Note to mobile carriers: You better watch out how you use the word "unlimited." Because you might just find yourself in hot water with the Federal Trade Commission if the service you're offering isn't truly without limits, in terms of data.

Case in point—the FTC on Tuesday announced it is suing AT&T for misleading customers by charging them for "unlimited" data plans while reducing their data speeds, in some cases by nearly 90 percent. The complaint, filed in the U.S. District Court in San Francisco, alleges that AT&T failed to adequately warn customers that unlimited data doesn't necessarily mean unlimited high speed data.

"AT&T promised its customers 'unlimited' data, and in many instances, it has failed to deliver on that promise," FTC Chairwoman Edith Ramirez said in a statement. "The issue here is simple: 'unlimited' means unlimited."

In a statement, AT&T called the allegations "baseless" and said it has been transparent about its throttling practices from the very beginning of the program, which started in 2011.

"We informed all unlimited data-plan customers via bill notices and a national press release that resulted in nearly 2,000 news stories, well before the program was implemented," the company said. AT&T added that the throttling program has only affected about 3 percent of its customers, and before any customer is affected, they are notified by text message.

"It's baffling as to why the FTC would choose to take this action against a company that, like all major wireless providers, manages its network resources to provide the best possible service to all customers, and does it in a way that is fully transparent and consistent with the law and our contracts," AT&T said.

Like many other carriers, AT&T slows—or throttles—data speeds after users reach a certain amount of data in a given billing cycle. The FTC complaint alleges that AT&T throttles speeds to the point that many common smartphone apps—like Web browsing, GPS navigation, and streaming video—become difficult or nearly impossible to use.

At the same time, AT&T's marketing materials emphasize the "unlimited" data which customers can get on its plans. Even when unlimited plan customers renew their contracts, AT&T failed to mention its throttling practices, the FTC claimed. And when customers cancel their contracts after being throttled, they are hit with early termination fees typically amounting to hundreds of dollars.

The agency estimated that AT&T has throttled at least 3.5 million customers a total of more than 25 million times since 2011. AT&T's throttling often results in speed reductions of 80 to 90 percent, or more.

This practice, naturally, doesn't sit well with consumers. Participants in AT&T focus groups "strongly objected" to AT&T's throttling practice and an investigation revealed that the company received thousands of complains about slow data speeds under the throttling program, the FTC said.