Why AT&T May Get Away With Dubious "Unlimited" Claims

By Daniel B. KlineMarketsFool.com

AT&T has been accused of misusing the word "unlimited." Image source: AT&T.

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If the Federal Trade Commission (FTC) loses its appeal of a decision that it can't sue AT&T (NYSE: T) over how it uses the word "unlimited" in marketing, then it opens the door for all wireless carriers to define the term however they want.

In 2014, the FTC sued the wireless carrier over its practice of calling wireless plans that throttled data under certain conditions "unlimited." The lawsuit accused the company of failing to disclose how the throttling would occur or that it could dramatically impact a consumer's experience using data on their phone. In some cases, the FTC charged, data speeds were slowed by as much as 90%, making them more or less useless until the next month, Consumerist reported.

The FTC's lawsuit claimed that the company violated Section 5 of the FTC Act, which prohibits unfair or deceptive business practices. After multiple attempts to have the case thrown out, AT&T succeeded this summer when a three-judge panel agreed with the company.

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The agency has filed an appeal, but if it loses and the case is not heard, then it opens the door for all wireless carriers to play fast and loose with their definitions of "unlimited" data plans.

What is the FTC trying to do?

The federal agency basically wants AT&T and other wireless carriers to only be able to use the word "unlimited" when the plan offered actually has no limits. Under the current system, AT&T has used the word unlimited for plans that do not limit your data, but do limit the speeds at which you can use it.

AT&T is not alone in doing this. Sprint (NYSE: S) and T-Mobile (NASDAQ: TMUS)have been pushing so-called unlimited plans by throttling data under certain conditions, slowing down subscribers' ability to download data.

It's a question of semantics, but an important one. For example, if you visit an all-you-can-eat pizza buffet where, after you eat four slices, you can only have another one after a two-hour waiting period, is it really all you can eat? That's a sort of extreme example, but the throttling AT&T has used can be extreme as well.

What happens next?

The FTC has filed an appeal [opens in PDF] hoping to revive its case. Since the original case was dismissed because the court found that the agency essentially did not have the jurisdiction to bring action against AT&T over this issue, the appeal challenges that issue:

If the FTC is not successful in its appeal, AT&T (and any other wireless carrier) would be able to use the word "unlimited" broadly without qualification. Should that happen, the Federal Communications Commission (FCC) could step in, but that agency does not have the legal right to pursue redress for consumers, according to the appeal.

So, if the FTC appeal is denied, AT&T and other wireless carriers will by default have more latitude to define unlimited more or less however they want. In addition, consumers impacted by unlimited plans that are not really unlimited over the last decade won't have any means of being compensated for what the FTC considers deceptive practices.

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Daniel Kline has no position in any stocks mentioned. He thinks Homer Simpson did not truly have all he could eat. 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.