AT&T Faces Biggest Fine in FCC History for Violating 2010 Net Neutrality Transparency Rule

AT&T “vigorously” disputed it has done anything wrong. “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,” AT&T said. “We have been fully transparent with our customers, providing notice in multiple ways and going well beyond the FCC’s disclosure requirements.”

“Consumers deserve to get what they pay for,” FCC Chairman Tom Wheeler said in a Wednesday news release. “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.”

FCC officials said AT&T reduced data speeds of some subscribers by as much as 90 percent and halted the practice only when an agency investigation was underway. The officials said the FCC is open-minded about negotiating a consent decree with AT&T to end the investigation of the carrier’s 2011 “Maximum Bit Rate” policy. FCC officials also said AT&T made billions of dollars from unlimited plan customers during the period covered by the NAL and they hope the proposed fine will send a clear, financial message to AT&T. AT&T reported $32.6 billion in consolidated Q1 revenue and $5.5 billion in operating income.

Commissioner Ajit Pai characterized the NAL as “Kafkaesque.” A "government ‘rule’ suddenly revised, yet retroactive,” he said. “Inconvenient facts ignored. A business practice sanctioned after years of implied approval. A penalty conjured from the executioner’s imagination.” Pai said AT&T kept nothing hidden, disclosing what it was doing in a news release three months before it started to throttle some customers.

Pai ticked off the many ways in which AT&T appeared to meet the requirements of the transparency rule. The notice “ignores undisputed evidence that cuts against its desired result,” he said. The FCC also wants to hold AT&T to a standard that doesn’t exist, he said. “Contra the NAL, ISPs are not required to send customers targeted and updated disclosures on a yearly or even monthly basis, nor must point-of-sale disclosures themselves include substantive descriptions of the provider’s network management practices,” Pai said.

Commissioner Mike O’Rielly questioned the logic of the NAL. “If we truly were monitoring this situation, believed that consumers were being harmed or did not have sufficient information, and knew that simple improvements could have been made to cure potential deficiencies in AT&T's website or customer agreement, we should have informed AT&T of our concerns years ago,” he said. “Instead, we waited several years and now impose huge penalties citing the egregiousness and duration of AT&T’s behavior and the number of consumers affected during this time period. This seems more than disingenuous.”

Consumers Union and Public Knowledge hailed the NAL in separate news releases. PK noted it filed the first complaint against a company for violating the transparency rules in August. “For too long, carriers have laughed at the FCC’s consumer protection regulations and viewed the occasional fine as a cost of doing business,” said PK Senior Vice President Harold Feld.

“If there's one thing that every broadband provider claims to embrace, it’s transparency -- even when they oppose strong net neutrality rules or the FCC’s ability to enforce them,” said Matt Wood, policy director at Free Press.“Broadband providers will readily agree that they should disclose their traffic management practices to their customers, and they’ll claim that they already do that," he said. "Yet if caught violating that duty, these carriers and their defenders suddenly aren’t such fans of transparency anymore." The NAL shows that in the absence of good rules, or when they exist, “we can’t always expect the carriers to police themselves and provide their customers with the most accurate and relevant information,” Wood said.

Gotcha Regulation

Some net neutrality opponents warned that the NAL could be the harbinger of things to come under the agency’s 2015 net neutrality rules.

“This case is a real-world example of the game of gotcha the FCC aims to play with net neutrality,” said Fred Campbell, executive director Center for Boundless Innovation in Technology. “The 2010 net neutrality order gave no indication that the FCC would consider it misleading for an ISP to reduce subscriber data speeds after repeatedly telling them that is what the ISP is going to do. There is a world of difference between reducing speeds without disclosing it and the multitude of disclosures that AT&T made here, which included a nationwide press release, bill inserts, emails, multiple text messages, defined contractual terms, and disclosure websites.”

“Almost 800 years to the day after Magna Carta was signed, the FCC makes clear that it doesn’t give two figs about basic Anglo-Saxon legal principles like the ban on ex post facto laws and due process,” said Berin Szoka, president of TechFreedom. “This settlement imposes massive penalties for conduct that was not illegal at the time.” It’s not clear that AT&T didn't make its network more reliable by clamping down on bandwidth hogs, he said. If the company committed any wrongs, “this is precisely the kind of practice that the FTC could have dealt with under its existing authority, without any need for the FCC to get involved,” Szoka said.