AT&T slowed the data speeds of millions of smartphone customers with unlimited data plans

AT&T slowed the data speeds of millions of smartphone customers with unlimited data plans, in some cases by nearly 90%, according to the Federal Trade Commission.

The agency filed a complaint Tuesday in federal court charging that the nation's second-largest wireless carrier failed to adequately tell its unlimited-data customers that the company reduces or "throttles" data speeds if they use too much data in a given billing cycle. Such throttling often made many common functions such as Web surfing, GPS directions and streaming video difficult or nearly impossible to use.

"AT&T promised its customers 'unlimited' data, and in many instances, it has failed to deliver on that promise," said FTC Chairwoman Edith Ramirez. "The issue here is simple: 'Unlimited' means unlimited."

AT&T quit offering unlimited plans for new contracts in June 2010, but customers who had unlimited plans could keep them.

As wireless networks have improved, customers with unlimited data plans can gobble enough data to actually reduce overall network quality for the rest of a carrier's customers, says telecom analyst Roger Entner of Recon Analytics.

AT&T and other carriers must throttle those super-users as "basically, a network-management tool, because wireless capacity is not unlimited," Entner says. In court, AT&T will likely argue "that (the FTC) is unreasonable."

The FTC alleges that AT&T began throttling data speeds in 2011 for unlimited data customers after they used as little as 2 gigabytes of data in a billing period. Overall, AT&T has throttled at least 3.5 million unique customers a total of more than 25 million times, the agency says.

At the time AT&T started throttling, it had 14 million customers with an unlimited data plan, Ramirez said. The majority of those throttled were iPhone users. "We believe AT&T made the determination that the continuation of unlimited data plans would be too costly for them to sustain," Ramirez says.

But AT&T counters that the allegations are "baseless" and that the company adequately notified unlimited-plan users about actions it planned to take to maintain network availability for its entire user base.

"It's baffling as to why the FTC would choose to take this action against a company that, like all major wireless providers, manages its network resources to provide the best possible service to all customers, and does it in a way that is fully transparent and consistent with the law and our contracts," said Wayne Watts, AT&T general counsel and senior executive vice president.

AT&T may claim that it "was transparent about these practices, but clearly the government disagrees, and so do we," said Delara Derakhshani, policy counsel for Consumers Union. "We're glad the feds are going after companies that are ripping people off."

The Federal Communications Commission, which assisted on the case, has been warning carriers about throttling. FCC Chairman Tom Wheeler this summer sent letters to all major carriers asking about throttling practices.

Earlier this month in another FTC-FCC matter, AT&T agreed to pay $105 million to federal and state authorities to settle charges that the carrier placed unauthorized charges for third-party services on customers' mobile phone bills.