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FCC Reaches $100 Million Settlement in 39 GHz Alleged Fraud

(Update: The headline was changed from “FCC Reaches $100 Million Settlement in 5G Fraud” to “FCC Reaches $100 Million Settlement in 39 GHz Alleged Fraud” to reflect that the spectrum band in question was designated for 5G development after the renewal process described herein took place. Possible further clarifications are noted with an asterisk*.)

WASHINGTON—The Federal Communications Commission reached a $100 million settlement with a Glen Allen, Va., company that failed to build out a 5G wireless service network according to the license conditions.

The FCC today said that it had reached the “settlement valued in excess of $100 million with Straight Path Communications to resolve an investigation of Straight Path’s failure to deploy wireless services as required under its FCC spectrum licenses.”

According to the Jan. 12, 2017 Order, Straight Path has licenses in the 28 and 39 GHz bands, which the commission designated for 5G services last summer. (SeeFCC Opens Higher Frequencies to Phone Companies,” July 14, 2016.) The Order described how Straight Path obtained its 39 MHz licenses under “fraudulent circumstances,” according to a November 2015 whistleblower report alleging that the previous licensee falsified the build-out requirements necessary for license renewal.

Straight Path obtained the 39 GHz licenses in 2013 and 2014 via transfer from IDT Spectrum LLC, a subsidiary of Newark, N.J.-based IDT Corp. The whistleblower report, from pseudonymous§ “Sinclair Upton Research,” and posted at ValueWalk, said the former president of IDT Spectrum gamed the renewal process by temporarily building out a 5G network in the Bay Area and using the paperwork as a template for as many as 472 other licenses up for renewal in 2012.

Licenses at 39 GHz have to be renewed every 10 years and must have “at least four links in license areas with less than 268,000 population, and at least one link per 67,000 population in license areas with greater population,” according to last July’s Spectrum Frontiers Order. That is, networks must be operational. *The Straight Path licenses were subject to earlier build-out requirements contained in 47 CFR 101.17 and 101.1011, which states that “all 38.6-40.0 GHz band licensees must demonstrate substantial service at the time of license renewal.”

Shareholders filed a class action suit soon after publication of the Sinclair report through Radnor, Pa., law firm, Kessler Topaz Meltzer & Check, LLP. The FCC stepped in with a Letter of Inquiry in September of 2016 directing Straight Path to investigate the allegations. In turn, Straight Path hired Philadelphia-based Morgan, Lewis & Bockius LLP to conduct an independent investigation that found “a significant amount of the equipment that had been installed in connection with the substantial service showings [was] no longer present at the original locations.”

Straight Path argued that since the commission had already renewed the 39 GHz licenses in question, they should not be discontinued. The company instead agreed to pay a $100 million civil penalty, or $15 million if the licenses are transferred within 12 months. *An FCC spokesman also noted that “they have to return to the FCC 196 licenses immediately, and they will pay the U.S. Treasury 20 percent of the proceeds from the sale of their other licenses. If they don’t sell within 12 months, they will have to pay the $85 million fine as well as the 20 percent of the proceeds – or return all their licenses to the commission.” These include 93 of its 39 GHz economic area licenses and all 103 of its 39 GHz rectangular service area licenses, according to the Order.*

Further details of the settlement as well as the list of affected licenses are enumerated in the Order.

*Straight Path Communications CEO Davidi Jonas issued the following statement regarding the settlement:

“We are pleased that we were able to achieve a comprehensive settlement with the FCC, which allows us to move forward as the largest holder of 39 GHz spectrum, with about 95 percent of the total licenses commercially available at this time, as well as a significant holder of 28 GHz in major markets, including New York and San Francisco. These licenses allow us to continue as a leader in the next frontier of telecommunications.

“Straight Path Communications’ spectrum is part of the bedrock for 5G and will play an important role in the development of this next-generation ecosystem, underscored by activities already underway by leading wireless carriers and equipment manufacturers in the U.S.

“Post-settlement, Straight Path Communications holds an average of 620 MHz in the top 30 U.S. markets and covers the entire nation with 39 GHz spectrum. Additionally, the company has retained all of its 28 GHz spectrum licenses.

“With this settlement, we have cleared the way for a review of strategic alternatives to maximize shareholder value. To represent us in our endeavors, we have retained Evercore, a premier independent investment banking advisory firm.

“We look forward to continuing our role in the important development and deployment of 5G technology. This includes accelerating the innovative hardware and software we are developing for Fixed 5G in our Gigabit Mobility Lab in Plano, Texas, under the guidance of our [chief technology officer] Jerry Pi, a renowned pioneer in millimeter wave 5G.”

The full statement is available here.

Addendum: Veteran public-interest advocate Harold Feld, senior vice president of D.C.-based Public Knowledge, issued the following statement with regard to today’s Order:

“Once again, FCC Enforcement Bureau Chief Travis LeBlanc has shown the value of vigorous enforcement of FCC rules. Those who hold exclusive licenses to use the public airwaves must be held accountable when they fail in their responsibilities to the public interest.

“Ironically, the wireless companies that have complained loudest about Chief LaBlanc’s vigorous enforcement of FCC rules will be among the chief beneficiaries of today’s action. The consent decree returns about a thousand licenses that the wireless industry needs to offer next-generation wireless (5G) service. It is an important reminder that everyone benefits when the FCC is serious about enforcing its rules, even if companies don’t particularly like it."

§ “Due to the danger of retaliation from the company and individuals involved, this report was written under a pseudonym, Sinclair Upton Research. People who commit fraud for millions of dollars are willing to do anything to keep their illegitimate gains,” the report said.