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AT&T’s $100 million fine puts Verizon, Sprint on notice

The Federal Communications Commission has slapped AT&T with a proposed $100 million fine for misleading marketing practices, claiming the mobile operator sold millions of customers unlimited data plans that had clear limits.

The practice in question is called throttling, and it goes into effect when a customer on an unlimited plan exceeds 5 GBs in a billing cycle. AT&T’s (T) advertised data speeds of five to 12 Mbps suddenly drop down to 2G levels, making it impossible to use even the most basic mobile apps, according to the FCC.

But AT&T isn’t the only operator to use a loose definition of the word “unlimited” or engage in throttling, and many of the country’s other big mobile brands may soon attract regulators ire. Though today’s action was taken by the FCC, the Federal Trade Commission has also begun policing the mobile industry’s marketing practices, filing a lawsuit against AT&T and fining prepaid operator TracFone for their unlimited data plan claims.

Verizon (VZA) is probably the biggest potential target of future investigations by the FCC or FTC. Like AT&T, Verizon discontinued its unlimited plans around 2010, but continued to maintain those all-you-can-eat services for existing customers grandfathered into new contracts. Shortly afterwards, Verizon introduced throttling for new users, though in a more subtle way than AT&T.

Instead of introducing a definite cap after restrictions kicked in, Verizon claimed it only throttled the top five percent of unlimited data plan users and only when the network was congested. So even if you were racking up dozens of gigabytes of monthly usage from Netflix streaming, according to Verizon’s policy you were never slowed down unless other users were vying for capacity on the same tower.

Verizon also only applied the throttling policy to its 3G network. It was set to begin restricting speeds for unlimited users on 4G as well, but after FCC Chairman Tom Wheeler questioned Verizon’s motives, Verizon backed down. As it stands today, far fewer Verizon customers fall under Verizon’s throttling policy than AT&T’s, but Verizon is still restricting speeds on some customers promised unlimited data.

Sprint (S) has a rather erratic definition of the word unlimited. Its two biggest prepaid brands Boost Mobile and Virgin Mobile essentially offer the same types of plans: customers buy a certain amount of data each month, say 1 GB, and after they hit that limit they’re slowed down to 2G speeds until the end of their billing cycle. The difference is Virgin calls its plans unlimited, while Boost clearly markets its plans as capped.

Sprint, however, does offer what most people would consider a truly unlimited plan under is its overarching Sprint brand. The company has no specific benchmark for slowing down speeds on unlimited plans, so most customers can surf to their hearts’ content, albeit with some restrictions. For instance, Sprint restricts streaming video on its network to 600 kbps, which is certainly faster than 2G, but can affect video quality. Also, in its fine print, Sprint says it reserves the right to restrict speeds in order to optimize network congestion.

T-Mobile also offers an unlimited data plan, and has long claimed it does not throttle (in fact, it criticizes other operators’ throttling practices in its commercials). However, buried in its terms of services is a policy that sounds an awful lot like throttling. Those terms state that when the network gets crowded it will “de-prioritize” traffic of its heaviest users to free up bandwidth for other customers.

All of the mobile industry’s eyes are now on AT&T to see how its battle with regulators plays out. AT&T is challenging both the FTC’s lawsuit and the FCC’s proposed fine, issuing the following statement today:

“We will vigorously dispute the FCC’s assertions. 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 FCC, however, isn’t disputing that AT&T has the right to manage traffic on its network. Instead the commission is accusing the company of not being fully transparent about its policies, thereby violating the FCC’s Open Internet Transparency Rule. Whatever notices AT&T sent out explaining its throttling policy and/or fine print is in its customer contracts, still doesn’t make up for the fact that AT&T’s unlimited plans are not unlimited, FCC officials said at a briefing today.