The FCC imposed the rate floor in 2011 due to concerns that rural carriers could use USF support to offer rates below those found in urban areas for comparable services. The agency found such action would undermine its duty to support “reasonably comparable” services between rural and urban areas. The rate floor reduces the USF support for carriers whose basic voice rates (plus state-mandated fees) fall below a FCC-set floor based on charges for comparable service in urban areas. However, the rural rate floor continued to increase following its adoption, eventually surpassing the charges for service in some urban areas. In response, the FCC froze the rate floor in 2017 (at $18) while it considered reforms to the policy. In the absence of further action by the agency, the rate floor would jump to nearly $27 in July 2019, likely leading to concomitant price increases for rural customers.

In support of the rate floor elimination, the FCC plans to conclude that the policy created a perverse incentive for carriers to raise rural rates to avoid losing USF support. The agency also would find that this incentive particularly hurt older consumers and Tribal area residents by hampering access to affordable telecommunications services. The FCC anticipates finding that the rate floor places unnecessary regulatory burdens on rural carriers, who must seek authorization from state authorities and satisfy customer notification requirements for rate hikes. Finally, the agency would question prior claims that rural carriers used USF support to offer artificially low rates and note that CAF recipients must meet strict buildout obligations that prevent carriers from failing to put their subsidies to use.

The rural rate floor would be eliminated 30 days after publication of the proposed order in the Federal Register. All rural carriers subject to the rate floor, as well as consumer advocacy groups, should closely review the proposed order and work with counsel to assess its impact. It remains to be seen what level of support the proposed order receives at the meeting. Both Republican Commissioner O’Rielly and former Democratic Commissioner Clyburn strongly opposed eliminating the rural rate floor when the FCC froze it in 2017. At the time, the Commissioners argued that rural carriers should recoup some revenue from their subscribers first before relying on USF support and called for means-testing CAF support in lieu of eliminating the rate floor. While there is no indication that Commissioner O’Rielly has softened his views or whether current Democratic Commissioners Rosenworcel and Starks oppose the elimination of the rate floor, it is likely that the proposed order will draw at least some dissent. Such dissent may fuel calls for reconsideration or subsequent appeals of the rural rate floor elimination following the April meeting.

Stressing the importance of receiving truthful and accurate information, the Federal Communications Commission (“FCC”) reached a $1.7 million settlement with inmate calling services provider Securus Technologies, Inc. and related entities (“Securus”) to resolve allegations that Securus submitted misleading information to the FCC in support of a pending transfer of control. Although the settlement cleared the way for the transfer’s approval, the FCC held up the deal for months while it investigated statements made by Securus representatives. As a result, the FCC’s action supports the adage that “haste often makes waste” in telecommunications-related deals and that submitting misleading information to the FCC can come with significant consequences.

Federal regulations prohibit FCC regulatees from submitting misleading material information or omitting material information in order to mislead the FCC. In addition, transfer of control applicants must ensure the continuing accuracy and completeness of their FCC filings. In support of an application to transfer control of licenses as part of a planned acquisition, Securus’s CEO and other executives submitted a letter to FCC Chairman Pai requesting his help in expediting approval for the deal. The letter indicated that Securus already had received all necessary approvals from state regulators for the transaction. However, the FCC subsequently determined that a number of state regulators had not yet approved the transfer when Securus submitted the letter. Although Securus argued that it meant to limit its statements to certain state regulators specified in its acquisition agreement, the FCC found the letter facially inaccurate and misleading.

In addition to paying $1.7 million to resolve the investigation, Securus agreed to a number of boilerplate settlement compliance conditions, including appointing a compliance officer, developing compliance procedures/training programs, and submitting periodic compliance reports. The FCC also required Securus to ensure that its future FCC filings are reviewed and approved by internal legal counsel before submission, a somewhat rare settlement condition. The compliance conditions will apply not only to Securus, but also to any successor company following the transfer of control. Importantly, despite finding the Securus letter facially inaccurate, the settlement did not contain an admission of liability, which was often a requirement for settlements under prior FCC leadership.

Chairman Pai stated that the fine reflected the seriousness of candor when dealing with the FCC and should serve as a strong deterrent. The Chairman further noted that the misrepresentations submitted by Securus in order to expedite approval of the deal ended up having the opposite effect by resulting in months of investigation and delays. Meanwhile, Commissioner Clyburn and Commissioner Rosenworcel filed a joint dissent criticizing the settlement and fine as negligible compared to the deal’s value and setting a dangerous precedent of approving a transaction where an applicant misled the FCC. Consequently, even if a lack of candor does not completely derail a transaction, submitting misleading information to the FCC may result in significant delays and enforcement penalties. FCC regulatees therefore should seek legal counsel when necessary to ensure the truthfulness and accuracy of their agency filings.

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.