By Ross Todd, From The Recorder

SAN FRANCISCO — The Federal Trade Commission sued AT&T Mobility on Tuesday, claiming the company misled smartphone customers who have unlimited data plans. AT&T reduced speeds for some customers with unlimited data plans, in some instances by almost 90 percent, according to the FTC.

The lawsuit filed in the U.S. District Court for the Northern District of California claims that the company failed to adequately disclose that once customers with unlimited plans use a certain amount of data during a billing cycle, the company cuts data speeds leading to possible problems with activities such as web browsing, GPS navigation and streaming video.

The use of so-called throttling, or slowing the speed of high data users, is relatively common among smartphone service providers. FTC Chairwoman Edith Ramirez said in a phone press conference on Tuesday that this was the first FTC action involving throttling, but the agency was challenging the way AT&T misled consumers rather than the practice itself.

“What we’re challenging is that AT&T sold unlimited data plans and did not follow through with unlimited service,” Ramirez said. “If you make a promise about unlimited services, we expect you to deliver those services.”

According to the agency’s complaint, AT&T stopped offering new unlimited plans in June 2010, but grandfathered in customers who already had the plans and offered to renew those plans for $30 per month. The agency claims AT&T wanted to induce customers not to switch providers. In July 2011, the complaint alleges that AT&T began reducing the speed for customers who reached a certain usage threshold in each cycle. According to the complaint, the company has received more than 190,000 customer calls relating to the program.

The FTC is seeking an injunction blocking the practice and restitution and disgorgement from AT&T for customers subjected to throttling. According to Ramirez, FTC staff worked closely with the Federal Communications Commission on the matter.

In a statement, AT&T General Counsel Wayne Watts called the FTC’s allegations “baseless” and its decision to sue “baffling.”

“We have been completely transparent with customers since the very beginning,” Watts said. The company says it informed its unlimited-data plan customers on bill notices and put out a press release in July 2011 that generated nearly 2,000 news stories before the program went into effect. The company claims that only about 3 percent of customers are affected, and they are notified by text messages before data service slows.

The FTC’s throttling lawsuit against AT&T comes on the heels of a $105 million settlement the company reached earlier this month with the agency, the FCC and attorneys general from 50 states and the District of Columbia over claims that AT&T made unauthorized charges on mobile phone bills.

AT&T was represented by Kilpatrick Townsend & Stockton and Sidley Austin in the earlier settlement. A spokesman for the company declined to say who would be representing the company in the suit filed Tuesday.

Mobile phone companies are a tough target for private class action lawsuits, especially since the arbitration clauses in their service contracts were buttressed by the U.S. Supreme Court’s 2011 decision in AT&T Mobility v. Concepcion. Cotchett, Pitre & McCarthy’s Ara Jabagchourian, who started his legal career in the FTC’s Bureau of Competition in Washington, D.C., said he’s glad to see the FTC stepping in.

“I’m just happy they’re out there protecting consumers’ rights,” he said.

IMAGE: Edith Ramirez, Federal Trade Commission chairwoman Diego M. Radzinschi / National Law Journal

For more on this story go to: http://www.therecorder.com/id=1202674887598/FTC-Accuses-ATampT-of-Misleading-Customers-With-Unlimited-Data-Plans#ixzz3HX0zXC00