If youre considering investing in a license
for a wireless telecommunications service, be wary. The Federal Communications Commission
(FCC), which grants licenses for radio frequencies to private and commercial parties in
the United States, uses auctions to select among competing applications for certain
licenses. Although auctions are a fair and efficient way to grant licenses, the Federal
Trade Commission (FTC) has found that some individuals are promoting fraudulent
investments in licenses auctioned by the FCC.
In some license scams, potential investors are solicited to purchase an interest in
a general partnership, limited liability partnership, or limited liability corporation
that will participate in an upcoming FCC auction. Investors often 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 eventually will pay millions of dollars to buy the licenses from
them. Typically, the promoters of these investments take most of the money for their own
profits and expenses, leaving the investors with little capital to participate in the
auctions and, if a license is acquired, an insufficient amount to launch a
In other scams, investors are encouraged to purchase licenses, through the
promoter, from a private party who acquired them at auction. The auction prices of the
licenses are not disclosed to investors, allowing the promoters of the investment 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 also may sell partial interests in a license to increase
What You Need To Know
- Ownership of an FCC license does not guarantee success in the marketplace. An FCC
auction represents an opportunity to become an FCC licensee. The FCC license is subject to
certain conditions and regulations. An FCC auction is not an endorsement of any particular
services, technologies or products. Indeed, the FCC neither approves individual
investment proposals, nor makes any representations or warranties about the use of the
wireless spectrum for certain services.
- Homework counts. Investigate the technology, the potential of licenses to produce
revenues, and applicable FCC rules, as you would with any new business venture. Licenses
issued by the FCC do not necessarily appreciate in value, and some communications ventures
may not achieve profitability. Dont invest in any business opportunity unless you
are aware of the risk. Keep in mind that the manner in which you invest could expose you
to additional financial liability.
- Dont make assumptions. If the venture youre considering is supposed
to participate in an upcoming FCC auction, be sure the auction has been scheduled by the
FCC, that the service youre interested in is to be included in the auction, that the
venture is registered with the FCC as a "qualified bidder" in the auction, and
that the venture has sufficient funds to pay for its licenses and the significant start-up
costs of a new communications business. Ask to see and review all applicable Public
Notices and other public documents issued by the FCC regarding the particular auction you
have been invited to participate in. Many of these documents are available on the FCC
website. Media reports on the market potential of the licenses to be auctioned also may be
- The FCC has important information. If the venture promises to acquire
previously-auctioned licenses from a private party, contact the FCC for information
regarding the history of the license. Find out who acquired the license at auction and the
auction price. Get the names of all parties to whom the license has been
transferred since the auction. Research whether any increase in the license price
- Determine what percentage of your investment will be retained by the investment
promoters for their profits and expenses. It may be much higher than you would expect or
- Check out sales claims. Ask questions and take time to check out the answers
before you commit funds to the venture or send any money. Consult with your family,
investment advisor, attorney, friends with financial savvy, and with the sources listed
Frauds involving FCC licenses often are very sophisticated and can be difficult for
potential investors to detect. However, some business practices should raise red flags.
Exercise extreme caution if you get:
- Offers to invest in general partnerships, limited liability partnerships, and
limited liability corporations, with a minimum investment of less than $25,000.
- Television and radio advertisements, or flyers sent by mail, urging you to"cash
in" on FCC licenses or to buy an "on-ramp" to the information superhighway.
- "Cold" or unsolicited telephone calls from salespeople you dont
know who emphasize profit potential and say little or nothing about risk.
- Glossy, full-color brochures with fancy graphics, quotes from government officials and
well-known private sector executives, and reprints of articles from national publications.
- Comparisons to profits earned by some investors in cellular or other FCC licenses.
- Pressure from salespeople to invest immediately and to send your investment via express
courier or wire transfer.
- Claims that investments are "approved" for use in Individual Retirement
Accounts (IRA). The government does not approve specific IRA investment
For more information about FCC auctions, license
status, or the rules governing licenses, call the FCC National Call Center,
The Federal Trade Commission
and the Securities and Exchange Commission take complaints
about investment frauds and offer consumer information. Contact the SEC at 202-942-7040.
The FTC works for the consumer to
prevent fraudulent, deceptive and unfair business practices in the
marketplace and to provide information to help consumers spot, stop and
avoid them. To file a
complaint or to get free information
on consumer issues, visit
call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The
FTC enters Internet, telemarketing, identity theft and other fraud-related
Consumer Sentinel, a
secure, online database available to hundreds of civil and criminal law
enforcement agencies in the U.S. and abroad.
FEDERAL TRADE COMMISSION
FOR THE CONSUMER