AT&T to Pay Record $25 Million to Settle Data Privacy Breach Investigation by FCC

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By Lydia Beyoud

April 8 — In its second announcement of a record-breaking fine in the same week, the FCC reached a $25 million settlement with AT&T Services, Inc. on April 8 to resolve an investigation into data breaches involving almost 280,000 U.S. customer accounts due to a cell phone unlocking scheme operated through the company's international call center contractors.

The fine is the largest privacy and data security enforcement action taken by the Federal Communications Commission to date, and second record-breaking fine announced in the same week. The FCC fined telecom provider CenturyLink Inc. $16 million for a 911-outage on April 6.

Call center employees in Mexico, Colombia and the Philippines accessed customer data including names, full or partial social security numbers and other customer proprietary network information (CPNI) to pass on to third parties for the purpose of unlocking handheld devices, a senior FCC official told reporters during a press call.

Handheld devices such as phones and tablets programmed for use on one network are often legitimately unlocked in order to be used on another, including for international travel. It is also a prevalent practice internationally where stolen or secondary-market used phones are unlocked for use on local networks.

“As the nation's expert agency on communications networks, the Commission cannot—and will not—stand idly by when a carrier’s lax data security practices expose the personal information of hundreds of thousands of the most vulnerable Americans to identity theft and fraud,” FCC Chairman Tom Wheeler said in an April 8 news release.

Taking Over From FTC

“This is a classic data breach enforcement action that typically would have been prosecuted by the FTC until most recently” and calls into question which agency has enforcement priority over telecom providers, Robert Cattanach, a partner at the Dorsey & Whitney Minneapolis office told Bloomberg BNA via e-mail.

The FCC's action “ups the ante” for such breaches, with a fine two and a half times the previous largest penalty imposed on TerraCom, Inc. and YourTel America, Inc. on Oct. 24, 2014, Cattanach said.

The settlement also calls into question the integrity of call centers outside the U.S. The fact that an initial breach was discovered in Mexico, followed by subsequent discoveries in Colombia and the Philippines, suggests AT&T may have a more serious systemic vulnerability rather than a one-off hack,” Cattanach said.

Internal Investigations

The FCC was made aware of the data breach in 2014 when AT&T informed customers in California and Vermont that their data was accessed by three employees at a Mexican call center that provided services for Spanish speakers.

AT&T terminated its contract with the call center vendor in 2014.

In the course of its investigation into the breach, the FCC learned that AT&T had additional data breaches involving possibly 40 employees in call centers in Colombia and the Philippines in 2014, the official said. There, the total number of customer accounts accessed is believed to be at least 211,000, though further investigation could discover more, the official said.

The agency declined to comment on whether it is investigating other carriers for similar data breaches, but FCC Enforcement Bureau Chief Travis LeBlanc said other carriers should look to the agreement as guidance on properly securing customer data and providing prompt notification of breaches, according to the news release.

Device Unlocking Policies

“Protecting customer privacy is critical to us. We hold ourselves and our vendors to a high standard. Unfortunately, a few of our vendors did not meet that standard and we are terminating vendor sites as appropriate,” an AT&T spokesman told Bloomberg BNA by e-mail. AT&T has changed its policies and strengthened security measures subsequent to the breach, the spokesman said but declined to provide details.

“While any misuse of customer information is serious, we have no reason to believe that the information was used for identity theft or financial fraud against our customers,” the spokesman said.

AT&T will notify all current and past customers affected by the unauthorized account access in Colombia and the Philippines as part of its consent decree.

The FCC has been looking at the issue of device unlocking practices in great detail and intends to closely monitor unlocking principles being developed by the telecommunications industry, the FCC official said during the call.

The largest four national carriers and U.S. Cellular Corp. agreed to a six-part set of principles for unlocking consumer mobile devices, according to a 2014 “Consumer Code for Wireless Service” from CTIA—The Wireless Association, which represents the carriers.

Section 222 Enforcement

The FCC found AT&T to be in violation of Section 222 of the Communications Act of 1934 for disclosing confidential CPNI, according to the consent decree.

While the most recent action focuses on CPNI disclosure, many in the telecom industry are waiting for further details on how the FCC will interpret those rules as they relate to consumer privacy and data protection under the recently approved Open Internet order.

In the order (GN Docket No. 14-28), the FCC said Section 222 rules would apply to broadband Internet service providers but determined it would conduct a new rulemaking on the specific issue at a later date. The first element of that proceeding will be an April 28 workshop, the FCC has said.

When asked how enforcement actions like that taken against AT&T could apply to ISPs, the FCC official told reporters that the Enforcement Bureau would likely treat broadband service providers the same as it treats the other industries regulated by the FCC when it comes to the enforcement of privacy and data security.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com

Text of the order and consent decree is at http://op.bna.com/der.nsf/r?Open=jkid-9vdn26.

Text of the FCC news release is at http://op.bna.com/der.nsf/r?Open=jkid-9vdnam.

Information on the CTIA “Consumer Code for Wireless Service” is at http://www.ctia.org/policy-initiatives/voluntary-guidelines/consumer-code-for-wireless-service.