AT&T's data breach settlement called a 'slap on the wrist'

The $25 million settlement with the U.S. Federal Communications Commission, announced Wednesday, amounts to a "slap on the wrist" for AT&T, said Chris Conacher, director of security research and development at cybersecurity vendor Tripwire.

AT&T, which reported revenue of $34.4 billion for the fourth quarter of 2014, suffered data breaches involving mobile customers' personal information at three overseas call centers.

"If you really want companies to think about security you need to do something that makes the decision makers sit up and listen," Conacher said by email. "If all you are doing is making tiny deductions against the bottom line, businesses are going to keep on doing what they do and consumers will keep on suffering."

The negative publicity from the FCC settlement may have little impact, according to Conacher. Other companies reporting data breaches, including Target and Sony Pictures, haven't seen their stock prices fall significantly, he said.

"As long as the companies appear to be managing the issue professionally then investors will also accept major breaches as the cost of doing business," he said. "Is [the settlement] a warning to other companies No."

AT&T reported the breaches to the FCC. More than 40 employees at the three contract call centers, in Mexico, Colombia and the Philippines, sold customer information, including names and partial Social Security numbers, to criminals who used the information to unlock stolen smartphones, the FCC said. More than 279,000 AT&T customers were affected by the data breaches in 2013 and 2014, the agency said.

AT&T said it has ended its relationship with some call center vendors because of the breaches and will notify affected customers. There's no evidence the breached data has been used for ID theft, the company said in a statement.

In the Colombia call center, full Social Security numbers were accessible by three of managers whose login credentials were used to access the customer accounts, according to the FCC complaint.

Using overseas call centers opens AT&T to criticisms of "penny pinching," added Richard Blech, CEO and co-founder of encryption vendor Secure Channels.

"By outsourcing their call center to foreign countries to save money, AT&T has exposed Americans' sensitive data to peril," he added by email. If AT&T had encrypted the data, it would have been protected, he said.

It's "alarming" that AT&T allowed contractor workers to have access to unencrypted customer records, Blech added. "There should no longer be any debate as to whether sensitive customer data should be encrypted or not," he said.

It's interesting that the data breach settlement came through the FCC, when the U.S. Federal Trade Commission has been the agency that often pursues companies for data breaches, said Robert Cattanach, a partner at law firm Dorsey & Whitney focusing on cybersecurity and other regulatory litigation.

The FCC settlement, the largest in agency history for a data breach, "ups the ante" for penalties, but the FCC may still have been a better option for AT&T, Cattanach said.

"It's no secret that the regulated community -- especially a large player -- enjoys, relatively speaking, a much more cozy relationship with the FCC than is the case with FTC," he said by email. "The FCC is not a push-over to be sure, but it does not project the attack dog mentality that the FTC prides itself in conveying."

Companies should consider that the cost of protecting the data at the three contract call centers would be a fraction of the cost of the settlement, said Philip Lieberman, president of Lieberman Software, another cybersecurity vendor.

New protections, however, would require a change in process, "which is generally harder than the purchase of any technology," he added by email. "The C-level staff will have to explain this to the board as to why they did not implement a control when the cost would be trivial."

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's email address is grant_gross@idg.com.