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THE LIFELINE FUND: MONEY WELL SPENT? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON COMMUNICATIONS AND 

TECHNOLOGY 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

APRIL 25, 2013 

Serial No. 113–36 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

(II) 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

RALPH M. HALL, Texas 

JOE BARTON, Texas 

Chairman Emeritus 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

Vice Chairman 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

BILL JOHNSON, Missouri 

BILLY LONG, Missouri 

RENEE L. ELLMERS, North Carolina 

HENRY A. WAXMAN, California 

Ranking Member 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

JERRY MCNERNEY, California 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

BEN RAY LUJAN, New Mexico 

PAUL TONKO, New York 

(III) 

SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY

GREG WALDEN, Oregon 

Chairman 

ROBERT E. LATTA, Ohio 

Vice Chairman 

JOHN SHIMKUS, Illinois 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

MARSHA BLACKBURN, Tennessee 

STEVE SCALISE, Louisiana 

LEONARD LANCE, New Jersey 

BRETT GUTHRIE, Kentucky 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

BILLY LONG, Missouri 

RENEE L. ELLMERS, North Carolina 

JOE BARTON, Texas 

FRED UPTON, Michigan, ex officio 

ANNA G. ESHOO, California 

Ranking Member 

EDWARD J. MARKEY, Massachusetts 

MICHAEL F. DOYLE, Pennsylvania 

DORIS O. MATSUI, California 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

BEN RAY LUJAN, New Mexico 

JOHN D. DINGELL, Michigan 

FRANK PALLONE, JR., NEW JERSEY

BOBBY L. RUSH, Illinois 

DIANA DEGETTE, Colorado 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

HENRY A. WAXMAN, California, ex officio 

(V) 

C O N T E N T S 

Page 

Hon. Greg Walden, a Representative in Congress from the State of Oregon, 

opening statement ................................................................................................ 1 

Prepared statement .......................................................................................... 3 

Hon. Marsha Blackburn, a Representative in Congress from the State of 

Tennessee, opening statement ............................................................................ 6 

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, opening statement ............................................................................. 7 

Hon. Leonard Lance, a Representative in Congress from the State of New 

Jersey, prepared statement ................................................................................. 132 

WITNESSES

Julie Veach, Chief, Wireline Competition Bureau, Federal Communications 

Commission ........................................................................................................... 9 

Prepared statement .......................................................................................... 11 

Answers to submitted questions ...................................................................... 277 

Phillip B. Jones, Chairman of the Board and President, National Association 

of Regulatory Utility Commissioners ................................................................. 19 

Prepared statement .......................................................................................... 21 

Answers to submitted questions ...................................................................... 285 

Jessica Gonzalez, Vice President of Policy and Legal Affairs, National Hispanic Media Coalition .......................................................................................... 40 

Prepared statement .......................................................................................... 42 

Answers to submitted questions ...................................................................... 291 

Geoff Feiss, General Manager, Montana Telecommunications Association ....... 58 

Prepared statement .......................................................................................... 60 

Answers to submitted questions ...................................................................... 294 

Christopher Guttman-McCabe, Vice President, Regulatory Affairs, CTIA— 

The Wireless Association ..................................................................................... 73 

Prepared statement .......................................................................................... 75 

Answers to submitted questions ...................................................................... 298 

Billy Jack Gregg, Billy Jack Gregg Universal Consulting ................................... 85 

Prepared statement .......................................................................................... 87 

Answers to submitted questions ...................................................................... 300 

SUBMITTED MATERIAL

Letters of support, submitted by Ms. Eshoo .......................................................... 133 

Letters of support, submitted by Mr. Rush ........................................................... 267 

Chart entitled ‘‘2012 Top Ten High Cost Disbursements by State,’’ submitted 

by Ms. Eshoo ........................................................................................................ 276 

(1) 

THE LIFELINE FUND: MONEY WELL SPENT? 

THURSDAY, APRIL 25, 2013 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC. 

The subcommittee met, pursuant to call, at 10:33 a.m., in room 

2123 of the Rayburn House Office Building, Hon. Greg Walden 

(chairman of the subcommittee) presiding. 

Members present: Representatives Walden, Latta, Shimkus, 

Terry, Blackburn, Scalise, Lance, Guthrie, Gardner, Kinzinger, 

Long, Ellmers, Eshoo, Matsui, Braley, Welch, Lujan, Rush, and 

Waxman (ex officio). 

Staff present: Gary Andres, Staff Director; Ray Baum, Senior 

Policy Advisor/Director of Coalitions; Sean Bonyun, Communications Director; Matt Bravo, Professional Staff Member; Andy 

Duberstein, Deputy Press Secretary; Neil Fried, Chief Counsel, 

Communications and Technology; Debbee Hancock, Press Secretary; David Redl, Counsel, Telecom; Charlotte Savercool, Executive Assistant, Legislative Clerk; Dan Tyrrell, Counsel, Oversight; 

Lyn Walker, Coordinator, Admin/Human Resources; Phil Barnett, 

Democratic Staff Director; Shawn Chang, Democratic Senior Counsel; Patrick Donovan, Democratic FCC Detailee; Margaret McCarthy, Democratic Professional Staff Member; Roger Sherman, Democratic Chief Counsel; and Kara van Stralen, Democratic Special Assistant. 

OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON 

Mr. WALDEN. I call to order the Subcommittee on Communications and Technology, and welcome our witnesses here today. We 

appreciate the work that you have put into your testimony and the 

thoughtfulness behind it, and we look forward to hearing from you. 

When the government spends other people’s money, it has an ongoing obligation to ask a fundamental question: has it spent that 

money wisely? After all, the people whose money it is spending 

might have preferred to do something different with it, especially 

in these tight economic times. And if the answer to the fundamental question of whether the money is being well spent is ‘‘no,’’ 

then the government must ask a second question: how should it fix 

the situation? 

Last year, the FCC spent $2.2 billion of other people’s money on 

the Lifeline program. Specifically, it spent $2.2 billion of your 

money, my money, virtually every American’s money, since the 

2 

Lifeline program and the entire Universal Service Fund is paid for 

through a charge on phone bills. Carriers provide discounted service and collect the difference from the program. Some give away 

phones to gain the subscribers and the recurring revenue. But at 

the end of the day, it is still the same taxpaying people who bear 

the cost, since 96 percent of the country has phone service and see 

a fee on their bill. 

The fund has increased 266 percent since 2008, and grown almost six-fold since 1998, all while the cost of phone service has actually gone down. Despite the limit of one subsidized subscriber per 

household, published reports suggest some subscribers have eight 

or more phones with subsidized service, with one woman saying 

that to get one ‘‘she just goes across the street and gets it.’’ One 

man has claimed to have a bag full of 20 phones on the program 

that he sells ‘‘for about 10, 15, 20 bucks’’ each. Our hearing today 

is to determine what can be done to curb these kinds of potential 

abuses. 

And it is not clear the money is even really helping low-income 

families. According to some reports, as many as 41 percent of those 

receiving Lifeline support either could not demonstrate eligibility 

for the subsidy or refused to respond to requests for certification. 

Moreover, 92 percent of low-income households have phone service 

but only about 58 percent of those households participate in the 

program, so many low-income homes apparently obtain phone service without the subsidy. And despite spending $7 billion on the program over the last 5 years, the phone penetration rate among lowincome households has only grown 2 percent, with only some of 

that growth likely attributable to the Lifeline program since at 

least 1⁄3 of low-income phone households don’t use the subsidy. 

There may be a number of ways to interpret these data and 

other data, but it certainly does not paint a picture of success. So 

as far as that first fundamental question goes, there is near unanimity among the FCC, both parties of Congress, and almost anyone familiar with the program that the Lifeline fund has been 

fraught with waste, fraud, and abuse and that the money has not 

been spent as wisely as it should have been. 

Now there is more than enough blame to go around. The path 

we have found ourselves on was paved by many people, presumably 

with the best intentions. But it does not change the fact that we 

are spending large sums of money and probably squandering much 

of it. Which brings us to the second question, which is how to fix 

the situation. 

Now, Senators McCaskill and Coburn say eliminate the program. 

Indeed, as recently as last month, Senator McCaskill concluded, 

and I quote, that ‘‘there is just no reason this program should continue, given its history of extensive waste and abuse.’’ Senator 

Pryor and Congressman Griffin say exclude wireless providers from 

the program. Congresswoman Matsui, Ranking Members Waxman 

and Eshoo, and a number of their colleagues say expand it to 

broadband. Whatever we do, staying on the present course seems 

out of the question. 

To the FCC’s credit, the agency has embarked on a number of 

reforms since 2011. For example, to ensure only eligible households 

participate and to combat duplicative subsidies to a single houseVerDate Nov 24 2008 12:25 Feb 27, 2014 Jkt 037690 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-36 CHRIS
3 

hold or even a single user, the FCC is moving forward with beefed 

up certification processes and creation of eligibility and duplication 

databases. It has also imposed independent audit requirements on 

carriers receiving more than $5 million a year in Lifeline funding. 

The FCC says its efforts will save $2 billion over the next 3 years, 

but are the steps the Commission is taking enough? With only a 

58 percent penetration rate, the fund may still continue to grow, 

especially if it is expanded to cover broadband. 

Should the program be eliminated? If not, should a freeze be put 

in place until reforms are complete? Should the program be placed 

under a cap or budget? I note that the 2012 FCC reform order suggested the agency would establish a budget by early 2013, but disappointingly, I see no mention of such a budget in today’s FCC testimony. Should subscriber co-payments be required? Should the 

program be moved to a voucher system so the subsidy goes directly 

to the user rather than through a carrier? Should the FCC consider 

the waivers allowing participation by non-facilities based carriers? 

These are among a host of questions that many in industry, in the 

press, in Congress and in the public are asking and they are among 

the many issues that we hope to examine with today’s hearing. 

So I thank the witnesses for being here. Your testimony and expertise are welcome and we look forward to your ideas about this 

program gone awry. 

[The prepared statement of Mr. Walden follows:] 

PREPARED STATEMENT OF HON. GREG WALDEN

When the government spends other people’s money, it has an ongoing obligation 

to ask a fundamental question: has it spent that money wisely? After all, the people 

whose money it is spending might have preferred to do something different with it, 

especially in these tight economic times. And if the answer to the fundamental question of whether the money is being well spent is ‘‘no,’’ the government must ask a 

second question: how should it fix the situation? 

Last year, the FCC spent $2.2 billion of other people’s money on the Lifeline program. Specifically, it spent $2.2 billion of your money, my money-virtually every 

American’s money-since the Lifeline program and the entire Universal Service Fund 

is paid for through a charge on phone bills. Carriers provide discounted service and 

collect the difference from the program. Some give away phones to gain the subscribers and the recurring revenue. But at the end of the day, it is still the same 

taxpaying people who bear the cost, since 96 percent of the country has phone service and see a fee on their bill. 

The fund has increased 266 percent since 2008 and grown almost six-fold since 

1998, all while the cost of phone service has gone down. Despite the limit of one 

subsidized subscriber per household, published reports suggest some subscribers 

have eight or more phones with subsidized service, with one woman saying that to 

get one ‘‘she just goes across the street and gets it.’’ One man has claimed to have 

a bag full of 20 phones on the program that he sells ‘‘for about 10, 15, 20 bucks’’ 

each. Our hearing today is to determine what can be done to curb these kinds of 

potential abuses. 

And it’s not clear the money is even really helping low-income families. According 

to some reports, as many as 41 percent of those receiving Lifeline support either 

could not demonstrate eligibility for the subsidy or refused to respond to requests 

for certification. Moreover, 92 percent of low-income households have phone service 

but only about 58 percent of those households participate in the program, so many 

low-income homes apparently obtain phone service without the subsidy. And despite 

spending $7 billion on the program over the last five years, the phone penetration 

rate among low-income households has only grown two percent, with only some of 

that growth likely attributable to the Lifeline program since at least one-third of 

low-income phone households don’t use the subsidy. 

There may be a number of ways to interpret these and other data, but it certainly 

does not paint a picture of success. So as far as that first fundamental question 

4 

goes, there is near unanimity among the FCC, both parties of Congress, and almost 

anyone familiar with the program that the Lifeline fund has been fraught with 

waste, fraud, and abuse and that the money has not been spent as wisely as it 

should have been. 

There is more than enough blame to go around. The path we have found ourselves 

on was paved by many people, presumably with the best of intentions. But it does 

not change the fact that we are spending large sums of money and probably squandering much of it. Which brings us to the second question: how to fix the situation. 

Senators McCaskill and Coburn say eliminate the program. Indeed, as recently 

as last month Senator McCaskill concluded that ‘‘there’s just no reason this program 

should continue, given its history of extensive waste and abuse.’’ Senator Pryor and 

Congressman Griffin say exclude wireless providers from the program. Congresswoman Matsui, Ranking Members Waxman and Eshoo, and a number of their colleagues say expand it to broadband. Whatever we do, staying on the present course 

seems out of the question. 

To the FCC’s credit, the agency has embarked on a number of reforms since 2011. 

For example, to ensure only eligible households participate and to combat duplicative subsidies to a single household or even a single user, the FCC is moving forward with beefed up certification processes and creation of eligibility and duplication databases. It has also imposed independent audit requirements on carriers receiving more than $5 million a year in Lifeline funding. The FCC says its efforts 

will save $2 billion over the next three years, but are the steps the Commission is 

taking enough? With only a 58 percent penetration rate, the fund may still continue 

to grow, especially if it is expanded to cover broadband. Should the program be 

eliminated? If not, should a freeze be put in place until reforms are complete? 

Should the program be placed under a cap or budget? (I note that the 2012 FCC 

reform order suggested the agency would establish a budget by early 2013, but disappointingly I see no mention of such a budget in today’s FCC testimony.) Should 

subscriber co-payments be required? Should the program be moved to a voucher system so the subsidy goes directly to the user rather than through a carrier? Should 

the FCC reconsider the waivers allowing participation by non-facilities based carriers? These are among the questions many in industry, in the press, in Congress 

and in the public are asking and they are among the issues we will examine today. 

I thank the witnesses for being here. Your testimony and expertise are welcome 

and we look forward to your ideas about this program gone awry. 

# # # 

Mr. WALDEN. With that, I yield back the balance of my time and 

recognize the gentlelady from California, Ms. Eshoo. 

Ms. ESHOO. Thank you, Mr. Chairman, for agreeing with our request, the Democrat’s request, to hold this morning’s hearing on 

the Universal Service Fund’s low income program known as Lifeline. 

Started nearly 30 years ago under the Reagan Administration, 

the Lifeline program advances an important public policy goal of 

ensuring affordable monthly telephone service for tens of millions 

of low income Americans. The program, as you know, was expanded to include wireless service during the Bush Administration, 

and on our side, we have consistently not only pursued the efficacy 

of the program, but worked to weed out any problems with it, so 

we appreciate the fact that you would have this hearing this morning to examine it. 

Now while most of us take basic phone service for granted, for 

many Americans, including seniors, veterans, and the disabled who 

are unable to work or are temporarily unemployed, Lifeline support 

can be the only means for regularly staying in touch with a doctor, 

applying for a job, or contacting 911 during an emergency. Oversight hearings will ensure the Lifeline program is achieving its intended goals and doing so without waste, fraud or abuse. 

5 

Thanks to the reform measures implemented under FCC Chairman Genachowski, the Commission expects to save more than $2 

billion through 2014. These savings have come through commonsense reform such as scrubbing subscriber roles of duplicates, requiring proof of eligibility, and de-enrolling subscribers who are not 

actually using service. As we look toward the future, the FCC and 

states must continue to take corrective action as soon as problems 

are identified. The timely implementation of a national database to 

ensure program eligibility and prevent duplication must be a top 

priority. I commend Congresswoman Matsui for her steadfast commitment to a 21st century Lifeline program. 

In order to compete in today’s economy, every American needs 

high speed access to the Internet, whether to apply for jobs or receive healthcare or education. We know this. This is a given fact. 

The Broadband Affordability Act introduced earlier this week creates a permanent program for Lifeline support for broadband, 

while directing the FCC to ensure accountability for carriers participating in the program. 

So I want to thank each of our witnesses for the important testimony that you will offer today, the important answers to the important questions that are going to be asked of you, and for your 

steadfast commitment to strengthen the Lifeline program. 

I now yield the balance of my time to Congresswoman Matsui of 

California. 

Ms. MATSUI. Thank you, Ranking Member Eshoo, for yielding me 

time, and I would also like to welcome our witnesses here today. 

It is my hope that this hearing focuses on the facts about the 

Lifeline program, and not the fiction. Up until recently, Lifeline 

has enjoyed bipartisan support. Lifeline was created by President 

Reagan and expanded for wireless service by President Bush. Lifeline provides a benefit to many of America’s disabled veterans, seniors, tribal areas, and families in Head Start and a school lunch 

program. 

In my district of Sacramento, nearly 30,000 of my constituents 

participate in Lifeline, 17,000 of whom are seniors on fixed income. 

The Lifeline program must be reformed and modernized in a responsible manner, and it must account for the Internet and innovation economy. Nearly 100 million Americans still have not adopted 

broadband, which is only more concerning given more than 80 percent of available jobs in this country now require online applications. To help address the digital divide, along with Ranking Members Waxman and Eshoo, I introduced a Broadband Adoption Act 

to allow eligible Americans in rural and urban areas to use Lifeline 

for broadband services. The bill also requires the FCC to implement a national eligibility database to ensure one Lifeline per eligible household. This will prevent the growth of a Lifeline fund in 

a responsible manner, while ensuring Lifeline is eligible for the 

millions of Americans who need it. We need to reform and modernize Lifeline, not eliminate it. 

I yield back the balance of my time. 

Mr. WALDEN. Gentlelady yields back the balance of her time. 

We now recognize the vice chair of the full committee, the 

gentlelady from Tennessee, Mrs. Blackburn. 

6 

OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TENNESSEE 

Mrs. BLACKBURN. Thank you, Mr. Chairman, and I want to welcome all of our witnesses. We are pleased that you are here, because this is a program that we are hearing quite a bit about, the 

Lifeline program. 

You know, it was started with good intentions, and bear in mind, now it is a $2.2 billion expense. It started in 1984, and it wasn’t 

even a $380 million program until 1998. So this is the kind of explosive growth that this program has seen, and it is why so many 

of our constituents are questioning the program and are questioning the use of Obama phones, as they are commonly called. 

And I think that what it has come to be is more or less a symbol 

of the mismanagement, not only within this program, but with the 

entire USF and the FCC’s budget. 

So there are plenty of questions that are springing up around 

this. What you are going go hear us focus us on is accountability. 

You know, this is an Administration that said we want to be transparent. We want to be accountable. We want to be the best at that. 

And we are repeatedly shown mismanagement and lack of transparency, and a shuttling, if you will, of accountabilities, and so we 

do look forward to reviewing this. Should it be reauthorized? 

Should it be wound down? Should it be eliminated? How do we 

hold it accountable? What reforms should go into place if it is allowed to stay? I think if it were up for sunset today, that many in 

this Congress would view and vote to take it down because of the 

mismanagement that is there. 

I think that also the qualifications for individuals that are enrolled in the program, making certain that there is vetting and 

verification done for the individuals that are enrolled in that program. 

Also questions that you get are the ones that are receiving the 

phones, are they obligated to use those phones on the networks, the 

carriers from whom they have received the phone, or can they 

unlock their subsidized phone and go onto their own private networks? I even had one constituent, after it came out that the bombing—the terrorist that committed the bombings in Boston were receiving welfare benefits, were they in this program? I think those 

are the kinds of questions that our constituents are asking, and we 

turn to you to be able to get those answers and to look for the way 

to reform and to hold this program accountable. 

I thank you so much for your time, and Mr. Chairman, I yield 

back. 

Mr. WALDEN. The gentlelady yields back. 

I now recognize the vice chair of the subcommittee, Mr. Latta, for 

the remaining time. 

Mr. LATTA. I thank the chairman for yielding the time, and I also 

appreciate you holding this hearing today, and I thank our distinguished panel of witnesses for testifying today. 

Unfortunately, waste, fraud, and abuse are words too often associated with government programs. While the Universal Service 

Fund Lifeline program serves an important purpose in connecting 

low income Americans, the tripling of the program from 2009 to 

7 

2012, and the all the too frequent stories of abuse of the program 

are cause for concern. I do commend the FCC for the reforms 

adopted in 2012; however, I have concerns that the program is still 

on an unsustainable path. 

I look forward to hearing more about the implementation of the 

Commission’s reforms, and if additional actions need to be taken. 

Since all Americans invest in the program through a surcharge on 

their phone bill or through participation in Lifeline, our discussion 

here today is significant, not just for this subcommittee, but for all 

Americans across the country. 

I thank the chairman, and I yield back. 

Mr. WALDEN. Gentleman yields back. 

Anyone else on the Republican side want the remaining 56 seconds? If not, all time is yielded back on our side. 

We will turn now to the ranking member of the full committee, 

Mr. Waxman, for 5 minutes. 

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. WAXMAN. Thank you, Mr. Chairman. 

Last month, I joined with my colleagues Representatives Eshoo 

and DeGette to call for a hearing on Lifeline. We asked for a hearing because we believe bipartisan oversight can strengthen this important program, and I thank Chairman Walden for agreeing to 

hold this hearing. 

We have a national commitment to ensure every American has 

access to the communications services they need to fully participate 

in our economy and democracy. The $8 billion spent annually by 

the FCC’s Universal Service Fund is supposed to advance that goal, 

but because USF is ultimately paid for by consumers, we must demand accountability to ensure the funds are spent responsibly. 

Since its beginning during the Reagan Administration, Lifeline 

has helped millions of Americans living in poverty get home phone 

service. Without this assistance, these families would not be able 

to call for help in emergencies or participate in our economy. In advance of today’s hearing, we heard from victims of domestic violence, homeless veterans, and families caring for children with disabilities that this relatively small subsidy has a big impact in keeping them connected. 

Regrettably, some have made up myths about the program to 

score political points. Here are the facts. President Obama did not 

create Lifeline. The government does not give away free cell phones 

or iPads. Nowhere in America, except in Tennessee, do they call it 

an ‘‘Obama Phone.’’ Eliminating the Lifeline program or disqualifying wireless services would not reduce our Nation’s budget deficit 

by a single penny. 

Under Chairman Genachowski, the FCC has improved efficiency 

and curbed incentives for waste, fraud, and abuse across all four 

USF programs. For Lifeline, the FCC has instituted tough measures that require consumers to demonstrate that they are eligible 

for benefits before they can sign up. As a result of these reforms, 

the size of the Lifeline program is declining. That progress must 

8 

continue, and the Commission should remain open to additional 

proposals that could enhance accountability. 

We should also continue to modernize the program to meet the 

21st century communications needs of low income Americans. That 

is why I am proud to be an original cosponsor of the Broadband 

Adoption Act introduced by Representative Matsui. The bill would 

allow eligible low income households to apply the Lifeline support 

towards broadband services. It also directs the FCC to prevent 

waste, fraud, and abuse and does not add a single new household 

to the program. 

But our oversight shouldn’t just stop with Lifeline. Since 1998, 

the High Cost Fund has distributed over $51 billion to rural 

telecom carriers—nearly four times as much as the low income program. I believe strongly that Americans in rural areas of our Nation need access to communication services just as much as my constituents in LA, but there are certainly equal, if not greater, incentives for waste, fraud, and abuse in the High Cost Fund. 

Under Lifeline, the phone companies get $9.25 per month of Lifeline support per household, but until recently, the High Cost Fund 

paid some carriers thousands of dollars per month per household. 

Although the FCC has taken positive steps to reduce these enormous High Cost Fund subsidies, many phone companies still receive hundreds of dollars per month per household, and unlike the 

Lifeline program, one high cost household can have multiple subsidized lines. A low income family of five in Los Angeles is allowed 

one Lifeline phone to share as an economic unit. In contrast, a high 

cost household in Arkansas is eligible to have multiple subsidized 

lines going to one address. The low income family is eligible for a 

discount of $9 per month, while the household in Arkansas is eligible for subsidies up to $250 per line, with no limit on the number 

of subsidized lines. And the Arkansas subsidy is available regardless of household wealth. 

Now I am not opposed to oversight of the Lifeline program. In 

fact, I was one of the members who requested this hearing. But I 

am opposed to those who want to turn this into a partisan issue 

or to pick on subsidies to low income families while ignoring the 

even larger subsidies their constituents receive. 

Thank you, Mr. Chairman. I look forward to hearing from our 

witnesses. 

Mr. WALDEN. Gentleman’s time is expired. 

We will now go to—hear from our witnesses, and first up is Julie 

Veach, who is the Chief of the Wireline Competition Bureau, Federal Communications Commission. Ms. Veach, we are delighted to 

have you here. Please pull that microphone pretty close to you, uncomfortably close, turn the button on, and you are set to go. 

9 

STATEMENTS OF JULIE VEACH, CHIEF, WIRELINE COMPETITION BUREAU, FEDERAL COMMUNICATIONS COMMISSION; 

PHILLIP B. JONES, CHAIRMAN OF THE BOARD AND PRESIDENT, NATIONAL ASSOCIATION OF REGULATORY UTILITY 

COMMISSIONERS; JESSICA GONZALEZ, VICE PRESIDENT OF 

POLICY AND LEGAL AFFAIRS, NATIONAL HISPANIC MEDIA 

COALITION; GEOFF FEISS, GENERAL MANAGER, MONTANA 

TELECOMMUNICATIONS ASSOCIATION; CHRISTOPHER 

GUTTMAN–MCCABE, VICE PRESIDENT, REGULATORY AFFAIRS, CTIA—THE WIRELESS ASSOCIATION; AND BILLY 

JACK GREGG, BILLY JACK GREGG UNIVERSAL CONSULTING 

STATEMENT OF JULIE VEACH 

Ms. VEACH. Good morning, Chairman Walden, Ranking Member 

Eshoo, and members of the subcommittee, and thank you for the 

opportunity to address the FCC’s reforms to the Lifeline program. 

For more than 25 years, the Lifeline program has helped ensure 

that the neediest among us have access to basic telephone service, 

a gateway to finding a job, accessing healthcare, connecting with 

family, and calling for help in an emergency. The program was 

originally designed for old-fashioned wireline phone service. In the 

2000s, as consumers increasingly adopted wireless services, the 

program adapted to support wireless service for low income families, but adequate protections were not put in place and the Lifeline program became a target for waste and abuse. 

Seeing the facts, in 2009 the Commission started overhauling the 

program to root out waste, fraud, and abuse, and to modernize it 

to meet the communications needs of low income Americans. Building on recommendations from the Joint Board on Universal Service, in 2011 the FCC initiated comprehensive Lifeline reforms. The 

reforms are expected to produce $2 billion in savings through the 

end of 2014. In addition, for the first time, the Commission adopted 

clear goals for the program: ensuring the availability of voice and 

broadband services for low income Americans, and minimizing the 

burden on consumers and businesses who pay for it. 

Let me walk you through the major reforms. First, the Commission took steps to ensure that only one eligible consumer per household participates in the program. Our rules now require that low 

income consumers prove eligibility at the time of enrollment. We 

are working closely with states and other federal agencies to automate this process. The FCC also put in place an annual recertification requirement to ensure that only eligible subscribers remain 

in the program. This reform alone is projected to save $400 million 

in 2013. We have also been working since 2010 to eliminate duplicative Lifeline support. Through targeted data reviews, we have 

eliminated 1.5 million duplicate subscriptions, saving $180 million 

a year. In addition, the National Lifeline Accountability Database, 

which will be operational by the end of the year, will permanently 

detect and prevent duplicative support. 

The FCC took several other steps. We eliminated Link Up support to providers offering service on non-Tribal lands, support originally intended to defray the cost of dispatching a technician. This 

reform resulted in savings of over $93 million last year. The FCC 

also adopted new oversight and auditing requirements, and we are 

10 

actively enforcing our rules. Recently, the FCC’s Endorsement Bureau pursued cases against two providers that resulted in an enforcement action over $1 million, and issued nearly 200 warnings 

to individuals notifying them that they violated the program rules. 

Finally, using savings from the reforms, we launched a 

broadband pilot that will provide critical data as the Commission 

considers how best to ensure that low income Americans have access to broadband, which is becoming essential to access jobs, education, and economic opportunity. 

Before closing, I would like to emphasize the critical role of our 

state partners. Under the Communications Act, states designate 

the providers to participate in the Lifeline program, including in 

most cases wireless providers. In addition, states can operate as 

laboratories for reform by adopting rules and safeguards that go 

beyond the FCC’s baseline, and by using their own systems to detect and eliminate duplicative support. 

In closing, I wish to emphasize that access to phone service increases access to jobs, medical care, and social services, things that 

can lift consumers out of poverty. We look forward to continuing to 

work with you, our state partners, other federal agencies, industry, 

consumer groups, and the low income community to ensure that 

our program is disciplined and effective. Thank you. 

[The prepared statement of Ms. Veach follows:] 

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Mr. WALDEN. Thank you, Ms. Veach. We appreciate your testimony and the work at the FCC. 

We will now go to Mr. Phillip Jones, Chairman of the Board and 

President of the National Association of Regulatory Utility Commissioners. We appreciate not only your testimony, but the response to our letter as well where we had sought your input and 

that of your members across the country, so Mr. Jones, I thank you 

and please go ahead. 

STATEMENT OF PHILLIP B. JONES 

Mr. JONES. Thank you, Chairman Walden. Good morning, members of the committee, Ranking Member Eshoo. I am pleased to testify today on the federal Lifeline program. 

I am a Commissioner of the Washington State Utilities and 

Transportation Commission, and also as the chairman noted, President of NARUC. We are a group that represents public utility commissions around the country, 50, plus the District of Columbia, 

plus certain territories. Over 200 commissioners and 8,000 staff are 

regulating, hopefully with humility, in the public interest, and we 

take this responsibility, as Ms. Veach said, seriously. This is a valuable program. It has been operated under a federalist construct 

for 3 decades. It is bipartisan, but we recognize the need for more 

accountability today. And as we said in our letter to you last Friday, Chairman Walden, we tried to answer your questions on accountability, and we did a survey. We got 30 responses. 

Just let me say a few things about background on this. When 

this program was created in 1985 after the breakup of AT&T, the 

program applied only to landline service and the opportunity for 

abuse was limited under the old AT&T system. There was little 

competition in the marketplace. Wireless was not available. Cable 

VoIP was not available. But in 2005, the FCC broadened the program by making discounts available, as Ms. Veach noted, to nonfacilities based carriers. These are resellers of equipment and networks offered by the wireline folks. These new entrants, led by a 

company called TracFone, developed business plans, for profit business plans, providing not only low income consumers with free cell 

phones and free minutes, but generating healthy profits. Nothing 

wrong with that. It was just new. Such plans were not possible or 

even heard of in 1985 or 1996. What happened? Explosive growth. 

Explosive growth in the low income fund. 

In November of 2009, NARUC called for improved verification 

practices to overhaul a system grounded in self-certification. This 

program is grounded in self-certification. Yes, under the penalty of 

perjury, but it is basically self-certification. Many NARUC members had issues with that, Mr. Chairman, right from the start, me 

included, but the FCC chose not to deal with it then and we have 

kind of the problem that we have today. 

As the FCC, however, continues to work on databases to eliminate duplicate support and verify eligibility, some states moved 

ahead. Ranking Member Eshoo and Congresswoman Matsui, your 

State of California has been a leader in this regard. 2006 they 

started a new program on verification. You may disagree because 

500,000 people were de-enrolled, but they really stepped up to the 

plate even before the FCC acted. 

20 

So there are five states now that have opted out of the FCC’s 

program. Vermont is included, Representative Welch, and California has opted out of this new order last year. And at least 11 

states social service databases are being used to confirm consumer 

eligibility at the front end, including my State of Washington. More 

states are considering establishing such databases, but the cost can 

be prohibitive and the expectation of federal databases may cause 

some states to avoid the cost of creating their own. 

I was pleased when the FCC took action on Lifeline in 2010, and 

let me commend the FCC for referring this to the Joint Board. The 

Joint Board process with the states was set up to deal with difficult 

technical issues like this. I note at the time Ray Baum served as 

the Commissioner. He was very active on the Joint Board, and I 

think Ray would agree with me that the Joint Board process for 

Lifeline worked well. Referred to the Joint Board, came back with 

a recommended decision within 6 months, record time, and then 

the FCC—as Julie said, the FCC acted on it. This is a textbook example of how the congressionally mandated Joint Board process 

should work. 

We have some results in the State of Washington. I won’t dwell 

on those now. I can respond in questions, but about 35, 37 percent 

with one carrier, 25 percent with another. They either didn’t respond or they were de-enrolled last year. So this certification and 

recertification process does work. 

I have some questions about why people don’t respond. I think 

there are some legitimate concerns about why these people don’t 

respond. Maybe a homeless person without an address. It may not 

be addressed to the proper person. The carrier may not have the 

resources to follow up. And I think legitimate people who qualify 

at 135 percent of the federal poverty guidelines should get this 

service. 

So in closing, I think it is a valuable program. I commend Julie 

and the FCC staff. They worked hard on this. As I said, this is a 

shared responsibility—states, FCC, carriers, low income groups. So 

I look forward to the questions and answers. Thank you. 

[The prepared statement of Mr. Jones follows:] 

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Mr. WALDEN. Thank you, Mr. Jones. We appreciate, again, the 

work of your organization and you personally. 

We will now move to Ms. Jessica Gonzalez, who is the Vice President of Policy and Legal Affairs for the National Hispanic Media 

Coalition. Ms. Gonzalez, we are delighted to have you here today. 

Please go ahead with your testimony. 

STATEMENT OF JESSICA GONZALEZ 

Ms. GONZALEZ. Thank you. Thank you, Chairman Walden—— 

Mr. WALDEN. Go ahead and push that little button there. 

Ms. GONZALEZ. Thank you, Chairman Walden, Ranking Member 

Eshoo, members of the subcommittee. I am Jessica Gonzalez of the 

National Hispanic Media Coalition. We are an organization, a nonprofit organization that scrutinizes telecommunications policies 

through the lens of how they impact Latinos and other people of 

color. 

The question posed by today’s hearing is whether the Lifeline 

program is money well spent. I answer with a resounding yes. 

Lifeline has an important goal to ensure that all people have access to affordable communications. It is a treasured tool that 

achieves broad societal goals, such as upward mobility. It positively 

and directly affects our economy, employment, healthcare, public 

safety, strong families, civic participation, and education. 

The idea that we as a country should remove barriers so that all 

people can access communications is not a new one. In fact, the 

concept dates back to the Postal Act of 1792. Lifeline’s roots are in 

the Reagan FCC, which created Lifeline at the behest of a bipartisan group of Congressmen and Senators. In the Telecom Act of 

1996, Congress further codified the concept by establishing the 

Universal Service Fund, stating that 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. And in the aftermath of Hurricane Katrina, the Bush FCC used USF monies to support prepaid 

wireless service, and ensure that those displaced by the storm 

would stay connected. 

Lifeline now provides phone service to more than 15 million people. Who are these people? According to one provider, most of them 

have an annual household income of less than $15,000 per year. 

Nearly 1⁄3 are over the age of 55, and over 1⁄3 are disabled. 

Stories in the media of corporate abuse for profit have drowned 

out the voices of the very real people that use lifeline as a tool to 

improve their lives and move away from government assistance. I 

sit here before you this morning to tell their stories. 

The story of a disabled mother from Tennessee caring for a child 

with Down’s Syndrome who said it gives me peace of mind to know 

that I can pick up the phone and call for help. The story of a veteran and double amputee who uses wireless Lifeline to coordinate 

doctor’s appointments and communicate with family while away 

from home. A single father who was laid off, but secured a job in 

just a few months with his Lifeline. A pediatrician in Boston who 

treats fragile children living in shelters, in public housing, and on 

the streets. She can monitor those children because of wireless 

Lifeline service. A mental health therapist in Baltimore who exVerDate Nov 24 2008 12:25 Feb 27, 2014 Jkt 037690 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-36 CHRIS
41 

plained that Lifeline could have helped the day that one of her 

third grade clients attempted suicide at school. His mother had no 

phone and was difficult to reach that day. 

I think you get the picture. The vast majority of Lifeline recipients are grateful seniors, deserving veterans, and many folks who 

are going through the hardest times in their lives, facing job loss, 

illnesses, disability, and family tragedies. For these people, Lifeline 

literally lives up to its name, and must continue. 

Speaking from personal experience, I used Lifeline about 10 

years ago after being laid off from my teaching job. I subscribed for 

a very brief period of time, but the media isn’t telling my story because it isn’t sensational. I used Lifeline to enhance my education, 

and today I am an attorney, and I, like everyone else I know that 

has ever relied on a government service, was not flaunting it 

around town. In fact, if anything, I was embarrassed about it. I 

wanted to get off the assistance as soon as I could and never look 

back, and that is what I did until today when I realized that voices 

like mine are going unheard to the detriment of this important program. So yes, Lifeline is money well spent. 

Thank you, and I look forward to your questions. 

[The prepared statement of Ms. Gonzalez follows:] 

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Mr. WALDEN. We appreciate your testimony, and look forward to 

coming back with some questions, I am sure, from all—to all the 

panel members. 

We will now go to Mr. Geoff Feiss, who is the General Manager 

of the Montana Telecommunications Association. Mr. Feiss, we are 

glad to have you here today as well. Please go ahead with your testimony. 

STATEMENT OF GEOFF FEISS 

Mr. FEISS. Thank you, Mr. Chairman. It is a pleasure and it is 

an honor to be invited to testify. 

Rural telecommunications providers are pleased to support the 

Lifeline program. We strongly endorse the principles of Universal 

Service, which are aimed at ensuring that all Americans have access to advanced communications services no matter where they 

live, and regardless of their income. The Lifeline program not only 

is the law, it is good policy. The program has been successful in enabling low income Americans to share in the many benefits of access to vital communications services. 

It is well known that the progress has suffered from exponential 

growth in recent years. While other Universal Service program 

funding has been flat over the years, Lifeline support exploded 

from $800 million to $2.2 billion in just a few years, almost entirely 

because of a rapid influx of prepaid wireless providers into the program. The number of wireless Lifeline providers grew from 41 in 

2004, to nearly 700 today. 

The contribution factor has grown commensurately because of 

what Senator McCaskill terms ‘‘the wireless explosion.’’ Continued 

growth of the Lifeline program threatens to jeopardize the integrity 

of the Universal Service Fund itself, including essential support for 

broadband investment in our Nation’s schools and libraries, rural 

healthcare facilities, and high cost communities. 

The FCC last year took important steps to mitigate waste, fraud, 

and abuse that plagued the program by releasing the Lifeline reform order. The savings attained by the order are substantial. 

What would have been a $2.4 billion Lifeline demand at the end 

of 2012 was reduced to $2.2 billion, and the savings continue to 

come in. In fact, it appears that the Lifeline program funding may 

be less than $2 billion in 2013. 

But there is an end to these anticipated savings. While most of 

the savings from the reform order will have been achieved by the 

end of this year, there are many factors that threaten to put the 

program back on a growth path. For example, at least some portion 

of subscribers who were de-enrolled at the end of 2012 can be expected to reenroll in 2013 because they neglected to recertify during the recertification period. 

Second, the eligibility base has been expanded substantially to 

include several new programs. In Montana, at least anecdotally, we 

are seeing considerable growth in subscribership as the result of 

this expanded eligibility. 

Third, if broadband access becomes a permanent part of the program, we can expect further growth in demand. 

Fourth, only about 55 percent of those consumers who are eligible for Lifeline service actually subscribe. It may be unreasonable 

59 

to expect 100 percent participation, but it is not unreasonable to 

anticipate greater growth. 

And finally, states and the FCC continue to designate Lifelineonly prepaid wireless providers as eligible to receive Lifeline support. There are two such applications in the pipeline and Montana 

alone. 

I submit that the program continues to offer considerable financial incentives for prepaid wireless providers to enter the market. 

First, while the FCC has made it a priority to transform Universal 

Service to support broadband investment, they have waived the requirement that Lifeline providers make any investment in facilities 

at all. Senator Pryor has called for the elimination of support for 

what he calls these ‘‘virtual networks.’’ 

Second, the second financial incentive attracting prepaid wireless 

Lifeline-only providers to the program is found in the level of support that these providers receive. That is, prepaid wireless Lifelineonly providers receive $9.25 per subscriber, regardless of what it 

costs to provide service. Since these providers can offer their Lifeline service for free, it is reasonable to assume that $9.25 is more 

than enough to cover their costs. And by the way, there is nothing 

in the law that defines comparable rates as free. 

The Lifeline support mechanism, in my opinion, is similar to the 

identical support mechanism in the high cost program. When the 

level of identical support for competitive carriers reached $1 billion, 

half the amount of the Lifeline program, the FCC froze high cost 

identical support in 2008, and the Universal Service reform order 

released at the end of 2011, the FCC eliminated identical support 

altogether, saying that the level of support received under the 

mechanism ‘‘bears no relation to the efficient cost of providing mobile service.’’ 

I believe the same logic applies to the amount of support provided to prepaid wireless Lifeline-only providers in the Lifeline program. Thus, I suggest that the FCC could eliminate the Lifeline 

identical support mechanism. The FCC either could make Lifeline 

support cost-based for prepaid wireless providers, or it could establish a default benchmark level of $3 per subscriber. Providers could 

submit cost data to the FCC, demonstrating why $3 is insufficient. 

A $3 benchmark could save the Lifeline program as much as $1 billion, while saving the same number of—while serving the same 

number of qualified low income consumers. Or, if the program were 

capped at today’s level of around $2 billion, the Lifeline program 

would have room for considerable future growth in low income 

subscribership, and/or expansion of the program to include 

broadband access. Thus, any further growth of the program would 

be curtailed without putting additional pressure on the contribution factor or jeopardizing the other goals of Universal Service. 

Thanks again for the opportunity to testify. I look forward to any 

questions. 

[The prepared statement of Mr. Feiss follows:] 

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Mr. WALDEN. Thank you, Mr. Feiss. We appreciate your comments and testimony. 

We will now turn to Mr. Christopher Guttman-McCabe, who is 

Vice President, Regulatory Affairs, CTIA—The Wireless Association. Welcome. 

STATEMENT OF CHRISTOPHER GUTTMAN-MCCABE 

Mr. GUTTMAN-MCCABE. Thank you, and good morning, Chairman 

Walden, Ranking Member Eshoo, and members of the subcommittee. On behalf of CTIA, I appreciate the opportunity to be 

a part of today’s conversation about the Lifeline program. 

Throughout its history, the Lifeline program has advanced the 

goal of ensuring that every American has access to telecommunications services, and the wireless industry plays an increasingly 

vital role in furthering that objective. 

Nearly 3 decades after its creation and through an evolution 

shaped by Congress and FCC leaders from both parties, data demonstrates that Lifeline has been a critical component in the effort 

to expand telephone subscribership, particularly among those who 

live at or below the federal poverty level. But in spite of this 

progress, our work is not yet done. According to 2012 data from the 

Center for Disease Control, there are still several million American 

households that lack any phone service, something essential for full 

participation in the modern economy and the promotion of public 

safety. 

While the Lifeline program has played an important role in driving penetration, its growth during the recent recession has led 

some to question its value and cause what has traditionally been 

a program with broad bipartisan support to become politicized. 

This is unfortunate and I would like to take a moment to clear up 

two common misconceptions that skewed discussions over the program. 

The first misconception about the Lifeline program is that it relies upon taxpayer funds. This idea has been repeated in the press 

and on talk radio with such frequency that it is simply accepted by 

many as true. It is not. The fact is that like all Universal Service 

programs, Lifeline is funded through levies imposed on providers of 

interstate telecom services. Wireless companies, wireline companies, and VoIP providers contribute to the fund and generally recover those contributions from their end user customers. Funds are 

remitted not to the U.S. Treasury, but rather to USAC, an independent organization established by the FCC to administer the 

four USF programs. Congress appropriates no money for the fund, 

and monies collected and distributed by USAC do not impact the 

federal budget, the deficit, or the debt in any way. Because of that, 

increasing or decreasing the size of the Lifeline program, or any 

other component of the overall USF program, will not have an impact on the federal budget. 

The second frequent misconception about the Lifeline program is 

that it provides free cell phones to people. Some have taken this 

untrue assertion so far as to claim that government is subsidizing 

iPhones or will soon be subsidizing low income people with iPads. 

The reality is that some carriers provide a lower end device to eligiVerDate Nov 24 2008 12:25 Feb 27, 2014 Jkt 037690 PO 00000 Frm 00079 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-36 CHRIS
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ble consumers. Lifeline support is attached only to the service, not 

to the devices. 

I hope you don’t take my pushback on these points as a suggestion that we don’t take the efficient operation of the Lifeline program seriously, because we do. The fact is that wireless consumers 

provide nearly half the funds that are collected for USF, and thus 

CTIA’s members are very interested in assuring that all USF programs are run efficiently and with full accountability. 

Because CTIA is committed to the responsible stewardship of the 

Universal Service Funds, we supported the FCC in its effort to 

enact new Lifeline accountability measures. These reform measures 

include rules eliminating Lifeline support for more than one connection per household, a new monthly usage requirement, new 

standards for determining Lifeline eligibility, and new requirements for ETCs to review Lifeline subscribers’ eligibility, something carriers previously were prohibited from doing. The FCC also 

committed to the creation of a database to prevent duplication of 

support across carriers in real time, as well as to create a nationwide eligibility database to ensure that only qualified consumers 

receive benefits. We look forward to the completion of these two efforts. 

Going forward, CTIA believes that the most important step that 

can be taken to safeguard the program and prevent fraud is for the 

FCC’s 2012 reforms to be fully implemented. This is particularly 

true with respect to the creation of the duplicate and eligibility 

databases, which must be completed as expeditiously as possible. 

Over the nearly 3 decades since its creation, the Lifeline program 

has served an important purpose and enjoyed bipartisan support. 

CTIA is committed to working with the subcommittee and the 

Commission to advance this effort in a way that is technologically 

and competitively neutral and fiscally responsible. We believe this 

a laudable and attainable goal. 

Thank you. I look forward to your questions. 

[The prepared statement of Mr. Guttman-McCabe follows:] 

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Mr. WALDEN. We appreciate your testimony as well. 

For our final witness today, we will go to Billy Jack Gregg, who 

is head of Billy Jack Gregg Universal Consulting. We appreciate 

your testimony. 

STATEMENT OF BILLY JACK GREGG 

Mr. GREGG. May it please the committee, as you have heard here 

this morning, there are two sides to the advent of prepaid wireless 

providers as part of Lifeline. On the one hand, prepaid wireless 

service has been the most successful measure ever adopted to expand Lifeline service to low income consumers. On the other hand, 

prepaid wireless service has opened the door to numerous abuses 

and caused a rapid rise in the cost of the Lifeline program. Some 

states currently have more—have Lifeline subscribers far in excess 

of the eligible number of households. At the same time, other states 

have seen a decline in Lifeline subscribers, even though the number of low income households has risen. 

[Slide shown.] 

The first slide you are looking at today shows graphically the increase in the low income fund since 2006. Prior to 2008, the line 

that you see went off to the left in almost a flat manner, but then 

beginning with 2009 with the advent of prepaid wireless service, 

we see the rapid escalation, almost a tripling to $2.2 billion. Virtually all of this increase has been caused by payments to prepaid 

wireless carriers. 

Currently, payments from the fund average 58 percent of its potential maximum size based on the number of low income households in each state. However, Lifeline payments to the states vary 

widely. Six states currently receive more in low income support 

than the potential maximum indicated by the number of low income households in those states, and these are shown as—at the 

top of the slide. These states are Oklahoma, Maryland, Alaska, 

Louisiana, Arkansas, and Georgia. On the other end of the spectrum, the six states at the bottom of the slide currently receive 

only 10 percent or less of their potential support: Montana, South 

Dakota, Nebraska, Colorado, Hawaii, and Wyoming. 

The greatest increase in Lifeline subscribership has occurred in 

Maryland. In the third quarter of 2009, there were only 6,504 Lifeline subscribers in Maryland, representing only 2 percent of the eligible low income households in that state. By the third quarter of 

2012, the number of Lifeline subscribers in Maryland had risen almost 100 fold to 645,000. Moreover, the current number of Lifeline 

subscribers in Maryland is almost double the number of low income 

households in the state, as shown by the graph. The dashed red 

line is the number of eligible low income households. The blue line 

is the number of Lifeline subscribers by quarter. I would note, however, that in the last quarter shown that the number of subscribers 

drop by 100,000. This is the first quarter that the FCC’s reforms 

took effect. We can expect to see a continuation of this trend as the 

quarters progress. 

In spite of the nationwide increase in Lifeline subscribers over 

the past 3 years, the number of subscribers in 11 states actually 

declined, with the largest drop occurring in California, traditionally 

one of the largest recipients of Lifeline support. Over the past 3 

86 

years, California has lost almost half a million Lifeline subscribers. 

At the same time, the number of low income households in California has risen by over 400,000. Once again, you can see the 

dashed red line is the number of eligible households, the blue line 

is the number of Lifeline subscribers. 

The FCC decisively addressed numerous flaws in the low income 

program in its 2012 Lifeline reform order. In order to build on the 

positive aspects of prepaid wireless Lifeline service, while at the 

same time guarding against further abuse of the system, the following additional measures should be adopted. 

One, the low income fund must operate within a budget, like all 

the other constituent funds of the Universal Service Fund. 

Two, the overall budget for the low income fund should be composed of caps on support to individual states. If demand in a particular state exceeds the cap, then payments to carriers in the state 

should be proportionally reduced to fit under the cap. 

Third, the FCC should conduct multiple pilot programs to determine whether a required minimum contribution from Lifeline recipients is appropriate, and if so, at what level. 

Fourth, the FCC should explore ways to provide incentives for 

state involvement in providing Lifeline service to as many eligible 

customers as possible. 

Fifth, the Lifeline subsidies should be portable and recipients 

should receive the same level of subsidy, regardless of the service 

they choose: landline, post-paid wireless, prepaid wireless, or 

broadband. 

And finally, federal and state governments should continue to 

promote participation by the low income customers in the Lifeline 

program by removing barriers to participation and encouraging 

automatic enrollment. 

In order to continue the public policy success of the Universal 

Service Fund and the low income fund, we must continue to support access, not excess. 

Thank you. 

[The prepared statement of Mr. Gregg follows:] 

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Mr. WALDEN. Mr. Gregg, thank you for your testimony, and for 

the charts, graphs, and data behind them, and for your recommendations. 

We will now—and I want to thank all the witnesses for your testimony again. 

I will start out with questions. Ms. Veach, in the Lifeline reform 

order, the Commission said the reforms would put the Commission 

in a position to determine the appropriate budget for Lifeline in 

early 2013. Well, we are kind of into early 2013. We are about out 

of early 2013. What is the status on the budget? When will we see 

that? 

Ms. VEACH. Thank you, Mr. Chairman, and as you say, when the 

Commission adopted the reforms in 2012, the Commission unanimously determined not to put a budget on the program—— 

Mr. WALDEN. Right. 

Ms. VEACH [continuing]. Until it had an opportunity to assess the 

impact of the reforms. Rather, the Commission adopted a savings 

target for 2012, which—— 

Mr. WALDEN. Right. 

Ms. VEACH [continuing]. As the Bureau reported, we exceeded. 

And at the same time, the Commission wanted to assess the reforms and also has sought further comment on what the optimal 

rate should be. So the specific timing of when the Commission will 

move to a budget is up to the commissioners. 

Mr. WALDEN. Is what? 

Ms. VEACH. Is up to the commissioners. 

Mr. WALDEN. So in other words, you don’t know when we are 

going to see a budget. 

Ms. VEACH. We continue to assess the impact of the reforms. 

Mr. WALDEN. Right. I don’t mean to be rude, but the order said 

early 2013. We kind of expect the FCC to follow its own timelines 

there, and so we will keep pressing for that budget because I personally think that is important to have. 

Do you all—just quickly down the row in kind of a John Dingell 

yes or no answer, do you think it is important for the FCC to develop a budget in this area? 

Mr. Jones? 

Mr. JONES. Yes, I think it is important to have a budget, but before we adopt a budget there is a very technical and complex program, and I would urge the FCC to work with states that are reforming it. I think we proposed 15 ways—— 

Mr. WALDEN. Yes, you did. 

Mr. JONES [continuing]. You could prohibit activation of phones, 

you could cut them off at 75 percent, benchmark for reactivation. 

There are ways instead of a top down approach, a bottoms up approach that may work. 

Mr. WALDEN. All right. Ms. Gonzalez, real briefly here on budget. 

Yes, no? 

Ms. GONZALEZ. Yes, but I think first the FCC needs time to assess the reforms, and we wouldn’t want it to set an arbitrary number that would cut anyone off from service. 

Mr. WALDEN. Mr. Feiss? 

Mr. FEISS. I agree, yes. 

Mr. WALDEN. Mr. Guttman-McCabe? 

114 

Mr. GUTTMAN-MCCABE. You know, I think—echoing some of the 

earlier points, we need to see what the status is of the reforms, and 

I don’t think this is simple. I mean, I think when you look at what 

do you do with the next person who becomes unemployed if you set 

a budget that limits the amount of support? You have a difficult 

decision to make. 

Mr. WALDEN. Mr. Gregg? 

Mr. GREGG. Yes, the total maximum size of the non-tribal Lifeline fund right now would be $2.9 billion if every eligible household 

received a year’s worth of subsidy at $9.25. However, there are different ways you can cut that. You could establish a two-tiered system where the Federal Government would supply up to $2 billion 

of tier one support, basic fundamental support, and then an additional half billion if the states would match it. This would provide 

strong incentives for the states to pony up some money to help support Lifeline service. 

Currently, the reforms may have had the unintended impact of 

reducing incentives or creating counter-incentives for states to participate. In fact, Colorado just eliminated their Lifeline program 

about 3 weeks ago, in part because of the perception that the Federal Government is now paying the entire cost of the program. 

Mr. WALDEN. So I want to ask, perhaps you, Mr. Gregg, or Mr. Jones, about the $9.25 rate. Where does that come from? Is that 

evaluated on a regular basis? Is it an accurate rate? 

Mr. GREGG. The $9.25 is simply an average of what was paid out 

at the time the FCC adopted their reform order in 2012. 

Mr. WALDEN. OK. 

Mr. GREGG. It had been made up, and as people explained earlier, originally the Lifeline subsidy was to offset the subscriber line 

charge that was imposed when the Bell system was broken up in 

the early ’80s. 

Mr. WALDEN. Right. 

Mr. GREGG. Then, whenever the Lifeline program was included 

in statute in the ’96 Telecom Act, there were two additional tiers 

added. One was an additional $1.75 that was given to all states if 

they would guarantee it was passed through to customers, and 

then an additional $1.75 based on state matching. That is what is 

now gone away—— 

Mr. WALDEN. The market has changed so much since ’96. In all competition, Mr. Jones, is $9.25 an appropriate rate? 

Mr. JONES. Probably not. NARUC has no resolution on this 

point. I will speak for myself. When TracFone came before us for 

a prepaid wireless ETC designation, my commissioner staff and I 

asked the TracFone people a lot of questions on what does it actually cost—— 

Mr. WALDEN. Right. 

Mr. JONES [continuing]. To provide this service, and they refused 

to give us any information. Why? Because under law, we have no 

jurisdiction over wireless carriers and the FCC rules do not permit 

a cost-based determination. So it kind of places states in a difficult 

position to decide whether or not it is cost-based or not. So the FCC 

just—as Billy Jack said, they did an averaging of the select $9.25. 

Mr. WALDEN. Mr. Feiss—do you have any comment on this, Mr. 

Feiss? 

115 

Mr. FEISS. I think Commissioner Jones summed it up. We don’t 

have the data, but it—— 

Mr. WALDEN. So we don’t know whether $9.25 is a lot, not 

enough, but boy, it sure seems like there are a lot of entrants in 

the non-facilities based—— 

Mr. JONES. Well, just based on our evidence, I mean, we could 

have an argument about competition in a subsidy market, but this 

is true competition in the subsidy market and I would conclude 

that the non-facilities based ETCs are making a substantial margin 

on the service. 

Mr. WALDEN. There is a fine line between competition and gluttony here, I think, so we have to watch for that. 

I am going to turn now to my colleague from California, Ms. 

Eshoo. 

Ms. ESHOO. Thank you, Mr. Chairman. 

First, I would like to ask for a unanimous consent request to submit for the record—we have a long list of support letters that we 

would like to have entered into the record. 

Mr. WALDEN. I believe we have them all here, and we will accede 

to that request. 

[The information appears at the conclusion of the hearing.] 

Ms. ESHOO. Thank you very, very much. Thank you to all of the 

witnesses. You have given us, I think, excellent testimony this 

morning. 

Now, I don’t know if this was given to all of the members, but 

I think our respective staffs received this from the FCC. It is the 

Lifeline reform overview, and on page 8, it is very interesting because it starts with January 2012, and it goes to April of 2013. And 

this is the number of Lifeline subscribers in the millions. Starting 

in January of ’12, it was 15.8. It peaked August 2012 to 18.2, and 

the graphs show that it continues to move down, and at the lowest 

rate right now in terms of Lifeline subscribers, it is 13.2 million. 

So this says to me that it is moving in the right direction, I mean, 

that the reforms are working. 

Now, I am trying to figure out what the biggest problem is, most 

frankly. There are some wild allegations, full page ads, pro and 

con, Obama phones, you know, I think what we need to stay away 

from, with all due respect, is simply a disdain for the President, 

and then moving that to apply to policies in telecommunications. 

I mean, it just doesn’t mix. That is like water and oil. It doesn’t 

make sense. It is not dignified. I don’t want to have anything to 

do with that. 

But what I do want to hear from the witnesses are the following 

things. To the FCC, this whole issue of a cap, what do you think 

of that? I do think that the chairman has raised a good point about 

the budget. When do you anticipate being able to not only assess 

the success of the reforms that the FCC is putting into place so 

that you can then arrive at a budget? I don’t know about this 

$9.25. Who has the authority to even dive into that? I mean, I am 

hearing that, Mr. Jones, that your organization can’t, that is why 

you couldn’t get an answer. Is it the FCC or do we need to do oversight and bring people in and do it ourselves? I mean, I think that 

that is a legitimate question. 

116 

I also, to Mr. Guttman-McCabe, as you know, I strongly support 

cell phone unlocking so consumers can switch carriers while keeping their existing phones. Given that the Lifeline program only 

subsidizes service and not the device, I don’t know how many members know this, but the government does not provide any device. 

It is, most frankly, the wireless industry. I mean, everything is 

moving to wireless anything, that is why we are trying to find more 

spectrum to support all of this. But wireless industry advertises, 

right? 

Mr. GUTTMAN-MCCABE. Correct, yes. 

Ms. ESHOO. I mean, you promote this, so—— 

Mr. GUTTMAN-MCCABE. Yes, Congresswoman. I mean—— 

Ms. ESHOO. I think that such a policy would enable support dollars to go further and expand the use of the universe of phones 

that can be used with the program. So I would like to know what 

you think of that. 

So maybe Ms. Gonzalez, you want to comment on cap, so why 

don’t we start with the FCC. Maybe, Mr. Jones, you want to comment on the several items I have raised, Ms. Gonzalez, and Mr. 

Guttman-McCabe. So why don’t we go quickly. I have got 32 seconds, but I think the chairman will let you answer. 

Mr. WALDEN. Quickly. 

Ms. VEACH. Thank you, Ranking Member. 

Ms. ESHOO. I got it all in. 

Ms. VEACH. The issue of the cap is tied to the issue of what the 

optimal subsidy amount should be. The Commission is currently 

considering, after taking in public comment, the $9.25 rate and—— 

Ms. ESHOO. So you have the authority to review that rate, and 

if you think it needs to change, you have the authority to change 

it? 

Ms. VEACH. That is correct. 

Ms. ESHOO. And when do you think you are going to complete 

that? 

Ms. VEACH. I can’t speak as to when the commissioners—— 

Ms. ESHOO. This year? 

Ms. VEACH [continuing]. Would vote on that. It is just not within 

my ability to say. 

Ms. ESHOO. Can you get back to us on it? 

Ms. VEACH. That decision is highly relevant to what the budget 

for the program should be. 

Ms. ESHOO. Can you get back to us on that? 

Ms. VEACH. I will do so. 

Ms. ESHOO. Thank you. 

Mr. JONES. Just quickly, NARUC does not have a position whether the $9.25 is appropriate or not. As I said, we operate through 

resolution. We have two resolutions on plank, but speaking for myself, I think Julie hit the nail on the head. They do have the authority. It has to go to the five commissioners—four commissioners, 

whatever it is going to be right now with the chairman leaving. But 

the states could offer their help. As I said, we do—I think certain 

states have had better luck than we have in getting a composition 

of rates, and as Mr. Feiss said, in Montana. Certain states may 

help out, so this may be worthwhile to refer the issue to the Joint 

117 

Board, again, on Universal Service, to work out some of these details. 

Ms. GONZALEZ. To the extent that a cap may cut eligible people 

off from service, it is a bad idea, and certainly right now when the 

FCC has not fully implemented the reforms. 

Ms. ESHOO. Thank you. 

Mr. FEISS. Congresswoman, it is—this is the only program that 

doesn’t have a budget, and ironically, one could argue that the FCC 

actually did it right with Lifeline to implement reforms first, see 

how the reforms work, and then determine what the appropriate 

level of that program is. They have not done that with the other 

three programs. I wish they had, but they haven’t, so it is probably 

time to consider a budget and work from there. 

Ms. ESHOO. Thank you. 

Mr. GUTTMAN-MCCABE. Congresswoman, I think it is fair to 

point out there has been a lot of discussion and debate about the 

provision of phones. The carriers subsidize the phones themselves, 

and I have two here. I brought them just so people can look. These 

phones will not make you the envy of your friends and neighbors, 

oK. They are kind of circa-2000 at best. Hopefully you can’t see 

who the manufacturers are so I don’t get myself in trouble, but the 

reality is, these are not the phones that get you advanced access 

to, you know, to communications of the future. They are $19.95 at 

retail at most. They are designed to do exactly what the program 

was designed for, which is to get you access to basic telecommunications. 

So anyone wants to see them afterward, I am happy to bring 

them to you, but you know, you can see we are not talking iPhones, 

we are not talking iPads, we are talking basic service. And that is 

funded by the carriers who participate in the program. 

Ms. ESHOO. Thank you. 

Mr. GREGG. Congresswoman, as you saw in the second slide, we 

need to work on both ends. We have some states that have more 

Lifeline subscribers than there actually are low income households. 

Obviously, that subscribership has to come down. But we also have 

many more states that have fewer Lifeline subscribers than there 

are low income households. So we need to work on increasing participation there. 

Ms. ESHOO. Thank you very much to all of you. 

Mr. WALDEN. OK. We will now turn to the vice chair of the subcommittee, the gentleman from Ohio, Mr. Latta. 

Mr. LATTA. Thank you, Mr. Chairman, and again, thank you very 

much to our panel for being with us today. It has been very, very 

informative and again, thank you for being here. 

Mr. Jones, if I could start with you, if I may. In your testimony, 

you listed a number of additional reforms that the NARUC members have suggested to improve the integrity of the Lifeline fund, 

including consumer co-pays, a return and requirement that carriers 

have their own facilities, reforms to the marketing practices of Lifeline carriers, and procedural requirements for carriers enrolling 

new Lifeline customers. Could you elaborate on those suggestions? 

Mr. JONES. Thank you. Yes, I could. Again, NARUC does—operates by resolution. We do not have resolutions on point on these 15 

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118 

sive. So these are ideas for your consideration, you and your staffs. 

But speaking for myself, I will mention three. 

The national duplicate database is really important to get up and 

going. I would encourage the subcommittee to have strong oversight on Ms. Veach’s program. USAC announced this week that 

they were going to finish the duplicate database by the end of the 

year. Let’s get it done. It was supposed to be done in February. We 

need to get that up and going. So the database development, and 

then you have the other database, the eligibility database. That is 

going to be more complex because the order, as you know, introduces three more benchmarks, including low income energy assistance, to feed into this massive database for the initial eligibility. 

So it is very important to get that eligibility database up and going. 

The other thing I would urge them to do is rescind the blanket 

forbearance on the facilities requirement given to prepaid wireless 

carriers. This was done in 2005. The FCC could rescind that if the 

subcommittee plays a useful role in providing oversight. That is 

something you could do. 

The other thing you could do is prohibit activation of a handset 

before the initial eligibility is done. It doesn’t make sense to me— 

again, speaking personally—for a handset to be activated before either a state database or a national database is queried. You have 

the four last numbers of the Social Security number or you have 

a subscriber ID. I mean, this is just kind of commonsense business 

and database. You should be able to develop a system to query, and 

if that person is a duplicate, you can get it at the front end and 

not activate the handset. 

Those are three. 

Mr. LATTA. OK, thank you. 

Mr. Guttman-McCabe, if I could turn to you. Senator Coburn 

brought to life in disturbing press coverage out in Oklahoma of people with model subsidized cell phones. I guess the question is how 

widespread of abuse is this, and is the problem related to vendors 

who advertise free cell phones in low income neighborhoods, and 

what is the industry doing, if anything, to combat that problem? 

And what is or could the FCC also be doing to curb that abuse? 

Mr. GUTTMAN-MCCABE. Sure. Thank you, Congressman. 

First of all, I think at times people tend to conflate bad actors 

and MVNOs, people that don’t have networks, and conflate MVNOs 

with bad actors. There are a lot of non-facilities based carriers who 

are actually good actors, do a very good job with this program as 

Mr. Gregg suggested, actually move services out to people who otherwise wouldn’t get them. The reality is there are some bad actors 

in this program, and one thing you will hear from us, and you may 

hear me say it, depending upon how many times I am asked is if 

we can have responsibility, efficiency, and accountability in this 

program, we are all for it. I mean, 100 percent. We think it needs 

to happen. There can’t be states like Mr. Gregg suggested have significantly above 100 percent participation above the poverty level. 

So for us, we want a program that is smart, intelligent, well-targeted, that allows for a range of technology neutral participants. If 

companies decide that they want to subsidize, you know, a relatively inexpensive phone to allow the person to get access to it, 

I don’t think that is much different than someone who gets a free 

119 

landline phone as part of their landline service. So, looking at wireless differently, I find it concerning because it is no different 

than—I don’t pay for my landline phone, in essence, in my house, 

which I still happen to have. It seems to be moving towards the 

minority. But you know, we are here talking about potentially removing wireless from the program at the same time that all of us 

are reading articles about the overwhelming majority of people are 

beginning to move away from a landline phone. I just read this 

week that the landline phone is now the third most popular phone 

in the U.S. households, wireless being number one, VoIP being 

number two, and then landlines. 

So there definitely are things that have to be rooted out, you 

know. I would question the advertising of some of the companies 

and the marketing of some of the companies that are providing the 

service, but I don’t think you can say that MVNO equals bad actor, 

because there are a great deal of them that are very good actors 

and are really doing a positive thing with this program. And if you 

look at their subscribers, I mean, when 79 percent of your Lifeline 

subscribers have a household income below $15,000, I think you 

are targeting the right people. I think that is the good that this bipartisan program was designed for. 

Mr. LATTA. Thank you. Mr. Chairman, my time is expired and 

I yield back. 

Mr. WALDEN. Thank the gentleman for his questions. 

We will turn now to the gentlelady from California, Ms. Matsui, 

for 5 minutes. 

Ms. MATSUI. Thank you, Mr. Chairman. 

First of all, I just want to ask a quick question of Ms. Veach. Is 

there such a thing as a free government phone? Yes or no? 

Ms. VEACH. No, there is not. 

Ms. MATSUI. OK. Is it accurate to say that the Lifeline program 

is not contributing to any current growth within the USF fund at 

this point? 

Ms. VEACH. That is correct. 

Ms. MATSUI. OK. Mr. Guttman-McCabe, I strongly believe that 

Lifeline should be reformed and modernized in a responsible manner, and it must account for America’s ever-reliance on the Internet 

and innovation economy. One hundred million Americans are still 

not adopted to broadband, and coupled with the fact that nearly 80 

percent of available jobs are only accessed by online applications, 

and both need to be addressed. Do you support the concept of modernizing Lifeline to support broadband? 

Mr. GUTTMAN-MCCABE. Congresswoman, I think—and I congratulate you. It is a conversation that we as a country, and particularly you as policymakers, have to have. I mean, the country is 

absolutely moving in that direction. The reality, as I said a moment 

ago, is that if people aren’t choosing wireless phones, they are sort 

of choosing sort of VoIP or over the top phones with their 

broadband connection. You know, we are seeing a movement in 

that way that makes absolute sense for us to have this discussion, 

and we are having it as part of the broader Universal Service program. 

Ms. MATSUI. No, and that is good, because I find it kind of interesting we are having this discussion about landlines and wireless 

120 

and as we all know, that most of us have been moving to wireless 

for quite some time. And now we are also talking about broadband 

too, and everybody seems to want to do that, but you got to get 

there and if we are stuck in the landline business, we won’t get 

there to the right degree. 

I would also like to ask you, too. A study by the Telecommunications Policy Institute found that 59 cents of every dollar spent in 

the USF High Cost Fund goes to the carrier recipient’s overhead 

and administrative expenses. That is only 41 cents out of every 

rural USF subsidy dollar goes to building rural networks. But Lifeline offers a discount on the monthly price of service. One hundred 

percent of every Lifeline subsidy dollar goes to reducing a low income consumer’s monthly phone bill. 

So given these differences, wouldn’t you say that Lifeline is already the far more efficient of the two programs, and that we 

should devote as much attention to reducing waste, fraud, and 

abuse in the subsidies we pay to carriers as we are in the subsidies 

paid to low income consumers? 

Mr. GUTTMAN-MCCABE. Yes, I think that is a key—those are key 

points to focus on. I think that gets lost at times, but the Lifeline 

subsidy goes directly to the consumer to offset their bill. You know, 

Mr. Feiss talked a little bit about cost-based support and things 

like that. The FCC has argued against sort of a race to the top, 

against a race to say here are my costs and I should have, you 

know, some return above that. 

I know several of the panelists suggest that we also should be 

looking at the High Cost Fund because of the fact that not all of 

those dollars are rationally and intelligently spent. I think you hit 

a key point, which is the Lifeline program, it is means-tested, it is 

designed to target exactly to the people who need it, people who, 

you know, we are talking household incomes in the mid to low 

teens in the thousands of dollars, and it is a one-to-one offset. I 

mean, every dollar that goes in offsets the cost that they otherwise 

would pay. 

Ms. MATSUI. Well thank you very much. I compliment the FCC 

on the reforms that have been taking place in, I guess, the last 8 

months in the reduction of, I guess, about $5 million. And these reforms are taking place, and I think it is timely we do this hearing. 

On the other hand, I believe we need more time to really figure out 

the real impact of this. 

And I also understand, too, that it goes beyond this to a great 

degree because it is very uneven. We have states that are maybe 

oversubscribed, and other states that, you know, are not at all to 

point where we are reaching everyone. And so to me, this needs to 

be looked at and studied to a degree that we have not done yet. 

My goal is to ensure that every American that qualifies get access to one of three things, especially in my bill, that they are 

able—landline, wireless, broadband, choose. But we are not going 

to make any progress if we get stuck on things like caps for Lifeline, because Lifeline is a different situation that I believe even the 

High Cost Fund, and I am not denigrating High Cost Fund at all, 

but I believe that we are looking at something we want to expand 

access in a reasonable manner, and we want to make sure we have 

accountability there. 

121 

So I ask each of you if you are agreed upon that, that Lifeline 

needs to be expanded in a reasonable way so we capture more of 

the qualified households and not get into a fight about all about 

whether or not they are doing the right thing or not. Are you all 

agreed that we need Lifeline? 

Ms. VEACH. Yes. 

Mr. JONES. Yes. 

Mr. FEISS. Yes. 

Mr. GUTTMAN-MCCABE. Yes. 

Mr. GREGG. Yes, and we should focus on the customer, rather 

than the carriers. That is why we should have a straight subsidy, 

whatever the level is, and let the customer apply it to the service 

that they choose, that meets their needs, and that way, their 

choices will drive the market. 

Ms. MATSUI. OK. You are all agreed on that one? 

Mr. FEISS. I think Mr. Gregg’s conclusion, access versus excess, 

was well said. 

Ms. MATSUI. OK. 

Mr. JONES. Congresswoman, just with the proper accountability 

in place. 

Ms. MATSUI. I understand. 

Mr. JONES. We have some strong concerns about the High Cost Fund being at $4.5 billion. We think that is appropriate, too. 

Ms. MATSUI. OK. Thank you very much, and I am sorry, Mr. 

Chairman. 

Mr. WALDEN. That is all right. 

Ms. MATSUI. Thank you. 

Mr. WALDEN. It is good to get the answers. 

We will turn now to the gentleman from Illinois, Mr. Shimkus, 

for 5 minutes. 

Mr. SHIMKUS. Thank you, Mr. Chairman. This is a great hearing. 

I like the terminology ‘‘access, not excess.’’ I think probably a lot 

of us will use that, Mr. Gregg. Thank you for that. 

I actually appreciate the Minority’s handing me the letters and 

all this documentation. I did go to one comment from Illinois that 

said make it more efficient. Don’t drop it. There is a reason it is 

called Lifeline. So that is where we need to go, but I don’t think 

you all understand the anger that is out there in America over this. 

I live right next to St. Louis, Missouri, so Senator McCaskill’s responding to this anger of a free phone, and to say it is not a free 

phone is not accurate. It is a free phone. Someone gets a phone and 

they get minutes and they don’t get billed, for the most part. And 

in this day and age, people really have a hard time understanding 

it. So you all are supporters of this. You are doing a terrible job 

of marketing it, because you have lost the public opinion war on 

this, and we can’t—and it is tough to get the genie back in the bottle. Actually, that is why I appreciate the Minority for asking for 

the hearing. This is part of that educational process. But you all 

got a long, long way to go. 

And for Ranking Member Waxman to say no one uses an Obama 

phone, he doesn’t go to the web. There is an Obamaphone.net that 

answers a lot of these questions accurately on who is qualified and 

who is—but that is how you pull it up. You got the Obama phone 

rap out there, and you can just Google it, and that leads to this 

122 

frustration and anger about people getting free phones. And the 

free phones are—they are receiving it based upon rate payers, 

right? People are paying rates. We are all paying. 

My first question to Mr. Guttman-McCabe, and I am a friend of 

the industry, you know that. Can you tell me how many people 

have one of these free phones but then use their 250 minutes, go 

in, and pay for more minutes? 

Mr. GUTTMAN-MCCABE. I don’t know the answer to that, Congressman. I think we can—I can see if we can track that down and 

get back to you. I don’t—— 

Mr. SHIMKUS. Some of my friends were not willing to provide us 

that information, but let me pose a question. If they get a free 

phone and then they can go in and pay for doubling of the minutes, 

does that pose a question whether they should have a free phone 

or not? 

Mr. GUTTMAN-MCCABE. Well I think if you go back and you look 

at—and the Commission has put in some of these, you know, some 

of these measures, I think—— 

Mr. SHIMKUS. Should part of the measures be are they purchasing more minutes? 

Mr. GUTTMAN-MCCABE. Well, I think the measures should be do 

you satisfy some threshold to qualify, and so if the threshold—— 

Mr. SHIMKUS. Let me ask another question to your industry. 

What incentive is there for the industry to do due diligence on 

qualifications to receive an Obama phone? 

Mr. GUTTMAN-MCCABE. Well in the past, not only was there 

not—I won’t say there was not incentive. We weren’t allowed to do 

eligibility requirements. 

Mr. SHIMKUS. Well, and that is a problem. 

Mr. GUTTMAN-MCCABE. It was self-certification. 

Mr. SHIMKUS. Right. 

Mr. GUTTMAN-MCCABE. But we—in 2010, we pushed for this, so 

this is not something that, you know, came about on its own. This 

is something we fully endorsed and strongly believe and continue 

to push the Commission for an eligibility database and a duplicates 

database. Because I agree with you, we are not winning the PR discussion. It is about having something that is efficient and accountable, and yet still works. 

Mr. SHIMKUS. Let me give you the exact thing. We are going to 

have issues with the young new staffers here in Washington, D.C., 

and we are going to get to offer them, because of the income qualifications, they will be able to qualify for a free phone based upon 

how some of us compensate our employees and our staff, and Medicaid. What a great benefit package to come to work in Washington 

with that venue. 

Ms. Veach, the final question that I have is there is discussion 

about expanding this to broadband. Do you know what percentage 

of current Lifeline subscribers already have broadband service? 

Ms. VEACH. Congressman, we don’t track individual subscribers, 

so I don’t have that data. 

Mr. SHIMKUS. OK, I think we probably would try to look forward 

to see if you can then provide that at some time, especially as we 

move in this debate. 

And with that, I yield back my time. 

123 

Mr. WALDEN. Now turn to the gentleman from New Mexico, I believe. Mr. Lujan, I think you are up next. 

Mr. LUJAN. Thank you very much. 

And I don’t know how many of you have been to 

Obamaphone.net, but here it is, and Obamaphone.net looks like— 

it is a nice Web site, nice colors. I like the color blue, and it is in 

here quite a bit. And it has this great picture of President Obama 

up on top, but when you start scrolling down, it says sign up now. 

So it says the Obama phone government benefit program. And 

when I see this notion that says sign up now, I would think, as a 

consumer, that if I am on this Web site and I click there, that I 

am signing up now for a phone. But if you scroll down to the bottom of this Web site—and I am glad I have good eyesight, because 

it is really small—it says ‘‘Obamaphone.net is an independently 

owned and operated Web site that is in no way affiliated with the 

United States government, departments within the Federal Government, or any state or local jurisdiction located inherently therein.’’ And then it kind of runs away, because I guess the footnote 

is not needed as much as the rest of the propaganda on this Web 

site. 

And so I wonder if it is fraudulent or not for us to put on a Web 

site that appears to be a federal Web site telling consumers they 

can sign up for a Lifeline phone, collecting information that is in 

no way affiliated with the Federal Government, as opposed to encouraging people who go to this Web site, I encourage you to go 

look at it so you never go to it again, so that we can get through 

this. That is part of what the FCC is trying to do. We are trying 

to crack down on waste, fraud, and abuse here, and we shouldn’t 

direct people into areas that are purported to maybe sign up for a 

Web site that are probably signing up for sharing their consumer 

information in one way or another. I tried to get to the privacy notice on the site, but I couldn’t find it. I guess I am not savvy 

enough. But I was able to get to that disclaimer at the bottom. 

So I just think, Mr. Chairman, that as we talk about these sites 

and what is happening here, that we agree that there are important programs across the Federal Government that are needed. I 

come from a rural state. This has been purported to be a program 

that is abused in only urban parts or needed in urban parts of the 

United States. I think that there are some letters that have been 

submitted, and Mr. Chairman, I would ask unanimous consent to 

submit two letters from two rural organizations, the National 

Grains on the Order of Patrons of Husbandry, and Rural 

Broadband, and in it, Mr. Chairman, one of the letters cites that 

‘‘Lifeline is an essential to the success of our country because it ensures that even the most unserved areas are safe, able to communicate, and included. Simply put, any cuts to Lifeline will leave 

rural, tribal, and low income communities more vulnerable and 

locked out of full participation.’’ And I also have two letters from 

two tribes, Gila River Telecom and Mescalero Apache Telecom, Incorporated, that I would like to ask unanimous consent to submit 

into the record. 

Mr. WALDEN. I believe those were part of the Minority’s packet 

that has already been submitted. We went through that. 

124 

Mr. LUJAN. Thank you very much. I thank Ms. Eshoo for her wisdom, as well as for her submissions, so thank you and the staff 

very much, Ms. Eshoo. 

And so with that, Mr. Chairman, I want to—I have a few questions to Mr. Jones, and I appreciate you being here, Mr. Jones, 

having been a former member of NARUC myself when I was fortunate to be part of the New Mexico Regulatory Commission, which 

is the equivalent of utility commissions across the country. 

You stated in your testimony that ‘‘The ability of some states to 

audit and/or investigate waste, fraud, and abuse may be hampered 

by rules or laws limiting or altogether removing states’ authority 

over wireless companies.’’ Could you explain how that could be the 

case, and with the concerns in some states, what can NARUC do 

to help ensure that states will adopt stronger policies in those 

areas where maybe we see rules that aren’t as strong? 

Mr. JONES. Congressman, that mainly refers to many state statutes across the country, largely, I think, with Mr. GuttmanMcCabe’s companies that have gone and lobbied state legislatures 

to prohibit PUCs from regulating or having anything to do with 

wireless service. The laws are written a little bit differently, but it 

makes it very difficult for state PUCs to have jurisdiction over 

things like e-911, TRS, High Cost Funds, or Universal Service. So 

that prevents us, and also 214(e), Section 214(e) that governs eligible telecommunications carriers, that is the federal statute that we 

operate under. It is written very broadly and it doesn’t specify the 

type of technology, so this has been the subject of litigation in 

many states where some of the wireless carriers push hack on us. 

What can we do? We can work with—I think the best thing we 

can do is work with Ms. Veach and her colleagues at the FCC 

through the Joint Board process where we deal with these difficult 

issues. They have better access to information on cost and all sorts 

of things than we do. And in that confidential setting of the Joint 

Board process, I think we can get at some of these issues. 

Mr. LUJAN. Mr. Chairman, thank you so much. I know my time 

is expired. I have some other questions I will submit to the record. 

I was so compelled with the Obamaphone.net, Mr. Chairman, that 

I had to use a little of my time to talk about that wonderful Web 

site. Thank you very much. 

Mr. WALDEN. Appreciate the gentleman’s questions and comments. 

We will now turn to Mr. Terry for 5 minutes. 

Mr. TERRY. Thank you, Mr. Chairman. 

To Mr. Feiss, at least in the State of Nebraska over the last couple of years we have seen now 51 different Lifeline providers apply 

with our PUC in Nebraska. Are you seeing the same explosion of— 

I am putting fictitional quote marks on competitiveness and competition in Montana? 

Mr. FEISS. Congressman Terry, we have two pending applications for Lifeline—only prepaid wireless support. 

Mr. TERRY. Two? 

Mr. FEISS. Right, and those—— 

Mr. TERRY. Nebraska has 51 over the last couple years. Only 

two. That is interesting. 

125 

Mr. Jones, is NARUC seeing that level of explosion, and this 

builds—the next part of that question is how do we determine what 

the appropriate price line is, because if there is 51 carriers coming 

in Nebraska to get their $9.25 per phone, there is a hell of an incentive going on. 

Mr. JONES. Right. We have designated six wireless CTCs for support with the wireline, and I think we have—I am going to up the 

ante that Mr. Feiss said. I think we have eight or ten pending before our staff right now. So we have designated six on the wireline 

side. We have many more wireline carriers. But to put this in perspective, of the eligible low income households in the State of 

Washington, even with that support we are only reaching 33 percent of the low income people in our state. That is Lifeline, wireless, everything together. 

So as Billy Jack said, if we want to get to 50, 60 percent, if that 

is a valid social goal to have people connected for these valuable 

services, we have a long ways to go. But obviously it costs money. 

What can we do to get at the cost? It is really with the FCC, I think. The FCC has the ability to determine if the $9.25 per month 

is appropriate or not. 

Mr. TERRY. So Ms. Veach, how do you reply? 

Ms. VEACH. Congressman, on the question of the $9.25 rate, we 

have sought public comment on that question and are looking at 

the record, and will continue to conduct an open proceeding to put 

the commissioners in a position to determine what the optimal rate 

should be. 

Mr. TERRY. In a public comment process, will you be able to obtain the true cost of providing this service? 

Ms. VEACH. I think there are different types of services. As we 

have heard, there are wireless services as well as landline services, 

so—— 

Mr. TERRY. All right, so for the variety of services, are you going 

to be able, in a public comment setting, obtain cost information? 

Ms. VEACH. In addition to the record that is already developed, 

if necessary the Commission can ask for more data if it needs from 

Mr. Guttman-McCabe’s members or others. 

Mr. TERRY. So is that a yes that you are obtaining that information through the public comment? 

Ms. VEACH. We have invited comment. I would be happy to work 

with your office to let you know whether we have obtained the kind 

of information you are asking about already or need—— 

Mr. TERRY. Is there a red flag with the FCC that there is that 

many competitors coming into what used to be, just a few years 

ago, a very limited market? Does that raise a red flag? 

Ms. VEACH. Well absolutely. In our reforms, we required that before any non-facilities based carrier could be designated to receive 

support, it first had to have a compliance plan approved with the 

Commission, and we have only approved 20 of those since the reforms went out. The next step, then, is to approach the relevant 

state PUC to seek designation. 

Mr. TERRY. OK. I will yield back. 

Mr. WALDEN. Gentleman yields back his time. 

Now recognize the gentleman from Illinois, my friend Mr. Rush, 

for 5 minutes. 

126 

Mr. RUSH. I want to thank you, Mr. Chairman. This has been 

quite a hearing, and I am not surprised. I want to congratulate the 

Ranking Member for bringing this issue to the floor. 

But as I sit here and hear some of the questions and some of the 

commentary, it really, really infuriates me about some of the attitudes and opinions and some of the remarks that I have heard. I 

am trying to maintain my cool, so to speak. 

But first of all, Mr. Chairman, there are some letters that I 

would like to enter into the record, and some of them may be included, but I am told that—in your packet, but I am told that they 

aren’t included, and we have a statement from the NAACP, the 

Leadership Council on Civil Rights and Human Rights, the United 

Church of Christ, the National Organization for Women, the Asian 

American Justice Center, Disability Rights, Education, and Defense 

Fund, and from the CWL. I would like those included in the record. 

Mr. WALDEN. Without objection. 

[The information appears at the conclusion of the hearing.] 

Mr. RUSH. All right. Mr. Chairman, I want to ask maybe Ms. 

Veach or anybody can answer this question. Was there any noticeable uptake in the Lifeline services program during and immediately after Hurricane Katrina? 

Ms. VEACH. Congressman, as a matter of fact, it was during the 

time of recovery from Hurricane Katrina when the Commission 

permitted wireless providers to enter the program to provide vital 

services to the consumers affected. 

Mr. RUSH. Well, this notion of this service or these phones being 

called an Obama phone, what do you think is the rationale behind 

it? Because if you are going to call it any kind of nonpolitical, nonclass, and I might indicate, non-racist way, then it certainly should 

be called a Bush-Obama phone, isn’t that correct? 

Ms. VEACH. Congressman, you are absolutely correct that a lot 

of the expansion of the program that happened without proper 

oversight was during prior Administrations. The reforms that the 

FCC has put in place in the last 3, 4 years will ensure that only 

eligible subscribers can participate, and that there are appropriate 

checks in place on the consumers as well as the carriers. 

Mr. RUSH. Well, let’s look at who uses Lifeline. It is certainly not 

just members of citizen and urban centers. This program supports 

older Americans. One carrier reported that 47 percent of its users 

are 50 years or older, and 16 percent are over 60. Now I know, because that is my age category, I like music, but I am not too fond 

of rap music, so for this service to be characterized as being or associated with something called Obama Rap, what do you think 

about that? 

Ms. VEACH. As you say, the service is available without regard 

to any demographic characteristics: seniors, the elderly, disabled, 

rural as well as urban, based on income rates or participation in 

another federal assistance program. It is available in all 50 states. 

Mr. RUSH. Let me ask—I see my time is winding down and I 

have a lot of other questions. Is there any of the witnesses at the 

table, are you aware of any increase in mobile phones in Afghanistan? 

Mr. JONES. No, sir, I am not. 

Ms. GONZALEZ. I can’t answer that question. 

127 

Mr. RUSH. I was at a meeting earlier today with an expert, and 

there is an increase in mobile phone use in Afghanistan. And my 

understanding that it is thoroughly subsidized. To a great extent, 

it is thoroughly subsidized. So our taxpayer dollars are going to Afghanistan to increase mobile phone uses in Afghanistan, but here 

we are making much—and some of it legitimate—much ado about 

possibly job seekers, 26 percent of users reported by—unemployed 

and 62 percent are employed on only a part-time basis. Fifty-two 

percent of the subscribers are Caucasian, 30 percent are African 

American, and 10 percent are Hispanic. I mean, we are making ado 

about something that really doesn’t—that has been a fairly good 

program. 

The subject of this hearing is ‘‘The Lifeline Fund: Money Well 

Spent?’’ with a question mark. My answer to that is yes, it is well 

spent. There are some problems, but I think that FCC is moving 

to address the problems. I think they should be commended. But 

whether this program should be capped, no, it should not be 

capped, especially when the unemployment—the number of poor 

people in this country is on a dramatic increase, then why would 

we try to cap this particular program? 

Mr. Chairman, I yield back. I just want to—I don’t like the message that is emanating from this hearing, and I think it is offensive 

to the best interest of the American people. I yield back. 

Mr. WALDEN. Thank the gentleman’s comments. We appreciate 

his comments. We are just trying to get to the truth and the answers, and that is why it is a bipartisan hearing. So I appreciate 

your participation. 

We will now go to the gentleman from Louisiana, Mr. Scalise, for 

5 minutes. 

Mr. SCALISE. Thank you, Mr. Chairman. I appreciate you having 

this hearing. It is a very important hearing to have dealing with 

a program that has had a history of fraud and waste and abuse. 

This program is the kind of program that really angers, I know, a 

lot of my constituents, and I am far from alone when I talk to colleagues of mine from all across the country. Whether you want to 

call it an Obama phone or free cell phone or whatever it is, it is 

a program that the Federal Government has set up that taxes—— 

Mr. RUSH. What about a Bush-Obama phone? 

Mr. SCALISE. Whatever you want to call it—— 

Mr. WALDEN. Regular order, please. 

Mr. SCALISE [continuing]. It is a free phone to some people that 

is paid for by other people, and those other people that are paying 

for that service, when they see the fraud and abuse and the waste 

in this program, get incredibly angry, and to discount that anger 

of hardworking taxpayers who are seeing their cell phone bills go 

up, knowing that some of that money is being used to pay for somebody else to get free cell phones, and in many cases, in violation 

of the law itself, they have a right to be angry. And their anger 

is very justified when they look at the dramatic increase over the 

last few years of the cost of this program. 

I want to ask you, Ms. Veach, because it is being considered by 

some and there is legislation filed to expand this into broadband. 

I think that should tell you that if they filing a bill to expand it 

into broadband, that means that the law shouldn’t currently allow 

128 

you to provide broadband services for free to some people at a cost 

to other people. If they are filing a bill to try to make that legal, 

yet in your own testimony, you talk about a pilot program that you 

all have already undergone, started, to extend it to broadband. 

Under what legal authority—first of all, with all the fraud, waste, 

and abuse in the existing program, what legal authority do you 

have to actually broaden it even more? And whether you want to 

call it an Obama pad or a Bush pad or whatever you want to call 

it, you are already expanding this program into an area that the 

law doesn’t say you can expand it to, and in fact, when our colleagues on the other side file a bill to do this, they are implying 

that you don’t have the legal authority to do it today. Where is that 

legal authority coming from? 

Ms. VEACH. Thank you, Congressman. 

As you say, we have taken a small piece of the savings from the 

other reforms—— 

Mr. SCALISE. How much? 

Ms. VEACH. Fourteen million dollars to initiate a broadband pilot 

that will inform us by testing different technologies, different types 

of speeds and so forth to see what we can do to—— 

Mr. SCALISE. Under what—you tell me what you are doing. What 

legal authority do you have to do it? Fourteen million dollars of 

money that should be in the pockets of hardworking taxpayers to 

lower their cell phone bill. You know, and this is where we get to 

the, you know, the overall abuse of the program, but also the overall public opinion of the program, because there are—you know, in 

Louisiana, a family of four making $35,000 a year is paying for 

this. They can’t get the free phone. You know, this is a family who 

made a decision, you know, if they have got their own cell phone, 

and let’s say they got broadband at their house, they are paying 

for that with after-tax dollars that they worked really hard for and 

they made tough decisions. They might not go out to eat one night 

because they—that is an important priority that they have set, and 

it angers them when now they are paying somebody else’s free cell 

phone bill. And then you have identified waste, fraud, and abuse 

that this committee had oversight on and that has been identified 

by many people. We are trying to clean up the fraud and abuse. 

I am cosponsor—not a cosponsor directly, but a supporter of legislation by Representative Griffin—I think there are other bills 

that would actually go back to the original intent and say no more 

free cell phones. But they are looking at this and they are saying 

I am paying for this. And if instead of saying oh, oK, we found 

waste, fraud, and abuse, what the government should be doing is 

saying that money—every quarter you assess the companies that 

ultimately taxpayers pay the bill. You assess them every quarter. 

You could lower their cell phone bill by the amount of money that 

you found in waste, fraud, and abuse that we directed you to go 

find in waste, fraud, and abuse. Instead, you have taken it upon 

yourself to take that money and not lower the cell phone bill for 

that family of four in Louisiana making $35,000 a year. They 

would like to see their bill lowered. They are struggling in tough 

times, but for whatever reason, you decided as a bureaucrat that 

you are just going to go create a new program that you are not 

129 

even legally authorized to create to spend that money, instead of 

letting them have that money back in their pocket. 

So I would hope when you are trying to think of what to do with 

the money that you are finally uncovering from waste, fraud, and 

abuse, you don’t see it as some kind of honey pot that you can go 

and spend somewhere else. That is money that ought to be in those 

hardworking taxpayers’ pockets, not the government to spend on 

something else, but finally give them a break. Give the folks that 

are paying the freight a break so that they don’t have to pay as 

much, and maybe they can go out to eat one night with their family 

of four, instead of having to fund somebody’s free broadband and 

free cell phones and all this other stuff that they are irritated 

about. 

And the final thing is I would ask you to get us the list—because 

it has been asked before. Get us the list of the number of people 

that are in this in this Lifeline program that have free cell phones 

that actually pay out of their pocket to upgrade it. For whatever 

reason, they have got enough money to upgrade it, maybe they 

should be paying for their own phone and not having the government pay for it, not having that taxpayer pay for it. But will you 

get the committee the count of how many people that are in the 

program actually pay to upgrade their service? Can you get us 

that? 

Ms. VEACH. We will work with your office to provide what we 

can, yes. 

Mr. SCALISE. We would like you to get us that count of how many 

people actually do that. 

I appreciate the chairman’s discretion, and I yield back the balance of my time. 

Mr. WALDEN. Gentleman yields back. 

I believe all the members have had an opportunity to ask at least 

the first round of questions. We are not going to do a second round, 

but there may be other questions for the record we would like you 

to address, and we may need to probe deeper into this issue from 

different angles, perhaps at a future hearing. 

Yes, I would recognize the gentlelady from California. 

Ms. ESHOO. Thank you, Mr. Chairman. I would like unanimous 

consent to place into the record the following. It is a listing of the 

2012 Top 10 High Cost Disbursements by States, and it also lists 

out the 2012 top 10 Lifetime Disbursements by States, and just—— 

Mr. WALDEN. Without objection. 

[The information appears at the conclusion of the hearing.] 

Ms. ESHOO. I just wanted to point out to the gentleman that in 

Louisiana, there is 110,927—now these are—110,927,000 and that 

is an overage—is that an overage? That is how much more the 

state gets. But I think this is instructive, so thank you for allowing 

us to place—— 

Mr. WALDEN. Without objection. 

Ms. ESHOO [continuing]. It in the record. 

Mr. WALDEN. And Mr. Long has returned, so we will turn to 5 

minutes of questioning from Mr. Long. 

Mr. LONG. Thank you, Mr. Chairman, and thank you all for 

being here today. 

130 

Start with Billy Jack Gregg, if I can. On the slide that you 

showed earlier, the red line going across on Maryland, was that at 

the poverty line? 

Mr. GREGG. That was the number of low income households, 

households at 135 percent of the federal poverty guidelines or 

below. 

Mr. LONG. So that was at the 135 percent level? 

Mr. GREGG. Right. 

Mr. LONG. And your graph showed that there is a considerable 

number of people that are getting these phones that are above that 

income level, correct? 

Mr. GREGG. Right. Currently, for the most recent data, the total 

number of low income households in Maryland was about 304,000. 

The number of Lifeline subscribers was 654,000, so over double. 

Mr. LONG. And my understanding—go to Ms. Veach now. My understanding is that the FCC does not use that data, is that correct, 

or were you aware of that figure that so many more people above 

that should be not qualified to get this phone are actually getting 

it? 

Ms. VEACH. Congressman, I have seen the information that Mr. 

Gregg provided, and we have also taken actions to ensure that only 

customers who are eligible to sign up and only one customer per 

household will be able to sign up. And we have, in fact, notified 

consumers when we have identified that they have duplicate 

phones that they are in violation of the rules and next time could 

be fined by the FCC for that violation. 

We are also standing up a database to prevent that from happening again, and in the meantime, will continue to scrub the 

roles. 

Mr. LONG. Staying with you, Ms. Veach, what percentage of 

users go over their free 200 minutes on their phones? 

Ms. VEACH. I don’t have that, Mr. Congressman. 

Mr. LONG. Could you get that and get back to us with that? 

Ms. VEACH. We will work with your office to provide what we 

can, absolutely. 

Mr. LONG. OK, thank you. That takes out the second part of my 

question. Ms. Veach, again, what percentage of the eligible population are Lifeline recipients? 

Ms. VEACH. It is a complex estimate because we—you can be eligible either based on your income or by participation in another 

federal program. We estimate that is it about 1⁄3 of households. 

Mr. LONG. About 1⁄3 of the eligible households—— 

Ms. VEACH. That is right. 

Mr. LONG [continuing]. Are receiving this phone? What—on this 

200 minutes that they get, if someone has their own personal cell 

phone and they have one of these phones we are talking about here 

today, and they forward their personal phone to their whatever you 

want to call it, Lifeline phone we will call it, and first use up their 

minutes there, do you know—have you looked into that or heard 

of any of that happening? 

Ms. VEACH. I have not, but we take all allegations about abuse 

in the program very seriously and I would be happy to check with 

my team and get back to you on that. 

131 

Mr. LONG. If you would I would appreciate that, because I have 

heard of that very thing. A congresswoman related to me yesterday 

that one of her constituents related to her that that is what she 

was doing with her phone was forwarding, and I am trying to 

check with some of the providers to see if that would even save 

money or not. Would that not use the minutes on their personal 

phone, anyone on the panel? 

Mr. JONES. Congressman, I would suggest each state does this 

differently. I know that when we designated ETCs, some were at 

200, 250, 300 minutes. We had the 800-number issue to deal with, 

if that would count. When you call an 800-number, does that count 

toward the minutes? We decided no. I would urge you to talk to 

Chairman Kinney of your Missouri Public Service Commission, because they have designated these ETCs and Chairman Kinney and 

the staff of the Missouri commission can share with you the terms 

and conditions of all these ETCs. 

Mr. LONG. OK. 

Ms. Gonzalez, going to you, you said, I believe, that 15,000 people of 15,000 per year and under make up 1⁄3 of the users of these 

phones, is that correct? 

Ms. GONZALEZ. Under $15,000 a year make up the majority, I 

think about 80 percent, according to one provider. All the providers 

provide different—— 

Mr. LONG. What I had in my notes here that I wrote down as 

you were speaking earlier, I thought you said 1⁄3 were under 15, 1⁄3

were over 65, and 1⁄3 were disabled. 

Ms. GONZALEZ. No, please let me clarify. Nearly 80 percent, ac- cording to one provider, make under $15,000 a year, nearly 1⁄3 are 

over the age of 55, and over 1⁄3 are disabled. 

Mr. LONG. OK. Mr. Guttman-McCabe, you said that these are 

not taxpayer funds that pay for these phones, so clarify again who 

is paying for these phones? 

Mr. GUTTMAN-MCCABE. Sure. They come from the consumer and 

they go to USAC, so the carriers are given a percentage that they 

must pay, a number that they must pay, and that money—— 

Mr. LONG. And is that not passed on to their customers? 

Mr. GUTTMAN-MCCABE. It is passed on but it is not a budget line 

for it, it is not a debt or deficit number. It doesn’t touch the U.S. 

Treasury. 

Mr. LONG. Oh, it doesn’t show up in the 42 percent more that 

we are spending in this country right now than we take in every 

year? It is not in that figure? 

Mr. GUTTMAN-MCCABE. It is not in that figure. 

Mr. LONG. But it is taken out of the economy from the people 

that—— 

Mr. GUTTMAN-MCCABE. Although it is also put back into the 

economy—— 

Mr. LONG. I am sorry? 

Mr. WALDEN. It is on your bill though? 

Mr. GUTTMAN-MCCABE. It is on your bill. It is paid by the consumer but it is not a tax. It doesn’t touch the Treasury—— 

Mr. LONG. Yes, but it is not a voluntary thing on your bill. The 

customer has to pay that if they want to keep their phone going. 

Mr. GUTTMAN-MCCABE. They do. 

132 

Mr. LONG. So that money is coming out of the economy? 

Mr. GUTTMAN-MCCABE. Yes, although arguably going back into 

the economy as part of the, you know, the companies that are hiring and paying employees, so it is almost circular, in a sense. But 

it is not a budget line, it is not a debt or deficit issue. It is not targeted to any budgetary implication. 

Mr. LONG. OK, but I am very concerned to see Mr. Gregg’s figures, for your benefit, Ms. Veach, where you have such a huge percentage of people in the State of Maryland right next door here 

that are—have these phones that unless these figures are inaccurate, are not eligible to receive the phones because they make 

way above the 135 percent above the poverty level, so I would hope 

that somehow you all could take what you are not doing now, take 

this information from Mr. Gregg and research that, and if you will 

get back to me with those questions that I asked you earlier that 

you said you would get to me, I would appreciate it. 

And again, thank you all very much for being here, and Mr. 

Chairman, I yield back. 

Mr. WALDEN. Gentleman yields back the balance of his time. I 

think that wraps up our hearing. We appreciate, again, the testimony you have given, the information you have shared with us, the 

answers to our questions. I am sure there will be additional questions that we may have back for you, maybe in a bipartisan way 

as well. So again, thank you for your participation today, and our 

hearing is adjourned. 

[Whereupon, at 12:28 p.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

PREPARED STATEMENT OF HON. LEONARD LANCE

Thank you Mr. Chairman, 

I am pleased that the Subcommittee is holding this hearing today.I believe the 

federal Lifeline program, created during the Reagan Administration almost 30 years 

ago, provides an important public service, ensuring that all Americans, regardless 

of income, are able to take advantage of basic telecommunications services. 

But even the most laudable programs must be scrutinized to make certain they 

are being conducted in a fiscally responsible manner consistent with using taxpayer 

dollars wisely and efficiently. 

Like many of my colleagues I applauded the many reforms the FCC has enacted 

to the Lifeline program 

Last year the FCC instituted new rules that required carriers that received Lifeline funds certify that their subscribers were eligible for the program, an effort to 

streamline the program and reduce waste. 

But as a result, according to a recent report from the Wall Street Journal, 41 percent of the roughly 6 million subscribers in the Lifeline program ‘‘either couldn’t 

demonstrate their eligibility or didn’t respond to requests for certification.’’ 

And despite reforms by the FCC to address waste, fraud and abuse in the program, spending on Lifeline increased 26 percent last year—rising from $1.75 billion 

in 2011 to $2.2 billion in 2012. 

I am optimistic that additional reforms scheduled to take effect this year—including annual recertification requirements, and independent audits—will provide greater oversight of the Lifeline program and possibly discourage those companies and 

individuals who have taken advantage of the program and jeopardizing its future 

for those who desperately need it. 

I very much look forward to hearing the views of our panel today on ways we can 

work together to ensure that the federal Lifeline program is being conducted properly and efficiently in the spirit in which it was created under President Reagan 

almost 30 years ago. 

Thank you Mr. Chairman, I yield back my time, 

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Æ 


82189.260