On Wednesday, the FCC issued a Notice of Apparent Liability (“NAL”) to AT&T for alleged violations of the 2010 Open Internet “transparency rule.” The FCC contends that AT&T “willfully and repeatedly” violated the rule by: (1) using the allegedly misleading and inaccurate term “unlimited” in the titles of certain data plans that were actually subject to data caps and speed limitations; and (2) purportedly failing to adequately disclose such data caps and speed limitations to customers. The NAL proposes an unprecedented $100 million forfeiture for these alleged violations. 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.

For AT&T, a key question in the legal debate to follow will be whether the FCC can actually defend such a penalty under its 2010 transparency rule, which is more limited than the “enhanced” rules that were adopted this year and will take effect after OMB approval. For everyone else, the key takeaway is that broadband providers should prepare for the coming new rules by: 1) making sure that transparency disclosures are reviewed by counsel and posted on their websites; and 2) assuring that all company marketing materials and communications are consistent with the disclosures and undertaken with an eye toward the possibility of defending against vigorous FCC enforcement. 

According to the NAL, AT&T has more than one million customers who purchase an “unlimited” data plan that, notwithstanding the name, is subject to a “Maximum Bit Rate” (“MBR”) policy capping the maximum speeds available to customers once they used a set amount of data. The NAL charges AT&T with misleading consumers and inhibiting consumer choice by failing to “adequately” disclose that such data caps and speed limitations are applied to broadband products branded as “unlimited” data plans.

"Adequate” Disclosures Under the Transparency Rule

AT&T will likely contest the key question presented by the NAL – what is an adequate disclosure under the 2010 Open Internet Order and transparency rule? The transparency rule requires that broadband providers:

publicly disclose accurate information regarding the network management practices, performance, and commercial terms of its broadband Internet access services sufficient for consumers to make informed choices regarding use of such services and for content, application, service, and device providers to develop, market, and maintain Internet offerings.

In the 2010 Order, the FCC stated that, at a minimum, the transparency rule requires that broadband providers “prominently display or provide links to disclosures on a publicly available, easily accessible website that is available to current and prospective end users and edge providers as well as to the Commission, and must disclose relevant information at the point of sale.” Beyond that, the FCC stated that broadband providers should be allowed “flexibility to determine what information to disclose and how to disclose it,” and specifically declined to impose any obligation to “bear the cost of printing and distributing bill inserts or other paper documents to all existing customers.” Moreover, in the 2010 Order, the FCC placed no specific obligations on broadband providers with respect to the frequency of disclosures, stating that it “anticipate[d] that broadband providers may be able to satisfy the transparency rule through a single disclosure, and therefore do not at this time require multiple disclosures targeted at different audiences.”

Alleged Problems with AT&T’s Disclosures

The NAL acknowledges that AT&T did disclose its MBR policy to affected customers, though not to the extent recognized by the dissent.Commissioner Pai’s dissent presents additional details not in the NAL in emphasizing that AT&T sufficiently disclosed its MBR policy by: (1) issuing a nationwide press release three months before it implemented the policy; (2) including a notice in affected customers’ monthly bills two months before it implicated the policy; (3) sending emails to the heaviest unlimited data plan users during the first several months of the program about potential speed reductions and alternatives; (4) sending text messages during certain periods when affected customers’ usage reached certain percentages of their relevant data cap thresholds; (5) including a notice about potential speed reductions in customer agreements for grandfathered unlimited data plans; and (6) maintaining publicly available websites describing the MBR policy.

The FCC nonetheless deemed AT&T’s disclosures insufficient under the transparency rule.  The FCC explained that the transparency rule “requires accuracy in all statements regarding broadband provider’s network management practices, performance, and commercial terms,” but AT&T (according to the FCC) did not include clarifying information about the MBR policy in each instance that it referred to an “unlimited” data plan (e.g., in each monthly bill). The FCC concluded, therefore, that “every time AT&T described such a plan to a customer as ‘unlimited,’ it misrepresented the nature of its service” in violation of the accuracy requirement of the rule. The NAL also faulted AT&T for providing “incomplete information” by disclosing only that affected customers would receive “reduced speeds,” rather than specifying what those speeds would be.

NAL Previews Challenges of New “Enhanced” Transparency Rules

The NAL seems to recast the 2010 transparency rule as an as an ongoing obligation to keep the public continuously informed in every statement or marketing endeavor, lest they be deemed ambiguous or misleading, and exposes providers to potentially massive penalties. In an enforcement environment when any and all public mentions of a service must not only be accurate, but also entirely complete, a single, carefully-reviewed notice posted on a publicly available website may not be sufficient to comply with the transparency rule. AT&T may be able to successfully argue that the 2010 rule did not adopt such a standard, but as we explained in an earlier advisory, the FCC’s 2015 order adopting the “enhanced” transparency rules imposes an ongoing duty of accuracy. The FCC’s latest order states that “alldisclosures made by a broadband provider [must] be accurate” and that providers “need to maintain the accuracy of these disclosures.” Even if AT&T is successful in challenging the NAL under the more limited 2010 rule, the NAL serves as a warning about how far the FCC may be willing to go in applying its “accurate and complete” standard to “all” communications. One could wonder if broadband marketing is destined to become similar to prescription drug marketing, in which even routine advertisements and communications are saddled with a parade of horribles that may be experienced.

Although one of the core purposes of the transparency rule is to allow customers to make informed comparisons of various service plans, that was not possible in this case because the unlimited data plans were grandfathered and not available to new customers. Notably, the FCC’s 2010 order expressly declined to require service providers to provide transparency notifications to existing customers. The FCC’s latest action, however, suggests that there is a risk in excluding information about legacy or promotional service offerings from transparency notices, despite the fact that cluttering such notices with lots of information about numerous service options could make it more difficult for consumers to identify which terms actually apply to them.

Broadband providers can try to reduce potential risks by taking time to carefully review disclosures and related information, not just for information about limitations on data plans, but for anything that the FCC may consider misleading, inaccurate or incomplete. DWT advises broadband providers on disclosures and compliance with the FCC’s rules. Please contact us if you have questions about this matter.