FCC Penalizes Unauthorized 214 Transfer and Contribution Failures

On December 5, 2011, the Federal Communications Commission (“FCC”) released a Notice of Apparent Liability for Forfeiture and Order (“NAL”) finding that Kajeet, Inc. (“Kajeet”) and its wholly-owned subsidiary, Kajeet/Airlink, LLC (“Kajeet/Airlink”), had apparently violated the FCC’s rules by failing to meet Universal Service Fund (“USF”), Telecommunications Relay Service (“TRS”) Fund, and Local Number Portability (“LNP”) contribution requirements.  Kajeet/Airlink was also found to have completed a transaction involving an unauthorized assignment of an international Section 214 authorization.  The FCC assessed a total proposed penalty of $460,186 against Kajeet and a total proposed penalty of $502,642 for Kajeet/Airlink.

Contribution Failures

The FCC found that Kajeet had failed to pay, or only partially paid, monthly USF invoices from May 2009 through June 2011.  Likewise, Kajeet/Airlink was found to have failed to make required monthly USF invoice payments for the months August 2010 through May 2011.  Monthly USF invoice amounts are determined by the revenue reported on Quarterly Telecommunications Reporting Worksheet (“499-Q”), which providers of telecommunications services are required to complete and submit (if not qualifying for the “de minimis” exemption).

In addition, both Kajeet and Kajeet/Airlink were also determined to have failed to make required TRS Fund contributions in 2010.  Providers are required to make TRS contributions annually and the FCC found that the companies had “willfully and repeatedly” failed to make such contributions in 2010.

The companies were also required to contribute to the LNP cost recovery mechanism, and were found by the FCC to have failed to make such contributions in full or on time.  Kajeet had failed to make any payments towards its 2010 or 2011 LNP obligations.  Kajeet/Airlink made late payment on its 2010 obligations and did not make payment towards its 2011 LNP obligations.

International Section 214 Violations

Section 214 of the Communications Act of 1934, as amended, and Section 63.24 of the FCC’s rules require any assignment of an international Section 214 authorization to receive prior approval before completion of such a transaction.  The FCC found that Kajeet/Airlink had apparently violated these rules.  Companies with Section 214 authorization must also keep the FCC updated as to any substantial changes in ownership or other changes in the regulatory status of the license.

Proposed Forfeitures

For failures to make required monthly USF contributions, the FCC has established a base forfeiture amount of $10,000 for each month that a company fails to fully meet its contribution requirement and $20,000 for each month that a company fails to make even partial payment towards the USF invoice.  In addition to these penalties, the FCC may assess an upward adjustment of one-half of the total unpaid USF contributions.  Using these base forfeitures, the FCC found Kajeet liable for $426,966 and Kajeet/Airlink liable for $455,185 for the companies’ “apparent willfully and repeated failures to contribute fully and timely to the USF.”

The FCC’s general base forfeiture for failures to make TRS contributions is $10,000 and also includes an upward adjustment of one-half the unpaid contributions.  The FCC used these base forfeitures to find Kajeet liable for $13,220 and Kajeet/Airlink liable for $11,457 for the companies’ contribution failures with respect to the TRS Fund.

Failing to make LNP contributions brings a base forfeiture of $10,000.  Due to the companies’ absent or late payment on their 2010 and 2011 LNP obligations, the FCC found both companies liable in the proposed amount of $20,000.

The FCC’s rules set the base forfeiture for failure to obtain prior approval before completing the assignment of a Section 214 authorization at $8,000, which may be adjusted upwards or downwards given aggravating and mitigating circumstances.  Taking into consideration that it took the company two years to file corrective forms, the FCC determined that Kajeet/Airlink was liable for a proposed forfeiture of $16,000.

The large forfeitures levied against these telecommunications providers should serve as a warning for telecommunications providers of all types of the need to ensure compliance with USF and other federal contribution obligations.  This NAL should also serve as a reminder for companies that hold international Section 214 authorization of their obligation to receive prior approval before completing any transactions involving a substantial assignment of the Section 214 authorization.