# Telecommunication Scams Using FCC Licenses

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- January 1996 -
*Fast Facts*- Fraudulent investments in high technology and Federal            Communications Commission (FCC) licenses are a fast            growing scam.
- If a company calls you touting the profits and            minimizing the risks of investing in communications            systems and licenses, hand up the phone.
- An FCC license is mere permission to use radio            spectrum (the airwaves) to provide communications            services. A license holder must develop a            communications system to make the license valuable            and comply with FCC rules.
- Fraudulent telemarketers often take most of the money            they solicit from consumers as profit and            commissions.

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## The Appearance of Legitimacy

Fraudulent investments in high technology and FCC licenseshave become one of the fastest growing scams of the 1990's,costing consumers hundreds of millions of dollars. Scam artiststell investors they can make a lot of money with little financialrisk just by "owning airwaves" -- without developingcommunications systems.

The FCC grants a variety of telecommunications licenses --permission to use radio frequencies --to individuals and entitieswho seek to provide telecommunications services to the public.With few exceptions, these licenses are available to everyone.

Scam artists have found a way to exploit public interest intelecommunications by marketing fraudulent investments in newtechnologies that often require FCC licenses. These fraudulenttelemarketers deceptively portray mere ownership of FCC licensesor communications businesses as golden opportunities toparticipate in the industry without substantial capital orbusiness experience.

**LICENSE APPLICATION SERVICES** often chargeconsumers thousands of dollars to apply for FCC licenses. In mostinstances, however, the actual license application process costsa fraction of what the services charge. Scam artists say thatlegitimate communications companies will lease or buy consumers'licenses, even though a market for such licenses rarely exists.Legitimate communications providers typically apply for licensesthemselves and acquire operational communication businesses --not bare licenses. Moreover, leasing or selling arrangements mayviolate FCC rules and lead to *loss of the license*.

Scam artists have repeated this pattern for numerous FCClicenses. *Do not invest in any of these licenses unless youare prepared to spend time and money developingtelecommunications systems:*

- Paging  refers to the transmission of        signals or messages along the 929, 931, and 454 MHz        broadcast bands, among others. Scam artists claim paging        companies will lease paging licenses from consumers to        provide lucrative, two-way paging services to the public.        In fact, no such leases are likely. Often, licensees have        frequencies that may allow only one-way paging or that        must be shared with other licensees. If licensees try to        develop their own systems, they may find themselves        facing stiff competition from established paging        companies.
- Specialized Mobile Radio (SMR)  refers to        dispatch services using the 220, 450, 800, and 900 MHz        broadcast bands. Scam artists describe these licenses as        frequencies that can be developed to compete with        cellular telephone companies. However, the single        channels and five-channel blocks fraudulent telemarketers        are promoting are incapable of accommodating enough        telephone traffic to allow such competition. Large SMR        providers are acquiring large, developed systems and        generally are not buying or leasing single-channel        licenses alone.
- Wireless Cable.  During the 1980's, the        FCC held lotteries for wireless cable licenses in        4-channel blocks. Scam artists charged thousands of        dollars for application services, falsely describing the        application process and the potential for competition        with cable television operators. Investors -- who        typically received frequencies of little value and        questionable capacity to provide competitive cable        services -- had to spend millions more developing cable        systems to compete against established wired-cable        operators and satellite TV broadcasters.

**PARTNERSHIPS, or LIMITED-LIABILITY COMPANIES (LLCs)**,also have been formed by scam artists, supposedly to raisecapital to develop communications systems for wireless cable,interactive video, or mobile phone services. In fact, most of themoney raised in these scams goes to the scammers' profit andmarketing expenses. Consumers are left in need of substantialadditional capital to operate the business and provide the typesof services promoted by fraudulent telemarketers:

- Interactive Video and Data Service (IVDS)         is licensed by FCC auction for a small amount of radio        spectrum to allow IVDS users to send data responses to        such interactive TV programming as ads, polls, and game        shows. 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."        These scammers leave consumers little capital to develop        an IVDS system or complete the payments to the FCC for        the licenses they were to receive.
- SMR Partnerships  are sold by fraudulent        telemarketers who claim to acquire groups of SMR licenses        or systems so investors can enhance them to provide        mobile phone services to compete with cellular telephone        systems. In fact, these telemarketers have pocketed        substantial amounts of investor money, leaving consumers        unable to afford the enhancements, which cost millions of        dollars more than the telemarketers promised. Moreover,        scam artists frequently don't acquire sufficient SMR        channels to compete with established mobile phone service        providers, who usually develop large numbers of channels        to attract subscribers.
- Fraudulent Wireless Cable  partnerships        also have been formed by scam artists, leaving consumers        with insufficient channels to provide cable service and        limited capital to operate a business.

As new radio frequencies are licensed, such as for **PersonalCommunication Services (PCS)**, these scams are likely tocontinue. It is important to understand the risks involved insuch investments, and the obligations you would have as a licenseholder. You may be required to spend more money to comply withFCC rules or recover your investment, while big communicationscompanies are competing with you, applying for their own licensesand developing their own systems.

## Avoiding Fraud

- Be suspicious of any telemarketer who refuses to        provide all representations in writing . This is        particularly true of profit projections or estimates of        how much money you have to invest before you receive a        return on your investment. Be particularly suspicious of        any oral representations that conflict with written        materials. Scam artists often refuse to provide        representations in writing because they do not want to        leave evidence that they have lied.
- Be skeptical about any unsolicited phone calls about        investments.  Think twice before you buy investments        from salespeople you do not know. Remember that an        unsolicited call can be made from any locale, including a        jail cell.
- Be suspicious of sales pitches that downplay risk or        portray written risk disclosures as routine formalities        required by the government.  If risk disclosures tell        you that you could lose your whole investment, believe        them! If you are spending thousands of dollars over the        phone, be prepared to lose your money.
- Be suspicious of promotional materials or        telemarketers that  **do not**         tell you about investment risks.  No potential        high-profit investment is low-risk.
- Do not be impressed by a smooth sales pitch or        descriptions of high technology riches.  Scam artists        spend years going from fraud to fraud. Their years of        sales experience make them clever liars. They have an        answer for everything -- often because they have scripts        designed to hide the truth. If a promotion promises high        profits and low risk,  hang up the phone .
- 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,  not  by giving their money to        telemarketers.
- 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 -- whether the license        is for television, cable, video, mobile phone, or paging        transmission -- the FCC requires  the license        holder  to construct an appropriate        communications system for the license, usually within one        year.
- Beware of telemarketers who emphasize the "bells        and whistles" of cutting-edge technology .        Fraudulent FCC-application preparers falsely describe        one-way, shared paging licenses as two-way paging and        mobile phone service frequencies. Fraudulent IVDS        promoters use "movies-on-demand" hype to sell        licenses that allow transmission of small amounts of        data. First, an undeveloped license provides no services        without substantial capital investment. Second, many        systems and licenses marketed to investors on the        telephone will not be able provide the services that make        the opportunity seem attractive.
- Beware of promoters who say it is urgent to invest .        If investments are truly fast and furious, savvy        entrepreneurs already will have captured them.        Salespeople who need to call unknown investors over the        phone ("cold calls") are not likely to be        pitching high-quality investments. Once you send your        money to a fraudulent operation, it may be gone forever.
- Do not trust any representations that well-known        telecommunications companies will develop systems for        your license or buy your license from you for a profit .        Talk to representatives of the companies to gauge their        interest in acquiring your license before you invest.
- Ask how much of the investment is going to        "profit," "commissions,"        "broker's fees," or "marketing        costs."  Fraudulent FCC application services        usually charge thousands of dollars for applications that        cost hundreds of dollars. Fraudulent promoters of        partnerships and LLCs leave consumers with little working        capital and minimal assets for the millions they        supposedly raise. The worth of most communications        investments can be measured in how much money is spent on        developing or acquiring communications systems, not on        telemarketers. The more money that goes to sales expenses        and costs, the greater the risk and the lower your        return.
- Do not be fooled by slick promotional materials,        high-profile addresses (like Wall Street), or 1-800        telephone numbers.  Anyone can produce brochures at a        local copy center, buy a toll-free number, and rent a        mailbox at a prestigious address.
- Demand proof for profit claims.  Legitimate        telemarketers have a basis for their projections. Ask for        published data to back up all claims. Be wary of general        statements that the industry is profitable. You must be        certain that the actual license or system you will        acquire will be profitable. Disregard projections        qualified as company opinions.
- Determine how much money you will have to spend to        obtain a return on your investment . Keep in mind        that developing advanced communications systems can cost        millions of dollars. Fraudulent telemarketers may tell        you the cost of high-technology is dropping to prices you        or your partnership can afford, but they may be        describing rudimentary systems, not those capable of        providing the advanced services they're pitching.
- Remember that the communications industry is highly        competitive . In most areas, companies with        substantial capital compete to provide communications        services. As a license holder or share holder in a        partnership or company holding a license, you may have to        compete with these companies to recover your investment.
- Talk to someone at the FCC about the status of the        license application process . Wireless cable        applications were frozen in April 1992. IVDS auctions        were completed for most of the top markets in July 1994,        and auctions for the remaining licenses have not yet been        scheduled. As of October 1995, the FCC was no longer        accepting direct applications for 800 and 900 MHz SMR        licenses.
- Consult someone whose financial advice you trust -- a        banker, a lawyer, or an accountant . A registered        securities broker also may give you insight into        investing in high-tech industries.
- Find out if complaints have been registered against        the company with your state Attorney General .        Remember that scam artists often change names and        locations. Just because there are no complaints on file        does not mean a business is trustworthy. New -- or        re-named -- frauds simply have no record of wrongdoing.

## Preparing for Retirement?

- Protect your retirement funds . Many scam artists        may tell you their investments have been approved for the        use of Individual Retirement Account Funds. There is no        formal, governmental approval process for certifying the        appropriateness of funds for IRA status. Consult a tax        advisor or attorney before using IRA funds as investments        in a profit-making enterprise. Your investment decision        may have tax consequences.
- Be cautious about promised income streams . Scam        artists exploit consumers' concerns about having income        after retirement. Profits in telecommunications often are        long-term at best and usually require spending thousands,        if not millions, of dollars on communications systems        development, not license acquisition.

## If You Have Invested

- Y ou may be targeted by companies who claim they can        recover your investment or market your license through        their broker service . Be skeptical of any company        that charges an up-front fee. These companies may be        violating federal regulations. License brokers may pocket        the up-front fee and do nothing to market your license.
- Even law enforcement officials cannot guarantee that        they'll recover your money . The law holds you        responsible for the development of communications systems        for your license. Remember, there may be no market for        your license, partnership, or LLC share. Until you        construct a system for the license, arrangements to sell        or lease your license may violate FCC rules and cause you        to lose your license entirely.
- File a complaint if you have been defrauded .        Even sophisticated investors get scammed. Law enforcement        cannot work effectively if injured parties do not come        forward. The government does not charge you to file a        complaint and has cost-free ways to report your        experiences.

The National Fraud Information Center maintains a toll-freeConsumer Assistance Service, 1-800-876-7060, to offer informationabout how and where to report fraud and help in filingcomplaints. You also may file complaints with the Federal TradeCommission, Room 200, Washington, D.C. 20580, the Securities andExchange Commission, Division of Enforcement, Washington, D.C.20549, your state Attorney General or Securities Division. Formore information on a particular type of FCC license, call theFederal Communications Commission at 202-418-0569.

The Federal Trade Commission has free brochures that explainfraudulent sales practices and how you can avoid them. For **BestSellers**, a complete list of publications, contact:Public Reference, Federal Trade Commission, Washington, DC 20580;202-326-2222; TDD, 202-326-2502. Or use the Internet for on-lineaccess to FTC consumer and business publications. The **FTCConsumerLine** is located on the Internet at **http://www.ftc.gov**.