HomeMy WebLinkAbout09. Garth Ashpaugh Exhibits 1-6 to Declaration
Exhibit 1
GARTH T. ASHPAUGH, CPA
Education BS, Business Administration, University of Missouri, 1977
Professional Registration Certified Public Accountant, State of Florida #0023193
Certified Public Accountant, State of Missouri #007098
Professional Affiliations American Institute of Certified Public Accountants
National Association of Telecommunications
Officers and Advisors (NATOA)
Qualifications and Experience Summary
Mr. Ashpaugh has been engaged in utility matters and regulation full-time for over twenty
years. His previous experience includes consulting since 1991 and working as Audit Supervisor
with the Missouri Public Service Commission. He holds licenses as a Certified Public
Accountant in the states of Missouri and Florida. He served on the Board of NATOA as its
Secretary/Treasurer for 4 terms and was made a Life Member.
Relevant Expertise
Litigation Support and Expert Testimony
• Cost of Service Issues and Analysis
• Cost of Service Mergers and Acquisitions
• Construction Audits
Mr. Ashpaugh has an extensive background in providing litigation support and expert
testimony. He has submitted testimony in over 60 matters and has been identified as an expert
in federal and state court and before public utility commissions. A listing of his litigation
experience is included with this curriculum vitae.
Retail and Wholesale Rates
• Cost of Service Studies
• Electric Rate Audits
• Nuclear Power Plant Audits
Mr. Ashpaugh has worked extensively in the area of rates. He has analyzed wholesale
electric rate filings, assisted in the negotiation of electric rates and charges under contract
rates, and testified on electric cost of service. He performed and supervised cost of service
studies in over thirty cases before the Missouri Commission. While at the Commission, he
served as the lead auditor for electric rate case audits, and project coordinator for the
construction audit of a nuclear plant. This required the supervision and coordination of the
efforts of fifteen auditors with the Commission's engineering, legal, and rate design
departments. Mr. Ashpaugh also developed the phase-in model methodology utilized by the
Missouri Commission in ordering phase-ins of Union Electric's Callaway Nuclear Plant,
Kansas City Power and Light's portion of the Wolf Creek Nuclear Plant, and Arkansas Power
and Light Company's allocation of costs associated with the Middle South's Grand Gulf
Nuclear Plant.
Mr. Ashpaugh also headed a national audit of a large telephone research company that involved
engineers, accountants, and economists of ten State Commissions and the Federal
Communications Commission. This audit took an in-depth look at research and development in
telecommunications, including Integrated Services Digital Networks (ISDN) and fiber optics.
GARTH T. ASHPAUGH, CPA
2 ASHPAUGH & SCULCO, CPAS, PLC
The report, issued in December 1991, discussed regulatory concerns and treatment of these
expenditures.
Since leaving the Commission, Mr. Ashpaugh has analyzed cost of service for contractual
purchases of electricity by municipalities and municipal power agencies from investor-owned
utilities and cooperatives. He has analyzed maintenance expense of an electric generating
cooperative and testified before the Alaska Public Utilities Commission regarding the appropriate
annual level of this expense in cost-of-service. He has determined wholesale and retail cost of
service rates for a New England electric cooperative emerging from bankruptcy. He has also
analyzed the wholesale rate filing of a major Florida investor-owned electric utility for the filing
of an intervention and protest by some of our municipal clients.
Cable Rate Regulation and Franchise Negotiation
Mr. Ashpaugh has performed cable rate reviews and assisted in cable franchise renewals and
transfers for franchisers in Arizona, California, Florida, Maryland, Michigan, New Mexico,
New York, Pennsylvania, Texas, Virginia, Wisconsin and Wyoming. He has reviewed and
recalculated franchise fees paid to the local authorities and performed detailed financial
analyses related to franchise renewals and transfers. He has analyzed the rate filings of
cable operators, provided detailed reports of the analyses to the franchising authorities, and
recommended new cable rates to the franchising authorities that either have been implemented
or are under consideration. He has assisted in the filing of comments with the Federal
Communications Commission ("FCC") regarding rate regulation of cable. He has made
presentations in Florida, Georgia, Hawaii, Massachusetts, New Mexico, Oklahoma, Oregon,
and South Carolina on cable matters. He is a member of the National Association of
Telecommunications Officers and Advisors ("NATOA").
Telecommunications
Mr. Ashpaugh has assisted local governments for many years regarding: ordinances
addressing users of rights-of-way; telecommunications planning and design for their internal
uses and for the local government; strategic planning regarding telecommunications, the
community, economic development, and quality of life issues; contract negotiation and
franchise renewals; and regulatory matters. He has made presentations regarding
telecommunications for the American Public Power Association, Northwest Public Power
Association, Massachusetts Municipal Wholesale Electric Corporation, Municipal Electric
Authority of Georgia and Florida Municipal Power Agency. He organized and chaired a
conference and seminar on telecommunications for the Orlando Utilities Commission. He has
participated in performing initial feasibility studies, helped local authorities in evaluating
requests by cable operators for rate increases or changes in service offerings, and provided
expert testimony before federal and state courts, city councils and other regulatory bodies.
Record of Testimony Garth T. Ashpaugh 3 ASHPAUGH & SCULCO, CPAS, PLC Proceeding Petitioner/Matter Pre-filed Direct Direct Rebuttal Surrebuttal Subject of Testimony Missouri Public Service Commission ER-79-48 Arkansas-Missouri Power Company X Plant, plant related expenses, uncollectibles, and administrative and general expense 18,318 Fidelity Telephone Company X Plant, non-wage expenses TR-79-213 Southwestern Bell Telephone Company X Payroll and associated expenses ER-80-17 Union Electric Company X Revenues and revenue related expenses SR-80-189 Lake St. Louis Sewer Company X X X X Plant, plant related expenses, other rate base, and revenues GR-80-210 Laclede Gas Company X Non-wage expenses GR-80-213 Missouri Edison Company X Research and development expenses GR-80-224 Missouri Power and Light Company X X X Research and development expenses TR-80-256 Southwestern Bell Telephone Company X Payroll and associated expenses GR-81-51 O'Fallon Gas Company X Non-wage expenses, depreciation, income taxes ER-81-79 Citizens Electric Company X Non-wage expenses ER-81-180 Union Electric Company X Revenues, non-wage expenses, and income taxes WR-81-280 SR-81-281 SR-82-51 Missouri Cities Water Company X Plant, plant related expenses, revenues, revenue related expenses (e.g. chemicals, electric, purchased water), and prepayments GR-81-353 Great River Gas Company X Non-wage expenses ER-82-66 Kansas City Power and Light Company X X X X Revenues and revenue related expenses HR-82-67 Kansas City Power and Light Company X Revenues and revenue related expenses TR-82-199 Southwestern Bell Telephone Company X X X X Affiliated interests (License Contract) WR-83-14 SR-83-15 Missouri Cities Water Company X X X X Revenues, revenue related expenses, prepayments and maintenance expense ER-83-49 Kansas City Power and Light Company X X X X Revenues and revenue related expenses TR-83-253 Southwestern Bell Telephone Company X X X X Affiliated interests (License Contract) ER-84-168 ER-85-160 EO-85-17 Union Electric Company (Callaway) X X X X Phase-in EO-85-185 ER-85-228 Kansas City Power and Light Company X X X X Revenues, revenue related expenses, and phase-in ER-85-265 Arkansas Power and Light Company X X X X Affiliated interests and phase-in WR-87-2 St. Louis County Water Company X Contributions in aid of construction
Record of Testimony Garth T. Ashpaugh 4 ASHPAUGH & SCULCO, CPAS, PLC Proceeding Petitioner/Matter Pre-filed Direct Direct Rebuttal Surrebuttal Subject of Testimony EC-87-114 Union Electric Company X X X Revenues, revenue related expenses, phase-in WR-88-5 St. Louis County Water Company X X X X Affiliated interest expenses, management bonuses, contributions in aid of construction TC-89-14 Southwestern Bell Telephone Company X X X Interest during construction (IDC), plant, depreciation, and capital deployment TR-89-106 Contel of Missouri, Inc., Webster County Telephone Company, and Contel Systems of Missouri X Depreciation, and capital deployment WR-89-246 St. Louis County Water Company X X X X Affiliated interest expenses/Parent company costs, Management bonuses WR-97-237 SR-97-238 Missouri American Water Company X X X X On behalf of the City of Warrensburg regarding rate design and differentials between non-connected systems. Alaska Public Service Commission U-93-1 Chugach Electric Association, Inc. X X X On behalf of Homer Electric Association, Inc. and Matanuska Electric Association, Inc. regarding the proper rate treatment of major overhaul and repair costs to generating units Kansas Corporation Commission Docket Nos. 193,307-U; 193,306-U Western Resources, Inc. Kansas Gas & Electric Company X On behalf of the City of Wichita, Kansas regarding rate differentials between companies. District of Columbia Public Service Commission Case No. 951 Baltimore Gas and Electric Company, Potomac Electric Power Company, and Constellation Energy Corporation X On behalf of Washington Metropolitan Area Transit Authority regarding the impact of the proposed merger on retail rates of PEPCO. Maryland Public Service Commission 8659 SBC Media Ventures, Inc. X X On behalf of Montgomery County, Maryland regarding the possible subsidization of the costs of providing telephone service by cable subscribers. 8725 Baltimore Gas and Electric Company, Potomac Electric Power Company X On behalf of Washington Metropolitan Area Transit Authority regarding the impact of the proposed merger on retail rates of PEPCO. Third Judicial District Court, County of Santa Ana, State of New Mexico No. CV-95-962 El Paso Electric Company, Plaintiff vs. City of Las Cruces, Defendant X Filed an affidavit on behalf of the City of Las Cruces regarding the accounting treatment of debt issue cost.
Record of Testimony Garth T. Ashpaugh 5 ASHPAUGH & SCULCO, CPAS, PLC Proceeding Petitioner/Matter Pre-filed Direct Direct Rebuttal Surrebuttal Subject of Testimony Circuit Court of St. Charles County , State of Missouri No. CV196- 7425CC Mullenix - St. Charles Properties, L. P. v. City of St. Charles X Filed testimony on behalf of Mullenix regarding the cost of service and rate design of the City’s water and sewer utility. New Mexico Public Utility Commission Case No. 2761 Public Service of New Mexico X Filed direct testimony on behalf of the City of Albuquerque addressing cost of service and rate design issues regarding the PSNM’s electric rate filing. Case No. 2762 Public Service of New Mexico X X Filed direct and rebuttal testimony on behalf of the City of Albuquerque addressing cost of service and rate design issues regarding the PSNM’s gas rate filing. Circuit Court Division Three (3) of Jefferson County, State of Kentucky No. 99-CI-01714 & No. 99-CI-01771 (Consolidated) James F. Dooley, Larry Rosen, Charles Pearl, Linda Pearl, Dale Beadle, Ray Fogerty, and Catherine Fogerty (on behalf of Themselves and All Others Similarly Situated) v. Intermedia Partners of Kentucky, L.P. n/k/a Insight Kentucky Partners II, L.P., TCI/TKR of Jefferson County, Inc., d/b/a TKR Cable of Greater Louisville, Inc., f/k/a Storer Communications of Jefferson County, Inc. X X Provided expert analysis on behalf of the Plaintiffs addressing treatment of cost of pass-through of property tax in cable bills. Provided analysis and advice to the legal team and provided testimony in the form of a deposition. Matter settled with payments made to Plaintiffs. Time Warner v. City of Lincoln, Nebraska 8:04 CV 00219 United States District Court for the District of Nebraska X Provide the City our report on franchise fee underpayments. Providing testimony as an expert witness for the City. Deposed by TWEAN 12/04.
Record of Testimony Garth T. Ashpaugh 6 ASHPAUGH & SCULCO, CPAS, PLC Proceeding Petitioner/Matter Pre-filed Direct Direct Rebuttal Surrebuttal Subject of Testimony United States District Court Middle District of Florida Fort Myers Division Case No. 2:04- cv-26-FtM- 29DNF Marco Island Cable, a Florida Corporation, Plaintiff vs. Comcast Cablevision of the South, Inc. X X (1) Explain and support that the business practices of the Defendant prevented the Plaintiff from serving customers on Marco Island and from growing beyond Marco Island; (2) provide an understanding to the Court on the rules and regulations concerning cable home and cable home-run wiring promulgated by the FCC, other statutes and regulations related to these rules and regulations, the obligations under franchises to provide service; (3) provide expert opinion on the treatment of inside wiring in cable television franchise matters and in utility rate regulation in general; and (4) provide expert opinion on cable television franchising. Court of Common Pleas Montgomery County, Pennsylvania Civil Division October Term 1997 No. 97-19055 Philip Baldassari, on behalf of himself and all others similarly situated, Plaintiff, v. Suburban Cable TV Co., Inc. Defendant X Filed an expert report on behalf of the Plaintiff to identify costs associated with a subscriber not paying his bill within the prescribed time, thereby generating a late fee charge, explain the appropriate amount of late fee and provide a calculation of overcharges. New Mexico Public Regulatory Commission Case No. 08- 00092-UT Public Service of New Mexico X Filed direct testimony on behalf of the Albuquerque Bernalillo County Water Utility Authority addressing the need for expedited handling of PSNM’s fuel adjustment clause request. New Mexico Public Regulatory Commission Case No. 07- 00330- UT New Mexico-American Water Company, Inc. X Filed direct testimony on behalf of OS Farms addressing the sale and treatment of non-utility property. United States District Court for the District of New Mexico Civil Action No. 10-CV-00617- RB-RLP Qwest Corporation v. City of Santa Fe, New Mexico X X Filed direct testimony and testified on behalf of the City of Santa Fe regarding right-of-way use by Qwest. Chancery Court for Davidson County, Tennessee Part IV Davidson County Chancery No. 02-679-I (IV) & No. 02-749-III (IV) Consolidated The Metropolitan Government of Nashville and Davidson County, Tennessee v. XO Tennessee, Inc. & TCG Midsouth, Inc. Performed a cost study to determine Metro’s costs to manage its rights-of-way. Provided expert testimony concerning the cost study. Deposed in 2011 and 2013 and again in 2013 as Metro’s 30(b)(6) witness. For the trial in 2013, filed an affidavit concerning expert testimony, testified on several issues pertaining to cost study and management thereof..
Record of Testimony Garth T. Ashpaugh 7 ASHPAUGH & SCULCO, CPAS, PLC Proceeding Petitioner/Matter Pre-filed Direct Direct Rebuttal Surrebuttal Subject of Testimony In the United States District Court for the District of Nebraska 4:10CV3030 City of Lincoln, Nebraska, v. Windstream Nebraska. Inc. X Filed an expert report on behalf of the City to identify discrepancies in payments of telecommunication occupation taxes paid by Windstream to the City for the period of 2002-2010. Deposed in this matter on June 13, 2011. State of New Mexico County of Santa Fe First Judicial District CASE NO. D101-CV-2011- 1131 Qwest Corporation v. City of Santa Fe, New Mexico X Filed an expert report on behalf of the City concerning the determination of franchise fees in response to filing by Qwest. United States District Court Central District of California CASE NO. CV14-1984 ODW-ASx City of Los Angeles, California v. Time Warner Cable, Inc. X Filed an expert report on behalf of the City concerning the determination of franchise fees and treatment of PEG capital. United States District Court Central District of California CASE NO. 2:13-CV-9464-BRO ((CWx) City of Inglewood, California v. Time Warner Cable, Inc. X Filed an expert report on behalf of the City concerning the determination of franchise fees and treatment of PEG capital. Circuit Court for the State of Oregon, Lane County CASE NO. 161415491 Qwest Corp. d/b/a “CenturyLink” et al. v. City of Springfield, OR X Provided testimony concerning franchise fee filings and review of supporting data provided by Plaintiff. United States District Court for the District Court of New Mexico CASE NO. 14-cv-00188-WJ-KBM New Mexico Gas Company, Public Service Company of New Mexico, And Qwest Corporation d/b/a CenturyLink, Plaintiffs, vs. Board of County Commissioners of Bernalillo County, New Mexico, Defendant. X X Expert testimony on the County’s cost to manage and maintain its rights-of-way. Also developed rate structure for recovery to the costs. Deposed twice.
Record of Testimony Garth T. Ashpaugh 8 ASHPAUGH & SCULCO, CPAS, PLC Proceeding Petitioner/Matter Pre-filed Direct Direct Rebuttal Surrebuttal Subject of Testimony In Arbitration At JAMS Ref. No. 1400015485 Town of Wallingford, acting by and through The Wallingford Department of Public Utilities, Electric Department v. Connecticut Municipal Electric Energy Cooperative (“CMEEC”) X X X Arbitration Proceeding Expert testimony on the costs of CMEEC to serve Wallingford in accordance with the agreements, included identification of costs in conformance with the contracts and the proper assignment and allocation of costs. In United States District Court for the District of New Mexico Civil Action No. 14-cv-00188-WJ-KBM New Mexico Gas Company, Public Service Company Of New Mexico and Qwest Corporation d/b/a Centurylink, v. Board of County Commissioners of Bernalillo County, New Mexico X X X Expert testimony on the cost study and allocation analysis of the County’s cost to own and manage its Public Rights of Way and to address comments and opinions of Centurylink’s expert witnesses. 1st Judicial District Court, Caddo Parish, Louisiana SUIT NO. 591,661 The City of Shreveport vs. Centurytel Solutions, LLC, and Centurylink Communications, LLC X X X Expert testimony on Centurylink’s obligation to pay franchise fees. Ramsey Washington Counties Suburban Cable Communications Commission II Formal Cable Television Renewal (2020) In the Matter of Comcast Cable Television Franchise Renewal Applications to Member-Cities of Ramsey/Washington Counties Suburban Cable Communications Commission II X X X X Expert testimony on obligation to pay franchise fees. Presentations: • CBCcon 2019 PowerPoint Let’s Talk About the Money • eNATOA Industry's Recent Assault on Cable Franchises and Next Steps for Locals • IL-NATOA 2017 • SCAN May 23 2019 DIVCA Panel • The Impact of Video Streaming on Cable Franchising 10-15-2018 • WATOA Spring 2019
Exhibit 2
Confidential Taxpayer Information – Not Subject to Public
Disclosure Per RCW 42.56.230(4)
CONFIDENTIAL TAX INFORMATIONTF_000660WIRELESS SERVICE PURCHASE AGREEMENT THIS WIRELESS SERVICE PURCHASE AGREEMENT (this "Agreement") is effective as of this 8th day of June, 2004 ("Effective Date") by and between T-Mobile USA, Inc., a Delaware corporation ("CARRIER") and TracFone Wireless, Inc., a Florida corporation ("DEALER"). WHEREAS, CARRJER has the ability to provide access to cellular radio service within the Territories; and WHEREAS, DEALER desires to purchase and then distribute prepaid cellular radio service through the use of CARRIER's wireless system within the Territories, subject to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties agree as follows: ARTICLE I DEFINITIONS The following terms when used herein shall have the meanings set forth below, and wherever from the context it appears appropriate, each defined term stated in either the singular or plural shall include the singular and plural: I. I. "Affiliate" shall mean with respect to a party to this Agreement any Person, that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with a party to this Agreement. 1.2. "Agreement" shall mean this Agreement and all schedules, both of which may be amended from time to time in accordance herewith. 1.3. "Billing Cycle" shall mean the monthly billing cycle for CRS usage as established and billed by CARRIER. 1.4. "BTA" shall mean all or any portion of the Basic Trading Area, respectively, in which CARRIER is authorized by the FCC to offer CRS. 1.5. "CALEA" shall mean Communications Assistance for Law Enforcement Act. 1,6, "Cellular Mobile Radio Unit" shall mean a single unit of radio telephone equipment having a unique IMEi (including the associated SIM card) for use in connection with its own Number, which is technically and operationally compatible with the Facilities. 1.7. "CRS" shall mean cellular radio service provided by CARRIER (through its own Facilities or those of a Roaming Carrier), operating in the 1.9 GHz band using GSM technology, to provide telecommunications and data transmission to and from Cellular Mobile Radio Units,
CONFIDENTIAL TAX INFORMATIONTF_000661which may include long distance and directory assistance and the other services set forth in Exhibit 2. 1.8 "Customer" shall mean the person(s) who purchase CRS from CARRIER, other than DEALER. 1.9. "DEALER" shall mean TracFone Wireless, Inc., a Florida corporation. 1.10. "Default" shall mean and include any of the following under this Agreement: (i) with respect to either paity, the material breach, nonperformance, or noncompliance by the paity obligated to perform or comply with any material provision, condition or covenant in this Agreement; (ii) with respect to either party, any assignment for the benefit of creditors or the filing of a voluntary or involuntary bankruptcy petition under the United States Code or any similar state statutes or insolvency laws or if a trustee, receiver or other administrator is appointed to operate or administer either paities' business; (iii) with respect to either paity, any unauthorized assignment of this Agreement; (iv) with respect to DEALER, the violation, breach or other conflict of, or with, any FCC rule or regulation in connection with DEALER's distribution of the CRS that does or is reasonably likely to materially adversely affect CARRIER or any of its Affiliates; (v) with respect to DEALER, the violation, breach or other conflict of or with any other judicial, regulatory, state, federal or local law, rule, regulation, decree, order or other requirement in connection with DEALER's sale of the CRS, the violation of which does or is reasonably likely to materially adversely affect the reputation or operation of CARRIER or any of its Affiliates; (vi) with respect to DEALER, any Fraudulent Usage by DEALER (or its agents or representatives); (vii) with respect to DEALER, failure to make any payment due hereunder; (viii) with respect to DEALER, any violation of the Standards of Conduct set forth in Section 5.7; (ix) with respect to DEALER, ai1 assignment or change of control in violation of Section 12.4. 1.11. "EDGE" shall mean Enhanced Data rates for GSM Evolution. 1.12. "Effective Date" shall mean the date of this Agreement. 2
CONFIDENTIAL TAX INFORMATIONTF_0006621.13. "End User" shall mean a Person who purchases CRS from DEALER. 1.14. "Equipment" shall mean all or any portion of the equipment, software, technology, handsets, accessories or other materials or equipment used by DEALER in its business operation or by End Users in their use of CRS. 1.15. "Facilities" shall include, but not be limited to, the telecommunications switching equipment, cell site transceiver equipment, maintained, expanded, modified or replaced by CARRIER or the Roaming Carriers, to render CRS to DEALER, Customers and End Users in the Territories. 1.16. "FCC" shall mean the Federal Communications Commission. I. 17. "Fraudulent Usage" with respect to the use of CRS shall include, but not be limited to, the following: (i) accessing, altering or interfering, or attempting or assisting another Person to access, alter or interfere, with the communications equipment and/or information of CARRIER, any Customer or End User by rearranging, tampering or making any unauthorized connection with any wireless telephone equipment or Facilities, or using any scheme, false representation or false credit devices, or by, or through, any other fraudulent means or devices whatsoever, whether within or outside of the Territories (including, without limitation, the alteration, modification or other change to wireless telephone equipment which would be viewed by the Facilities as the provision of CRS to two wireless telephones through one Number); (ii) using the CRS in such a manner so as to interfere unreasonably with the use of CRS by CARRIER or any Customers or End Users; (iii) using the CRS to convey information of a nature or in such a manner that renders such conveyance unlawful or to convey information found to be unlawful, including, but not limited to, a finding that such language was foul, profane, obscene, salacious or prurient, or to impersonate another person with fraudulent or malicious intent, or for any purpose in violation of the law, or in such manner as to interfere unreasonably with the use of the CRS by any other Customer or End User; and/or (iv) any other unauthorized, wrongful or misappropriated use of CRS (including, without limitation, cloning, compromised SIM algorithm, and subscription fraud) on a Number assigned to DEALER, whether or not such Number is currently active and whether such use is by the DEALER or one of its End Users. I. I 8. "GPRS" shall mean General Packet Radio Service. 1.19. "GSM" shall mean the Global System for Mobile Communications, a "time division-based" wireless telecommunications standard. 3
CONFIDENTIAL TAX INFORMATIONTF_0006631.20. "IMEi" shall mean International Mobile Equipment Identity, the unique permanently assigned identification number installed in each Cellular Mobile Radio Unit when it is manufactured. 1.21. "MNC" shall mean Mobile Network Code. 1.22. "MT A" shall mean all or any portion of the Major Trading Area, respectively, in which CARRIER is authorized by the FCC to offer CRS. 1.23. "Number" shall mean the ten (10) digit telephone number ("NPA/NXX") assigned to a SIM used to provide access to CRS. 1.24. "Person" shall mean any individual, subsidiary, corporation, limited liability company, partnership, co-partnership, firm, joint venture, association, joint stock company, trust, estate, unincorporated organization, governmental or regulatory body or other entity. 1.25. "PTCRB" shall mean PCS Type Certification Review Board. 1.26. "Roaming" shall mean the CRS provided to an End User via telecommunications switching equipment and/or cell site transceiver equipment that is operated by a Person other than Carrier or its subsidiaries, and with whom Carrier has an agreement to provide CRS services to Customers and End Users. 1.27. "Roaming Carriers" shall mean Persons with whom CARRIER has agreements for the provision of Roaming to Customers and/or End Users. 1.28 "Sales Territory" or "Sales Territories" shall mean those areas in which DEALER may sell Equipment to End Users as set forth in Exhibit 4. 1.29. "SIM" shall mean Subscriber Identity Module. 1.30. "SMS" shall mean Short Message Service, which are text messages of I 60 characters or less, and includes "SMS-MO", SMS-Mobile Originated messages, and "SMS-MT", SMS-Mobile Terminated messages including what is commonly referred to as P2P, peer to peer, and A2P, application to peer, SMS. 1.31. "Territory" or "Territories" shall mean the MTAs or BTAs set forth in Exhibit I attached hereto. 1.32. "Writing." All references to notices in writing, whether or not that term is capitalized, shall include by electronic mail to the addresses specified by the parties, followed by hard copy delivered by facsimile and/or first class mail. 4
CONFIDENTIAL TAX INFORMATIONTF_000664ARTICLE II GENERAL OBLIGATIONS 2. I. Purchase and Sale. CARRIER agrees to sell, and DEALER agrees to purchase, CRS within the Sales Territories. DEALER may not target the sale of CRS outside of the Sales Territories. The patties agree that DEALER will distribute the CRS to End-Users in the Territories and in accordance with the tenns and conditions of this Agreement. DEALER is a nonexclusive purchaser and dealer of CRS in the Territories. Dealer agrees that it may only sell or distribute the CRS, and will only allow others to sell or distribute the CRS under the name and brands of DEALER. DEALER and its distributors may not "wholesale" or resell the CRS to any other provider of wireless or wire line services. 2.1.1 Additional Territories. If DEALER and CARRIER both wish to add a Territory to this Agreement, both parties will execute an amendment to this Agreement for such purpose. DEALER acknowledges and agrees that, upon execution of an amendment to this Agreement by both parties and subject to DEALER having provided the necessary information for setting up the sale capability for DEALER in each additional Territory, CARRIER shall use its commercially reasonable efforts to establish the service and provide Numbers to DEALER with respect to each individual additional Territory within sixty (60) days, subject to the availability of Numbers and the other terms and conditions set forth in this Agreement. CARRIER is under no obligation to add new Territories for DEALER unless and until both parties execute an amendment for such purpose. 2.2. Establishment of Service. In order to establish the sale capability with CARRIER, DEALER must provide CARRIER with the following: (i) tax exemption certificates; (ii) the insurance certificate set forth in Section 5.11; (iii) one toll free telephone number for DEALER's End User customer care; (iv) the quantity of Numbers for initial set up for each of the Territories subject to limitations on Number availability as set forth in this Agreement; (v) any other reasonable technical or other information required by CARRIER to establish CRS for DEALER. 2.3. Program Use. DEALER acknowledges and agrees that the rates shown on Exhibit 2 of this agreement apply for the sole and exclusive purpose of distributing CRS to its End Users pursuant to this Agreement for its End Users' direct use of CRS b)/ an individual. DEALER may not sell or distribute the CRS to End Users for an End User's resale or further commercial distribution of the CRS. 2.4. Nature of the Relationship. The parties acknowledge and agree:that nothing in this Agreement shall be construed or implied to create a relationship of partners, agency, joint 5
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CONFIDENTIAL TAX INFORMATIONTF_000666ARTICLEV OBLIGATIONS OF DEALER 5. I. DEALER Services. Subject to the terms and conditions in this Agreement, DEALER agrees to distribute CRS in accordance with eligibility requirements (including without limitation any regulatory compliance needed) on which CRS is offered and only in the Sales Territories. DEALER shall be fully responsible for all acts and omissions of its agents, distributors, representatives, and sub-dealers (collectively "Sub-Dealers") and sl\all require that Sub-Dealers adhere to all terms and conditions of this Agreement. DEALER and its Sub-Dealers may only sell and distribute the CRS as a DEALER-branded service, and may not:sell, distribute, or "wholesale" the CRS in any manner in which the CRS would be distributed under a non-DEALER name or brand. Any breach by a Sub-Dealer of the terms of this Agreement shall be considered a breach by DEALER and shall entitle CARRIER to pursue all rights and remedies it may have under the Agreement or under the law. DEALER agrees that this is a nonexclusive relationship and CARRIER may have other dealers, agents, and other representatives that sell CRS in the Territories and elsewhere, and CARRIER may directly compete with Il>EALER in the Territories and elsewhere, and DEALER may distribute wireless services of other carriers in the Territories and elsewhere. DEALER may not bundle, combine, or otherwise selli CRS with any wireless or voice services from a wireless or wireline carrier. DEALER sball be solely responsible and indemnify CARRIER for all risks, expenses and liabilities incurred in connection with its sale of CRS including End User claims. Further, DEALER sh~ll be obligated to provide all customer service to its End Users, including without limitation the, issuance, sale, adjustment, modification, addition, replenislunent or recharge of any CRS. 5.2. Fraudulent Usage. Neither DEALER nor any of its Sub-Deal'1fS, employees, agents or representatives shall allow, assist or participate in any Fraudulent Usage. DEALER will use commercially reasonable efforts to prevent Fraudulent Usage and will promptly investigate suspected cases of Fraudulent Usage of which it becomes aware. Exhibit 3 shall govern the parties' responsibility for all risks, expenses and liabilities incurred through the Fraudulent Usage of DEALER, its End Users, or any other Person using Numbers assigned to DEALER. CARRIER reserves the right to modify this Agreement to reflect niodifications to CARRIER's dealer practices and procedures that introduce or implement ftaud reduction activities, but is under no obligation to introduce or implement any such fraud reduction activities. Further, each party agrees to cooperate with any implementation of such fraud reduction activities. 5.3. DEALER's Conduct of Business. DEALER shall act in all respects on its own account and shall be solely responsible for all aspects of its business including, but not limited to, any credit verification, deposits, billing, collection, consolidation, rebilling, customer billing complaints, advertising, customer service, and bad debts. 5.4. Equipment Compatibility. DEALER is responsible for ensuring that any Equipment utilized by itself or its End Users in connection with CRS has been approved by CARRIER and has gained PTCRB certification. The Equipment must pass all CARRIER-defined tests prior to launch of the device by the DEALER. CARRIER alone shall authorize the certification of the device and subsequent operation of the device on the Facilities via a 7
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CONFIDENTIAL TAX INFORMATIONTF_0006788.1. Schedule of CRS Rates, Charges, Fees aud Other Amounts. tn consideration for the CRS to be provided in this Agreement, DEALER shall be obligated to pay CARRIER the amounts for CRS set forth in Exhibit 2 of this Agreement. 8.2. Calculation for CRS. Subject to CARRIER's right to amend, m~dify, change or otherwise update the method by which it calculates usage and charges for CR,S by providing thirty (30) days notice to DEALER, CARRIER shall charge DEALER for the CRjS in accordance with the following practices: (i) DEALER shall pay CARRJER. In accordance with Section 5.13 and as set forth in Eihibit 2 hereof, for all minutes of use of CRS ("MoU") purchased by PEALER from I i l (ii) CARRIER's switching and billing systems will calculate t'1e MoUs based on 60 second increment usage, with each call being rounded up to the next full jviou (i.e. a 121 second call would be billed as a 3 MoU call). Each call is separately measureq even if several separate calls are made during a single continuous connection. The rates cjharged in each applicable Territory are set forth in Exhibit 2 hereof. DEALER understands ihat charges for CRS commence upon call origination (including time prior to answering) anq end upon call termination each as determined by CARRIER' s internal billing system. DEA If ER agrees that CARRIER may change the manner in which calls are measured in its sole disctetion and upon reasonable notice to DEALER. [ I 8.3. Tariffs, Taxes or Other Governmental Charges. DEALER iwill provide to CARRIER valid and complete resale exemption certificates for CRS purchased Jfrom CARRIER and distributed to End Users. DEALER is solely responsible for the computatil and collection of all applicable taxes or other governmental charges including but not limit to sales, use, excise, gross receipts, public utility, value added tax, Universal Service Fun fees, business activity and other taxes or impositions and federal, state or local regulat ry surcharges, (collectively, "Taxes and Governmental Charges") levied by or remitted to feder~l, state or local authorities, or foreign governments and imposed upon Dealer or Carrier witJt respect to the transactions or payments contemplated hereunder (with the exception of net income, capital stock or net worth taxes of Carrier). DEALER is solely responsible for the tim~ly and accurate remittance of those Taxes and Governmental Charges to the appropriate tax r:-urisdictions or Governmental Authorities. If CARRIER is required to remit Taxes and Govern ental Charges directly to a tax jurisdiction or Governmental Authority, CARRIER will invoic DEALER for those Taxes and Governmental Charges and DEALER will pay them to CARRIE, under Section 5.13, unless prohibited by applicable statute(s). i j 8.4. Billing. Within thirty (30) days of the end of each month!)[ billing cycle, CARRIER will provide DEALER with a summary invoice (the "Invoice") of thri charges, fees, deposits or other amounts owed to CARRIER. CARRIER shall not be 1!iable for any inaccuracies in the charges to DEALER over which CARRIER has no control. ~ARRIER will reasonably cooperate with DEALER' s legitimate efforts to correct any such inaccuracies. Nothing herein shall affect CARRIER's right to amend, modify, change or othel!Wise update its billing cycle or billing systems. ! i 18
CONFIDENTIAL TAX INFORMATIONTF_000679
CONFIDENTIAL TAX INFORMATIONTF_000680
CONFIDENTIAL TAX INFORMATIONTF_000681
CONFIDENTIAL TAX INFORMATIONTF_000682
CONFIDENTIAL TAX INFORMATIONTF_000683
CONFIDENTIAL TAX INFORMATIONTF_000684
CONFIDENTIAL TAX INFORMATIONTF_000685
CONFIDENTIAL TAX INFORMATIONTF_000686
CONFIDENTIAL TAX INFORMATION TF_000167
CONFIDENTIAL TAX INFORMATION TF_000168
CONFIDENTIAL TAX INFORMATION TF_000169
CONFIDENTIAL TAX INFORMATION TF_000170
CONFIDENTIAL TAX INFORMATION TF_000171
CONFIDENTIAL TAX INFORMATION TF_000172
CONFIDENTIAL TAX INFORMATION TF_000173
CONFIDENTIAL TAX INFORMATION TF_000174
CONFIDENTIAL TAX INFORMATION TF_000175
CONFIDENTIAL TAX INFORMATION TF_000176
CONFIDENTIAL TAX INFORMATION TF_000177
CONFIDENTIAL TAX INFORMATION TF_000178
CONFIDENTIAL TAX INFORMATION TF_000179
CONFIDENTIAL TAX INFORMATION TF_000180
CONFIDENTIAL TAX INFORMATION TF_000181
CONFIDENTIAL TAX INFORMATION TF_000182
CONFIDENTIAL TAX INFORMATION TF_000183
CONFIDENTIAL TAX INFORMATION TF_000184
CONFIDENTIAL TAX INFORMATION TF_000185
CONFIDENTIAL TAX INFORMATION TF_000186
CONFIDENTIAL TAX INFORMATION TF_000187
CONFIDENTIAL TAX INFORMATION TF_000188
CONFIDENTIAL TAX INFORMATION TF_000189
CONFIDENTIAL TAX INFORMATION TF_000190
CONFIDENTIAL TAX INFORMATION TF_000191
CONFIDENTIAL TAX INFORMATION TF_000192
CONFIDENTIAL TAX INFORMATION TF_000193
CONFIDENTIAL TAX INFORMATION TF_000194
Exhibit 3
Confidential Taxpayer Information – Not Subject to Public
Disclosure Per RCW 42.56.230(4)
CONFIDENTIAL TAX INFORMATION TF_000724
CONFIDENTIAL TAX INFORMATION TF_000725
CONFIDENTIAL TAX INFORMATION TF_000726
CONFIDENTIAL TAX INFORMATION TF_000727
CONFIDENTIAL TAX INFORMATION TF_000728
CONFIDENTIAL TAX INFORMATION TF_000729
CONFIDENTIAL TAX INFORMATION TF_000730
CONFIDENTIAL TAX INFORMATION TF_000731
CONFIDENTIAL TAX INFORMATION TF_000732
CONFIDENTIAL TAX INFORMATION TF_000733
CONFIDENTIAL TAX INFORMATION TF_000734
CONFIDENTIAL TAX INFORMATION TF_000735
CONFIDENTIAL TAX INFORMATION TF_000736
CONFIDENTIAL TAX INFORMATION TF_000737
CONFIDENTIAL TAX INFORMATION TF_000738
CONFIDENTIAL TAX INFORMATION TF_000739
CONFIDENTIAL TAX INFORMATION TF_000740
CONFIDENTIAL TAX INFORMATION TF_000741
CONFIDENTIAL TAX INFORMATION TF_000742
CONFIDENTIAL TAX INFORMATION TF_000743
CONFIDENTIAL TAX INFORMATION TF_000744
CONFIDENTIAL TAX INFORMATION TF_000745
CONFIDENTIAL TAX INFORMATION TF_000746
CONFIDENTIAL TAX INFORMATION TF_000747
CONFIDENTIAL TAX INFORMATION TF_000748
CONFIDENTIAL TAX INFORMATION TF_000749
CONFIDENTIAL TAX INFORMATION TF_000750
CONFIDENTIAL TAX INFORMATION TF_000751
CONFIDENTIAL TAX INFORMATION TF_000752
CONFIDENTIAL TAX INFORMATION TF_000753
CONFIDENTIAL TAX INFORMATION TF_000754
CONFIDENTIAL TAX INFORMATION TF_000755
CONFIDENTIAL TAX INFORMATION TF_000756
CONFIDENTIAL TAX INFORMATION TF_000757
a. within the flrst 90 days of the executed Agreement, TracFone will make a commercially
reasonable Investment in extensive research of the RAC customer IIJ!d potential customer to
understand and Include the followlng points:
i. Knowledge of the Industry and competitive offerings to understand customers
benchmarks nnd optioos
ii. Customer decision drivers and expected eKperlence Insights, lncluding
I. Barriers & motivators for traosactlng with RAC for renting a phone/buying a
plan to answer
I. What drives rental agreements for phones with plaos, phones wilhout
plans, plans without.phones
II. Reasons for retention versus returns
2. Pricing: optimal pricing strategy across all levers (weekly/montbly paymen~
total cost, number of payments, 90 day same as cash price, early purchase
price/discount)
3. ProducVplan offers (wtlque to RAC/competitively advantageous):
I. Pinn selections to yield the most consideration, sales, revenue and
margin (I.e. rent to ren~ no upfront cost, family plans, bundles, etc.)
ii. Optimal handset offering
4. Marketing:
IJ, Methods to attract more traffic
ii. Messaglng and communication channels relevance
iii. Trial and Retention I Repeat tracking for the flrst three months oflounch
I. Awareness, trial and usage tracker for understanding where the lnitiatlve ls
trending -success or risk
2. To supplement RAC transactional data diagnostlcs, conducting&
synthesizing satisfacUon surveys or exit surveys for returns
b. TracFone and RAC will develop market sizing assumptions within 45 days of execution
of this Agreement.
c. TmcFone will provlde RAC with Industry data monthly, with a full analysis quarterly
during a quarterly parinersblp/strateglo planning session between both companies.
I
6. Employee Benefits
TmcFone will provide a commerolally reasonable program allowing RAC employees to
utilize the TracFone network at the lowest cost possible within 120 days of eKecution of
this Agreement.:
7. Purchase Orders
a. TracFone shall Integrate with RAC order management systems to facilitate EDI purohase
orders. At RAC's decision, some purchase orders may be handled manually via
documented email,
b. All purchase orders submitted and accepted by TmcFono for SIM cards, Handsets and
other productsfservlces l)l'O and shall be subject to this Agreement and shall be deemed to
CONFIDENTIAL TAX INFORMATION TF_000758
CONFIDENTIAL TAX INFORMATION TF_000759
CONFIDENTIAL TAX INFORMATION TF_000760
CONFIDENTIAL TAX INFORMATION TF_000761
CONFIDENTIAL TAX INFORMATION TF_000762
CONFIDENTIAL TAX INFORMATION TF_000763
CONFIDENTIAL TAX INFORMATION TF_000764
CONFIDENTIAL TAX INFORMATION TF_000765
CONFIDENTIAL TAX INFORMATION TF_000766
CONFIDENTIAL TAX INFORMATION TF_000767
CONFIDENTIAL TAX INFORMATION TF_000768
CONFIDENTIAL TAX INFORMATION TF_000769
CONFIDENTIAL TAX INFORMATION TF_000770
CONFIDENTIAL TAX INFORMATION TF_000771
CONFIDENTIAL TAX INFORMATION TF_000772
CONFIDENTIAL TAX INFORMATION TF_000773
CONFIDENTIAL TAX INFORMATION TF_000774
CONFIDENTIAL TAX INFORMATION TF_000775
CONFIDENTIAL TAX INFORMATION TF_000776
CONFIDENTIAL TAX INFORMATION TF_000777
CONFIDENTIAL TAX INFORMATION TF_000778
CONFIDENTIAL TAX INFORMATION TF_000779
CONFIDENTIAL TAX INFORMATION TF_000780
CONFIDENTIAL TAX INFORMATION TF_000781
CONFIDENTIAL TAX INFORMATION TF_000782
CONFIDENTIAL TAX INFORMATION TF_000783
CONFIDENTIAL TAX INFORMATION TF_000784
CONFIDENTIAL TAX INFORMATION TF_000785
CONFIDENTIAL TAX INFORMATION TF_000786
CONFIDENTIAL TAX INFORMATION TF_000787
CONFIDENTIAL TAX INFORMATION TF_000788
CONFIDENTIAL TAX INFORMATION TF_000789
CONFIDENTIAL TAX INFORMATION TF_000790
CONFIDENTIAL TAX INFORMATION TF_000791
CONFIDENTIAL TAX INFORMATION TF_000792
CONFIDENTIAL TAX INFORMATION TF_000793
CONFIDENTIAL TAX INFORMATION TF_000794
CONFIDENTIAL TAX INFORMATION TF_000795
CONFIDENTIAL TAX INFORMATION TF_000796
CONFIDENTIAL TAX INFORMATION TF_000797
CONFIDENTIAL TAX INFORMATION TF_000798
CONFIDENTIAL TAX INFORMATION TF_000799
CONFIDENTIAL TAX INFORMATION TF_000800
CONFIDENTIAL TAX INFORMATION TF_000801
CONFIDENTIAL TAX INFORMATION TF_000802
CONFIDENTIAL TAX INFORMATION TF_000803
CONFIDENTIAL TAX INFORMATION TF_000804
CONFIDENTIAL TAX INFORMATION TF_000805
CONFIDENTIAL TAX INFORMATION TF_000806
CONFIDENTIAL TAX INFORMATION TF_000807
CONFIDENTIAL TAX INFORMATION TF_000808
CONFIDENTIAL TAX INFORMATION TF_000809
CONFIDENTIAL TAX INFORMATION TF_000810
CONFIDENTIAL TAX INFORMATION TF_000811
CONFIDENTIAL TAX INFORMATION TF_000812
CONFIDENTIAL TAX INFORMATION TF_000813
CONFIDENTIAL TAX INFORMATION TF_000814
CONFIDENTIAL TAX INFORMATION TF_000815
CONFIDENTIAL TAX INFORMATIONTF_000816
CONFIDENTIAL TAX INFORMATIONTF_000817
CONFIDENTIAL TAX INFORMATIONTF_000818
CONFIDENTIAL TAX INFORMATIONTF_000819
CONFIDENTIAL TAX INFORMATIONTF_000820
CONFIDENTIAL TAX INFORMATIONTF_000821
CONFIDENTIAL TAX INFORMATIONTF_000822
CONFIDENTIAL TAX INFORMATIONTF_000823
CONFIDENTIAL TAX INFORMATIONTF_000824
CONFIDENTIAL TAX INFORMATIONTF_000825
CONFIDENTIAL TAX INFORMATIONTF_000826
CONFIDENTIAL TAX INFORMATIONTF_000827
CONFIDENTIAL TAX INFORMATIONTF_000828
CONFIDENTIAL TAX INFORMATIONTF_000829
CONFIDENTIAL TAX INFORMATIONTF_000830
CONFIDENTIAL TAX INFORMATIONTF_000831
CONFIDENTIAL TAX INFORMATIONTF_000832
CONFIDENTIAL TAX INFORMATIONTF_000833
CONFIDENTIAL TAX INFORMATIONTF_000834
CONFIDENTIAL TAX INFORMATIONTF_000835
CONFIDENTIAL TAX INFORMATIONTF_000836
CONFIDENTIAL TAX INFORMATIONTF_000837
CONFIDENTIAL TAX INFORMATIONTF_000838
CONFIDENTIAL TAX INFORMATIONTF_000839
CONFIDENTIAL TAX INFORMATIONTF_000840
CONFIDENTIAL TAX INFORMATIONTF_000841
CONFIDENTIAL TAX INFORMATIONTF_000842
CONFIDENTIAL TAX INFORMATIONTF_000843
CONFIDENTIAL TAX INFORMATIONTF_000844
CONFIDENTIAL TAX INFORMATIONTF_000845
CONFIDENTIAL TAX INFORMATION TF_000846
CONFIDENTIAL TAX INFORMATION TF_000847
CONFIDENTIAL TAX INFORMATION TF_000848
CONFIDENTIAL TAX INFORMATION TF_000849
CONFIDENTIAL TAX INFORMATION TF_000850
CONFIDENTIAL TAX INFORMATION TF_000851
CONFIDENTIAL TAX INFORMATION TF_000852
CONFIDENTIAL TAX INFORMATION TF_000853
CONFIDENTIAL TAX INFORMATION TF_000854
CONFIDENTIAL TAX INFORMATION TF_000855
CONFIDENTIAL TAX INFORMATION TF_000856
CONFIDENTIAL TAX INFORMATION TF_000857
CONFIDENTIAL TAX INFORMATION TF_000858
CONFIDENTIAL TAX INFORMATION TF_000859
CONFIDENTIAL TAX INFORMATION TF_000860
CONFIDENTIAL TAX INFORMATION TF_000861
CONFIDENTIAL TAX INFORMATION TF_000862
CONFIDENTIAL TAX INFORMATION TF_000863
CONFIDENTIAL TAX INFORMATION TF_000864
CONFIDENTIAL TAX INFORMATION TF_000865
CONFIDENTIAL TAX INFORMATION TF_000866
CONFIDENTIAL TAX INFORMATION TF_000867
CONFIDENTIAL TAX INFORMATION TF_000868
CONFIDENTIAL TAX INFORMATION TF_000869
CONFIDENTIAL TAX INFORMATION TF_000870
CONFIDENTIAL TAX INFORMATION TF_000871
CONFIDENTIAL TAX INFORMATION TF_000872
CONFIDENTIAL TAX INFORMATION TF_000873
CONFIDENTIAL TAX INFORMATION TF_000874
CONFIDENTIAL TAX INFORMATION TF_000875
Exhibit 4
Exhibit 5
Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554
In the Matter of
Bridging the Digital Divide for Low-Income
Consumers
Lifeline and Link Up Reform and
Modernization
Telecommunications Carriers Eligible for
Universal Service Support
)
)
)
)
)
)
)
)
)
)
WC Docket No. 17-287
WC Docket No. 11-42
WC Docket No. 09-197
COMMENTS OF TRACFONE WIRELESS, INC.
TABLE OF CONTENTS
Page
-i-
EXECUTIVE SUMMARY .......................................................................................................... -1-
I. INTRODUCTION AND BACKGROUND ........................................................................ 1
II. THE COMMISSION’S PROPOSAL TO ELIMINATE LIFELINE SUPPORT FOR
NON-FACILITIES-BASED SERVICES WOULD DEVASTATE THE LIFELINE
PROGRAM, CONTRADICT STATUTORY MANDATES, AND FAIL TO SERVE
THE COMMISSION’S STATED POLICY GOALS......................................................... 6
A. The Facilities-Based Proposal would have a catastrophic impact on the Lifeline
program and would harm the market for wireless telecommunications services. .. 8
1. Lifeline customers overwhelmingly choose non-facilities-based providers
for Lifeline service – providers the Facilities-Based Proposal would
categorically disqualify. .............................................................................. 9
2. The Facilities-Based Proposal would burden, disrupt service for, and
potentially impose additional costs on millions of Lifeline subscribers. .. 13
3. The Facilities-Based Proposal would eliminate competition and its
benefits and relegate low-income subscribers in rural and urban America
to a monopoly market or worse in many states. ........................................ 17
4. The Facilities-Based Proposal would degrade the level of communications
service that many Lifeline customers have historically enjoyed. ............. 24
5. Eliminating resellers from Lifeline could have unintended consequences
for the entire wireless telecommunications market and existing agreements
between resellers and facilities-based providers. ...................................... 27
B. The Facilities-Based Proposal would fail to serve the Commission’s policy
objectives as envisioned in the NPRM. ................................................................ 29
1. Eliminating resellers from the Lifeline market is unlikely to increase
broadband deployment. ............................................................................. 29
2. The Facilities-Based Proposal is not an appropriate means to combat
Lifeline waste, fraud, and abuse. .............................................................. 32
C. The Facilities-Based Proposal contradicts the Commission’s statutory obligations.
............................................................................................................................... 36
1. Eliminating support for non-facilities-based services is contrary to the
Commission’s mandate to serve low-income consumers. ........................ 36
TABLE OF CONTENTS
(continued)
Page
-ii-
2. Eliminating support for non-facilities-based services would effectively
reverse the forbearance relief granted to TracFone in violation of Section
10 of the Telecommunications Act of 1996. ............................................. 38
3. Eliminating support for non-facilities-based services would contravene
section 254’s requirement that telecommunications carriers contribute to
universal service support on an equitable and nondiscriminatory basis as
well as the FCC’s principle of competitive neutrality. ............................. 43
III. THE COMMISSION SHOULD CONTINUE PROVIDING LIFELINE SUPPORT FOR
NON-FACILITIES-BASED PROVIDERS, AND SHOULD SEEK TO SERVE ITS
POLICY OBJECTIVES THROUGH OTHER, BETTER MEANS. ................................ 44
A. The Commission recently adopted Lifeline reforms that have the potential to
combat waste, fraud, and abuse. ........................................................................... 45
B. The NPRM identifies several additional measures that will combat waste, fraud,
and abuse without harming the Lifeline program. ................................................ 46
C. The Commission should adopt a conduct-based approach to further limit waste,
fraud, and abuse. ................................................................................................... 50
D. The Commission could consider establishing a non-Lifeline revenue threshold for
participation in the program. ................................................................................. 52
E. Existing FCC programs encourage broadband deployment without harming low-
income consumers. ................................................................................................ 53
IV. OTHER PROPOSALS IN THE NPRM THREATEN TO FURTHER HARM THE
LIFELINE PROGRAM .................................................................................................... 54
A. The Commission should not limit payments to resellers to amounts paid to
wholesale carriers. ................................................................................................. 54
B. The Commission should discontinue its phase-down of Lifeline support for voice-
only services, and should reject its proposal to maintain the phase-down solely in
non-rural areas. ..................................................................................................... 56
C. The Commission should not adopt a self-enforcing budget mechanism. ............. 58
D. The Commission should not impose a maximum discount level for Lifeline
services. ................................................................................................................. 61
TABLE OF CONTENTS
(continued)
Page
-iii-
V. TO ENHANCE CONSUMER WELFARE AND CHOICE, THE COMMISSION
SHOULD ADOPT A “UNITS” PROPOSAL FOR LIFELINE CARRIERS TO MEET
THE MINIMUM SERVICE STANDARDS. ................................................................... 63
VI. ADDITIONAL COMMENTS IN RESPONSE TO THE NOI.......................................... 66
VII. THE COMMISSION MUST REMAIN VIGILANT ON IMPLEMENTATION OF PAST
REFORMS ........................................................................................................................ 67
VIII. THE ABILITY OF WIRELESS RESELLERS TO PARTICIPATE IN THE LIFELINE
PROGRAM AND RECEIVE LIFELINE BROADBAND SUBSIDIES IS
UNAFFECTED BY THE REGULATORY CLASSIFICATION OF BROADBAND
SERVICES. ....................................................................................................................... 70
A. Section 254 authorizes the Commission to support broadband services through the
Lifeline program. .................................................................................................. 72
B. The Commission can support BIAS using Lifeline funds using its ancillary
jurisdiction. ........................................................................................................... 73
IX. CONCLUSION .................................................................................................................. 75
EXECUTIVE SUMMARY
TracFone Wireless, Inc. (“TracFone”), the nation’s largest reseller of wireless
telecommunications services, has been a good steward of public dollars in the Lifeline program
for the nearly 10 years that it has participated in the program. TracFone is constantly
modernizing and improving its internal systems to ensure compliance with program rules, while
making constructive recommendations to the Federal Communications Commission (“FCC” or
“Commission”) and USAC aimed to further protect and strengthen the integrity of the program.
To that end, TracFone commends the FCC for seeking comments on a number of TracFone’s
policy proposals aimed at preventing waste, fraud, and abuse in its Notice of Proposed
Rulemaking (“NPRM”) in the above-captioned proceeding. In particular, TracFone appreciates
the Commission seeking comment on its recommendation to adopt a “conduct-based approach”
to Lifeline carrier eligibility that relies on various existing audit processes to determine a
provider’s eligibility to continue to participation in the Lifeline program.
TracFone also appreciates the Commission’s ongoing desire to further reform the Lifeline
program to reduce the program’s exposure to waste, fraud, and abuse while enhancing the quality
of service for its participants. Unfortunately, in proposing to exclude all non-facilities-based
Lifeline providers (the “Facilities-Based Proposal”) from the program and reorienting its mission
from one that addresses affordability to one that encourages infrastructure deployment, the
Commission has chosen a blunt instrument that would deny more than 8 million households their
preferred Lifeline services without meaningfully reducing the opportunities for waste and fraud.
Indeed, in proposing to do away with consumer choice and competition brought about by
resellers, the NPRM fails to make the case for how the remaining facilities-based monopolies
resulting from such regulatory intervention will spur rural network buildout or otherwise benefit
Lifeline customers, particularly since many facilities-based providers have reduced their Lifeline
-2-
participation or sought to leave the program altogether in recent months. The NPRM also fails to
demonstrate how using Lifeline dollars for infrastructure purposes will alter the economics of
rural broadband deployment sufficiently to generate facilities-based competition while fulfilling
the Congressional mandate to make communications services affordable for low-income
consumers, regardless of where they live. The NPRM makes no cost-benefit analysis of the
disruptions the Facilities-Based Proposal would create in the lives of 8.3 million eligible
households – among them an estimated 1.2 million veterans and 1.4 million senior citizens –
against the marginal benefits it may produce to enhance the integrity of the program. It departs
greatly from the light-touch regulatory approach favored by the current Administration, and
represents a sweeping, unprecedented, and possibly illegal governmental intrusion into an
otherwise healthy and competitive marketplace that lacks signs of widespread market failure.
The Commission must reject its proposal that singles out resellers for their collective status, not
for their individual behaviors, and that, if implemented, will forever undermine the utility of the
Lifeline program for more than two out of every three existing Lifeline subscribers and render it
inaccessible or impractical for still millions more.
Even if the Commission rightly rejects the Facilities-Based Proposal and TracFone and
other resellers are permitted to continue serving Lifeline customers, the NPRM includes several
additional proposals targeting the resale business model or the program in general that would
render it uneconomical for resellers or other Lifeline providers to continue offering Lifeline
services in their current form. Specifically, the NPRM’s proposals to limit disbursements to
resellers to the amounts paid to wholesale carriers contradicts the plain text of the statute as well
as bipartisan understanding of the types of services for which Lifeline dollars are intended. The
proposal to adopt a maximum discount level would eliminate the most popular types of Lifeline
-3-
offerings that have improved the program’s participation rate. Other proposals, such as a self-
enforcing budget cap or the discontinuation of voice-only support phase down in only rural parts
of the country, are similarly misguided. Collectively, TracFone fears that the adoption of these
proposals will lead to millions more eligible households uninterested or unable to participate in
the program, deteriorating competition amongst Lifeline providers, stagnating quality of services
for their customers, and a failure of the Commission to meet its statutory mandate that universal
service support be “specific, predictable, and sufficient” for low-income consumers in all parts of
the nation. TracFone urges the Commission to consider these unintended consequences in mind
as it reviews the record.
At the heart of the Lifeline program is a mission shared by all Universal Service Fund
programs: a mandate to make affordable communications services available to all Americans in
all parts of the country. The Commission should bear that goal in mind and redirect its attention
to combatting Lifeline waste, fraud, and abuse in appropriately tailored ways, redouble its
attention and effort on recently adopted measures such as the National Verifier to ensure they are
implemented faithfully, and allow a competitive Lifeline market to flourish without unnecessary
government intervention. TracFone is hopeful that the current Commission will succeed where
previous Commissions have failed: making Lifeline an efficiently managed program not by sheer
regulatory force, but by listening and responding to the needs of low-income families through a
light regulatory touch that maximizes this limited public resource and makes the program more
convenient, affordable, and accessible for those in need of a hand up, not a handout.
1
I. INTRODUCTION AND BACKGROUND
TracFone Wireless, Inc. (“TracFone”) hereby comments on the Federal Communications
Commission’s (“FCC” or “Commission”) Notice of Proposed Rulemaking (“NPRM”) in the
above-captioned proceeding regarding proposed reforms to the federal Universal Service Fund’s
(“USF”) Lifeline program for low-income consumers.1 Although TracFone appreciates the
Commission’s commitment to addressing challenges facing the Lifeline program and its
thoughtfulness in determining how to advance key policy interests, this NPRM proposes drastic
departures from previous policies. In so doing, the Commission threatens to harm low-income
consumers, significantly decrease competition in the market for Lifeline services, and undermine
the universal service principles that underlie the Lifeline program.
As the Commission considers taking additional steps to reform the Lifeline program,
TracFone urges the agency to be mindful of the policy that lies at the heart of the program:
making communications services accessible to low-income consumers across the country,
regardless of where they live. The FCC has long recognized the affordability challenge posed by
traditional voice services for low-income Americans. That is why by the time Congress enacted
the Telecommunications Act of 1996, which created the Universal Service Fund and formed the
basis for the High Cost Fund, the Rural Health Care Program, and the E-Rate Program, the
Commission’s own Lifeline Assistance Program had already been in existence for over a
decade.2 Cognizant of the importance of the program in furthering the goals of universal service,
Congress not only identified low-income households in the “Universal Service Principles” as a
1 Bridging the Digital Divide for Low-Income Consumers, Fourth Report and Order, Order on
Reconsideration, Memorandum Opinion and Order, Notice of Proposed Rulemaking, and Notice of Inquiry, FCC
17-155, 2017 WL 6015800 (Dec. 1, 2017) (“NPRM”).
2 See generally MTS and WATS Market Structure; and Establishment of a Joint Board; Amendment, Final
Rule, 50 Fed. Reg. 939-01 (1985) (creating the Lifeline Assistance Program).
2
separate and distinctive consumer population to be served by the Fund,3 it also created a specific
“savings clause” section to preserve the then-existing administration of Lifeline service to needy
consumers.4
Indeed, while incorporating the pre-existing Lifeline program into the USF mechanism,
Congress fully intended Lifeline to remain a consumer-centric program focusing on the
affordability of services and adoption. In the Senate Commerce Committee report that
accompanied the Senate version of the Telecommunications Act, the term “affordable” used to
describe the Universal Service Principles was made “in reference to what consumers are able and
willing to pay for a particular service included in the definition of universal service.”5 In
explaining the predecessor provision to section 254(e) of the Communications Act, the report
explained that this provision was “not intended to prohibit support mechanisms that directly help
individuals afford universal service. For instance, nothing in this section is intended to limit or
eliminate the Lifeline and Link-up America programs currently enforced by the Commission and
States, and other similar programs.”6
For nearly 33 years after the Commission established the Lifeline program, the same
basic understanding of Lifeline as the only FCC consumer-oriented universal service program
focusing on the affordability of communications services guided the Commission’s
3 47 U.S.C. § 254(b)(3) (“Consumers in all regions of the Nation, including low-income consumers and those
in rural, insular, and high cost areas, should have access to telecommunications and information services, including .
. . advanced telecommunications and information services, that are reasonably comparable to those services
provided in urban areas and that are available at rates that are reasonably comparable to rates charged for similar
services in urban areas.”).
4 Id. § 254(j) (“Nothing in this section shall affect the collection, distribution, or administration of the
Lifeline Assistance Program provided for by the Commission under regulations set forth in section 69.117 of title
47, Code of Federal Regulations, and other related sections of such title.”).
5 Report of the Committee on Commerce, Science, and Transportation on S. 652, S. Rep. No. 104-23, at 26
(1995).
6 Id. at 29.
3
administration and reform of the program. Under the leadership of six bipartisan FCC Chairmen,
the Lifeline program experienced a period of steady growth that led to vigorous competition
among Lifeline service providers and rapid increases in consumer benefits under the service
plans, which in turn led to unprecedented increases in program participation by eligible
subscribers. Indeed, the program has now grown to serve roughly 12 million customers,
including 1.2 million veterans and 1.4 million senior citizens, even though participation among
eligible consumers remains below 50%.
The most significant expansion of the program occurred when Chairman Kevin Martin,
after Hurricane Katrina, exercised the Commission’s forbearance authority to permit non-
facilities-based wireless carriers to participate in the Lifeline program.7 Following that visionary
decision, a vibrant and fiercely competitive marketplace emerged to serve the needs of some of
the most ignored and forgotten in our society. TracFone was the first wireless reseller to offer a
Lifeline service plan that included voice minutes and text messages with a free phone at no cost
to consumers. For the first time, Lifeline subscribers were able to enjoy the benefits of having a
mobile device without having to worry about paying out of pocket. This new service would
prove to be a key growth factor for the program, as many Lifeline beneficiaries live paycheck to
paycheck and cannot afford even a modest copay. As other resellers entered the market,
competition encouraged carriers to provide even better benefits and services. From 2008 – when
TracFone was first permitted to participate in Lifeline – to immediately prior to the adoption of
the Commission’s 2016 Lifeline Reform Order, TracFone increased its monthly voice benefit
7 Petition of TracFone Wireless, Inc. for Forbearance from 47 U.S.C. § 214(e)(1)(A) and 47 C.F.R. §
54.201(i), Order, 20 FCC Rcd 15095 (2005) (“2005 Forbearance Order”), modified by 24 FCC Rcd 3375 (2009).
4
from 250 to 350 minutes, and its monthly text message allowance from 1,000 messages to
unlimited text messaging.
Of course, the expansion of Lifeline was not without growing pains. Opportunities for
waste, fraud, and abuse emerged as a result of challenges such as customers seeking duplicative
support and a lack of reliable mechanisms to determine customer eligibility. Fortunately, the
FCC took decisive action in 2012 and again in 2016 to address vulnerabilities in the system.8
Although the full impact of these reforms have yet to be seen, it is unmistakable that the size of
the Lifeline program has stabilized at around $1.5 billion since 2014.9
It is against this backdrop that a significant number of proposals in the Commission’s
most recent foray into Lifeline reform seem misaligned with Commission’s oft-stated goal of
helping to connect people to the digital economy. Disregarding the statutory mandate and
decades of bipartisan consensus, the NPRM seeks to re-envision the Lifeline program as a
subsidies program for rural broadband deployment, premised upon redirecting Lifeline dollars to
overbuild incumbent service providers’ last mile facilities in an attempt to generate competition
to benefit low-income households exclusively in rural areas. To achieve this goal, the NPRM
8 See Lifeline and Link Up Reform and Modernization, Report and Order and Further Notice of Proposed
Rulemaking, 27 FCC Rcd 6656, ¶¶ 179-299 (2012) (“2012 Lifeline Reform Order”) (adopting multiple reforms
designed to curtail Lifeline waste, fraud and abuse, including creating a National Lifeline Accountability Database
to prevent multiple carriers from receiving support for the same subscribers; phasing out toll limitation service
support; eliminating Link Up support except for recipients on Tribal lands served by eligible telecommunications
carriers that participate in both Lifeline and the high-cost program; reducing the number of ineligible subscribers in
the program; and imposing independent audit requirements on carriers receiving more than $5 million in annual
support); Lifeline and Link Up Reform and Modernization, 31 FCC Rcd 3962, ¶¶ 126-216, 395-432 (2016) (“2016
Lifeline Reform Order”) (adopting reforms to further curtail Lifeline waste, fraud and abuse in the program,
including creating the National Verifier; modifying the list of federal assistance programs that provide default
Lifeline eligibility; removing state-specified eligibility criteria for Lifeline support; preempting states from
designating Lifeline Broadband Providers; establishing a non-self-enforcing budget for the program; and requiring
the creation of uniform, standardized forms for the Lifeline program as deemed appropriate by the Wireline
Competition Bureau).
9 See Universal Service Administrative Company, “Funding Disbursement Search,”
https://usac.org/li/tools/disbursements/default.aspx (last visited Feb. 20, 2018).
5
proposes to impair the market for Lifeline services by excluding non-facilities-based providers, a
decision that would prevent 73 percent of existing Lifeline customers—or 8.36 million
families—from using their preferred choices of provider, and would disproportionately harm
customers residing in urban areas. The NPRM makes this proposal based on unsupported
assumptions about how the elimination of resellers from the Lifeline program would achieve the
Commission’s policy goals, and it fails to demonstrate market failure warranting the FCC’s
regulatory intervention. The NPRM performs little to no cost-benefit analysis on the proposed
rule’s impact on the wireless industry and consumers,10 and it has offered little to no statistical
evidence to justify any of its departures from precedent.
Overall, the NPRM is an unjustified, overly regulatory approach to Lifeline that ignores
the evidence of market-based competition, a clear Congressional mandate and bipartisan
regulatory activities addressing the affordability challenge for millions of low-income
Americans, and, most importantly, the plight of millions of working class consumers living in
both rural and urban areas—including more than 1 million veterans and 1 million elderly
consumers—who rely on the program as a literal lifeline to help them remain connected to the
rest of society.
To best encourage success of the Lifeline program, protect the consumers that depend on
it, and allow providers to compete in the markets for Lifeline and wireless telecommunications
services, the Commission must allow resellers to continue participating fully in the program,
decline to impose a maximum discount level or self-enforcing budget mechanism, and
10 Indeed, Chairman Pai has often emphasized the importance of cost-benefit analysis at the FCC, and has
even directed the creation of a new Office of Economics and Analytics to, among other things, conduct economic
analysis for rulemaking proceedings. See Remarks of Chiarman Ajit Pai at the Hudson Institute, “The Importance of
Economic Analysis at the FCC,” (Apr. 5, 2017), available at https://apps.fcc.gov/edocs_public/attachmatch/DOC-
344248A1.pdf.
6
discontinue the phase-down of voice-only services. In contemplating Lifeline reform, the
Commission should rededicate its attention to the implementation of recently adopted measures
combatting Lifeline waste, fraud, and abuse. To the extent necessary, the Commission should
consider additional measures that are appropriately tailored to achieve this objective while also
fostering competition in the Lifeline marketplace and ensuring consumers have access to Lifeline
providers of their choice. Finally, the Commission also should focus on improving the National
Verifier so that it works for consumers.
II. THE COMMISSION’S PROPOSAL TO ELIMINATE LIFELINE SUPPORT FOR
NON-FACILITIES-BASED SERVICES WOULD DEVASTATE THE LIFELINE
PROGRAM, CONTRADICT STATUTORY MANDATES, AND FAIL TO SERVE
THE COMMISSION’S STATED POLICY GOALS.
In its most troubling series of proposals, the NPRM seeks comment on “discontinuing
Lifeline support for service provided over non-facilities-based networks,”11 a proposal which
would eliminate from the Lifeline program more than 40 eligible telecommunications carriers
(“ETCs”) and immediately cut off Lifeline support for roughly 8.3 million low-income families
that receive service from such providers. The NPRM suggests that adopting this “Facilities-
Based Proposal” would serve the Commission’s policy goals of “focusing Lifeline support to
encourage investment in voice- and broadband-capable networks” and “eliminating waste, fraud,
and abuse in the Lifeline program.”12 Although the NPRM also recognizes that the Lifeline
program should enable “consumer choice in a competitive market”13 and notes that doing so is a
goal of this proceeding,14 the Facilities-Based Proposal threatens to directly contravene this
objective.
11 NPRM ¶ 67.
12 Id. ¶¶ 67, 68.
13 Id. ¶ 80.
14 Id. ¶ 1.
7
As the National Association of Regulatory Utility Commissioners explains in its recently-
adopted resolution, the FCC must “continue to allow non-facilities based carriers to receive
Lifeline funds because they have been crucial in ensuring that low-income households are
connected to vital telecommunication services.”15 Indeed, if adopted, then the Commission’s
proposal will have wide-reaching negative consequences for millions of customers. It would
disregard overwhelming consumer preference for non-facilities-based providers, requiring
approximately 8.3 million low-income families (more than 70 percent of Lifeline customers) to
leave their current provider and either lose service altogether or switch to a provider they did not
initially choose and for whom Lifeline is not a core offering. The proposal would impose
substantial burdens and costs on, and disrupt service to, millions of current Lifeline subscribers,
many of whom rank among this country’s most vulnerable populations and who can ill afford the
additional cost and disruption.
The Facilities-Based Proposal also would constitute an unprecedented action by the
Commission – the elimination of the majority of wireless Lifeline providers – leaving customers
in at least 11 states with one or no service provider options, at a time when facilities-based
providers are continuing to exit the market. In doing so, the Commission would impair today’s
competitive Lifeline marketplace – and the corresponding benefits of competition currently
enjoyed by consumers. In addition, the proposal would cause many Lifeline customers to
experience a degradation in their current level of service as the one facilities-based wireless
Lifeline provider likely left standing has a smaller coverage footprint than the networks
supporting TracFone and other non-facilities-based Lifeline providers.
15 NARUC “Resolution to Ensure that the Federal Lifeline Program Continues to Provide Service to Low-
Income Households,” available at https://pubs.naruc.org/pub/E0D49A02-AAAA-6EDE-79A1-9D97B1C6E393 .
(last visited Feb. 21, 2018).
8
Further, the NPRM fails to demonstrate how adopting the Facilities-Based Proposal
would meet the Commission’s stated policy objectives. Indeed, basic facts about broadband
deployment economics and historical abuse of the Lifeline program suggest that eliminating
resellers would not serve these objectives. Finally, adopting the Facilities-Based Proposal would
contradict several statutory obligations related to the provision of universal service and
forbearance from statutory requirements.
A. The Facilities-Based Proposal would have a catastrophic impact on the
Lifeline program and would harm the market for wireless
telecommunications services.
Since the Commission first allowed non-facilities-based providers to enter the Lifeline
program in 2008, resellers have become essential to the program and the customers who depend
on it. As the Commission has acknowledged, resellers often “ha[ve] better access to some
market segments than the host facilities-based service provider and can better target specific
market segments, such as low-income consumers[.]”16 When the Commission forbore from the
facilities requirement of Section 214(e) to permit TracFone to enter the program, it found that as
a Lifeline provider, TracFone “would be offering Lifeline-eligible consumers a choice of
providers not available to such consumers . . . for accessing telecommunications services.”17
Further, consistent with the Commission’s own predictions, the participation of non-facilities-
based providers in the Lifeline program has “spur[red] innovation amongst carriers in their
Lifeline offerings, expanding the choice of Lifeline products for eligible consumers.”18
16 Implementation of Section 6002(B) of the Omnibus Budget Reconciliation Act of 1993, Annual Report and
Analysis of Competitive Market Conditions with Respect to Mobile Wireless, Including Commercial Mobile
Services, Twentieth Report, FCC 17-126, 2017 WL 4348640, ¶ 15 (Sept. 27, 2017) (“2017 Mobile Competition
Report”).
17 2005 Forbearance Order ¶ 15. Indeed, TracFone entered the Lifeline market on invitation from Chairman
Martin in light of TracFone’s unique capabilities to reach and serve low-income customers.
18 Id. ¶ 13.
9
Because they are uniquely positioned to serve low-income customers, non-facilities-
based providers have become indispensable participants in the Lifeline program. Given the
crucial role resellers have assumed in the Lifeline program, the NPRM’s sweeping proposal to
limit Lifeline to facilities-based providers would have a harmful impact on the provision of
Lifeline services and the millions of consumers that depend on those services. Further, because
many non-facilities-based providers depend on the Lifeline program to remain in business, the
Facilities-Based Proposal also could negatively affect the market for wireless
telecommunications services generally.
1. Lifeline customers overwhelmingly choose non-facilities-based providers
for Lifeline service – providers the Facilities-Based Proposal would
categorically disqualify.
Today, non-facilities-based providers serve the majority of Lifeline customers.19 This is
not an aberration. Rather, the Lifeline market share of non-facilities-based providers has been
growing steadily over the last several years. These providers accounted for 56 percent of
Lifeline subscriptions in 2013; 61 percent in 2014; and 68 percent in 2015.20 Based on the most
recent available data from the Universal Service Administrative Company (“USAC”),
approximately 8.3 million Lifeline customers currently have chosen non-facilities-based
19 Although the Lifeline program continues to offer a subsidy for fixed broadband service, Lifeline customers
have overwhelmingly opted for mobile options. See e.g., USAC, “Lifeline Historical Support Distribution,”
http://www.usac.org/li/about/process-overview/stats/historical-support-distribution.aspx (last visited Feb. 21, 2018).
This mirrors a growing industry trend. The Center for Disease Control reports that 52.5 percent of all adults now
live in a wireless-only household, and more than 70 percent of adults aged 25-34 do so. Stephen Blumberg & Julian
Luke, Centers for Disease Control and Prevention, National Center for Health Statistics, “Wireless Substitution:
Early Release of Estimates from the National Health Interview Survey, January- June 2017” at 1-2 (2017),
https://www.cdc.gov/nchs/data/nhis/earlyrelease/wireless201712.pdf.
20 See FCC, Universal Service Monitoring Report at Table 2.8 (2016),
https://apps.fcc.gov/edocs_public/attachmatch/DOC-343025A1.pdf (“2016 USF Monitoring Report”); Universal
Service Monitoring Report at Table 2.8 (2015), https://apps.fcc.gov/edocs_public/attachmatch/DOC-337019A1.pdf
(“2015 USF Monitoring Report”); Universal Service Monitoring Report at Table 2.8 (2014),
https://apps.fcc.gov/edocs_public/attachmatch/DOC-330829A1.pdf (“2014 USF Monitoring Report”).
10
providers over facilities-based alternatives.21 Notably, TracFone has supported more Lifeline
subscribers than any other single provider since 201022; more than 4 million subscribers selected
TracFone in 2017 alone.
Customers have been drawn to non-facilities-based providers for their innovative service
offerings and positive consumer experience record. This might be because many non-facilities-
based providers focus on Lifeline – and the needs of Lifeline customers – as an important part of
their business and not as a minor sideline. Some non-facilities-based providers, such as Assist
Wireless and Q-Link Wireless, limit their business exclusively to the Lifeline market.
TracFone’s entire business model centers on the no-contract, prepaid offerings, preferred by
most Lifeline customers. Not surprisingly, the result is that Lifeline customers make up a
significant segment of TracFone’s customer base – approximately 17 percent.23 In contrast,
Lifeline customers appear to make up only 2.5 percent of Verizon’s customers,24 6.4 percent of
21 See supra note 9.
22 2016 USF Monitoring Report at Table 2.5; 2015 USF Monitoring Report at Table 2.5; 2014 USF Monitoring
Report at Table 2.5; Universal Service Monitoring Report at Table 2.8 (2013), https://transition.fcc.gov/Bureaus/
Common_Carrier/Reports/FCC-State_Link/Monitor/2013_Monitoring_Report.pdf; Universal Service Monitoring
Report at Table 2.8 (2012), https://apps.fcc.gov/edocs_public/attachmatch/DOC-319744A1.pdf; and Universal
Service Fund Monitoring Report at Table 2.8 (2011), https://apps.fcc.gov/edocs_public/attachmatch/DOC-
311775A1.pdf.
23 As of the end of 3Q 2017, TracFone had approximately 23.7 million total customers.
24 The estimates for subscriber numbers for Verizon, AT&T, T-Mobile, and Sprint are based on publicly
available data. See Dennis Bournique, “Second Quarter 2017 Prepaid Mobile Subscriber Numbers By Operator,”
Prepaid Phone News (Aug. 2, 2017), https://www.prepaidphonenews.com/2017/08/second-quarter-2017-prepaid-
mobile.html. Neither Verizon nor AT&T releases subscriber numbers. The 2016 USF Monitoring Report attributes
$33,879,000 in Lifeline claims to Verizon, and $81,469,000 to AT&T, which, when divided by $9.25 per subsidy
comes to approximately 3.66 million and 8.81 million, respectively. 2016 USF Monitoring Report Table 2.5.
Assuming Verizon and AT&T include Lifeline subscribers in their overall subscriber count, Lifeline subscribers
make up approximately 2.5 and 6.5 percent of their customer base, respectively.
11
AT&T’s, 5.9 percent of T-Mobile’s,25 and 10.2 percent of Sprint’s.26 And, AT&T and T-Mobile
have both indicated their intent to withdraw from the Lifeline market to focus on their core
customer base.27
Through their attentiveness to Lifeline customers, non-facilities-based providers have
developed innovative service offerings and customer policies that particularly appeal to and
benefit Lifeline customers. For example, TracFone was the first provider to provide free
wireless devices to Lifeline consumers, and was the first to eliminate roaming charges.28
TracFone also led Lifeline providers by being the first to provide Caller ID, call-waiting, three-
way calling, 411 directory assistance, and unlimited text messaging to its subscribers.29
TracFone’s SafeLink Health Solutions program – which currently serves more than 800,000
subscribers and millions of Medicaid recipients over the past eight years – uses mobile
25 T-Mobile no longer includes Lifeline customers in its overall subscriber count. See T-Mobile Q32017 10-
Q at 44 (filed Oct. 23, 2017), http://investor.t-mobile.com/Cache/390730947.pdf. Adding 4.4 million Lifeline
subscribers to a base of 69.6 million, we estimate their total subscriber base to be 74 million. Lifeline subscribers
make up approximately 5.9 percent of that base.
26 Sprint no longer includes Lifeline customers in its overall subscriber count. See Sprint Q32017 10-Q at 25
(filed Nov. 2, 2017), http://d18rn0p25nwr6d.cloudfront.net/CIK-0000101830/b9718960-0e75-4399-bc79-
aa95e2f4f7ec.pdf. Adding 2.8 million wholesale Lifeline customers and 3.3 million Assurance Wireless customers
to a base of 53.7 million, we estimate their subscriber base to be 59.8 million. Lifeline subscribers make up
approximately 10.2 percent of that base.
27 Daniel Fuller, “T-Mobile’s CEO Wants to Get Rid of Lifeline Program,” Android Headlines (June 9,
2017), https://www.androidheadlines.com/2017/06/t-mobiles-cfo-wants-to-get-rid-of-lifeline-program.html (“T-
Mobile’s chief financial officer, Braxton Carter, recently announced intent to end the company’s voluntary
participation in the Lifeline program, a government-subsidized program that provides low-income customers with
vastly discounted basic phone service. Carter called the program ‘non-sustainable,’ saying that the requirements for
providing the voice and data services entailed in the terms of Lifeline service outweigh the potential profits.”); Press
Release, Missouri Public Service Commission, “AT&T Missouri May Relinquish ETC Designation and Cease
Providing Discounted Telephone Service Under the Lifeline and Disabled Programs” (Jan. 12, 2017),
https://psc.mo.gov/Telecommunications/ATT_Missouri_May_Relinquish_ETC_Designation; Mike Dano, “AT&T's
Cricket to Discontinue Lifeline Support,” Fierce Wireless (June 4, 2014),
https://www.fiercewireless.com/wireless/at-t-s-cricket-to-discontinue-lifeline-support (“Cricket prepaid brand is
planning to phase out its support for the government's Lifeline service.”).
28 See Letter from Mitchell F. Brecher, Counsel for TracFone Wireless, to Marlene H. Dortch, Secretary,
FCC, WC Docket No. 11-42, Enclosure at 5 (filed Aug. 14, 2017) (“TracFone Presentation”).
29 Id.
12
technology to keep patients connected with their providers and to give patients the information
they need to improve their health and seek appropriate care.30 Two years ago, TracFone
collaborated with Microsoft and Health Choice Network to roll out a successful pilot program
designed to provide patients suffering from diabetes with the tools they need to better manage
their care.31 Most recently, TracFone has deployed a healthcare portal (shown on the next page)
that SafeLink subscribers can use to access their health maintenance organization’s (“HMO”)
website, search for doctors, contact member services, and access other information related to
health benefits.
30 SafeLink Health Solutions provides qualifying customers with a free handset with voicemail, caller ID, call
waiting, long distance, unlimited text, free calls to the health plan member services number, and up to 350 minutes
each month.
31 The pilot program provided participants with a Windows smartphone equipped with Microsoft’s built-in
suite of health care solutions, such as access to security-enhanced, HIPAA-enabled messaging and health records, as
well as other specialized health-related applications to aid condition management by, for example, providing
treatment plan information or facilitating self-tracking of vital health information such as blood sugar levels.
13
TracFone and other non-facilities-based providers have been engaged actively with the
Commission to improve the Lifeline program to benefit Lifeline customers32 and prevent waste,
fraud and abuse.33 Non-facilities-based providers have a distinguished record of filling a niche
in the marketplace by being attentive to customer needs, as evidenced by the growing share of
subscribers that choose them as the best option for Lifeline service. Yet the NPRM’s proposal
would interfere with this marketplace dynamic and ban their continued participation in the
program, and leave many subscribers with only facilities-based options, some of whom may exit
the Lifeline marketplace in the near term. Such an action neither advances the goals of the
Lifeline program nor serves the interests of Lifeline customers.
2. The Facilities-Based Proposal would burden, disrupt service for, and
potentially impose additional costs on millions of Lifeline subscribers.
As noted above, the vast majority of Lifeline subscribers – approximately 8.3 million –
currently receive service from non-facilities-based providers and would be directly affected by
the NPRM’s proposal. TracFone has served the market for nearly nine years, and currently has
subscribers that have received service from TracFone for more than six years, choosing to
32 See, e.g., Petition for Waiver of TracFone Wireless, Inc., WC Docket No. 11-42, at 2 (filed Nov. 3, 2017)
(proposing a flexible approach to the Commission’s minimum service standards to empower low-income consumers
to obtain the highest value for their Lifeline benefits); Reply Comments of TracFone Wireless, Inc., WC Docket No.
11-42, at 7-8 (filed Sept. 30, 2015) (proposing that the Commission require all ETCs that provide no charge voice
Lifeline service and handsets to offer Lifeline subscribers the option to receive a Wi-Fi-enabled smartphone device
with Internet browsing capabilities); Petition for Reconsideration of TracFone Wireless, Inc., WC Docket No. 11-42,
at 18-19 (filed Apr. 2, 2012) (advocating that consumers should be able to use text messages for purposes of the
Lifeline program’s 60 day non-usage policy).
33 In the last several years, TracFone proposed – and the Commission ultimately adopted – numerous
measures to prevent waste, fraud, and abuse, including elimination of Link Up support for wireless ETCs, collection
of dates of birth and Social Security numbers for eligibility verification, de-enrollment after 60 days, annual
recertification requirements, and retention of audit documentation. TracFone Presentation at 9. More recently,
TracFone worked with agencies and departments across 21 states to obtain access to state databases and verify
applicants’ eligibility, in full support of the National Verifier. Id. at 7. TracFone has also advocated to ban in-
person handset distribution, eliminate the loophole created by the Independent Economic Household Worksheet, and
prohibit incentive-based compensation for third party agents. Letter from Mitchell F. Brecher, Counsel for
TracFone Wireless, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 17-
287, et al., Attachment B (filed Nov. 9, 2017).
14
recertify with TracFone each year and obtain affordable and innovative wireless services. By
banning their chosen provider, the Facilities-Based Proposal would require TracFone’s
customers and the other millions of Lifeline customers subscribed to non-facilities-based
services to scramble to find and sign up with a new provider and plan or lose service altogether.
Those that fail to do so in a timely manner will lose their critical service. Those that manage to
do so may incur additional costs. All will experience some manner of burden and disruption.
And all will be forced to surrender their provider of choice.
It seems unlikely that the Commission would simply direct that the Lifeline customer
base of non-facilities-based providers be moved to one or more facilities-based providers without
customer involvement. Such an action would contravene decades of Commission precedent
supporting customer choice and outlawing changing a customer’s service provider without their
consent.34 Indeed, the Chairman and members of this Commission have previously stressed the
importance of consumer preference in developing agency policy.35 This action would also be
clearly inconsistent with the Commission’s historic focus on preserving competition where it
exists.36 Therefore, the adoption of the proposal is more likely to require notification to
34 See, e.g., Protecting Consumers from Unauthorized Carrier Changes and Related Unauthorized Charges,
Notice of Proposed Rulemaking, 32 FCC Rcd 6022 (2017).
35 See, e.g., Dissenting Statement of Chairman Pai, Inquiry Concerning the Deployment of Advanced
Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, and Possible Steps to
Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, as Amended by the
Broadband Data Improvement Act, Report and Notice of Inquiry, 30 FCC Rcd 1375, 1485 (2015) (stating that “the
driving factor in defining broadband should be consumer preference”); Dissenting Statement of Commissioner
Michael O’Rielly, Protecting the Privacy of Customers of Broadband and Other Telecommunications Services,
Notice of Proposed Rulemaking, 31 FCC Rcd 2500, 2643 (2016) (criticizing the Commission for seeking “to
override consumer preferences with the Commission’s own policy choices”); Remarks of Commissioner Michael
O’Rielly before the 2017 Hispanic Radio Conference, at 3-4 (Mar. 28, 2017),
https://apps.fcc.gov/edocs_public/attachmatch/DOC-344114A1.pdf (contending that consumer preference should be
considered in shaping FCC policy around the broadcaster “Main Studio” rule).
36 For example, in consumer-facing materials, the Commission notes that its Tech Transitions rules focused
on providing consumers options in preserving competition where it exists today. See FCC Consumer Guides, “Tech
Transitions: Network Upgrades That May Affect Your Service,” at https://www.fcc.gov/consumers/guides/tech-
transitions-network-upgrades-may-affect-your-service (last visited Feb. 21, 2018). The Commission’s Strategic
Plan for 2009-2014 stated a number of competition-related objectives, including fostering sustainable competition
15
customers that their chosen provider is forced to terminate Lifeline service and that they will
need to take action to switch to a new Lifeline provider by a certain date.
For those customers who receive and understand the notice, the proposal will require
them to shop for another Lifeline provider and service plan that meets their needs. This will not
only be time-consuming for these customers, but likely also confusing. Each customer would
first need to identify one or more Lifeline providers in his/her area and review the service plans
they offer. Once the customer has selected the new service provider and plan, he or she will
need to take steps to sign up for that provider’s service, which will likely involve having his or
her identity and Lifeline eligibility verified. This may involve finding the time and paying the
cost to travel to the new provider’s store. It will surely involve an investment of time by the
Lifeline customer to make an informed decision and effect the switch. At best, it will be an
inconvenience; but more likely it will be unnecessarily disruptive.
Undoubtedly, there will be a significant number of Lifeline customers who do not receive
or understand the notice, or do not switch providers in time. The proposal is likely to result in
service being cut off for many of society’s most vulnerable, including many of the working poor
in rural and urban areas. For many Lifeline customers, their Lifeline service is their only means
of communication. Losing that service will cut them and their families off from hearing from
employers or potential employers, using the Internet to complete homework, gathering
information about and accessing critical government programs, and keeping in touch with friends
and family. This loss of service would be particularly harmful to populations that are historically
across the entire telecommunications sector and ensuring that consumers have choices among communication
services and are protected from anti-competitive behavior in the increasingly competitive telecommunications
landscape. See “Strategic Plan of the FCC – Competition,” at https://www.fcc.gov/general/strategic-plan-fcc (last
visited Feb. 21, 2018). Congress has also charged the Commission with preserving competition for Internet
services. 47 U.S.C. § 230(b) (“It is the policy of the United States . . . to preserve the vibrant and competitive free
market that presently exists for the Internet and other interactive computer services . . . .”).
16
disadvantaged and most in need of affordable access to telecommunications services. For
instance, 31 percent of TracFone’s subscribers are single mothers; 14 percent are elderly; 12
percent are veterans; and 40 percent are racial minorities. Although the disruption may end up
being temporary – perhaps a few days or weeks – it could nevertheless have an outsized impact
on certain vulnerable populations if they lost out on a job opportunity or could not communicate
with their loved ones during an emergency.
And all Lifeline customers who switch – timely or not – may find that they are subject to
additional costs with the new provider. Plans differ from carrier to carrier. Non-facilities-based
providers like TracFone have been particularly successful in attracting Lifeline customers
because their plans deliver significant value at a comparatively low cost.37 However, under the
proposal, resellers and their plans will no longer be an option so customers may find themselves
paying more for the same or lesser services. For those left only with wireline facilities-based
providers as their option, they may only find a $9.25 discount on their monthly residential phone
or broadband bill. Gone are the benefits such as a free device and the option of receiving a no-
cost service plan. For those fortunate enough to be within the coverage of a wireless facilities-
based provider, they will likely face a monopoly that is now free of the competitive pressure
from resellers to offer innovative plans or lower prices. Although the Lifeline program was
created to make telecommunications more affordable to low-income Americans, the Facilities-
Based Proposal is highly likely to impose additional costs on customers who are the least able to
bear them.38
37 TracFone offers unlimited voice and texting services, 1 GB of data, and free smartphones to its subscribers.
For a comparison of Lifeline providers and their service offerings, see https://www.prepaid-wireless-
guide.com/lifeline-providers.html (last visited Feb. 21, 2018).
38 2012 Lifeline Reform Order ¶ 17 (“If quality voice service is not affordable, low-income consumers may
subscribe to voice service at the expense of other critical necessities, such as food and medicine, or may be unable to
17
Lifeline was designed to help low-income Americans afford and gain access to critical
communications services. Modifying the program requirements to impose costs and burdens on
millions of users – and potentially to disrupt service to some customers – is inconsistent with the
program’s intent and the public interest.
3. The Facilities-Based Proposal would eliminate competition and its
benefits and relegate low-income subscribers in rural and urban America
to a monopoly market or worse in many states.
Largely because of the participation of non-facilities-based providers, the Lifeline market
today is robustly competitive in [nearly all] states, with multiple providers offering a variety of
Lifeline service options. Currently, 41 states and Puerto Rico have four or more options for
wireless Lifeline service. The benefits of competitive markets are well recognized by the
Commission and the agency has identified competition as a goal for the Lifeline market.
However, the NPRM’s proposal, if adopted, would dramatically change that, leaving only one or
no Lifeline providers in a significant number of states. Lifeline customers will plainly suffer in
terms of there being fewer choices, less innovation and higher prices.
The Commission has extoled the benefits of competition as “critical for driving
innovation and investment to the ultimate benefit of the American consumer.”39 It noted in its
most recent Mobile Competition Report that competition “continues to play an essential role in
the mobile wireless marketplace – leading to lower prices, more innovation, and higher quality
service for American consumers.”40 With respect to wireless services – which is the medium of
purchase sufficient voice service to obtain adequate access to critical employment, health care, or educational
opportunities.”).
39 See, e.g., Implementation of Section 6002(b) of the Omnibus Budget Reconciliation Act of 1993, Annual
Report and Analysis of Competitive Market Conditions with Respect to Mobile Wireless, Including Commercial
Mobile Services, Eighteenth Report, 30 FCC Rcd 14517, ¶ 1 (WTB 2015).
40 2017 Mobile Competition Report ¶ 93.
18
choice for the vast majority of Lifeline customers – Congress directed the Commission to
promote competition, decreeing that a finding “that [a regulation] would promote competition
among providers of commercial mobile services . . . may be the basis for a Commission finding
that such regulation . . . is in the public interest.”41 In response, the Commission has consistently
espoused “a deeply rooted preference for preserving and enhancing competition in relevant
markets”42 and has generally required divestitures where a transaction would reduce the number
of competitors in a given market to three or fewer, finding that such a transaction “may result in
a significant likelihood of successful unilateral effects and/or coordinated interaction.”43
The Commission historically has also emphasized the importance of competition in the
Lifeline marketplace, including through its 2012 and 2016 reforms aimed at increasing the
number of market participants and thereby “providing more choice and better service for the
consumers benefitting from the program.”44 Indeed, the Commission cited the importance of
competition as a rationale for forbearing from the facilities requirement in the first place:
41 47 U.S.C. § 332(c)(1)(C).
42 See, e.g., Applications of Cellco Partnership d/b/a Verizon Wireless and Atlantis Holdings LLC,
Memorandum Opinion and Order and Declaratory Ruling, 23 FCC Rcd 17444, ¶ 27 (2008) (“Verizon-ALLtell
Order”); Applications of Cellco Partnership d/b/a Verizon Wireless and Rural Cellular Corporation For Consent to
Transfer Control of Licenses, Authorizations, and Spectrum Manager Leases, Memorandum Opinion and Order and
Declaratory Ruling, 23 FCC Rcd 12463, ¶ 28 (2008); Applications of AT&T Inc. and Dobson Communications
Corporation For Consent to Transfer Control of Licenses and Authorizations, Memorandum Opinion and Order, 22
FCC Rcd 20295, ¶ 12 (2007); AT&T Inc. and BellSouth Corporation Application for Transfer of Control,
Memorandum Opinion and Order, 22 FCC Rcd 5662, ¶ 20 (2007); Applications of Midwest Wireless Holdings,
L.L.C. and ALLTEL Communications, Inc., Memorandum Opinion and Order, 21 FCC Rcd 11526, ¶ 18 (2006);
Applications of Nextel Communications, Inc. and Sprint Corporation, Memorandum Opinion and Order, 20 FCC
Rcd 13967, ¶ 21 (2005); Applications of Western Wireless Corporation and ALLTEL Corporation, WT Docket No.
05-50, Memorandum Opinion and Order, 20 FCC Rcd 13053, ¶ 19 (2005); Applications of AT&T Wireless
Services, Inc. and Cingular Wireless Corporation, Memorandum Opinion and Order, 19 FCC Rcd 21522, ¶ 41
(2004) (Cingular-AT&T Wireless Order).
43 See, e.g., Verizon-Alltel Order ¶ 101 (citing Cingular-AT&T Wireless Order, 19 FCC Rcd 21522, ¶ 191
(2004)) (“Generally, we find that, in any market in which the transaction would reduce the number of genuine
competitors to three or fewer, the proposed transaction may result in a significant likelihood of successful unilateral
effects and/or coordinated interaction.”). In the Verizon-Alltel Order, the Commission required divestitures in
markets in Iowa, Michigan, and Tennessee. Id. ¶¶ 102-06.
44 2016 Lifeline Reform Order ¶ 220.
19
Our public-interest inquiry must include consideration of whether forbearance
would promote competitive market conditions, including the extent to which such
forbearance would enhance competition among providers of telecommunications
services. We conclude that forbearance from the facilities requirement will
enhance competition among retail providers that service low-income subscribers.
Lifeline-only ETCs offer eligible consumers an additional choice of providers for
telecommunications services. The prepaid feature that many Lifeline-only ETCs
offer is an attractive alternative for subscribers who need the mobility, security,
and convenience of a wireless phone, but who are concerned about usage charges
or long-term contracts.45
However, if the Facilities-Based Proposal is adopted, then the Commission would be taking the
unprecedented step of removing existing competitors from the market, and in this case, the
majority of competitors. Such a drastic diminution in the number of market participants would
plainly reduce or eliminate the significant benefits of competition currently enjoyed by Lifeline-
eligible customers.
USAC data shows that the overwhelming majority of Lifeline customers – 89.2 percent –
choose to subscribe to wireless services instead of fixed wireline services.46 And, as noted
previously, most of these customers choose non-facilities-based providers over facilities-based
competitors. Indeed, facilities-based wireless providers are generally limited players in the
Lifeline marketplace. With the exception of Sprint, the other large facilities-based wireless
providers each offer Lifeline service in only a limited number of states,47 and two of these –
AT&T and T-Mobile – have demonstrated a legitimate intention to leave the Lifeline
45 2012 Lifeline Reform Order ¶ 378. TracFone recognizes that not all Lifeline-only ETCs are resellers, but
many are.
46 See USAC, “Lifeline Historical Support Distribution,” at http://www.usac.org/li/about/process-
overview/stats/historical-support-distribution.aspx (last visited Jan. 23, 2018) (showing wireless ETCs accounting
for 89.27 percent of overall Lifeline disbursements).
47 AT&T Mobility offers Lifeline service in thirteen (13) states (Alabama, Alaska, Arkansas, Kentucky,
Louisiana, Michigan, Mississippi, North Dakota, Oregon, South Dakota, Texas, Washington, and West Virginia);
Verizon offers Lifeline service in four (4) states (Iowa, New York, North Dakota, and Wisconsin);T-Mobile offers
Lifeline service in seven (7) states (Florida, Kentucky, Minnesota, Mississippi, Pennsylvania, Virginia, and
Washington); and U.S. Cellular offers Lifeline service in nine (9) states (Iowa, Kansas, Maine, Missouri, Nebraska,
Oklahoma, Oregon, Washington, and Wisconsin).
20
marketplace.48 The remaining facilities-based wireless Lifeline providers tend to be very small
and provide only partial coverage of a state. A reseller ban would contradict the market
dynamism that this FCC promotes in so many contexts.
Given this landscape, adoption of the Facilities-Based Proposal would limit millions of
Lifeline-eligible customers to two or fewer providers for wireless Lifeline service from which to
choose. In fact, in the District of Columbia and nine (9) states (likely to grow with AT&T and
T-Mobile diminishing their Lifeline participation), Sprint would be the only option. Below is a
sampling of such states and the effect of the proposal:
CALIFORNIA49
No. of Lifeline Subscribers in 201550: 1,483,190
Percent using non-facilities-based providers: 52.9% (approx. 784,608 subscribers)
Wireless Providers with ETC designation:
1. Access Wireless51 (Sprint)
2. Air Voice Wireless LLC
3. Assurance Wireless (Sprint)
4. Bluejay Wireless
5. Boomerang Wireless
6. Feel Safe Wireless
7. SafeLink Wireless (TracFone/América Móvil)
8. Safetynet Wireless (division of AmeriMex Communications)
9. TruConnect
48 See supra note 27.
49 USAC, “Companies Near Me – California,” at
http://www.usac.org/ls/companies/CompanyListing.aspx?state=CA&stateName=California (last visited Feb. 21,
2018).
50 Subscriber numbers are taken from Eligible Lifeline Population Statistics spreadsheet, which reflected the
number of active NLAD subscribers enrolled as of Oct. 25, 2015. See USAC, “Eligible Lifeline Population
Statistics,” at http://www.usac.org/_res/documents/about/quarterly-stats/LI/Eligible-Lifeline-Population-
Statistics.xlsx (last visited Feb. 21, 2018) (Eligible Lifeline Population Statistics).
51 TracFone considers Sprint-supported service to include Virgin Mobile d/b/a Assurance Wireless, as well as
i-Wireless d/b/a Access Wireless. Access Wireless is the Lifeline brand of i-Wireless, which merged with Sprint’s
Assurance Wireless brand in 2016. See Colin Gibbs, “Sprint's Assurance to merge with Access Wireless in tie-up of
Lifeline providers,” Fierce Wireless (May 2, 2016), https://www.fiercewireless.com/wireless/sprint-s-assurance-to-
merge-access-wireless-tie-up-lifeline-providers. Sprint owns 70 percent of Access Wireless, and i-Wireless owns
the remaining 30 percent.
21
MARYLAND52
No. of Lifeline Subscribers: 231,824
Percent using non-facilities-based providers: 79.6% (approx. 184,532 subscribers)
Wireless Providers with ETC designation:
1. Access Wireless (Sprint)
2. American Assistance
3. Assist Wireless
4. Assurance Wireless (Sprint)
5. Boomerang Wireless
6. CellSpan
7. Life Wireless
8. Q Link Wireless
9. SafeLink Wireless (TracFone/América Móvil)
10. Sage Telecom Communications, Inc.
11. StandUp Wireless
12. Tempo Telecom, LLC
13. TerraCom
14. True Wireless
MASSACHUSETTS53
No. of Lifeline Subscribers: 255,768
Percent using non-facilities-based providers: 60.8% (approx. 155,507 subscribers)
Wireless Providers with ETC designation:
1. Assurance Wireless (Sprint)
2. Global Connection of America
3. SafeLink Wireless (TracFone/América Móvil)
NEW JERSEY54
No. of Lifeline Subscribers: 296,721
Percent using non-facilities-based providers: 51.2% (approx. 151,921 subscribers)
Wireless Providers with ETC designation:
1. Assurance Wireless (Sprint)
2. SafeLink Wireless (TracFone/América Móvil)
NORTH CAROLINA55
No. of Lifeline Subscribers: 370,566
Percent using non-facilities-based providers: 62.1% (approx. 230,121 subscribers)
Wireless Providers with ETC designation:
52 USAC, “Companies Near Me – Maryland,”
http://www.usac.org/ls/companies/CompanyListing.aspx?state=MD&stateName=Maryland (last visited Feb. 21,
2018).
53 Id. at “Massachusetts,”
http://www.usac.org/ls/companies/CompanyListing.aspx?state=MA&stateName=Massachusetts (last visited Feb.
21, 2018).
54 Id. at “New Jersey,”
http://www.usac.org/ls/companies/CompanyListing.aspx?state=NJ&stateName=New%20Jersey (last visited Feb.
21, 2018).
55 Id. at “North Carolina,”
http://www.usac.org/ls/companies/CompanyListing.aspx?state=NC&stateName=North%20Carolina (last visited
Feb. 21, 2018).
22
1. Access Wireless (Sprint)
2. Assurance Wireless (Sprint)
3. SafeLink Wireless (TracFone/América Móvil)
4. StandUp Wireless
OHIO56
No. of Lifeline Subscribers: 608,259
Percent using non-facilities-based providers: 77.2% (approx. 469,576 subscribers)
Wireless Providers with ETC designation:
1. Access Wireless (Sprint)
2. Air Voice Wireless
3. American Broadband & Telecommunications
4. Assurance Wireless (Sprint)
5. Boomerang Wireless
6. Q Link Wireless
7. SafeLink (TracFone/América Móvil)
8. Sage Telecom Communications LLC
9. StandUp Wireless
10. Tempo Telecom (formerly Birch Communications)
Thus, unless a new facilities-based provider enters the marketplace (which seems highly
unlikely), Lifeline subscribers in California,57 Connecticut,58 Delaware,59 the District of
Columbia,60 Maryland,61 Massachusetts,62 New Jersey,63 North Carolina,64 Ohio,65 and Rhode
56 Id. at “Ohio,” at http://www.usac.org/ls/companies/CompanyListing.aspx?state=OH&stateName=Ohio
(last visited Feb. 21, 2018).
57 See supra note 49.
58 USAC, “Companies Near Me – Connecticut,”
http://www.usac.org/ls/companies/CompanyListing.aspx?state=NC&stateName=North%20Carolina (last visited
Feb. 21, 2018).
59 Id. at “Delaware,”
http://www.usac.org/ls/companies/CompanyListing.aspx?state=NC&stateName=North%20Carolina (last visited
Feb. 21, 2018).
60 Id. at “District of Columbia,”
http://www.usac.org/ls/companies/CompanyListing.aspx?state=DC&stateName=District%20of%20Columbia (last
visited Feb. 21, 2018).
61 See supra note 52.
62 See supra note 53.
63 See supra note 54.
64 See supra note 55.
65 See supra note 56.
23
Island66 would have only one option – Sprint. That’s more than 3.5 million current Lifeline
customers – or approximately 27 percent of all Lifeline subscribers – who would only have one
provider from which to choose. If AT&T and T-Mobile make good on their reasonable plans to
exit Lifeline, then another 2.29 million Lifeline subscribers in Arkansas, Florida, Illinois,67
Louisiana, Minnesota, and Virginia would be limited to Sprint as their only option for Lifeline
service.68 Nearly 470,000 others in Indiana, Nevada, New Hampshire, and South Carolina would
be faced with the option of Sprint or a carrier with only partial state coverage.69 And then there
are the Lifeline subscribers of Vermont, who would no longer have any option for wireless
Lifeline service if the proposal is adopted.70
Such a reduction in the number of wireless service providers in a market—and the
creation of numerous de facto monopolies—has never been ordered by the Commission, under
any Administration. Indeed, lesser reductions have not been permitted where a proposed
transaction would reduce the number of competitors to three or fewer, as the Commission
66 USAC, “Companies Near Me – Rhode Island,”
http://www.usac.org/ls/companies/CompanyListing.aspx?state=RI&stateName=Rhode%20Island (last visited Feb.
21, 2018).
67 Id. at “Illinois,” at http://www.usac.org/ls/companies/CompanyListing.aspx?state=IL&stateName=Illinois
(last visited Feb. 21, 2018). Access Wireless is majority-owned by Sprint. See supra note 51.
68 Id. at “Arkansas,”
http://www.usac.org/ls/companies/CompanyListing.aspx?state=AR&stateName=Arkansas; “Florida,”
http://www.usac.org/ls/companies/CompanyListing.aspx?state=FL&stateName=Florida; “Louisiana,”
http://www.usac.org/ls/companies/CompanyListing.aspx?state=LA&stateName=Louisiana; “Minnesota,”
http://www.usac.org/ls/companies/CompanyListing.aspx?state=MN&stateName=Minnesota; “Virginia,”
http://www.usac.org/ls/companies/CompanyListing.aspx?state=VA&stateName=Virginia (last visited Feb. 21,
2018).
69 Id. at “Indiana,” http://www.usac.org/ls/companies/CompanyListing.aspx?state=IN&stateName=Indiana; “
Nevada,” http://www.usac.org/ls/companies/CompanyListing.aspx?state=NV&stateName=Nevada; “New
Hampshire,” http://www.usac.org/ls/companies/CompanyListing.aspx?state=NH&stateName=New%20Hampshire;
“South Carolina,”
http://www.usac.org/ls/companies/CompanyListing.aspx?state=SC&stateName=South%20Carolina (last visited
Feb. 21, 2018).
70 Id. at “Vermont,”
http://www.usac.org/ls/companies/CompanyListing.aspx?state=VT&stateName=Vermont (last visited Feb. 21,
2018).
24
consistently has found that the diminution in competition would harm consumers and has
required system divestitures to maintain the number of marketplace competitors.71 It would be
wholly inconsistent with decades of precedent for a Commission action to cause such a drastic
reduction in competition and consumer choice. Such action would clearly be contrary to the
public interest.
4. The Facilities-Based Proposal would degrade the level of communications
service that many Lifeline customers have historically enjoyed.
Congress charged the Commission with ensuring that “[q]uality services [are] available at
just, reasonable, and affordable rates” for consumers throughout the nation, “including low-
income consumers.”72 The Commission has adopted many such measures – e.g., Lifeline
minimum service standards – to ensure that voice and broadband services provided through the
Lifeline program offer robust and meaningful broadband connectivity.73 Yet, if adopted, then the
Facilities-Based Proposal would result in many Lifeline customers experiencing a reduction in
coverage – contrary to the public interest and in direct contravention of Congress’ intent for the
Lifeline program.
As noted above, the adoption of the proposal would limit Lifeline-eligible customers in
many states to one or no wireless Lifeline provider option(s). Unless another provider enters the
market, Lifeline customers in Vermont will have no options for wireless Lifeline service, and
thus will experience a drastic degradation in service level. In at least 9 states and the District of
Columbia, Lifeline customers will be limited to the fourth nationwide facilities-based carrier as
the only option for wireless Lifeline service. Lifeline customers switching from resellers that
71 See supra note 43.
72 47 U.S.C. § 254(b)(3).
73 USAC, “Lifeline Program Requirements – Minimum Service Standards,” at https://usac.org/li/program-
requirements/lifeline-broadband.aspx#minimum (last visited Jan. 6, 2018).
25
rely on one or more of the top three nationwide facilities-based providers to the fourth largest are
also likely to experience a reduction in coverage. A comparison of geographic footprint against
the third largest nationwide facilities-based network – which is the underlying network utilized
by the majority of SafeLink subscribers – makes clear that SafeLink customers forced to switch
from their existing service would lose a substantial amount of coverage. Some illustrative states
are sampled below: 74
CALIFORNIA
Figure 1: Existing underlying network (Purple), sole wireless provider if resellers are excluded (Blue) and Combined (Green)
Voice Coverage in California, Form 477 Data 4Q16
California has 1,483,190 Lifeline customers served by 10 wireless ETCs. Should the Facilities-
Based Proposal be adopted, only the fourth largest nationwide wireless service provider would
remain as a facilities-based Lifeline provider.
74 The maps below are based on coverage data made available by the FCC as part of the FCC Form 477
reporting. See https://www.fcc.gov/form-477-mobile-voice-and-broadband-coverage-areas. For these maps, we
used the December 2016 data for “voice” services. While Sprint’s only voice services are CDMA (FCC identifier
“85”), the FCC identifies T-Mobile as using both GSM (identifier “86”) and LTE (identifier “83”) voice networks.
Since T-Mobile apparently makes both networks available for Lifeline services, the T-Mobile coverage reflects
aggregate coverage of both network technologies. In order to determine state-specific comparable coverage, the
Form 477 data was partitioned into states, normalized to include only land areas (Sprint’s data included coastal
coverage over water, T-Mobile’s did not, so only land-based coverage was included for an apples-to-apples
comparison), and then overlap areas were identified. Geographic coverage was obtained by using object “area”
functions within the GIS program.
26
NEVADA
Figure 2: Existing network (Purple), new network if resellers are excluded (Blue) and Combined (Green) Voice Coverage in
Nevada, Form 477 Data 4Q16
Nevada has 142,834 Lifeline customers served by 14 wireless ETCs. Should the Facilities-
Based Proposal be adopted, only the fourth largest nationwide wireless service provider would
remain as a facilities-based Lifeline provider on non-tribal lands.
OHIO
Figure 3: Existing network (Purple), new network if resellers are excluded (Blue) and Combined (Green) Voice Coverage in
Ohio, Form 477 Data 4Q16
27
Ohio has 257,654 Lifeline customers served by 10 wireless ETCs. Should the Facilities-Based
Proposal be adopted, only the fourth largest nationwide wireless carrier would remain as a
facilities-based Lifeline provider.
ARKANSAS
Figure 4: Existing network (Purple), new network if resellers are excluded (Blue) and Combined (Green) Voice Coverage in
Arkansas, Form 477 Data 4Q16
Arkansas has 115,492 Lifeline customers served by 15 wireless ETCs. Should the Facilities-
Based Proposal be adopted, only the second and the fourth largest nationwide wireless carriers
would remain as facilities-based Lifeline providers. As noted above, AT&T, the second largest
nationwide carrier, has indicated an intent to exit the market.
By taking the unprecedented step of removing existing competitors from the market, the
proposal would leave many Lifeline consumers with a level of coverage far less than they enjoy
today. For some Lifeline subscribers, this would mean completely losing critical wireless
reception in their home and neighborhood. By definition, such a proposal harms the public and
is contrary to the public interest.
5. Eliminating resellers from Lifeline could have unintended consequences
for the entire wireless telecommunications market and existing agreements
between resellers and facilities-based providers.
In addition to harming the market for Lifeline services, limiting Lifeline participation to
facilities-based providers could have unintended negative consequences for the entire wireless
28
telecommunications market. Eliminating resellers from Lifeline threatens to put many resellers
out of business entirely, thereby eliminating these providers’ diverse and competitive service
offerings for all customers. This could have repercussions for the competitiveness of the
wireless telecommunications industry, as the Commission has found that resellers are uniquely
situated to serve not only low-income customers but also other market segments such as
consumers with lower data-usage needs.75
The NPRM also threatens the market for wireless telecommunications services by
disrupting existing service agreements between facilities-based and non-facilities-based
providers. In proposing to eliminate non-facilities based providers from the Lifeline program,
the NPRM asks how a facilities-based requirement for the Lifeline program should apply where
a reseller and facilities-based provider have formed a joint venture, and asks how “the
Commission [should] ensure Lifeline support is only issued to ETCs that satisfy the facilities
requirement[.]”76 Many facilities-based providers already have entered into carefully negotiated
agreements with resellers regarding the provision of services, including Lifeline services. The
Commission’s brief discussion of joint ventures in the NPRM suggests that the Commission
might adopt rules that could nullify or hamper existing joint ventures between resellers and
facilities-based providers. This not only would serve as yet another means by which the
Commission would negatively interfere with the dynamic wireless telecommunications market,
but would violate the Commission’s notice-and-comment obligations under the Administrative
Procedure Act.77 The Commission has proposed no rules on the formation of joint ventures
between entities related to the provision of Lifeline services, and the scant mention of joint
75 2017 Mobile Competition Report ¶ 15.
76 NPRM ¶ 68.
77 See 5 U.S.C. § 553(c).
29
ventures in once sentence of the NPRM fails to convey a position on how the Commission seeks
to proceed in this regard. Because “something is not a logical outgrowth of nothing”78 and
stakeholders simply cannot “divine [the Commission’s] unspoken thoughts,”79 Commission must
conduct further proceedings with opportunity for public comment if it seeks to adopt final rules
related to joint ventures.
B. The Facilities-Based Proposal would fail to serve the Commission’s policy
objectives as envisioned in the NPRM.
Adoption of the Facilities-Based Proposal not only would destroy competition for
wireless telecommunications services and harm millions of low-income families that depend on
the Lifeline program, but would fail to serve the policy objectives that the Commission identified
in the NRPM. The Commission asserts that eliminating resellers from the Lifeline program will
promote broadband deployment and curtail Lifeline waste, fraud, and abuse. However, these
assertions rest on unsupported and illogical assumptions. The Facilities-Based Proposal is an
overbroad and uncertain means to advance these stated policy goals.
1. Eliminating resellers from the Lifeline market is unlikely to increase
broadband deployment.
The NPRM proposes discontinuing Lifeline support for non-facilities-based services to
“advance [the Commission’s] policy of focusing Lifeline support to encourage investment in
voice- and broadband-capable networks.”80 This theory is based on a number of unsupported
and questionable assumptions. Eliminating non-facilities-based providers is unlikely to
positively impact broadband deployment.
78 Envtl. Integrity Project v. E.P.A., 425 F.3d 992, 996 (D.C. Cir. 2005) (quoting Kooritzky v. Reich, 17 F.3d
1509, 1513 (D.C. Cir. 1994)).
79 Id. (quoting Arizona Pub. Serv. Co. v. E.P.A., 211 F.3d 1280, 1299 (D.C. Cir. 2000)).
80 NPRM ¶ 67.
30
First, the NPRM assumes that eliminating non-facilities-based providers would
encourage widespread Lifeline participation by facilities-based providers. Facilities-based
providers are already eligible to participate in the Lifeline program and receive a subsidy for
serving low-income customers, yet these providers collectively serve only 30% of Lifeline
subscribers, and many are continuing to exit the program altogether.81 Indeed, Lifeline
penetration was at its lowest when only facilities-based providers were permitted to provide
Lifeline services. The NPRM does not propose to increase the $9.25/month subsidy or provide
any other incentive for facilities deployment. Thus, the NPRM offers no justification as to why
eliminating non-facilities-based providers would increase participation by their facilities-based
counterparts.
Even if the elimination of resellers from the Lifeline program spurred participation by
facilities-based providers, the NPRM does not suggest how this participation would stimulate the
deployment of network facilities. Because “Lifeline support can serve to increase the ability to
pay for services of low-income households,” the NPRM speculates that “such an increase can
thereby improve the business case for deploying facilities to serve low-income households” and
“encourage the deployment of facilities-based networks by making deployment of the networks
more economically viable.”82 However, the Commission provides no data or other evidence to
support these propositions, and basic facts about how the Lifeline program operates undermine
these assertions. First, FCC rules obligate Lifeline providers to pass the full amount of the
Lifeline subsidy through to consumers in the form of lowered rate to address the issue of
affordability.83 Second, whereas the Commission’s Connect America Fund provides support to
81 See supra note 27.
82 NPRM ¶ 65.
83 See 47 C.F.R. § 54.403(a)(1), (a)(3), (b).
31
providers to build out and maintain network facilities in areas where such deployment would
otherwise be prohibitively expensive, Lifeline funds are not geographically based, instead
following the consumer.84 Given the transient nature of many Lifeline subscribers and the highly
variable nature of Lifeline demand,85 it is difficult to comprehend how the ability to serve
Lifeline customers, or even the existence of Lifeline customers in a specific geographic area at
one point in time, would encourage investment in the deployment of permanent network
facilities.
Moreover, the Commission offers no evidence to suggest that the level of funding
available from the Lifeline program is sufficient to influence broadband deployment decisions.
CTIA reports that U.S. wireless providers invested $200 billion in network deployment between
2010 and 2016.86 In 2015 alone, AT&T’s network investments totaled nearly $19 billion and
Verizon’s exceeded $16 billion.87 The U.S. Census Bureau estimates that wireless service
providers spent $32.7 billion on capital expenditures in 2015.88 The Lifeline program offers a
$9.25 monthly subsidy for each low-income customer, with an enhanced subsidy for Tribal
lands, resulting in a total of $1.5 billion in support that serves 12 million families. The NPRM
84 See 47 C.F.R. § 54.403(a)(1) (providing that “[f]ederal Lifeline support in the amount of $9.25 per month
will be made available to an eligible telecommunications carrier providing Lifeline service to a qualifying low-
income consumer, except as provided in paragraph (a)(2) of this section, if that carrier certifies to the Administrator
that it will pass through the full amount of support to the qualifying low-income consumer and that it has received
any non-federal regulatory approvals necessary to implement the rate reduction”).
85 Studies have shown that approximately 12 percent of U.S. households relocate yearly, and residential
mobility rates are higher among low-income households, renters, and younger families. Claudia J. Coulton, The
Federal Reserve Bank of San Francisco and Urban Institute, “Using Data to Understand Residential Mobility and
Neighborhood Change” (2018), http://www.whatcountsforamerica.org/portfolio/using-data-to-understand-
residential-mobility-and-neighborhood-change/.
86 2017 Mobile Competition Report ¶ 7.
87 Comments of CTIA, GN Docket No. 17-199, at 6 (filed Sept. 21, 2017).
88 2017 Mobile Competition Report ¶ 7 n.30.
32
does not show how the availability of Lifeline funds currently received by non-facilities based
providers would meaningfully impact the business case for broadband deployment.
Finally, the Commission appears to assume that adopting the Facilities-Based Proposal
would do more to encourage broadband deployment than the existing program structure, an
assumption that completely ignores the symbiotic relationship b etween resellers and facilities-
based providers. Because resellers purchase voice and data capabilities from facilities-based
providers on a wholesale basis, the participation of resellers in the Lifeline program confers a
benefit to facilities-based providers. Lifeline subsidies received by wireless resellers are in part
used to invest in the deployment, maintenance, and upgrade of facilities-based networks. Thus,
if adopted, then the Facilities-Based Proposal could actually decrease deployment by eliminating
the ability of facilities-based providers to obtain revenue through resellers’ participation in the
Lifeline program while failing to provide sufficient incentive for facilities-based providers to
serve Lifeline customers themselves.
2. The Facilities-Based Proposal is not an appropriate means to combat
Lifeline waste, fraud, and abuse.
The NPRM asks whether “the facilities-based requirement [would] further the
Commission’s goal of eliminating waste, fraud, and abuse in the Lifeline program[.]”89 The
Commission’s theory that eliminating resellers would enhance the overall integrity of the
Lifeline program misunderstands key aspects of historic Lifeline enforcement, makes
unsupported assumptions, and would be an overly broad and ineffective approach to combating
waste, fraud, and abuse.
89 NPRM ¶ 68.
33
First, the waste, fraud, and abuse that the Commission describes is not attributable only
to resellers. Multiple facilities-based carriers have entered into consent decrees with the
Commission in the past five years to terminate investigations into the carriers’ alleged violations
of the Lifeline program rules.90
Second, factors other than abuse by resellers explain the uptick in Lifeline enforcement
that has occurred since resellers joined the Lifeline program in 2008. For instance, many of the
rules aimed at protecting Lifeline’s program integrity (many of which were proposed by resellers
such as TracFone91) were adopted during this time period. Indeed, the “one per household” rule
was not adopted by the Commission until 2012.92 A host of new program obligations, coupled
with inconsistent guidance from the Commission and USAC on compliance with these
obligations, likely contributed to an increase in enforcement activities in the Lifeline program.
Increased public interest and Congressional scrutiny into the program during this time period
also may have contributed to a higher number of enforcement actions targeting the Lifeline
program.
Third, even if the enforcement statistics suggest that resellers are worse offenders than
facilities-based providers, this is a product not of disproportionate program abuse by resellers,
90 See, e.g., AT&T Services, Inc., Order and Consent Decree, 30 FCC Rcd 3728 (2015) (terminating an
investigation into AT&T’s alleged failure to de-enroll Lifeline subscribers that failed to respond to recertification
requests and requiring AT&T to pay a civil penalty in the amount of $6.9 million); Southern New England
Telephone Company d/b/a Frontier Communications of Connecticut, Order and Consent Decree, 30 FCC Rcd 3782
(2015) (terminating an investigation into provider’s alleged failure, while affiliated with AT&T, to de-enroll Lifeline
subscribers that failed to respond to recertification requests and requiring provider to pay a civil penalty in the
amount of $4 million); CenturyLink, Inc., Order and Consent Decree, 28 FCC Rcd 6918 (2013) (terminating an
investigation into whether CenturyLink violated its obligations to offer discounted services to low-income
consumers pursuant to an FCC Merger Order and requiring CenturyLink to make a voluntary contribution to the
U.S. Treasury in the amount of $250,000).
91 See, e.g., Comments of TracFone, WC Docket Nos. 11-42, 03-109, CC Docket No. 96-45, at 31 (filed Apr.
21, 2011) (supporting adoption of a de-enrollment requirement for non-responders and uniform re-certification
standards).
92 2012 Lifeline Reform Order ¶ 69.
34
but of the Commission’s unfortunate targeting of non-facilities-based providers in enforcing
Lifeline program rules. This point was vividly made in the Government Accountability Office’s
May 2017 report entitled “Additional Action Needed to Address Significant Risks in FCC’s
Lifeline Program,”93 which states:
We found . . . that FCC proposed penalties inconsistently against Lifeline providers
that had duplicate subscribers. For example, USAC’s [in-depth validations]
determined that 41 Lifeline providers had intracompany duplicates; of these, FCC
proposed penalties against 12. In some cases, Lifeline providers that FCC penalized
had fewer duplicates than others that were not penalized.94
The GAO Report does not identify which Lifeline providers were subject to proposed
forfeitures for alleged overpayments and which were not subject to proposed fines. Without that
provider information, it is impossible to determine whether some or all of the companies which
were given a “pass” by the Commission may have been facilities-based rather than resellers. For
that reason, TracFone filed with the Commission a Freedom of Information Act request seeking
the In-Depth Validation (“IDV”) data compiled by USAC for all Lifeline providers (facilities-
based and resellers).95 The Wireline Competition Bureau denied this request, and the
Commission denied TracFone’s application for review of this decision.96
The Commission steadfastly has refused to disclose IDV duplicate enrollment
information for any Lifeline providers other than the 12 chosen by the Commission to receive
93 United States Government Accountability Office, Report to Congressional Requesters,
“Telecommunications: Additional Action Needed to Address Significant Risks in FCC’s Lifeline Program,” GAO -
17-538 (2017), available at https://www.gao.gov/assets/690/684974.pdf.
94 Id. at 61. The GAO Report contains several specific examples. It mentions that one Lifeline provider
received $8,300 in overpayments and the FCC proposed a fine of $3.7 million, but that another provider received
approximately $250,000 in overpayments but did not receive a proposed fine. The GAO Report also cites a
situation in which one provider received $8,000 in overpayments and the FCC proposed a $1.2 million fine, but it
not proposed any fine for another provider who had received double the amount of overpayments (about $16,000).
95 FOIA Request submitted by Mitchell F. Brecher, April 2, 2014, FOIA Control Number 2014-338.
96 See Letter to Mitchell F. Brecher from Kirk S. Burgee, Chief of Staff, Wireline Competition Bureau,
Freedom of Information Act Request Control No. 2014-338 (July 3, 2014); In the Matter of Mitchell F. Brecher On
Request for Inspection of Records, FOIA Control No. 2014-338, (rel. March 16, 2016).
35
notices of apparent liability in 2013. There is reason to believe that several of the Lifeline
providers (including possibly some of those noted in the GAO Report) who did not receive
proposed forfeitures despite having high number of duplicate enrollments were, in fact, facilities-
based carriers. Unless and until the Commission publicly identifies all of the Lifeline providers’
IDV results for the 2012-2013 period, its assertion that the vast majority of Commission actions
involving Lifeline fraud have involved resellers remains unsupported and provides no factual
basis for the proposed reseller exclusion.
It is simply not the case that resellers as a group are responsible for Lifeline waste, fraud,
and abuse. Categorically eliminating support for all non-facilities-based providers is therefore an
overbroad means to improve the integrity of the Lifeline program. Eliminating providers based
on the ownership of underlying telecommunications facilities would disqualify numerous
providers such as TracFone that are dedicated to compliance with Lifeline program rules and
have been staunch advocates for reforms that strengthen the integrity of the program. Indeed,
many non-facilities-based providers have significant quality control and anti-fraud measures in
place to ensure that funds are used properly and subscribers are properly verified. TracFone
itself has a robust 13-step program to combat, waste, fraud, and abuse. Yet the NPRM proposes
to eliminate TracFone from the program simply because TracFone does not operate its own
wireless facilities. Eliminating support for all non-facilities-based providers to combat waste,
fraud, and abuse is an imprecise remedy that would punish many compliant non-facilities-based
providers,97 ignore non-compliant facilities-based providers, and discriminate against non-
facilities-based Lifeline providers.
97 Cf. Textor v. Cheney, 757 F. Supp. 51, 56 (D.D.C. 1991) (holding that, in the context of administrative
agency debarment, a debarment decision must be based on substantial evidence and is invalid if it is “arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with the law” in violation of the Administrative
Procedure Act).
36
C. The Facilities-Based Proposal contradicts the Commission’s statutory
obligations.
In addition to failing as a matter of policy, adoption of the Facilities-Based proposal
would contradict two of the Commission’s statutory obligations: (1) its mandate to provide
universal service to low-income consumers under Section 254 of the Communications Act; and
(2) its obligation under Section 10 of the Telecommunications Act of 1996 to forbear from
provisions of the Act if certain criteria are met. The Facilities-Based proposal also would
contradict both Section 254’s requirement that every telecommunications carrier providing
interstate telecommunications services contribute on an equitable and nondiscriminatory basis to
the preservation and advancement of universal service and the Commission’s principle of
competitive neutrality.
1. Eliminating support for non-facilities-based services is contrary to the
Commission’s mandate to serve low-income consumers.
Section 254(b) of the Communications Act requires the Commission to “base policies for
the preservation and advancement of universal service” on a series of enumerated “universal
service principles.”98 One of these principles is that “[c]onsumers in all regions of the Nation,
including low-income consumers and those in rural, insular, and high cost areas, should have
access to telecommunications and information services . . . that are reasonably comparable to
those services provided in urban areas[.]”99 Another universal service principle provides that
“[t]here should be specific, predictable, and sufficient Federal and State mechanisms to preserve
and advance universal service.”100
98 47 U.S.C. § 254(b).
99 Id. § 254(b)(3).
100 Id. § 254(b)(5).
37
Although the Commission first established the Lifeline program in 1985 and Section 254
was not adopted until the passage of the Telecommunications Act of 1996, in its 1997 Universal
Service Order the Commission acknowledged that the 1996 Act “clarifie[d] not only the scope of
the Commission’s authority, but also the specific nature of [its] obligations” with respect to the
provision of telecommunications services to low-income populations.101 Specifically, the
Commission explained that “the Act evinces a renewed concern for the needs of low-income
citizens,” and that “for the first time, Congress expresse[d] the principle that rates should be
‘affordable,’ and that access should be provided to ‘low-income consumers’ in all regions of the
nation.”102 The Commission further found that “[t]hese principles strengthen and reinforce the
Commission’s preexisting interest in ensuring that telecommunications service is available ‘to all
people of the United States,’” and that, “[u]nder these directives, all consumers, including low-
income consumers, are equally entitled to universal service as defined by this Commission under
Section 254(c)(1) [of the 1996 Act].”103 In its order granting TracFone forbearance to allow it to
participate in the Lifeline program, the Commission explained that the “statutory goals of the
low-income program” are “to provide support for qualifying low-income consumers throughout
the nation, regardless of where they live.”104
The Facilities-Based Proposal contradicts these statutory obligations in several key
respects. First, it fails to ensure that universal service funds are “specific, predictable, and
sufficient.” As discussed at length above, adopting the Facilities-Based Proposal would cut off
8.3 million subscribers from their providers, and would leave millions of customers with one or
101 Federal-State Joint Board on Universal Service, Report and Order, 12 FCC Rcd 8776, ¶ 335 (1997) (“1997
Universal Service Order”).
102 Id.
103 Id.
104 2005 Forbearance Order ¶ 23 (emphasis added).
38
zero options for wireless Lifeline services. Second, the proposal effectively seeks to transform
the Lifeline program into another high cost universal service program, ignoring the
Commission’s mandate to provide universal service to low-income consumers. Poor people are
not only (or even mostly) located in rural areas, and rural residents are not all poor. TracFone’s
own data shows approximately 16% of its Safelink customers reside in rural parts of the United
States. Far from serving all low-income customers “regardless of where they live,” the
Commission’s plan reflected in the NPRM seeks to prioritize rural broadband deployment and
service to rural customers over provision of service to low-income consumers as a group.
Indeed, underlying the Facilities-Based Proposal is the NPRM’s assertion that “broadband
service is not as ubiquitous or as affordable as voice service . . . particularly . . . in rural and rural
Tribal areas,” and that “limiting Lifeline support to facilities-based broadband service” can
encourage such deployment.105 The NPRM fails to explain how the Facilities-Based Proposal
would serve the statutory obligations that underlie the Lifeline program as the Commission has
articulated and applied them over the past 20 years.
2. Eliminating support for non-facilities-based services would effectively
reverse the forbearance relief granted to TracFone in violation of Section
10 of the Telecommunications Act of 1996.
Adopting the Facilities-Based Proposal also would effectively reverse the forbearance
previously granted to non-facilities-based providers, in contravention of the Telecommunications
Act of 1996. Pursuant to Section 10 of the Act, “the Commission shall forbear from applying
any regulation or any provision of this Act to a telecommunications carrier or
telecommunications service” if it determines that the following three criteria are met: (1)
enforcement of such regulation or provision is not necessary to ensure that the charges, practices,
105 NPRM ¶¶ 63, 65.
39
classifications, or regulations by, for, or in connection with that telecommunications carrier or
telecommunications service are just and reasonable and are not unjustly or unreasonably
discriminatory; (2) enforcement of such regulation or provision is not necessary for the
protection of consumers; and (3) forbearance from applying such provision or regulation is
consistent with the public interest.106
Section 214(e) of the Communications Act requires that to be designated as an eligible
telecommunications carrier (“ETC”) and receive universal service support, a telecommunications
provider must offer services “either using its own facilities or a combination of its own facilities
and resale of another carrier’s services.”107 In 2005, upon “careful examination of the regulatory
goals of universal service as applied to low-income consumers,” the Commission, under
Chairman Martin, granted TracFone forbearance from the facilities requirement for ETC
designation to allow TracFone to participate in the Lifeline program as a service provider.108
In granting TracFone forbearance to allow it to provide Lifeline services as a non-
facilities-based provider, the Commission made several key findings that mandated forbearance
under Section 10. With respect to the first prong of Section 10, the Commission found that as a
reseller, TracFone “is by definition subject to competition and that this competition ensures that
its rates are just and reasonable and not unjustly or unreasonably discriminatory,” and that
TracFone’s wireless prepaid offering is “neither dependent upon the retail service offerings of its
underlying carriers nor simply a rebranding of [such offerings] which may provide a valuable
alternative to eligible consumers.”109 Thus, the Commission concluded, “[w]here, as here, the
106 47 U.S.C. § 160(a). With respect to the third criterion, the Commission also must consider “whether
forbearance . . . will promote competitive market conditions.” Id. § 160(b).
107 Id. § 214(e).
108 2005 Forbearance Order ¶ 9.
109 Id. ¶ 13.
40
wireless reseller is forgoing all universal service support but Lifeline, which is customer-specific
and is designed to make telecommunication service affordable to eligible consumers, the
facilities requirement is unnecessary to preserve the integrity of the universal service program or
the fund.”110
With respect to the second prong of Section 10, the Commission found not only that
“imposing a facilities requirement on a pure wireless reseller is not necessary for the protection
of consumers,” but that “forbearance from this provision will actually benefit consumers.”111
Specifically, the Commission concluded that TracFone’s prepaid offerings “may be an attractive
alternative for such consumers who need the mobility, security, and convenience of a wireless
phone but who are concerned about usage charges or long-term contracts.”112 The Commission
also found that granting forbearance to TracFone would not unduly burden consumers through
increased pass-through charges of carriers’ USF contribution obligations, noting that increases in
the size of the fund would be outweighed by the benefits, and that “[s]ignificantly, granting
TracFone’s Petition will not have any effect on the number of persons eligible for Lifeline
support.”113 Finally, the Commission found that “appropriate safeguards are in place to deter
waste, fraud, and abuse,” and that granting forbearance to TracFone would “balance [the
Commission’s] objective of increasing participation in the low-income program with [its]
objective or preventing and deterring waste, fraud, and abuse.”114
110 2005 Forbearance Order ¶ 14.
111 Id. ¶ 15 (emphasis added).
112 Id.
113 Id. ¶ 17.
114 Id. ¶ 21.
41
With respect to the third prong of Section 10, the Commission found that “requiring
TracFone, as a wireless reseller, to own facilities does not necessarily further the statutory goals
of the low-income program, which is to provide support to qualifying low-income consumers
throughout the nation, regardless of where they live.”115 Noting that only one-third of eligible
households were participating in Lifeline at that time, the Commission found that “granting
TracFone’s Petition serves the public interest in that it should expand participation of qualifying
consumers.”116
Although the Commission found that all three Section 10 criteria were met and thus the
Commission was required to forbear from the facilities requirement to enable TracFone to be
designated as an ETC to provide Lifeline services as a pure reseller, the NPRM inexplicably
states that the Commission “do[es] not expect” that its proposal to effectively eliminate non-
facilities-based providers from the Lifeline program “would impact the forbearance relief from
section 214(e)(1)(A)’s facilities requirement.”117 The NPRM then states that the Commission
“recognize[s] that not reversing this forbearance relief may create a tension that could be relieved
by making the requirements for obtaining a Lifeline-only ETC designation under section
214(e)(1)(A) match the facilities requirement for receiving Lifeline reimbursement,”118 thereby
appearing to suggest that the Commission would undo the forbearance relief previously granted
to cohere with the new restrictions on Lifeline participation that would be imposed through the
adoption of the Facilities-Based Proposal.
115 Id. ¶ 23.
116 Id. ¶ 24.
117 NPRM ¶ 69.
118 Id.
42
The Commission’s view of the Facilities-Based Proposal as it relates to forbearance is
fundamentally flawed. First, adopting rules that prohibit non-facilities-based providers from
receiving Lifeline reimbursement as a matter of Lifeline’s program rules indisputably and
inevitably defeats the forbearance relief previously granted to resellers for them to be designated
as ETCs. The Commission forbore from Section 214(e) in 2005 to permit TracFone to be
designated as an ETC precisely so that it could provide Lifeline services. Subsequently
prohibiting pure resellers from participating strips this forbearance of any effect. Because the
Commission was required to forbear from Section 214(e) upon finding that the three prongs of
Section 10 were satisfied by TracFone’s participation in the Lifeline program, it may only
reverse this forbearance and prohibit TracFone’s participation if it finds that facts and
circumstances have changed such that forbearance is no longer required.119 As the Commission
has made no such finding, adopting the Facilities-Based Proposal at this juncture would
contravene the Commission’s statutory mandate under Section 10.
Further, even if the Commission could properly undertake such an analysis here, the
Commission cannot conclude that the factors compelling forbearance in 2005 to permit TracFone
to be a Lifeline provider have changed so as to permit it now to reverse its conclusions on
forbearance. Indeed, it is still the case that TracFone is subject to competition, provides unique
valuable services to customers that are independent from those provided by underlying carriers,
and charges rates that are just and reasonable and not unjustly or unreasonably discriminatory. It
is still the case that use of a carrier’s own facilities is unnecessary to ensure just and reasonable
119 See Bus. Data Servs. in an Internet Protocol Env’t, Report and Order, 32 FCC Rcd 3459, 3535 ¶¶ 172, 174
(2017) (explaining that the Commission “read[s] [Section 10] as giving [the Commission] the authority to modify or
reverse forbearance,” but only “when [the Commission] determine[s] that one or more of those forbearance criteria
are no longer met,” and noting that “modifying or reversing forbearance once granted by the Commission or by
operation of law is a step that should be taken with great care”).
43
rates, protect consumers, and further the statutory objectives of the Lifeline program. It is still
the case that allowing TracFone to participate in Lifeline benefits consumers and serves the
public interest—increasingly so as TracFone has continued to innovate in the Lifeline market
and more than 4 million Lifeline customers have chosen TracFone as a provider. It is still the
case that TracFone’s participation properly strikes the balance between encouraging Lifeline
participation and curtailing waste, fraud, and abuse (and in fact, the Commission has only
increased safeguards against waste, fraud, and abuse since TracFone entered the program).
Accordingly, the forebearance previously granted to TracFone must be retained, and TracFone
must be permitted to continue participating in the Lifeline program.
3. Eliminating support for non-facilities-based services would contravene
Section 254’s requirement that telecommunications carriers contribute to
universal service support on an equitable and nondiscriminatory basis as
well as the FCC’s principle of competitive neutrality.
Section 254(d) mandates that “[e]very telecommunications carrier that provides interstate
services shall contribute, on an equitable and nondiscriminatory basis, to the specific,
predictable, and sufficient mechanisms established by the Commission to preserve and advance
universal service.”120 Section 254(b) includes equitable and nondiscriminatory contributions to
the preservation and advancement of universal service among the principles that must form the
basis for the Commission’s universal service policies.121 Precluding non-facilities based
providers such as TracFone from participating in the Lifeline program would eliminate their
ability to receive any universal service subsidies without making any change to their required
USF contributions. They would thus be in the position of subsidizing their competitors’
universal service offerings while being barred from receiving support for offerings of their own,
120 47 U.S.C. § 254(d).
121 Id. § 254(b)(4).
44
which is far from the equitable and nondiscriminatory allocation of duties required by the statute.
This result is especially inequitable given the lack of any reasonable justification for eliminating
support for non-facilities-based Lifeline services addressed above at length in sections II(A) and
II(B).
Consistent with the “equitable and nondiscriminatory” requirement of Section 254, the
FCC established “competitive neutrality” as an additional and distinct principle on which it bases
its policies for advancing universal service.122 The Commission has explained this principle in
the context of determining universal service support:
Universal service support mechanisms and rules should be competitively neutral.
In this context, competitive neutrality means that universal service support
mechanisms and rules neither unfairly advantage nor disadvantage one provider
over another, and neither unfairly favor or disfavor one technology over
another.123
The Facilities-Based Proposal, which unfairly disadvantages non-facilities-based providers by
eliminating them from participation in the Lifeline program while continuing to require full USF
contributions from them, is entirely inconsistent with the FCC’s longstanding competitive
neutrality principle.
III. THE COMMISSION SHOULD CONTINUE PROVIDING LIFELINE SUPPORT
FOR NON-FACILITIES-BASED PROVIDERS, AND SHOULD SEEK TO SERVE
ITS POLICY OBJECTIVES THROUGH OTHER, BETTER MEANS.
Because eliminating Lifeline support for non-facilities-based providers would devastate
the Lifeline program and contradict the Commission’s statutory obligations while failing to serve
the Commission’s policy aims, the Commission should continue providing support for non-
facilities-based providers. The Commission can meet its policy goals of encouraging broadband
122 1997 Universal Service Order ¶ 46.
123 Id. ¶ 47.
45
deployment and eliminating waste, fraud, and abuse from the Lifeline program through other,
better means than categorically eliminating non-facilities-based providers from the program.
As a threshold matter, TracFone seeks to address the perceived level of waste, fraud, and
abuse in the Lifeline program. There has been speculation that a 2014 analysis of Lifeline
subscriber data reported in the 2017 GAO report discussed above reveals significant and on-
going problems with the process by which subscribers are qualified and enrolled by Lifeline
providers.124 A recent analysis, which TracFone has attached to these comments, evaluates the
GAO report and demonstrates that contrary to that view, most, if not all, of the oft-cited 1.2-
million cases in which GAO was unable to confirm the eligibility of a Lifeline subscriber are a
function of the timing of, and manner in which, the GAO analysis was conducted.125 The
authors calculate that GAO’s inability to confirm the eligibility of at least 1 million of the 1.2
million subscribers was the result of methodological issues with the analysis. The paper also
demonstrates that USAC was in the middle of evaluating and improving its data processes at the
time GAO pulled data for its study, and that by the end of the following quarter (March 2015)
more than 1.5-millilon subscribers had been de-enrolled from the program.
A. The Commission recently adopted Lifeline reforms that have the potential to
combat waste, fraud, and abuse.
The Commission has long been dedicated to curtailing waste, fraud, and abuse in the
Lifeline program and has made great strides in this area. In its 2016 Lifeline Reform Order, the
Commission adopted several proposals designed to improve the integrity of the program,
124 See Bridging the Digital Divide for Low-Income Consumers, Fourth Report and Order, Order on
Reconsideration, Memorandum Opinion and Order, Notice of Proposed Rulemaking, and Notice of Inquiry, FCC
17-155 (rel. Dec. 1, 2017) (Statement of Chairman Ajit Pai) (explaining that the GAO report “discovered 1,234,929
Lifeline subscribers who apparently were not eligible to participate in the program as well as 6,378 individuals who
apparently reenrolled after being reported dead”).
125 See attached report by Susan Gately and Helen Golding, “An Analysis of the ‘Unconfirmed’ and
‘Deceased’ Subscriber Findings in the 2017 GAO Lifeline Report” (Feb. 2018).
46
including directing USAC to create the National Verifier; modifying the list of federal assistance
programs that provide default Lifeline eligibility; removing state-specified eligibility criteria for
Lifeline support; preempting states from designating Lifeline Broadband Providers; establishing
a non-self-enforcing budget for the program; and requiring the creation of uniform, standardized
forms for the Lifeline program as deemed appropriate by the Wireline Competition Bureau.126
The full effects of the reforms adopted in the 2016 Lifeline Reform Order have not yet
been seen. Indeed, many of the rules adopting these reforms did not even become effective until
the end of 2016.127 Moreover, some reforms have not been implemented: as discussed at length
in Section VII, infra, the National Verifier remains delayed. Before adopting a sweeping
proposal to tackle waste, fraud, and abuse by categorically excluding providers comprising more
than 70% of the entire Lifeline program, the Commission should focus on the implementation of
previously adopted reforms, allow those reforms to work their way through the system, and
evaluate the impact of these reforms.
B. The NPRM identifies several additional measures that will combat waste,
fraud, and abuse without harming the Lifeline program.
As a long-time advocate of integrity in the Lifeline program, TracFone commends the
Commission for its dedication to identifying reforms to curtail Lifeline waste, fraud, and abuse.
126 2016 Lifeline Reform Order ¶¶ 126-216, 395-432.
127 See Lifeline and Link Up Reform and Modernization, Final Rule, 81 Fed. Reg. 33025 (2016) (announcing
an effective date for the 2016 Lifeline Reform Order of June 23, 2016 except for amendments to Sections 54.101,
54.202(a)(6), (d), and (e), 54.205(c), 54.401(a)(2), (b), (c), and (f), 54.403(a), 54.405(e)(1) and (e)(3) through (5),
54.407(a), (c)(2), and (d), 54.408, 54.409(a)(2), 54.410(b) through (h), 54.411, 54.416(a)(3), 54.420(b), and
54.422(b)(3), which would become effective upon Office of Management and Budget (“OMB”) approval); Lifeline
and Link Up Reform and Modernization, Final Rule; Correction, 81 Fed. Reg. 45973 (2016) (announcing an
effective date of July 15, 2016 for corrections to the 2016 Lifeline Reform Order, other than corrections to Sections
54.202, 54.405, 54.408, and 54.410, which would become effective upon OMB approval); Lifeline and Link Up
Reform and Modernization, Final Rule; Announcement of Effective Date, 81 Fed. Reg. 67922 (2016) (announcing
the OMB approval of rule changes in the 2016 Lifeline Reform Order and establishing effective dates of October 3,
2016 for Sections 54.202(a)(6), (d), and (e), and 54.205(c), December 2, 2016 for Sections 54.101, 54.401(a)(2), (b),
(c), (f), 54.403(a), 54.405(e)(1), (e)(3) through (e)(5), 54.407(a), (c)(2), (d), 54.408, 54.409(a)(2), 54.410(b) through
(e), (g) through (h), 54.411, 54.416(a)(3), 54.420(b), and 54.422(b)(3), and January 1, 2017 for Section 54.410(f)).
47
In particular, the NPRM identifies several reforms advocated by TracFone in the past aimed at
improving the integrity of the Lifeline program: (i) prohibiting agent commissions related to
enrolling subscribers in the Lifeline program and live distribution of handsets;128 (ii) requiring
Lifeline applicants residing in multi-person residences to submit a certification confirming that
the applicant resides at the address and is not part of the same economic household as any other
resident already receiving Lifeline support;129 and (iii) codifying agent registration and other
requirements.130 To best improve the integrity of the program, the Commission should impose
agent registration and other agent-related requirements, adopt a certification requirement for
applicants residing in multi-person residences, and require disbursement holdbacks of a certain
percentage each month.
With respect to live distribution of handsets and agent commissions, the Commission has
previously declined to ban such practices despite TracFone’s petitions. Due to vigorous
competition in the Lifeline market and the absence of Commission action, TracFone was forced
to also provide live handset activations for qualified Lifeline applicants while compensating its
agents through a commission-based system. TracFone has learned since then that the two
practices have their own advantages in encouraging Lifeline’s program participation by those
who are eligible. TracFone now believes that the risks created by these business practices can be
mitigated by the Commission mandating the adoption of robust an ti-fraud measures as well as
agent registration and evaluation standards. These include implementing a third-party
verification system to confirm a Lifeline applicant’s name, date of birth, and address, as well as
128 NPRM ¶ 91.
129 Id. ¶ 99.
130 Id. ¶ 92.
48
utilizing key performance indicator matrix such as the level of early churn for non-usage to
monitor agent behavior.131
Thus, TracFone favors the Commission’s proposals to establish requirements specifically
applicable to agents, including agent registration. Most Lifeline providers use independent
agents and agencies to seek out and enroll Lifeline customers on their behalf. Because those
agents are integral to the marketing of Lifeline services, they too should be subject to
Commission rules governing their conduct and should be accountable for violation of such rules.
Pursuant to Section 217 of the Communications Act,132 acts and omissions of common carrier
agents are deemed to be acts or omissions of common carriers. Moreover, the Commission has
explicitly reminded Lifeline providers that ETCs are responsible for the conduct of their
agents.133 However, an agent registration program and the promulgation of rules and standards
governing agent conduct would empower the Commission to take enforcement actions directly
against those agents who defraud the program. This would be an important step in the effort to
prevent fraud. Agents frequently move from one agency to another and often from representing
one Lifeline provider to representing another provider, often after engaging in fraudulent
behavior. By the time that an ETC has learned of an agent’s misdeeds, the agent has departed for
another ETC or an agency representing another ETC.
TracFone supports an agent registration process as well as establishment of standards
which agents must meet in order to continue in the program. For example, agents who submit a
disproportionate number of applications which are rejected by NLAD should be suspended from
131 Comments of TracFone, WC Docket No. 11-42, at 7-8 (filed Aug. 31, 2015); Reply Comments of
TracFone, WC Docket No. 11-42, at 12-13 (filed Sept. 30, 2015).
132 47 U.S.C. § 217.
133 See, e.g., FCC Enforcement Advisory No. 2013-4, “Lifeline Providers are Liable if their Agents or
Representatives Violate the FCC’s Lifeline Program Rules,” DA 13-1435 (rel. June 25, 2014).
49
the program for a specified period, e.g., 3 months. A second period of unacceptably high NLAD
rejections should result in permanent debarment. Agents who have been determined to have
knowingly engaged in fraudulent conduct in order to maximize enrollments and maximize their
compensation should be subject to monetary forfeitures in accordance with Section 503 of the
Communications Act and should be debarred from the Lifeline program.
The Commission also can curtail Lifeline waste, fraud, and abuse by adopting its
proposal to require subscriber certifications related to the submission of the Independent
Economic Household (“IEH”) Worksheet. To implement the “one-per-household” rule adopted
in 2012,134 the Commission directed USAC to develop a worksheet to be completed by Lifeline
applicants whose claimed addresses were associated with other Lifeline accounts. The IEH
Worksheet, though well-intentioned, creates an exploitable honor system in which applicants
could obtain multiple Lifeline services within one household by providing false answers with no
means for verifying the accuracy of those answers.
TracFone brought this concern regarding the IEH Worksheet to the Commission’s
attention in two ex parte letters in 2014.135 In these submissions, TracFone suggested that, in
situations where multiple persons claimed the same address, the applicants should be required to
confirm the accuracy of their worksheet responses rather than have the ETCs accept the IEH
Worksheet answers at face value. TracFone also proposed that Lifeline applications from
persons residing at multi-person address locations such as homeless shelters, assisted living
centers, and group homes be accompanied by certifications from shelter or home administrators
134 47 C.F.R. § 54.409(c).
135 Letter from Mitchell F. Brecher, counsel to TracFone, to Marlene H. Dortch, Secretary, WC Docket No. 11-
42 (filed Sept. 24, 2014); Letter from Mitchell F. Brecher to Marlene H. Dortch, Secretary, WC Docket No. 11-42
(Dec. 5, 2014).
50
attesting that (1) the applicant resides at the location; and (2) that the applicant is not related to
anyone else residing at the location. The NPRM rightfully recognizes that these proposals would
help to ensure the accuracy of a subscriber’s IEH Worksheet.
Finally, the Commission should further protect against program fraud by requiring
holdbacks from USAC disbursements of a stated percentage each month. TracFone
implemented such a holdback on a voluntary basis in 2015 when it notified USAC that its Form
497 reports would underreport its claimed subscribers and requested reimbursement by one
percent. That one percent holdback reduced TracFone’s disbursement receipts subject to annual
true-up, but provided a “cushion” to be used if improper payments were discovered. TracFone
recommends adoption of mandatory disbursement holdbacks as an additional mechanism for
protecting the USF from fraud in connection with the Lifeline program.
The Commission should expeditiously adopt all of these proposals. The adoption of
these reforms, in conjunction with careful implementation of the reforms adopted in the 2016
Lifeline Order designed to curb waste, fraud, and abuse in the system, will make considerable
progress toward strengthening the Lifeline’s program integrity without also harming the program
and the consumers that depend on it.
C. The Commission should adopt a conduct-based approach to further limit
waste, fraud, and abuse.
As advocated by TracFone and appreciatively identified in the NPRM,136 to further
curtail Lifeline waste, fraud, and abuse the Commission should adopt a “conduct-based
approach” to Lifeline eligibility that uses various existing audit processes to determine a
provider’s continuing participation in the Lifeline program.
136 NPRM ¶ 73.
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USAC has many auditing tools at its disposal to assess the compliance of Lifeline
providers with program rules. In addition to the IDV process discussed above, USAC also
conducts audits of USF contributors and recipients through Beneficiary and Contributor Audit
Program (“BCAP”) and the Payment Quality Assurance (“PQA”) process. The PQA process
was established pursuant to the Improper Payments Information Act of 2002137 and the Improper
Payments Elimination and Recovery Act of 2010138 to obtain information from providers of
USF-supported services, including Lifeline, about improper disbursements to such providers and
to share that information with the Commission.
Virtually all Lifeline providers, including TracFone, have been subject to PQA reviews.
In some cases, those reviews lead to more formalized audits which may result in recovery of
improper disbursements. However, the Commission has not used PQAs to assess provider
conduct and suitability for program participation. PQA results are an important indicator of
provider conduct. TracFone recommends that the Commission establish standards governing
Lifeline eligibility for all providers based on their performance on USAC audits. These
standards are summarized in the chart below.
137 31 U.S.C. § 3321.
138 Id. § 3301.
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Using these criteria, the Commission or USAC should immediately conduct an audit of
all providers using all available audit data, and disqualify providers that fail to meet these
thresholds. This simple measure will do far more to combat waste, fraud, and abuse than any of
the reforms under the Commission’s consideration.
D. The Commission could consider establishing a non-Lifeline revenue
threshold for participation in the program.
The Commission also could condition a provider’s participation in the Lifeline program
on the existence of revenue from sources other than Lifeline services. For instance, the
Commission could establish a threshold percentage of a provider’s business consisting of service
to non-Lifeline customers, such as 50%, and only allow an ETC to participate in Lifeline if this
threshold is met. To the extent the Commission’s concerns about Lifeline waste, fraud, and
abuse are animated by the fact that many non-facilities-based providers enter the market to
provide only Lifeline services, and that such Lifeline-only providers might be motivated by
53
opportunities for regulatory arbitrage—an assumption that TracFone does not accept and, as
discussed above, the Commission has presented no evidence to support—this solution would
eliminate those providers while keeping in the program non-facilities-based providers that have
demonstrated an interest in establishing a physical presence and serving a wide range of
customers. Thus, to the extent the Commission is insistent on categorical exclusions from the
Lifeline program as a means to improve program integrity, a non-Lifeline revenue threshold
could serve as a slightly more tailored means to disqualify bad actors.
E. Existing FCC programs encourage broadband deployment without harming
low-income consumers.
The Commission has implemented many programs and other initiatives aimed at
fostering broadband deployment, including the Mobility Fund and High Cost program within the
Commission’s Connect America Fund. The Commission should focus on these initiatives, and
ensure that they operate effectively and efficiently, rather than attempting to transform the
Lifeline program into another such initiative.
54
IV. OTHER PROPOSALS IN THE NPRM THREATEN TO FURTHER HARM THE
LIFELINE PROGRAM
The Facilities-Based Proposal is just one proposal in the NPRM that would have grave
consequences for the Lifeline program. Multiple other proposals in the NPRM similarly threaten
to harm the program by making it harder or impossible for low-income consumers to participate,
eliminating valued service options, and hampering the ability of non-facilities-based providers to
offer Lifeline services.
A. The Commission should not limit payments to resellers to amounts paid to
wholesale carriers.
The NPRM seeks comment on how the Commission may determine “whether existing or
future resellers have fully complied with the statute’s exhortation that universal service funding
must be spent ‘only for the provision, maintenance, and upgrading of facilities and services for
which the support is intended.’”139 To this end, the NPRM asks whether Lifeline resellers have
“passed through all Lifeline funding to their underlying carriers to ensure federal funding is
appropriately spent on the required ‘facilities and services,’” and asks whether “limiting
payments to resellers to what they pay their wholesale carriers [would] fully effectuate the
congressional intent of section 254(e) [of the Communications Act].”140
This series of inquiries misunderstands the business model of resellers and the plain
language of Section 254(e). Section 254(e) provides that an ETC receiving universal service
support must “use that support only for the provision, maintenance, and upgrading of facilities
and services for which the support is intended.”141 Thus, the statute plainly states that universal
service funding can be used to cover the costs of providing Lifeline services. The suggestion
139 NPRM ¶ 72.
140 Id.
141 47 U.S.C. 254(e) (emphasis added).
55
that resellers must pass all Lifeline funding through to the underlying wholesale carriers would
deliberately read the words “and services” out of Section 254(e).
Indeed, in its 2005 Forbearance Order, the Commission considered and rejected the
argument that Section 254(e) precludes an ETC from using USF funds solely for the provision of
services. There, USTelecom argued that the use of the phrase “facilities and services” in Section
254(e) meant that “an ETC must use any universal support received for facilities as well as
services,”142 and accordingly that forbearance from this provision was required to allow
TracFone to participate in the Lifeline program as a pure reseller. The Commission rejected this
argument, finding that as used in Section 254(e), “facilities and services” was a disjunctive
phrase and accordingly, no forbearance was required to permit TracFone to use Lifeline funds as
a pure reseller.143
The Commission has already found that Section 254(e) does not limit Lifeline
expenditures to the deployment and maintenance of facilities, and that “Congress intended that a
carrier must use the universal support received to meet the goals of the specific support
mechanism under which it was distributed.”144 Limiting payments to resellers to the amounts of
they pay wholesale carriers therefore not only would not effectuate, but would directly
contradict, the intent of the statute.
Further, The NPRM’s suggestion that Lifeline providers improperly use Lifeline funding
is misplaced. Non-facilities-based providers such as TracFone have internal accounting
measures to ensure that the funds are used only for eligible expenses. Absent evidence that
resellers are misusing Lifeline funds and sufficient justifications as to how such a proposal would
142 2005 Forbearance Order ¶ 26.
143 Id.
144 Id.
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serve low income consumers and comport with Section 254(e), the Commission should not limit
payments to resellers to amounts paid to wholesale carriers.
B. The Commission should discontinue its phase-down of Lifeline support for
voice-only services, and should reject its proposal to maintain the phase-
down solely in non-rural areas.
In its 2016 Lifeline Reform Order, the Commission adopted a new policy that Lifeline
services must include a broadband offering to receive the subsidy, and adopted a transition
period for phasing out Lifeline support for voice-only options.145 Pursuant to this schedule, no
Lifeline discount will be available for voice-only service offerings beginning December 1, 2021.
TracFone vehemently opposed the Commission’s proposal to end support for voice-only
service offerings, filing a Petition for Reconsideration in which it explained that the “phased
elimination [of voice-only services] only postpones, but does not eliminate, loss of an essential
service relied upon for years by millions of low-income households.”146 TracFone further
explained that “[t]here are and will always be a portion of the populace for whom the most
essential telecommunications service is the ability to make a phone call or receive a phone call,
without regard to whether those persons can afford a bundled Lifeline service which includes
both voice and broadband service,” and argued that “[u]ntil such time as the Commission is able
to determine based on a factual record that consumers using broadband services as their sole
means of voice and text communications will have ubiquitous and reliable access to E911,
NG911 and other emergency and critical N11 services, “traditional” voice service . . . will
145 2016 Lifeline Reform Order ¶ 52.
146 Petition for Reconsideration of TracFone Wireless, Inc., WC Docket Nos. 11-42, 09-197, 10-90, at 2 (filed
June 23, 2016).
57
remain essential services, and must remain available, and must remain eligible for full Lifeline
support on a standalone basis.”147
The NPRM revisits the phase-down of support for voice-only services, asking whether
“the Commission [should] make any changes to the current schedule for phasing out Lifeline
support for voice services” given the NPRM’s stated policy objective of focusing the Lifeline
program to encourage broadband deployment.148 Yet, again, the Commission remains focused
on the provision of services to rural customers. Finding that “it is unclear whether low-income
consumers would be able to obtain quality, affordable voice service in rural areas without
Lifeline support,”149 the NPRM seeks comment on “eliminating the phase down of Lifeline
support for voice-only service in rural areas.”150
Maintaining the phase-down of Lifeline support for voice-only services in all but rural
parts of the country would be ill-advised. A policy that would discontinue the phase-down in
rural areas only, thus continuing to deprive non-rural customers in other areas of standalone
voice services, plainly and facially discriminates against customers residing in urban areas.
Moreover, the Commission’s reasoning for this discriminatory proposal—that rural consumers
need voice-only service subsidies more than their urban counterparts—is fundamentally flawed
in several respects. First, the NPRM proposes to institute this policy change based purely on
statistics about the affordability of wireline voice offerings in rural versus urban areas.151 Even if
prices for wireline services vary between rural and urban areas, the Commission completely
147 Id. at 2, 5.
148 NPRM ¶ 75.
149 Id. ¶ 76.
150 Id.
151 Id.
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ignores the availability of wireless services, which are priced consistently across both types of
area. The Commission’s analysis also ignores the relative poverty rates between rural and urban
areas, the latter of which is higher than the former.152 The NPRM fails to provide a sound,
evidence-based justification for continuing the Lifeline subsidy for voice-only services in rural
areas while eliminating it for urban consumers.
Further, like the Facilities-Based Proposal, the NPRM’s proposal to inconsistently
eliminate the voice-only phasedown would harm certain consumers while failing to serve the
Commission’s policy goals. Indeed, allowing rural Lifeline providers to continue to receive
subsidies for legacy voice services creates a perverse disincentive for such carriers to invest in
and deploy broadband-capable networks. The Commission must reject this misguided proposal.
C. The Commission should not adopt a self-enforcing budget mechanism.
The NPRM proposes to implement “a self-enforcing budget mechanism” for the Lifeline
program. The NPRM claims that such a mechanism will “ensure that Lifeline disbursements are
kept at a responsible level,” “prevent undue burdens” on USF contributors, and “ensure the
efficient use of limited funds.”153 The NPRM’s budget cap proposals are unnecessary, would
hamper the Lifeline program and harm Lifeline customers, and, to the extent such a mechanism
would prioritize rural customers, would arbitrarily discriminate against customers in other areas.
A self-enforcing budget mechanism accompanied by an annual budget cap is unnecessary
given the Commission’s 2016 Lifeline Reform Order. There, the Commission adopted an initial
annual budget for the Lifeline program of $2.25 billion and directed the Wireline Competition
Bureau to report to the Commission by July 31 of each year if total disbursements exceeded 90
152 See Alemayehu Bishaw and Kirby G. Posey, United States Census Bureau, Social, Economic and Housing
Statistics Division, “A Comparison of Rural and Urban America: Household Income and Poverty” (Dec. 8, 2016).
153 NPRM ¶ 105.
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percent of the budget in the previous calendar year. 154 According to the Commission, this
budget scheme would both “provide ample room for new households to enroll in the program”
while allowing the Commission to “monitor the program and account for the reasons for growth
in the program in order to make adjustments, if necessary.”155
The NPRM switches course and proposes to replace this plan with a “self-enforcing
budget” that would impose an annual cap on Lifeline disbursements subject to a mechanism by
which support levels would automatically be adjusted in the event the cap is exceeded. The
Commission proposes to forecast disbursements and expenses for six-month periods,
proportionately reducing support if expenses are expected to exceed one half of the annual cap to
ensure that expenses remain within the budget.156 Alternatively, the Commission proposes
reducing disbursement levels in subsequent periods to compensate for exceeding the cap in a
given period.157
The NPRM fails to justify this policy shift or provide any explanation as to why the
budget scheme adopted in the 2016 Lifeline Reform Order was insufficient to meet the
Commission’s policy goals with respect to Lifeline spending. There is no evidence to suggest
that the current budget process for the Lifeline program is inadequate, nor is it likely that actual
disbursements for the Lifeline program in the near future will go beyond the budget threshold for
further FCC action established in the 2016 Lifeline Reform Order. Yet the Commission still
154 2016 Lifeline Reform Order ¶ 402.
155 Id.
156 NPRM ¶ 106.
157 Id. ¶ 107.
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proposes a policy that “will inherently exclude an undetermined number of the eligible low-
income consumers.”158
A self-enforcing budget cap runs counter to the statutory principle that mechanisms to
preserve and advance universal service must be “specific, predictable, and sufficient.”159
Reducing disbursements once the cap is exceeded or in anticipation of the cap being exceeded
will result in eligible low-income consumers being unable to receive the Lifeline benefits on
which they depend. This is especially true given that the NPRM proposes to use “historical
disbursement levels” to establish the cap, including considering the $820 million expenditure
level from 2008, the year before non-facilities-based providers were permitted to receive Lifeline
support. Given that Lifeline expenditures currently total $1.5 billion, adopting an arbitrary cap
based on a previous disbursement level guarantees that benefits will be cut or reduced for
existing subscribers, undermining the statutory mandate that universal service be “specific,
predictable, and sufficient.”
A budget cap based on historical disbursement levels not only will harm existing Lifeline
customers, but will prevent organic growth. According to the most recently available data, only
33% of eligible households participate in the program,160 leaving ample room for additional
growth in subscribers. Further, because use of Lifeline services is of a transient nature, demand
for Lifeline services is highly variable. Although in 2016 the Commission considered how it
might “establish[] a ceiling with appropriate room for organic growth” in the Lifeline
158 Testimony of Scott Bergmann, Vice President, Regulatory Affairs, CTIA, for “Legislative Hearing on
Seven Communications Bills” before the House Energy & Commerce Subcommittee on Communications &
Technology (Apr. 13, 2016).
159 47 U.S.C. § 254(b)(5) (emphasis added).
160 Universal Service Administrative Company, “Program Statistics: Lifeline Participation” (2015),
http://usac.org/li/about/process-overview/stats/participation.aspx.
61
program,161 the Commission has now abandoned this objective, instead seeking to adopt a cap
that is designed to prevent organic growth and to hamper the ability of providers to meet the
varying demand of their subscribers in direct contravention of the universal service principle
enshrined in Section 254(b)(5).
In proposing to adopt a self-enforcing budget mechanism, the NPRM promises not only
to hamper the Lifeline program and harm its subscribers, but also yet again to arbitrarily
discriminate against non-rural subscribers. Specifically, the NPRM proposes to “prioritize
funding in the following order if disbursements are projected to exceed the cap: (1) rural Tribal
lands, (2) rural areas, and (3) all other areas.”162 The Commission offers no justification as to
why rural customers should be prioritized and how such a prioritization comports with the
Commission’s previous finding that Congress intended access to telecommunications service to
“be provided to ‘low-income consumers’ in all regions of the nation.”163
D. The Commission should not impose a maximum discount level for Lifeline
services.
The NPRM asks “whether to apply a maximum discount level for Lifeline services above
which the costs of the service must be borne by the qualifying household.”164 A maximum
discount level is illogical as a matter of policy and would do more harm than good by further
discouraging Lifeline participation and raising costs for providers, particularly wireless resellers,
without fostering significant benefits.
As discussed above, the introduction of wireless resellers into the Lifeline program has
led to significant benefits for low-income consumers. Wireless resellers introduced the
161 2016 Lifeline Reform Order ¶ 401.
162 NPRM ¶ 108.
163 1997 Universal Service Order ¶ 335 (emphasis added).
164 NPRM ¶ 112.
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innovative “no cost” Lifeline service plans that have led to the rise in program participation. A
maximum discount level would undermine this progress by greatly reducing Lifeline
participation. The FCC’s Lifeline broadband pilot projects as well as TracFone’s own surveys
have shown that the demand for Lifeline services is highly elastic when it comes to price,
indicating that even a modest monthly copay could greatly reduce the Lifeline participation rate,
by as much as 85%. Further, 85% of respondents to TracFone’s survey who would discontinue
Lifeline services if subjected to a modest copay cited inability to pay as the reason for departure
from the program.
Moreover, it is unclear what a maximum discount level would accomplish as a matter of
policy. Unlike the rest of the USF programs, participation in Lifeline is already means-tested to
target the subsidies toward those who are the most economically insecure. TracFone’s own
survey has shown approximately 44% of its Lifeline subscribers are unbanked. There is not a
scintilla of evidence to suggest that a co-pay requirement would lead to reduction in waste, fraud,
and abuse in the program, nor is there any evidence to suggest that users of a “no cost” Lifeline
service value that service any less than users of a service with a co-pay requirement. Indeed, the
Commission considered and rejected a proposal that would have imposed a minimum consumer
charge on Lifeline subscribers in 2012, finding that there was “insufficient data to establish that
such a federal requirement would effectively protect the program from waste, fraud, and abuse
without thwarting [the Commission’s] goal of making vital communications services available to
low-income consumers.”165
It is also important to note that the Commission already has adopted minimum service
standards for both voice and data services, a policy change designed to maximize the value of the
165 2012 Lifeline Reform Order ¶ 268.
63
Lifeline subsidy.166 The NPRM fails to justify the imposition of a maximum discount level and
explain what such a policy will accomplish that is not already accomplished by the
Commission’s existing minimum service standards.
Finally, a maximum discount level would unduly interfere with the market for Lifeline
services and the business models of Lifeline providers. First, the proposal would be costly or
financially impossible for resellers, who would be required to invest in new billing systems to
handle monthly payment from subscribers. Second, a maximum discount level requirement is
akin to rate regulation, since the FCC will be dictating to the carriers the price they must set for
Lifeline-supported services. Moreover, this policy threatens to violate the Commission’s
statutory mandate to “ensure that universal services is available at rates that are just reasonable,
and affordable.”167 The Commission should thus reject its proposal to impose a maximum
discount level.
V. TO ENHANCE CONSUMER WELFARE AND CHOICE, THE COMMISSION
SHOULD ADOPT A “UNITS” PROPOSAL FOR LIFELINE CARRIERS TO
MEET THE MINIMUM SERVICE STANDARDS.
In an appropriately titled subsection on “Enabling Consumer Choice,” the NPRM invites
comment on a “units” proposal offered by TracFone as an alternative way for Lifeline providers
to comply with the Commission’s minimum service standards for voice and broadband Internet
access service.168 TracFone commends the Commission for soliciting comment on this proposal
and believes that its adoption would indeed enable meaningful consumer choice by Lifeline
households.
166 2016 Lifeline Reform Order ¶¶ 69-103.
167 47 U.S.C. § 254(i).
168 See NPRM ¶ 80 (citing Letter from Mitchell F. Brecher, Counsel for TracFone Wireless, Inc., to Marlene
Dortch, Secretary, FCC, WC Docket No. 11-42 (filed Sept. 7, 2017)).
64
In the 2016 Lifeline Reform Order, the Commission promulgated a series of graduated
minimum service standards which Lifeline providers would have to meet in order for their voice
and broadband services to receive USF support.169 Beginning December 1, 2017, the minimum
service standard for mobile voice service is 750 minutes per month; the minimum service
standard for mobile broadband is 1 GB per month. TracFone’s units proposal is based on a
simple premise – that Lifeline consumers rather than the Commission should determine how to
use their Lifeline-supported service and they should be allowed to change their usage allocation
(between voice and broadband) each month, depending on their current needs and preferences,
so long as the amount of service available to the consumer meets the minimum service standards.
TracFone proposed that for the year commencing December 1, 2017, wireless Lifeline
providers send to each Lifeline consumer 1,000 units per month. Each unit could be used for one
minute of voice service or one 1 MB of mobile broadband data service. Each Lifeline consumer
would be provided with a monthly Lifeline benefit of $9.25 which could be used for voice
service or for broadband Internet access. How each consumer elected to use that benefit would
be for the consumer to determine based on his or her current needs and preferences. Approval of
such a units plan would only require a Commission declaration that such a plan conforms with its
rules. No rule change would be necessary. As explained below, a units plan is fully consistent
with the Commission’s minimum service standard rule.
Section 54.408(a) defines minimum service standard as “the level of service which an
eligible telecommunications carrier must provide to an end user in order to receive the Lifeline
169 2016 Lifeline Reform Order ¶ 69-113. Those minimum service standards are codified at Section 54.408 of
the Commission’s rules, 47 C.F.R. § 54.408.
65
support amount.”170 A standard dictionary definition of “provide” is “to make available.”171 By
delivering 1,000 units to each Lifeline customer every month, an ETC is providing those units,
i.e., making them available. How to use the units provided (either minutes of voice or MBs of
broadband data) is for the consumer to determine.
The units proposal is consistent with the market realities that not all Lifeline customers
want or need the same Lifeline services. Indeed, in the 2016 Lifeline Reform Order,
Commissioner O’Rielly stated in dissent:
Some recipients might want a broadband connection to fill out a job application,
but others might just want a simple voice service to use in case of emergency – the
original purpose of the [Lifeline] program. The Commission calls such basic
offerings “second class” service, but I imagine that those who will end up with no
service at all might call them a Lifeline.172
Adopting TracFone’s units proposal will ensure that all qualified Lifeline consumers are
able to retain their supported service whether or not, in any given month, they choose to use the
service primarily for broadband or primarily for voice.
Although the Wireline Competition Bureau stated in a public notice that bundled or
“units” plans would not meet the minimum service standards because such plans “do not provide
a guaranteed level” of minutes or broadband data,173 this bureau-level public notice is in no way
binding on the Commission and does not preclude the Commission from clarifying that its rules
allow ETCs to meet the minimum service standards by providing units usable either for voice or
broadband data as TracFone has proposed. Moreover, the Bureau’s 2016 notice seems to have
170 47 C.F.R. § 54.408(a)(1) (emphasis added).
171 See, e.g., Webster’s II New Riverside University Dictionary, Riverside Publishing Company, at 948 (1948).
Most standard English language dictionaries contain similar definitions of “provide.”
172 2016 Lifeline Reform Order ¶ 104.
173 Wireline Competition Bureau Provides Guidance Regarding Designation as a Lifeline Broadband Provider
and Lifeline Broadband Minimum Service Standards, Public Notice, DA 16-1118, at 7 (rel. September 30, 2016).
66
rewritten the minimum service standard definition codified at Section 54.408(a) by converting it
from a requirement to “provide” (i.e., to make available) a minimum level of service to a
requirement to “guarantee” such services under all circumstances. As long as an ETC makes
available a sufficient quantity of service to meet the minimum service standards, it should be
able to comply with the minimum service standards. Nothing in the rules dictates otherwise.174
Accordingly, a units plan which would allow Lifeline-eligible consumers to use their
Lifeline-supported service as they chose, based on their own needs and preferences, would be
fully consistent with the Commission’s minimum service standard rule. It would also further the
Commission’s stated goal of encouraging adoption of broadband by low-income households
without forcing consumers out of the program if, at any time, they need supported voice service
more than supported broadband service. The Commission should take this opportunity to clarify
that its rules permit such bundled or units plans.
VI. ADDITIONAL COMMENTS IN RESPONSE TO THE NOI
The Notice of Inquiry (“NOI”) that was simultaneously adopted by the Commission in
this proceeding seeks comment on whether to impose a limitation on the amount of support
Lifeline participants can receive or the length of time that participants may receive such
benefits.175 Such a concept does nothing to further the goals of universal service and must be
swiftly rejected.
As an affordability program, Lifeline is the only Universal Service Fund program that is
means-tested. Whereas a billionaire owner of a country estate could live in a house subsidized
174 For example, a wireline local exchange carrier could provide a Lifeline consumer with a month of unlimited
local exchange service at its tariffed rate reduced by the Lifeline subsidy. If the consumer never made or received a
call during the month (perhaps, e.g., if the consumer were away the entire month), the service would still be
“provided,” i.e., made available, whether or not it was used. Under the rationale of the Bureau’s September 2016
public notice, that service might not meet the minimum service standard unless the consumer actually used the service.
175 NPRM ¶ 130.
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with High Cost support so long as such home is located in a rural, insular part of the country,
Lifeline participants are only eligible for the program if they meet a certain income threshold, or
otherwise qualify for other federal public assistance programs. When a Lifeline-eligible
household is able to lift itself out of poverty and disqualify from the underlying public benefits
program, it will become ineligible for Lifeline services as well. The annual re-certification
requirement provides an additional, routine check-point to ensure only those who are in need of
the service receive the service.
Further, a limit on lifetime Lifeline benefits is inconsistent with the purpose of the
program. The need of a person living in poverty to access telecommunications services that are
vital to daily life is no less dire simply because the person has received Lifeline services in the
past, and an eligible subscriber’s previous use of Lifeline benefits in no way justifies denying
that person access to these vital services today. To fulfill the Lifeline program’s mission to
“provide support for qualifying low-income consumers throughout the nation,” the Commission
should reject any proposals to limit this support based on lifetime benefits received.
VII. THE COMMISSION MUST REMAIN VIGILANT ON IMPLEMENTATION OF
PAST REFORMS
While the Commission pursues additional new reforms to the Lifeline program, it must
not distract itself from the important tasks ahead, especially the creation of the National Verifier.
The Commission, which sets the policies affecting the operation of the National Verifier, also
has the responsibility to oversee USAC’s implementation of the National Verifier based on FCC
policies. It is disconcerting then that USAC has been given seemingly unfettered control over
the creation of the National Verifier that often involved policymaking on the part of USAC
dressed up as technical implementation of the Commission’s directives.
68
A leading case in point is USAC’s decision not to provide an Application Programming
Interface (“API”) for the National Verifier to service providers. Such a seemingly technical
decision has enormous public policy implications and should be addressed through a notice and
comment proceeding rather than behind closed doors. As a threshold matter, it is unclear to
TracFone the level of involvement USAC envisions carriers will have in a Lifeline recipient’s
application process once the National Verifier is up and running. Given that consumers will be
able to verify their eligibility independently through a separate consumer portal envisioned by
USAC, it is unclear how they will choose a service provider and how such service provider will
be notified of their choice once their eligibility is verified.
By divorcing the eligibility verification process from the actual enrollment process, the
consumer portal may inadvertently create disincentives for Lifeline carriers to invest resources
that would assist consumers with the Lifeline eligibility verification and application, leading to a
decrease in enrollment. Should USAC maintain the current system where qualifying low-income
households continue to apply for the subsidies through their carrier of choice, allowing access to
an API would be absolutely essential in enabling service providers to interface with the National
Verifier directly for the purposes of submitting subscribers’ personal information and supporting
documentation. Given that TracFone processes more than 20,000 Lifeline applications daily,
access to APIs are necessary to ensure a timely and cost-effective enrollment process. Instead,
USAC seems to suggest service providers have to rely on a manual process to check for
customer eligibility in the National Verifier – a process that will be time consuming, costly, and
more prone to error than utilizing a USAC-provided API. USAC currently relies on using
National Verifier’s API to interface with state and federal eligibility databases, there simply isn’t
any reason why the same API couldn’t be provided to service providers, especially since service
69
providers are already given access to NLAD’s API to check against duplicate applications
without significant issues that could be attributed to such access.
Another good example is USAC’s decision to severely limit customer access to the
service by allowing only two channels for Lifeline enrollment: an in-person channel through
interacting with a Lifeline service provider’s agent, or an online channel through USAC’s own
website for direct consumer application. It is ironic that, while the Commission is looking at
proposals that could greatly curtail the efficacy of deploying field agents to sign up eligible
Lifeline participants, USAC is placing even greater importance on the use of such agents as
means for Lifeline enrollment. Gone are the existing channels that allow consumers to apply
through a service provider’s own website, a service provider’s own toll-free number, or through
faxing. Such a policy decision with widespread impact on Lifeline’s enrollment should not be
left to the discretion of USAC – an entity that lacks transparency and accountability.
Collectively, USAC’s decisions to withhold the National Verifier’s API and limit the
number of application channels have the effect of cutting out Lifeline service providers in the
Lifeline enrollment process that goes far beyond what the FCC has prescribed in the 2016
Lifeline Reform Order. An unintended consequence will be USAC burdened with processing a
lot more ineligible applications than ever before. That is because TracFone and other service
providers currently prescreen the enrollment applications before sending them to NLAD for
duplicate verification. Through multiple validation systems that screen out and eliminate
ineligible applicants, TracFone is able to reduce by 95% the number of applications it receives to
the number of applications that are eventually pinged against NLAD. It is unclear whether
USAC has accurately estimated the capacity of applications it will be required to handle.
70
More importantly, the absence of an API and the reduction in application channels will
discourage consumer participation in the Lifeline program. A consumer’s user experience will be
made more burdensome by the fact that he or she must manually input their personal information
twice – once when submitting the application through the service provider, and a second time
when checking eligibility via the National Verifier. Some eligible customers inevitably will be
turned away due to input and data matching errors. Others may find the entire application
process to be too time-consuming to be worthwhile. Indeed, the new standard application form
from USAC is currently 6 pages long, while the Independent Economic Household worksheet is
now 3 pages long.
These important decisions with such significant impact on a consumer’s enrollment
experience should not be left to the discretion of USAC bureaucrats without sufficient input from
consumers, service providers, and elected officials. Rather than creating more work for itself by
pursuing new ideas, the FCC should continue to facilitate a smooth launch of the National
Verifier that puts consumers first.176 To best ensure the success of the National Verifier, USAC
and the Commission should monitor closely the rollout of the first five states, and consider what
adjustments should be made with respect to customer approvals, customer satisfaction and ease
of enrollment as the National Verifier is implemented in additional states.
VIII. THE ABILITY OF WIRELESS RESELLERS TO PARTICIPATE IN THE
LIFELINE PROGRAM AND RECEIVE LIFELINE BROADBAND SUBSIDIES IS
UNAFFECTED BY THE REGULATORY CLASSIFICATION OF BROADBAND
SERVICES.
Finally, to the extent the Commission’s proposal to eliminate resellers from Lifeline was
motivated by its recent reclassification of broadband internet access services (“BIAS”) in the
176 For a more thorough discussion on National Verifier implementation issues, see Letter from Mitchell F.
Brecher, Counsel for TracFone Wireless, Inc., to Marlene H. Dortch, Secretary, FCC, WC Docket No. 17-287,
Notice of Ex Parte Presentation (filed Feb. 20, 2018).
71
Restoring Internet Freedom Order, TracFone seeks to clarify that the Commission has authority
to utilize federal Lifeline program funds to provide affordable broadband services to low-income
households no matter the regulatory classification of BIAS. In the Restoring Internet Freedom
Order, the Commission returned both fixed and mobile BIAS to its regulatory classification as
an “information service.”177 The FCC concluded that it has authority under Section 254(e) of the
Act to continue providing universal service funds to carriers that provide broadband service over
facilities-based, broadband-capable networks that also support voice service.178 In light of its
proposal to discontinue Lifeline support for services provided over non-facilities-based
networks, the FCC declined to address what effect, if any, reclassification might have on Lifeline
program support for non-facilities-based providers of information services.179
Reclassification does not affect the Lifeline program, including the use of funds for non-
facilities-based broadband services. Congress gave the FCC the flexibility to establish the types
of services – telecommunications or otherwise – that are to be supported by Federal universal
service dollars.180 Congress also made clear its intent that the FCC facilitate access to “a rapid,
efficient, Nation-wide, and world-wide wire and radio communication service with adequate
facilities at reasonable charges” to all Americans.181 To help achieve this important goal,
177 Restoring Internet Freedom, Declaratory Ruling, Report and Order, and Order, WC Docket No. 17-108,
FCC 17-166, at 8 (rel. Jan. 4, 2018) (“Restoring Internet Freedom Order”).
178 See Restoring Internet Freedom Order ¶ 193; NPRM ¶¶ 77-79. The agency reasons that since voice
service is a supported service under the statute and the FCC’s rules, it can provide funding for facilities-based,
broadband networks that also support voice service irrespective of the regulatory classification of BIAS.
179 See id.
180 See 47 U.S.C. § 254(c)(1)-(3).
181 47 U.S.C. § 151. This sentiment is repeated elsewhere in the Communications Act with a focus on the
deployment of advanced services. See, e.g., 47 U.S.C. §§ 157(a) (“It shall be the policy of the United States to
encourage the provision of new technologies and services to the public.”), 230(b)(1) (“It is the policy of the United
States to promote the continued deployment of the Internet and other interactive computer services and other
interactive media.”).
72
Congress authorized the FCC under Sections 254 to support broadband, even as a standalone
service, using USF resources. Were that not enough, the FCC can use its ancillary authority to
further Congress’s command to make access to advanced telecommunications and information
services available to all Americans at just, reasonable, and affordable rates.
A. Section 254 authorizes the Commission to support broadband services
through the Lifeline program.
Section 254 provides the FCC clear, textual authority to support broadband services
directly through the universal service Lifeline program. “Universal service” is defined generally
as “an evolving level of telecommunications services . . . taking into account advances in
telecommunications and information technologies and services under § 254(c)(1) ”182 Congress
instructed the Commission to define the “services that are supported by Federal universal service
support mechanisms” with guidance from the Joint Board and based on the universal service
principles in Section 254(b).183
The principles upon which the agency “shall base policies for the preservation and
advancement of universal service” manifest Congress’s intent that universal service funds may
be used to support broadband services, whether those services are classified as
telecommunications services or information services.184 The first statutory principle is that
“[q]uality services should be available at just, reasonable, and affordable rates.”185 This includes
“[a]ccess to advanced telecommunications and information services.”186 The Commission also
must consider “[s]uch other principles as the Joint Board and the Commission determine are
182 47 U.S.C. § 254(c)(1) (emphasis added).
183 See id. §§ 254(a), (b).
184 Id. § 254(b).
185 Id. § 254(b)(1).
186 Id. §§ 254(b)(2), (3) (emphasis added).
73
necessary and appropriate for the protection of the public interest, convenience, and
necessity.”187
The Joint Board recommended in 2010 that the FCC “specifically find that universal
support should be directed where possible to networks that provide advanced services,” in
addition to voice services.188 The FCC adopted the Joint Board’s recommendation in 2011,
acknowledging that “Congress made clear in section 254 that the deployment of, and access to,
information services—including ‘advanced’ information services—are important components of
a robust and successful federal universal service program.”189 Both the Joint Board and the FCC
concluded that it would be in the public interest to expand the list of USF-eligible services to
include broadband services.190
B. The Commission can support BIAS using Lifeline funds using its ancillary
jurisdiction.
The Commission is well within its ancillary authority under Title I to use Lifeline
program funds to support BIAS. Two conditions must be met before the Commission may
exercise ancillary authority. First, the “the subject of the regulation must be covered by the
Commission’s general grant of jurisdiction under Title I of the Communications Act,” and
second, the subject of the regulation must be “reasonably ancillary to the Commission’s effective
performance of its statutorily mandated responsibilities.”191 Both conditions are easily satisfied
in this instance.
187 Id. § 254(b)(7).
188 Federal-State Joint Board on Universal Service, Recommended Decision, 25 FCC Rcd. 15598, 15625
(2010) (“2010 Joint Board Recommended Decision”).
189 See Connect America Fund, Report and Order and Further Notice of Proposed Rulemaking, 26 FCC Rcd.
17663, 17679, 17686 (2011) (“USF/ICC Transformation Order”).
190 2010 Joint Board Recommended Decision at 1562; USF/ICC Transformation Order at 17679.
191 Comcast Corp. v. FCC, 600 F.3d 642, 636 (D.C. Cir. 2010).
74
The FCC’s general jurisdiction extends to “all interstate and foreign communication by
wire or radio” originating and/or received within the United States.192 Section 4(i) authorizes the
FCC to “perform any and all acts, make such rules and regulations, and issue such orders, not
inconsistent with this chapter, as may be necessary in the execution of its functions.”193 This
includes its fundamental mandate “to make available, so far as possible, to all the people of the
United States . . . a rapid, efficient, Nation-wide, and world-wide wire and radio communication
service with adequate facilities at reasonable charges,”194 as well as its express mandate under
Section 254.
Section 254 directs the FCC to implement a universal service support structure consistent
with the principles identified in Section 254(b).195 Included among these key principles are the
precepts that “[a]ccess to advanced telecommunications and information services should be
provided in all regions of the Nation,” including low-income consumers and those in rural,
insular, and high-cost areas at rates reasonably comparable to rates charged for similar services
in urban areas.196 The Commission therefore has ample authority to use USF resources to
support information services.
Accordingly, even if Section 254 did not give the Commission direct authority to extend
USF support to BIAS—which demonstrably is not the case—such support would fall within the
Commission’s ancillary authority under Title I.
192 47 U.S.C. § 152. See id. § 153(59) (defining “communication by wire” as “the transmission of writing,
signs, signals, pictures, and sounds of all kinds by aid of wire, cable, or other like connection between the points of
origin and reception of such transmission.”).
193 Id. § 154(i).
194 Id. § 151.
195 See id. § 254(b).
196 Id. §§ 254(b)(2), (b)(3). See also Tex. Office of Pub. Util. Counsel v. FCC, 183 F.3d 393, 444 (5th Cir.
1999) (affirming the Commission’s use of Title I to complement its authority under Section 254).
75
IX. CONCLUSION
In light of the foregoing, TracFone respectfully urges the Commission to make any
modifications to its rules governing the federal Lifeline program in a manner that is consistent
with the comments provided herein.
Respectfully Submitted,
TRACFONE WIRELESS, INC.
/s/ Richard E. Wiley
Richard E. Wiley
Shawn H. Chang
Sara M. Baxenberg
WILEY REIN LLP
1776 K Street, NW
Washington, DC 20006
Phone: (202) 719-7010
Counsel to TracFone Wireless, Inc.
Javier Rosado
Senior Officer, Alternative Business Channels
Rick Salzman
EVP and General Counsel
Mark Rubin
Senior Executive for Government Affairs
TracFone Wireless, Inc.
9700 NW 112th Avenue
Miami, FL 33178
February 21, 2018
An Analysis of the “Unconfirmed” and
“Deceased” Subscriber Findings in the 2017
GAO Lifeline Report
Susan M. Gately
Helen E. Golding
February 2018
Preface
or several years, the FCC has been actively working to improve the efficiency and
accountability of its Lifeline program, working to root out waste, fraud and abuse that had crept
into the program over time. While most evidence suggests those efforts have been highly
successful a GAO report released in June 2017, Additional Action Needed to Address Significant
Risks in FCC’s Lifeline Program [GAO 17-538], has garnered a lot of attention and raised the
specter that the Lifeline program is still plagued by abuse. With that as the backdrop, the authors
set out to evaluate the GAO’s 2017 report and examine the relevance of the findings therein to
the Lifeline program today.
Despite the title, much of the GAO 2017 report deals with issues related to oversight of
the Universal Service Fund program in toto – i.e., growth in the USF contribution factor,
concerns related to the how USAC holds funds prior to distribution, and the potential for
universal service fund contributors to understate their payment obligations, – and not to the
Lifeline program specifically. The authors do not address those portions of the report. The 2017
report also reiterates concerns raised in an earlier (2015) GAO report regarding the need for
evaluation of how well the program is meeting its targeted purpose. Since GAO recognizes in its
report that the FCC has responded to those 2015 concerns and is in the midst of that evaluation,
those concerns are also not the subject of this paper. The analysis herein is limited to that
portion of the report that relates to the concerns about the enrollment of ineligible subscribers in
the Lifeline program – specifically GAO’s analysis of subscriber lists from 2014 – and the
conclusions that GAO and others have subsequently drawn from that analysis. This report also
addresses GAO’s concern that the sheer number of ETCs (eligible carriers) may hamper efficient
administration of the Lifeline program and thus result in improper enrollments.
The authors have been evaluating matters related to the operation of the FCC’s universal
service fund since its inception and have written extensively on opportunities for waste, fraud,
and abuse in the High Cost Fund portion of USF. GAO is to be lauded for attempting to identify
waste, fraud, and abuse (or opportunities for these to occur) in the Lifeline Program. However,
the subscriber list data from 2014 have changed so substantially since then (especially with
respect to the elimination of a large number of potentially problematic subscribers) that they
simply do not reflect the condition of Lifeline subscribership in 2017 or 2018.
Susan M. Gately and Helen E. Golding February 2018
F
An Analysis of the “Unconfirmed” and “Deceased” Subscriber Findings in the 2017 GAO
Lifeline Report
Executive Summary
ngoing references to GAO’s 2017 Lifeline 5eport, now itself almost a year old, ignore
that it analyzed a snapshot of Lifeline data that is more than three years old – data from 2014 not
2017. The snapshot was taken in the midst of a period of dramatic changes to Lifeline program
subscriber verification processes and enrollment numbers. Any problem subscribers that GAO
did identify in the 2017 5eport were likely off the Lifeline rolls three years ago (and it is not
even clear the subscribers that GAO failed to confirm back in 2014 were, in fact, ineligible at
that time to receive the Lifeline program benefit).
x Enrollment in the Lifeline program has dropped by more than 40 (more than 7million)
since its peak in 2012, when program changes directed by the FCC began being
implemented.
x 0ore than 1.5million subscribers were disenrolled during 4414 and 1415 alone (the
quarter when GAO sampled the data discussed in the 2017 5eport and the next quarter).
x The much referenced ³deceased´ subscribers found by GAO represent 100ths of 1
(0.0) of the data analyzed – well below standard data error rates (which could have
occurred in either the Lifeline data set or Social Security Death ,ndex or both).
x GAO’s analysis was conducted on a snapshot of data from a newly constructed database
corrections resulting from a ³scrubbing´ of that data completed in the months following
GAO’s snapshot were not included in the data it used.
x The Lifeline database GAO used for its analysis was not constructed or intended to be
used as part of the Lifeline eligibility verification process the information in that
database was also not the basis for payments to Lifeline providers.
x GAO attempted to crossmatch different fields within that Lifeline database against a
dozen different state and federal governmentmaintained data sets that were being
maintained for uses distinct from the Lifeline eligibility verification process.
x 0ost of the instances in which GAO’s could not ³confirm´ subscriber eligibility, are in
hindsight, explainable by the process used – not by subscriber ineligibilty.
x GAO expressed concern with the number of carriers participating in the Lifeline program
(known as ETCs). The vast majority of the Lifeline providers are wireline incumbent
local exchange carriers – specifically the same rural carriers (5LECs) that comprise most
of the participants in the high cost portion of the Universal Service Fund – not wireless
carriers and not resellers.
O
The Authors are respectively the Principal of and Consultant to S0Gately Consulting, LLC each of whom has
more than 0 years of experience in economic and policy analysis in the telecom arena
The Lifeline program is one of four
set up by the FCC to address the goal
of universal service. ,ts purpose is to
ensure that lowincome consumers
have access to telecom services.
Significantly smaller in magnitude
than the fund that provides ³high
cost´ support to telecom service
providers it accounted for only about
15 of close to billion in USF
program disbursements last year.
,
An Analysis of the “Unconfirmed” and “Deceased”
Subscriber Findings in the 2017 GAO Lifeline Report
Susan M. Gately and Helen E. Golding
n 2012 the FCC announced a multiyear, multipart plan to improve the efficiency and
accountability of its Lifeline program, the last stages of which are still being developed and
implemented. As a result of those efforts, the number of subscribers has dropped by more than
40 since 2012 (the year of peak enrollment).1 ,n 2017, the GAO released an analysis of a
snapshot of a nonrandom sample of Lifeline subscriber data from 2014 and reported that it was
unable to confirm the eligibility of of those subscribers.2 ,t also reported finding a
minuscule percentage of subscribers (100ths of a percent) that it identified as being deceased.
,t is worth noting that the dataset GAO analyzed, known as 1LAD, was not part of the Lifeline
verification or disbursement process. %ut even aside and apart from the problems inherent in
GAO’s analysis that predisposed it from the start to a high ³unconfirmed´ result, the analysis is,
quite simply, outdated. The unquestioning repetition of certain findings from 2014 by reference
to the GAO 2017 5eport has unfortunately given ongoing life to the outdated analysis.
Adding to the problem, some have seized upon
the ³unconfirmed´ or ³deceased´ subscribers reported in
the 2017 GAO 5eport as signs of rampant abuse or
serious structural problems with the Lifeline program.
Our analysis strongly suggests that such conclusions are
not supported. GAO’s inability to make an exact
³match´ of the 2014 USAC 1LAD subscriber lists with
programmatic data sets maintained by other government
entities mostly reflects the difficulty of matching up two
unrelated data sets (including one still under construction), and the failure of some providers to
timely remove deenrolled subscribers from 1LAD 4 it does not reliably identify improper
Lifeline enrollments.
An Analysis of the “Unconfirmed” and “Deceased” Subscriber Findings in the 2017 GAO
Lifeline Report
2
GAO’s approach
GAO is to be lauded for attempting to identify sources of waste, fraud, and abuse in the
Lifeline Program and, despite inherent problems, those portions of its report that relate to its
analysis of 2014 data might have been illuminating at the time. However, the 2014 subscriber
data GAO attempted to ³confirm´ and the databases from which that data came have changed so
substantially since then that they shed little light today. That, in combination with the fact that
the data snapshot for the GAO analysis occurred right in the midst of a significant dropoff in the
Lifeline rolls (more than 1.5million subscribers during the last quarter of 2014 and first quarter
of 2015 combined)5, renders the results meaningless for purposes of evaluating potential waste,
fraud and abuse in the Lifeline program in 2018.
GAO conducted an analysis of what it described as a ³nongeneralizable selection´ of
Lifeline program data from 2014 and identified what it deemed to be potentially improperly
enrolled subscribers. ,t found, ³%ased on its
matching of subscriber to benefit data, GAO
was unable to confirm whether about 1.2
million individuals of the .5 million it
reviewed, or percent, participated in a
qualifying benefit program, such as 0edicaid,
as stated on their Lifeline enrollment
application.´7 As the old saying goes, hindsight
is 2020, and looking back now at the database
snapshot GAO had to work with from 2014 and
the methodology it employed to ³confirm´
subscribers’ eligibility, it is remarkable that
GAO was able to confirm, or ³match´, as many
of the subscribers as it did.
NLAD was never the right list of subscribers for GAO to analyze
The 1ational Lifeline Accountability Database, (1LAD) (the dataset used by GAO in its
analysis) was not designed to be used as part of the Lifeline disbursement process8 or to aid in
verifying subscriber eligibility. ,ts function was to aid in the identification and prevention of
duplicate subsidies flowing to the same household from multiple providers and nothing more.
At the time of GAO’s review, 1LAD was still under construction and had not yet been
11.5
12.0
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An Analysis of the “Unconfirmed” and “Deceased” Subscriber Findings in the 2017 GAO
Lifeline Report
³scrubbed´ for accuracy.10 USAC review of individual provider 1LAD entries versus subscriber
claims made through Form 4 7 have revealed that carriers do not always purge the 1LAD data
set of names of individuals that are no longer being subsidized. For one provider a USAC audit
in February of 2015 identified almost 50 more names in the 1LAD database than the provider
reported on FCC Form 4 7 (used for disbursement purposes) – a function of the fact that
adequate procedures where not yet in place to remove the names of deenrolled subscribers in the
new database.11 As a practical matter, GAO’s analysis of the 2014 1LAD seems to presume an
equivalency between the set of individuals in 1LAD at that time and the set of individuals that
were eligible for and receiving a subsidy from the program – that equivalency simply did not
exist.
“Unconfirmed is not synonymous with “ineligible”
,nstead of indicating subscribers that were improperly enrolled, GAO’s µunconfirmed´
subscribers could have arisen just as easily from a coding error in one or more of the state
maintained program eligibility data sets or simply from having the information being matched
appear slightly differently in the two databases being compared. Put differently, GAO’s inability
to ³confirm´ eligibility through this process, and the conclusions some have drawn from that
inability, is analogous to concluding that your car
keys were stolen because you didn’t find them in the
first place you looked. ,n fact, GAO identified less
than 12,000 subscribers that could be viewed as
improperly receiving benefits out of the 1LAD
dataset of more than 10.5million ³unique´ entries
(less than 18th of one percent.)12 Everything else
represents nothing more than GAO not finding the
keys in the first place it looked.
Explanations for and corrections to GAO’s findings
The oftcited observation that GAO was unable to ³match´ of the subscribers in its
sample from the 2014 1LAD dataset begs the following question Assuming that 100 of
names in the 2014 1LAD dataset had been ³eligible´ subscribers, and knowing what we know
now, should there have been an expectation that 100 of names would be ³confirmed´ via
matching against other state and federal datasets" ,f the answer to that question is no (which it
is), it is instructive to examine what level of ³unconfirmed´ subscribers should have been
expected, given the thenexisting data set"
GAO attempted to match its sample
from the 1ovember 2014 snapshot of
the 1LAD database against state
maintained S1AP and 0edicaid
datasets for FL, GA, 0,, 1E, 1<,
and OH and against the federal SS,
dataset. Datasets that Lifeline pro
viders did not have access to and that
were not used as part of the Lifeline
eligibility verification or disburse
ment process in place at the time.
An Analysis of the “Unconfirmed” and “Deceased” Subscriber Findings in the 2017 GAO
Lifeline Report
4
As it turns out, most, if not all, of the 1.2million cases in which GAO was unable to
confirm subscriber eligibility (using its 1ovember 2014 sample) are explained by causes
unrelated to the ³ineligibility´ of those participants in the Lifeline program. We have identified
three primary drivers that explain in large part GAO’s inability to match a portion of 1LAD
subscriber entries to state and federal benefit databases
x Effects of the annual recertification and deenrollment process
x Effects of the use of uncorrected (raw) data from the new 1LAD database
x Effects of population mobility
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Each is discussed in more detail in Appendix A. Taken together, and using the conservative end
of the adjustment ranges identified in the Appendix, we find that about 1million of the 1.2
million subscribers whose program eligibility GAO was unable to confirm in 1ovember 2014
are explained not by ³ineligibility,´ but rather by the nature of the exercise.
,f performed as described in its 5eport, GAO’s methodology would have also identified as
³unconfirmed´ those cases where (a) the subscriber is different than the benefit qualifying
person (BQP) (example – the subscriber is a guardian of a lowincome disabled minor receiving
SS, benefits),1 (b) the subscriber’s eligibility was confirmed as qualified via the 1LAD dispute
resolution process (the applicant offered proof of identity or address despite failing automated
third party identity validation or USPS address validation)14, or (c) the subscriber is a participant
in a staterun address confidentiality program (in place to protect victims of domestic or sexual
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An Analysis of the “Unconfirmed” and “Deceased” Subscriber Findings in the 2017 GAO
Lifeline Report
5
GAO also remarked upon opportunities for
waste, fraud, and abuse resulting from the
Lifeline programs reliance ³on over 2,000
Eligible Telecommunication Carriers that are
Lifeline providers to implement key program
functions, such as verifying subscriber
eligibility,´ a ³complex internal control
environment´ it deemed to be ³susceptible to
risk of fraud, waste, and abuse as companies
may have financial incentives to enroll as
many customers as possible.´ As a factual
matter, GAO overstated the number of ETCs
enrolling subscribers and receiving
disbursements by about 50, but more
importantly, the majority of ³Lifeline´ ETCs
are small rural incumbent LECs (5LECs)
providing wireline service (most of whom
receive less than 1,000 per month in Lifeline
disbursements). The large number of
participating ETCs is a direct function of the
fragmented nature of the rural
telecommunications landscape in the US –
particularly for wireline services. The ³risk of
fraud, waste, and abuse´ from these 5LECs
participation in the FCC’s ( times larger)
USF High Cost Fund is far greater than
anything available to them through the Lifeline
program.
,f ³financial incentives >for carriers@ to enroll
as many customers as possible´ exist they
would operate regardless of whether there
were one, a hundred, or ten thousand Lifeline
providers. And a financial incentive to enroll
customers can and should be a good thing for a
program designed specifically to expand the
reach of the US communications network to
include otherwise unserved segments of the
population – particularly given the large
segment of the Lifelineeligible population
that is not presently participating in the plan
and ³connected.´
A problem only exists if
there is both a financial incentive and the
ability to fraudulently enroll customers –
something the controls the FCC has
implemented over the last four years (and
continues to implement) make highly unlikely.
Attempts to draw conclusions about the
efficacy of the Lifeline enrollment program
from the flawed analysis discussed above also
proceed from the mistaken assumption that
mismatches between the 1LAD and other state
run datasets indicate problems with Lifeline
enrollments rather than errors or deficiencies in
the crossreferenced state and federal eligibility
datasets (or some combination of the two). As
an example, states have years to update
subscriber data in 0edicaid datasets, yet GAO
utilized these datasets as part of its analysis.1
Relevance of deceased subscriber findings
A second GAO finding that has attracted
attention – that through this process, GAO
³found ,78 individuals reported as deceased
who are receiving benefits´ – suffers from many
of the same methodological flaws. There is no
way to verify whether the finding represents
anything more than data entry errors. Those
identified as deceased represent less than
100ths of 1 of the more than 10million
subscribers in the 1LAD database. This is well
below what might have been expected given
standard data entry error rates – particularly
since GAO was using the unscrubbed data set.
That said, improvements continue to be made in
the coordination of death information among
programs, and Lifeline administration has
benefitted from these improvements.17
An Analysis of the “Unconfirmed” and “Deceased” Subscriber Findings in the 2017 GAO
Lifeline Report
Ineligible subscribers that were in the program in 2014 have likely been long removed
The above observations and adjustments to GAO’s analysis are not meant to suggest any
disagreement with its objective of improving the accuracy and accountability of Lifeline program
administration. However, even to the extent that GAO’s analysis of 2014 data raises legitimate
concerns about program operations at the time, the reliance on that analysis in a mid2017 5eport
remains problematic. Changes targeted at addressing those concerns were already underway in
2014 and have made a dramatic difference in the administration of the Lifeline program. Close
to 1million subscribers were dropped from the Lifeline rolls in the 4th quarter of 2014 and
another 00,000 were dropped over the next three months in the 1st quarter of 2015.18 This
represented 12 of the total lifeline subscriber base. The actual number and percentage of
participants that were deenrolled was even greater, because the total change in subscribership
includes newly qualified and enrolled subscribers that offset some of the drops. Deenrollment
of subscribers was much higher in the sample states where GAO (matching against state
verification databases) was unable to confirm 5,000 subscribers by the end of 0arch 2015,
those states had 700,000 fewer subscribers (even accounting for new subscribers).1 Thus,
within a few months of the GAO’s snapshot of Lifeline eligibility, the reforms already underway
in 1ovember 2014 were showing impressive results. 1ot content with past successes, however,
the FCC continues to work with USAC and providers on improving the mechanisms to support
accuracy and accountability in Lifeline administration.
An Analysis of the “Unconfirmed” and “Deceased” Subscriber Findings in the 2017 GAO
Lifeline Report
7
Appendix A: Primary drivers that explain much of GAO’s inability to match a
portion of NLAD subscriber entries to state and federal benefit databases
Lifeline subscribers’ eligibility must be recertified by providers or states annually. All
subscribers enrolled as of January 2014 had to be processed for recertification at some time
during the calendar year (by 12114).20 Only of those subject to recertification in 2014
remained enrolled by year end (1 were deenrolled and removed from the database).21 Since
subscribers remain eligible for the program throughout the recertification process as many as
100 of those subscribers could have been in the 1114 1LAD database snapshot sampled by
GAO (just prior to the date for removal from the rolls). %ased on the number of subscribers
needing recertification in 2014, we calculate that up to 0 of total 1ovember 2014 1LAD
listings could have been ready to be eliminated from that database within a month.22
Even if one
posits that half of the recertifications and associated purging of customers were completed well
in advance of the yearend requirement, the timing of GAO’s analysis would still explain the
inability to ³match´ 15 of the dataset – or almost half of GAO’s ³unconfirmed´ subscribers.
,n 1ovember 2014 when GAO took a snapshot of the 1LAD database to use in its
analysis USAC was still in the process of ³scrubbing´ the initi al 10millionplus entries into the
new 1LAD dataset (a process not completed until the spring of 2015).2 Corrections made to the
dataset resulting from that work would not have been in the data snapshot used by GAO. The
data fields subject to USAC’s scrubbing and correction would have been the very same
information (subscriber name, date of birth, last four digits of social security number and
address) that GAO was using to match the 1LAD with other eligibility datasets. Even a small
discrepancy in information would have prevented GAO from confirming subscriber eligibility,
hampering its ability to match the relevant data points. We analyzed characterizations of the data
scrubbing results and conservatively estimate that a minimum of of the total 1LAD database
entries used by GAO in its analysis and possibly many more, were subsequently corrected.24 Put
differently, the use of raw, unscrubbed data explains GAO’s inability to ³confirm´ eligibility of
at least of the subscribers in its sample.
GAO’s data matching exercise required an exact match in most or all relevant fields, including
the subscriber’s address (or portions thereof). Population mobility (change of address during the
year), particularly for this population, is in the range of 11 to 15 annually.25 Any movement
by subscribers during the year or timing differences in updating addresses between the 1LAD
and the various eligibility databases would have prevented GAO from confirming a match. Thus,
the use of address information as a component of the program eligibility matching process used
by GAO introduces an expected ³mismatch´ rate in the range of 11 to 15 into the data
analysis attributable to population mobility.
Effects of annual recertification and de-enrollment of subscribers 15% to 30%
Effects of uncorrected data in the new NLAD database snapshot: 3%
Effects of population mobility across databases and time: 11% to 15%
An Analysis of the “Unconfirmed” and “Deceased” Subscriber Findings in the 2017 GAO
Lifeline Report
8
END NOTES
1 Lifeline enrollment has dropped from a high of 17.million in June 2012 to 10.million in
December 2017. See, USACs Appendix L,08 from ³Federal Universal Service Support 0echanisms
Fund Size Projections´ for the First 4uarter of 201 and Second 4uarter 2018. Accessed on Feb 14,
2018 at http www.usac.orgabouttoolsfccfilingsdefault.aspx
2 Additional Action Needed to Address Significant Risks in FCC’s Lifeline Program, Government
Accountability Office 5eport, GAO 1758, publicly released in June 2017, at and 8. Accessed on
February 14, 2018 at https www.gao.govproductsGAO1758
GAO reported finding ,78 1LAD entries for individuals it deemed to be deceased out of 10.5
million unique individuals it evaluated in the database. GAO 1758 at 8 and 4.
4 See discussion at 2 infra.
5 FCC Universal Service 0onitoring 5eport, period ending September 201, released January 17.
2017 at Table 2.. Accessed at https www.fcc.govdocumentwcbreleases201universalservice
monitoringreport.
GAO 1758 at .
7 GAO 1758, ³Highlights´ page.
8 A fact acknowledged by GAO 1758 at ³%ecause Lifeline disbursements are based on
providers
reimbursement claims, not the number of subscribers a provider has in 1LAD, our analysis of
1LAD data could not confirm actual disbursements associated with these individuals.´
GAO 1758 acknowledges 1LAD’s purpose and function (see footnote 1 of Appendix 1 at )
³1LAD is a Lifeline enrollment database designed to help carriers identify and resolve duplicate claims
for Lifelinesupported service and prevent future duplicates. 1LAD provides a means for carriers to
check on a realtime and nationwide basis whether the consumer is already receiving a Lifeline Program
supported service.´ %eginning in January 2018 counts of subscribers in the nowmature 1LAD dataset
are being used in place of Form 4 7. USAC High Cost Low Income Committee Briefing Book, January
2 , 2018 at 148. Accessed February 14, 2018 at
http usac.orgBresdocumentsaboutpdfbodmaterials2018012 hclibriefingbook.pdf.
10 GAO 1758 at 4.
11 USAC High Cost Low Income Committee Briefing Book, January 2 , 2018, at 18 and 141.
12 GAO identified 5,510 ³duplicate´ and ,78 ³deceased´ subscribers out of the 10.5million
unique entries it evaluated in the 1LAD dataset. GAO 1758 at 4.
1See USAC 1LAD Frequently Asked 4uestions, 4uestion 12. Accessed on February 14, 2018 at
http www.usac.orgliaboutfaqsfaqnlad.aspx, and the USAC 1LAD input template, accessed on
February 14, 2018 at http www.usac.orglitoolsnladnladresources.aspx.
14 See USAC 1LAD Frequently Asked 4uestions Dispute 5esolution, 4uestions 5 – 40, accessed
on February 14, 2018 at http www.usac.orgliaboutfaqsfaqnlad.aspx and USAC Dispute 5esolution
guidelines, accessed on February 14, 2018 at http usac.orglitoolsnladdisputeresolutiondefault.aspx.
An Analysis of the “Unconfirmed” and “Deceased” Subscriber Findings in the 2017 GAO
Lifeline Report
15 The Address Confidentiality Program (ACP) refers to state or locallyrun programs that provide
confidential addresses to victims of domestic violence. While the actual title of the program may vary by
state, within 1LAD documentation, ACP is an umbrella term that includes them all. See
http www.usac.orgBresdocumentslipdfnlad1LADGlossary.pdf.
1GAO 1758 at 41.
17 ,n 1ovember 2017, USAC implemented new procedures for Lifeline enrollment that make use of
the SSA Death 0aster File (D0F) and other data sources to determine if a person may be deceased. See,
USAC High Cost Low Income Committee Briefing Book, January 2 , 2018, at 148.
18 See endnote 5 supra. USAC reported subscribers for end of Sept 2014, December 2014 and
0arch 2015 of 1.4million, 12.40million and 11.7 million respectively.
1 See, table below. Data taken from USAC Appendix L,08 from ³Federal Universal Service
Support 0echanisms Fund Size Projections´ for the First, Second and Third 4uarters of 2015. Accessed
on Feb 14, 2018 at http www.usac.orgabouttoolsfccfilingsdefault.aspx
Yϯ 201ϰ Yϰ 201ϰ Y1 201ϱ
F>KZ/ ϵϰϱ͕ϱϯϳ ϵ2ϰ͕110 8ϵ2͕ϱ2ϯ
' KZ'/ ϱ02͕ϲϵϲ ϰ80͕8ϯϵ ϰϯ1͕ϳ1ϰ
D/,/'E ϲ88͕ϯ8ϳ ϱ8ϱ͕ϳ1ϲ ϰϵ1͕ϵϲϲ
E Z^< 11͕0ϯϲ 10͕1ϲ2 ϵ͕ϳϳϰ
E t zKZ< 1͕0ϵϵ͕ϱ01 ϵϱϱ͕ϳ8ϱ 8ϲ2͕822
K,/K ϲϯϯ͕ϵ8ϯ ϱϲϰ͕ϲ22 ϰ8ϳ͕ϵϰϱ
dOdALS ϯ͕881͕1ϰ0 ϯ͕ϱ21͕2ϯϰ ϯ͕1ϳϲ͕ϳϰϰ
20 Public 1otice, Wireline Competition Bureau Provides Guidance Regarding the 2013 Lifeline
Recertification Process, DA 11188, 5eleased 0ay 22, 201.
21 USAC Annual 5eport for 2015, at 11. Accessed on February 14, 2018 at
http www.usac.orgBresdocumentsaboutpdfannualreportsusacannualreport2015.pdf .
22 USAC reported 4. million deenrollments in 2014, equal to of the 1.4million
subscribers enrolled in the lifeline program at the end of the rd quarter of 2014. See Tables 2.7 and 2.8 of
the FCC Universal Service 0onitoring 5eport, period ending September 2015, released 12252015.
2017. Accessed at https www.fcc.govdocumentwcbreleases2015universalservicemonitoring
report.
2GAO 1758 at 4.
24 The magnitude of the improvement in accuracy resulting from the USAC’s scrubbing of the
1LAD data was estimated by analyzing the number of duplicates detected by GAO prescrub >GAO 17
58 at 4@ with the number of duplicates detected and eliminated by USAC >GAO 1758 at 44@. The
effect of the data scrubbing on this one objective (elimination of duplicates) resulted in of the
subscribers being identified as duplicates and removed from the lifeline rolls. ,t is highly likely that the
scrubbing corrected other records as well, with respect to other relevant data points considered in the
GAO matching exercise.
25 https www.census.govdatatables2014demogeographicmobilitycps2014.html, Table 1.1
Exhibit 6