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Feb 27, 2004


Ed Maldonado, Esq.

Dear Legal Line,

In case you didn’t see it, the FCC submitted to Congress its proposed budget for FY2004 this month with a total of $280,798,000, which in itself is remarkable because it represents only a small increase over last year’s budget. What is noteworthy, and outrageous at the same time, is that once again, telecom carriers and companies are expected to foot over 50% of the bill related to fees to be paid to the FCC !!!!

For a small carrier, like myself, federal regulatory fees and taxes can be a significant cost of doing business. It doesn’t seem fair is that the FCC regulates broadcasters and the telecommunications industry differently with regard to regulatory fees. While telecom carriers must equally “contribute” to the FCC funds based on revenue, broadcasters (Radio, TV and Cable) do so under a system that frequently charges ridiculously low annual fees for an industry with huge cash cows. There’s no reason why telecom companies should pay more per dollar of revenue than broadcasters. As it is now, broadcasters can seemingly run a much more lucrative operation than telecom providers simply because the fees charged are less per capita of revenue. This is really a problem for the telecom as a regulated industry. While we struggle to survive in a dog-eat-dog world just to pay substantial regulatory fees to the FCC, these radio, TV and cable broadcasters can sit back and only have to put measly grain of sand in the FCC’s sandbox compared to ourselves.

With all the current buzz in the industry about the inevitable passage of regulation over VoIP telephony and “potential revenue losses” due to increases in federal and state fees, not to mention Chairman Powell’s “enlightened view” that a new and fresh attitude is needed in regard to regulating VoIP, maybe the time is also right to propose a reform of the whole “contribution” process for companies regulated by the FCC. Right now if I’m assessed USF I have no choice but to pay it. The same is true for FET. If I slam a consumer, I get a heavy fine per consumer from the FCC without a doubt. However, this past Super Bowl half-time show had a clear violation and the network’s fine was minimal. How many viewers saw that one? The system is just not fair to small carriers.

To make it fair to telecom companies, broadcaster fees ought to be based on actual revenue rather than simple filing, just like telecom. This would definitely change the way the FCC balances its budget and treats telecom companies. If not, let’s be completely fair and telecom companies be assessed the same way as broadcasters are for their fees. I say fairness ought to be the rule, and equal treatment in regulation should mean industry-to-industry and not just vertical within a specific niche service. So where do I begin? How can this be done legally without me having to hire an army of lobbyists or have deep enough pockets to “contribute” to legislators instead of regulators? Where does the little guy begin?- Regulation without Representation


Dear Reg. without Rep.,

I have not seen the FCC budget yet, but from what you say in this email, everyone in prepaid should take a look. Trusting that your numbers are correct on these breakouts between the telecom and broadcast industries, I am not surprised that telecom is currently bearing a higher regulatory revenue fee ratio than other regulated communications industries. Telecom, as an open and competitive regulated industry, is much younger than radio and TV broadcasters. We are in many respects, the “newer” kids on the block as far as the US Congress and the FCC are concerned. Likewise, telecom services directly touch consumers in ways that broadcasters in radio and TV simply don’t. Telecom providers deal in servicing human conversations and interaction and not simply sending out a message or program like radio and TV. The distinctive services between telecom and broadcasters, in some ways, are like a comparison of “apples” and “oranges” for regulatory purposes. However, your “fairness” question is relevant in light of the technological convergence of voice/data/video under broadband services whereby Cable TV programming, Internet services and possibly VoIP, may be able to be directly sold end users of Cable TV. It calls in question who is regulated by the FCC and how, and in part, these are Constitutional issues and concerns.

Without doubt, radio and TV interests maintain a strong lobby in Washington DC in both the Congress and the FCC. They have for decades. This may be part of the reason why they are regulated in the fashion that they are. However, before disguising yourself as a Mohawk Indian, storming the 8th Floor offices of the FCC, and having your own personal FCC “Tea Party” in rebellion of your fees, perhaps you should consider some practical actions that can be taken within the industry so that your concerns can be equally heard. This comes in the form of Grassroots Industry Lobbying, and Administrative Appeals.

Let’s begin with Grassroots Industry Lobbying. Not all lobbying efforts that are productive require an army of lobbyists or heavy contributions to politicians. What is required is a clear and identifiable campaign or industry platform as to what is being opposed. This requires organization and structure. Sometimes this is found through Industry Associations, such as the International Prepaid Communications Association (IPCA), or the CompTel/Ascent Alliance. However, an Industry Association is not a requirement in order to lobby an issue. What is necessary is a clear and intelligible platform to which others equally affected can subscribe. This can even initially take shape around a website or even an Internet chat forum. Get talking and debating your issue within the industry as a first step. The key is to have your concerns eventually reduced to a format that can be quickly re-communicated to Congressional figures with the clear message that others in the industry share this perspective. In combination with a platform, a database system of mobilizing those in favor of your cause is critical. Political officials who see their constituents mobilized around an issue tend to pay attention. A good example of how this can work is the Tax Revolt effort in California back in the early 1970s. In that tax reform movement, taxpayer interests where organized to place caps on the state’s power to tax by signing petitions, writing letters and even mailing select representatives “tea bags” from constituents along with information that they are registered voters and were passionate about the issue. The end result was that it worked. So my advice is not to concern yourself so much with an army of lobbyists or individual political contributions as with a well-founded platform and an action plan on how to organize others who share your concern.

Another means of contesting the way that your fees may be assessed, and the fairness of it all, is by administrative appeal. For this type of activity, you will definitely need an administrative law attorney because the parameters of an appeal are very narrow. This usually means that only a select number of administrative appeals actually make it to the courts or result in reversing fees or policies. Simply challenging the differences in policies between telecom companies and broadcasters may not be enough. FCC policy must be derived from federal statutes giving them regulatory authority and your appeal must squarely fit into that delegated power. Likewise, administrative agencies are given some latitude of reasonableness in establishing regulatory policy or fee. So where Congress has specifically assigned the FCC the responsibility of interpreting and administering the 1934 and 1996 Telecom Acts, the FCC’s interpretation of the statute, regulation, or regulatory fee will be upheld so long as it is reasonable. Whether or not there may exist a better way than that which the FCC uses is not enough to base an appeal. The appeal must challenge that the FCC policy is unreasonable, arbitrary, or capricious in its application to regulated companies. The operative concept here is that the FCC’s policy choice or interpretation is merely a reasonable one, not an absolutely fair one.

Now let’s talk about your challenge. Federal Statute 47 USC Sec. 254 requires that contributions to USF are to be equitable or nondiscriminatory among carriers, and that the FCC must uphold this mandate. The scope of Section 254 does not extend to broadcasters because of the Act’s definition of “carriers.” The gist of your challenge between broadcasters and telecom companies is that there seems to be a discriminatory implicit subsidy in favor of broadcasters by virtue of fees being assessed on annual set fees, as opposed to usage fees on revenues as with telecom. While an interesting perspective from a budgetary basis, for the purposes of an administrative appeal, it is somewhat of a stretch at this point in time. The reason being that the activities of broadcasters and telecom companies fall into different sections of the Telecom Act. The “apples” and “oranges” analogy I gave you pretty much sums it all up. This is not to say that things may change in the future. The challenge may become ripe should cable companies expand more directly into telecom services (voice) to the public through their cable access infrastructure to end-users. However, at this time, this is really not the case. So, you may be best to wait until that happens before launching this administrative appeal of USF.

This is not to say you should not consult an administrative law attorney to see if you have other claims. On the contrary, should you feel that a particular FCC policy or regulatory fee is impacting you or your business in an arbitrary and capricious fashion, it is worth an opinion by an administrative law attorney on all possible appeals. There may be another constitutional or procedural basis not addressed here. Also, it won’t hurt to get educated on the legal aspects and constraints of the policy or fee you feel is unfair. Who knows — this may be the foundation that you use to lobby against it in the future. For that reason, I encourage you to educate yourself and others more on the ways the FCC assesses fees. Also, seriously consider the Grassroots elements of lobbying. You may find that you are not alone and that others in the industry share your concern, and commitment to lobby it in Congress.

•• Ed Maldonado is a principal of Maldonado & Glenn, a telecom legal firm. He can be reached Send all of your Legal Line questions


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