Editor's note: This piece was co-authored by David Safavian.
Uncle Sam needs contractors. When more companies bid for government business, the taxpayers get lower prices and better service. The converse is also true. When interest from contractors ebbs, there is less competition and higher costs generally result.
Federal Communications Commission Chairman Brendan Carr inherited an agency so focused on punishing companies within its purview that contractors have to weigh whether the risk is worth the reward. This overzealous approach to enforcement started during the Obama era and grew even more pernicious during Biden’s term.
Americans expect that companies doing business with the government follow all rules, regulations and laws. Indeed, when contractors fail to do what they promise, serious consequences can arise, ranging from minor sanctions to fines and even criminal charges. The problem is that the FCC in particular seems bent on imposing the maximum penalties for even technical or inadvertent errors.
The FCC’s Universal Service Fund (USF) is a perfect example. The USF uses subsidies and other mechanisms to expand access to telecommunications services for unserved Americans. Government contractors are critical to the USF’s success, but the program’s complexity makes it easy for the FCC’s enforcement team to find instances of technical noncompliance.
No one is saying we need to ignore these “foot faults.” But the FCC’s enforcement decisions seem calculated to generate splashy headlines, even for those companies that have made relatively minor errors and mistakes not of their own doing. The resulting monetary penalties – and in some cases, criminal charges – have legitimate companies wondering whether program participation is worth the risk.
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Criticism of the FCC’s enforcement procedures has come from all corners. Commissioner Nathan Simington recently published an op-ed that casts doubt on the foundational underpinnings of the agency’s enforcement regime. A federal appeals court recently found the Commission’s approach to enforcement unconstitutional.
Ehoing that finding, a recent Petition for Rulemaking supported by almost every large telecom trade group highlights a laundry list of other problems, including resolving gaping holes in fair notice, consistency and accountability, among others. Most damning is the petition’s characterization of the FCC as “investigator, prosecutor, judge, and jury, with no meaningful recourse.”
To put the USF enforcement problem into perspective, one only has to examine the so-called “Lifeline” service. Lifeline provides basic mobile service, and in many instances a phone, at no cost to low-income consumers.
USF contractors – essentially middlemen who connect people to providers – are compensated for each qualified person who signs up for Lifeline service. The FCC’s Universal Service Administrative Company (USAC) compares the contractors’ bills with other records and data to ensure compliance with the program’s labyrinth of rules.
The guidance and calculations by USAC auditors are anything but clear. More problematic, however, is that Lifeline program contractors rely on the accuracy of customer data from outside sources to meet with USAC compliance and audit requirements. When the data doesn’t match up, enforcement proceedings begin.
There are lots of reasons for bad or inconsistent data. Was an individual’s application for Lifeline service approved but never actually turned on? Was the service turned on at 11:59 p.m. on a Monday or 12:01 a.m. on a Tuesday? Was the billing data unintentionally erroneous? Or was information lost or rendered incomplete following a merger or acquisition?
In each of these cases, the Lifeline program contractor could be charged with civil or criminal fraud if a contractor’s invoice fails to match data used by USAC auditors.
During the Obama and Biden administrations, the FCC and the Department of Justice leaned into this mess to play a game of “gotcha” and get good headlines. But well-meaning USF contractors have been caught up in aggressive audits, investigations, fines and prosecutions — and others have taken notice.
Companies working with the FCC, as well as those hoping to, face a stark choice: Do business with the Commission and risk getting caught up in the quicksand of enforcement, or steer clear of FCC programs altogether.
None of this is the fault of current Chairman Carr, who inherited this problem. But it is time to clean up the mess.
The FCC needs to recalibrate its accountability measures to ensure that every investigation is fair and allows for due process. And for those who are found to be non-compliant, penalties must be proportionate.
Until the process is fixed, however, past enforcement actions initiated by the FCC and the Justice Department should be viewed with a highly skeptical eye.
Michael O’Reilly is a former FCC Commissioner appointed by President Donald Trump. David Safavian is the former Administrator for Federal Procurement Policy at the Office of Management and Budget appointed by President George W. Bush.
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