FEDERAL 

COMMUNICATIONS 

COMMISSION 

Regulatory Fee 

Process Needs to Be 

Updated 

Report to Congressional Requesters

August 2012 

GAO-12-686 

United States Government Accountability Office

GAO 
United States Government Accountability Office

Highlights of GAO-12-686, a report to 

congressional requesters 

August 2012 

FEDERAL COMMUNICATIONS COMMISSION

Regulatory Fee Process Needs to Be Updated

Why GAO Did This Study

FCC must by law assess annual 

regulatory fees on telecommunications 

entities to recover its entire 

appropriation—about $336 million in

fiscal year 2011. The entities from 

which FCC collects fees fall into one of 

five main industry sectors (broadcast, 

cable, wireline, wireless, and 

international) and are assigned to one 

of 86 fee categories, such as paging

services. Recently, FCC stated that it 

was planning to consider reforms to its 

regulatory fee process. GAO was 

asked to examine (1) FCC’s process 

for assessing regulatory fees among 

industry sectors, (2) FCC’s regulatory 

fee collections over the past 10 years, 

and (3) alternative approaches to 

assessing regulatory fees. GAO

reviewed FCC data and documents,

interviewed officials from FCC and the 

telecommunications industry, and, to 

identify alternative approaches to 

assessing regulatory fees, met with

five fee-funded U.S. and Canadian

regulatory agencies. 

What GAO Recommends

Congress should consider whether 

FCC’s excess fees should be 

appropriated for FCC’s use or, if not, 

what their disposition should be. FCC 

should perform an updated FTE 

analysis and require at least biennial 

updates going forward; determine 

whether and how to revise the current 

fee schedule, including the number of 

fee categories; increase the 

transparency of its regulatory fee 

process; and consider the approaches 

of other fee-funded regulatory 

agencies. FCC agreed with GAO’s 

recommendations. 

What GAO Found

The Federal Communications Commission (FCC) assesses regulatory fees 

among industry sectors and fee categories based on obsolete data, with limited 

transparency. The Communications Act requires FCC to base its regulatory fees 

on the number of full-time equivalents (FTE) that perform regulatory tasks in 

certain bureaus, among other things. FCC based its fiscal year 2011 regulatory 

fee assessments on its fiscal year 1998 division of FTEs among fee categories. 

It has not updated the FTE analysis on which it bases its regulatory fees, in part 

to avoid fluctuations in fees from year to year. FCC officials stated that the 

agency has complied with its statutory authority by dividing fees among fee 

categories based on FTE data—although the data is from fiscal year 1998—

since the statute does not prescribe a specific time for FCC to update its FTE 

analysis. As a result, after 13 years in a rapidly changing industry, FCC has not 

validated the extent to which its fees correlate to its workload. Major changes in 

the telecommunications industry include the increasing use of wireless and

broadband services and a convergence of telecommunications industries. 

Moreover, FCC’s practice is inconsistent with federal guidance on user fees. As a 

result of FCC’s use of obsolete data in assessing regulatory fees, companies in 

some fee categories may be subsidizing companies in others. FCC officials said 

it has become more challenging to align current FTEs to the 86 fee categories 

given the increasingly cross-cutting nature of FCC’s work, raising the potential 

that FCC’s fee categories may also be out of date. FCC’s regulatory fee process 

also lacks transparency because of the limited nature of the information FCC has 

published on it. This has made it difficult for industry and other stakeholders to 

understand and provide input on fee assessments. On July 17, 2012, FCC 

released a regulatory fee reform Notice of Proposed Rulemaking (NPRM)

proposing changes to FCC’s regulatory fee program related to many issues 

raised in this report. 

On average over the past 10 years, FCC collected 2 percent more in regulatory 

fees than it was required to collect. Prior to fiscal year 2008, FCC’s annual 

appropriations stated that any excess regulatory fees remained available until 

expended; since 2008, FCC’s annual appropriations have prohibited the use of 

any excess fees from the current year or previous years without an appropriation 

by Congress. As a result, $66 million in excess fees currently resides in an 

account at the Department of Treasury that cannot be used without 

congressional action. The account has increased by an average of $6.7 million 

per year for fiscal years 2006 through 2011. Congress has not provided for the 

disposition of these accumulating excess funds. 

Approaches of other fee-funded regulatory agencies could be instructive as FCC 

considers reforms. For example, the Nuclear Regulatory Commission, Federal 

Energy Regulatory Commission, and Canadian Radio-television and 

Telecommunications Commission assess fees based on an annually or biennially 

updated analysis of costs by industry sector. Regarding excess fees, officials at 

five other fee-funded regulatory agencies stated that their agencies either apply

excess fees as an adjustment to the subsequent year’s fees or refund them. View GAO-12-686. For more information, 

contact Mark L. Goldstein at (202) 512-2834 

or goldsteinm@gao.gov
Page i GAO-12-686 Federal Communications Commission: Regulatory Fees

Letter 1 

Background 4

FCC’s Assessment of Regulatory Fees Is Based on Obsolete Data 

and Lacks Transparency 7

FCC Has Collected $66 Million in Excess Fees That Is Unavailable 

without Further Congressional Action 25

Alternative Approaches Could Be Instructive as FCC Considers 

Reforms to Its Regulatory Fee Process 30

Conclusions 34

Matter for Congressional Consideration 36

Recommendations for Executive Action 36

Agency Comments 37

Appendix I Objectives, Scope and Methodology 39

Appendix II Comments from the Federal Communications Commission 43

Appendix III GAO Contact and Staff Acknowledgments 46

Tables

Table 1: Examples of FCC Fee Categories within Each Industry 

Sector 6

Table 2: Telecommunications Industry Changes, Fiscal Years 1998 

to 2011, as Measured by Basis Used to Set FCC Regulatory 

Fees 13

Table 3: FCC’s Regulatory Fee Collections, Fiscal Years 2002 to 

2011 26

Figures

Figure 1: FCC’s Regulatory Fee Assessment Process 3

Figure 2: FCC’s Division of Regulatory Fees among Industry 

Sectors, Fiscal Years 1998 and 2011 9

Figure 3: FCC’s Division of Regulatory Fees versus Costs by Core 

Bureau, Fiscal Year 2008 15

Contents
Page ii GAO-12-686 Federal Communications Commission: Regulatory Fees

Abbreviations

CNCS Canadian Nuclear Safety Commission

CRTC Canadian Radio-television and Telecommunications 

Commission

FCA Farm Credit Administration

FCC Federal Communications Commission

FERC Federal Energy Regulatory Commission

FNPRM Further Notice of Proposed Rulemaking

FTE full-time equivalent

ITTA Independent Telephone and Telecommunications Alliance

NCTA National Cable and Telecommunications Association

NPRM Notice of Proposed Rulemaking

NRC Nuclear Regulatory Commission

VoIP voice over Internet protocol

Y2K year 2000

This is a work of the U.S. government and is not subject to copyright protection in the 

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without further permission from GAO. However, because this work may contain 

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Page 1 GAO-12-686 Federal Communications Commission: Regulatory Fees

United States Government Accountability Office

Washington, DC 20548

August 10, 2012

The Honorable Henry A. Waxman

Ranking Member

Committee on Energy and Commerce

House of Representatives

The Honorable Anna G. Eshoo

Ranking Member

Subcommittee on Communications and Technology

Committee on Energy and Commerce

House of Representatives

The Federal Communications Commission (FCC), which regulates 

interstate and international communications by radio, television, wire, 

satellite, and cable in the United States, must by law assess and collect 

annual regulatory fees from the entities it regulates. These fees are 

designed to recover FCC’s operating costs, covering its enforcement, 

policy and rulemaking, international, and user information activities.1 In 

recent appropriation acts, Congress has directed FCC to recover its entire 

appropriation—about $336 million for fiscal year 2011—through the

collection of these regulatory fees.2

 

1

Act of June 19, 1934, ch. 652, § 9, 48 Stat. 1064, as amended (codified at 47 U.S.C. 

§ 159). Throughout this report, the 1934 Act as amended is referred to as the 

Communications Act; specific provisions are cited to the United States Code. 

The entities from which FCC collects 

fees fall into one of five main industry sectors (broadcast, cable, wireline, 

wireless, and international) and are assigned to 1 of 86 fee categories.

FCC has referred to the process as a “zero-sum proposition” because, 

since FCC is directed to collect a specified amount by Congress, if FCC 

reduces the fees of one industry sector or fee category, others must pay 

2

See the Full-Year Continuing Appropriations Act, 2011, Pub. L. No. 112-10, Div. B, 

§ 1101(a)(6), 125 Stat. 38, 103 (2011), for the appropriations act language specifying that 

the applicable level, authority and conditions of funding for fiscal year 2011 continued to 

be as provided by the Consolidated Appropriations Act, 2010, Pub. L. No. 111-117, 123 

Stat. 3034, 3184-3185 (2009) for agencies previously funded by that act. The level set by 

Congress in the Consolidated Appropriations Act, 2010 for FCC was $335,794,000 of 

offsetting collections to be assessed and collected by FCC pursuant to the 

Communications Act.

 
 

Page 2 GAO-12-686 Federal Communications Commission: Regulatory Fees

more.3

To offset FCC’s annual appropriation through regulatory fees, FCC 

determines how to divide the amount to be collected among the five 

industry sectors and fee categories within each industry sector.

Recently, concerns have been raised that FCC’s regulatory fee 

process does not align with today’s communications industry and may 

provide a competitive advantage to some industries while disadvantaging 

others. In fiscal years 2008, 2011, and 2012, FCC stated that it was 

planning to consider reforms to its regulatory fee process, in part because 

the communications industry had changed dramatically since 1994 when 

FCC’s regulatory fee process was first authorized, while FCC’s division of 

regulatory fees among industry sectors and fee categories had changed 

very little.

4 FCC also 

determines a rate to charge entities within each fee category.5 FCC sets 

the rates of different fee categories on various bases. For example, FCC 

sets the rate for wireline telephone companies on a per-revenue-dollar 

basis—$.00375 per revenue dollar in fiscal year 2011, for total expected 

collections from the industry of about $148 million.6 On the other hand, 

FCC sets the rate for wireless telephone companies on a per subscriber 

basis7

 

3

In the Matter of Assessment and Collection of Regulatory Fees for fiscal year 2004, 19 

FCC Rcd. 11662, 11666 (2004).

—$0.17 per subscriber in fiscal year 2011, for total expected 

collections from the industry of about $51 million. Figure 1 illustrates the 

process FCC uses to assess and collect regulatory fees each year.

4

FCC refers to its process of dividing the amount to be collected among fee categories as 

all allocation process.

5

Each year, FCC designates either a rate, based on revenues, subscribers, or another 

basis, or a flat fee for each of the 86 fee categories.

6

What we refer to in this report as the fee category for wireline telephone companies, FCC 

refers to as the fee category for interstate telecommunications service providers. 

According to FCC, providers subject to this fee category typically identify themselves 

using one or more of the following descriptions: competitive access provider, competitive 

local exchange carrier (CLEC); incumbent local exchange provider (ILEC); interconnected 

voice over internet protocol (VoIP) provider; or interexchange carrier, among others. Only 

certain revenues of these companies are used in computing the regulatory fees they pay.

7

FCC’s fee category for wireless telephone (cell phone) providers is called the 

Commercial Mobile Radio Service (CMRS) fee category. In this report, we refer to this fee 

category as the wireless telephone fee category.
 

Page 3 GAO-12-686 Federal Communications Commission: Regulatory Fees

Figure 1: FCC’s Regulatory Fee Assessment Process

Note: In some cases, FCC charges each company within a fee category a flat fee. For example, 

within the media industry sector, FCC has divided broadcast television stations into 10 fee categories 

(5 for VHF stations and 5 for UHF stations) based on market share. Each television station within 

each fee category pays the same flat fee. 

In response to your request that we review FCC’s regulatory fee process, 

we reviewed (1) FCC’s process for assessing regulatory fees among 

industry sectors and the results of this process, (2) FCC’s regulatory fee 

collections over the past 10 years compared to the amount FCC was 

directed to collect by Congress, and (3) alternative approaches to 

assessing regulatory fees that could be instructive as FCC considers 

reforming its process. To examine FCC’s regulatory fee process and 

annual regulatory fee collections, we reviewed, among other things, 

relevant statutes and budgetary documents, FCC documents, and FCC 

fee-collection data. We spoke with internal and external stakeholders, 

including FCC officials, media and telecommunications trade 

associations, and companies from each of the five main industry sectors 

that paid FCC regulatory fees in fiscal year 2010. To identify alternatives 

to FCC’s current regulatory fee process, we selected, met with, and 

reviewed documents from five U.S. or Canadian agencies based on the 

criteria that they, like FCC, be independent regulatory commissions that 

recover the majority or all of their costs through annual fees assessed on 

regulated entities. The agencies included (1) Canadian Nuclear Safety 

Commission (CNSC), (2) Canadian Radio-television and 

Telecommunications Commission (CRTC), (3) Farm Credit Administration 

(FCA), (4) Federal Energy Regulatory Commission (FERC), and (5) 

Nuclear Regulatory Commission (NRC).
 

Page 4 GAO-12-686 Federal Communications Commission: Regulatory Fees

We conducted this performance audit from May 2011 to August 2012 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. More detailed information on 

our methodology can be found in appendix I.

Section 9 of the Communications Act authorizes FCC to collect regulatory 

fees annually.8

• Assess and collect regulatory fees to recover the costs of FCC’s 

regulatory activities, defined by section 9 as consisting of its 

enforcement, policy and rulemaking, user information, and international 

activities—in the amount required in FCC’s appropriation acts.

These regulatory fees do not include application fees or 

revenue from spectrum auctions. The statute directs FCC to do the 

following:

• Derive these fees by determining the full-time equivalent (FTE)9

• Make mandatory adjustments. FCC maintains and is required 

annually to revise a schedule of regulatory fees to reflect 

number of employees performing these regulatory activities in three 

named bureaus and other FCC offices—adjusted to take into account 

various factors that are reasonably related to the benefits to the fee 

payors, including factors determined by FCC to be in the public 

interest. (According to FCC officials, the three bureaus named in 

section 9—the Private Radio, Mass Media, and Common Carrier 

Bureaus—have since been reorganized and renamed as the Wireless 

Telecommunications Bureau, the Media Bureau, the Wireline 

Competition Bureau, and the International Bureau.)

 

8

47 U.S.C. § 159. FCC also collects application fees from companies for activities such 

as license applications, renewals or requests for modification. These fees are deposited 

in the General Fund of the Treasury and cannot be used by FCC. 47 U.S.C. § 158(e).

9

An FTE reflects the total number of regular straight-time hours (i.e., not including 

overtime or holiday hours) worked by employees divided by the number of compensable 

hours applicable to each fiscal year. Annual leave, sick leave, and compensatory time off 

and other approved leave categories are considered to be “hours worked” for purposes of 

defining FTE employment. 

Background
 

Page 5 GAO-12-686 Federal Communications Commission: Regulatory Fees

proportionate increases or decreases in the amount of the 

appropriation to be recovered as well as changes in the number of 

licensees or other units required to pay the fees assessed.

• Make permitted amendments as necessary. FCC is required to 

amend the schedule if FCC determines that the schedule must be 

amended to comply with the statute’s requirement that the fees be 

derived by determining FTEs (as outlined above), adjusted to take into 

account factors reasonably related to the benefits the fee payor 

receives from FCC regulation, among other things.

In recent years, Congress has included language in FCC’s annual 

appropriation act setting specific percentages of the appropriation FCC is 

to offset with collected regulatory fees. This percentage has risen from 38 

percent in 1994, when section 9 first went into effect, to over 99 percent 

starting in 2004, to 100 percent starting in 2009.10

The five industry sectors in which FCC has typically grouped regulatory 

fee payors include: (1) wireline services, (2) wireless services, (3) cable 

services, (4) broadcast services, and (5) international services. At times, 

FCC has combined cable and broadcast into an industry sector it calls 

media—aligning the four industry sectors with four FCC bureaus—

wireline with the Wireline Competition Bureau, wireless with the Wireless 

Telecommunications Bureau, media with the Media Bureau, and 

In fiscal year 2011, 

FCC’s appropriation, and hence the total in regulatory fees it was to use 

as offsets, was about $336 million. According to FCC officials, this 

appropriation funded about 1,556 FTEs in FCC’s 11 offices and 7 

bureaus. The 7 bureaus include the (1) Consumer and Governmental 

Affairs, (2) Enforcement, (3) International, (4) Media, (5) Public Safety 

and Homeland Security, (6) Wireless Telecommunications, and (7) 

Wireline Competition Bureaus.

 

10Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies 

Appropriations Act, 1994, Pub. L. No. 103–121, 107 Stat 1153, 1166-1167 (1993); 

Omnibus Appropriations Act, 2009, Pub. L. No. 111-8, 123 Stat. 524, 657 (2009). As the 

appropriation acts make clear, the collected fees are treated as offsetting receipts. Unlike 

offsetting collections, which are available for obligation by the agency without further 

legislative action, offsetting receipts cannot be used without being appropriated. GAO, A 

Glossary of Terms Used in the Federal Budget Process. GAO-05-734SP (Washington, 

D.C.: Sept. 2005). Congress has indicated in recent FCC appropriation acts that offsetting 

receipts collected in a given fiscal year are not available to FCC beyond the amount 

initially appropriated. Fees collected in excess of the amount appropriated may not be 

obligated without additional congressional action. 
 

Page 6 GAO-12-686 Federal Communications Commission: Regulatory Fees

international with the International Bureau. As shown in Table 1, within 

most of these industry sectors are a number of fee categories.

Table 1: Examples of FCC Fee Categories within Each Industry Sector

Industry sector

Number of fee 

categories, 

fiscal year 2011 Examples of fee categories within industry sector

Wireline 1 Wireline telephone

Wireless 14 Wireless telephone, paging, broadband radio service; and a number of fee 

categories considered small wireless, such as aviation aircraft, aviation 

ground, marine coast, and amateur vanity call signals

Cable/Media 2 Cable television systems, Cable access relay service

Broadcast/Media 60 UHF and VHF Television stations (divided into different markets), am and fm 

radio stations (divided into different classes and by population served)

International 9 Submarine cable (divided into 5 fee categories based on capacity); earth 

station satellites; international bearer circuits (terrestrial and satellite services); 

geostationary space stations, including direct broadcast satellite television 

operators; nongeostationary space stations

Total for all industry sectors 86

Source: GAO analysis of FCC information.

Each year, FCC sets a rate for each fee category that is used to calculate 

how much each company within that category owes in regulatory fees.

FCC assesses this rate on various bases. For example, the rate for 

wireline telephone companies is set per revenue dollar (for those 

revenues subject to fees);11 the rate for wireless telephone companies 

and cable television operators is based on the number of subscribers; the 

rate for geostationary orbit space stations, including operators of directbroadcast satellite television, is based on the number of satellites; and 

broadcast television and radio licensees pay a flat fee that is set based on 

market reach characteristics, such as the size of the market area or 

population served.12

 

11The wireline telephone company regulatory fee rate is based on billed interstate and 

international end-use revenues for local and most toll services. Other types of revenue 

are excluded from the regulatory fee calculation.

Entities that provide services in more than one fee 

category—such as a company that offers wireline and wireless services—

12Specifically, the fee categories for commercial television stations are based on whether 

the station is broadcasting on VHF or UHF frequencies and the size of the Nielsen 

Designated Market Area. The fee categories for commercial radio stations are based on 

the class of station and population served. 
 

Page 7 GAO-12-686 Federal Communications Commission: Regulatory Fees

must pay regulatory fees for each fee category commensurate with the

service provided.

Each year, FCC issues a Notice of Proposed Rulemaking (NPRM) in 

which it proposes how it will assess fees by industry sector and fee 

category for that fiscal year. FCC receives comments on the NPRM and 

may make adjustments before issuing a Report and Order establishing 

assessment rates for each year’s regulatory fees. FCC also establishes a 

due date for payment. Entities that are late in paying their assessed fees 

are assessed an additional one-time 25 percent statutory penalty,13 and 

FCC will take no action on any applications or other requests for benefits 

from such an entity until its past due assessment is paid. According to 

FCC officials, while the timing of this process varies somewhat from year 

to year, the assessment is collected in time for FCC to process payment 

and forward it to the Department of Treasury by the end of the fiscal year 

on September 30. For example, in fiscal year 2011, the NPRM was 

issued on May 3, 2011, and comments were accepted until June 9, 2011.

The Report and Order was released on July 22, 2011, and the assessed 

fees were due on September 16, 2011.

From fiscal year 1998 through its most recent assessment for fiscal year 

2011, FCC has based its division of regulatory fees among industry 

sectors and fee categories on its fiscal year 1998 division of FTEs among 

fee categories. FCC determined this fiscal year 1998 division of FTEs 

among fee categories through a cost-accounting system that FCC 

abandoned in fiscal year 1999 because of problems described in greater 

 

1347 U.S.C. § 159(c)(1). 

FCC’s Assessment of 

Regulatory Fees Is 

Based on Obsolete 

Data and Lacks 

Transparency

FCC’s Regulatory Fee 

Assessments
 

Page 8 GAO-12-686 Federal Communications Commission: Regulatory Fees

detail below.14 In subsequent years, FCC continued to use the same 

basic division of fees among fee categories established in fiscal year 

1998, with some adjustments to the rates of certain fee categories, based 

on (for example) concerns about overburdening particular industries.15

 

14In a fiscal year 2008 Further Notice of Proposed Rulemaking, FCC stated that FCC’s 

division of fees among fee categories was based on FCC’s 1994 calculation of FTEs 

devoted to each regulatory fee category. See In the Matter of Assessment and Collection 

of Regulatory Fees for Fiscal Year 2008, 24 FCC Rcd. 6389, 6401 (2008). According to 

FCC officials, the 2008 FNPRM should have referred to FCC’s fiscal year 1998 calculation 

of FTEs. FCC staff confirmed that the FTE analysis was last conducted in 1998. Since 

1994, FCC has used its authority under section 9 to modify the service categories and 

amounts set out in the Schedule of Regulatory Fees in order to reflect changes in the 

number of payment units, additions and changes in the services subject to the fee 

requirement, and the benefits derived from FCC’s activities, and to simplify the structure of 

the schedule. See Appendix F, “Detailed Guidance on Who Must Pay Regulatory Fees,” 

Assessment and Collection of Regulatory Fees for Fiscal Year 2000, 15 FCC Rcd. 14478, 

14539 (2000). FCC has continued to use FTE data compiled in fiscal year 1998 to 

determine the proportion of the total regulatory fees assigned to each fee category. 

These adjustments were not based on any FTE analysis and have had 

relatively minor effects on the division of regulatory fees by industry 

sector that FCC established in fiscal year 1998, as shown in figure 2.

15Based on FCC-provided information, we determined that the cumulative effect of all of 

the adjustments made by FCC was that for fiscal year 2011, FCC expected the wireline 

telephone industry to pay about $8.6 million less than it would have paid had FCC based 

fees only on the division established by its fiscal year 1998 FTE analysis. In turn, FCC 

expected the other industry sectors to pay more ($2.1 million more for the wireless 

industry; $3.4 million more for the cable industry, $2.6 million more for the media industry, 

and $1.2 million more for the international industry).
 

Page 9 GAO-12-686 Federal Communications Commission: Regulatory Fees

Figure 2: FCC’s Division of Regulatory Fees among Industry Sectors, Fiscal Years 1998 and 2011

In fiscal year 1994, when FCC first implemented the Communications Act 

regulatory fee statute, FCC used the fee schedule Congress had included 

as a starting point in the statute. That schedule, which was developed 

based on information provided to Congress by FCC, set annual regulatory 

fees for 46 fee categories that FCC was to follow until FCC amended the 

schedule.16

 

16In 1991, the House of Representatives, in a bill that would have established FCC’s 

authority to charge regulatory fees, adopted a proposed annual fee schedule that was 

informed by information provided by FCC on how FCC allocated its costs among bureaus 

and service categories. The legislation did not become law in 1991. However, the fee 

provisions that became law in 1993 were virtually identical to those in the 1991 bill, with 

the exception of the level of the fees themselves. See H.R. Rep. 102-207, 102nd Cong. 

(1991). 

The fee schedule established numerous fee categories—46—

assessed on different bases, including a flat fee basis, a per subscriber 

basis, a per antenna basis, and others. While FCC has made changes to 

this fee schedule over the years, including adding and altering fee 

categories, the basic elements of its structure—established based on the 

telecommunications industry as it existed in 1994, and in the context of 

directing FCC to collect fees to cover 38 percent of its appropriation 

Statutory Framework
 

Page 10 GAO-12-686 Federal Communications Commission: Regulatory Fees

instead of the 100 percent that FCC has been directed to collect since 

fiscal year 2009—have continued to guide FCC’s regulatory fee 

assessment.

The Communications Act requires FCC to develop accounting systems 

necessary for the agency to determine whether and how the fee schedule 

should be adjusted to comply with the statute’s requirement that FCC 

base its regulatory fees on the number of FTEs performing regulatory 

tasks, among other things.17 The act does not specify that the system 

should be a cost accounting system—FCC was free to interpret this 

requirement according to its perceived needs. Nevertheless, in its 

Reports and Orders for the 2 years following 1994, FCC discussed its 

plans to develop a cost-accounting system to guide its division of fees 

among fee categories. FCC implemented this cost-accounting system, 

which relied on employees’ coding of time and attendance report entries, 

for fiscal years 1997 and 1998, using it as the basis for dividing fees 

among fee categories. At the time, FCC stated that its purpose in using a 

cost-accounting system based on employees’ time card entries was to 

ensure that fee collections from each category of service approximated, 

to the extent possible, FCC’s actual costs to regulate each fee category.18

FCC abandoned the use of this system to track costs according to fee 

category after fiscal year 1998 because the agency found use of the 

system to be problematic.19

 

17 As previously stated, FCC is required to base its regulatory fees on the number of FTEs 

performing regulatory tasks in three named bureaus plus other FCC offices, as adjusted to 

take into account factors that are reasonably related to the benefits provided by FCC’s 

activities to those entities paying the fee, including factors determined by FCC to be in the 

public interest.

Specifically, according to FCC officials, 

basing its division of fees on employees’ time card entries caused too 

18This system, as described in the 1997 Report and Order, was in line with federal cost 

accounting guidance in that it identified direct costs, such as payroll and other direct costs, 

and assigned these costs to fee categories via program codes recorded by employees on 

their time sheets in what appeared to be a rational and systematic manner. In addition, it 

allocated other indirect costs pro-rata to direct costs and distributed overhead costs based 

on predetermined allocation formulas. However, as the system is no longer in use, we 

were unable to validate the extent to which it met federal cost accounting standards. See 

In the Matter of Assessment and Collection of Regulatory Fees for Fiscal Year 1997, 12 

FCC Rcd. (1997).

19In the Matter of Assessment and Collection of Regulatory Fees for Fiscal Year 2004, 19 

FCC Rcd. 11665.
 

Page 11 GAO-12-686 Federal Communications Commission: Regulatory Fees

much fluctuation in fees from year to year—because of a combination of 

annual changes in workload, employee errors in completing time sheets, 

and various other factors. FCC found that over the 1997 to 1998 period, 

the rate assessed to all entities in a fee category could increase by more 

than 25 percent from the prior year—beyond any increase because of 

increases in the total amount in regulatory fees FCC was required to 

collect.20

According to FCC officials, FCC has continued to rely on the 1998 

division of regulatory fees as the basis of its fee division through fiscal 

year 2011. It has done so in spite of the problems FCC identified with the 

system and even though this approach put FCC at risk of dividing the 

regulatory fee burden among entities in different industries based on 

obsolete data. FCC officials stated that while the statute requires FCC to 

amend its regulatory fees if FCC determines such amendment is 

necessary to comply with the FTE-based requirement, among other 

things, the statute does not prescribe a specific time at which FCC must 

make such a determination.

FCC officials stated that these fluctuations were especially 

problematic for small service providers that could least absorb 

unpredictable increases in fees.

21

As a result, for 13 years, FCC has not validated the extent to which its 

division of fees among industry sectors and fee categories correlates with 

its current division of FTEs among industry sectors and fee categories.

Major changes have occurred in the telecommunications industry since 

1998, as described below, making it likely that FCC’s fiscal year 1998 

FTE analysis no longer reflects FCC’s current regulatory priorities. As 

explained later in the report, FCC’s failure to update its FTE analysis is 

inconsistent with federal guidance on user fees, which, among other 

Furthermore, according to FCC officials, 

while FCC has maintained information on how its FTEs are distributed 

among the four core bureaus—which generally track with the four industry 

sectors—FCC does not have information on how its current FTEs are 

divided among the fee categories in the current fee schedule.

 

20In the Matter of Assessment and Collection of Regulatory Fees for Fiscal Year 1997, 12 

FCC Rcd. 17161, 17165 (1997).

2147 U.S.C. §159(b)(3) states in pertinent part that “The Commission shall, by regulation, 

amend the Schedule of Regulatory Fees if the Commission determines that the Schedule 

requires amendment to comply with the requirements of paragraph (1)(A).”
 

Page 12 GAO-12-686 Federal Communications Commission: Regulatory Fees

things, emphasizes the importance of regularly updating analyses to 

ensure that fees are set based on relevant information.

The major changes that have occurred in the telecommunications 

industry over the past 14 years dramatically increase the likelihood that 

FCC’s current division of fees among fee categories has become 

obsolete. In 2008, FCC stated in a Further Notice of Proposed 

Rulemaking that major industry changes since 1994 included the 

significant increase of wireless, broadband, and voice over Internet 

protocol (“VoIP”), and discussed the fact that FCC itself had reorganized 

several times to reflect industry changes. FCC acknowledged that there 

could be several areas in which the regulatory fee process could be 

revised and improved to better reflect the current industry.22

Changes in FCC’s estimates of subscribers, revenues, or other bases 

used to set the annual regulatory fee rates for different fee categories 

also indicate major changes in the balance of telecommunications 

industries from fiscal years 1998 to 2011. According to FCC’s estimates 

(see table 2), measures of some industries grew by over 50 percent—

including the wireless telephone industry, for which the number of 

subscribers grew by over 400 percent—while measures of other 

industries declined by over 40 percent, including VHF television stations, 

for which the number of stations declined by 48 percent. In comparison to 

these dramatic shifts, relatively small changes in the percent of the total 

regulatory fees expected to be paid by these industries have occurred.

For example, while the wireline telephone industry’s estimated revenues 

on which fees are assessed declined by 44 percent from fiscal year 1998 

to fiscal year 2011, the percentage of total regulatory fees this industry is 

expected to pay declined by 4 percentage points, from 48 percent to 44 

Two former 

FCC commissioners told us that the significant increase in broadband and 

wireless services, the increasing convergence of telecommunications 

industries, and the transition to digital television are major changes that 

have occurred since fiscal year 1998 that have affected FCC’s workload 

and priorities.

 

22In the Matter of Assessment and Collection of Regulatory Fees for Fiscal Year 2008, 24 

FCC Rcd 6388, 6401 (2008). FCC has also stated that the statute does not require 

amendment to the fee schedule to mirror all changes in regulatory costs. See In the 

Matter of Assessment and Collection of Regulatory Fees for Fiscal Year 2004, 19 FCC 

Rcd., 11665.

Changes in the 

Telecommunications 

Industry since 1998
 

Page 13 GAO-12-686 Federal Communications Commission: Regulatory Fees

percent of total fees. And while the wireless telephone industry’s 

estimated number of subscribers grew 437 percent during this time 

period, the percentage of the total regulatory fees the cell phone industry 

is expected to pay grew only 5 percentage points—from 10 to 15 percent 

of the total regulatory fees. According to FCC officials, there is not always 

a straightforward relationship between growth in the number of 

subscribers, revenues, or other basis used to determine the fee rate of a 

fee category and the amount of work FCC performs related to that fee 

category, and thus these shifting numbers do not offer a clear guide as to 

how or even the extent to which the division of FCC’s regulatory fees 

among industry sectors should be realigned. Nevertheless, they reinforce 

the magnitude of the changes that have occurred, and underscore the 

likelihood that FCC’s division of fees among fee categories may no longer 

correlate to its current division of FTEs. (See table 2.)

Table 2: Telecommunications Industry Changes, Fiscal Years 1998 to 2011, as Measured by Basis Used to Set FCC 

Regulatory Fees

Industry and basis used by FCC 

to set regulatory fees

Fiscal year 1998 estimated 

number of the basis used by 

FCC to set regulatory fees

Fiscal year 2011 estimated 

number of the basis used by 

FCC to set regulatory fees

Percent change, fiscal 

year 1998 to 2011

VHF television stations (number of 

stations)

499 261 -48 %

Wireline telephone (revenues)a $70,103,000,000 $39,500,000,000 -44%

Cable (number of subscribers) 66,000,000 63,400,000 -4%

AM/FM radio stations (number of 

stations)

8,646 10,285 19%

UHF television stations (number of 

stations)

668 866 30%

Geostationary space stations, 

including operators of direct 

broadcast satellite television service 

(number of satellites)

46 87 89%

Wireless telephoneb (number of 

subscribers) 

55,540,000 298,000,000 437 %

Source: GAO analysis of FCC data.

a

Revenue dollars have not been adjusted for inflation. 

b

The fee category that includes wireless telephones is called commercial wireless radio services. It 

includes specialized mobile radio services, public coast stations, public mobile radio, cellular, 800 

MHz air-ground radiotelephone, offshore radio services and broadband personal communications 

services.
 

Page 14 GAO-12-686 Federal Communications Commission: Regulatory Fees

FCC’s Office of the Managing Director has published some information 

that further suggests that FCC is basing its division of regulatory fees 

among fee categories on data that do not correlate with industry trends 

and FCC’s current workload. In fiscal year 2008, FCC issued a Further 

Notice of Proposed Rulemaking (FNPRM) specifically to consider reforms 

to its regulatory fee process. In a separate public notice issued after FCC 

adopted the 2008 FNPRM, the Office of the Managing Director provided 

some updated information on FCC’s costs by core bureau.23 According to 

FCC officials, the core bureaus correlate to the four industry sectors of 

wireless telecommunications, wireline telecommunications, media, and 

international.24 This information demonstrated substantial misalignment 

between the division of regulatory fees by industry sector as presented in 

FCC’s fiscal year 2008 FNPRM and FCC’s costs by bureau in the 

Wireless, Wireline, and International Bureaus as presented in the public 

notice, as shown in figure 3—although FCC officials did not include any 

information at the more granular level of fee category. For example, in 

fiscal year 2008, the wireless industry paid about 17 percent of the 

regulatory fees while the Wireless Telecommunications Bureau incurred 

about 27 percent of FCC’s total costs. In contrast, the wireline industry 

paid about 47 percent of the total fees while the Wireline Competition 

Bureau incurred about 23 percent of FCC’s total costs. FCC did not 

comprehensively reform its process as a result of this FNPRM.

25

 

23Public Notice, 23 FCC Rcd. 14581 (2008).

24According to the information provided by the managing director’s office, in creating a 

chart to show fiscal year 2008 total costs by core bureau (see second pie chart of figure 

3), FCC staff identified the total estimated costs (both direct and indirect costs) associated 

with the regulatory activities performed by the four bureaus named in the chart. Estimated 

indirect costs were comprised of the expenses incurred by the remaining FCC offices and 

bureaus. Estimated indirect costs were allocated among the four bureaus named in the 

chart based on their number of FTEs. Estimated costs associated with operating FCC, 

such as financial operations and human resources, were allocated to each bureau and 

office based on the number of FTEs in each operating unit, and then allocated to the four 

bureaus named in the chart based on their number of FTEs.

25In the order following this FNPRM, released in May 2009, FCC adopted proposals to 

eliminate two regulatory fee categories—international fixed public radio and international 

high frequency broadcast stations—and stated that the outstanding matters stemming 

from the FNPRM might be decided at a later time in a separate Report and Order. See In 

the Matter of Assessment and Collection of Regulatory Fees for Fiscal Year 2009, 24 FCC 

Rcd. 5966, footnote 4 (2009).
 

Page 15 GAO-12-686 Federal Communications Commission: Regulatory Fees

Figure 3: FCC’s Division of Regulatory Fees versus Costs by Core Bureau, Fiscal Year 2008

FCC’s inaction in updating its FTE analysis is inconsistent with federal 

guidance on user fees. We recognize that federal guidance on user fees 

for the most part assumes that the fees are to be set based on a costrecovery scheme, which differs from the Communications Act’s 

requirement that FCC base its regulatory fees on FTEs, among other 

things.26

 

26User fees are assessed to users for goods or services provided by the federal 

government that provide special benefits to identifiable recipients above and beyond what 

is normally available to the public. User fees are normally related to the cost of the goods

or services provided. See Office of Management and Budget, Circular No. A-25 Revised,

(July 8, 1993) and GAO, A Glossary of Terms Used in the Federal Budget Process, 

FTEs—the basic measure of levels of employment used in the 

GAO-05-734SP (Washington, D.C.: September 2005). Regulatory transactions are one 

type of cost-based user fee. See GAO, Federal User Fees: A Design Guide, 

GAO-08-386SP (Washington, D.C.: May 29, 2008). In addition, the Chief Financial 

Officers Act of 1990, codified as positive law at 31 U.S.C. ch. 9 requires an agency’s CFO 

to review user fees, among other things, on a biennial basis, and make recommendations 

on revising those charges to reflect costs incurred. 31 U.S.C. § 902(a)(8). The CFO Act 

does not apply to FCC, but demonstrates good government practice.

Federal User Fee Guidance
 

Page 16 GAO-12-686 Federal Communications Commission: Regulatory Fees

federal budget27—are not the same as costs. FTE information is often 

readily available and can be a useful proxy for cost, but FTE information 

does not necessarily reflect total cost because, for example, it would 

neither distinguish between higher and lower cost FTEs, nor would it 

include other costs, such as contractors, training, equipment, or facilities’ 

costs.28

Nevertheless, many of the general principles of federal user fee guidance 

remain relevant in considering FCC’s FTE analysis. First, federal 

guidance emphasizes the importance of reviewing fees regularly to check 

the extent to which they are properly aligned. For example, OMB Circular 

No. A-25, which, among other things, provides guidance to agencies 

regarding their assessment of user charges under other statutes, directs 

agencies that have user fees to review the user fees biennially in order to 

assure, among other things, that existing charges are adjusted to reflect 

unanticipated changes in costs or market values. The fact that the 

Communications Act directs FCC to base its fees on FTEs does not 

negate the applicability of the guidance regarding the regularity with 

which the basis of the fees (i.e., FTEs) should be reviewed. The reason 

that regular review is part of the guidance is to assure that fees are 

adjusted to reflect changes that may have occurred over time in the 

agency’s distribution of work among fee categories—which could be 

measured by costs or FTEs.

Second, according to federal financial-accounting standards, cost 

information should be reported in a timely manner and on a regular basis 

and should be reliable and useful in making decisions. This standard 

does not require the use of a particular type of costing system or 

methodology, stating that agency and program management is in the best 

position to select a type of costing system to meet its needs. However, 

the standard requires that a methodology, once adopted, be used 

consistently in order to provide results that can be compared from year to 

year—with improvements and refinements made as necessary. In FCC’s 

case, given the statutory framework of its regulatory fee program, this 

principle pertains to FTEs rather than costs. Given the problems FCC 

encountered with using its cost-accounting system to analyze FTEs by 

 

27Office of Management and Budget, Circular No. A-11, (Aug. 18, 2011).

28GAO, Streamlining Government: Opportunities Exist to Strengthen OMB’s Approach to 

Improving Efficiency, GAO-10-394 (Washington, D.C.: May 7, 2010).
 

Page 17 GAO-12-686 Federal Communications Commission: Regulatory Fees

fee categories in fiscal year 1998, these standards would suggest that 

FCC could have considered alternate methodologies—or improvements 

to its cost-accounting system—to address the problems described.

However, FCC’s decision to freeze its division of regulatory fees by fee 

category on fiscal year 1998 data that came from the cost-accounting 

system FCC abandoned, rather than addressing the problems or 

choosing a different methodology, is inconsistent with the goal of such 

standards. This decision, over time, has resulted in FCC not having FTE 

information that is timely, reliable, or comparable from year to year to 

guide its decisions on how to divide regulatory fees.

In prior work, we have stated that agencies that do not review and adjust 

fees regularly run the risk of undercharging or overcharging users, raising 

equity concerns.29

FCC’s regulatory fees are unlikely to ever equal the exact cost of 

regulating the corresponding fee category for several reasons. First, since 

FCC is required to collect 100 percent of its appropriation through 

regulatory fees, including funding for items that are not specifically 

regulatory activities—such as general overhead—the regulated industries 

are being assessed to pay for more than the number of FTEs required for 

their regulation. Second, FCC is directed by statute to base its fee 

assessment on FTEs, which may not represent actual regulatory costs.

According to FCC officials, because it is not possible to precisely assign 

the costs of regulation on a service-by-service basis, and because the act 

requires FTE-based assessment and does not require amending the fee 

schedule to mirror all changes in regulatory costs, some regulated entities 

pay more than the direct cost of their regulation.

Moreover, because FCC is directed in its annual 

appropriation acts to collect a certain amount of money in regulatory fees 

each year, if its division of fees among fee categories is misaligned with 

its FTEs by fee category, then some entities are most likely overpaying, 

essentially cross-subsidizing entities in other fee categories, which are 

underpaying.

Third, exemptions create cross subsidization, as could some other policy 

decisions. FCC, as required by statute, has exempted some groups of 

 

29In past work we defined equity to mean that everyone pays their fair share, 

acknowledging that the definition of fair share can have multiple facets. See 

GAO-08-386SP. 

Probable CrossSubsidization between 

Industry Sectors
 

Page 18 GAO-12-686 Federal Communications Commission: Regulatory Fees

entities, such as nonprofits, from paying fees, and has at times exercised 

its statutory discretion by reducing the fee rates of certain fee categories 

when it determined that doing so would benefit the public interest. In prior 

work, we have pointed out that while exemptions can promote one kind of 

equity by factoring the users’ ability to pay into the fee-rate formula, such 

provisions may also increase cross-subsidies among users.30

According to officials in many industry associations and companies we 

spoke with in the wireline, wireless, cable, and international industry 

sectors, FCC’s regulatory fees are typically passed along to the 

consumer, either in a line item on the bill or bundled into the general cost 

of service. One potential effect of cross subsidization, therefore, is that, if 

entities in different fee categories are directly competing for the same 

customers, cross subsidization could result in competitively 

disadvantaging entities in one fee category over another. As discussed in 

the next section, some stakeholders told us that the regulatory fees are 

small enough that they do not have a significant financial impact on the 

companies that pay the fees. However, several industry stakeholders in 

the wireline and cable television industry sectors told us that FCC’s 

current regulatory fee process is competitively disadvantaging certain 

industries and that FCC’s use of multiple bases for setting fee rates 

makes it more difficult for industry stakeholders to compare the rates 

assessed to different fee categories—and thus more difficult to determine 

the extent to which the fees are fair and equitable.

We have

stated that in applying exemptions, agencies may purposefully choose to 

set fees in such a way that cross subsidization occurs in order to promote 

other policy goals. However, we have also stated that generally, fees 

should be aligned with the costs of the activities for which the fee is 

collected, unless there is a policy decision not to align them. Without a 

current FTE analysis by fee category, it is not possible to determine the 

extent that cross subsidization is occurring between fee categories, or 

which fee categories are cross subsidizing other fee categories. However, 

any cross subsidization that is occurring not because of a decision to 

promote a policy goal but because the FTE analysis on which FCC bases 

its fees is obsolete, is not consistent with general user fee principles.

These views were echoed in formal comments to FCC’s regulatory fee 

FNPRM in 2008, when FCC last requested comments on substantial 

 

30GAO-08-386SP. 
 

Page 19 GAO-12-686 Federal Communications Commission: Regulatory Fees

reform to its regulatory fee process. For example, in response to the 2008 

FNPRM, the National Cable and Telecommunications Association 

(NCTA), a trade association for the U.S. cable industry, argued that FCC 

assesses higher regulatory fees on cable operators than it does on direct 

broadcast satellite television operators. According to the cable 

association, the direct broadcast satellite television industry is a direct 

competitor to cable, and thus its lower regulatory fee burden could give it 

a competitive advantage. The cable association argued that every type of 

multichannel video-programming distributor, including cable, telephone, 

and direct broadcast satellite providers of multichannel video service, 

should pay the same regulatory fee rate in order to ensure that no entity 

received the competitive benefit of lower fees based solely on the 

technology it used. Moreover, the cable association’s staff told us that 

because the cable television industry’s fee rate is set on a per-subscriber 

basis and the direct broadcast satellite television operator industry’s fee 

rate is set on a per-satellite basis, it was not possible to compare the fees 

as stated in FCC’s published information in order to assess their fairness.

For the cable association to determine how its members’ fees compared 

to the fees of direct broadcast satellite television operators on a persubscriber basis, the association had to do its own analysis using 

company data. In its 2008 comments to the FNPRM, the cable 

association also suggested that all providers of voice service and 

multichannel video programming distributors—including cable, telephone,

and direct broadcast satellite providers—should pay on a per-subscriber 

basis instead of the three different bases—per revenue dollar, per 

subscriber, and per satellite—used today.

In another example, the Independent Telephone and 

Telecommunications Alliance (ITTA), which represents a number of midsize wireline telephone companies, argued that under FCC’s regulatory 

fee process, wireline companies had higher per-subscriber fees than 

wireless companies. ITTA argued that this higher per-subscriber rate was 

not justified because, due to the convergence among technologies since

1994, many of FCC’s expenditures related to telecommunications issues 

now related equally to wireline and wireless providers. According to ITTA, 

the effect of the different fee rates assessed to wireline and wireless 

telephone providers was that providers of similar voice services—and 

their customers—assumed dissimilar responsibility in bearing FCC’s 

regulatory costs.

ITTA called for both wireline and wireless providers’ regulatory fees to be 

assessed on the basis of revenue, instead of the current situation, in 

which wireline companies pay fees based on revenue while wireless 
 

Page 20 GAO-12-686 Federal Communications Commission: Regulatory Fees

companies pay fees based on subscribership. Interestingly, in fiscal year 

1994, FCC assessed the fees of both wireline and wireless telephone 

entities on the basis of subscribers, as put forth in the fee schedule in the 

Communications Act.31 For fiscal year 1995, FCC amended the schedule 

by, among other things, changing its basis for assessing regulatory fees 

on the wireline telephone industry from a subscriber to a revenue basis.32

FCC did not summarize or comment on the proposals submitted by the 

cable association and ITTA to the fiscal year 2008 FNPRM, even though 

ITTA re-submitted its proposal in response to the fiscal year 2009 NPRM. 

Instead, FCC exercised its administrative discretion to resolve all the 

outstanding matters stemming from the FNPRM at a later time in a 

separate Report and Order. More than 3 years later, no separate Report 

and Order has been issued addressing these industry associations’ 

comments. According to NCTA and ITTA officials, the associations stopped 

submitting formal comments to FCC because FCC’s lack of 

responsiveness discouraged them from doing so—but both associations 

continue to see the current regulatory fee assessment as not based on any 

valid FTE analysis and as causing competitive disadvantage to their 

industry.

In making this change, FCC stated in the Report and Order that a 

revenue-based methodology would equitably distribute the fee 

requirement in a competitively neutral manner, and that it was FCC’s 

intention to consider changing wireless carriers’ fees to a revenue basis in 

future years. However, FCC has not done so, although wireless providers 

report the same revenue information to FCC that wireline providers do. In 

addition, one commenter to a recent NPRM suggested that FCC use 

revenue as the basis for assessing regulatory fees on media fee 

categories. According to FCC officials, because FCC does not currently 

require industries in the media fee categories to report any revenue 

information to FCC, in order for FCC to assess media companies on the 

basis of revenue, FCC would have to rely on the honor system in 

determining entities’ fee obligations, or establish new reporting 

requirements, which would be burdensome to FCC and industry.

 

31See 47 U.S.C. § 159(g) (Schedule of Regulatory Fees); see also Implementation of 

Section 9 of the Communications Act, Assessment and Collection of Regulatory Fees for 

Fiscal Year 1994, 9 FCC Rcd. 5333,¶ 9 (1994) recon. denied, 10 FCC Rcd. 12759 ¶12 

(1995). 

32See In the Matter of Assessment and Collection of Regulatory Fees for Fiscal Year 

1995, 10 FCC Rcd. 13512, 13519 (1995).
 

Page 21 GAO-12-686 Federal Communications Commission: Regulatory Fees

Most companies we spoke with stated that FCC’s regulatory fees have 

little to no direct financial impact on the company, given the relatively 

small size of the fees—for example, wireline telephone companies were 

to pay $.00375 per assessable revenue dollar in fiscal year 2011, while 

wireless telephone companies were to pay $0.17 per subscriber.

However, officials at the National Association of Broadcasting stated that 

the payment of regulatory fees is a bigger issue for small stations. These 

officials stated that because consumers do not pay directly for broadcast 

radio or television, broadcasting entities cannot pass regulatory fees on to 

consumers but must incorporate the fee payment into operating costs to 

be paid with general operating revenue. The National Association of 

Broadcasters and one broadcast company we spoke with stated that at a 

time when some broadcasting companies are laying off employees 

because of financial difficulties, FCC’s regulatory fees may equal the cost 

of one or more employees that the company could not afford to keep 

because of the regulatory fees. This potential impact on companies 

underscores the importance that FCC assess regulatory fees on a fair 

and equitable basis—and that it have updated information on FTEs with 

which to do so.

The effect of regulatory fees on consumers is difficult to assess, in part 

because of the relatively low cost of the fees. For example, if a wireless 

telephone company passed its fiscal year 2011 regulatory fee directly on 

to consumers, the fee would have increased the bill of each consumer by 

$0.17 for the year. On the other hand, representatives of a wireline 

telephone company we spoke with stated that many of their customers 

are rural, low income, elderly people who are affected by any increase in 

their phone bill caused by regulatory fees.

According to FCC officials, the agency has not revised its assessment of 

fees among fee categories since fiscal year 1998 in part because it is 

difficult to propose and implement reforms given its need to collect 

regulatory fees by the end of each fiscal year. In addition, FCC officials 

stated that because the agency had received only a limited number of 

comments to its 2008 FNPRM, FCC had decided not to undertake major 

reform at that time. However, as described above, federal guidance on 

user fees recommends that agencies review their fees biennially—

including the costs that the fees are reimbursing. Moreover, by not 

periodically analyzing FTEs by fee category and adjusting its division of 

regulatory fees based on this analysis, FCC may have put itself into a 

situation where, in order to adjust regulatory fees based on an updated

FTE analysis, FCC may have to figure out how to handle large swings in 

Effect of Fees on Industry 

and Consumers

Challenges Related to 

Regulatory Fee Reform
 

Page 22 GAO-12-686 Federal Communications Commission: Regulatory Fees

fees for some fee categories. For example, we found that when another 

agency waited 9 years before performing a review of its cost-based fees, 

the result was that the average fee increased by 86 percent, causing the 

new fee schedule to be widely questioned.33

Another issue, according to FCC officials, is that assigning regulatory 

costs among the 86 fee categories has become more challenging, given 

the increasingly cross-cutting nature of FCC’s work. Staff we spoke with 

in the Wireline, Wireless, and Media Bureaus stated that, generally, their 

work focuses on the industry sector directly related to their bureau, and 

that when FCC works on issues that cut across more than one bureau, 

staff from each relevant bureau will work together. However, staff in the 

Wireless and Media Bureaus stated that it would be very difficult to track 

their activities at the level of fee category. Moreover, staff we spoke with 

in the International and Enforcement Bureaus stated that their work was 

so cross cutting that they did not think it would make sense to track it 

according to industry sector—much less according to fee category. This 

issue is not isolated to FCC’s assessment of regulatory fees. In recent 

work, we found that the increasingly cross-cutting nature of FCC’s work 

has caused FCC to reconsider how to handle some regulatory activities.34

 

33 See GAO, Federal User Fees: Additional Analyses and Timely Reviews Could Improve 

Immigration and Naturalization User Fee Design and USCIS Operations, 

For example, as companies that once provided a distinct service (such as 

cable and telephone companies) have shifted to providing bundles of 

services (voice, video, and data services) over a broadband platform, new 

debates have arisen at FCC regarding how rules previously intended for a 

specific industry and service should be applied to companies now 

providing multiple services. These concerns bring up some additional 

questions—whether FCC’s use of 86 fee categories may also be obsolete 

in the current regulatory environment, and whether FCC’s difficulties in 

keeping its process current may be in part because its statutory 

framework is based on a telecommunications environment that no longer 

exists. However, since FCC has not attempted to track FTEs by fee 

category since fiscal year 1998, we were not able to determine the extent 

to which changes since fiscal year 1998—including the increasing amount 

of cross-cutting work—would affect FCC’s ability to distribute its FTEs 

GAO-09-180 

(Washington, D.C.: Jan. 23, 2009).

34GAO, FCC Management: Improvements Needed in Communication, Decision-Making 

Processes, and Workforce Planning, GAO-10-79 (Washington, D.C., Dec. 17, 2009).
 

Page 23 GAO-12-686 Federal Communications Commission: Regulatory Fees

among the fee categories or what the outcome of such an analysis 

would be.

In the fiscal year 2012 regulatory fee NPRM, released on May 4, 2012, 

FCC stated that it planned to undertake two separate NPRMs to consider 

reforms to the regulatory fee process. FCC stated that it would issue a 

Report and Order finalizing its decision on all issues raised in the reform 

proceedings, including new cost allocations and revised regulatory fees, 

in sufficient time to allow for their implementation in fiscal year 2013.35 On 

July 17, 2012, FCC released an NPRM on regulatory fee reform.36 As 

discussed in our agency comments section, this NPRM proposes some 

fundamental changes to FCC’s regulatory fee program that relate to many 

of the concerns raised in this report.

FCC has not been transparent in describing its regulatory fee process in 

its recent annual NPRMs and Reports and Orders. This lack of 

transparency has resulted in uncertainty among some industry 

associations about FCC’s regulatory fee process; some told us that the 

lack of transparency has made it more difficult for them to comment or 

provide input on FCC’s regulatory fee process. In prior work, we have 

reported that the regulatory process is used to provide information on 

fees to Congress and stakeholders and to solicit stakeholder input.

Therefore, we have reported that, when an agency has authority to adjust 

a fee through the regulatory process, as a first step towards improved 

transparency, it should make available to the public substantive 

information about recent and projected program costs and fee collections 

through its notices in the Federal Register. Relevant information includes 

the agency’s new fee rates, descriptions of the costs of the program, 

projected program costs and fee collections, and the assumptions the 

agency used to make those projections.37

FCC’s recent annual Reports and Orders on regulatory fees include 

FCC’s fee rates, along with the total FCC is required to collect as directed 

 

35In the Matter of Assessment and Collection of Regulatory Fees for Fiscal Year 2012,

FCC 12-48 (May 4, 2012).

36 In the Matter of Procedures for Assessment and Collection of Regulatory Fees, FCC 

12-77, July 17, 2012.

37GAO-08-386SP, p. 35. 

FCC’s Current Regulatory 

Fee Process Lacks 

Transparency
 

Page 24 GAO-12-686 Federal Communications Commission: Regulatory Fees

in its appropriations act and how much it expects to collect from each fee 

category. However, since FCC has not performed any current FTE 

analysis, there is no discussion of FCC’s current FTEs or costs related to 

each fee category. Moreover, FCC does not clearly explain in any of the 

Reports and Orders after fiscal year 2002 that the division of regulatory 

fees among fee categories is based on a fiscal year 1998 FTE analysis 

that was never updated. This lack of information in FCC’s regulatory-feerelated NPRMs and Reports and Orders has limited the ability of industry 

stakeholders to understand exactly how FCC has been determining its 

assessment of regulatory fees in recent years, and may have limited 

stakeholders’ ability to effectively provide input to this process.

Another area where FCC has not been transparent is in describing the 

effects of its adjustments on other fee payors. Each year, FCC’s 

regulatory-fee-related NPRMs and Reports and Orders include any 

proposed or actual adjustments and tables detailing the resulting 

regulatory fees for all payors. However, those tables have not explicitly 

shown how adjustments to the rates of certain fee categories have 

affected the rates of the other fee categories, or the total FCC must 

attempt to collect from other fee categories. Consequently, it is difficult to 

use FCC’s information to determine how FCC got from the previous 

year’s regulatory fee rates to the current year’s regulatory fee rates.

For example, in the fiscal year 2010 Report and Order, FCC stated that 

because the revenue base upon which the wireline telephone industry’s 

fee rate is calculated had been decreasing for several years, FCC had 

determined it would best serve the public interest to set the wireline 

telephone industry’s fiscal year 2010 fee rate at $0.00349 per revenue 

dollar. In a footnote, FCC elaborated that because the wireline telephone 

industry’s revenue data was lower than expected, if FCC had not decided 

to set the wireline telephone rate at $0.00349 per revenue dollar, the rate 

would have increased to $0.00364 per revenue dollar. However, FCC did 

not explain what this change in rates translated to in terms of the amount 

of revenue it expected to collect in fees from the wireline telephone 

industry. Moreover, while FCC stated in the Report and Order that 

reducing the fees paid by the wireline telephone industry would increase 

the fees paid by licensees in other service categories, and the resulting 

regulatory fees are detailed in FCC’s Report and Order, FCC did not 

specifically show the fee increase for each regulatory fee category 

caused solely by this policy decision. In November 2011, FCC officials 

told us that this policy decision had resulted in reducing the total expected 

fees to be collected from the wireline telephone industry by approximately 

$12 million, and that FCC instead attempted to collect this $12 million by 
 

Page 25 GAO-12-686 Federal Communications Commission: Regulatory Fees

raising the rates of all the other fee categories based on the existing 

division of fees among fee categories. This $12 million is reflected in the 

regulatory fee tables set forth in FCC’s Order. However, the limited 

information on how various adjustments affect each fee category reduces 

the ease with which industry stakeholders or other interested parties can 

understand the effects of FCC’s current process—including the policy 

decisions FCC has made without any updated FTE analysis.

On average, FCC collected 2 percent more each year in regulatory fees 

than it was required to collect in its annual appropriations acts over the 

past 10 fiscal years.38 FCC under collected regulatory fees in 1 year—

2003—and over collected regulatory fees in 9 years. For example, it 

overcollected regulatory fees by 5 percent—$13 million—in fiscal year 

2005. (See table 3.)

 

38In fiscal year 2002, FCC was directed to collect 89 percent of its appropriation in 

regulatory fees. In fiscal year 2003, FCC was directed to collect 99 percent of its 

appropriation. For fiscal years 2004 to 2008, FCC was directed to collect all but $1 million 

of its appropriation in regulatory fees, and since fiscal year 2009, FCC has been directed 

to collect 100 percent of its appropriation in regulatory fees. 

FCC Has Collected 

$66 Million in Excess 

Fees That Is 

Unavailable without 

Further Congressional 

Action

FCC’s Regulatory Fee 

Collections
 

Page 26 GAO-12-686 Federal Communications Commission: Regulatory Fees 

Table 3: FCC’s Regulatory Fee Collections, Fiscal Years 2002 to 2011 

(In millions) 

Fiscal Year 

Amount of regulatory 

fees FCC was 

required to collect

Amount of 

regulatory fees 

FCC collected 

Percentage difference 

between fees required 

to collect and 

fees collected

2002 $219 $220 1%

2003 $269 $266 -1%

2004 $273 $285 5%

2005 $280 $293 5%

2006 $299 $308 3%

2007 $290 $297 2%

2008 $312 $325 4%

2009 $342 $342a 0%

2010 $336 $342 2%

2011 $336 $342 2%

Source: GAO analysis of FCC data. 

a

FCC collected $81,000 more in regulatory fees than it was directed to collect in fiscal year 2009. 

According to FCC officials, FCC attempts to meet its regulatory fee target 

each year but is unable to ensure it will collect exactly the amount 

required by Congress because there are multiple variables that can affect 

the final amount collected. Key variables that can cause FCC to collect 

more or less than it expected are late payments, FCC’s use of preliminary 

data in setting fee rates, refunds, and bankruptcies. Regarding late 

payments, FCC counts all regulatory fee payments that arrive in a fiscal 

year as part of that year’s regulatory fee collections, even if the imposed 

assessment was incurred in a prior year. FCC officials stated that each 

year some entities do not pay the fees owed that year, while some 

entities pay fees owed from prior years. According to FCC officials, 

because in any given year, FCC does not know exactly how much of the 

year’s owed fees are not going to be paid in the year they are due, or how 

much in late payments will come in from prior years, late payments can 

affect the total amount of regulatory fees collected for the year. We found 

that the percentage of FCC’s total annual regulatory fee collections that 

was made up of late payments varied from 1 to 3 percent for fiscal years 

2005 to 2011. 
 

Page 27 GAO-12-686 Federal Communications Commission: Regulatory Fees

FCC’s use of preliminary data to set fees also can cause FCC to collect 

more or less than it expected and can at times lead to FCC’s having to 

refund companies some of their prior year’s fees, which can also affect 

the total collected. In order to charge fees based on current year data and 

to publish the final fee rates in the Report and Order in time for entities to 

pay by the end of the fiscal year, FCC must set the fee rate for some 

large fee categories—including wireline telephones, wireless telephones, 

and cable, among others—based on preliminary industry information. For 

example, until fiscal year 2011, FCC relied on preliminary estimates 

provided to FCC by wireline telephone entities to estimate the total 

amount of revenue dollars in the wireline telephone industry.39

In fiscal year 2011, FCC automated the input of annual revenue data 

provided by wireline providers to FCC so FCC would have actual instead 

of estimated revenue information to use in setting regulatory fees for 

wireline telephone companies. According to FCC officials, this change 

should improve FCC’s ability to predict how much total revenue wireline 

telephone entities will pay fees on, and therefore improve the accuracy of 

the rate it sets for the wireline telephone fee category in terms of meeting 

its target collection amount from that fee category. However, even so, 

wireline telephone entities can revise their final revenue numbers for an 

entire year after the revenue information has been submitted. According

to FCC officials, if some wireline telephone entities pay their regulatory 

fees based on the revenue information submitted in one fiscal year, but 

then revise their revenue numbers downward after the end of the fiscal 

year, the filer may be entitled to a refund in the following year, which also 

can affect FCC’s ability to collect exactly the targeted amount in the next 

fiscal year. According to FCC officials, refunds can be sought on other 

In 

combination with FCC projections based on past years’ collections and 

economic conditions, FCC set the wireline telephone fee rate based on 

this preliminary industry data. Wireline telephone entities determine the 

amount of fees they owe by multiplying the fee rate as published in FCC’s 

annual Report and Order by their final revenue dollars, as reported by the 

entities typically after FCC had already set the rate for the fiscal year. If, 

in aggregate, the total final amount of revenue dollars in the industry was 

significantly higher or lower than the estimate FCC used to set the fee 

rate, FCC would collect more or less than it expected.

 

39Only certain wireline telephone companies’ revenues are used in setting their fee. In 

this paragraph, we are referring to those revenues.
 

Page 28 GAO-12-686 Federal Communications Commission: Regulatory Fees

grounds, too, and such filings cannot be predicted by FCC. In addition, 

according to FCC officials, FCC is an unsecured creditor when it comes 

to a licensee filing for bankruptcy and FCC often does not receive unpaid 

assessments from the bankruptcy court. Therefore, bankruptcies can also 

affect FCC’s ability to collect its target amount.

Any regulatory fees collected above what FCC was directed to collect in 

its annual appropriations are considered excess fees. As explained 

earlier, since 2008, FCC’s annual appropriations have prohibited the use 

of any excess fees from the current year or previous years without an 

appropriation by Congress. Prior to fiscal year 2008, FCC’s annual 

appropriations stated that any excess regulatory fees remained available 

until expended. According to FCC officials, FCC obligated excess 

regulatory fees in fiscal years 1996 to 1998 to fund programs to help FCC 

with changes related to the year 2000 technology transition (sometimes 

referred to as Y2K), and it obligated excess regulatory fees from 2001 to 

200340 in order to meet critical physical security needs in fiscal year 

2004.41 According to FCC officials, FCC has deposited all excess fee

collections into a separate account with the Department of Treasury.42 As 

of fiscal year 2011, the account held approximately $66 million, which 

represents about 2 percent of the $2.9 billion FCC was required to collect 

in regulatory fees from fiscal year 2002 to 2010.43

 

40Disbursements from FCC’s excess regulatory fee account were made through fiscal 

year 2006.

FCC has collected on 

average $6.7 million in excess fees annually from fiscal year 2006 to 

2011, and so the account has steadily increased. FCC’s tendency to over 

collect rather than under collect regulatory fees over the past 10 years 

41FCC was unable to identify the purposes for which it obligated excess regulatory fee 

collection prior to fiscal year 1999 because FCC does not retain records prior to fiscal year 

2000. 

42According to FCC officials, for fiscal year 2003, the 1 year out of the past 10 that FCC 

under collected its regulatory fees (by $5 million, or about 2 percent), FCC reimbursed the 

Department of Treasury the amount that it collected in regulatory fees and notified the 

Department of Treasury and Congress. According to FCC officials, no further action was 

taken. As a result, FCC did not fully offset its appropriation for fiscal year 2003.

43At the end of fiscal year 2011, FCC’s excess collections account had a balance of $66

million dollars, of which $5.3 million dollars had been deposited prior to fiscal year 2002. 

Because of limitations with FCC’s data, GAO was unable to determine a year-by-year 

breakdown of excess collections for fiscal years prior to 2002. 

Excess Regulatory Fees
 

Page 29 GAO-12-686 Federal Communications Commission: Regulatory Fees

also suggests that as long as Congress does not provide for their 

disposition, total excess funds will continue to increase. Congress has not 

provided for the disposition of the funds.

According to FCC officials, FCC has reported to Congress and the 

Department of Treasury on its excess regulatory fees. However, FCC has 

not been fully transparent with regard to informing industry stakeholders 

or others about these excess fees. FCC officials stated that FCC has kept 

Congress informed of the excess fees during periodic briefings with 

appropriators, and FCC provides an annual report to Treasury that 

identifies the total amount of regulatory fees it has collected for the past 

year, including the extent to which its collections vary from the amount 

FCC is required to collect. FCC also published the amount of excess fees 

collected in its fiscal year 2011 Annual Financial Report and its fiscal year 

2013 budget estimate to Congress. However, FCC has not published the 

amount of excess fees collected in its NPRMs or Reports and Orders. In 

prior work, we have reported that the regulatory process is used to 

provide information on fees to stakeholders and to solicit stakeholder 

input.44 Therefore, when an agency has authority to adjust a fee through 

the regulatory process, it should make substantive information about 

recent and projected fee collections, among other things, available to the 

public through notices in the Federal Register. FCC has included 

projected fee collections for the current fiscal year in its NPRMs and 

Reports and Orders, but it has not disclosed the actual amount collected 

the prior year or disclosed any information on the total in excess fees

collected in previous years. As a result, some industry associations we 

spoke with were aware that FCC had collected excess regulatory fees, 

but most did not know that the amount of FCC’s excess collections had 

grown to about $66 million.

 

44GAO-08-386SP. 
 

Page 30 GAO-12-686 Federal Communications Commission: Regulatory Fees

We identified alternative approaches that could be instructive as FCC 

considers reforms to its regulatory fee process. These alternative 

approaches include (1) ensuring that the division of fees among fee 

categories is aligned with a reasonably current measure of the division of 

regulatory activities among fee categories, and (2) taking specific steps to 

promote transparency in the regulatory fee process. In addition, we 

identified how these agencies are applying any excess fees.

We identified these alternative approaches through examining the 

regulatory fee processes of five other regulatory fee-funded agencies in 

the U.S. and Canada: the Nuclear Regulatory Commission (NRC), 

Federal Energy Regulatory Commission (FERC), Farm Credit 

Administration (FCA), Canadian Radio-television and 

Telecommunications Commission (CRTC), and the Canadian Nuclear 

Safety Commission (CNSC). Because these agencies perform regulatory 

functions and recover many, if not all, of their costs through annual fees 

paid by regulated entities, we believe their processes may be instructive 

to FCC and Congress in considering reforms to FCC’s current regulatory 

fee process. In addition, while four of the agencies regulate different 

industries, CRTC regulates some of the same industries as FCC, 

including, according to CRTC officials, the telecommunications industry—

which encompasses wireline and wireless telephone providers—and the 

broadcast industry—which encompasses radio, television, and cable 

distribution operators. Each of the five agencies, like FCC, has different, 

specific statutory authority authorizing its collection of annual regulatory 

fees to help fund the agency or to reimburse the Department of Treasury 

for its annual appropriation.45 FERC, for example, which has regulatory 

authority over the hydropower, oil pipeline, natural gas, and electric 

industries, derives its fee-collecting authorities from the Federal Power 

Act for the hydropower industry and the Omnibus Budget Reconciliation 

Act of 1986 for the oil, natural gas and electricity industries.46

 

45Some of the agencies also collect hourly fees for specific regulatory work done in

addition to the annual regulatory fees which are the focus of this report.

Nevertheless, we believe approaches used by these agencies may be 

instructive for FCC as it considers reforms to its regulatory fee process.

For more information on the criteria used to select these agencies, see 

appendix I.

46See Act of June 10, 1920, ch. 285, 41 Stat. 1063 (codified at 16 U.S.C. § 803, § 823a) 

and Pub. L. No. 99-509, § 3401, 100 Stat. 1874 (1986) (codified at 42 U.S.C. § 7178).

Alternative 

Approaches Could Be 

Instructive as FCC 

Considers Reforms to 

Its Regulatory Fee 

Process
 

Page 31 GAO-12-686 Federal Communications Commission: Regulatory Fees

As we described previously, FCC has acknowledged the need to revisit 

its division of fees among fee categories to reflect regulatory and staffing 

changes that have occurred since 1998. However, it has not yet done so.

We found that NRC, CRTC, and FERC divide fees among fee categories 

based on current or recent data by industry sector. The other two 

agencies we met with either have only one fee category (FCA) or do not 

collect most fees through a rate assessed to a category of fee payors 

(CNSC).

According to officials at NRC, CRTC, and FERC, each agency aligns its 

assessment of annual fees by industry sector with an annually or 

biennially updated analysis of costs by industry sector. Officials at NRC 

specifically stated that keeping the agency’s fees aligned with annually or 

biennially updated costs was essential to ensuring that the fees were fair 

and equitable. If one industry sector gets more in services or regulatory 

activities from NRC in one year compared to the previous year, then that 

sector will pay a higher proportion of the total regulatory fees. NRC 

officials stated that they consider it part of NRC’s mission as a regulatory 

agency to ensure that the link between costs and fees is apparent, and 

officials at both NRC and CRTC told us that it is important that the 

regulated industries understand the rationale for the assessed fees. As 

stated previously, the Communications Act identifies FTEs as FCC’s

basis for deriving regulatory fees. Nevertheless, the methods these three 

agencies use to keep their alignment of costs and fees updated may be 

instructive to FCC.

According to NRC officials, NRC updates its cost analysis for its larger fee 

categories annually and its smaller fee categories biennially. The officials 

added that NRC’s regulatory fees are based on the proportional cost of 

direct and indirect services provided to an industry sector, as determined

by NRC’s program offices, compared to the total fee-funded budget—and 

there is a direct link between the resources planned in the budget and the 

distribution of regulatory fees. For example, NRC officials stated that 

because the nuclear reactor category accounted for approximately 88 

percent of the NRC fee-funded budget in fiscal year 2010, the nuclear 

reactor category was responsible for approximately 88 percent of the fees 

collected for fiscal year 2010. NRC officials told us that because they 

analyze costs for NRC’s larger fee categories annually and revise their 

division of fees accordingly by industry sector, at times an industry 

sector’s proportion of fees has risen or fallen compared to the previous 

year. However, NRC officials stated that the industries they regulate are 

generally aware of what work NRC plans to do related to each industry 

Ensuring Data Used to 

Align Fees with Regulatory 

Activities Is Reasonably 

Current
 

Page 32 GAO-12-686 Federal Communications Commission: Regulatory Fees

sector—in part because NRC informs industry of its plans during its 

budget process.

CRTC also links the division of its fees by fee category to its costs for 

regulating each fee category, and CRTC updates its cost analysis and its 

fee assessment annually. One element of CRTC’s process that may be 

instructive to FCC in considering reforms is that while according to CRTC 

officials, CRTC regulates many of the same converging industries in 

Canada that FCC regulates in the United States, CRTC has only two fee 

categories for assessing regulatory fees: telecommunications and 

broadcast. Like FCC, CRTC regulates wireline telephone, wireless 

telephone, direct broadcast satellite and cable television operators, 

broadcast television, and radio.47

In another example, CRTC’s telecommunications fee category 

encompasses wireless telephone services and wireline telephone 

services. The rate for the telecommunications fee category is set on the 

same basis used to set the rate for the broadcast industry—the licensee’s 

fee revenues for the most recently completed year. In contrast, FCC has 

separate fee categories for wireless telephone services and wireline 

telephone services—and the two fee categories pay different rates set on 

different bases, with the wireless telephone rate set on a per-subscriber 

basis and the wireline telephone rate set on a per-revenue-dollar basis.

However, CRTC has one broadcast fee 

category that includes radio stations, television stations, and cable and 

direct broadcast satellite television operators. All pay the same rate on 

the same basis—the licensee’s fee revenues for the most recently 

completed year. In contrast, FCC has 62 fee categories for the same 

broadcasting services, and different bases for different fee categories, 

including, among others, a flat fee for each fee category of broadcast 

television and radio station, a per-subscriber fee rate for cable television, 

and a per-satellite fee rate for direct broadcasting satellite television 

operators.

CRTC officials told us that having two fee categories—both with fee rates 

determined on the basis of revenue—makes it relatively easy for CRTC to 

align costs to a fee category, even given the increasing convergence of 

industry and the cross-cutting nature of CRTC’s work. CRTC officials told 

 

47Some of the industry sectors FCC regulates are regulated in Canada by another 

Canadian agency, Industry Canada, including the submarine cable industry. In addition, 

unlike FCC, CRTC does not manage spectrum, which is managed by Industry Canada.
 

Page 33 GAO-12-686 Federal Communications Commission: Regulatory Fees

us they track CRTC’s direct costs according to these fee categories in 

CRTC’s activity-based cost system annually. Because most missionrelated staff are assigned to work centers aligned with either the 

broadcasting or the telecommunications industries, CRTC officials said it 

is administratively easy to track costs according to these fee categories.

For staff working on cross-cutting issues related to both categories, 

management estimates how much time each staff has spent on each of 

the two fee categories.48

FERC also tracks its costs by industry sector and fee category annually 

and then assesses fees in alignment with its costs. FERC officials told us 

that FERC’s time and attendance system tracks the time staff spends 

directly on each fee category through activity codes aligned with particular 

fee categories. This assessment of time spent on each industry forms the 

basis of the assessment of fees. Similar to CRTC, indirect costs are 

assessed among the fee categories based on the assessment of direct 

costs incurred by industry sector.

CRTC then divides the total amount in fees it 

must collect between the two fee categories based on its costs 

associated with each fee category. Indirect costs for internal services 

provided to the entire agency—such as, among other things, human 

resources, legal services, and accounting—are divided among the two 

fee categories consistent with the distribution of direct costs.

NRC takes specific steps that facilitate industry and public understanding 

of how the agency distributes and assesses regulatory fees that go 

beyond FCC’s provision of information on this topic. NRC officials stated 

that NRC’s chief financial officer has consistently emphasized the 

importance of transparency in setting fees. According to NRC officials, 

transparency is important because the fees impact NRC’s stakeholders, 

and therefore stakeholders should be able to understand how the fees 

are derived. While both FCC and NRC publish NPRMs and Final Orders 

regarding each year’s fees, NRC also publishes the workpapers it has 

used to determine the fees and rates in its NPRMs and Final Orders to 

 

48Before CRTC began estimating the time staff spent on cross-cutting issues, officials told 

us they had used an activity-based costing system to account for all staff time spent on 

each category. CRTC leadership later asked the managers in each category to estimate 

the distribution of staff time. According to officials we met with, the estimates were close 

enough to the results of the activity-based costing system that CRTC determined it wasn’t 

cost-effective to continue using its activity-based costing system for this purpose.

Making the Assessment 

Process Transparent
 

Page 34 GAO-12-686 Federal Communications Commission: Regulatory Fees

further promote transparency. These workpapers contain detailed cost 

data that form NRC’s basis for setting its fees for each industry sector.

NRC’s website has a link to an electronic docket that contains its 

regulatory-fee-related NPRM, Final Order, and workpapers, such that one 

can see how NRC went from its detailed cost data to its final fee-setting 

rule. As described previously, in recent years, FCC has not included this 

level of detail in its NPRMs and Reports and Orders related to its 

regulatory fees. Moreover, in addition to providing these supporting 

workpapers on its website, NRC staff told us they also meet with industry 

stakeholders periodically to help ensure the stakeholders understand the 

assessment process and how the fee rates are determined.

As mentioned earlier, FCC may not obligate any excess fees it receives 

without an appropriation from Congress. In contrast, officials at all five 

agencies we met with told us their agency has a form of annual 

adjustment or “true-up” mechanism such that any excess fees collected 

are either applied as an adjustment to the next year’s fees or are 

refunded. Four of the five agencies apply any excess fees collected 

toward the next year’s fee assessment, while one agency issues a refund. 

For example, according to NRC’s fiscal year 2011 Annual Financial 

Report, NRC applies collections that exceed its budget authority to offset 

subsequent years’ appropriations. According to FERC officials, at yearend, FERC calculates a required subsequent year adjustment based on 

the difference between the amounts assessed and actual costs. CRTC 

officials told us that they make an adjustment to the subsequent year’s 

assessments based on the difference between the fees collected—based 

on estimated costs—and annual expenditures. FCA officials stated that 

FCA also makes adjustments for overpayments in the current year to fees 

owed the following year. Lastly, CNSC officials told us they refund fees 

collected in excess of actual costs. As a result of these procedures, the 

fees paid to these five agencies are ultimately used to fund the regulatory 

agency or are refunded.

The Communications Act states that FCC is to derive regulatory fees from 

the number of FTEs in certain bureaus performing regulatory activities, 

but the act does not specifically state how frequently FCC must 

reexamine its FTEs to assure its regulatory fees are aligned with FCC’s 

current work priorities. FCC has relied on this lack of clarity to justify 

continuing to use 1998 data as the basis for its assessment of regulatory 

fees—in spite of the vast changes to the telecommunications industry that 

have occurred, including significant convergence of technologies and 

Handling of Excess Fees

Conclusions
 

Page 35 GAO-12-686 Federal Communications Commission: Regulatory Fees

changes in the nature of the industries that FCC regulates. Federal user 

fee guidance, accounting standards, and the practices of other agencies 

we met with all stress the importance of using timely, regularly updated 

data to guide decisions, with federal user fee guidance directing agencies 

to review user fees biennially to assure that charges are adjusted to 

reflect changes that have occurred. In addition, although FCC has made 

incremental changes to the fee schedule first established in the 

Communications Act and implemented by FCC in fiscal year 1994, FCC 

has not considered more holistic changes to the way regulatory fees are 

assessed. In part, FCC’s difficulties in keeping its process current may be 

because its statutory framework is based on a telecommunications 

environment that no longer exists. The large number of fee categories—

86 in fiscal year 2011—may have contributed to FCC’s difficulties in 

keeping the division of fees aligned with the current regulatory activities 

on which it spends its time. Furthermore, FCC’s lack of transparency in 

disclosing its methodology for dividing regulatory fees among fee 

categories and the different methodologies FCC uses to calculate fee 

rates for different industries have made it difficult for stakeholders to 

understand and comment on FCC’s decisions related to its regulatory fee 

process.

On July 17, 2012, FCC released an NPRM on regulatory fee reform, 

which, as described in our agency comments section, contains proposals 

that respond to many of the concerns raised in this report. The processes 

of other regulatory fee-funded agencies, both in the United States and 

internationally, may be instructive for FCC as it considers such issues as 

re-aligning its division of regulatory fees and increasing the transparency 

of the process. We acknowledge the inherent difficulties in reforming the 

process. Because of the zero-sum nature of FCC’s regulatory fees, any 

significant changes to FCC’s assessment of regulatory fees among 

industry sectors and fee categories would most likely result in fee 

increases for some sectors and fee decreases for other sectors. Not only 

is this likely to be controversial to some industry stakeholders, but this 

change—and any analysis required to better align regulatory fees to 

FCC’s division of FTEs by fee category—is likely to be time consuming 

and require some FCC resources, if done comprehensively. Some 

potential changes, such as changes to the bases on which FCC assesses 

regulatory fees—could add new administrative burdens on FCC or 

industry stakeholders. The likely effects of changes to its current fee 

assessment will need to be carefully analyzed by FCC. In releasing the 

regulatory fee reform NPRM, FCC has taken an important first step in this 

challenging reform effort, but significant analysis and decisions remain to 

be made by FCC.
 

Page 36 GAO-12-686 Federal Communications Commission: Regulatory Fees

Lastly, over time, FCC has collected approximately 2 percent more on 

average than is required in its annual appropriations acts. Because recent 

annual appropriations do not permit FCC to use any of these excess fees 

without congressional action, they currently have grown to $66 million 

and, absent any change in FCC’s statutory authority and method of 

collecting fees, are likely to continue to increase. The decision of how to 

dispose of these excess regulatory fees as well as how to handle any 

future excess collections is a policy choice for Congress to make.

Congress should consider whether FCC’s excess fees (approximately 

$66 million through fiscal year 2011) should be appropriated for FCC’s 

use, or, if not, what the disposition of these funds should be, and whether 

to change FCC’s annual appropriations language to permit reconciliation 

of excess collections or to govern FCC’s handling of any future excess 

collections.

We recommend that the Chairman of the FCC, as part of FCC’s effort to 

reform its regulatory fee process, take the following three actions:

• Determine whether and how the current fee schedule should be 

revised—including an overall analysis of the appropriate number of 

categories and bases for calculating rates—to reflect the current 

telecommunications industry and FCC’s regulatory activities, and in 

consideration of the processes of other regulatory fee-funded 

agencies that may be instructive, including, if appropriate, proposing 

to Congress any needed changes to its current statutory authority.

• Perform an updated FCC FTE analysis by fee category and establish 

a process to assure that the FTE analysis be performed at least 

biennially, consistent with federal guidance on user fees.

• Increase the transparency of FCC’s regulatory fee process by 

describing in each future year’s NPRM and subsequent report, in 

sufficient detail for stakeholders to understand, the methodology and 

analysis used to divide fees among fee categories, including the year 

any FTE data used was collected, any additional information needed 

to explain the effect of other adjustments, and the amount of excess 

fees collected.

Matter for 

Congressional 

Consideration

Recommendations for 

Executive Action
 

Page 37 GAO-12-686 Federal Communications Commission: Regulatory Fees

FCC provided written comments on a draft of this report by letter dated 

July 17, 2012. These comments are summarized below and are reprinted 

in appendix II. FCC agreed with our recommendations and stated that an 

NPRM on regulatory fee reform, released on July 17, 2012, addressed

them. FCC stated that the NPRM sets forth three goals to guide FCC in 

its reform initiative: fairness, administrability, and sustainability. FCC 

stated that to achieve these goals, the Commission has proposed a 

series of fundamental changes to its regulatory fee program that include, 

but are not limited to, proposals contained in our recommendations. For 

example, FCC stated that, consistent with our recommendations, the 

NPRM seeks comment on (1) using updated fiscal year 2012 FTE data to 

calculate regulatory fees, (2) whether reducing the number of regulatory 

fee categories would be advisable, and (3) whether the different bases on 

which regulatory fees are currently calculated should be reduced or made 

uniform among all services. FCC stated that, consistent with our 

recommendation to consider the processes of other regulatory fee-funded 

agencies, it would place a copy of our final report in the record of the 

rulemaking so that interested parties could comment on our 

recommendations and analyses. Regarding our recommendation that 

FCC review its division of FTEs at least biennially, FCC stated that its

NPRM seeks comment on the frequency with which FCC should revisit its 

division of FTEs, such as annually. Furthermore, FCC stated that it would 

implement our recommendation to increase the transparency of its 

rulemaking process in its next annual regulatory fee proceeding, for fiscal 

year 2013. Finally, regarding our matter for congressional consideration 

related to excess fees, FCC stated that should Congress decide to 

examine these or any other issues regarding regulatory fees, FCC would 

provide any information Congress may request. We recognize that the 

proposals contained in FCC’s NPRM are responsive to our 

recommendations. In light of FCC’s lack of action after its 2008 FNPRM

on regulatory fee reform, it remains critical that FCC continue to move 

forward on analyzing its proposals and determining how best to update its 

regulatory fee process. 

Agency Comments
 

Page 38 GAO-12-686 Federal Communications Commission: Regulatory Fees

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

date of this report. At that time, we will send copies to the Chairman of 

FCC and other interested parties. In addition, the report will be available 

at no charge on the GAO website at http://www.gao.gov. 

If you or your staffs have any questions about this report, please contact 

me at (202) 512-2834 or goldsteinm@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made major contributions to 

this report are listed in appendix III.

Mark L. Goldstein

Director

Physical Infrastructure Issues 
Appendix I: Objectives, Scope and 

Methodology

Page 39 GAO-12-686 Federal Communications Commission: Regulatory Fees

In response to your request to review FCC’s regulatory fee process, we 

examined (1) FCC’s process for assessing regulatory fees among 

industry sectors and the results of this process, (2) FCC’s regulatory fee 

collections over the past 10 years compared to the amount it was directed 

to collect by Congress, and (3) alternative approaches to assessing and 

collecting regulatory fees that could be instructive for FCC as it considers 

reforms to its process.

In examining FCC’s regulatory fee process, we reviewed relevant federal 

statutes, federal appropriations acts, congressional reports and hearing 

transcripts, FCC documents, and GAO reports. We spoke to 

stakeholders, including officials at FCC, industry trade associations, and 

fee-paying companies. Specifically, among others, we reviewed the 

following documents:

• Statute establishing FCC’s regulatory fee-collecting authority (Section 

9 of the Communications Act of 1934)

• FCC’s appropriations acts, fiscal years 1994 to 2011

• Conference Report to Accompany the Federal Communications 

Commission Authorization Act of 1991, Sept. 17, 1991

• Hearing transcript, House Energy and Commerce Subcommittee on 

Communications and Technology Hearing on President Obama’s 

Fiscal 2013 Budget Proposal for the Federal Communications 

Commission, February 16, 2012

• FCC Notices of Proposed Rulemakings, Further Notice of Proposed 

Rulemaking, and Reports and Orders related to FCC’s collection of 

regulatory fees, fiscal years 1994 through 2012

• FCC budget justifications, fiscal years 2005 to 2013

• FCC internal documentation of its regulatory fee methodology

• FCC internal documentation related to its core financial system, 

Genesis

• FCC strategic plans, 2009 to 2014 and 2012 to 2016

• FCC annual financial reports, fiscal years 2010 and 2011

Appendix I: Objectives, Scope and 

Methodology 
Appendix I: Objectives, Scope and 

Methodology

Page 40 GAO-12-686 Federal Communications Commission: Regulatory Fees

• Prior GAO work on FCC, regulatory agencies, and user fees

• Federal guidance on user fees and cost accounting, including the 

Office of Management and Budget’s Circular No. A-25 and the 

Statement of Federal Financial Accounting Standards 4. 

We also spoke with stakeholders from the following entities:

• FCC—Office of the Managing Director, Enforcement Bureau, 

International Bureau, Media Bureau, Wireless Telecommunications 

Bureau, Wireline Competition Bureau

• Two former FCC commissioners

• Industry associations—American Association of Paging Carriers, 

CTIA-The Wireless Association, Independent Telephone & 

Telecommunications Alliance, National Association of Broadcasters, 

National Cable and Telecommunications Association, US Telecom

• Fee-paying Companies—Commonwealth Broadcasting, Critical Alert 

Systems, DIRECTV, Gannett Company Inc./Multimedia Holdings 

Corp., Intelsat, KRIS-TV, Level 3 Communications, Mainline 

Broadcasting, Midcontinent Media, People’s Telco, Quincy 

Newspapers (regarding its TV and radio interests), Southern Utah 

Telephone Company, Windstream Communications, and WUBU-FM

To select the fee-paying companies (listed above) to interview about their 

perspectives on FCC’s regulatory fee process, we began with a list of 

companies provided by FCC. Our criteria for selecting companies from 

the FCC list were as follows:

• companies from each industry sector (wireless, wireline, broadcasting, 

cable, international);

• companies from a variety of fee codes within the industry sectors; and

• an emphasis on small companies, as they may be less well 

represented in associations, less likely to submit public comments to 

regulatory fee rulemakings, and regulatory fees may impact them 

more.

Within each industry sector and fee category, we selected companies 

using these criteria and a few additional constraints. For example, if an 
Appendix I: Objectives, Scope and 

Methodology

Page 41 GAO-12-686 Federal Communications Commission: Regulatory Fees

FM radio station in a small market appeared to be owned by a company 

that also owned a station in a large market, then we treated it as large. 

Also, in most cases, companies were selected based on the fee 

categories in which they conducted their primary business, not on 

secondary business they might also have conducted.

To understand FCC’s regulatory fee collections over the past 10 years 

compared to the amount it was directed to collect by Congress, we (1) 

met with officials to discuss FCC fee collection process and timeline and 

(2) analyzed FCC regulatory fee collection data from FCC’s internal 

financial system, Genesis, by FCC’s “payment type code” from fiscal year 

2002 to fiscal year 2011. We assessed the reliability of the data through 

reviewing documentation on Genesis, and through interviews 

supplemented with questionnaires to knowledgeable agency officials on 

Genesis and related internal controls. We determined that the data were 

sufficiently reliable for determining FCC’s total regulatory fee collections, 

including by industry sector, for fiscal years 2002 through 2011, and for 

determining the amount of late payments in each of those years. We 

compared this fee collection data with the amount Congress appropriated 

to FCC for each respective year. FCC’s payment type codes are codes 

FCC assigns to identify the fee category for which a regulatory fee 

payment is associated with. FCC officials also provided us with a crossreference that associated payment type codes with the main industry 

sectors used in our review (i.e., Broadcast, Cable, Wireline, Wireless, and 

International.) Subsequently, we analyzed the fee payment data by 

industry sector to understand the extent, if any, to which excess fees 

collected were associated with a particular industry sector and to analyze 

the influence of late payments on the total amount collected. We also 

spoke with a budgeting and forecasting expert, who provided background 

information and context related to FCC’s use of estimates and forecasts 

in setting regulatory fees.

To identify alternative approaches to FCC’s regulatory fee process that 

could be instructive as FCC considers reforms to its current process, we 

reviewed the regulatory fee processes of several foreign and domestic 

federal agencies. In selecting comparative agencies, we narrowed our 

scope to those agencies that were similar enough to FCC in mission and 

fee process such that possibly instructive alternatives could be identified.

FCC is an independent agency that regulates interstate and international 

communications by radio, television, wire, satellite and cable, and that 

assesses annual regulatory fees to offset its entire annual appropriation 

from Congress. We therefore selected independent regulatory 

commissions that recover the majority or all of their costs through annual 
Appendix I: Objectives, Scope and 

Methodology

Page 42 GAO-12-686 Federal Communications Commission: Regulatory Fees

fees assessed on regulated entities, including, in the U.S., the (1) Nuclear 

Regulatory Commission, (2) Federal Energy Regulatory Commission, and 

(3) The Farm Credit Administration. In order to include an agency that

regulates industries that are similar to those regulated by FCC, we also 

included (4) the Canadian Radio-television and Telecommunications 

Commission (CRTC). Lastly, after receiving a recommendation from an 

official at CRTC, we included (5) the Canadian Nuclear Safety 

Commission, the Nuclear Regulatory Commission’s Canadian 

counterpart.

We conducted this performance audit from May 2011 to August 2012 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.
Appendix II: Comments from the Federal 

Communications Commission 

Page 43 GAO-12-686 Federal Communications Commission: Regulatory Fees

Appendix II: Comments from the Federal 

Communications Commission
Appendix II: Comments from the Federal 

Communications Commission 

Page 44 GAO-12-686 Federal Communications Commission: Regulatory Fees
Appendix II: Comments from the Federal 

Communications Commission 

Page 45 GAO-12-686 Federal Communications Commission: Regulatory Fees
Appendix III: GAO Contact and Staff 

Acknowledgments

Page 46 GAO-12-686 Federal Communications Commission: Regulatory Fees

Mark L. Goldstein, (202) 512-2834 or goldsteinm@gao.gov

In addition to the contact above, Tammy Conquest (Assistant Director), 

Juan P. Avila, Russell Burnett, Patrick Dudley, Fred Evans, Colin Fallon, 

Bob Homan, Bert Japikse, Jacqueline M. Nowicki, Joshua Ormond, Steve 

Rabinowitz, and Alwynne Wilbur made key contributions to this report.

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments

(543287)
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