Investment Fraud using
FCC Licenses for Radio Frequencies
History
In recent years, the reallocation of the telecommunications airwaves
by the Federal Communications Commission (FCC)
has resulted in a number of major federal lotteries and auctions
for new and largely untested technologies.
Given the media enhanced allure of the "information superhighway," promoters
of investment schemes were quick to realize that these "sexy" new
high-tech opportunities could be peddled to novice investors who
are unaware of the enormous risks and uncertainties involved.
The Pitch
Potential investors are solicited to purchase an interest ina
general partnership, limited liability partnership or corporation
that will participate in an upcoming FCC auction.
You are told that the federal government has set aside licenses
for small businesses, that licensees will see quick and significant
revenues from system operations, orthat major telecommunications
firms will eventually pay millions of dollars to buy the licenses
from you. They will make comparisons to the profits earned by investors
in cellular or other FCC licenses.
They deceptively portray that mere ownership of FCC licenses
or communications businesses are golden opportunities to participate
in the industry without substantial capital or business experience.
These FCC-licensed partnership brokers may also
tell you they're raising capital to acquire a communications business
that can be enhanced with new technology and turned into a competitive
high-tech enterprise to be sold or developed for huge profits.
They say you can make a lot of money with little financial risk
just by "owning airwaves" — without even developing
communications systems.
Turning Air into Money or Money into Air?
A broker has you considering investing in a license for a wireless
telecommunications service.
They say that the owner of a Specialized Mobile Radio license,
obtained by using their services, will be able to easily and profitably
lease the license to another party, (called a "systems operator") who
will provide all the equipment and funds necessary to make the
system operational at no cost to you, the license holder.
They also say that the SMR license they
will obtain for you is as valuable as a cellular phone license;
will provide service comparable to, or better than, that currently
available to cellular phone users; that an investment in
their partnership is an excellent investment likely to yield over
$2,520 per year in income per unit at a cost of only $8,750 each;
and that many investors have purchased more than one unit.
"Specialized mobile radio is used as an alternative to
cell phones but it costs the end- user 30-50% less to make calls. They're
also going to be able to do a lot of things that they can't do
with cellphones."
"We're only applying in areas where there is already a
systems operator who has his tower up and operating and who's
looking for more licenses."
"They're going to want y our license. They're going to
throw bushel baskets of money at you, and the great thing is,
you own and control your own license 100%."
"See, one of the things that makes this such an attractive
opportunity is that by law, in any new licensing area you can't
own more than one channel until the licenses have been awarded.
You can only own that one channel."
"In order for them to use your channel and the system,
they have to pay you. That is your air wave. You own it. You
can sell it down the road if you want. The government can't take
it away from you . . . . It's yours forever."
"We not only fill out the applications for you, we ensure
that you'll make money."
"If you want to determine what you're making, you divide
$8,750, which would be the unit purchasing price, into $2,520,
the annual dividend, and you'd get 28% profit. . . . So, when
you're getting 3 or 4% in that bank or CD, and
you could get 28% return on your money, that would be outstanding,
wouldn't it?"
Contrary to their assertions, some individuals and entities own
licenses for more than one hundred SMR channels
in one geographical area. A current holder may apply for
and receive permission to use additional SMR frequencies,
such as those offered, directly from the FCC and
need not ever lease them from other license holders.
Most of the SMR licenses for which they
are applying are not even that valuable and are not likely to be
worth anywhere near what they say. A person may obtain an SMR license,
like those promoted, on their own, directly from the FCC for
approximately $200.
Because the technological capabilities of these systems are inferior
to the capabilities of current cellular systems in several important
respects, it is highly unlikely that they will be able to compete
successfully with existing providers of cellular phone services.
The Reality
Typically, the promoters of these investments take most of the
money for their own profits and expenses, leaving investors with
little capital to participate in the auctions. If a license is
acquired, it requires millions of dollars more to have even a slim
chance of turning a profit. The technology promised may also be
unavailable, unworkable or too costly.
You may also be encouraged topurchase licenses, through
the promoter, from a private party who has acquired them at auction.
The auction prices of the licenses are not disclosed to you, allowing
the promoters to reap a huge profit on the resale of the licenses
to the investor group. For example, a license won at auction for
$500,000 may be sold to a group of unwitting investors a few months
later for $5 million. Promoters may also sell unlimited partial
interests in a license to increase their profits.
Mere ownership of an FCC license does not
guarantee success in the marketplace. An FCC auction
represents an opportunity to become an FCC licensee
who must, in turn, develop a communications system to make the
license valuable while complying with FCC rules.
An FCC license is simply permission to use
radio airwaves to provide communications services and is subject
to certain conditions and regulations.
License Application Services often charge
consumers thousands of dollars to apply for FCC licenses.
They say that legitimate communications companies will lease or
buy your licenses, even though such a market rarely exists.
Partnerships and Limited Liability Companies
(LLCs), also have been formed, supposedly to raise capital to develop
communications systems for wireless cable, interactive video, or
mobile phone services. After most of the money raised goes to the
scammers' profit and marketing expenses consumers are left in need
of substantial additional capital to operate the business and provide
the types of services promoted such as:
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Paging -
They claim that paging companies will lease paging licenses
from you to provide lucrative, two-way paging services to
the public when, in fact, no such leases are likely. |
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Specialized
Mobile Radio (SMR) - They describe these licenses as
frequencies that can be developed to compete with cell
phone companies, but the blocks they are promoting are
incapable of accommodating enough telephone traffic to
allow such competition. |
|
Wireless
Cable. Investors — who typically receive frequencies
of little value and questionable capacity to provide competitive
cable services — would have to spend millions more
developing cable systems to compete against established
wired-cable operators and satellite TV broadcasters. |
|
Interactive
Video and Data Service (IVDS) Scam artists raise funds
from investors to bid for licenses and develop IVDS systems,
touting services IVDS can't perform,
such as "movies on demand." They leave investors
with little or no capital to develop a system or complete
the payments to the FCC for the licenses
they were to receive. |
As new radio frequencies are licensed, such as for Personal Communication
Services (PCS), these scams are likely to continue. It is important
to understand the risks involved in such investments and the obligations
you would have as a license holder.
You may be required to spend more money to comply with FCC rules
as big communications companies are competing with you, applying
for their own licenses and developing their own systems.
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Be
cautious of investment promotions comparing your potential
investment to those made by well-known businesses and individuals.
These investors generally achieved their gains by investing
thousands, if not millions, of dollars developing communications
business over decades, not by giving their money to telemarketers. |
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Be
wary of claims that you can apply for a license and let other
companies buy, lease, and develop it. In almost all instances,
the FCC prohibits the acquisition of
licenses for speculation or profitable resale. Moreover,
in all instances the FCC requires the
license holder to construct an appropriate communications
system for the license, usually within one year. |
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Beware
of telemarketers who emphasize the "bells and whistles" of
cutting-edge technology. Fraudulent FCC-application preparers
often falsely describe one-way, shared paging licenses as
two-way paging and mobile phone service frequencies. |
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