Contrary to its own rules, FCC demanded long-form application fees from successful broadcast bidders from 2004-2010

The Commission has recently “clarified” its rules on application fees due from successful bidders in FCC auctions for broadcast permits. Didn’t notice that change? That’s possibly because the Commission went to some lengths to downplay the significance of what it was doing – characterizing the revision as nothing more than an effort to “rectify a possible inconsistency”, a “clarification” that “does not substantially affect the rights or obligations of non-agency parties”. Nothing to see here, folks. Just move along.

But thanks to our good friend Jack Mullaney – long-time RF engineer and, apparently, part-time transparency champion – we can report that there is indeed something to see here, and it does not cast the FCC in a particularly favorable light, transparency-wise (or fairness-wise, for that matter). (Jack learned of the problem and brought his concerns to Radio World, whose editors then asked us to investigate further.  Good thing they did.)

The question is whether the FCC has, since 2004, been collecting application fees to which it was not entitled. The answer appears to be: “Yes”.

The situation arose back when the Commission first started auctioning spectrum in the 1990s. In 1994, Subsection (c) of Section 1.2107 (titled “Submission of down payment and filing of long-form applications”) included the following all-encompassing, unequivocal statement:

Notwithstanding any other provision in [the Commission’s rules] to the contrary, high bidders need not submit an additional application filing fee with their long-form applications.

Four years later, Congress had granted the Commission authority to auction off broadcast spectrum, and the Commission modified its rules accordingly. At that time (that would be 1998), the FCC indicated in its Report and Order that it intended for successful broadcast bidders to pay application fees at the time they tendered their long-form applications. To achieve that result, of course, the Commission would have had to amend the sentence quoted above from Section 1.2107(c), since that sentence says precisely the opposite of the intentions expressed in the FCC’s passing remark in 1998.

But this detail apparently fell through the cracks and the rule never got changed.

As a result, Section 1.2107(c) continued in no uncertain terms to dictate – from 1994 until June 28, 2011 – that successful bidders would not have to file application fees with their long-forms. 

Despite that, the Commission’s procedural notices concerning most broadcast auctions from 2004 through 2010 consistently indicated that such application fees would have to be submitted. And, as far as we can tell, the Commission has consistently cashed those fee checks as they have rolled in the door over the years, even though Section 1.2107(c) specifically said that those fees were not required to be paid.

In October, 2009, counsel (another long-time friend, Lauren Colby) for one successful bidder who had paid the application fee wrote to the FCC’s Managing Director; he sent a copy of his letter to the Media Bureau as well. In his letter he pointed out the unequivocal language of Section 1.2107(c) and politely asked for a refund.

In mid-March, 2011 – that would be more than 16 months later – Colby received a check, payable to his client, in the full amount he had requested. We understand that no explanatory letter or order accompanied the check, although the check itself did include the memorandum notation “NOT REQUIRED TO PAY FEES”.

And on March 3, 2011 – a week or two before that refund check was cut – the Commission issued its order announcing an updated application fee schedule, an order which included a Notice of Proposed Rulemaking (NPRM) component looking to completely reverse the crucial sentence in Section 1.2107(c). Under the proposal, application fees would be required to be paid with the submission of long-form applications. The Commission said that its proposed change was intended merely to “clarify” the rules and “to resolve any inconsistency” between the rule and the FCC’s 1998 statement.

Hold on there. “Clarify”? “Any inconsistency”? That’s kind of like saying that changing one’s plea from “not guilty” to “guilty” is a “clarification” intended to resolve some “possible” inconsistency. 

The fact is that, since 1994, Section 1.2107(c) has barred any requirement that application fees be paid with long-form applications, and the Commission now has chosen to reverse that. The fact also is that, while the FCC indicated in 1998 that it planned to perform that reversal, it never acted on those plans (until now, at least).

Ordinarily, if the FCC wants to regulate, it does so by adopting rules – and once it has adopted a rule, that rule governs absent formal amendment or waiver. Sure, the FCC can interpret its rules, possibly shifting their emphasis to some degree or extending them to fit novel situations. But you can’t really change “thou shalt not” to “of course thou shalt” and call that an interpretation or a shift in emphasis . . . or a “clarification”.

So the Commission’s effort to downplay this change – an effort which appears to have been totally successful, since the proposed change attracted no comments from the public – might be seen as ever so slightly disingenuous. That’s especially so in view of the refund that was issued pretty much simultaneously with the understated NPRM. That refund establishes the fact that successful bidders for broadcast facilities were “not required to pay [application] fees”. But since 2004 the Commission has routinely advised auction participants that they have to file application fees, and the Commission has apparently collected those fees without notifying the payers that the fees would be refunded on request.

This seems odd behavior for an agency which has recently railed against the sneaky imposition of unauthorized charges on consumers’ phone bills. How exactly is the extended solicitation and collection of unauthorized application fees different?

It seems odd, too, that an agency supposedly committed to “transparency” would fail to address this issue head-on, and would instead use plainly inaccurate language (e.g., “clarify”, “possible inconsistency”) seemingly designed to distract the reader from the real facts. 

Looking for other inaccuracies? How about in the FCC’s Order adopting the revised version of Section 1.2107(c), where the Commission explicitly says that the change “does not substantially affect the rights or obligations of non-agency parties”. Come again? If successful bidders (those would be “non-agency parties”, right?) did not have to pay application fees before the change, but will have to pay them after the change, how can the FCC say with a straight face that the “obligations of non-agency parties” aren’t being “substantially affected”?

The Commission may be hoping all of this just slides on past without any serious attention from any folks who paid unnecessary fees. Sleazy, perhaps, but the path of least hassle.

Maybe. But wouldn’t it be better – indeed, wouldn’t it be the Right Thing To Do – for the Commission to go through its records, identify which applicants paid unnecessary fees and how much they paid, and simply issue prompt and voluntary refunds? The Commission surely has records which should provide it all the necessary information to accomplish that task. And a voluntary refund will spare the affected payers the need to engage counsel to file for refunds on their own (a process which will net them less than 100% of what they paid, unless their counsel work for free).

It’s difficult, if not impossible, to sort out just where the train left the tracks in this situation. Somebody obviously dropped the ball when the FCC’s 1998 passing statement about application fees didn’t make it into the rules. In 2004, others failed to realize that, despite that 1998 statement, the rules still prohibited application fees for successful broadcast bidders filing long-form applications – and those others began inserting into auction notices the admonition that such fees were required. From 2004-2010, still others neglected to catch that oversight, leaving the same admonition in repeated auction notices. And even in 2009 – nearly two years ago – when we know for sure that, thanks to Colby, the Managing Director was aware of the problem, it still took 16 months for the Commission to start to take action. (It’s possible that other payers had previously sought and received refunds, and had gone away quietly – we don’t know. But if that did happen, the Commission is even more blameworthy for failing to address the problem at that point.)

In the view of this blogger, if the Commission wishes to claim the high ground on the transparency and fairness fronts, it for sure owes refunds to those who paid the unnecessary fees – and it also owes the rest of us an explanation.