCC's disclosure requirements.
The company also pointed out a note posted on its website dated July 29, 2011, which informed unlimited data customers that they "may experience reduced speeds once their usage in a billing cycle reaches the level that puts them among the top 5% of heaviest data users."
That's not good enough, an FCC official told the newspaper, saying the note "lacked details on when the slowdown kicks in and to what speeds it will be reduced."
This is good for customers
While $100 million is a relatively trivial fine for AT&T, the FCC has set a strong precedent here. The exact punishment does not matter as much as the fact that this should deter wireless carriers from using misleading terms in their ads. Everyone knows what unlimited means. If AT&T, or any other carrier, wants to offer sort-of-unlimited plans instead of the real thing, they should have to be clear about it.
There's nothing wrong with slowing data after a cap has been hit or any other method of controlling peak consumption. The problem comes in how it gets sold to customers.
Daniel Kline owns shares of Apple. He has an unlimited data plan but does not really take advantage of it. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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.