FTC Agrees That Proposed FCC Paging License Procedures Would Help Combat Fraud in Licensing of Wireless Communications Technologies

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A Federal Communications Commission proposal to license channels used for paging systems on a geographic basis through competitive bidding will help combat the telemarketing fraud that has been associated with the issuance of these licenses, the Federal Trade Commission said in comments made public today.

"Fraudulent investment schemes that are centered on acquiring FCC licenses for wireless technologies have been the most prevalent telemarketing investment scams of the 1990s, costing consumers hundreds of millions of dollars," said the FTC, which offered advice in response to a notice the FCC published in the Federal Register soliciting comments on the proposals.

The FTC has filed 21 law-enforcement actions against telemarketers engaged in this kind of fraud. The most recent cases of this type were filed as part of"Project Roadblock," a federal-state cooperative effort targeting primarily paging license"application mills" -- that is, telemarketers who sell application preparation and filing services for paging licenses. "Build-out" schemes are the second general type of fraud associated with FCC licenses, and they involve promoters who sell interests in limited liability companies or general partnerships which supposedly will acquire FCC wireless licenses and then build and operate telecommunications systems that use these licenses.

In both instances, the FTC said that telemarketers call inexperienced, unsophisticated consumers -- many of whose names appear on FCC databases of wireless licenses because they acquired licenses through rival scams or scams pitching earlier technologies. The telemarketers tell these consumers that the licenses are investment products worth many times more than the telemarketers" multi-thousand dollar fee, either because the consumers will be able to sell or lease their license without having to build the system, or because the business to be built by the partnership is a sure success.

The FTC said that application mill schemes thrive where licenses are readily available, because telemarketers can virtually guarantee their customers a license. The FCC's proposed geographic licensing and competitive bidding proposal, along with an interim freeze on new applications, will inhibit this fraud because it will make considerably fewer licenses available.

In addition, the FTC said, the upfront payments that would be required of all bidders and the 20 percent down payment that would be required of winning bidders would make obtaining the licenses more costly for the fraudulent telemarketers.

"As the application mills have moved from one wireless technology to the next, they have generally moved away from technologies licensed by competitive bidding, and toward those licensed on a first-come, first-served basis," the FTC said.

The FTC also suggested that limiting"shared" channel licensing and focusing more on issuing exclusive licenses also would help deter fraud. Shared licenses allow fraudulent tele- marketers to escape early detection because consumers are virtually guaranteed to receive their promised license and don't recognize that they have"little more than a piece of paper." Moreover, they are vulnerable to"reloading" by telemarketers soliciting more money from them for the purchase of additional major market shared licenses, the FTC said.

In addition, the Commission said it supports the FCC's efforts to structure its competitive bidding rules to ensure that bidders are qualified and will be able to build the systems quickly. The proposed rules could be strengthened even further, the FTC said, by requiring additional disclosures about ownership and financial status, and by requiring that applicants certify to the FCC that they will comply with any FCC transfer restrictions and performance requirements. In addition, bidding agents or application preparers should be required to disclose information about paging license regulations -- including payment schedules, transfer restrictions, and performance requirements -- to the licensees and partners or shareholders, the FTC said. This would address a fundamental problem in FCC license-related fraud, which is that consumers do not receive complete information about the licenses before they invest.

The Commission vote to file these comments with the FCC was 5-0. The Commission's comments address the proposals only to the extent that they may deter consumer fraud, and not as a matter of communications regulation policy.

Copies of the comments and news releases on the FTC's cases in this area are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580: 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it happens, call the FTC's NewsPhone at 202-326-2710. FTC news releases and other documents also are available on the Internet at the FTC's World Wide Web Site at http://www.ftc.gov


(FTC Matter No. V960007)

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