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Shareholders Sue AT&T Over Data Plan

DALLAS (CN) - AT&T's throttling of its "unlimited" data plan for mobile phone users exposes the company to billions of dollars in potential claims, an angry shareholder claims in court.

Justin Pierce filed a shareholder derivative lawsuit against the Dallas-based telecommunications giant, its officers and board of directors on Nov. 20 in Dallas County Court.

Pierce claims AT&T's "multi-year" scheme was revealed in October when the Federal Trade Commission sued the company in San Francisco Federal Court to stop the practice and seek restitution to customers.

The FTC claims AT&T fails to adequately disclose to customers on unlimited data plans the consequence of using what the company decides is too much data - in some cases, just 2 gigabytes in a billing cycle .

AT&T has not offered unlimited data plans for new customers since 2010, but has offered to grandfather existing customers' unlimited plans each time they upgrade to a new smartphone. The grandfathered customers continue to enjoy unlimited data for $30 a month, while new AT&T users have to pick one of the company's tiered plans, according to the FTC.

The FTC claims that beginning in July 2011, AT&T began throttling users on its unlimited plans, setting the data-use threshold at 2 gigabytes in dense markets such as New York and San Francisco - and capping the data speed at 128 kilobytes per second in those cities

The noticeably slower speeds have resulted in widespread customer complaints.

Pierce claims the FTC found that AT&T has throttled more than 3.5 million unique customers since October 2011 and that AT&T's marketing materials and employees fail to inform their unlimited data customers of the throttling program.

"Worse, customers who canceled their service before the end of their service contract as a result of the throttling were forced to pay an early termination fee to AT&T, typically in the hundreds of dollars," the 37-page complaint states.

"Although federal regulators have not yet disclosed how much money they are seeking in damages from AT&T as a result of their misleading practices, the losses caused to the company's customers are estimated between $300 million to over $1 billion."

Pierce says the defendants' conduct "involves a knowing and capable violation of their obligations" and "a reckless disregard for their duties to the company."

He claims AT&T's own researchers advised it to not "say too much" in marketing materials about the throttling program because they found "the more consumers talked about it the more they didn't like it" and that "consumers felt 'unlimited should mean unlimited.'"

Pierce says the company's disclosure through a single statement on a single bill "utterly failed" to disclose speeds would be curtailed by up to 95 percent and that it would limit customers' ability to use their devices "for even its most basic" functions.

"It also failed to disclose that the speed reduction was due to an artificial limit intentionally imposed by AT&T, as opposed to general network congestion," the complaint states. "Further, many unlimited mobile data plan customers renewed their contract months, or even years, after this statement appeared in their bill. Upon renewal, they were not informed of the company's throttling program." Customers took AT&T to small claims court and news stories of their victories began emerging in February 2012. Pierce claims that in response, AT&T modified its throttling practices and set a uniform nationwide data-use threshold of up to 5 gigabytes per billing cycle.

"It is reasonable to assume that this modification was approved by the board in response to the flood of bad press," the complaint states. "Nonetheless, to this day the company continues to throttle its customers, albeit in a slightly less egregious manner."

AT&T did not respond to a request for comment Friday.

Pierce seeks disgorgement and damages for breach of fiduciary duty, corporate waste and unjust enrichment. He is represented by Joe Kendall in Dallas.

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