Federal Communications Commission DA 11-1536 Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of VERMONT TELEPHONE COMPANY, INC. Participant in Auction No. 86 ) ) ) ) ) File No.: EB-11-IH-0734 NAL/Acct. No.: 201232080004 FRN: 0005209374 NOTICE OF APPARENT LIABILITY FOR FORFEITURE Adopted: October 14, 2011 Released: October 14, 2011 By the Chief, Enforcement Bureau: I. INTRODUCTION 1. In this Notice of Apparent Liability for Forfeiture (“NAL”), we find that Vermont Telephone Company, Inc. (“VTel”), apparently violated sections 1.17 and 1.65 of the Commission’s rules (“Rules”)1 by willfully and repeatedly failing to submit accurate revenue information to the Commission and by failing to maintain the continuing accuracy of its application in connection with its participation in Auction No. 86.2 Based on our review of the facts and circumstances surrounding this matter, and for the reasons discussed below, we find that VTel is apparently liable for a forfeiture in the total amount of $34,000.3 II. BACKGROUND 2. In Auction No. 86, a bidder whose attributable average annual gross revenues for the preceding three years exceeded $15 million, but did not exceed $40 million, was designated as a “small business” and entitled to receive a 15 percent discount on its winning bid(s).4 Pursuant to section 1.2110 of the Rules, an applicant claiming status as a small business entity in Auction No. 86 was required to disclose, for each of the three years preceding the auction, the gross revenues of each of the following entities: (1) the applicant, (2) its affiliates, (3) its controlling interests, (4) the affiliates of its controlling 1 47 C.F.R. §§ 1.17, 1.65. 2 The spectrum associated with licenses auctioned in Auction No. 86 was previously allocated and made available under the Multipoint Distribution Services (“MDS”) and Multichannel Multipoint Distribution Service (“MMDS”), the predecessor services to Broadband Radio Service (“BRS”). The licenses offered in Auction No. 86 consisted of the available spectrum in 78 BRS service areas. BRS service areas are BTAs or additional service areas similar to BTAs adopted by the Commission. See Auction of Broadband Service (BRS) Licenses Scheduled for October 27, 2009, AU Docket No. 09-56 Notice and Filing Requirement, Minimum Up Front Payment, and Other Procedure for Auction 86, Public Notice, 24 FCC Rcd 8277 (WTB 2009) (Auction No. 86 June 26, 2009 Public Notice). 3 We note that VTel has now fully disclosed all information required under our rules; as a result, this Notice of Apparent Liability addresses VTel's initial failures to timely submit complete and accurate information. 4 See 47 C.F.R. §§ 1.2110(f)(2)(iii), 27.1218; Auction No. 86 June 26, 2009 Public Notice, 24 FCC Rcd at 8296. Federal Communications Commission DA 11-1536 2 interests, and (5) the entities with which it has an attributable material relationship.5 Successful small business auction participants were required to provide the required detailed financial information after the auction closed. 3. VTel is a family-owned telephone company that began serving rural Vermont in 1890.6 According to its website, VTel is “one of the largest owners of FCC wireless licenses in Vermont, New Hampshire, and Upstate New York.”7 On August 17, 2009, VTel filed an application on FCC Form 175 (commonly referred to as a pre-auction “short-form” application) to participate in Auction No. 86.8 Therein, VTel claimed status as a small business entity and sought a 15 percent bidding credit on any licenses for which it was the high bidder.9 Auction No. 86 was held from October 27, 2009 to October 30, 2009. VTel was a successful bidder for three BRS licenses.10 4. On November 20, 2009, VTel filed its post-auction “long-form” application on FCC Form 601.11 In VTel’s Ownership Report, J. Michel Guite was identified as an officer, director, and an owner of VTel.12 The Ownership Report also identified Walter Hewlett as one of VTel’s controlling interest holders based on his status as an individual major shareholder of the company and his role as Trustee of the Guite Family Trust, another major shareholder in VTel.13 In its long-form application, as initially filed, VTel represented that Walter Hewlett had no gross revenues for each of the three years preceding the auction (2006, 2007, and 2008). Thereafter, staff from the Wireless Telecommunications Bureau (“WTB”), the bureau responsible for processing VTel’s auction-related filings, contacted VTel and inquired further about its ownership structure. In response, VTel twice amended its long-form application – on February 18 and April 23, 2010 – each time affirmatively representing Walter Hewlett’s gross revenues as zero.14 5. While processing VTel’s application materials, WTB staff asked VTel whether Walter Hewlett was related in any way to the Hewletts of the Hewlett-Packard Corporation family. VTel’s counsel at the time confirmed that Mr. Hewlett was so related. Given that the Hewlett-Packard 5 47 C.F.R. §§ 1.2110(b)(1)(i), 1.2110(b)(3)(iv)(B). See also Order on Reconsideration of the Third Report and Order, Fifth Report and Order, and Fourth Further Notice of Proposed Rule Making, FCC 00-274, 15 FCC Rcd 15,293, 15323-27 (2000) (modified by Erratum, DA 00-2475, 15 FCC Rcd 24,501). 6 See http://www.vermontel.com/about. 7 Id. 8 See Form 175, File No. 0003937211 (filed Aug. 17, 2009). 9 Id. 10 See http://wireless.fcc.gov/services/index.htm?job=service_home&id=ebs_brs (“BRS formerly known as the Multipoint Distribution Service (MDS)/Multichannel Multipoint Distribution Service (MMDS), is a commercial service. In the past, it was generally used for the transmission of data and video programming to subscribers using high-powered systems, also known as wireless cable. However, over the years, the uses have evolved to include digital two-way systems capable of providing high-speed, high-capacity broadband service, including two-way Internet service via cellularized communication systems. Such services provide consumers integrated access to voice, high-speed data, video-on-demand, and interactive delivery services from a wireless device.”). 11 See Form 601, File No. 0004040603 (filed Nov. 20, 2009). 12 See Form 602, File No. 0003937211 (filed Mar. 31, 2009). 13 See id. VTel submitted an additional Ownership Report after the close of Auction No. 86. See Form 602, File No. 0004129864 (filed Feb. 18, 2010). 14 See Amended Form 601, File No. 0004040603 (filed Feb. 18, 2010); Amended Form 601, File No. 0004040603 (filed Apr. 23, 2010). Federal Communications Commission DA 11-1536 3 Corporation is a large, multi-national company with considerable revenues, WTB staff requested that VTel verify the extent of Mr. Hewlett’s revenues during the relevant three-year period. On August 9, 2010, VTel filed a third amendment to its long-form application, disclosing for the first time to the Commission that Mr. Hewlett’s had substantial gross revenues for each of the three relevant years.15 6. The disclosure of Mr. Hewlett’s revenues during the relevant three-year period did not adversely affect VTel’s entitlement to a small business bidding credit.16 Accordingly, on May 19, 2011, WTB granted VTel’s long-form application, as amended. 17 WTB then referred the matter of VTel’s conduct in Auction No. 86 to the Enforcement Bureau (“EB”) for investigation. On May 26, 2011, EB commenced an investigation by sending a letter of inquiry (“LOI”) to VTel requesting information and documents about Mr. Hewlett’s gross revenues.18 VTel filed its response on June 27, 2011.19 III. DISCUSSION 7. Under section 503(b)(1) of the Act, any person who is determined by the Commission to have willfully or repeatedly failed to comply with any provision of the Act or any rule, regulation, or order issued by the Commission shall be liable to the United States for a forfeiture penalty.20 Section 312(f)(1) of the Act defines willful as “the conscious and deliberate commission or omission of [any] act, irrespective of any intent to violate” the law.21 The legislative history to section 312(f)(1) of the Act clarifies that this definition of willful applies to both sections 312 and 503(b) of the Act22 and the Commission has so interpreted the term in the section 503(b) context.23 The Commission may also assess a forfeiture for violations that are merely repeated, and not willful.24 “Repeated” means that the act was committed or omitted more than once, or lasts more than one day.25 To impose such a forfeiture penalty, 15 See Amended Form 601, File No. 0004040603 (filed Aug. 9, 2010). VTel subsequently amended its long form two more times and further refined Mr. Hewlett’s gross revenues for 2007 and 2008. 16 Once Mr. Hewlett’s gross revenues were included, VTel’s total average gross revenues were $28,369,000, $28,925,000 and $29,260,000 for 2006, 2007, and 2008, respectively. See Amended Form 601, File No. 0004040603 (filed Mar. 30, 2011). Thus, VTel’s average revenues for the reported years were $28,851,333.33, which was still under the $40,000,000 maximum to be eligible for the small business bidding credit. 17 See Wireless Telecommunications Bureau Grants Broadband Radio Service Licenses, Report No. AUC-86 (Auction 86), Public Notice, 26 FCC Rcd 6990 (WTB 2011). 18 See Letter from Gary Schonman, Special Counsel, Investigations & Hearings Division, Enforcement Bureau, FCC, to Dr. J. Michael Guite, Chairman, Vermont Telephone Company, Inc., dated May 26, 2011 (“LOI”). 19 See Letter from Bennett L. Ross, Esq., Wiley Rein, Counsel for Vermont Telephone Company, to Pam Slipakoff, Attorney Advisor, Investigations & Hearings Division, Enforcement Bureau, FCC, dated June 27, 2011 (“LOI Response”). 20 47 U.S.C. § 503(b)(1)(B); 47 C.F.R. § 1.80(a)(1); see also 47 U.S.C. § 503(b)(1)(D) (forfeitures for violation of 14 U.S.C. § 1464). 21 47 U.S.C. § 312(f)(1). 22 H.R. Rep. No. 97-765, 97th Cong. 2d Sess. 51 (1982). 23 See, e.g., Application for Review of Southern California Broadcasting Co., Memorandum Opinion and Order, 6 FCC Rcd 4387, 4388 (1991) (“Southern California Broadcasting Co.”). 24 See, e.g., Callais Cablevision, Inc., Grand Isle, Louisiana, Notice of Apparent Liability for Monetary Forfeiture, 16 FCC Rcd 1359, 1362, ¶ 10 (2001) (“Callais Cablevision”) (issuing a Notice of Apparent Liability for, inter alia, a cable television operator’s repeated signal leakage). 25 Southern California Broadcasting Co., 6 FCC Rcd at 4388, ¶ 5; Callais Cablevision, Inc., 16 FCC Rcd at 1362, ¶ 9. Federal Communications Commission DA 11-1536 4 the Commission must first issue a notice of apparent liability and the person against whom the notice has been issued must have an opportunity to show, in writing, why no such forfeiture penalty should be imposed.26 The Commission will then issue a forfeiture if it finds, based on the evidence, that the person has violated the Act, a Rule, or a Commission Order.27 8. Section 1.17 of the Rules states that no person may provide, in any written statement of fact, “material factual information that is incorrect or omit material information that is necessary to prevent any material factual statement that is made from being incorrect or misleading without a reasonable basis for believing that any such material factual statement is correct and not misleading.”28 In 2003, the Commission expanded the scope of section 1.17 of the Rules to include written statements that are made without a reasonable basis for believing the statement is correct and not misleading.29 At that time, the Commission explained that this requirement was intended to more clearly articulate the obligations of persons dealing with the Commission, ensure that they exercise due diligence in preparing written submissions, and enhance the effectiveness of the Commission’s enforcement efforts.30 Thus, even in the absence of an intent to deceive, a false statement provided without a reasonable basis for believing that the statement is correct and not misleading constitutes an actionable violation of section 1.17 of the Rules.31 9. In its LOI Response, VTel maintains that it had a reasonable basis for believing that Mr. Hewlett had no reportable gross revenues during the relevant three year period because it relied on advice of counsel.32 Specifically, VTel contends that it was advised by counsel that the FCC “was seeking information regarding relationships with other entities that may be guiding or directly or indirectly controlling VTel to determine if VTel was actually representing larger entities – e.g., AT&T, Comcast, a private equity or other investment fund, or a telecommunications manufacturer – in seeking a bidding credit in Auction No. 86.”33 VTel also argues that no unjust enrichment occurred because Mr. Hewlett’s revenues, even after they were disclosed, had no adverse impact on VTel’s entitlement to a small business bidding credit.34 These arguments lack merit. First, the Commission’s designated entity rules require applicants to disclose revenues from all sources, without qualification, during the relevant time frame.35 There are no qualitative exceptions of the kind on which VTel claims to have relied. Second, WTB issued a pre- and post-auction Public Notice for Auction No. 86 setting forth the information that 26 47 U.S.C. § 503(b); 47 C.F.R. § 1.80(f). 27 See, e.g., SBC Communications, Inc., Apparent Liability for Forfeiture, Forfeiture Order, 17 FCC Rcd 7589, 7591, ¶ 4 (2002) (forfeiture paid). 28 47 C.F.R. § 1.17(a)(2). 29 See Amendment of Section 1.17 of the Commission’s Rules Concerning Truthful Statements to the Commission, Report and Order, 18 FCC Rcd 4016, 4021 (2003), recon. denied, Memorandum Opinion and Order, 19 FCC Rcd 5790, further recon. denied, Memorandum Opinion and Order, 20 FCC Rcd 1250 (2004) (“Amendment of Section 1.17”). 30 Id. 31 See id. at 4017 (stating that the revision to Section 1.17 of the Rules is intended to “prohibit incorrect statements of omissions that are the results of negligence, as well as an intent to deceive”). 32 See LOI Response at 2. 33 Id. 34 See Id. at 1. 35 47 C.F.R. § 1.2110(b). Federal Communications Commission DA 11-1536 5 applicants were required to disclose in support of a claim of designated entity status.36 Thus, VTel had additional advance and ample notice, beyond the Commission’s rules, of the auction-related reporting requirements. Finally, VTel provided revenue information for Four Winds Farms, Inc. (Four Winds) in its initial long-form application.37 Four Winds’ average gross revenues for the reported three year time period was $5,900.38 In addition, it appears that Four Winds does not appear to have a relationship with the other entities identified on the VTel long-form application that may be guiding, or directly or indirectly controlling VTel. Therefore, it appears that VTel did not consistently apply the advice it says it received from its counsel. By having provided information about Four Winds, VTel essentially undermines its argument about the advice it received from counsel and its understanding of what our rules required. 10. As the Commission has stated, parties must “use due diligence in providing information that is correct and not misleading to the Commission, including taking appropriate affirmative steps to determine the truthfulness of what is being submitted.39 A failure to exercise such reasonable diligence would mean that the party did not have a reasonable basis for believing in the truthfulness of the information.”40 In this case, rather than failing to mention Mr. Hewlett at all, VTel repeatedly included Mr. Hewlett and listed his revenues as zero, even after several inquiries by WTB staff. The statements provided by VTel were false, and VTel had no reasonable basis for believing that the statements were correct and not misleading. We conclude, therefore, that VTel made these statements in apparent willful and repeated violation of section 1.17(a)(1) of the Commission’s Rules.41 11. In addition, section 1.65 of the Rules provides that “[e]ach applicant is responsible for the continuing accuracy and completeness of information furnished in a pending application or in Commission proceedings involving a pending application.”42 Section 1.65 also requires that applicants amend their applications within 30 days, unless good cause is shown, of any substantial change in information provided to the Commission.43 12. In the instant case, VTel failed to maintain the continuing accuracy of its pending long- form application, in apparent willful and repeated violation of section 1.65. VTel initially filed its long- form application in November 2009. In its long-form application, VTel affirmatively represented to the Commission that Mr. Hewlett had no gross revenues for each of the three relevant years.44 In addition, VTel subsequently filed two amendments to its long-form application in which it provided identical gross revenue information for Mr. Hewlett that was later revealed to be inaccurate.45 In fact, it was not until the 36 See Auction No. 86 June 26, 2009 Public Notice, 25 FCC Rcd 8277, 8297-99, 8323-24; Auction of Broadband Radio Service Licenses Closes Winning Bidder Announced for Auction 86, Public Notice, 24 FCC Rcd 13572, Attachment E (WTB 2009) 37 See Form 601, File No. 0004040603 (filed Nov. 20, 2009). 38 See id. 39 See Cricket Communications, Inc., Order and Notice of Apparent Liability for Forfeiture, 26 FCC Rcd 989, 991 (Enf. Bur 2011) (“Cricket Communications”) 40 Amendment of Section 1.17, 18 FCC Rcd at 4021; Cricket Communications, Inc., 26 FCC Rcd at 991. 41 47 C.F.R. 1.17(a)(1); See, e.g Cricket Communications, Inc., 26 FCC Rcd at 992. 42 47 C.F.R. § 1.65(a). 43 See 47 C.F.R. § 1.65. 44 See Form 601, File No. 0004040603 (filed Nov. 20, 2009). 45See Amended Form 601, File No. 0004040603 (filed Feb. 18, 2010); Amended Form 601, File No. 0004040603 (filed Apr. 23, 2010). Federal Communications Commission DA 11-1536 6 Commission staff questioned the veracity of the information because of Mr. Hewlett’s familial relations that VTel finally disclosed the extent of Mr. Hewlett’s gross revenues, almost a full year after the filing its long-form application. VTel was, at all relevant times, required under section 1.65 to maintain the accuracy of the information it provided to the Commission about the extent of Mr. Hewlett’s revenues, and EB’s investigation reveals that on no fewer than three separate and distinct occasions, VTel failed to do so in its long-form application.46 VTel’s derelictions in this matter are significant because the Commission relied on the information provided by VTel to assess the merits of the company’s claimed entitlement to a bidding credit.47 The fact that VTel remained qualified to receive the bidding credit after subsequently attributing Mr. Hewlett’s revenues to VTel is of no consequence to EB’s determination here that VTel apparently willfully and repeatedly violated section 1.65 of the Rules. Indeed, the relevant issue is that Mr. Hewlett’s revenues could have prevented VTel from obtaining a bidding credit, which in turn, could have impacted the Auction No. 86 results. Thus, the Commission was unable to determine both the actual amount owed by VTel, and whether VTel was still entitled to the small business bidding credit, until after Mr. Hewlett’s full income was disclosed. 13. In determining the amount of a forfeiture penalty, section 503(b)(2)(E) of the Act48 and section 1.80(a)(4) of the Rules direct the Commission to take into account “the nature, circumstances, extent, and gravity of the violation . . . and the degree of culpability, any history of prior offenses, ability to pay, and such other matters as justice may require.”49 Consistent with Commission precedent, we find that a base forfeiture in the amount of $25,000 is appropriate for VTel’s violation of section 1.17 of the Rules.50 In addition, the Commission’s Forfeiture Policy Statement and implementing Rules prescribe a base forfeiture of $3,000 for each failure to file required forms or information.51 Accordingly, we find that the base forfeiture of $3,000 is appropriate for each one of the three Form 601s that VTel submitted listing Mr. Hewlett’s gross revenues as zero. Therefore, we conclude that a proposed base forfeiture of $9,000 against VTel is warranted for VTel’s repeated failure to file required forms or information. Thus, based on the facts and circumstances presented, we conclude that a proposed forfeiture of $34,000 against VTel is warranted. 46 See Form 601, File No. 0004040603 (filed Nov. 20, 2009); Amended Form 601; Amended Form 601, File No. 0004040603 (filed Feb. 18, 2010); and Amended Form 601, File No. 0004040603 (filed Apr. 23, 2010). 47 The Commission's small business bidding credits are designed to enhance access to telecommunications services by encouraging broad participation in the provision of spectrum-based services and ensuring that spectrum-based services are available to a wide range of consumers. See Implementation of Section 309(j) of the Communications Act - Competitive Bidding, Second Report and Order, PP Docket No. 93-253, 9 FCC Rcd 2348, 2350 Para. 6 (1993). They also implement Congress' directive to "promot[e] economic opportunity and competition and ensur[e] that new and innovative technologies are readily available to the American people by avoiding excessive concentration of licenses and by disseminating licenses among a wide variety of applicants, including small businesses..." See 47 U.S.C. Sec. 309(j)(3)(B). 48 47 U.S.C. § 503(b)(2)(E). 49 47 C.F.R. § 1.80(a)(4). 50 See, e.g Cricket Communications, Inc., 26 FCC Rcd at 993-94 (proposing a $20,000 forfeiture for Cricket’s failure to file the correct construction date for station WQJE535. The proposed forfeiture reflects a downward adjustment from $25,000 as a result of Cricket’s voluntary disclosures to Commission staff); Cardinal Broadband LLC, Notice of Apparent Liability for Forfeiture, 23 FCC Rcd 12233 (Enf. Bur. 2008) (proposing a $25,000 forfeiture against an interconnected VoIP provider and common carrier for its violation of 1.17(a)(2) of the Commission’s Rules). 51 See 47 C.F.R. § 1.80; Forfeiture Policy Statement, 12 FCC Rcd 17087, 17113 (1997). Federal Communications Commission DA 11-1536 7 IV. ORDERING CLAUSES 14. Accordingly, IT IS ORDERED that, pursuant to section 503(b) of the Communications Act of 1934, as amended, 47 U.S.C. § 503(b), and section 1.80 of the Commission’s rules, 47 C.F.R. § 1.80, that Vermont Telephone Company, Inc. is hereby NOTIFIED of its APPARENT LIABILITY FOR A FORFEITURE in the amount of $34,000 for willfully and repeatedly violating sections 1.17 and 1.65 of the Commission’s Rules.52 15. IT IS FURTHER ORDERED THAT, pursuant to section 1.80 of the Commission’s Rules,53 within thirty days of the release date of this Notice of Apparent Liability for Forfeiture, VTel SHALL PAY the full amount of the proposed forfeiture or SHALL FILE a written statement seeking reduction or cancellation of the proposed forfeiture. 16. Payment of the forfeiture must be made by check or similar instrument, payable to the order of the Federal Communications Commission. The payment must include the NAL/Acct. No. and FRN referenced above. Payment by check or money order may be mailed to Federal Communications Commission, P.O. Box 979088, St. Louis, MO 63197-9000. Payment by overnight mail may be sent to U.S. Bank – Government Lockbox #979088, SL-MO-C2-GL, 1005 Convention Plaza, St. Louis, MO 63101. Payment by wire transfer may be made to ABA Number 021030004, receiving bank Federal Reserve Bank of New York, and account number 27000001. For payment by credit card, an FCC Form 159 (Remittance Advice) must be submitted. When completing the FCC Form 159, enter the NAL/Account number in block number 23A (call sign/other ID), and enter the letters “FORF” in block number 24A (payment type code). VTel will also send electronic notification within forty-eight (48) hours of the date said payment is made to Terry.Cavanaugh@fcc.gov, Gary.Schonman@fcc.gov and Pam.Slipakoff@fcc.gov. 17. The written statement seeking reduction or cancellation of the proposed forfeitures, if any, must include a detailed factual statement supported by appropriate documentation and affidavits pursuant to sections 1.80(f)(3) and 1.16 of the Commission’s rules.54 The written statement must be mailed to Theresa Z. Cavanaugh, Acting Chief, Investigations and Hearings Division, Enforcement Bureau, Federal Communications Commission, 445 12th Street, S.W., Room 4-C330, Washington, D.C. 20554 and must include the NAL/Acct. No. referenced above. The written statement should also be emailed to Terry Cavanaugh at Terry.Cavanaugh@fcc.gov, Gary Schonman at Gary.Schonman@fcc.gov and Pam Slipakoff at Pam.Slipakoff@fcc.gov. 18. The Commission will not consider reducing or canceling a forfeiture in response to a claim of inability to pay unless the petitioner submits: (1) federal tax returns for the most recent three- year period; (2) financial statements prepared according to generally accepted accounting practices (GAAP); or (3) some other reliable and objective documentation that accurately reflects the petitioner’s current financial status. Any claim of inability to pay must specifically identify the basis for the claim by reference to the financial documentation submitted. 19. Requests for payment of the full amount of this Notice of Apparent Liability for Forfeiture under an installment plan should be sent to: Chief Financial Officer -- Financial Operations, 52 See 47 C.F.R. §§ 1.17, 1.65(a). 53 See 47 C.F.R. § 1.1914. 54 See 47 C.F.R. §§ 1.80(f)(3), 1.16. Federal Communications Commission DA 11-1536 8 Federal Communications Commission, 445 12th Street, S.W., Room 1-A625, Washington, D.C. 20554.55 For answers to questions regarding payment procedures, please contact the Financial Operations Group Help Desk at 1-877-480-3201 or Email: ARINQUIRIES@fcc.gov. 20. IT IS FURTHER ORDERED that a copy of this Notice of Apparent Liability for Forfeiture shall be sent by certified mail, return receipt requested, to counsel for VTel: Bennett L. Ross, Esq., Wiley Rein LLP., 1776 K Street, N.W., Washington, D.C. 20006. FEDERAL COMMUNICATIONS COMMISSION P. Michele Ellison Chief, Enforcement Bureau 55 See 47 C.F.R. § 1.1914.