FCC to Convenience Stores: Oops!

Posted on January 5, 2012 by Donald Evans

Procedural stumble results in withdrawal of citations and proposed fines

We reported last year on FCC citations against convenience store chains Circle-K and 7-Eleven. We don’t usually think of convenience stores as being subject to FCC regulation. But because the stores stocked prepaid cell-phone handsets, the FCC designated them “resellers of wireless services,” and went on to fault them for failing to file certain reports relating to compatibility of the handsets with hearing aids.

The FCC has now withdrawn those citations along with eight others, plus nine proposed fines.

When the FCC or any federal agency adopts a rule that imposes new paperwork burdens, the hilariously-named Paperwork Reduction Act requires the rule to be approved by the Office of Management and Budget (OMB) before it can go into effect. The FCC ships the newly-adopted rule over to OMB for review, a process which normally takes just a few weeks. OMB almost always approves the rule, even if it triggers staggering amounts of new paperwork, and gives the rule a “control” number. The FCC then puts a notice in the Federal Register saying the rule is effective.

Unfortunately, this seemingly simple process has been breaking down with increasing frequency.

If someone at the FCC forgets to send the rule to OMB, or forgets to publish the notice of OMB approval once it’s received, the rule cannot be legally effective. Often these small details are overlooked by the public, who understandably think the rule is in force. Sometimes even the FCC makes the same mistake.

Back in 2008, the FCC required wireless service providers to carry a line of hearing aid compatible handsets. It also – and here’s where the paperwork comes in – required an annual report detailing the handsets offered, along with other efforts to make service more accessible to the hearing impaired. The industry by and large has provided these reports since January 2009, assuming the rule was in effect, and indeed, was helped along by reminders from the FCC of the need to file. A few hapless entities, including Circle-K and 7-Eleven, selling handsets next to the Slim Jims and hotdogs, did not even know they were “service providers” subject to FCC rules. Yet in 2010, the long arm of the FCC reached out and tapped them on the shoulder. Both received “citations,” warning them of fines of up to $150,000 per violation, per day, for not filing the report.

But then, last December 13, the FCC published a public notice indicating that the 2008 rule had just then become effective. OMB had approved the rule back in July 2008, but the FCC neglected to publish the necessary notice of its effectiveness. (The FCC did publish the fact of the OMB approval on July 21, 2008, but forgot to say that the rule was effective.) In any event, since the FCC cannot issue citations and other punitive actions based on supposed violations of the then-not-yet-in-effect reporting rule, the citations and proposed fines had to be quietly withdrawn.

So the Paperwork Reduction Act, which so often seems to create mounds of additional paperwork for all concerned, for once did its job. It spared a few innocent members of the public from the horrors of reporting. But while Circle-K and 7-Eleven are now vindicated, the thousands of poor souls who spent an average of 13.2 hours per year filling out unnecessary reports (by the FCC’s estimate) will never get that time back. 

And as of December 13, the reporting requirement is officially on the books, so failure to file the reports from here on out will lead to forfeitures that probably won’t be rescinded.
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Honey, Please Pick Up Milk At The Phone Company

Posted on May 27, 2010 by Mitchell Lazarus

FCC dings convenience stores – again – for selling phones and not filing forms.

The FCC has issued official warnings – “citations,” they call them – against eight wireless phone companies, alleging failure to file certain reports relating to compatibility of handsets with hearing aids. Seven of the companies indeed look like wireless service providers. Actually we don’t know that for sure, but at least their names include words like “wireless” and “cellular.”

But the eighth alleged offender is Circle K Stores, Inc., which most people don’t think of as a phone company. It operates a chain of convenience stores. Nevertheless, the FCC calls Circle K a “reseller of wireless services” because it stocks prepaid handsets. Circle K had earlier told the FCC it obtains the handsets from an external source. It also told the FCC it is not now, and never has been, involved in the operation of a wireless telephone service.

But the FCC, unmoved, warned Circle K that continued violations (i.e., not filing reports) could expose the company to fines of $150,000 per violation, per day. That’s a lot of milk.

We reported last January that the FCC had similarly deemed the 7-Eleven convenience stores to be providers of wireless telecommunications services.  There, the alleged violation was the company’s failure to post on its web site certain information about (again) hearing aid compatible handsets. 7-Eleven, too, was warned that future violations could bring very large fines.

This approach strikes us as unwise. For one thing, Circle K and 7-Eleven are unlikely to have the information the FCC wants. Rather than make them obtain it from their vendors, or whoever up the chain actually has the information, it would make more sense to impose the filing requirements on the companies that deal with the handsets in bulk.

More important, the FCC’s threats may well persuade Circle K and 7-Eleven to take the cell phones off their shelves in favor of more kinds of potato chips and energy drinks. If the FCC continues handing out scary citations, other neighborhood retailers will likely drop the phones as well. That would cut off many lower-income Americans from access to mobile communications – surely not what the FCC wants to happen.
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Bureau Says 7-Eleven Is A (Super Big Gulp!) Telecom Reseller

Posted on January 18, 2010 by Donald Evans

Enforcement Bureau throws the (phone) book at convenience store

On January 14, just beating the expiration of the statute of limitations to punish offenders, the FCC’s Enforcement Bureau issued a spate of fines and citations against companies which had failed to file Hearing Aid Compatibility (HAC) Reports.   While the Bureau’s actions to some extent targeted the usual suspects (equipment vendors and carriers), they also, perhaps unwittingly, threatened a vast new class of businesses with regulation and enforcement actions. And by doing that, the Bureau also may have started a domino effect likely to lead to the elimination of the near-ubiquitous availability of prepaid phones and phone cards.

Despite the dire (and probably unforeseen, at least by the Bureau) consequences of its action, this whole affair started from good intentions. The Commission is rightly sensitive to the needs of the hearing-impaired. Because of that, the FCC’s rules contemplate that telephone equipment manufacturers will produce, and telecommunications service providers will make available to the public, a significant stock of cellphone handsets that are compatible with hearing aid devices. No problem there. And to keep everybody honest (in a “trust but verify” mode), the Commission requires all phone manufacturers and service providers to submit HAC reports on January 15 of each year, detailing their compliance with the handset stocking rules. Since these rules came into effect a few years ago, the FCC has taken an extremely harsh and unforgiving attitude toward carriers who fail in the slightest measure to meet the requirements of the rules.  

That harsh approach was evident in the fact that, among the Bureau’s targets was Firefly Mobile Communications. Firefly is a conventional telecommunications service provider, to be sure, but it was actually exempt from complying with the substantive handset stocking rules because it sold so few of them. Even so, Firefly was not exempt from the requirement to file an HAC report, so the Bureau slapped it with a citation and threatened to impose a fine if it fails to file the report again. (A “citation” is the FCC equivalent of a cop issuing you a warning rather than a speeding ticket; for some categories of offenders, the FCC is required to first issue such a warning before it can impose an actual fine.)

Firefly probably should have known that it was subject to the HAC reporting rules, even if it didn’t have anything much to report. The same can’t be said of 7-Eleven. 7-Eleven, along with thousands of other convenience stores, drug stores, and department stores, sells prepaid phone cards and cellphones with prepaid minutes, right there next to the revolving hotdogs. When 7-Eleven didn’t file an HAC report last year, the FCC investigated.   7-Eleven claimed that it’s not a telecommunications service provider at all – rather, it just sells phones (that it gets directly from various manufacturers) and prepaid wireless cards and services (that it gets from a mobile phone company). While 7-Eleven does offer “private label”-branded phones and cards, 7-Eleven urged – not unreasonably – that it should not be deemed a “telecommunications service provider” subject to the HAC reporting requirement.   

The Enforcement folks disagreed.   The Bureau concluded that 7-Eleven is a “reseller” and that, as a result, it is also a “service provider” subject to the handset reporting and stocking requirements.  

Although the company got only a warning, the implications of the citation are far-reaching. 

Sure, you could argue that, because a newsstand or convenience store sells prepaid cards, it could in some sense be dubbed a “reseller” of telecommunications services – and therefore a “telecommunications service provider” for purposes of the Communications Act. But let’s think about that for a minute. The relationship of the convenience store to the customer has always been tenuous and fleeting, at best – certainly not consistent with the traditional model of a carrier-customer relationship. Typically the convenience store does not even know who its customer is, much less exercise any control whatsoever over the telecom service the customer gets. Is it really accurate to lump such vendors in with “real” telecom providers?

The Bureau evidently thinks so. It concluded that, because 7-Eleven resells prepaid cards and phones to customers, 7-Eleven is a telecom reseller.   The Bureau did note that 7-Eleven sells the cards and phones under its own “SPEAK OUT” brand name, but it is unclear whether that practice distinguishes 7-Eleven from the CVS drug store that resells prepaid cards of other carriers under the carriers’ respective brand names.   Conceptually, there should be no difference between reselling cards and phones under one’s own brand name or reselling them under the name of the underlying carrier – it is apparently the resale itself that categorizes you as a “service provider”.

But let’s assume that the Bureau is correct in its conclusion. So what? Here’s what. As a result of the Bureau’s decision, not only 7-Eleven, but CVS, Safeway, Macy’s, and the cigar store down the street could now all be deemed “telecommunications service providers”. And as such, they would need not only to file the annual HAC report (if they sell handsets), but also to contribute to the Universal Service Fund, file quarterly 499Q’s, and comply with all other regulations applicable under Title II of the Act to service providers – just like AT&T and Verizon. And given the choice of either (a) undertaking all those regulatory chores (as well as the potential penalties for non-compliance), or (b) not selling phones or prepaid cards, such vendors could be expected to dump their phone/card business pronto. In that way this one Bureau action could go a long way toward effectively killing off the prepaid card/ prepaid phone business which has flourished up to this point.

The situation calls out for immediate full Commission review and possibly FCC forbearance from regulation of small vendors who were never intended to be subjected to the full panoply of common carrier regulation.
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