AT&T Will Have to Face Federal Suit for Limiting 'Unlimited' Data

AT&T tried to use the new net-neutrality rules as a shield from the FTC, but a federal judge didn't buy it.

The Federal Trade Commission is moving forward with its lawsuit against AT&T for limiting "unlimited" data plans.

The company had tried to argue that new net-neutrality rules put it outside the FTC's reach, but a federal judge in California on Tuesday rejected AT&T's attempt to dismiss the case.

"We look forward to proving that AT&T's marketing of its 'unlimited' data plans was unfair and deceptive, and [to] returning money to the millions of consumers who were harmed by AT&T's action," FTC Chairwoman Edith Ramirez said in a statement.

But AT&T isn't giving in yet.

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"We're obviously disappointed in, and disagree with, the decision and will seek to appeal it as soon as possible," Michael Balmoris, an AT&T spokesman, said.

AT&T used to offer new customers unlimited data, but in 2009, it began selling only tiered-pricing plans.

AT&T promised that it would let existing unlimited customers keep their old plans. But in 2011, the company began reducing wireless speeds for the unlimited customers who were using large amounts of data. According to the FTC, AT&T throttled speeds by as much as 80 or 90 percent—sometimes when the customers had used as little as 2 gigabytes of data in a billing period.

That practice prevented many customers from watching videos, listening to music, using GPS navigation, or browsing the Web, the FTC said in its suit.

AT&T has claimed it was completely transparent about the policy, pointing to a press release and notices it sent to customers.

But its initial strategy for blocking the FTC suit was actually more creative than just denying that it misled its customers. AT&T claimed that because it is heavily regulated by the Federal Communications Commission, it is outside the FTC's jurisdiction.

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The FTC does not have authority over "common carriers"—essentially, services that are regulated like utilities. A phone call on a cellular network has long been considered a common carrier service, and the FCC's new net-neutrality rules will apply that same classification to mobile Internet service.

So because of the FCC's decision (which hasn't gone into effect yet), the FTC will soon lack power over companies like AT&T. But the FTC argued that because it had authority over AT&T when the company was allegedly tricking consumers, the lawsuit can still move forward.

Edward Chen, a federal judge in Northern California, agreed with the regulators.

"When this suit was filed, AT&T's mobile data service was not regulated as common carrier activity by the Federal Communications Commission," Chen wrote. "Once the Reclassification Order of the Federal Communications Commission (which now treats mobile data serve as common carrier activity) goes into effect, that will not deprive the FTC of any jurisdiction over past alleged misconduct as asserted in this pending action."

In its filings, AT&T revealed that the FCC is also considering imposing its own fines for the company's data-throttling practice.

The case is an example of the simmering tension between the two regulatory agencies. FTC officials are unhappy about the FCC stealing a chunk of their authority and are urging Congress to get rid of the carve-out for common carriers.