CommLaw Monitor News and analysis from Kelley Drye’s communications practice group Wed, 03 Jul 2024 12:18:06 -0400 60 hourly 1 Attention Wireless Operators: FCC Issues $5.25 Million Civil Penalty for Unauthorized Transfer of Control and Operations Thu, 11 Sep 2014 23:39:41 -0400 The FCC’s Enforcement Bureau announced today that the Canadian National Railway, a large diversified rail, trucking, warehousing and distribution services company, has entered into Consent Decree and agreed to pay $5.25 million in civil penalties to resolve an FCC investigation into the company’s wireless radio operations in the United States.

According to the Consent Decree, the Canadian National Railway discovered that on several occasions it had acquired control of a number of wireless radio licenses without securing the FCC’s prior consent to the transactions. Following this discovery, the company initiated a comprehensive internal audit of its FCC authorizations, uncovering multiple unauthorized transactions and system modifications going back to 1995. Additionally, the company found it had deployed several hundred wireless radio stations without first obtaining licenses, with some violations dating back as early as 1990. The Consent Decree indicates that most of the affected radio stations remained in operation in 2013.

In February 2013, the company voluntarily disclosed its findings to the Commission in connection with multiple requests for Special Temporary Authority and remedial filings. What followed was a Bureau investigation into the full extent of the company’s noncompliance. The investigation confirmed that Canadian National Railway completed more than a dozen substantial and pro forma transactions and deployed, modified and/or operated hundreds of wireless facilities without FCC approval.

While the investigation did not uncover any evidence of interference complaints resulting from the unauthorized operations, the company nevertheless acknowledged its extensive noncompliance. The FCC described the “scope and duration of these unauthorized operations” as “unprecedented in the history of the Commission.” And the Commission’s response was equally as ground-breaking: Canadian’s civil penalty “represents the largest in FCC history” for a wireless operator’s unauthorized radio operations and unauthorized transfers of control. In addition to the payment of civil penalties, and an express admission of rule violations, the company also agreed to implement a three-year compliance plan and to maintain the internal compliance plan that was implemented as a result of the internal audit.

While the noncompliance and civil penalty may have been unprecedented, many things included in the consent decree are becoming part of the new normal. As with several other consent decrees we blogged about in recent weeks, the settlement included an admission of liability by Canadian National Railway and referred to monetary payments as “civil penalties” rather than “voluntary contributions.” This is further evidence of the substantial shift in the Enforcement Bureau’s policy for settlement like negotiating consent decrees. Wireless licensees should pay close attention to these actions and take them into consideration when choosing a course of action in the face of discoveries about possible nonconformance. The Canadian National Railway Consent Decree also serves as a strong reminder that any company or enterprise making an acquisition should always conduct sufficient due diligence to ascertain whether radio operations requiring FCC licenses are involved and, if so, to ensure that the proper authorizations have obtained and maintained and that any FCC procedural requirements connected to the proposed acquisition are identified and followed.

Enforcement Bureau Doubles Proposed Fine For Large Company Thu, 23 Jun 2011 09:00:00 -0400 In many ways, the America Movil Notice of Apparent Liability is a typical unauthorized transfer of control case. The company engaged in a transaction that changed its ownership without seeking prior FCC approval. As we've noted, such cases typically generate a fine of $8,000, an amount that seems too small in proportion to other violations. What's notable here is that the Bureau doubled the standard fine (i.e., applied an "upward adjustment") against the company that committed the violation.

The facts in the case are not disputed. According to the NAL, America Movil, the parent company of Puerto Rico Telephone Company, Inc. (“PRTC”), increased the foreign ownership held by the family of Mr. Carlos Slim Helu ("Slim Family"), one of Mexico's wealthiest families. America Movil admitted that it issued additional stock that increased the Slim Family’s equity holdings in America Movil from 32.4 percent to 40.18 percent, without FCC authorization. Thus, the Bureau found that America Movil willfully violated Section 310(b)(4) of the Communications Act and a 2007 Declaratory Ruling limiting the Slim Family's foreign ownership.

But the Bureau did not increase the penalty because the violation was deliberate or knowing. Instead, citing America Movil's approximately $48 billion in revenue and $7 billion in profits, the Bureau proposed to double the standard $8,000 fine. As the Bureau explained:

We conclude that America Movil’s ability to pay warrants an upward adjustment of the base forfeiture amount. To ensure that a proposed forfeiture is a deterrent, and not simply a cost of doing business, the Commission has determined that large or highly-profitable companies, such as America Movil, may be subject to proposed forfeitures that are higher than the base forfeiture amount. Given America Movil’s size and its ability to pay a forfeiture, we conclude that an upward adjustment of the base forfeiture amount from $8,000 to $16,000 is appropriate.

The Commission has vowed to implement upward adjustments like this in the past, most notably in cases involving the former "Baby Bell" telephone companies. But this is the first time in several years that the Commission has applied such an upward adjustment. We shall see if this upward adjustment becomes a trend or remains an anomaly.

Unauthorized Transfer of Control Draws Proposed Fine for Turner Broadcasting Sun, 12 Sep 2010 15:45:30 -0400 Universal service violations, slamming, "junk faxes" and privacy violations typically draw large FCC fines. It may seem surprising, then, to learn that unauthorized transfers of control of FCC licenses draw a comparatively small forfeiture amount.

In this Notice of Apparent Liability released on Friday, the FCC proposed to fine Turner Broadcasting System, Inc. $16,000 for failing to obtain prior FCC approval before closing on a transaction that changed the control of Turner's FCC licensees. Yes, the transfer was a pro forma transfer of control, and resulted from a single transaction. But, the Bureau concluded that 49 licenses were transferred without authorization and Turner's violation remained uncorrected for two and one half years. Nevertheless, the total fine proposed is less than one-third the amount that the FCC has been assessing for a single failure to file a Form 499-Q. Personally, I think it is time to re-assess the comparative significance of the Commission's forfeitures.