As we covered extensively in several previous blog posts, one of the primary consequences of the case were questions about the limits of the FTC’s jurisdiction. The case mirrored a time when the Federal Communications Commission (“FCC”) took opposing positions in successive administrations regarding whether mobile data services and other Broadband Internet Access Services (“BIAS”) were subject to FCC regulation. One of the central questions underlying the case was which agency, the FCC or the FTC, could regulate AT&T’s mobile data practices. After the FTC won a Ninth Circuit decision that its jurisdiction reaches to non-common carrier activities of common carriers (and the FCC concluded that mobile BIAS was not a common carrier service), AT&T agreed to settle the FTC case. However, so long as the jurisdiction of particular services remains in doubt, or is subject to changing FCC positions, service providers will face potential overlapping enforcement activities by the two agencies.

The path to determining the FTC’s jurisdiction was long. In response to the FTC’s 2014 complaint, AT&T moved to dismiss the case, arguing that, because it is a common carrier, the Company is exempt from FTC regulation under Section 5 of the FTC Act. AT&T argued that the exemption in Section 5 for common carriers was “status based” – that is, that the FTC could not regulate any activities of a common carrier, even activities the FCC had subjected to limited or no regulation. The FTC responded by asserting that Section 5 of the FTC Act exempts only the common carrier activities of common carriers from FTC regulation.

Agreeing with the FTC, the district court denied AT&T’s motion to dismiss on March 31, 2015. The Company then appealed that decision to the Ninth Circuit Court of Appeals (“Ninth Circuit”). On August 29, 2016, a three-judge panel issued an opinion that reversed the district court’s decision and dismissed the case. The FTC then requested a rehearing en banc, which the Ninth Circuit granted on May 9, 2017. On February 26, 2018, the Ninth Circuit, sitting en banc, issued an opinion reversing its previous decision and giving the FTC broad authority to regulate practices not classified by the FCC as telecommunications services. It then remanded the case to the district court for further proceedings. AT&T settled the case before the District Court addressed the merits of the allegations.

Notably, AT&T commits to making refunds within 90 days to eligible customers without requiring a claims process. AT&T agreed to issue bill credits to current customers and to issue refunds to former customers. Any remainder not distributed will be deposited into a redress fund maintained by the FTC. Commissioner Rohit Chopra of the FTC issued a statement accompanying the settlement, in which he urged the FTC to pursue fraudulent practices by large and small firms alike, asserting that “scammers come in all sizes.”

Having settled with the FTC, AT&T is not necessarily out of hot water for alleged data throttling during this time period. In 2015, the FCC issued a $100 million Notice of Apparent Liability for Forfeiture (NAL) to AT&T over its mobile broadband data services and practices. The FCC also reached a $48 million settlement with T-Mobile on October 20, 2016 concerning a similar data throttling allegation regarding mobile data services. However, since the FCC’s leadership changed hands in early 2017, the Commission has not taken any action to finalize (or settle) the AT&T NAL. It remains pending, four years after its issuance.

HobbyKing markets its devices on its website, HobbyKing.com. The devices in question operate in various amateur bands between 12450 and 5925 MHz, but the troubles for HobbyKing emerged because the devices also operate on other bands, including several restricted bands, and some models operate at higher powers than permitted under the FCC rules. In 2015, the Bureau received several complaints against HobbyKing, which resulted in a Marketing Citation for violations of Section 302 of the Communications Act as well as Sections 2.803 and 2.925 of the FCC Rules for illegal marketing of two noncompliant AV transmitters. Further complaints surfaced in 2017, which led to a Bureau Letter of Inquiry (“LOI”). Apparently, HobbyKing received the LOI, but failed to respond fully, which led to another Citation – this time for failure to respond to the LOI (the “LOI Citation”) – and the Bureau ordered a response, but the company did not respond fully, according to the NAL. But the response was enough for the Bureau to determine that HobbyKing continued to market transmitters that required, but did not have, equipment authorization. The devices operated on both amateur as well as non-amateur frequencies, which negated HobbyKing’s ability to rely on an exemption from equipment authorization that operate only on amateur frequencies (and adhere to otherwise applicable technical requirements). Three of the 65 models in question also operated at power level that exceeded the limits the Commission established for amateur commend of model aircraft.

(The Commission explained in the NAL: “The Commission generally has not required amateur equipment to be certified, but such equipment must be designed to operate only in frequency bands allocated for amateur use. If such equipment can operate in amateur and non-amateur frequencies, it must be certified prior to marketing and operation.” To reinforce these points, on the day of the NAL, the Bureau issued an Enforcement Advisory, which we covered in an earlier blog post.)

In addition to erroneously thinking (at one time, at least) that its devices qualified for the exemption applicable to devices that operate only on amateur frequencies, the company also claimed that it does not market its devices to U.S. customers. But apparently there is substantial evidence to the contrary, including the fact that their website says they ship worldwide and HobbyKing has a New York office and customer service operations in the United States. Also worthy of note, on July 3, 2017, they posted on their Instagram account, “Wishing our US customers a very happy Independence Day!”

Taking into account the totality of the circumstances, the Bureau proposed a forfeiture of almost $2.9 million. Providing a window into its thinking, the Bureau started with a base penalty amount of $7,000 for 65 models, a total of $455,000. For the fifty models that were operated without equipment authorization, the Bureau adjusted each penalty by $5,250 for repeated and continuous violations, namely engaging in the same type of marketing misconduct that led to the Marketing Citation HobbyKing after that Citation was issued. For those fifty models, the total proposed penalty is $612,500.

For the remaining fifteen models, the Bureau proposes the Commission issue the statutory maximum penalty of $147,290. Twelve of these devices, as noted above, operate in restricted bands in addition to amateur bands, and three of the AV transmitters exceed the power limits in the amateur bands in which they operate. Consequently, none of these fifteen devices could have received an equipment authorization. Under any circumstances, they could not be marketed in the United States. For these, the Commission issued a proposed penalty of $2,209,350.

Finally, the Commission tacked on an additional penalty of $39,278 for HobbyKing’s failure to respond to the LOI in the first instance and then to the LOI Citation, despite repeated opportunities to answer. The Bureau’s NAL treated HobbyKing’s failure to respond to the LOI and LOI Citation as individual, non-continuing violations and proposes to apply the statutory maximum of $19,639 for such violations in each case.

This NAL and the reasons for the aggravation of the penalty from base amounts reflects a number of lessons. Several of the key ones are: One, parties receiving inquiries or follow-up from the Commission should respond. Two, when parties don’t respond at first and are reminded of their obligation to respond to Commission inquiries or LOIs, they should respond. Three, companies marketing devices under their own brand name (or not), even if they do not manufacture them, are responsible for ensuring that they are marketing complaint devices. Four, parties should understand the rules that apply to the devices they market to ensure whether they have the proper authorization or are even eligible for authorization. Five, if companies think the devices they manufacture or market qualify for an exemption from the FCC’s equipment authorization rules, they should double check to be sure they meet all of the conditions for the exemption. Six, unlicensed devices that operate in one or more restricted bands cannot be authorized (absent an affirmative FCC waiver) and therefore cannot imported, marketed, or operated in the United States. Seven, companies that market RF devices only over the web must be mindful of what countries they are marketing to and what the regulatory requirements are in those countries.

The two significant equipment authorization enforcement actions in recent days – we direct you also to our post on the Pure Enrichment NAL released in late May -- rightfully makes one wonder if there are more to come in short order.

The Communications Act prohibits the transmission of radio signals above specified power levels without a FCC license. The NAL follows a five-year investigation of Fabrice Polynice, who operated a pirate radio station in North Miami, Florida from a shed located in the backyard of Harold and Veronise Sido (the “Sidos”). FCC field agents first identified the pirate station in 2012 and warned Mr. Polynice and the Sidos that such operations were illegal. But the unlicensed operations continued, resulting in seizure of the station’s radio equipment by U.S. Marshalls later that year. However, the station soon returned to the air and the FCC’s Enforcement Bureau subsequently fined Mr. Polynice $25,000, which remains unpaid. At the time, the Enforcement Bureau declined to impose fines against the Sidos, but again warned them of the illegality of pirate operations.

In the NAL, the FCC found that Mr. Polynice continued to operate the pirate station despite the prior fine and multiple additional warnings from FCC field agents in recent years. The FCC determined that the maximum fine was necessary in light of the intentional and repeated nature of the violations as well as the egregious disregard demonstrated for the Commission’s authority. However, the FCC went a step further and also found the Sidos apparently liable for the continued operation of the pirate station. In doing so, the FCC used a “totality of the circumstances” test that focused on three criteria:

• First, the FCC emphasized that the Sidos controlled access to the backyard containing the shed housing the pirate station’s transmitter and antenna, and granted access to Mr. Polynice with the knowledge that his pirate radio operations were illegal.
• Second, the FCC highlighted the material support the Sidos gave the station, including providing and paying for the Internet service necessary to carry the station’s programming to the transmitter and the electricity required to run the station’s equipment.
• Third, the FCC noted that Mr. Sido apparently joined Mr. Polynice during broadcasts and the Sidos often took the station off the air in response to FCC field agent visits, further demonstrating control over station operations.

The Commissioners all supported the NAL, although Commissioner O’Rielly criticized the size of the proposed fine as inadequate compared to the larger penalties imposed for violations of other FCC rules, and asked Congress to increase the statutory maximum penalty for pirate operations. Commissioner Clyburn also cautioned that pirate operations may be driven by the lack of opportunities to obtain FCC licenses, especially for stations targeting minority listeners in urban areas.

While the facts underlying the NAL are straightforward, its impacts may be far-reaching. Chairman Pai indicated that the FCC wanted to send “a clear message” to pirate operators and their supporters that it will use its “strongest enforcement tools” to curb unlicensed operations. However, the FCC’s current enforcement focus appears limited to property owners that not only knew about pirate stations operating on their property but also actively supported such operations knowing they are illegal. As a result, it remains to be seen whether the FCC will expand its focus to target apartment landlords and other owners of multi-tenant properties that may be unknowingly housing pirate stations.

According to the NAL, the FCC began its investigation into Mr. Abramovich in response to numerous consumer complaints regarding spoofed robocalls offering vacation packages, which were purportedly affiliated with well-known companies such as TripAdvisor, Expedia, Marriott, or Hilton. In fact, TripAdvisor informed the FCC in April 2016 that it also was receiving consumer complaints about “receiving unwanted calls with prerecorded messages claiming to be on behalf of TripAdvisor.” In addition, a company called Spok, Inc. contacted the FCC in December 2015 to report “a significant robocalling event that was disrupting its emergency medical paging service.” The FCC was eventually able to trace the calls back to Mr. Abramovich and his companies. According to the FCC, subpoenas of the call records for his companies revealed that one company placed more than 95 million calls during a three month period, and upon review of a sample of those calls, staff “found that every reviewed call was spoofed.”

Based on these apparent violations, coupled with the FCC’s contention that the “falsification of caller ID was done with apparent intent to defraud, cause harm, or wrongfully obtain something of value,” the FCC proposes a $120 million forfeiture. The proposed penalty consists of a base forfeiture amount of $80 million, which according to the Commission is “a level well below the maximum in recognition of the fact that we have not previously proposed a forfeiture for this particular kind of violation, but that will still serve to put bad actors on notice that we take such violations seriously and will act as a deterrent to other large scale spoofing operations.” The NAL then proposes an upward adjustment of $40 million due to “the sheer volume of calls Abramovich made.”

This NAL is important for a number of reasons. First, it is the Commission’s first spoofing enforcement action. Although the Truth in Caller ID Act does not prohibit all spoofing – and the FCC has openly acknowledged that there are many legitimate uses of caller ID spoofing – the NAL is the first action alleging that spoofing was conducted with an intent to defraud.

Second, the size of the proposed forfeiture suggests that the Commission will be active in enforcing spoofing violations, which seems to be a priority for Chairman Pai as part of his robocall agenda. Notably, the Truth in Caller ID Act authorizes the FCC to propose an NAL against entities not holding Commission licenses, without the “warning” in the form of a Citation that is necessary in other contexts. Indeed, the two-step enforcement process is mandatory for TCPA, wire fraud and Communications Act violations, as is evidenced by the parallel Citation issued to Abramovich for TCPA and wire fraud violations stemming from the same conduct addressed in the NAL. With this streamlined enforcement process, the Pai FCC is more likely to use spoofing as the vehicle for prompt enforcement against fraudulent autodialing or prerecorded messages.

Third, the NAL is the result of a collaborative investigation between the FCC and industry players, in this case TripAdvisor and Spok. We expect to see more of this cooperation with respect to spoofing and robocalls going forward, especially involving legitimate companies whose businesses are affected by practices similar to those described in the NAL.

On November 4, 2016, the FCC issued an NAL against Network Services Solutions (“NSS”) and its chief executive for allegedly violating the RHCP competitive bidding rules and committing wire fraud. The NAL represented the first proposed fine by the FCC in connection with the RHCP. The FCC charged NSS with using inside information to gain an unfair advantage in the competitive bidding process, providing gifts and other inducements to get contracts with rural health care providers, inflating the actual costs of its services to these providers, and submitting forged documents in support of its claims for RHCP reimbursement. The FCC proposed a fine of more than $21 million against NSS for the alleged competitive bidding violations, based on forms submitted by rural health care providers serviced by NSS that contained false information from the company. The FCC also proposed the $189,361 statutory maximum fine for NSS’s alleged wire fraud and a recovery of over $3.5 million in reimbursements that the company received due to its alleged violations.

While agreeing that NSS violated the RHCP rules and deserved a hefty fine, then-Commissioner Pai partially dissented from the NAL. First, he argued that the proposed fine calculation included forms submitted more than a year before the NAL, which put them outside of the FCC’s one-year statute of limitations. Second, he noted that NSS did not sign, certify, or submit the rural health care provider forms, and stated that the proposed fine instead should have been based on the invoices NSS sent to the FCC seeking improper reimbursements.

The Amended NAL

The amended NAL leaves NSS’s proposed wire fraud fine and reimbursement recovery in place, but changed the methodology for calculating the fine for the alleged competitive bidding violations in line with the dissent. While recognizing that the rural health care provider forms contained false information, the FCC found that the invoices NSS submitted to the FCC in the year leading up to the initial NAL were the “appropriate basis” for the proposed fine. Finding NSS’s invoices violated the RHCP rules increased the proposed fine by over $855,000 (to $22,358,082) because the invoices contained more improper reimbursement requests than the health care provider forms.

The FCC’s action is quite curious. Prior to this action, the FCC had never amended an enforcement action to change the calculation of a proposed fine, nor had it increased a fine in the same proceeding. We have seen the FCC revise its forfeiture calculations, but it has done so in a Forfeiture Order, not in an amendment, and it had always revised forfeitures downward. Moreover, where the FCC has increased fines, it has done so by issuing a separate NAL to the target company. Here, however, the amended NAL alters the theory on which the violation is based and alters the number of proposed violations. While this action has all the hallmarks of Chairman Pai seeking to conform a past FCC action to his preferred basis, the choice of an amendment to an NAL is novel.

Further, the action raises some interesting questions concerning the application of the statute of limitations to FCC enforcement actions. The FCC order is silent on this front, not addressing how its findings comply with the one-year statute of limitations for forfeiture actions. Section 503(b)(6) provides that, for entities other than broadcasters, no forfeiture penalty may be imposed if the violation charged occurred more than one year “prior to the date of issuance of the required notice or notice of apparent liability.” Just what is the “required … notice of apparent liability” here is not clear. Although the amended NAL only covers alleged violations from the year leading up to the initial NAL (that is, for conduct after November 4, 2015), the amended NAL changed the basis for the violations from the rural health care provider forms to NSS’s invoices. Many of these invoices were filed more than a year before the release of the amended NAL. We believe there is a very real question as to which date is applicable for statute of limitations purposes. If the amended NAL “restarts” the statute of limitations clock, then it appears that many of the violations may be time-barred. By contrast, if the amended NAL simply substitutes new language into the initial NAL, as the FCC order states, then the violations may fall within the initial NAL’s one-year limitations period.

Unfortunately, it is unlikely that this question will be resolved soon. NSS declared bankruptcy in March 2017 and the FCC acknowledged in the amended NAL that bankruptcy protections may prevent it from ordering NSS to pay a fine for the alleged violations or reimburse the RHCP. In a footnote, the FCC states that the “automatic stay” under Section 362(a) of the bankruptcy laws, “may prevent the Commission from ordering NSS to pay the amounts assessed in this NAL.” Thus, for all of its novelty, the FCC’s first-ever NAL amendment may end up as an “empty document” with no practical impact on NSS. NSS’s status may also prevent it from effectively challenging the amendment, so the procedural questions raised by the action may not be addressed either. Resolution of these issues may have to await the existence of a more solvent alleged violator.

The investigation into Constellium’s licenses arose in August 2013 after the company filed applications in April 2013 for special temporary authority for a number of PLMRS station licenses, which included an admission that the company had been operating without authority following the expiration of its eight PLMRS station licenses. While the Commission’s investigation into the operations after license expiration was ongoing, Constellium discovered and then reported that eight special temporary authorizations and four other PLMRS authorizations held by Constellium underwent a transfer of control without receiving the FCC’s prior consent due to an initial public offering involving its parent that resulted in the indirect parent of Constellium dropping from above 50% ownership to less than a majority interest, i.e., loss of positive control.

The FCC’s May 2014 NAL sought a forfeiture of $294,400 – more than twice the settlement amount – for Constellium’s apparent violations of Sections 301 and 310(d) of the Communications Act, as amended, and Sections 1.903(a) and 1.948(a) of the FCC’s rules. The Enforcement Bureau agreed to reduce the proposed penalty in part noting that, as a result of the post-NAL negotiation, it accepted Constellium’s argument, which the Bureau had rejected leading up to the NAL, that the penalty should reflect operation of four unauthorized operations rather than eight based on the fact that the company eventually was able to consolidate eight of its PLMRS authorizations (i.e., those that had previously expired) into only four permanent authorizations. It also appears likely that Constellium’s agreement to enter into a consent decree had a salutary effect on the penalty reduction. In the consent decree, the company agreed to obligations common to such decrees, and it also specifically agreed to develop a database to track all of the company’s FCC licenses and the corresponding expiration dates. The common terms with most other decrees include development of a compliance training program that includes annual training obligations for all covered employees. Constellium also made an admission of liability, a standard term for settlements during Enforcement Bureau Chief Travis LeBlanc’s tenure.

Under the FCC’s rules, operation of wireless radio stations must be authorized by the FCC prior to commencing operations and any transfers of control of wireless radio authorizations, no matter what form the transfer of control takes, must receive prior FCC consent. The Bureau noted that these rules are in place to protect licensees from harmful interference and to promote the efficient administration of spectrum. In light of the FCC’s continued enforcement efforts, it is imperative that any company operating wireless facilities be aware of the FCC’s licensing requirements and their regulatory obligations attendant to their day-to-day operations. Similarly, companies should remain vigilant to follow preapproval filing and consent regulatory requirements not only in the context of traditional sales and acquisition transactions, but also other corporate activities, such as an IPO, which may result in the transfer of control of FCC licenses.

The Bureau issued the NALs for “failing to comply with the requirement of our RF maximum permissible exposure (MPE) limits” applicable to stations operating in areas accessible to the public under Section 1.1310 of the FCC’s Rules. Following the building owner’s complaint about ease of access to a block of antennas located on the rooftop, field agents from the Bureau’s San Diego Regional Office found that the antenna area for the licensees’ wireless operations – including Advanced Wireless Service (AWS) and Broadband Personal Communications Service (Broadband-PCS) – had inadequate barriers and signage to restrict access by the public and building workers. Further, the field agents conducted testing and found that RF emission readings in the accessible areas in front of the antennas were 178 % to 298 % the general population MPE limits. Though there was some level of signage on-site warning the public that the RF exposure levels exceed the public MPE limit, the investigation concluded that the signage either did not include the necessary specificity of which areas exceeded the limits or was located in an area blocked or inaccessible to the general public. Barriers to prevent access to the areas in front of the antennas were present but were in disrepair and, the field agents concluded, ineffective to limit access to areas exceeding the RF exposure levels.

Although the base forfeiture for violations of the RF exposure limits is $10,000 per violation, the Commission found aggravating circumstances for both licensees. T-Mobile operated three radio stations on the site exceeding the MPE limits, resulting in a $30,000 base proposed forfeiture. The Bureau justified a $45,000 upward adjustment because of T-Mobile’s size, but offset that by $15,000 because T-Mobile had made good faith (albeit inadequate) efforts to post signage and create a barrier to entry. Wirelessco’s had one station exceeding the MPE limits. The base forfeiture of $10,000 was adjusted upward because Wirelessco is a subsidiary of Sprint Corporation. No downward adjustment was made in its case.

RF exposure limits have been the subject of little FCC enforcement activity in recent years. The last enforcement action, a settlement with Verizon Wireless in early 2014, also arose from public complaints. Additionally, in early 2013, the FCC initiated an update to its RF exposure requirements. That update came in three sections: a Report and Order resolving issues from the last rulemaking in 2003, a Further Notice of Proposed Rulemaking which remains pending, and a Notice of Inquiry to explore whether the current RF exposure limits and policies should be reassessed. Since the initial comment cycles, no further action has been taken and the current rules which, in conjunction with the FCC’s RF exposure Knowledge Database (KDB) procedures remain fully in effect and apply to a large number of licensed radio station categories. These NALs underscore the importance for wireless licensees not only to take steps restricting access when stations are first installed but to confirm the adequacy of signage and barriers on a periodic basis and whenever station maintenance is performed.

The new releases highlight several items of interest: 1) the FCC’s continued focus on Wi-Fi management resulting in blocking activities and alleged malicious interference, 2) the debate among the Commissioners regarding the FCC’s ability to fine companies for such activities under current law and FCC regulations, and 3) the potential expansion of Bureau investigations into the activities of the subsidiaries, affiliates and possibly franchisees of the investigation’s initial target.

Protection of Wi-Fi Communications Against Willful Interference Remains an Enforcement Priority

Over the past year, the FCC entered into a pair of consent decrees with substantial fines addressing Wi-Fi management or blocking practices. In October 2014, the FCC reached a $600,000 settlement with Marriott Hotel Services and Marriott International, Inc. This was followed in August 2015 by a $750,000 settlement with Smart City Holdings, Inc. In various related enforcement advisories, the FCC has stated its firm belief that Wi-Fi blocking practices violate Section 333 of the Communications Act (the Act), which prohibits the willful or malicious interference with the radio communications of any station licensed or authorized under the Act.

The Dean NAL is the first of its kind. The FCC concluded that M.C. Dean provides Wi-Fi service for sale at the Baltimore Convention Center and was using wireless network equipment with an “auto-block feature” that automatically detects and deauthenticates unknown Wi-Fi hotspots. FCC field agents tested hotspots at the Convention Center in October, November, and December 2014 and found the company was blocking Wi-Fi operations. Based on these visits and apparent admissions from the company, the FCC found “it reasonable to conclude that a violation apparently took place every day there was an event”– a total of 10 events over 26 days during the one-year statute of limitations period. In proposing the fine, the Commission rejected M.C. Dean’s claims that its blocking practices are necessary network management practices. Further, citing its enforcement advisories against Wi-Fi blocking going back to 2011 and the Marriott consent decree, the Commission rejected the company’s claims that it did not have notice of the unlawfulness of its behavior.

FCC Commissioners Disagree over the Existence of the Basis for This Enforcement Authority

The Commissioners continue to debate whether the Act or the Commission’s current rules proscribe the activity of blocking unlicensed Wi-Fi communications. Commissioners Pai and O’Rielly – the two Republican Commissioners on the five-person Commission – dissented in the Dean NAL. Their statements question the FCC’s interpretation of Section 333 of the Act as an adequate basis to propose the fines. The majority concluded in the Dean NAL that Wi-Fi devices are “authorized stations”, that Wi-Fi communications are “radio communications”, and that M.C. Dean’s apparent activity was a case of willful and malicious interference to such radio communications. While recognizing that, as a policy matter, Wi-Fi blocking should not be permitted, both Commissioners argue that Section 333 does not apply to the interference of unlicensed Part 15 devices (such as Wi-Fi equipment, including smartphones when operating in Wi-Fi mode) and point out that the FCC has not, to date, promulgated rules to prohibit Wi-Fi blocking. They note that operators of Part 15 devices must, by rule, accept any interference received from any source, which raises the question whether any interference that is caused to an unlicensed device can be actionable interference. Commissioner O’Rielly also questions whether the activity in question even constitutes radio interference, since the devices did not operate as radio jammers of the Wi-Fi signal. Commissioner Pai contends that the FCC missed an opportunity to clarify the rules or enact new rules to proscribe these activities over a year ago when Marriott and the American Hotel & Lodging Association submitted a petition for declaratory ruling asking the FCC to clarify the limits of what network operators could do to mitigate supposed threats to their Wi-Fi networks by the operation of personal hotspots. That petition was later withdrawn. Commissioner Pai asserts the withdrawal occurred after the leadership of the FCC “made it abundantly clear that such guidance would not be forthcoming.”

M.C. Dean has thirty days to respond to the Dean NAL. The company has already indicated its intentions to fight the proposed forfeiture, which should bring the issues raised by the dissent to a head.

The Scope of Enforcement Bureau Investigations Can Be Expansive

The Bureau’s companion Hilton NAL also relates to an investigation of alleged Wi-Fi blocking. However, the Hilton NAL arises from Hilton Worldwide’s alleged obstruction of the Bureau’s investigation by refusing to respond or respond fully to an LOI. This investigation began with a consumer complaint of Wi-Fi blocking at a Hilton-branded hotel in Anaheim, California. The Bureau also noted it received complaints for other locations. In response to the complaints, the Bureau’s investigation sought information on Wi-Fi management practices at all Hilton properties in the United States, not just the one in question – including franchised hotels and properties of all Hilton brands. According to the Hilton NAL, Hilton responded to the LOI through a subsidiary and attempted to narrow the scope of the Bureau’s investigation to the Anaheim location, and a few others it states use the same Wi-Fi management technology. In addition to proposing to fine the company for its alleged inadequate responses, the Bureau also orders Hilton Worldwide to fully respond to the Bureau’s LOI within 30 days, at the risk of further penalties.

The Hilton NAL, which proposes a fine of $25,000 for failure to respond to the LOI, highlights not only the seriousness with which the Commission takes failures or refusals to respond to its LOIs, but underscores potentially important issues regarding the scope of investigations into entities with complicated corporate or franchising structures. While the investigation began because of a single complaint, the focus of its investigation is company-wide and nationwide, extending to entities that may have no more than a franchisee relationship to Hilton. This type of company-wide investigation is not at all uncommon. What is less clear, is how the scope of an investigation should play out with a corporate and operational model like that employed by Hilton. Although a corporate parent can be responsible for the actions of its subsidiaries and agents, the responsibility may be less defined with respect to franchisees or brand licensees. Any companies that are using or considering Wi-Fi management technologies or who have subsidiaries or franchises that may be considering such activities would do well to carefully consider the FCC’s recent NALs and monitor the further course of these two matters.

A Notice of Apparent Liability issued today by the Federal Communications Commission against AT&T for numerous alleged violations of microwave point-to-point license rules after a lengthy investigation by the Enforcement Bureau, but the two Republican Commissioners took the Commission and Bureau to task for failing to provide transparent factual bases and justifications for both the base violations and also the grounds for proposed upward adjustments. Commissioner Ajit Pai made a point of concurring and Commissioner Michael O’Reilly concurred in part and dissented in part.

The Notice described a multi-year investigation which ostensibly raises the question why the Commission only issued the Notice now, after more than 80% of the licenses that allegedly were operating in violation of the rules could no longer be the direct subject of forfeiture proceedings due to the applicable one-year statute of limitations. This matter had a humble beginning. In October 2011, the Wireless Telecommunications Bureau referred to the Enforcement Bureau the matter of a single AT&T microwave license in Puerto Rico that was operating on an unauthorized frequency. Following a Letter of Inquiry issued by the Bureau in 2012, settlement negotiations ensured regarding this and one other license. In September 2013, however, AT&T disclosed “inconsistencies between the licensed parameters and the constructed facilities of a large number of common carrier fixed point-to-point microwave licenses that it acquired from 2009 through 2012” from Centennial Communications Corporation and Verizon Wireless. The Notice notes that the Bureau then “expanded its investigation,” and that AT&T took almost another year to complete its investigation of 691 acquired licenses. 240 of these licenses, per AT&T, more than one-third of the total, required modifications to bring them into compliance with how they were, in fact, being operated – at least fifty of the modifications were major. The Notice is silent as to when most of these modifications were filed relative to the period of investigation, and notes that since January 30, 2014 -- the start of the relevant statute of limitations period for the NAL – the remaining 34 of these out-of-compliance licenses were either cancelled, the subject of major or minor modification filings, or yet require modifications to be filed.

The Notice sliced and diced in several ways the extent of AT&T’s alleged non-compliance revealed by the investigation to have occurred over the past four to five years, noting that 59 licenses were operated at variance from their authorized parameters in violation of Section 301 of the Communications Act of 1934, as amended, and FCC rules. Major modifications of microwave licenses in such cases include changes to antenna locations (> 5 seconds in latitude or longitude), increases in transmit antenna height by more than 3 meters, changes in transmit antenna polarization, and changes in transmit antenna azimuth by greater than 1 degree, for example. In addition, 190 of the licenses were the subject of untimely minor modifications, which can include changes to address less severe variances from licensed parameters or correcting incorrect license contact information.

But in the end, due to the timing of the NAL and the one-year statute of limitations, the Commission’s window of opportunity remained open only to impose a penalty with respect to 34 of the licenses. For 26 of those, the Commission found that AT&T had operated in an unauthorized fashion and imposed a base forfeiture amount of $104,000 (applying the base forfeiture amount of $4000 per violation). For the remaining eight licenses, faulting AT&T for failing to file timely notices regarding minor modifications, the Commission imposed another $24,000 (applying the $3,000 base amount per violation). The Notice then proceeded to propose a quintupling of the fine due to “the totality of the circumstances,” citing the extended period of AT&T’s unauthorized operation or failure to make minor modifications for the 240 licenses that were part of the investigation. The Commission criticized AT&T, “a sophisticated licensee” for its failure to conduct a “more timely technical review of newly acquired licenses” and delayed filing of corrections for up to five years, particularly in light of the number of acquired licenses. The Commission also justified the upward adjustment to $640,000 because AT&&T’s multi-billion dollar scale warranted a larger penalty to “ensure an effective deterrent.” No downward adjustment was merited, the Notice said, because of AT&T, as sophisticated licensee, was well aware of the rules that were allegedly violated. The Notice added that, regardless of a licensee’s sophistication, all Commission licensees are responsible for knowing the applicable regulatory obligations. In addition, the Commission found AT&T’s years-long delays in filing conforming major modification applications and minor modification notices to be inexcusable (even allowing for some transition issues after the acquisitions). The Commission underscored that, for all licensees, corrective measure taken after an investigation has begun “do not nullify or mitigate past violations.”

In separate statements, Commissioners Pai and Reilly took aim at the NAL, but in somewhat different ways. Both men criticized the Bureau for not providing certain details, such as which 34 licenses were the subject of the alleged violations within the statutory period or what specific apparent violations occurred with each of the licenses, rendering it difficult to know how “egregious” AT&T’s conduct actually was. Interestingly, Commission Pai noted that, depending upon the alleged violations regarding each of the licenses at issue, which he suggested the Commission itself had not yet pinned down, the base forfeiture ”might actually be too low.” At the same time, he was displeased with the lack of consideration given to the “voluntary” disclosure by AT&T of its conduct which led to the expansion of the investigation. Commissioner O’Reilly was even more hard hitting, hinting that the upward adjustment, about which he dissented, may largely be an unwarranted penalty for violations occurring outside the statutory period, although he acknowledged certain precedent to take such violations into account. He concluded that if the upward adjustment is based on “apparent" violations outside the one-year period, he has “deep concerns” since the Commission failed to act on those possible violations.

In short, the statements of the Republicans signal that there may be much more that will have to be brought to light before this proceeding is completed. Yet the Notice does not reveal the extent to which AT&T, in the course of the investigation, may have all but conceded that the violations occurred or, alternatively, is prepared to fight. AT&T has 30 days to respond to the alleged violations and the proposed forfeiture amounts. If AT&T does fight and this results in a final forfeiture order, this proceeding has the potential of forcing the Bureau and Commission to inject more transparency and method in how they set base forfeitures and make adjustments to those amounts in enforcement proceedings, including the extent to which alleged violations outside the statutory period will count.

Ohana Media Group, LLC (Ohana): In June 2013, a Bureau agent observed that an Ohana antenna structure did not have the correct daylight hours lighting in operation on two successive days and advised Ohana of the outage. Upon being contacted by the Bureau, Ohana initiated a Notice to Airmen (NOTAM) with the Federal Aviation Administration (FAA), required when there is a known tower lighting outage of more than 30 minutes duration. When the Bureau’s Anchorage Office issued a Notice of Violation (NOV) a month later, Ohana had already repaired the lighting and installed two redundant monitoring systems. The NAL issued to Ohana proposed the base forfeiture amount with no adjustment for lighting violations ($10,000) after alleging violations of the rule requiring proper tower marking and lighting and the rule requiring notification of the nearest FAA office or Flight Service Station whenever a top steady burning light is out or any flashing obstruction light is observed or known to be not working for more than 30 minutes. Ohana’s cooperation apparently avoided the application of any aggravating factors.

Kemp Broadcasting, Inc. (Kemp): In April 2013, Bureau agents observed that Kemp’s 401-meter antenna did not have the proper daytime lighting at either the top or at three lower levels. An employee was notified in person by the agents, who returned after dark to find one of the red flashing lights required on this tower at night was out. To make a long story short, some of the lights continued to be out for several months following the agents’ initial observations. Even after receiving a mid-May NOV and further contacts from the Bureau, Kemp apparently did not initiate a NOTAM with the FAA after several months. Finally, the Bureau itself notified the FAA in mid-September. Despite all of that, and the allegations in the NAL issued to Kemp that three FCC rules were violated – failure to exhibit required lighting, failure to notify the FAA of outages, and failure to maintain a properly functioning monitoring system – the Bureau started with a base forfeiture amount of $10,000 and made a modest upward adjustment of $4000 for Kemp’s repeated failure to notify the FAA of the outages.

AT&T Services, Inc. (AT&T): Following an April 2103 complaint from the Los Angeles Police Department regarding an unlit antenna structure, an agent of the Bureau confirmed the structure, owned by AT&T, was of a sufficient height absent a special aeronautical study (i.e., over 200 feet) to require lighting and marking, as well as antenna registration. Although AT&T six days later removed a whip antenna to bring the height below 200 feet, the Bureau issued an NOV in early May. AT&T acknowledged the whip antenna had been installed five months prior to the Bureau inspection, and that the FAA had not been properly notified of the structure. The Bureau noted that the base forfeiture of $10,000 would be proposed as in the two previous cases, as well as a separate base forfeiture amount of $3000 for failing to register the antenna structure with the FCC. The Commission noted only one aggravating factor that it was applying: ability to pay. Because AT&T is a multi-billion enterprise, and to ensure the forfeiture amount is an adequate deterrent, the Bureau increased the forfeiture proposed to $25,000. Notably, the Bureau observed in a footnote that Verizon Wireless in a 2010 order received a forfeiture of only the base amount, $13,000, for the same offenses. This differential between the two cases, AT&T and Verizon Wireless, signals the increased attention that the FCC is currently willing to put on the size of companies when assessing a penalty for violation of the rules. Further, the comparison of the AT&T case with the Ohana and Kemp cases leaves the unmistakable impression, absent possible additional detail not set forth in the NALs, that given the same or similar violation simply being a large company may expose one to greater liability that being an uncooperative, non-compliant smaller one, which is not what one would necessarily expect in a rational enforcement regime.

For those who have not yet filed their 2011 certifications, today is the last day.

On October 5, the Bureau settled two investigations of Global Information Technologies. One investigation involved the failure to file a CPNI certification, for which GIT received a $20,000 proposed fine. The other investigation involved whether GIT overcharged customers for the USF owed as a result of the services they received. (FCC rules prohibit carriers from collecting more than the contribution factor times the end user's interstate telecom revenues).

In this Consent Decree, GIT agrees to a $23,500 voluntary contribution to resolve the investigations. They get to pay it over 24 months (less than $1,000 per month). In addition, however, GIT agreed to notify the customers it may have overcharged for USF contributions. If GIT refunds the USF overcharges to any of the customers, it gets to deduct that amount from its voluntary contribution to the FCC. In other words, GIT must pay its customers or the FCC, but not both. In our experience, that is the first time the FCC has agreed to a provision like that.

The Commission got off to a good start: In the summer of 2009, it released 58 orders canceling forfeitures (based on proof that the entity either filed on time or was not required to file) or settling cases against, primarily, very small telcos. After September 1, 2009, however, the FCC did not release another order resolving the Omnibus CPNI forfeitures for almost a year.

Beginning in June of this year, the pace picked up again. Since June 11, the FCC has issued over 40 orders resolving the Omnibus CPNI NALs. One order canceled 15 NALs, again because the entities provided sufficient proof of timely filing. The rest have been settlements of the NALs. They follow essentially the same form: (1) the carrier agrees to implement a Compliance Plan; (2) for two years, the carrier agrees to provide a copy of its CPNI certifications to the Enforcement Bureau; and (3) the carrier pays a small settlement amount. Thus far, the settlements have ranged from a few hundred dollars to a few thousand dollars -- far below the $20,000 proposed.

By my count, the FCC has resolved about 110 cases. It has just under 500 left to go.

On the merits, the order is not surprising. The Enforcement Bureau proposed to fine a carrier $100,000 for initiating international service before obtaining FCC authorization pursuant to section 214 of the Communications Act. This marks the third time that the FCC has proposed a $100,000 forfeiture for failing to obtain a 214, indicating the FCC considers this the "base forfeiture" for such a violation. However, the Bureau still has not explained why it is consistent with the statute to penalize a carrier $8,000 for an unauthorized transfer of control but 12 times that amount for the unauthorized operation of a carrier (which is like an unauthorized acquisition of a carrier). Until a carrier challenges the FCC's approach in court, we can expect to see more orders using the $100,000 base forfeiture for this type of violation.

The Bureau also released over a dozen smaller NALs for various deficiencies in carrier certifications. The deficiencies were hyper-technical: failures to state whether actions were taken against pretexters or failures to state whether the carrier received any CPNI complaints.

Update: It appears that a number of late-filers received citations instead of fines. Some have all the luck.