T-Mobile Will Fork Over $48 Million for Misrepresenting Its Unlimited Data Plans

By Markets Fool.com


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T-Mobile (NASDAQ: TMUS) is the latest carrier to get its hand smacked by the Federal Communications Commission (FCC), this time for not being clear about its unlimited data plans. The FCC said T-Mobile and its subsidiary MetroPCS didn't give customers all the details about the data limits on their unlimited plan and how users' data connection would be slowed down after they reached a vague data limit threshold.

The FCC said in the filing, "This potentially deprived these users of the advertised speeds of their data plan. According to consumers, this policy rendered data services 'unusable' for many hours each day and substantially limited their access to data."

Up until this ruling, T-Mobile had a "3 Percent Policy" in which a "network algorithm controls the heavy data users' network access including, most notably, the speed of their data throughput." The problem was that users never knew when they would be considered in the top three percent of data users, and they also reported that speeds were slowed down too frequently, making the network connection virtually useless.

Apparently, the FCC agreed. The government agency has slapped T-Mobile with a $7.5 million fine (which the carrier has agreed to pay). T-Mobile is also spending $35 million in "customer benefits" that will include discounted accessories for customers affected by the data throttling, as well as a one-time 4GB data credit to their account.

On top of that, T-Mobile will also spend $5 million (or more if it doesn't reach the $35 million customer benefit threshold) in providing free devices and network connections to students and families in low-income school districts.

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Combined, T-Mobile will have to spend about $48 million for the misrepresentation of its plan. But it'll also have to change a few things, like updating its disclosure about network prioritization and giving clear definitions of speed and data restrictions within the unlimited plan.

T-Mobile's not the only one

While all of this isn't great news for T-Mobile, the carrier isn't the only company that's gotten in trouble for this before. In 2014, the Federal Trade Commission (FTC) sued AT&T (NYSE: T) for using the term "unlimited" when some restrictions applied to data usage. The carrier won that lawsuit when a panel of three judges agreed with AT&T, but now the FTC is appealing the ruling.

As fellow Fool Dan Kline pointed out, if the FTC loses its appeal, then carriers will likely have far fewer restrictions on how they characterize their unlimited data plans, which could lead to even more questionable data plan claims.

For now, T-Mobile customers should be pleased with the FCC's latest ruling, but customers and investors should keep a close watch on the FTC case against AT&T. If the appeals court rules in favor of AT&T, then customers may end up seeing even more restrictions on unlimited data plans (or, at best, less clarity from carriers about how the plans work).

Though they might not like it, it's ultimately in the best interest of both AT&T and T-Mobile to have strict guidelines for unlimited data plan claims. Customers will be less likely to switch to another carrier if they find that the unlimited data plan they signed up for is just that -- unlimited.

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Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends T-Mobile US. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.