T-Mobile Fined $48M for Pulling Wool Over Customers' Eyes

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The United States Federal Communications Commission on Wednesday announced that T-Mobile has agreed to a penalty of US$48 million for misleading customers about restrictions on its so-called unlimited data plans.

The company failed to inform subscribers to unlimited plans on its wireless networks and those of MetroPCS, which it owns, that their data bandwidth would be throttled when they hit a preset ceiling.

Through its advertising and statements, T-Mobile may have led customers to expect better and faster service than their unlimited plans actually provided, according to the FCC.

T-Mobile's failure to disclose its throttling practice breached the FCC's 2010 Open Internet transparency rule, which requires broadband Internet providers to present accurate and sufficient information about their Internet services so that consumers can make informed choices.

"Consumers should not have to guess whether so-called unlimited data plans contain key restrictions like speed constraints, data caps and other material limitations," said Travis LeBlanc, chief of the FCC's Bureau of Enforcement.

"When broadband providers are accurate, honest and up front in their ads and disclosures, consumers aren't surprised and they get what they've paid for," he added.

The $48 million consists of a fine of $7.5 million, plus $35.5 million in consumer benefits for subscribers to T-Mobile's and MetroPCS' unlimited plans, and at least $5 million in services and equipment to American schools.

Eligible subscribers will receive discount offers for accessories and additional data.

Those discounts currently are available on the T-Mobile and MetroPCS websites.

The settlement also calls for T-Mobile to update its disclosures to clearly explain its "Top 3 Percent Policy," which allows for throttling bandwidth of the heaviest users during busy periods.

Both T-Mobile's and MetroPCS' sites now state that the top 3 percent of data users on all plans -- those who consume more than 26 GB of data a month -- "may notice reduced speeds until next payment cycle due to data prioritization" during network congestion.

With the settlement, "T-Mobile has stepped up to the plate to ensure that its customers have the full information they need to decide whether 'unlimited' data plans are right for them," the FCC's LeBlanc noted.

The settlement is "a clear win for customers and truth in advertising," said Rebecca Wettemann, VP of research at Nucleus Research.

However, "T-Mobile will likely have to do more than pay to regain customer loyalty," she told CRM Buyer.

Most consumers are unlikely to know about the settlement, noted Michael Jude, a program manager at Stratecast/Frost & Sullivan.

"The penalty looks bad, but good marketers can turn a sow's ear into a silk purse," he told CRM Buyer, suggesting "something along the lines of 'T-Mobile has agreed to work closely with the FCC to ensure that its unlimited plans truly meet customer needs.'"

T-Mobile's customer service, customer loyalty and overall customer experience have improved over time, Jude said, citing Stratecast data.

The company "still commands less consumer loyalty than AT&T and Verizon, but in recent surveys, it was on a par with them in many client care dimensions," he pointed out.

T-Mobile "does seem to be trying to be more responsive to its customers," Jude said. "However, the bottom line is whether their network can deliver the same or a better experience than other carriers can. It's not clear that it can yet, based on Stratecast consumer data."

Data throttling is generally "a bad idea," Nucleus' Wettemann said. "All carriers will have to be careful about how they manage their services -- but, more importantly, about how they communicate to customers about bandwidth expectations."

However, throttling "is implicit in the network design," Jude pointed out. The networks act like giant multiplexors and automatically will throttle throughput when demand is high to ensure maximum connectivity.

The throttling practice might undercut T-Mobile's self-portrayal as the "un-carrier," but "there's the problem of physics," Jude said. "No rational consumer would think they can stream high-definition quality movies continuously for days on end without consequences. T-Mobile just needs to make that explicit."

Richard Adhikari has written about high-tech for leading industry publications since the 1990s and wonders where it's all leading to. Will implanted RFID chips in humans be the Mark of the Beast? Will nanotech solve our coming food crisis? Does Sturgeon's Law still hold true? You can connect with Richard on Google+.

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