June 20, 2014

Hefty Fine for Industrial Facility That Failed To Renew FCC Licenses

Arnold & Porter Advisory

Factories, mines, refineries, mills, warehouses, and other commercial enterprises often use communications equipment that requires FCC licenses to operate lawfully. Walkie-talkies, dispatch radios, and security systems are examples of communication equipment that may require such FCC licenses. Failure to keep these FCC licenses in order can lead to harsh sanctions, as is illustrated by a recent FCC proposal to fine the owner of an aluminum rolling mill a total of US$294,400.

A Dutch-based aluminum producer called Constellium owns a rolling mill in Ravenswood, West Virginia. This is a substantial facility, which employs about 900 workers, and stretches across a 500-acre site. The mill owner holds Private Land Mobile Radio Service licenses that are used to “coordinate personnel and daily business activities.”

The mill owner made two mistakes in connection with its FCC licenses. First, the mill owner failed to renew the licenses on time. Even though the FCC sent “renewal reminder” notices three months in advance of the licenses’ expiration dates, the mill owner did not file timely renewal applications and continued to use the spectrum after the licenses expired. Second, the mill owner failed to obtain FCC approval for an internal reorganization. The transaction in question resulted in a hedge fund going from being a 51 percent shareholder of the mill owner to a 37 percent shareholder. The FCC regards transactions such as this, in which a party ceases to hold a majority interest in an FCC licensee, as a transfer of control of the FCC license, and FCC approval is required. The mill owner failed to obtain such approval.

The mill owner eventually realized its mistakes and self-reported these violations to the FCC.  A variety of explanations were offered: a series of ownership changes had led to administrative disruptions at the mill, new personnel at the mill were unfamiliar with FCC licensing requirements, and a bitter strike by most of the mill’s workers had been a major distraction. The mill owner observed, however, that its lapses were not intentional, and no harm had resulted from the violations: the failure to renew the licenses had not caused any interference with other authorized radio communications, and the change in the mill’s ownership structure had not allowed an unqualified party to use spectrum. The mill owner also noted that it had instituted procedures to assure that these mistakes would not be repeated.

The FCC was unmoved by these arguments, and proposed a forfeiture significantly above the base levels set forth in the FCC’s rules. The FCC noted that the mill owner is “a multi-billion dollar global enterprise,” and that “large or highly profitable companies should expect the assessment of higher forfeitures.” The FCC also noted the length of non-compliance – some radio facilities were used for two years without authorization, and the mill owner’s reorganization went unreported for ten months. Further aggravating the situation from the FCC’s perspective was the mill owner’s failure to cease using the spectrum immediately once violations were discovered. The FCC added that the fact that some of the radio facilities in question were used by the mill’s fire department, ambulance, and medical personnel was no excuse for continuing to use the spectrum without appropriate authorization.

The FCC’s decision is a reminder of the potential for serious sanctions for any FCC licensee that fails to comply with the terms of its licenses. Even inadvertent errors that result in no harm to third parties and are ultimately self-reported to the FCC can result in harsh sanctions. Moreover, the FCC can impose such sanctions not only on companies in the communications business – such as radio and television stations, telephone companies, satellite operators, and the like – but also on entities that hold FCC licenses that are ancillary to their principal business.


Scott Feira
Scott Feira
Senior Counsel
Washington, DC
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