The Communications Act and FCC rules generally require prior FCC consent for the transfer of control or assignment of FCC licenses or authorizations. This investigation began in February 2017, when Marriott voluntarily disclosed to the FCC that 65 licenses and authorizations that Starwood previously held or controlled had been transferred to Marriott during the acquisition without prior FCC approval. These licenses were used to support security operations at various hotels and resorts across the U.S. Starwood subsequently filed curative applications to secure the FCC’s approval of the transfers. To resolve the investigation, Marriott agreed to admit that the transfers violated the FCC’s rules and pay a civil penalty of $504,000. Marriott further agreed to a number of obligations commonly included in FCC settlements, including the appointment of a compliance officer, development of a compliance plan and training program, and a requirement to submit periodic compliance reports over the next three years to ensure that Marriott abides by the FCC’s license transfer rules going forward.

While generally following boilerplate language, the settlement contained one significant departure from normal practice. Specifically, the FCC agreed in a footnote that any further “isolated” instances of transfer of control violations that occurred prior to the settlement date subsequently discovered by Marriott will not be considered a separate violation of the Consent Decree. Usually, parties must disclose all relevant preexisting violations to the FCC before entering into a settlement. While this may be a one-off departure driven by the facts of the case, there may be an opportunity for companies to request similar provisions in future settlement negotiations.

The settlement illustrates that the FCC’s jurisdiction often stretches far beyond communications providers (indeed, Marriott previously paid a fine to end a FCC investigation into Wi-Fi blocking practices), and that companies that inadvertently fail to comply with FCC rules may be subject to an enforcement action that may involve a significant monetary penalty. Any time a transaction involves a change in the controlling ownership interest of a FCC licensee, a substantial transfer of control occurs requiring prior FCC approval. Consequently, any company engaged in or considering a corporate restructuring transaction should consult competent legal counsel to understand the full scope of its potential regulatory obligations that may arise as a result of such transaction.

Smart City is an Internet and telecommunications provider that offers Wi-Fi services to exhibitors and visitors at convention centers and large events. The FCC initiated an investigation in late June 2014 after receiving an informal complaint from a Smart City competitor – a company providing equipment that permits users to establish hotspots as an alternative to venue-based broadband providers. The FCC’s investigation revealed that Smart City automatically sent deauthentication information to prevent Wi-Fi users’ devices seeking to utilize hotspots independent of Smart City’s network, finding this to be a violation of Section 333 of the Communications Act. These blocking actions took place at several venues. Further, the FCC found no evidence that the actions were at all related to network security or other reasonable network management practices, which potentially would have justified them.

This recent action is further proof that Wi-Fi blocking remains an enforcement focus for the FCC. Smart City’s consent decree provisions track closely to those imposed against Marriott late last year: penalty in excess of half-a-million dollars, 3-year compliance plan, admission of liability, and the immediate cessation of all Wi-Fi blocking activities. The FCC used the occasion to remind the public of its January 2015 Enforcement Advisory putting companies on notice that Wi-Fi blocking, like blocking of any authorized wireless communication, is a violation of the Communications Act. In the news release for the Smart City settlement, Enforcement Bureau Chief, Travis LeBlanc, issued a warning to all persons and companies using technologies to block Wi-Fi connections that such actions “are patently unlawful.” It will be interesting to monitor this space to determine whether the Commission has related enforcement actions in the pipeline, given that less than a year has passed since the Marriott consent decree was issued.