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In a double-whammy for Verizon, the Federal Communications Commission announced today that the carrier must let its customers use third-party apps to turn their phones into mobile hotspots, and Verizon will also have to pay a $1.25 million fee to settle with the FCC over blocking the tethering apps so far.

Verizon Wireless charges customers $20 a month to use the mobile hotspot feature on their phone, which allows them to share Internet access with other devices. But plenty of Android apps, like PDANet, also do the same thing for free, and it wasn’t too long before Verizon decided to clamp down. The FCC found that Verizon ultimately couldn’t block the tethering apps, since it acquired 700 MHz spectrum for its 4G LTE network in 2008 that required it to maintain an open network.

“Today’s action demonstrates that compliance with FCC obligations is not optional,” FCC Chairman Julius Genachowski said in statement today. “The open device and application obligations were core conditions when Verizon purchased the C-block spectrum. The massive innovation and investment fueled by the Internet have been driven by consumer choice in both devices and applications. The steps taken today will not only protect consumer choice, but defend certainty for innovators to continue to deliver new services and apps without fear of being blocked.”

Verizon will still be allowed to charge for tethering on customers with grandfathered unlimited data accounts (but since it can’t detect the tethering apps anymore, that doesn’t really matter.) Verizon’s recent tiered data plans already include free tethering, so the carrier likely saw this settlement coming for a while. The news mainly affects Android, as iOS and Windows Phone don’t have legitimate third-party tethering apps in their app stores.

AT&T spent $1.9 billion last year on Qualcomm’s 700 MHz spectrum block, but unfortunately for its subscribers (this reporter included), it wasn’t required to keep that spectrum open. Similarly, Sprint and T-Mobile’s networks won’t be affected by this decision.

While Verizon is licking its wounds, the FCC’s decision is a good one for consumers, and it may even attract new subscribers to the carrier. Unfortunately for Verizon, data hogs are just about the least desirable subscribers.

As part of the settlement, Verizon will have to train its employees on the new tethering policy; get legal counsel review on communications with Google and other app store providers; and report non-compliance over the next two years.

Via GigaOm

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