FTC fines wireless carrier for 'unlimited data' false advertising

You may think the term “unlimited data” on your cellphone plan means you can use as much bandwidth as you want with no penalty in speed, but your wireless carrier likely has a different definition.

The Federal Trade Commission (FTC) announced last week that TracFone, the largest prepaid mobile provider in the United States, has agreed to pay a fine of $40 million to settle charges it promised “unlimited data” but then intentionally slowed the transfer speed once customers reached certain monthly data limits.

“The issue here is simple: when you promise consumers ‘unlimited,’ that means unlimited,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a press release. “This settlement means that [TracFone] customers will be able to get money back from the company for services the company promised but didn’t deliver.”

According to the FTC’s complaint against TracFone, customers didn’t know about the data limits the company set.

“When customers reached these limits, TracFone slowed their data speed or cut off their data service entirely,” the complaint stated. “TracFone generally slowed data service when a customer used one to three gigabytes, and suspended data service at four to five gigabytes.”

The slowdown in service was as much as 90 percent, significantly affecting customers’ ability to handle even routine online tasks, such as downloading email or streaming video.

Many wireless carriers and internet service providers use such intentional slowing down of connection speeds—known as “throttling”—to manage congestion on their networks, typically during hours of peak usage. But the FTC complaint alleges TracFone had no “technical reason” to limit data speeds.

“Internal documents showed that the company’s data policies were created to ‘reduce the high costs associated’ with providing the unlimited data that it had promised,” the FTC determined.

While the FTC ruling only affects TracFone, other major wireless carriers have engaged in similar practices and may face similar fines. Technology website MacRumors.com reports that both Verizon and AT&T have used throttling to control the data usage on their customers’ unlimited data plans. Last fall, the FTC filed a lawsuit against AT&T, alleging “the company has misled millions of its smartphone customers by charging them for ‘unlimited’ data plans while reducing their data speeds, in some cases by nearly 90 percent,” according to an FTC press release.

During a follow-up conference call with reporters, Rich made clear the regulator’s concern is specific to how carriers advertise their services, not about the practice of slowing data speeds.

“This case is about false advertising,” she said. “It’s not about throttling. …If a company advertises unlimited, but very clearly discloses their practices with regard to throttling we would not challenge that action.”