Possible FCC Shift Could Wipe Out $100 Million AT&T Fine

By Lydia Beyoud

The Federal Communications Commission’s record-breaking $100 million proposed fine against AT&T Inc. may soon be relegated to the dustbin.

The blockbuster fine, which the commission’s Enforcement Bureau proposed in 2015 for the company’s wireless network management practices, could be an early casualty of new GOP Chairman Ajit Pai’s intent to shake up the agency.

Pai appears particularly eager to make his mark on the Enforcement Bureau. Changes to the FCC’s enforcement procedures and focus could be among the actions with the most impact on both consumers and the telecommunications industry, including companies such as AT&T. Among the possible changes: a requirement that the commission wrap up enforcement cases within a year of announcing proposed fines.

Pai is considering ideas for speeding up the FCC’s enforcement process, and a one-year limit “is certainly one idea that is on the table,” agency spokesman Will Wiquist told Bloomberg BNA via e-mail. “If a company has violated the Commission’s rules, the FCC shouldn’t be waiting years before imposing a financial penalty.”

Such a move could lead to the commission simply dropping its case against AT&T. Avoiding the hefty penalty wouldn’t have much impact on AT&T’s bottom line -- its current market capitalization is more than $253 billion, according to Bloomberg data. But it could signal a major regulatory win for AT&T after years of being at odds with the Democratic-controlled FCC during the Obama administration.

Under Pai’s predecessor, Democratic Chairman Tom Wheeler, the bureau’s aggressive pursuit of alleged violations of communications laws sometimes pushed the FCC into areas in which it hadn’t previously brought enforcement actions. The bureau moved against Verizon Wireless’s practice of inserting so-called “supercookies” into consumers’ mobile devices to track their movement across the internet, and pursued both AT&T and T-Mobile US Inc. for what the FCC said was a failure to fully disclose slowing down, or throttling, their unlimited data customers’ wireless data speeds after they surpassed a certain amount of data use.

After saying for more than a year that “the FCC’s enforcement process has gone off the rails,” Pai now has his chance to restructure the bureau. He described commission enforcement efforts as “a critical priority for this commission” at a Jan. 31 press conference.

Pai is likely to steer the Enforcement Bureau back to its traditional, narrower focus. That could mean a significant reduction in the volume and amount of proposed fines and settlements telecom providers face.

“I expect that enforcement under Chairman Pai will return to a more consensus-oriented, bipartisan approach in which the emphasis will likely be on blatant violations of FCC rules by ‘bad actors’ rather than using enforcement to make new policy and get press headlines,” David H. Solomon, the FCC’s first Enforcement Bureau Chief when it was formed in 1999, told Bloomberg BNA via e-mail. Solomon, now a partner at telecommunications firm Wilkinson Barker Knauer LLP, served as bureau chief under both Democratic and Republican FCC chairmen.

It’s unclear what specific changes Pai will make. But the FCC proposed the fine against AT&T in June 2015, which alleged AT&T misled unlimited mobile data plan customers about its practice of throttling data speeds after they surpassed monthly usage caps, is still pending at the commission.

In his 12-page dissent to the proposed fine, Pai decried it as “Kafkaesque” and a case of “a once-approved network management practice” falling out of favor under a Democratic administration. AT&T vowed to fight the proposed fine, saying it flouted “the most basic principles of fairness, due process, and responsible enforcement.”

The commission hasn’t publicly acted since announcing the penalty more than a year ago. Pai has since called for the commission to wrap up such cases much faster. Neither the FCC nor AT&T would comment on the pending case. However, AT&T’s strategy has always been to either settle the case for a lower fine or fight it in court, rather than accept a $100 million fine, a source familiar with the company’s thinking who spoke on condition of anonymity told Bloomberg BNA. But if Pai sets a one-year deadline, FCC action on the matter could render that point moot.

Pai’s FCC already has made it clear it will still engage in enforcement actions, and that commissioners will have more say in enforcement decisions.

“The Enforcement Bureau under Chairman Pai will be guided by the law and by evidence found during careful investigations. When evidence is found that the law has been broken, the FCC under Chairman Pai will vigilantly protect consumers,” Wiquist said. He added that Pai has already made changes “to bolster Commissioner engagement with the Bureau.”

Democratic Administration Pursued Record Fines

The bureau under then-chief Travis LeBlanc gained a reputation during the Obama administration for being an activist enforcer of regulations for large and small telecommunications companies alike. LeBlanc steered many of the FCC’s largest fines, both proposed and those set by consent decree or forfeiture order. Pai and fellow Republican commissioner Michael O’Rielly, along with GOP lawmakers, lambasted what they saw as jurisdictional overreaches.

But the public interest community hailed LeBlanc’s track record. Privacy and consumer protection activists were eager for the FCC to address contentious new technological and telecommunications practices, such as zero-rating, or the practice of not counting certain mobile data use toward consumers’ monthly data plans, as well as online privacy and data breaches. Many consumer advocates said these issues were well within the FCC’s enforcement jurisdiction.

“Overreach became the knee-jerk charge of Republicans at the FCC and on the Hill, but in most cases it seemed like the only supposed fault was daring to enforce long-ignored rules and protecting users against abuses the companies had gotten used to committing,” Matt Wood, policy director for Free Press, a public interest group, told Bloomberg BNA.

Enforcement Shot Clock

Pai made his first move to revamp the enforcement process with a Feb. 8 announcement requiring a full commission vote on any settlements or consent decrees between companies and the enforcement bureau. That brought the commission’s process for voting on final consent decrees in line with existing policies requiring a full commission vote on proposed fines and final forfeiture orders.

More changes are likely. Pai’s next move could be establishing a “shot clock,” requiring the agency to resolve enforcement cases within a year after the commission issues a notice of apparent liability (NAL), or proposed fine. Pai called for such a measure in December 2015 remarks to the Federal Communications Bar Association.

“If no such forfeiture order is adopted within this timeframe, that NAL would be automatically nullified,” Pai said in a summary of his remarks. Such a move would clear not only AT&T’s proposed fine off the bureau’s decks, but also any other cases still pending for final action if the commission or bureau had issued an NAL more than a year earlier.

Deadline Boosters

AT&T strongly backs such a change. One of the telecom giant’s top executives, Joan Marsh, called for an even more aggressive timeline for closing enforcement cases in a Feb. 8 blog post.

“To ensure that NALs are timely resolved, the Commission should establish a hard deadline for issuance of a forfeiture order once a NAL has been released,” Marsh wrote. “Parties have only 30 days to file an opposition after receiving a NAL. The Bureau should then be required to resolve the matter either through settlement or formal circulation of a final forfeiture order within six months of receiving the opposition,” she said. If an enforcement inquiry continues past that point, it should be promptly dismissed, she added.

It’s unclear whether Pai might contemplate such a short time period for final enforcement decisions.

Robocall Re-Up

Along with procedural changes, Pai is also widely expected to focus the Enforcement Bureau’s effort on combating waste, fraud and abuse in federal subsidy programs administered by the agency, as well as on unwanted autodialed texts and calls.

The Enforcement Bureau issued its first enforcement action under Pai on Feb. 15 with a $9.1 million settlement with Purple Communications. The FCC said Purple had sought millions of dollars in improper reimbursements for more than 40,000 fraudulent accounts from a fund used to support telephone services for the deaf and hard-of-hearing.

Robocalls may require a harder lift. Consumer gripes about robocalls are the chief complaint received by the FCC, and Pai recently noted that “the problem is only getting worse.” Pai may try to roll back some of his predecessor’s interpretations of the law. But cracking down on what Pai has called the “scourge” of robocalls could earn him support from consumer advocates as well as a wider set of industries beyond the telecommunications sector.

Pai dissented, in whole or in part, from several commission actions during the past two years to regulate who is and is not exempt from robocall penalties under the 1991 Telephone Consumer Protection Act. During his first week as chairman, Pai underscored his interest in pursuing fraudsters and unscrupulous telemarketers in an address to the FCC’s Consumer Advisory Committee.

Pai told the committee, composed of consumer and industry representatives, that he was interested in “aggressive action” and proposed a series of ideas that would require industry buy-in to be successful. He asked whether a safe harbor from penalties under the TCPA, which was tightened during Wheeler’s tenure, might provide phone carriers with ways to be more innovative with call blocking services without fear of liability. He also asked whether creating a database of reassigned numbers would help companies avoid dialing the wrong person from the start.

The FCC established a task force under Wheeler, led by AT&T on the industry side, to find solutions to help telephone carriers and their supply chain providers stop robocalls before they reached consumers. Pai is likely to keep that effort going.

In 2016, the National Consumer Law Center and 50 other public interest groups petitioned the FCC to overturn its ruling granting federal contractors an exemption from TCPA penalties. Pai asked the advisory group whether granting that petition “might help close a potential loophole” in the FCC’s robocall rules.

“The legal thicket is pretty challenging, but nonetheless,” Pai said he hoped to work with industry and consumer groups “so that once and for all we can help channel” the proverbial robocall scheme “‘Rachel from cardholder services’ into more productive social activities.”

Pai will get a chance to elaborate on his plans for the Enforcement Bureau during expected appearances at House and Senate Commerce committees oversight hearings March 8.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bna.com

To contact the editor responsible for this story: Keith Perine at kperine@bna.com

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