Industry Groups Up in Arms Over Treble Damages Policy

There’s “widespread” worry the new policy will mean “excessive” penalties, Scott Bergmann, CTIA vice president-regulatory affairs, said in an interview Tuesday. Calling it a “drastic departure” in an email, Micah Caldwell, ITTA vice president-regulatory affairs, said the new policy “is very aggressive,” particularly because delinquent contributions represent a small percentage of companies that are supposed to contribute to the funds.

The agency hasn't sought comments on the petitions, which brought varying levels of concern among petitioners. Without seeking comments, the agency has made it “challenging” to participate in a proceeding with “far-reaching implications,” Caldwell said, and it “appears to indicate the commission’s unwillingness to consider the effects on the industry, whether a different approach might achieve the same result with less potential industry disruption, or whether any change in the methodology is warranted.” Bergmann was still hoping the agency will reconsider the new policy and “add more flexibility” to the process.

The agency, in the Feb. 3 statement, signaled a departure from the past practice of reaching settlements with companies accused of not making payments to the USF and the Telecommunications Relay Services, local number portability and the North American Numbering Plan funds. Under the new approach, the agency no longer will judge cases individually and won't take into account mitigating factors like whether errors were inadvertent or self-reported to the agency by the companies, the industry groups said. The agency will seek forfeitures three times the amount owed to the funds.

“You might have completely innocuous errors. … You might have a bill sent to the wrong address. The commission ought to take the unique circumstances into account,” Bergmann said.

The agency didn't comment Monday, but said in the policy statement that failures to pay into the funds undermine the programs and give violators an unfair advantage over the companies that do pay. The current process is “unnecessarily cumbersome” and prevents the agency from resolving investigations “quickly and efficiently” and hurts its ability to deter nonpayments, the policy statement said. Seeking forfeitures three times the amount owed is a “simpler and more straight-forward” way to ensure compliance, the commission said.

The commission had assessed forfeitures for nonpayment based on the number of unpaid monthly bills within a one-year statute of limitations, adding a penalty for the highest debts and taking into account several factors. The result was “a time-consuming and resource-intensive process similar to forensic accounting, gathering and analyzing large amounts of data that are difficult to track, and usually involve multiple entities over multiple years,” the statement said. Despite $20 million in forfeitures since 1998, the agency continues to get “a significant number of referrals and complaints alleging federal payment compliance failures,” the commission said. Many violators collect the required payments from customers through charges, the order said, and the triple damages reflect “three times the amount of economic gain from the violation.”

One possible motivation for the new policy may be to somewhat equalize penalties between cases involving insufficient or nonpayments into the universal service fund and those cases involving alleged overpayments from the fund in programs such as the Lifeline program, said Danielle Frappier, whose practice concentrates on USF matters at Davis Wright but who doesn't have any clients facing penalties for violations of USF contribution requirements. Inadvertent errors leading to companies paying less than may be required under the rules are possible, said Frappier, who called the required revenue reporting form “opaque.” The firm posted an informational advisory about the issue Monday.

The “inflexible” tripling of damages is a substantial change that under the Administrative Procedure Act requires notice and comment, the petitions for reconsideration said. The U.S. Court of Appeals for the D.C. Circuit in 1991 similarly vacated an agency forfeiture policy statement in 1991 in United States Telephone Association v. FCC on the same grounds, the petition said. The new process is meant “simply to drive forfeiture amounts for payment and reporting violations … as high as possible,” the petition for reconsideration said. The triple damages also runs counter to Communications Act Section 503(b) which requires the agency in imposing a forfeiture to “consider the ‘nature, circumstances, extent and gravity of the violation” and the “degree of culpability” of the accused violator, the petition said. The petition for a stay called the potential penalties “draconian,” and said the policy deprives providers of being able to advocate for smaller penalties.