AT&T Lawsuit Over Data Charges Shows Need for Customer Awareness

If you're an iPhone owner on a limited data plan, keeping track of your monthly usage can be a tricky task -- one extra email here, an impulsive app purchase there, and you could find yourself facing an unwanted overage fee.

Now, a lawsuit filed by an iPhone owner alleges that AT&T makes monitoring data usage more difficult by not only overbilling its customers for data transactions, but also charging for so-called "phantom" traffic -- actions the customer did not initiate.

The lawsuit, filed by AT&T customer Patrick Hendricks in the Northern District of California and seeking class action status, accuses AT&T of breach of contract and fraud for systematically overcharging for data usage.

"AT&T's billing system for iPhone and iPad data transactions is like a rigged gas pump that charges for a full gallon when it pumps only nine-tenths of a gallon into your car's tank," the complaint says, attempting to represent all U.S. AT&T customers with a limited data plan for Apple's iPhone or iPad.

Barry Davis, an attorney with Thornton, Davis & Fein, P.A. in Miami, the firm representing Hendricks, said the suit was filed after an independent computer engineer verified the overcharge claims made by AT&T customers.

The engineer spent two months testing about a dozen different smartphones and found that AT&T iPhones and iPads consistently overstated data usage and billed for "phantom data traffic," Davis said.

Data Charges Can Be Incurred When Applications Update in the Background, AT&T Says

On average, the devices overstated usage by 7 to 14 percent but, in some cases, he said the overage was as high as 300 percent. When the engineer left the phones completely untouched for 10 days, Davis said AT&T billed the phone for 35 transactions.

"It was nothing he requested," Davis said, adding that the engineer did not download any applications beyond the ones that came with the phone and disabled all push notifications, email programs and location services.

Davis said AT&T has until later this summer to submit a formal reply, but in a statement the company refuted the lawsuit's allegations.

"Any claim that we overbill our mobile data customers is absolutely false," said Mark Siegel, an AT&T spokesman. "We properly charge for all data that our customers send and receive."

As referenced in the company's wireless customer agreement, AT&T said that data charges on smartphones apply not just to customer-initiated activities (like emailing, downloading applications, Web browsing, and music and video streaming) but also background activities related to software updates or diagnostics.

For example, even if a customer doesn't open the calendar application on a smartphone, the customer could still be charged for data usage when the calendar automatically updates. The same billing rules apply for many other applications, like those for weather and sports.

As for the so-called "phantom" charges, AT&T said it records data activity nightly to create a record of each customer's bill in its system. The action may appear on a monthly statement as a mysterious late night charge, but the company said that's because time stamp corresponds with when the device connected with the network, not when the customer sent or received data.

Lawyer: Customers Have No Way to Verify What AT&T Tells Them

If AT&T customers want to keep tabs on their data usage, they can track usage on or dial #DATA# to get a text message updates. The company also says it sends customers three messages a month warning them as they approach the monthly data usage limit.

Regardless of the legal outcome, industry watchers say the suit spotlights the need for more customer awareness around the data technology powering their phones.

"A lot of people think they're only using data when they're using the Web, [but] in fact many apps are essentially cloud-based apps that use significant amounts of data," said Greg Harper, president of technology consulting company Harpervision. "People are buying smartphones and don't realize that what makes them smart is the data. ...The real problem is better visibility of the data usage."

AT&T's data billing practices have been an ongoing source of customer complaints, Harper said, but added that much of the problem may lie in consumer confusion.

"So many of these programs are just a storefront end to cloud data," he said.

While the application icons may live on your smartphone screen, the processes that actually calculate distances on a navigation app or translate foreign phrases with Google Translate take place on other computer servers, in the so-called "cloud." The customer gets charged as the data moves in and out of the phone.

Even if customers don't use all of the applications on their screens, many can soak up data with ongoing updates, he said.

Lance Ulanoff, editor-in-chief for, said tracking data consumption can be confusing for consumers, but basic actions, like disabling location services and turning off WiFi, 3G or GPS functions when they're not necessary, can help.

When it comes to calculating data usage, he said, "It's more art than science."

Data consumption turns on a range of factors, such as whether an application is location-aware, whether a web page is optimized for a mobile device or whether you're streaming music or video, he said.

"I definitely think that the educated consumer is one who is best armed to talk about and understand how much data they're using and how much they should be charged for it," he said.