Crimes of Persuasion

Schemes, scams, frauds.

Investment Fraud using FCC Licenses for Radio Frequencies


In recent years, the reallocation of the telecommunications airwaves by the Federal Communications Commission (FCC) has resulted in a number of major federal lotteries and auctions for new and largely untested technologies.

Given the media enhanced allure of the "information superhighway," promoters of investment schemes were quick to realize that these "sexy" new high-tech opportunities could be peddled to novice investors who are unaware of the enormous risks and uncertainties involved.

The Pitch

Potential investors are solicited to purchase an interest ina general partnership, limited liability partnership or corporation that will participate in an upcoming FCC auction.

You are told that the federal government has set aside licenses for small businesses, that licensees will see quick and significant revenues from system operations, or that major telecommunications firms will eventually pay millions of dollars to buy the licenses from you.

They will make comparisons to the profits earned by investors in cellular or other FCC licenses.

They deceptively portray that mere ownership of FCC licenses or communications businesses are golden opportunities to participate in the industry without substantial capital or business experience.

These FCC-licensed partnership brokers may also tell you they're raising capital to acquire a communications business that can be enhanced with new technology and turned into a competitive high-tech enterprise to be sold or developed for huge profits.

They say you can make a lot of money with little financial risk just by "owning airwaves" — without even developing communications systems.

Turning Air into Money or Money into Air?

A broker has you considering investing in a license for a wireless telecommunications service.

They say that the owner of a Specialized Mobile Radio license, obtained by using their services, will be able to easily and profitably lease the license to another party, (called a "systems operator")  who will provide all the equipment and funds necessary to make the system operational at no cost to you, the license holder.

They also say that the SMR license they will obtain for you is as valuable as a cellular phone license; will provide service comparable to, or better than, that currently available to cellular  phone users; that an investment in their partnership is an excellent investment likely to yield over $2,520 per year in income per unit at a cost of only $8,750 each; and that many investors have purchased more than one unit.

"Specialized mobile radio is used as an alternative to cell phones but it costs the end- user 30-50% less to make calls. They're also going to be able to do a lot of things that they can't do with cellphones."

"We're only applying in areas where there is already a systems operator who has his tower up and operating and who's looking for more licenses."

"They're going to want y our license. They're going to throw bushel baskets of money at you, and the great thing is, you own and control your own license 100%."

"See, one of the things that makes this such an attractive opportunity is that by law, in any new licensing area you can't own more than one channel until the licenses have been awarded. You can only own that one channel."

"In order for them to use your channel and the system, they have to pay you. That is your air wave. You own it. You can sell it down the road if you want. The government can't take it away from you . . . . It's yours forever."

"We not only fill out the applications for you, we ensure that you'll make money."

"If you want to determine what you're making, you divide $8,750, which would be the unit purchasing price, into $2,520, the annual dividend, and you'd get 28% profit. . . . So, when you're getting 3 or 4% in that bank or CD, and you could get 28% return on your money, that would be outstanding, wouldn't it?"

Contrary to their assertions, some individuals and entities own licenses for more than one hundred SMR channels in one geographical area.

A current holder may apply for and receive permission to use additional SMR frequencies, such as those offered, directly from the FCC and need not ever lease them from other license holders.

Most of the SMR licenses for which they are applying are not even that valuable and are not likely to be worth anywhere near what they say.

A person may obtain an SMR license, like those promoted, on their own, directly from the FCC for approximately $200.

Because the technological capabilities of these systems are inferior to the capabilities of current cellular systems in several important respects, it is highly unlikely that they will be able to compete successfully with existing providers of cellular phone services.

The Reality

Typically, the promoters of these investments take most of the money for their own profits and expenses, leaving investors with little capital to participate in the auctions.

If a license is acquired, it requires millions of dollars more to have even a slim chance of turning a profit.

The technology promised may also be unavailable, unworkable or too costly.

You may also be encouraged topurchase licenses, through the promoter, from a private party who has acquired them at auction.

The auction prices of the licenses are not disclosed to you, allowing the promoters to reap a huge profit on the resale of the licenses to the investor group.

For example, a license won at auction for $500,000 may be sold to a group of unwitting investors a few months later for $5 million.

Promoters may also sell unlimited partial interests in a license to increase their profits.

Mere ownership of an FCC license does not guarantee success in the marketplace.

An FCC auction represents an opportunity to become an FCC licensee who must, in turn, develop a communications system to make the license valuable while complying with FCC rules.

An FCC license is simply permission to use radio airwaves to provide communications services and is subject to certain conditions and regulations.

License Application Services often charge consumers thousands of dollars to apply for FCC licenses.

They say that legitimate communications companies will lease or buy your licenses, even though such a market rarely exists.

Partnerships and Limited Liability Companies (LLCs), also have been formed, supposedly to raise capital to develop communications systems for wireless cable, interactive video, or mobile phone services.

After most of the money raised goes to the scammers' profit and marketing expenses consumers are left in need of substantial additional capital to operate the business and provide the types of services promoted such as:

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- They claim that paging companies will lease paging licenses from you to provide lucrative, two-way paging services to the public when, in fact, no such leases are likely.
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Specialized Mobile Radio (SMR)
- They describe these licenses as frequencies that can be developed to compete with cell phone companies, but the blocks they are promoting are incapable of accommodating enough telephone traffic to allow such competition.
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Wireless Cable
. Investors — who typically receive frequencies of little value and questionable capacity to provide competitive cable services — would have to spend millions more developing cable systems to compete against established wired-cable operators and satellite TV broadcasters.
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Interactive Video and Data Service (IVDS)
Scam artists raise funds from investors to bid for licenses and develop IVDS systems, touting services IVDS can't perform, such as "movies on demand." They leave investors with little or no capital to develop a system or complete the payments to the FCC for the licenses they were to receive.

As new radio frequencies are licensed, such as for Personal Communication Services (PCS), these scams are likely to continue.

It is important to understand the risks involved in such investments and the obligations you would have as a license holder.

You may be required to spend more money to comply with FCC rules as big communications companies are competing with you, applying for their own licenses and developing their own systems.

blue bullet point Be cautious of investment promotions comparing your potential investment to those made by well-known businesses and individuals. These investors generally achieved their gains by investing thousands, if not millions, of dollars developing communications business over decades, not by giving their money to telemarketers.
blue bullet point Be wary of claims that you can apply for a license and let other companies buy, lease, and develop it. In almost all instances, the FCC prohibits the acquisition of licenses for speculation or profitable resale. Moreover, in all instances the FCC requires the license holder to construct an appropriate communications system for the license, usually within one year.
blue bullet point Beware of telemarketers who emphasize the "bells and whistles" of cutting-edge technology. Fraudulent FCC-application preparers often falsely describe one-way, shared paging licenses as two-way paging and mobile phone service frequencies.