Hearing aid compatibility shortfall draws big fine.

More than two years ago we reported that the FCC had proposed to fine T-Mobile a whopping $819,000 for violations of hearing aid compatibility (HAC) requirements. (Under those requirements both manufacturers and mobile carriers must offer a broad range of handsets that (a) don’t cause interference to hearing aids and (b) do work with the telecoil add-ons that many hearing aid wearers use.) As is customary, T-Mobile was given a chance to respond to the proposed fine, which it did (in May, 2012), arguing not that it hadn’t violated the rules, but rather that the fine was “unduly punitive” and should be sliced in half.

The FCC was not convinced. We know this because the Commission has now finalized the fine, leaving it at $819,000 – no reduction for effort, good behavior, or anything else.

This case is unusual for a couple of reasons.

First, unlike many carriers facing a possible fine because of an HAC shortfall, T-Mobile declined to sign a “voluntary” consent decree. Instead, it fought back, arguing among other things that it has been an industry leader in advancing the HAC cause, and this kind of punishment doesn’t make it feel very good about all the work it has done. The FCC was unconvinced. It rejected T-Mobile’s various arguments and took the occasion to explain why it tightened the screws in this case … and why we can expect more of the same in the future.

Second, there’s the size of the fine – nearly a million bucks. While fines for HAC violations have increased dramatically since the requirements were imposed in 2008, T-Mobile’s whammy was still a record amount for this time of violation.

Since its fine was seriously bigger than fines meted out to others for similar violations, T-Mobile argued that it was being treated unfairly. Sorry, the FCC responded. Those earlier, lower, fines were issued by the Enforcement Bureau, not the full Commission. The full Commission, being the boss of the Bureau, is not bound by the Bureau’s decisions.

And anyway, the Commission’s T-Mobile decision didn’t differ with any staff interpretations of the HAC requirements themselves, so whether the Commissioners have interpreted the rules differently from the Bureau isn’t an issue here. Everybody agrees what the requirements are; the only significant difference here is in the amount of the fine. And the Commission believes that it is plainly permitted to issue stiffer sentences if it wants, with or without warning, particularly it does so as part of a “dynamic enforcement approach”. 

And anyway, T-Mobile couldn’t really show that it had relied on earlier decisions when it violated the HAC rule. It knew what the rules required. Any claim of reliance on the Bureau’s earlier decisions would have meant, in essence, that T-Mobile knew that it was violating the rules but figured that the likely penalty would be small enough that the company’s bottom line could tolerate it. Since T-Mobile presumably expected that at worst it would get a slap on the hand, or even a kick in the shin, it won’t be heard to complain when it gets hit with a sledge hammer for the violation.

Making matters worse for T-Mobile, the FCC changed its way of calculating the penalty. Since the multiplier function previously used hadn’t seem to generate the level of compliance the FCC had in mind, the Commission jiggered with that formula in a way designed to get everybody’s attention.

And then there’s the matter of T-Mobile’s size. Given that T-Mobile is obviously a large company, the FCC wanted to be sure that any fine it issued would not be so low as to be treated as a mere cost of doing business. The Commission’s willingness to consider the size of the violator in this connection is ironic because it doesn’t consider size when it comes to smaller entities. That is, when the violator is a small entity whose business would likely be seriously damaged (if not destroyed) by a “standard” fine, the FCC generally doesn’t see fit to reduce the penalty except when the violator can prove inability to pay by submitting income tax returns (including those for affiliated entities) for the last three years.   

[On a related sidenote, readers should be aware that in the past few months, the FCC has changed the characterization of payments made pursuant to voluntary consent decrees. Historically, such payments have been euphemistically referred to as “voluntary contributions” to the U.S. Treasury. Recently, however, the FCC has opted for the term “civil penalty” instead of “voluntary contribution”. The Chief of the Enforcement Bureau confirmed this change in policy in an appearance before the Federal Communications Bar Association. This seemingly inconsequential language tweak can, and is intended to, have a serious impact on the party paying the “civil penalty”. That’s because “voluntary contributions” can normally be deducted as business expenses on tax returns, but the Internal Revenue Code expressly forbids deduction of penalties. The FCC’s wording change in its consent decrees did not affect T-Mobile, though: T-Mobile declined to enter into a consent decree, so no matter how you slice it whatever it ends up paying will be a “forfeiture” which is not deductible.]

There is one more wrinkle in this case. A group of rural carriers – mostly small businesses quaking in their boots as the FCC swings its enforcement battle axe – asked for a ruling clarifying, if not stabilizing, the rules of the game, so that the small carriers can avoid committing any fouls. Sorry, the FCC said – you guys aren’t parties to this case, so you knocked on the wrong door. If you want us to clarify something, file your own independent petition for a declaratory ruling.

So the Commission marches forward, demanding ever greater amounts from those who cross to the wrong side of the regulatory line. Interestingly, the FCC never reports what percentage of the forfeitures (or “civil penalties”) it sends out is actually collected in full, in part, or even at all. One might legitimately wonder whether the forfeiture-based cash flow running into the Commission might ease the agency’s supposedly urgent need to maximize auction revenue.