The FCC Fines Straight Path $ 100 Million for Failing to Meet License Obligations

Last week, the Enforcement Bureau (“EB”) of the Federal Communications Commission (“FCC” or the “Commision”) reached a $ 100 million Consent Decree with Straight Path Communications Inc (“Straight Path” or “The Company”) for fraudulently violating FCC buildout and discontinuance rules with respect to their licenses in the 28 GHz and 39 GHz spectrum bands.  Under the terms of the settlement, Straight Path has one year to pay a massive fine or surrender all remaining licenses to the FCC.

The 28 and 39 GHz bands are bands which the Commission, in the July 2016 Spectrum Frontiers Order, made available for flexible mobile and fixed use, and they are seen by many as central to the development of next generation 5G wireless networks.

Background

In 2013 and 2014, in the course of renewing licenses in the 39 GHz band, Straight Path made “substantial service” filings with the FCC, in which it indicated that it had met buildout requirements associated with owning such licenses.

However, in November 2015, an anonymous report submitted to the FCC alleged that Straight Path had made fraudulent representations in its “substantial service” filings.  The report alleged that most of the systems which Straight Path had claimed to build were not actually present on the sites mentioned in the filings.

Straight Path subsequently authorized an independent investigation of the matter, which resulted in an admission that the investigation found that “a significant amount of the equipment that had been installed in connection with the substantial service showings [was] no longer present at the original locations.”

Alleged Violations

In the Consent Decree, EB discussed the following FCC regulations as central to its investigation

  • Substantial Service Showing Requirement: 28 GHz band Local Multipoint Distribution Service (LMDS) and 39 GHz band licensees must make a showing of “substantial service” to the FCC at the ten years after license grant.  Failure to do so will result in loss of license.
  • Discontinuance of Service: LMDS and 39 GHz band licenses are subject to automatic termination in certain circumstances such as where a licensee voluntarily removes facilities so as to render a station not operational for a period of 30 days or more or discontinues operations at a station for 12 continuous months or more.
  • Misrepresentation/Fraud: The FCC’s rules prohibit licensees from intentionally providing material factual information that is incorrect or intentionally omitting material information that is necessary to prevent any material factual statement that is made from being incorrect or misleading and require that licensees have a basis for believing that any material factual statement they make is correct and not misleading.

Terms of Consent Decree

As part of the Consent Decree, Straight Path was not required to admit violations of the Act or regulations per se.  In the Consent Decree, Straight Path’s only admissions were that the internal investigation demonstrated that  “a significant amount of the equipment that had been installed in connection with the substantial service showings [was] no longer present at the original locations,” that “[i]nterviews and contemporaneous documents consistently confirm that equipment was deployed at the original locations in connection with the substantial service applications, but the investigators concluded, based on the weight of the evidence, that the equipment was likely put in place for a short period of time at each location,” and that “the investigators did not find any evidence that the equipment used in connection with the substantial service applications is still present at the originally specified locations.”  Indeed, following the internal investigation, the Consent Decree notes that Straight Path “argued that the prior substantial service filings made for the 39 GHz licenses held by Straight Path Spectrum, LLC had satisfied the substantial service rules, that the Commission had accepted the filings, and that the 39 GHz licenses are not subject to the discontinuance rules.”

Nonetheless, under the terms of the consent decree, Straight Path agreed to pay a $ 15 million fine in four installments over the next nine months and to surrender 196 of its licenses in the 39 GHz band to the FCC.

Additionally, Straight Path has 12 months to either transfer or assign the remainder of its license portfolio to qualified entities.  In the course of selling such licenses to qualified entities, 20% of the proceeds from such sales will go to the US Treasury as an additional penalty.  If Straight Path fails to make the sales by the end of the 12 month period, the Company will either have to pay a civil penalty of $ 85 million, or surrender the remainder of the licenses in its portfolio to the FCC.

This Consent Decree reminds all licensees of the importance of ensuring that they comply with all conditions of their licenses.

FTC Announces Two Telemarketing Cases

On January 13, 2017, the Federal Trade Commission (FTC) announced that it filed two lawsuits against more than a dozen individual and corporate defendants allegedly coordinated by two individuals.  In the complaints, the FTC alleges multiple violations of the FTC’s Telemarketing Sales Rule (TSR).  Specifically, the complaints allege that over a period several years, the defendants made unauthorized prerecorded calls using auto-dialer software to consumers throughout the U.S. in an attempt to sell or generate leads for goods or services such as extended auto warranties, search engine optimization services, and home security systems.  The FTC contends that these actions violated the TSR’s prohibition against abusive telemarketing acts or practices and initiating or causing the initiation of unlawful prerecorded messages.  The complaints further claim that many of these calls were made to phone numbers on the national Do Not Call Registry, which is a separate TSR violation.

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Wireless Telecommunications Bureau Releases Draft Framework for Analyzing Zero-Rated and Sponsored Data Programs

On January 11, 2017, the Wireless Telecommunications Bureau (WTB or Bureau) of the Federal Communications Commission (FCC or Commission) issued an informal report—“Policy Review of Mobile Broadband Operators’ Sponsored Data Offerings for Zero-Rated Content and Services”—that establishes a draft framework for reviewing mobile broadband providers’ sponsored data and zero-rated offerings and analyzes the zero-rated and sponsored data programs of three providers—AT&T, T-Mobile, and Verizon. The Report is Chairman Wheeler’s parting shot on the open Internet issue, but it only ‘wags a raised finger’ at providers and expresses concern.  In any event, since the incoming Republican administration is opposed to the 2015 Open Internet Order, it should have no real impact on existing or future business practices of broadband providers.  That said, it is worth reviewing the report to examine the analysis undertaken by the Bureau.

I. The Draft Framework

The Report first establishes several overall considerations for analyzing zero-rated or sponsored data plans under the 2015 Open Internet Order.  These include considerations about whether the specific offering affects Internet openness, whether the practice violates the three bright-line open Internet rules (no blocking, no throttling, and no paid prioritization), and whether the practice violates the catch-all general conduct standard, which prohibits broadband providers from unreasonably interfering with or unreasonably disadvantaging end users or edge providers’ use of the Internet.  With respect to the general conduct standard, the Commission analyzes several factors based on a series of questions:

  • Non-Discrimination/Competitive Effects: Is zero-rating available, or available on materially favorable terms, only for a service directly affiliated with the BIAS provider? Does the zero-rating plan create exclusionary arrangements between the BIAS provider and unaffiliated content providers that raise reasonable competitive concerns from excluded parties? If a BIAS provider charges edge providers to be zero-rated, are those charges imposed on affiliated and unaffiliated entities effectively on a non-discriminatory basis?
  • Data Cap: Is the associated data cap sufficiently high as to make all data effectively zero-rated for the overwhelming majority of customers, both on a static and forward-looking basis, such that consumers really are not facing a choice between zero-rated and non-zero-rated activity?
  • Choice and End User Control: Do consumers and edge providers have the ability to easily opt into and out of the zero-rated plan if they prefer to remain with offers in line with those available at the time the plan was introduced, or to control other aspect of using the zero-rated service? Do consumers have easy alternatives for switching to other BIAS providers with different zero-rating practices?
  • Transparency: Are consumers and edge providers fully informed about the terms and conditions of the zero-rated plan in a timely, easy to understand and easy to execute manner? Do consumers have the ability to easily track usage and take actions to avoid hitting the cap without significant impacts on their usage behaviors?
  • Other: Does the zero-rated traffic serve a civic engagement purpose, such as increasing broadband adoption or serving health care, education, government, non-profits, etc.? Is the offering a functionally-equivalent, non-BIAS data service being used to evade the net neutrality rules?

The Report notes that the first factor—non-discrimination and competitive effect—is the most important in the context of zero-rated and sponsored data services, and that the FCC’s evaluation of non-discrimination and competitive effects draws authority not only from the Open Internet rules, but also from sections 201 and 202 of the Communications Act of 1934, as amended. The Report also highlights principles of competition and consumer protection, noting that “[t]raditional competition policy does become more complex in the context of vertical relationships between providers of services in upstream markets.”

II. Application to Mobile Broadband Zero-Rated and Sponsored Data Arrangements

With this framework in mind, the Report analyzes four zero-rating or sponsored data arrangements: (1) T-Mobile Binge On; (2) AT&T Data Perks; (3) AT&T Sponsored Data; and (4) Verizon FreeBee Data 360.

The Commission first finds that neither Binge On nor Data Perks is likely to violate the general conduct standard. With respect to Binge On, the Report finds that the service is unlikely to violate the general conduct standard because T-Mobile does not charge edge providers or end users for the service; consumers can disable it at any time; its technical standards do not appear to exclude edge providers; and T-Mobile provides “little streaming video programming of its own” and “does not compete substantially with downstream edge providers that supply video programming using Binge On.”  Similarly, the Report finds that AT&T’s Data Perks service does not violate the general conduct standard because it allows consumers to get additional data to use for whatever purpose they choose and “most Data Perks participants are not marketing services that run over BIAS.”

However, the Report concludes that AT&T’s Sponsored Data program and Verizon FreeBee Data 360 are both likely to violate the general conduct standard. AT&T’s Sponsored Data program, the Report asserts, “likely obstruct[s] competition for video programming services delivered over mobile Internet platforms and harm[s] consumers by inhibiting unaffiliated edge providers’ ability to provide such service to AT&T’s wireless subscribers” while favoring affiliated content from DIRECTV.  In particular, the Report finds that “[a]ll indications are that AT&T’s charges far exceed the costs AT&T incurs in providing the sponsored data service.”  The Report similarly finds that Verizon’s FreeBee data favors its own zero-rated go90 content over unaffiliated content, although it notes that the magnitude of any anticompetitive effect likely is less than that of AT&T’s program, which provides access to full-length programming, since go90 only offers a limited array of short video and sports programming.  Despite this lower risk of harm, the Report concludes that “there is the same potential for discriminatory conduct in favor of affiliated services, and its competitive impacts in the short-form portion of the market exist today,” and in the future Verizon could decide to include long-form content in its FreeBee program.

III. Key Takeaways from the Report

The framework outlined in the Report is a tentative draft, expressing concern, rather than the adoption of a rule, forfeiture order, or consent decree. Further, the Report was issued as Chairman Wheeler is leaving and the Republicans are taking control.  Republican Commissioners Pai and O’Rielly support zero-rated (“free data”) programs and oppose applying Title II and the open Internet rules to broadband providers.  As a result, the Report should not have a significant impact on industry practices.

FCC Considers Investigation of 911 Mobile Device Apps

On December 19, 2016, the Federal Communications Commission’s (Commission) Public Safety and Homeland Security Bureau (Bureau) issued a Public Notice (Notice) seeking comment on a letter from the National Association of State 911 Administrators (NASNA) that asks the Commission to initiate a proceeding to examine issues related to how mobile device 911 applications interface with 911 systems. Comments on the Notice are due by February 2, 2017 and reply comments by March 6, 2017.

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Sessions Commits to Enforcing USA FREEDOM Act

On Tuesday, January 10, 2017, in his confirmation hearing before the Senate Judiciary Committee, Senator Jeff Sessions, (R., AL), the president-elect’s nominee to lead the Department of Justice (DOJ), said that he intends to follow the USA FREEDOM Act, which prohibits the National Security Agency (NSA) from bulk collection of phone records.  For more on the USA FREEDOM Act, please read our client advisory here.

During the hearing, Senator Patrick Leahy, (D., VT), asked Senator Sessions various questions about the law, noting that Sessions had been among the “very small minority of members” who opposed passage of the law.  In response to Senator Leahy’s questions, Senator Sessions stated “I will follow the law”, and added “I do not believe [the USA FREEDOM Act] can be disregarded and it should be followed.”

The USA FREEDOM Act is a complicated piece of legislation with important compliance implications.  Although the Act does not expand upon carrier data retention requirements, it forces telecommunications carriers to process requests for records previously collected directly by the NSA.

Moreover, carriers remain subject to various statutory and regulatory customer record retention obligations.  For example, carriers offering toll telephone services must retain billing records on long distance calls for 18 months.  These records must contain the name, address and phone number of the caller, the number dialed, and the date, time, and length of the call.  In addition, providers of services for E-Rate and the Connect America Fund must retain documents pertaining to their delivery of services for at least ten years.

While the USA FREEDOM Act does not change such obligations, it may change the acceptable means of processing law enforcement requests.  For example, whereas previous FCC definitions of call detail records included location information, the USA FREEDOM Act explicitly excludes cell site location information and GPS information from the definition of call detail records.

Over time, the USA FREEDOM Act is likely to increase the number of law enforcement requests carriers face.  The presidential transition period is an ideal time for carriers to review their data retention practices to ensure compliance with federal law and FCC rules.

Kelley Drye’s Communications and Privacy & Information Security practice groups are well-versed in privacy law at the federal and state level, and stand ready to help interested parties understand the scope of these obligations and how to operationalize them. Should you have any questions, please contact the authors or your regular Kelley Drye contact.

Honda Waiver Request Highlights FCC’s Broad Disabilities Access Authority and Requirements

Last week, the Federal Communications Commission’s (FCC or Commission) Media Bureau released a Public Notice (Notice) seeking comment on a petition for limited waiver of the Commission’s rules filed by Honda Motor Company (Honda). Honda seeks a limited 20 month waiver of the requirement for the user interfaces on its rear entertainment systems to be accessible for people with disabilities. Comments on the Notice are due by January 11, 2017 and reply comments by January 23, 2017.

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FCC Public Safety Bureau Inquires About How to Ensure 5G Network Security

atelier-reseau-internet-mondeAhead of the upcoming administration change, the Federal Communications Commission (FCC or Commission) has continued its efforts focused on security and privacy. On December 16, 2016, the FCC’s Public Safety and Homeland Security Bureau (PSHSB or Bureau) released a Notice of Inquiry (NOI) intended to facilitate dialogue and initiate action on the part of the communications industry to consider and integrate cybersecurity at the start of development of new 5G networks and technologies. Comments are due 90 days after publication in the Federal Register and reply comments are due 120 days after publication.

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FCC Continues TCPA Promotional Campaign

With just under one month left in Chairman Tom Wheeler’s tenure, the Federal Communications Commission (FCC) has continued to publicize the agency’s focus on enforcing and increasing awareness of the Telephone Consumer Protection Act (TCPA).  Most recently, Chairman Wheeler issued a statement on December 21, 2016 to commemorate the 25th anniversary of the TCPA, in which he commented that “the Commission has renewed its commitment to a strong, pro-consumer reading of the [Act].”  The statement highlighted several specific examples of the Commission’s recent TCPA policy actions, including the Enforcement Bureau’s “robotext” advisory, the clarification on the TCPA’s applicability to calls from schools and utility companies, and the 2015 Omnibus TCPA Order that expanded the definition of an “autodialer” and established a one-call safe harbor for calls to reassigned phone numbers.  (Note: an appeal of the 2015 Omnibus TCPA Order is pending before the D.C. Circuit.  The FCC faced strong questioning at the oral argument, and we believe that the court’s decision may result in reversal of some of all of the FCC’s decision.)  The Commission separately marked the TCPA’s silver anniversary with a series of consumer-focused tweets about certain call restrictions provided for in the statute.

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FCC Denies Petition for Declaratory Ruling on Fax Advertisements

On December 21, 2016, the FCC’s Consumer and Governmental Affairs Bureau (CGB) released an order denying a request by Kohll’s Pharmacy & Homecare, Inc. (Kohll’s) for a declaratory ruling that facsimiles sent on its behalf did not violate the Telephone Consumer Protection Act (TCPA) “where the facsimiles simply informed businesses of the health benefits of corporate flu vaccines.”  Kohll’s claimed that such transmissions do not fit within the definition of an “unsolicited advertisement” because “the purpose of the facsimile transmission was to ‘promote wellness … so that people would get vaccinated and not get ill.’”  Alternatively, Kohll’s asked the FCC to issue an exemption from the TCPA for its faxes based on the Commission’s exemption for healthcare-related calls subject to the Health Insurance Portability and Accountability Act (HIPAA), or for a retroactive waiver of the fax advertisement rules.  The Bureau ruled against Kohll’s on each request.

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FCC Allows Wireless Carriers and Device Manufacturers to Replace Text Telephony with Real-Time Text Technology

Modern mobile devicesOn December 15, 2016, at the last Federal Communications Commission (FCC or Commission) Open Meeting under Chairman Tom Wheeler’s tenure, the Commission voted unanimously to adopt a Report and Order (Order) and Further Notice of Proposed Rulemaking (FNPRM) that permits wireless service providers and device manufacturers to support real-time text (RTT) technology instead of text telephony (TTY) to meet their obligations to provide reliable telephone communications options for people who are deaf, hard of hearing, deaf-blind or who have a speech disability. RTT technology uses IP-based networks and allows the user to send text immediately as it is typed without the need to press “send” and the other party receives the text to read as it is being created. The ability to use RTT to meet TTY obligations phases in starting in December 2017 and resellers have until June 2021 to comply.

The FNPRM seeks comment on issues including sun-setting the TTY backwards compatibility requirement and interaction with the telecommunications relay service (TRS). Comments are due 30 days after publication in the Federal Register and reply comments are due 30 days later.

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