AT&T will be fined a record $100 million for misleading customers about unlimited mobile data plans under a U.S. regulator's proposal.
The company slowed speeds for customers with unlimited data plans and failed to adequately notify them of the practice, the Federal Communications Commission said Wednesday. AT&T violated an FCC rule requiring transparency for broadband data practices, the agency said.
"Consumers deserve to get what they pay for," said FCC Chairman Tom Wheeler. "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."
The fine is the largest proposed by the FCC, said Neil Grace, a spokesman for the agency. In October, AT&T agreed to pay $105 million to settle claims it billed wireless customers for unauthorized charges for services including horoscopes, ring tones and love tips. In May, Sprint Corp. and Verizon Wireless agreed to pay a combined $158 million to settle similar claims.
AT&T has said it slowed data of some heavy users to keep its service running well, and has adequately notified customers.
"We will vigorously dispute the FCC's assertions," said Michael Balmoris, an AT&T spokesman. "The FCC has specifically identified this practice as a legitimate and reasonable way to manage network resources for the benefit of all customers."
"We have been fully transparent with our customers" and exceeded FCC disclosure requirements, Mr. Balmoris said.
The agency's two Republican members objected to the fine, and one, Ajit Pai, called the proposed penalty "Kafkaesque."
"This case is really just a regulatory bait and switch," Mr. Pai said. "A once-approved network management practice is now out of favor and carries with it a $100 million penalty."
The five-member FCC -- led by Democrat Mr. Wheeler -- in its statement said it has received "thousands" of complaints from AT&T's unlimited data plan customers saying that they were surprised and misled by the company's policy of intentionally reducing their speeds.
Consumers also complained about being locked into a long- term AT&T contract, with early-termination fees, for an unlimited data plan that wasn't actually unlimited.
AT&T cut customers' speed by "orders of magnitude" after they used a set amount of data in a billing cycle, the FCC said in its formal notice of the proposed penalty.
The agency said AT&T violated a section of its 2010 net neutrality order that survived as a court threw out most of the regulation last year. The FCC has since passed new rules that went into effect June 12.
The Federal Trade Commission in October accused the company of deceiving at least 3.5 million smartphone customers who paid for unlimited data plans and had their transmission speeds drastically reduced. AT&T has asked a U.S. court in San Francisco to dismiss the FTC's case.
The company's "maximum bit rate" program temporarily reduces mobile data speeds for some users to avoid service degradation for all "by preventing heavy users of data from overwhelming the mobile network," AT&T said in court filings. The program complies with FCC rules, AT&T said.
AT&T in 2011 began throttling speeds for customers who went over their data limits and failed to adequately notify them, the FTC said in its complaint. The agency is seeking an order halting the practice and millions of dollars in damages for customers. Most of those affected were Apple iPhone users.