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.

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.