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FCC Fine Is Another Knock on AT&T

Reseller improperly received info from telco that helped it rig bids, regulator says 11/14/2016 8:00 AM Eastern
TakeAway

AT&T’s association with a fine for “apparent” egregious violations of the Universal Service Fund Rural Health Care program is another knock on the telco as it seeks approval for its merger with Time Warner Inc.

WASHINGTON — The Federal Communications Commission said it plans to fine Reno, Nev.-based telecom services reseller Network Services Solutions and its top executive $21.7 million for “apparent” egregious violations of the Universal Service Fund Rural Health Care (RHC) program.

 

The firm was reselling primarily AT&T services, and the Notice of Apparent Liability asserts that NSS improperly received information from AT&T and others that allowed it to rig bids in its favor (the complaint did not say how that data was obtained). Neither AT&T nor any of the other resellers was a target of the complaint.

 

Still, that invocation of AT&T sharing competitive information comes only days after the Justice Department filed suit against DirecTV and AT&T for sharing information with competitors in negotiations over SportsNet LA, the regional sports network owned by Major League Baseball’s Los Angeles Dodgers and managed by Charter Communications.

 

Both actions have come to light as AT&T attempts to gain approval for its $107.8 billion deal for media giant Time Warner Inc.

 

The alleged violations by NSS occurred nationwide but were primarily concentrated in the Southeastern states, with AT&T’s services the primary ones being resold.

 

Under the heading “NSS’s Use of Confidential and/or proprietary information from AT&T and others to gain competitive advantage,” the NAL said: “NSS improperly received confidential and proprietary information belonging to NSS’s potential competitors and others, which it relied upon prior to and during the competitive bidding process,” the Notice of Apparent Liability alleged, adding, “As an apparent result of NSS’s utilization of confidential and proprietary bidding information belonging to others, it secured an unfair advantage during the competitive bidding process and was consequently improperly awarded contracts.”

 

The FCC said “NSS and its representatives used the company’s unique relationship with AT&T AM-1 [an account manager focused on healthcare] to cultivate relationships with HCPs that allowed NSS to charge markedly inflated rural rates and earn the trust of HCP (health-care provider) employees to do so.”

 

An FCC source on background explained the AT&T relationship. AT&T is the underlying service provider for many of the contracts at issue in the NAL. NSS and its sales agents from the regional sales companies maintained a relationship with an AT&T account manager, which the AT&T account manager described in an email as a “partnership.”

 

The FCC investigation revealed a scheme to use that relationship to improperly obtain RHC Program contracts and rebill those contracts to the USF at substantial markups. In return, the AT&T account manager boosted sales revenues for AT&T.

 

AT&T also sold telecom services to NSS through its wholesale divisions, which NSS then resold to HCPs at markups of up to 600%.

 

The Notice of Apparent Liability was adopted by the FCC, with Republican commissioners Ajit Pai and Michael O’Rielly dissenting in part.

 

UNUSUAL USF CONNECTIONS

 

It would be the first time the FCC has proposed a fine for wire fraud involving the Universal Service Fund, which is a government subsidy for telecommunications services to low-income and hard-to-reach areas. It is also the first enforcement action involving the RHC.

 

The RHC program funds telecom and broadband service for rural healthcare providers where such service is more expensive. Service providers get USF payments based on the difference between rural rates and the lower rate for urban service in the closest city with 50,000 or more people.

 

The FCC said the company used forged documents — including forged Comcast urban rate documents — to get at least $3.5 million from the program, a violation of the federal wire fraud statute. The agency said it expects to order the company to refund the improper payments.

 

“Forgery, bribery, bid-rigging and fraud are absolutely unacceptable in any federal program,” FCC Enforcement Bureau chief Travis LeBlanc said in announcing the planned fine. “Today, the commission calls on Network Services Solutions and its CEO to account for any misuse of federal funds in this vital program that assists rural communities with access to critical services for health care.”

 

AT&T had no comment at press time.

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