Collects $0

FCC proposes millions in fines, collects $0

The disconnect is drawing scrutiny from members of Congress.

By Alex Byers

The FCC has announced a series of eye-popping fines against companies over the past two years: Roughly $100 million against nearly a dozen firms for defrauding a phone subsidy program, $35 million against a Chinese company for selling illegal wireless jamming equipment, and $100 million against AT&T this June for throttling customers on unlimited data plans.

But how much of that money has the commission actually collected? $0.

While the FCC has always had a cumbersome process to impose penalties, the increasingly large fines proposed by the FCC are highlighting the gap between attention-grabbing press releases and slow-moving collection. The disconnect is drawing scrutiny in Congress as the FCC’s enforcement bureau – led by a former aide to California Attorney General Kamala Harris – is aggressively targeting companies on everything from their billing practices to data security to Wi-Fi blocking.

"If an enormous fine is announced and it's never prosecuted, it makes you wonder what's the purpose?" said House telecom subcommittee Chairman Rep. Greg Walden (R-Ore.). "The question is, are they just after headlines or some sort of performance metric? I don't know."

The FCC enforcement process has never been quick. After the agency proposes a fine, companies have around 30 days to either pay or challenge it. The fine isn't officially due until the FCC completes its investigation -- a process that can take years. Even after that review is complete, the FCC has to rely on the Justice Department to collect the money if a company doesn't agree to pay.

The FCC would not comment on the outstanding cases involving Lifeline, the low-income phone subsidy program, saying it can't talk about ongoing proceedings. But a spokesperson said the practice of issuing proposed fines -- technically called notices of apparent liability (NALs) -- is a major tool to protect consumers, even if companies don’t ultimately pay a full penalty. The FCC, which says it normally conducts extensive inquiries before proposing a fine, has seen instances of companies adjusting practices to comply with agency rules after an NAL is filed, said the spokesperson, who declined to be identified, saying the FCC has a policy about not speaking on the record about its enforcement bureau.

Lyft, for example, changed its terms of service just days after the FCC issued the ride-hailing app a citation in September for running afoul of the nation’s robocall laws. And AT&T, which is aggressively fighting the proposed $100 million fine issued this summer, increased its throttling threshold in September for some unlimited plan users from 5 gigabytes to 22 gigabytes of data per month.

But the FCC's propensity to tout eye-catching fines is irking key lawmakers -- as well as Republicans at the commission -- who question the agency's effectiveness since the money often goes uncollected for years.

In announcing some of the proposed Lifeline fines in 2013, the agency trumpeted, “Today's actions constitute the most recent step in the Commission's significant efforts to root out waste, fraud, and abuse in the Lifeline program and preserve the overall integrity of the Universal Service Fund (USF).”

But the FCC has yet to officially impose the penalty on those companies -- and several are still deemed eligible to receive FCC reimbursements for phone subsidies, according to data from the Universal Service Administrative Company, which runs Lifeline.

“I am beyond confused as to why not one dime of that has been collected,” Sen. Claire McCaskill (D-Mo.) said at FCC Commissioner Jessica Rosenworcel's renomination hearing last month. “We might as well have a big flashing sign that says, 'Doesn’t matter, do whatever you want in the Lifeline program because we're not even gonna bother to collect the money. And we're gonna keep paying you.'”

TracFone, one of the Lifeline providers targeted by the FCC, said after the hearing that no fine has been imposed by the FCC yet. They declined to comment for this story.

Like other law enforcement proceedings, the FCC spokesperson said, conducting a thorough investigation can take a long time -- a process that can become even more complicated at an independent agency run by political appointees. The FCC often tries to resolve a group of similar cases at the same time, which can also delay enforcement efforts, the spokesperson said. In October, for example, the FCC finalized multi-million dollar fines against four pre-paid calling card companies that the FCC says used deceptive marketing practices -- more than four years after the fines were proposed.

Meanwhile, telecom industry trade groups are criticizing the FCC’s approach under Enforcement Bureau Chief Travis LeBlanc, a former aide to California Attorney General Kamala Harris. Using the threat of big fines to force companies to change their practices sends the wrong message, said Micah Caldwell, vice president of regulatory affairs at ITTA, a trade group that represents medium-sized communications companies.

"Certainly the atmosphere and the environment right now is one where providers and [regulated companies] are on alert and concerned about what the future holds for them," she said.

The agency has been particularly active on consumer-friendly enforcement issues like Wi-Fi blocking under LeBlanc’s tenure, which began in March 2014. He has focused on securing explicit commitments from industry that companies will improve their behavior, and the FCC says it has collected 84 percent of the penalties it finalized over the last two years.

Consumer advocates say that FCC efforts to pressure companies to change their practices can be effective, but that the agency should use its bully pulpit judiciously. If the commission doesn't effectively penalize companies, its power is weakened in the long-term, said Mark Cooper, research director for Consumer Federation of America.

“When the lion roars, the gazelles run. The problem is that if the lion roars too much and never eats a meal, the gazelles will stop running,” he said. “You have to find the line where you elicit the behavior you want.”