FCC Proposes Record $100 Million Penalty for Alleged Violations of Open Internet Transparency Rule

If you work for a broadband service provider and haven’t recently reviewed your FCC-mandated network management “transparency” disclosures posted on your website, we suggest you make that the next thing you do after reading this blog. That’s because yesterday the FCC proposed to impose a $100 million fine against AT&T Mobility (“AT&T”) for alleged violations of the Commission’s 2010 Open Internet “transparency” rules.

The penalty is, by far, the highest ever proposed by the agency. The FCC’s fine is proposed in a “Notice of Apparent Liability” (“NAL”) which alleges that AT&T inadequately informed certain customers of data caps and speed limitations which were imposed on customers subscribing to the company’s “unlimited” mobile data plans. In addition, the NAL would require AT&T to provide a compliance report that describes its plan for providing refunds to affected customers, and to permit customers to opt out of existing unlimited data contracts without penalty – meaning that the total cost of the NAL to AT&T could be much larger than $100 million.

The alleged violations cited in the NAL center around the FCC’s findings that AT&T allegedly misled consumers and inhibited consumer choice by using misleading terms and failing to adequately disclose certain limitations applied to a broadband product service offered under an “unlimited data plan.” According to the Commission, AT&T has more than one million customers who purchase an “unlimited data plan” that is subject to certain speed and capacity limits. Specifically, customers under the unlimited data plan were subject to a “Maximum Bit Rate” policy which capped maximum speeds available to customers once they used a prescribed amount of data. In some instances, according to the NAL, speeds were reduced to as low as 512 kbps for an average of twelve days.

One of the striking facts in this case is that AT&T did provide various forms of notice to affected customers of the limitations on “unlimited” plans, but the FCC found that a penalty was nonetheless warranted because the term “unlimited” was used elsewhere without the clarifying information. This finding suggests the FCC has adopted a more expansive standard of disclosure in which any and every statement and marketing communications that may be inconsistent or ambiguous with respect to a broadband provider’s transparency disclosures could subject the company to seriously substantial FCC penalties. That approach mirrors the ongoing duty of accuracy standard articulated by the FCC under its “enhanced” transparency rule in the Open Internet Order (the new transparency rule is not yet in effect), but is a significant step beyond the original disclosure obligations adopted in 2010. To be clear, this action is brought under the Commission’s 2010 transparency rules -- not the “enhanced” rules included in the recent 2015 Open Internet Order.

The allegations in the FCC’s NAL appear to be the same as, or very similar to, those raised in a recent complaint against AT&T brought by the FTC for alleged throttling of customers’ mobile service. Thus, the FCC’s NAL may be the latest counter punch in an escalating jurisdictional fight between these two agencies.

This NAL is not the end of this story. Within thirty days, AT&T has an opportunity to present additional evidence to rebut the Commission’s findings. Indeed, Commissioners Pai and O’Rielly offered lengthy dissents with a roadmap showing how AT&T may demonstrate that its actions satisfied each of the elements of the agency’s 2010 transparency rule. For the rest of the industry, the task at hand is to carefully review disclosures and related information, not just for information about limitations on data plans, but for anything that the FCC might consider misleading, inaccurate or incomplete.

Update June 24, 2015: A putative consumer class action citing the FCC's NAL has been filed against AT&T in the U.S. District Court for the Northern District of Alabama, asserting claims for breach of contract, misrepresentation, and unjust enrichment.

Davis Wright Tremaine LLP examines the FCC NAL in more detail in a recent advisory.