The Warning Letters

The agencies identified the three VoIP gateway providers as the sources of the illegal calls through the efforts of the USTelecom Industry Traceback Group, a consortium of phone companies that help officials identify potentially unlawful calls. The phone companies used a process known as “traceback,” in which they share information to trace unlawful spoofed robocalls to their origination.

In the letters, the agencies reminded the companies that the COVID-19 scam robocalls are in fact illegal and directed them to cease transmitting the traffic immediately, as the calls have “the potential to inflict severe harm on consumers.” The letters warned the companies that if they did not stop transmitting the identified traffic within 48 hours, the FCC would authorize other U.S. voice providers to block all calls from the companies and take any other steps necessary to prevent transmission of the calls. The agencies also sent a separate letter to USTelecom advising the trade association that, if the VoIP providers do not block the traffic, the FCC will authorize other U.S. service providers to block all calls coming from that gateway and will take other actions as necessary to authorize U.S. service providers to block traffic from the originating entities. In addition, the FCC encouraged other service providers to take immediate action to block unlawful calls pursuant to existing legal authority.

This action is a significant – and significantly aggressive – new approach by the agencies. While both agencies have taken actions to prevent and deter unlawful robocalls, the threat to block traffic from the originating carrier is a new tactic in the fight against unlawful calls. Notably, it is not clear under what authority the FCC can or would order the blocking of all traffic from the subject VoIP gateway providers if they failed to block the allegedly unlawful robocalls. The letter does not cite any provision of the Communications Act that would authorize such blocking. Moreover, existing FCC orders relating to call blocking have authorized only limited call blocking practices that were optional for the carriers. Were the FCC to order such blocking (and to make it mandatory), it appears that such action would be the first of its kind by the agency.

Briefly, we will review the agencies’ recent history with anti-robocall activities.

The Educare Services Enforcement Action and Prior FTC Warning Letters

In the three letters to the VoIP gateway providers, the FCC and FTC reference the FTC’s recent enforcement action against VoIP provider Globex Telecom. This action relied upon provisions of the FTC’s Telemarketing Sales Rule ("TSR"), which addresses calls made for a telemarketing purpose. In December 2019, the FTC obtained a preliminary injunction against Educare Services and Globex Telecom Inc. for robocalling consumers to promote allegedly fraudulent credit card interest rate reduction services. The FTC complaint alleges that Globex played a key role in “assisting and facilitating” the illegal credit card interest rate reduction services Educare promoted by providing Educare with the means to call consumers via interconnected VoIP communication services and facilities. For a VoIP company to be liable under a TSR “assisting and facilitating” theory, the FTC must prove that the company “knew or consciously avoided knowing” the robocall campaigns violated the TSR.

A week before the joint letters, the FTC sent letters to nine VoIP service providers and other companies warning them that “assisting and facilitating” in the transmission of illegal COVID-19-related telemarketing or robocalls is unlawful. The agency also sent letters to nineteen VoIP service providers in January with a similar warning about all illegal robocalls.

FCC TRACED Act Implementation and the STIR/SHAKEN Mandate

Like the FTC, the FCC recently shifted its focus in robocall enforcement towards the originating carriers. On February 4, 2020, the FCC’s Enforcement Bureau sent letters to seven VoIP gateway service providers, notifying them that unlawful robocalls had been traced to their networks and asking for their assistance in tracking down the originators of the calls. Although no enforcement action was threatened at the time, the FCC also asked each provider to detail their anti-robocall efforts to the Commission.

More recently, the FCC took several steps in implementing the TRACED Act, which requires the FCC to initiate several near-term rulemakings and other actions aimed at addressing unlawful spoofing and robocalling operations. On March 27, the agency adopted a Report and Order and Further Notice of Proposed Rulemaking establishing rules for the registration of a single consortium to conduct private-led “traceback” efforts, which is expected to formalize the relationship with the USTelecom Industry Traceback Group. Additionally, on March 31, the FCC adopted a separate Report and Order and Further Notice of Proposed Rulemaking mandating that originating and terminating voice service providers implement the STIR/SHAKEN framework in the IP portions of their networks by June 30, 2021. STIR/SHAKEN—the technology framework behind the “traceback” process—allows providers to verify that the caller ID information transmitted with a particular call matches the caller’s number as the calls are passed from carrier to carrier. FCC Chairman Pai previously urged major providers to adopt STIR/SHAKEN technology voluntarily and warned that the voluntary approach would become a mandate if the providers did not move fast enough. Still to come are comments on a “know your customer” obligation for service providers and rules to deny access to numbering resources to originators of unlawful calls.

As we have previously noted, the TRACED Act also requires the implementation of an alternative call authentication framework in non-IP networks, extends the FCC’s statute of limitations for bringing some illegal robocall enforcement actions, and eliminates the requirement to give warnings before issuing certain filings.

Takeaways

These letters, coupled with the recent activity by the FTC and FCC to combat illegal robocalls, signal the agencies’ desire to cause a meaningful reduction in unlawful calling, and in particular, demonstrate a desire to prevent scammers from taking advantage of the COVID-19 crisis to carry out their deceptions. Both agencies can seek civil penalties and take other actions necessary to prevent the proliferation of these calls.

Importantly, the targets of agency action are not necessarily limited to the entities that place the unlawful calls. These federal actions are a good reminder for VoIP and other service providers to assess whether their customers’ practices may indicate unlawful use of VoIP or other services. With the warning letters, and now these blocking letters, the FCC and FTC increasingly are showing an openness to pursuing penalties under vicarious liability theories. If there are facts that support knowledge of the unlawful activity or “red flag” type practices (such as a customer being the target of multiple third party government subpoenas, among other facts), that’s a good indication that further steps by the VoIP provider may be warranted to mitigate the risk of facing an enforcement action by the FTC or FCC. If you have questions about how these enforcement trends and related risk factors are relevant to your business, please contact your Kelley Drye counsel.

This report prompted commentary from Commissioner Rosenworcel, who tweeted that these “measly efforts” were “not making a dent in this problem” and called for carriers to provide free call blocking tools to consumers. In our view, however, the report really doesn’t relate to the vigor – or alleged lack thereof – of FCC robocall enforcement efforts. Instead, the small amount of assessed fines that are actually collected starkly demonstrates the internal and external hurdles faced by the FCC, which impact all types of enforcement actions, not just robocalls. The report likely will rekindle Congressional criticism of FCC enforcement processes and calls for more systematic solutions to the problem of unwanted calls.

The collection issues outlined in the report are not unique to robocalling enforcement. Rather, the low collection rates are a function of the process for collection and the parties against whom cases typically proceed to forfeiture (versus those settled by consent decrees). These problems predominate in all areas of FCC enforcement.

First, the FCC faces significant procedural hurdles, both inside and outside the agency, to forcing violators to pay assessed fines. As we previously highlighted in our podcasts, unlike many other federal agencies, the FCC does not have the authority to sue violators directly in court to collect unpaid fines. Instead, the agency must refer unpaid penalties to the Department of Justice (“DOJ”), which has the final say on whether or not to bring a collection action in court. In many cases, DOJ attorneys may be unwilling or unable to take on FCC collection action referrals due to resource constraints or higher-priority cases. If the DOJ sues, the party against whom the collection action is brought is entitled to a “trial de novo,” which presents the potential for complicated litigation over the facts of the violation and the FCC’s legal conclusions in assessing the fine. Perhaps as a result of this, in our experience, even when federal prosecutors do act on referrals, they often agree to settlements below the penalty originally assessed by the FCC. Moreover, in the case of robocall enforcement, some of the targets against whom the fines were assessed are foreign persons or corporations. Collection actions against foreign nationals raise complicated process issues, and often at a minimum involve significant delay before a collection action can be commenced.

Second, the parties against whom forfeiture actions are taken play into this. Most FCC enforcement is against entities that hold licenses or other authorizations from the agency. These entities often are motivated to resolve an enforcement allegation by consent decree, many times even before a formal action is brought. Given the importance of a good relationship with one’s primary regulator, it is not hard to understand why most parties may settle allegations even if they disagree with the FCC’s factual findings or legal conclusions. However, in some cases, the FCC’s posture makes settlement unattractive or, potentially, impractical. It is here where the FCC arguably deserves some of the blame for the dearth of fine collections, at least in the context of robocall violations. Nearly all of the recent robocall-related enforcement actions targeted small companies and/or individuals. The FCC imposed millions in penalties in these cases despite (likely credible) claims by the violators that they could not pay the proposed amounts. The Communications Act requires the FCC to consider a violator’s ability to pay when assessing fines. But the FCC found in the robocall cases that the violator’s inability to pay was outweighed by other statutory factors, including the alleged egregiousness of the violations, warranting the hefty penalties regardless. As a result, the FCC assessed fines for robocall-related violations and other misconduct that it very likely knew were uncollectible, possibly in order to send a message, set precedent, and/or to push the offending companies out of business. As most FCC collection actions result in settlement, very few cases see the inside of the courtroom and the agency’s practice of assessing fines far beyond a violator’s ability to pay thus far has escaped judicial scrutiny.

As a result, in some ways all FCC fines face obstacles to collection, and the FCC’s choice of targets thus far in robocall enforcement made collection even more unlikely. With this situation unlikely to change, the report may inject new life into FCC policy proposals to curb unwanted calls. In particular, the FCC recently began using its bully pulpit to push changes by service providers to limit robocalling opportunities. In November 2018, Chairman Pai issued a letter asking service providers about their efforts to implement call-verification systems like SHAKEN/STIR and threatened regulatory action in 2019 if carriers do not voluntarily implement such systems. The Chairman also urged all carriers to participate in USTelecom’s Traceback Group, which helps identify sources of unwanted calls. Commissioner Rosenworcel’s call (joined by some consumer advocacy groups) to require carriers to block robocalls fits in this same vein. The FCC has not teed up any rulemakings on these proposals yet, but whether a carrier has sufficient “safeguards” in place to limit unlawful robocalls will be a major FCC policymaking focus area this year.

More broadly, the factors limiting FCC collection of fines will remain. Until there is an easier path to judicial review of FCC enforcement actions, and unless and until parties against whom forfeitures are assessed have the means to dispute and, ultimately, pay, FCC fines, we don’t expect material differences in FCC collection rates. Perhaps it is time to examine fundamental reform to the FCC’s enforcement authority and procedures.

As written, the FCC’s registration and service quality standards rules apply to all intermediate providers handling calls originating from, or terminating to, a connection using a North American Numbering Plan (“NANP”) number. Not only must intermediate providers register with the FCC but they also are required to ensure that any other intermediate provider to which they hand off traffic is registered. Because the FCC’s rural call completion rules apply to calls that terminate outside of the United States, the last U.S. intermediate provider in a call path would be required to ensure that the foreign carrier intermediate provider to which the call was handed off also is a registered intermediate provider. In response to industry concerns about this result, the Commission clarified that the intermediate service provider service quality rules and registration requirement do not apply to those non-U.S. intermediate providers handling foreign-terminating calls. The clarification, tucked away in a footnote, emphasized the Rural Call Completion Act’s (“RCCA’s”) focus on U.S. customers, noting the RCCA’s goal of ensuring integrity of call completion to “customers in the United States” and of preventing “discrimination among areas of the United States.”

As we noted previously, the Order will be effective 30 days after publication in the Federal Register although it remains to be seen if the FCC’s intermediate provider registration rule will have received OMB approval and be in effect by that time. Be sure to check back for updates.

You will find more details on the significant April meeting items after the break:

Spectrum Incentive Auction: The draft Public Notice would propose auction application and bidding procedures for licenses in the Upper 37 GHz (37.6-38.6 GHz), 39 GHz (38.6 GHz-40.0 GHz), and 47 GHz (47.2-48.2 GHz) bands. In the first auction phase, participants would bid for generic 100 megahertz blocks in the three mmW bands. The first auction phase also would determine the amount of incentive payments due to incumbent licensees that opted to relinquish their existing spectrum holdings. The second auction phase would establish the specific frequency assignments awarded to the auction winners. The actual number of licenses available for auction is not yet settled and will depend upon how many incumbent licensees previously agreed to give up their existing spectrum holdings for payment or accept modified licenses. The FCC would announce the particular licenses available at auction in advance of the auction application deadline. The FCC expects to complete the auction by the end of 2019.

37 GHz/50 GHz Band Access: The draft Order would facilitate the auction of the Upper 37 GHz band by establishing procedures for the Department of Defense (“DOD”) to operate in this spectrum on a shared basis with commercial wireless operators under limited circumstances. Specifically, the FCC would review DOD requests to use Upper 37 GHz band frequencies, contact potentially-affected commercial wireless licensees, and help coordinate shared usage, if possible. The draft item also would permit the licensing of Fixed-Satellite Service earth stations to transmit in the 50 GHz (50.4-51.4 GHz) band to potentially provide faster, more advanced services.

OTARD Reform: The draft Notice of Proposed Rulemaking would reform the FCC’s OTARD rule, which currently protects only end-user antennas (e.g., satellite TV dishes) from state, local, or private restrictions. Under the FCC’s proposal, the OTARD protections would be extended to hub or relay antennas used by fixed wireless providers that represent the backbone of emerging 5G networks. The FCC would seek input on how reforming the OTARD rule would impact small antenna infrastructure deployment, particularly in rural areas. The FCC anticipates retaining OTARD rule exceptions for state, local, and private restrictions on antennas based on public safety issues or historic preservation objectives, so long as the restrictions are not overly burdensome and apply in a nondiscriminatory manner.

Legacy Regulation Forbearance: The draft Order would partially grant a petition filed by USTelecom asking the FCC to forbear from enforcing certain legacy long-distance service regulations applicable to former Bell Operating Companies (“BOCs”) and other incumbent carriers. First, the FCC would no longer require incumbent rate-of-return carriers to offer long-distance service through a separate affiliate. Second, the FCC would grant incumbent carriers relief from the “provisioning interval” requirement obligating them to fulfill telephone exchange service and exchange access requests within the same period that they provide such services to affiliated entities. Third, the FCC would refrain from requiring incumbent carriers to submit reports about their legacy “special access” services. Finally, the FCC would eliminate a BOC-specific requirement to provide nondiscriminatory access to poles, conduits, and rights-of way, finding the obligation duplicative of a similar access rule already imposed on all local exchange carriers. The FCC plans to hold off on USTelecom’s request that it forbear from enforcing its incumbent carrier network element unbundling and resale mandates, but the agency likely will take up this issue before the end of the year.

Rate Floor Elimination: The draft Order would abolish the USF “rate floor” that limited the amount of Connect America Fund support received by some rural carriers to build and maintain networks in underserved areas. Today, if a carrier elects to charge its customers less than the rate floor set by the FCC for voice service, the difference between the amount charged and the rate floor is deducted from the amount of USF support received by the carrier. The FCC plans to conclude that this process results in artificially-inflated rates for rural customers and should be eliminated, along with all of the rate floor’s associated reporting and customer notification requirements. The FCC previously froze the rate floor for two years while it considered reforms and the rule’s elimination would prevent a nearly 50% increase in the rate floor scheduled to take effect in July 2019.

The proposed new service quality standards for intermediate providers include three broad prongs: (i) a duty to complete calls; (ii) monitoring of rural call completion performance; and (iii) ensuring other intermediate providers in a call delivery path register with the FCC. An intermediate provider is defined generally as any entity that holds itself out as able to transmit voice traffic to/from end users using North American Numbering Plan numbers and charges a fee to another entity, including an affiliate, for the transmission.

The first proposed prong would require intermediate providers to take steps reasonably calculated to ensure that calls are completed and the FCC may find violations if the provider knows, or should have known, that calls were not being completed and yet failed to take corrective action. Carriers should note that the broad definition of an intermediate provider is consistent with the call completion standard’s broad application. Specifically, although the draft Order and proposed standards arise in the context of the Commission’s rural call completion proceeding, the Order puts intermediate providers on notice that the FCC reads the RCC Act broadly to apply the call completion standard “to all covered voice communications, regardless of their destination.” Consequently, the proposed new standard potentially could result in significant compliance obligations as intermediate providers must pay attention to all covered communications, not only those destined for rural locations.

In a requirement parallel to that currently applied to the covered providers that make the initial long-distance call path choice, the second prong would require intermediate providers to actively monitor, both prospectively and retrospectively, call completion performance of any directly-contracted downstream intermediate providers for calls destined to rural areas. An intermediate provider’s failure to take corrective action, potentially including removing a contracted downstream intermediate provider after detecting “persistent problems” in routing covered voice traffic to rural areas, could result in significant penalties.

Not only must intermediate providers register with the FCC, but the third proposed prong requires providers to ensure that other intermediate providers to which they hand off calls also comply with the FCC registration requirement. This standard would appear to create a compliance “daisy chain” effect, with each intermediate provider obligated to ensure other intermediate providers are registered. This requirement dovetails neatly with the existing requirement that covered providers conduct business only with registered intermediate providers. However, it remains to be seen when intermediate providers actually will be able to register, as the FCC’s registration requirement is still awaiting Office of Management and Budget approval.

The draft Order would offer some limited compliance relief, such as an immediate exception for intermediate providers that also qualify for a covered provider safe harbor and the eventual sunset of rural call completion data recording and retention rules for covered providers. The covered provider call data recording and retention rules would sunset one year after the service quality standards take effect. But even with this limited compliance relief, most providers face potentially significant regulatory obligations. Consequently, carriers should be sure to prepare accordingly before the rules take effect.

Finally, the draft Order would deny pending petitions for reconsideration filed by NTCA and USTelecom. The Order proposes to deny NTCA’s request that the Commission reconsider a decision to not require covered providers to file with the FCC their rural call completion monitoring procedures on the grounds that NTCA’s petition presented no new support for the reconsideration request. The Commission noted its previous conclusion that such a filing requirement would be burdensome with “no ‘countervailing benefit’” and that the information could be obtained pursuant to the Commission’s investigatory authority. USTelecom had sought reconsideration of the requirement making covered providers responsible for call completion by downstream intermediate providers with which the covered provider does not have a contractual relationship. Among other reasons, the Order would deny USTelecom’s request on the grounds that USTelecom did not raise new arguments on reconsideration and that the record shows that covered providers can “utilize contractual restrictions to ensure call completion by downstream intermediate providers, including those with which there is no direct contractual relationship.”

Assuming the draft Order is adopted at the March 15 Open Meeting, it will be effective 30 days after publication in the Federal Register. We will continue to monitor the rural call completion proceeding and will provide updates on the blog when new information becomes available.