How the Great Smartphone Data Scam Works

Last Updated May 23, 2011 5:00 PM EDT

Have a smartphone with an AT&T (T) account? Ever wonder if the data charges on your bill reflect your actual usage? Some lawyers did and are now pursuing a class action suit. According to a Today show segment, the law firms had independent engineering consultants compare actual data use with billing, finding overcharges in every case.

AT&T denies the charge, saying that it properly charges for data. And maybe it does, technically, according to its own rules. But the wireless industry's whole approach to mobile data feels shifty. Whether it's how the big carriers decide to cap data use -- even though they admit that most people don't use all that much -- or the enormous lobbying against net neutrality, it's hard to avoid the feeling that there's a big smartphone data scam going on.

Did we make a boo boo?
The suit dates back to January, although the recent Today show segment put things into a flurry. The contracted engineering firm checked multiple devices on 200 MB a month plans over a four month period. The research alleges that all the bills saw between 7 percent and 14 percent over billing. Every discrepancy was in AT&T's favor, which, although we don't know the sample size, does suggest that the carrier plays with a stacked deck.

The law firms also had a separate engineer take a new iPhone, turn off all services that would use data, and leave it on but idle for ten days. After that period, there was a total of 2MB of data use over 35 incidents. Ars Technica contacted one of the lawyers for a description of the methodology:

He explained how tests were able to determine that AT&T's system was recording more data use than expected. The computer engineer retained by Davis' firm set up a special Web server configured to log how much data was sent or received from a particular device, using timestamps and IP addresses. The engineer then bought a range of devices, including an iPhone and iPad, and used the devices to view webpages and download files on the server.

The server's logs were then compared to the detailed list of data transmissions which are included in AT&T customers' bills. Those comparisons allegedly found that AT&T's system recorded discrepancies in the amount of data used, and in some cases counted the data on the wrong billing cycle.

Davis confirmed to Ars that no analysis was done to determine what background OS processes, if any, were responsible for the "phantom data." Other devices, including BlackBerrys and Android smartphones, also showed some unknown data use, while others showed none.

AT&T denied any wrongdoing and blamed discrepancies on smartphone processes that work in the background.

Psst, wanna buy a bridge?
Perhaps the engineers failed to measure something. Maybe AT&T is completely innocent. Only, this is the same industry that once rounded up voice calls to the next highest minute, so a call that went 2 minutes and 18 seconds would be billed for three minutes. Why? To charge extra, of course. Even measuring to the nearest tenth of a minute would have been more reasonable and easy enough for carriers to do, but it would have paid less.

That's exactly the type of business process that could add round up data to the nearest kilobit, or maybe 10 kilobits, so discrepancies always favored the carrier. The push to drain more money out of consumers' wallets is palpable.

It was clear last June that AT&T set its data cap to increase profitability. According to a Bernstein Research analyst, the average iPhone user's data consumption was 251 megabytes a month.

That's average, and yet just a bit over the 200 megabytes offered by AT&T's lowest data plan that the company said would satisfy 65 percent of its customers. When I recently purchased an iPhone for my daughter at an AT&T store, the salesman pushed for the 2 gigabyte, $25 plan, "just to be safe," though with an option to scale back to the $15/200 megabyte plan within 25 days if the extra data volume wasn't necessary. Want to bet whether most people check the plan and scale back?

We're all Bozos on this bus
But why pick on AT&T? Other carriers indulge in smartphone data pricing games. Last year, Sprint (S) said that it wouldn't limit data use by smartphone customers while it announced a mobile usage cap. Verizon (VZ) will shift to tiered data plans. No details yet on what the options will be or how much they'll cost, other than saying that family data plans will let a number of devices share the data bandwidth.

T-Mobile just announced its new prepaid plans called Truly Unlimited. However, whatever tier you get, the amount of data is capped (click to enlarge):


Notice that the ad layout tries to leave the impression of unlimited data, talk, and text for $79.99.

All this goes hand-in-hand with the carriers' push against net neutrality and any restrictions on what they charge. Understandably, from a business view, they want to milk the market for as much as they can, for as long as they can.

Talking about market forces is absurd, as the carriers all have the same monetary interests and all, amazingly, take the same course of action. And then regulators sit back, flustered, not knowing what to do ... well, other than taking job in the industry or, if elected politicians, stepping up for a slice or two, or more, of fat campaign contributions.

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Image: Flickr user stevendepolo, CC 2.0.
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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.