U.S. GOVERNMENT PUBLISHING OFFICE

29–656 PDF WASHINGTON : 2018

S. Hrg. 115–359 

FCC’S LIFELINE PROGRAM: A CASE STUDY OF 

GOVERNMENT WASTE AND MANAGEMENT 

HEARING 

BEFORE THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 14, 2017 

Available via the World Wide Web: http://www.fdsys.gov/ 

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 
(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

RON JOHNSON, Wisconsin, Chairman 

JOHN MCCAIN, Arizona 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

JAMES LANKFORD, Oklahoma 

MICHAEL B. ENZI, Wyoming 

JOHN HOEVEN, North Dakota 

STEVE DAINES, Montana 

CLAIRE MCCASKILL, Missouri 

THOMAS R. CARPER, Delaware 

JON TESTER, Montana 

HEIDI HEITKAMP, North Dakota 

GARY C. PETERS, Michigan 

MAGGIE HASSAN, New Hampshire 

KAMALA D. HARRIS, California 

CHRISTOPHER R. HIXON, Staff Director 

GABRIELLE D’ADAMO SINGER, Chief Counsel 

BROOKE N. ERICSON, Deputy Chief Counsel for Homeland Security 

MARGARET E. DAUM, Minority Staff Director 

J. JACKSON EATON, Minority Counsel 

LAURA W. KILBRIDE, Chief Clerk 

BONNI E. DINERSTEIN, Hearing Clerk 
(III) 

C O N T E N T S 

Opening statements: Page 

Senator Johnson ............................................................................................... 1 

Senator McCaskill ............................................................................................ 2 

Senator Peters .................................................................................................. 9 

Senator Heitkamp ............................................................................................ 17 

Senator Daines ................................................................................................. 20 

Prepared statements: 

Senator Johnson ............................................................................................... 29 

Senator McCaskill ............................................................................................ 30 

WITNESSES 

THURSDAY, SEPTEMBER 14, 2017 

Seto Bagdoyan, Director, Forensic Audits and Investigative Service, U.S. Government Accountability Office ............................................................................. 4 

Honorable Ajit V. Pai, Chairman, Federal Communications Commission ......... 6 

Vickie S. Robinson, Acting Chief Executive Officer and General Counsel, 

Universal Service Administrative Company ...................................................... 8 

ALPHABETICAL LIST OF WITNESSES

Bagdoyan, Seto: 

Testimony .......................................................................................................... 4 

Prepared statement .......................................................................................... 32 

Pai, Hon. Ajit V.: 

Testimony .......................................................................................................... 6 

Prepared statement with attachments ........................................................... 46 

Robinson, Vickie S.: 

Testimony .......................................................................................................... 8 

Prepared statement .......................................................................................... 138 

APPENDIX 

Olga Ukhaneva Report ............................................................................................ 151 

Letters submitted by Senator Peters ..................................................................... 189 

Letter submitted by Senator Harris ....................................................................... 213 

Statements submitted for the Record: 

Cellular One ...................................................................................................... 214 

National Grange ...................................................................................................... 237 

Navajo Nation .......................................................................................................... 239 

Responses to post-hearing questions for the Record: 

Mr. Pai ............................................................................................................... 250 

Ms. Robinson ..................................................................................................... 255 

(1) 

1The prepared statement of Senator Johnson appears in the Appendix on page 29. 

FCC’S LIFELINE PROGRAM: A CASE STUDY OF 

GOVERNMENT WASTE AND MISMANAGEMENT 

THURSDAY, SEPTEMBER 14, 2017 

U.S. SENATE, COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Committee met, pursuant to notice, at 10:17 a.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Ron Johnson, Chairman of the Committee, presiding. 

Present: Senators Johnson, Daines, McCaskill, Carper, Tester, 

Heitkamp, Peters, and Hassan. 

OPENING STATEMENT OF CHAIRMAN JOHNSON 

Chairman JOHNSON. Good morning. This hearing will come to 

order. 

I want to welcome the witnesses, thank them for their time and 

their testimony. The hearing’s title is ‘‘FCC’s Lifeline Program: A 

Case Study of Government Waste and Mismanagement.’’ I would 

ask consent that my written remarks be entered in the record.1

I will not steal anybody’s thunder. There are a lot of facts, there 

are a lot of figures, there are a lot of assumptions. I want to quote 

Ronald Reagan. He said this, I think, a number of times, but this 

is the quote that I have: ‘‘No Government ever voluntarily reduces 

itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we will ever see on this Earth.’’ 

The reason I quote Ronald Reagan is because the Lifeline program was actually started under Ronald Reagan. And, as I just go 

through the briefing materials, you take a look where we have 

spent close to $20 billion on this. It is somewhere around $1.5 to 

$2 billion per year. Significant evidence of waste, of fraud, of abuse. 

The Government Accountability Office (GAO) reports that 96 percent of low-income Americans actually have a phone. I am just 

going to ask some questions. Maybe we should ask ourselves: Did 

we achieve the goal of this program? Should we declare success, 

should we declare victory? Should we maybe consider ending it? Or 

do we still need to try and get that final 4 percent? Is it even possible? Should we be looking at reforms and controls? 

Now, if we decide to end it, I think the other question would be: 

Do we just bank the money? We are $20 trillion in debt over the 

next 30 years. At least $100 trillion additional deficit that spending 
2 

1The prepared statement of Senator McCaskill appears in the Appendix on page 30. 

is projected. Maybe we ought to start banking some of this money. 

Maybe we ought to consider ending a program that worked, that 

succeeded, and save the money. Or maybe we could repurpose it to 

advance into high-speed broadband in rural areas. The same type 

of program under the Universal Service Fund (USF). 

So, again, I think those are the kind of questions I am going to 

be asking, the questions that were on my mind as I was reading 

all the briefing material. I am hoping those are the kinds of questions this Committee asks during this hearing. 

With that, I will turn it over to Senator McCaskill. 

OPENING STATEMENT OF SENATOR MCCASKILL1

Senator MCCASKILL. First, I am really grateful, Mr. Chairman, 

that you agreed to hold this hearing. It is really important. I began 

working, as Chairman Pai will tell you, I have been working on 

this for years, and it all began when I got a solicitation for a free 

phone at the condominium I live in in Washington. And, I looked 

at it, and I thought, ‘‘What in the world?’’ and brought it to work 

and said, ‘‘What is this?’’ And then, I began to dive in and realized 

how poorly designed this program was from the get-go. And, you 

correctly pointed out that this program began under Reagan. The 

wireless part of this program began under President Bush. This 

program was actually set up in a way that was fatally flawed 

under President Bush, but then these phones became known as the 

‘‘Obama phones.’’ So, I want to make sure everyone knows there 

are lots of parents of this particular program that has gone awry. 

We are going to spend a lot of time today talking about what has 

gone wrong with the Lifeline program. I know there are lots of people who depend on the Lifeline program, and I know that we need 

to look at ways we can support them. But the idea that we can continue a program that is still structurally deficient, in the same way 

we have been doing it, is frankly, a non-starter with me. 

The combination of ineffective oversight and the greed of private 

carriers has led to hundreds of millions of dollars in wasted public 

money. Since 2014, when the GAO began the most recent audit 

that I requested, the Federal Communications Commission (FCC) 

has identified and pursued several companies that have fraudulently profited from the Lifeline program. However, this investigation demonstrates this may only be the tip of the iceberg. 

GAO’s multiyear audit found evidence suggesting that Lifeline 

may have paid more than $138 million a year in subsidies for 1.2 

million potentially fraudulent accounts. We are not talking about 

highly sophisticated fraud here. There were 1.2 million accounts 

that were either duplicates of existing subscribers, or there was no 

record that the listed subscriber was actually eligible, or where the 

subscriber is dead. 

It should not have taken a 3-year GAO audit to spot these glaring red flags. I am so grateful for GAO’s hard work. I asked them 

to assess the effectiveness of the 2012 Lifeline reforms, which 

began after I received the solicitation in 2011, and I began hollering about this on the Commerce Committee. 
3 

I do not believe any of us could have anticipated the extent of 

the problems that GAO would uncover in spite of the 2012 reforms. 

I would like to personally thank GAO, who spent more than 3 

years on this, and I want to thank the team, your team, Mr. 

Bagdoyan, that did this. I know as a former auditor that there is 

a tremendous amount of focus and dedication needed for an audit 

like this. 

I also know the FCC and the Universal Service Administrative 

Company (USAC) have taken steps to improve the oversight. Today 

we will hear from the FCC Chairman and the Acting Executive Director of USAC about the efforts underway to combat the waste 

and fraud and abuse that have long plagued this program. 

I do not doubt the sincerity of the FCC and USAC and their desire to address the shortcomings. The reality is these are not new 

problems—investigative journalists, the FCC Office of Inspector 

General (OIG) and many of my colleagues in Congress and I have 

pointed them out time and time again over the last decade. 

Chairman Pai, you have been among those who have brought attention to Lifeline’s serious weaknesses. During your time as an 

FCC Commissioner, you urged the FCC to implement much needed 

reforms and called for proactive measures to increase accountability and more aggressive enforcement. Now that you are leading 

the Commission, I am cautiously optimistic about the possibility of 

meaningful reform. I know that you are aware past attempts to increase accountability have fallen woefully short. 

One of the reasons for these past failures is that many of the 

weaknesses are deeply entrenched in the basic structure of the program. You do not tell people that they get to verify whether or not 

somebody needs a phone when they are the ones that are going to 

make the money if they verify eligibility for the phone. It will never 

work because the incentives are in the wrong place. The incentives 

are to override the database. The incentives are to put more people 

on the program because every person you put on the program is 

$9.25 a month to your company. And, it is just a moneymaker to 

push the envelope. 

It does not take an auditor to tell you it might not be the best 

idea to blindly trust the companies that are going to make the 

money—who receive $1.5 billion each year from this program— 

based on the number of accounts they service. 

The FCC has taken the initial step to address this structural 

flaw by creating the National Eligibility Verifier to independently 

screen eligibility. However, last year’s Lifeline reform order does 

not require that crucial reform to be complete until the end of 

2019, and there are still mechanisms to override that the companies can do. So, if we know the companies are overriding the database now, I have no confidence they are not going to override and 

self-certify over the National Verifier. 

We have made progress. I do want to acknowledge that. This program went from about $800 million per year to $2.2 billion in 

breakneck speed. Then we began the reforms and found massive 

duplications, and it fell down and it is about $1.5 billion now. So, 

we just skimmed the surface and found $600 million. And, by the 

way, that is real money. That is a lot of money that is desperately 

needed for rural broadband deployment. 
4 

1The prepared statement of Mr. Bagdoyan appears in the Appendix on page 32. 

I have a lot of questions particularly on the enforcement end. We have $94 million that has been identified that should be paid back. 

The companies that should be paying this back get over $1 billion 

a year from this program. And, guess what? They have not paid us 

a dime. Not one thin nickel. I do not understand why we keep paying these companies that owe us money. And so, be prepared for 

that question because I need an answer to that. 

Thank you, Mr. Chairman, for the hearing. 

Chairman JOHNSON. Listen, I appreciate your passion on this 

thing. I woke up this morning with a stiff neck, and I think it is 

because, as I was reading the briefing materials, I was just shaking 

my head. So, this will be an interesting hearing, maybe a frustrating hearing. But, listen, I do appreciate your dogged pursuit of 

this waste, fraud, and abuse, and hopefully we can come up with 

some solid recommendations about what we should do moving forward. 

It is the tradition of this Committee to swear in witnesses, so if 

you will all stand up and raise your right hand. Do you swear that 

the testimony you will give before this Committee will be the truth, 

the whole truth, and nothing but the truth, so help you, God? 

Mr. BAGDOYAN. I do. 

Mr. PAI. I do. 

Ms. ROBINSON. I do. 

Chairman JOHNSON. Please be seated. 

Our first witness is Seto Bagdoyan. Mr. Bagdoyan is the Director 

of Audit Services for the U.S. Government Accountability Office’s 

Forensic Audits and Investigative Service mission team. In his role 

he supervises the team that reviews the internal controls of government programs and roots out waste, fraud, and abuse. Mr. 

Bagdoyan. 

TESTIMONY OF SETO BAGDOYAN,1 DIRECTOR, FORENSIC AUDITS AND INVESTIGATIVE SERVICE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. BAGDOYAN. Thank you. Chairman Johnson, Ranking Member 

McCaskill, and Members of the Committee, I am pleased to appear 

before you today to discuss GAO’s May 2017 report on FCC’s Lifeline program. The program’s expenditures total about $1.5 billion 

annually, covering over 12 million beneficiaries. Given it scope and 

scale, Lifeline is inherently vulnerable to fraud. In this regard, our 

findings highlight multiple significant risks involving, for example, 

the program’s financial management and beneficiary enrollment 

controls. Accordingly, today I will highlight two of our report’s principal takeaways regarding these particular risks. 

First, FCC and USAC, the not-for-profit corporation which administers Lifeline, have taken some steps to enhance controls over 

program finances. For example, FCC and USAC established financial and management controls regarding billing, collection, and disbursement of funds for Lifeline and related USF programs. However, FCC maintains the USF with a cash balance of over $7 billion 

and net assets of about $8 billion as of June 2017 outside of Treasury in a private bank account. In 2005, we recommended that FCC 
5 

reconsider this arrangement given that the USF consists of Federal 

funds. In addition to addressing any risks associated with having 

the funds outside of Treasury where they do not enjoy the same 

rigorous financial management practices and regulatory safeguards 

as other Federal programs, FCC identified potential benefits of 

moving the funds. For example, by having the funds in Treasury, 

USAC will have better tools for fiscal management of the funds. In 

March 2017, FCC developed a preliminary plan to move the USF 

to Treasury. 

Second, to enhance Lifeline’s ability to detect and prevent ineligible subscribers from enrolling, FCC in 2014 established a database with a real-time list of subscribers. In 2015, the agency adopted a rule requiring Lifeline providers to retain eligibility documentation used to qualify consumers for program support to improve the auditability and enforcement of FCC rules. 

Nevertheless, we found weaknesses in several key control areas. 

For example, the program’s structure relies on over 2,000 Lifeline 

service providers to implement important program functions such 

as verifying subscriber eligibility. This involved internal control environment could actually exacerbate fraud risk as companies may 

have financial incentives to enroll as many customers as possible 

without sufficient verification. 

Accordingly, based on our data matching analyses, we were unable to confirm whether about 1.2 million individuals of about 3.5 

million we reviewed, also 36 percent, participated in a qualifying 

program such as Medicaid as claimed on their Lifeline enrollment 

applications. Since we were able to review only about a third of 

total subscribers due to methodological limitations, we believe that 

this number is actually understated. In terms of cost, providers 

would have received about $137 million in USAC disbursements 

annually for delivering Lifeline phone services to these individuals. 

To address enrollment control weaknesses, FCC’s 2016 order 

calls for the implementation of a third-party National Eligibility 

Verifier by 2019 to determine subscriber eligibility. In addition to 

data analyses, we covertly tested provider enrollment controls. Specifically, we made 21 attempts to enroll in Lifeline through 19 different providers using fictitious identities and documentation, and 

we were successful in 12 attempts. Five providers we enrolled 

through were among the top 30 recipients of Lifeline disbursements 

from USAC in 2014, totaling almost half a billion dollars. One of 

these providers who did not actually send us a Lifeline phone upon 

enrollment collected almost $10 million in such disbursements. 

In closing, I would underscore that it is essential for FCC to 

place a high policy priority on deploying effective preventative enrollment and other controls to help mitigate the risk for potential 

fraudulent activity in Lifeline, including the broadband expansion, 

and safeguard the government’s substantial investment in this program. Fully and timely implementing our report’s seven recommendations in addition to any other actions FCC is taking independently would be vital in this regard. To its credit, FCC has 

agreed to implement all of our recommendations. 

Chairman Johnson, this concludes my remarks. I look forward to 

the Committee’s questions. Thank you. 

Chairman JOHNSON. Thank you. 
6 

1The prepared statement of Mr. Pai appears in the Appendix on page 46. 

Our next witness is the Honorable Ajit Pai. Mr. Pai is the Chairman of the Federal Communications Commission. He was originally appointed to the FCC by President Obama in 2012 and was 

designated Chairman by President Trump in January 2017. While 

serving at the FCC, he has championed numerous innovative reforms. Chairman Pai. 

TESTIMONY OF THE HONORABLE AJIT V. PAI,1 CHAIRMAN, 

FEDERAL COMMUNICATIONS COMMISSION 

Mr. PAI. Chairman Johnson, Ranking Member McCaskill, Members of the Committee, thank you for holding this hearing and for 

inviting me to testify today alongside my distinguished counterparts, Mr. Bagdoyan and Ms. Robinson. 

I have often said that the FCC’s highest priority is closing the 

digital divide—the gap between those who have access to next-generation technologies and those who do not. The Lifeline program 

can play a role in our efforts to bring digital opportunity to all 

Americans. But, unfortunately, it continues to be riddled by waste, 

fraud, and abuse. This is doubly destructive: every dollar wasted 

comes from ratepayers and does nothing to help low-income families actually in need of communications services. The FCC owes it 

to everyone who contributes to or properly receives benefits from 

the Universal Service Fund to make sure the Lifeline program is 

efficient, effective, and free of waste, fraud, and abuse. 

Prior to becoming Chairman, as Senator McCaskill observed, I 

conducted my own investigation of the Lifeline program as a Commissioner in 2016. The Government Accountability Office report 

that we will discuss today confirms some of the issues I identified 

and more, and I will briefly highlight some of them. 

First, because the Lifeline program lacks adequate safeguards, it 

has paid for subscribers who are not eligible to participate, potentially to the tune of hundreds of millions of dollars a year. In its 

investigation, as Mr. Bagdoyan pointed out, GAO was unable to 

confirm whether more than 1.2 million Lifeline subscribers of the 

3.5 million sampled actually participated in Lifeline-qualifying programs that they or their provider claimed during the enrollment 

process. 

Second, while Lifeline rules only allow one subsidy per household, loopholes in enforcing the program’s one-per-household rule 

have allowed providers to enroll hundreds of subscribers at a single 

address, including one address that was associated with 10,000 

separate subscribers. 

Third, for years, a lack of robust verification procedures has allowed providers to claim support for ‘‘phantom’’ and deceased subscribers, as well as to unlawfully claim multiple benefits for other 

subscribers. Phantom subscribers—that is, subscribers who do not 

exist but who still collect a Lifeline benefit—have numbered in the 

thousands for multiple providers. 

Finally, some Lifeline providers’ sales agents’ practices continue 

to be a key driver of inappropriate enrollments in the program. 

This is because agents are often paid based on the number of new 
7 

subscribers that they sign up. Not surprisingly, many are less than 

scrupulous about who they enroll. 

Now, in light of some of these problems, I have directed USAC 

to implement aggressive administrative changes to correct the 

problems that GAO, my office, and the FCC’s Inspector General 

(IG) have identified. 

Specifically, I have asked USAC to take immediate action to 

strengthen its administrative processes and the National Lifeline 

Accountability Database (NLAD). Among other measures, I have 

asked USAC to review addresses associated with large numbers of 

subscribers and to prevent providers from claiming subsidies for 

more than their total number of enrolled subscribers. USAC should 

also block benefits for dead subscribers and actively detect and remove duplicative benefits found for the same household. Moreover, 

to hold sales agents accountable, USAC should require them to register with USAC before using the Lifeline enrollment systems. 

Any improper payments that USAC identifies in these processes 

will be reported to the FCC’s Enforcement Bureau and the FCC’s 

Office of the Inspector General for administrative, civil, or criminal 

action, as appropriate. 

Furthermore, to combat eligibility-related waste, fraud, and 

abuse, the FCC will launch the Lifeline National Eligibility Verifier 

in at least six States this year. The National Verifier will determine subscriber eligibility, and this will make it harder for 

fraudsters to claim ineligible or duplicate subscribers. The National 

Verifier will also use Federal and State data sources to automate 

eligibility checks. This will improve accuracy and minimize administrative expense. 

Finally, the FCC must consider whether further programmatic 

changes are necessary to ensure that Lifeline funds are efficiently 

directed to those families who need it most. 

To be clear, the challenges in restoring the program’s integrity 

are significant, but we have to learn from past mistakes and set 

the program on the right course. 

One last point. The GAO report also raises concerns regarding 

universal service funds being held in a private bank outside of the 

United States Treasury. The FCC is actively working with the 

Treasury Department and with USAC on a plan to move those 

funds to the Treasury as soon as possible. 

Chairman Johnson, Ranking Member McCaskill, thank you once 

again for holding this hearing. I look forward to answering your 

questions and to continuing to work with you and your staff on this 

important issue in the time to come. 

Chairman JOHNSON. Thank you, Chairman Pai. 

Our final witness is Vickie Robinson. Ms. Robinson is the acting 

chief executive officer (CEO) and general counsel of the Universal 

Service Administrative Company. She has spent nearly 20 years 

working for and with the FCC on universal service issues. Ms. Robinson. 
8 

1The prepared statement of Ms. Robinson appears in the Appendix on page 138. 

TESTIMONY OF VICKIE S. ROBINSON,1 ACTING CHIEF EXECUTIVE OFFICER AND GENERAL COUNSEL, UNIVERSAL SERVICE ADMINISTRATIVE COMPANY 

Ms. ROBINSON. Thank you, Chairman Johnson. Good morning, 

Chairman Johnson, Ranking Member McCaskill, and Members of 

the Committee. I appreciate this opportunity to represent the Universal Service Administrative Company as part of the Committee’s 

examination of the FCC’s Lifeline program. I am honored to appear 

here alongside Chairman Pai, and it is my privilege to work together with him and our colleagues at the FCC to ensure the goals 

of universal service and the expectations of this Congress and the 

FCC with respect to our administration of the Lifeline program are 

not only met but exceeded. 

I am also honored to be here today with Mr. Bagdoyan of the 

Government Accountability Office. My colleagues at USAC appreciate GAO’s hard work in bringing to light those issues highlighted 

in its recent report and believe that the report’s findings directly 

contribute to our efforts to improve program performance and root 

out waste, fraud, and abuse. 

I joined USAC in February 2016 after serving in various positions at the FCC for over 141⁄2 years. During my time there, I held 

leadership roles in the bureaus charged with universal service policy and enforcement matters. Armed with that knowledge, I 

brought to USAC an understanding and appreciation of the FCC’s 

universal service goals and its programs, as well as the importance 

of a strong relationship between the FCC and USAC. I am committed to building upon that relationship. 

USAC was designated as the permanent administrator of the 

Lifeline and other programs in 1998, and as part of this responsibility, we are charged with managing the day-to-day operations 

and overall management of the fund, including assessing contributions, disbursing funds, and executing related audit functions. 

USAC does not establish policy and may not advocate policy positions. 

The GAO’s report we will discuss today casts a critical spotlight 

on the administration of the Lifeline program. Among its many 

findings, GAO expressed concern about efficiencies in the Lifeline 

program, program oversight, and the risk of waste, fraud, and 

abuse. Today I would like to highlight for you some of the key efforts USAC is making to improve program integrity and performance, including actions initiated before and since the release of 

GAO’s report. 

In 2014, USAC executed the FCC’s directive to establish a 

NLAD, to help eliminate fraud by detecting duplicate subscribers 

within the program. It is an essential tool in our effort to prevent 

waste, fraud, and abuse in the program, and it is used to perform 

name and address verification, duplicate checking, as well as management of enrollment, de-enrollment, and transfer of subscribers 

between Lifeline service providers. 

As has been alluded to in previous testimony, NLAD has drastically reduced instances where subscribers had more than one connection and were, therefore, violating Lifeline program rules. Upon 
9 

initial launch of NLAD in 2014, NLAD detected 2.5 million duplicate subscribers that have since been eliminated. This in turn led 

to hundreds of millions of dollars in savings. Lifeline disbursements have dropped from $2.2 billion in 2012 to $1.5 billion in 

2015 following implementation of NLAD. 

In 2016, the FCC directed USAC to establish a National Verifier 

to authenticate program eligibility prior to enrollment. We are 

working closely with the FCC, State and Federal agencies, program 

participants, and other parties to develop a system that will ensure 

program integrity by placing under USAC’s control responsibility 

for verification of subscriber eligibility. The National Verifier is on 

track to be completed on time and on budget. 

Once complete, the National Verifier, working in tandem with 

the NLAD, will comprise a comprehensive system to verify eligibility and prevent waste, fraud, and abuse, greatly improving 

USAC’s ability to safeguard Lifeline funds. However, duplicate detection and eligibility verification are not the only tools that USAC 

can use to prevent waste, fraud and abuse. Building on data analytics and program integrity projects already underway, as well as 

the findings in GAO’s report and Chairman Pai’s 12- or 18-monthlong investigation in his most recent letter, we have developed the 

Lifeline Safeguard Implementation Plan, which aggressively focuses on key areas for action and increased collaboration with 

Chairman Pai. We are implementing this vigorously and developing new tools to take the NLAD and National Verifier where 

they cannot be leveraged. And, as Chairman Pai has alluded to, 

since the GAO report was issued, we have taken concrete steps to 

ensure accountability for universal funds, reaching agreement with 

our private bank to provide the FCC a more explicit role in the 

oversight of funds and working closely with the FCC and the Department of Treasury to transfer funds. 

Thank you for the opportunity to testify. I look forward to your 

questions. 

Chairman JOHNSON. Thank you, Ms. Robinson. 

I am more than happy to hold off on my questioning if, Senator 

Peters, you want to go. 

OPENING STATEMENT OF SENATOR PETERS 

Senator PETERS. I appreciate that. Thank you, Mr. Chairman, 

Ranking Member McCaskill. First off, I want to thank both of you 

for bringing this hearing to us today. This is a very important 

topic, and reading the GAO report, I do not think anyone could 

read that report and not be very angry. 

Senator McCaskill, you have been a real champion, thank you. 

Since that first day when you got the notice for the free telephone, 

you have really been a champion for this, and I applaud your efforts. So, it is great to be here with both of you, and I appreciate 

the testimony here today. 

But, I want to start off, before I ask a few questions, and thank 

Chairman Pai for your comments about making sure that we have 

access in our society, the digital divide. You and I have spoken 

about that a great deal. I know you are sincere, I know you are 

passionate about making sure that folks in this country have access to communications service, which is absolutely essential in the 
10 

1The letters submitted by Senator Peters appears in the Appendix on page 189. 

modern age. We have to have that. This country made a focus to 

make sure everybody had electricity in the last century. Communications is every bit as important as electricity. It is essential to 

life. 

And so, the basic premise and the goals of this program remain 

the same, are very important, that folks who may not have those 

opportunities need to have it. But, as I mentioned, with the GAO 

report, none of us can stand here and accept the kind of fraud and 

abuse that we see going on in this program. And, it endangers a 

program that does bring a lot of significant benefits to people who 

need it, and that angers me that you have actors out there that are 

basically scamming this program, and we have to stop that and be 

very aggressive in doing that. 

And, I could not agree with Senator McCaskill more—the scam 

really seems to be from the companies that are out there. It is not 

individuals that are bringing—at least that is not my understanding. Correct me if it is a wrong understanding, but it is not 

individuals bringing fraudulent documents. It is companies that 

have an incentive to just sign everybody up. I am very confident 

the thousands of phantom people who are dead are not scamming 

it themselves. There is not a dead person who is trying to scam 

this. These are companies that are taking this money away from 

taxpayers and endangering a program that provides vital services 

to people who need it. 

On the other hand, there are folks who do not need it, but it is 

pretty hard for most folks, if you get a notice for a free telephone, 

you do not usually ask a lot of questions if you get a free telephone. 

So, we have to hold these folks accountable, and I know there are 

a number of steps that are being taken. 

When I saw the GAO report, I wrote a letter to both Mr. Pai and 

Ms. Robinson, and I appreciate your very detailed responses to the 

questions that I asked. And, Mr. Chairman, I would like to enter 

all three letters into the record,1 if I may. 

Chairman JOHNSON. Without objection. 

Senator PETERS. Thank you. 

I want to focus on some of the potential fixes here, and so I want 

to talk a little bit about the National Verifier system that Ms. Robinson talked about quite a bit, which is to address many of the outstanding issues. And, I asked many of these questions in the letter 

that I have just entered into the record, so I do not need to repeat 

some of those. But, I just have some straightforward questions for 

you, Ms. Robinson. 

In your August 18th response to my letter, you said that USAC 

will publish and distribute a comprehensive list of available State 

eligibility databases for service providers to use by the end of the 

month. Are you on track to do that? 

Ms. ROBINSON. Absolutely. That has been done. 

Senator PETERS. It has been done? So, we have completed that. 

Ms. ROBINSON. Yes. 

Senator PETERS. Good. Do you agree with those who think that 

the National Verifier will significantly reduce the risk of waste, 

fraud, and abuse by shifting the burden of eligibility determina-
11 

tions away from sales agents and third-party contractors to a neutral administrator? 

Ms. ROBINSON. Absolutely, I do. 

Senator PETERS. Well, I just want to add a follow-up. We are 

shifting some of the burden of that to a third party, but we still 

have to have the burden on those folks who are signing these individuals up. They need to be held accountable, that they have to 

check the paperwork, they have to have it. They have to have 

records of it, and it has to be available for vigorous audits, just like 

any other private entity would be. 

Chairman Pai, do you agree with the assessments? 

Mr. PAI. Senator, I do, and I also want to commend Ms. Robinson 

for her able leadership of USAC during the past several months. 

She has been a terrific partner for the FCC in this effort, and I am 

grateful to all that she and her team have done. I would simply 

add two points, however. 

First, that the National Verifier will only cover eligibility. There 

are a number of other vulnerabilities in the processes that GAO 

identified. 

And, second, in the meantime I think we also need to make sure 

that we pursue as aggressively as we can some of those unscrupulous actors on the enforcement side to make sure that there are no 

cracks in the system as best we can fill them. 

Senator PETERS. And, if you could tell me how you will personally ensure that the National Verifier system is implemented, are 

you actively involved as well? And, what do you plan to do personally? 

Mr. PAI. Yes, sir, we are actively monitoring that. We are working with USAC to make sure that we can get that National Verifier 

stood up as quickly as possible. It involves coordination with a 

number of different jurisdictions, obviously, and so we and our 

team are very actively working on that to make sure that we can 

meet those timeframes, six States by the end of the year, a couple 

dozen States more by the end of 2018, and nationwide implementation by the end of 2019. That is our goal, and I am doing everything I can to make sure that we meet it. 

Senator PETERS. As I mentioned in my earlier comments, the 

most important thing here is enforcement, and deterrence is the 

best way to prevent a lot of these problems when providers know 

that the consequences of their fraud will be detected, they will be 

punished, and they will have to pay back the taxpayers aggressively. 

Chairman Pai, tell me a little more about what the FCC is doing 

to make this painfully clear to all of these probably thousands of 

service providers who have been scamming us for quite some time, 

that the Enforcement Bureau is going to take tough actions, and 

what you have seen in the past is nothing like what you are going 

to see in the future? 

Mr. PAI. Thank you for the question, Senator. It is an unfortunate feature of human nature that if there is not a cop on the beat, 

people tend to play a little faster and looser with the rules. And, 

unfortunately, that has manifested itself here. 

As Senator McCaskill observed, when I was a Commissioner, I 

aggressively urged the FCC to take action against some of those 
12 

unscrupulous providers that you mentioned who are scamming not 

just the ratepayers but, of course, the people who really need the 

help, the recipients. 

Senator PETERS. And, what have we seen during that time? 

When you say additional action, what have we actually seen in 

that time period? 

Mr. PAI. Unfortunately, to be candid, Senator, we did not see any 

action during the previous Administration, and I was disturbed 

when I became Chairman to find in my review of the Enforcement 

Bureau’s policies and priorities that there was no plan for any enforcement action against some of these Lifeline providers. We have 

changed that. I have instructed our Enforcement Bureau to make 

this a top priority. And, while I cannot discuss the particulars of 

any given case, what I can tell you is that this will not be an afterthought. It is front and center in my mind in terms of our enforcement priorities. 

Senator PETERS. And, you will be able to come to us at some future date and tell us how many cases have been pursued, how 

many have been successful? And, we would expect to see that fairly 

soon, I would expect? 

Mr. PAI. I cannot give you a specific timeframe. What I can tell 

you is I urge you to hold us accountable, and we will give you all 

the information that we can as soon as we can to make sure that 

you are aware that enforcement is not just an aspiration but it is 

a reality at the FCC. 

Senator PETERS. Well, I appreciate that. My time has expired, 

but I just want to say that, again, I think there is an important 

goal here to make sure that people have access to communications 

services, but it has to be done properly, it had to be done efficiently, it has to be done without fraud and abuse. And, if there 

are any tools that you need from us here in Congress, I will at least 

let you know in my case, and I am sure I speak for others, that 

we will be here to help you do that, because we have got to make 

sure this program is administered properly so the individuals who 

rely on this service continue to have it. It is absolutely essential 

in today’s modern economy. Thank you. 

Mr. PAI. Thank you, Senator. 

Chairman JOHNSON. Thank you, Senator Peters. 

Let me follow up on that same line of questioning. Chairman Pai, 

are you telling me there has never been a prosecution against these 

fraudulent actors? 

Mr. PAI. Well, Chairman, the one notable exception would be the 

Total Call Mobile case. That was a glaring case in which one particular company had scammed the fund out of millions of dollars. 

We did take action in that case. But, there are a number of other 

cases that are pending, which Senator McCaskill adverted to in her 

opening statement. I urged the FCC at the time to take aggressive 

action in those cases, and nothing happened. 

Chairman JOHNSON. So, describe what enforcement means. 

Mr. PAI. Typically, what will happen is the FCC will issue what 

is called a ‘‘Notice of Apparent Liability (NAL).’’ We tell Party X, 

‘‘We think you have violated the law, and based on our assessment, 

we believe that you are liable to the Federal Government for this 

amount of money.’’ At that point the company has a chance to re-
13 

spond, and based on that response or non-response, the FCC then 

proceeds to what is called a ‘‘forfeiture order,’’ in which we say we 

affirmatively determined that you are liable for this amount of 

money. 

One of the unfortunate things that we found during the previous 

Administration is that there were a lot of words about enforcement. 

We might issue a Notice of Apparent Liability, but there was no 

actual follow up on the back end. 

Chairman JOHNSON. So, the enforcement sounds to me like, 

‘‘Oops, I got caught, I have to pay it back.’’ Is that really the only 

enforcement action possible? Is there a criminal prosecution? Can 

we hold people accountable? Can they go to jail? 

Mr. PAI. Absolutely. There is one case, Icon Telecom in Oklahoma, in which we found that the proprietor of that company had 

been using some of the funds for personal benefit, and I believe in 

that case there was a prosecution. 

Chairman JOHNSON. What is the maximum penalty? 

Mr. PAI. It depends on the particular nature of the criminal offense that the Department of Justice (DOJ) chooses to prosecute. 

We obviously do not have direct criminal prosecutorial authority. 

Chairman JOHNSON. Ms. Robinson, you are shaking your head. 

Would this just fall under normal criminal statutes in terms of 

theft and the extent of the theft in terms of penalties? Or, are there 

specific penalties called out in the statute? 

Ms. ROBINSON. So, I am speaking from another role that I had. 

While at the FCC, I actually worked for some time in the Enforcement Bureau, so I happen to know, and this is one of my areas of 

expertise. The Communications Act actually sets forth statutory 

maximums that kind of confine and restrict what the FCC can do 

in terms of the structure of enforcement actions. But, yes, the FCC 

has many tools, as Chairman Pai alluded to, including the Notice 

of Apparent Liability, forfeiture actions, citations, admonishments, 

and the FCC aggressively uses those tools, especially under Chairman Pai, and we are working closely with him right now to continue in that effort. 

Chairman JOHNSON. So, again, kind of the question I want, you 

literally have the possibility of—let us say a CEO of a company, 

running the company, has to be aware of this fraud, literally stealing millions of dollars. Now, if you go and rob a bank of millions 

of dollars, you would be put away for how many years? How many 

years can these people be put away for if we actually enforce and 

have the Justice Department follow up on it? What is the penalty? 

Mr. PAI. I cannot give you the specific term of years that would 

be applicable to that criminal offense, but I can say from an FCC 

perspective, we are consistently looking at the full range, up to the 

maximum of the fines that we can impose, the other civil and 

criminal and administrative penalties that we can impose, to make 

sure that there is a deterrent effect, because, otherwise, as you 

pointed out, folks just think, OK, I will get a slap on the wrist, I 

can go back to the business model that we had before. 

Chairman JOHNSON. So, I found it jaw-dropping, the instances 

where one address was getting hundreds and then thousands of 

phones. It kind of reminds me of the earned income tax credit with 
14 

some audits from the Inspector General of the Internal Revenue 

Service (IRS). 

I want to go through the process of how this reimbursement 

works so we can understand how that kind of fraud can occur. Mr. 

Bagdoyan, Chairman Pai, or Ms. Robinson, tell me how the reimbursement works. How is the phone applied for or how is the fraud 

committed? 

Ms. ROBINSON. Sure, and I can try to approach this a couple different ways. But, I think it is important, Chairman Johnson, to 

kind of clarify a few issues. 

In the first instance, the Lifeline program rules as written today 

do not actually provide support for phones. It is actually to provide 

the subsidies designed to provide for the underlying service. But, 

of course, certain service providers do have the ability to, and often 

do actually provide free phones. 

Chairman JOHNSON. So, a service provider basically sends an invoice to the FCC—— 

Ms. ROBINSON. Or to USAC. 

Chairman JOHNSON [continuing]. To get $9.25 reimbursement for 

a phone. 

Ms. ROBINSON. That is correct. 

Chairman JOHNSON. That is on a monthly basis? 

Ms. ROBINSON. Sure, they can submit monthly. They can submit 

quarterly, etc, and that is through the Form 497. And, what we are 

doing now, actually through the great work that Chairman Pai 

pointed out, previously there were some disconnects that he was 

quick to note, between information that was included in that form, 

the Form 497, and in the National Lifeline Accountability Database. And, through Chairman Pai’s observations, we actually rectified that process such that we no longer allow a delta between 

what was submitted on the Form 497, which could be a lot more 

than what was actually allowed in the NLAD. 

Chairman JOHNSON. So, the companies themselves have sales 

agents that can go through different types of eligibility rolls, 

whether it is Medicare or Medicaid. 

Ms. ROBINSON. Correct. 

Chairman JOHNSON. And, start calling up people and say, ‘‘Hey, 

do you want a phone?’’ Is that kind of how it works or it could 

work? 

Mr. PAI. It could work that way, yes. 

Chairman JOHNSON. So, I understand the verification process in 

terms of whether one of these people who subscribe actually are 

part of that program, and there is an audit result, what was it, 3.5 

million people contacted, 1.5 million they were not part of those 

programs. Do we also verify that they actually get a phone? 

Mr. BAGDOYAN. That is a great question, Mr. Chairman. We really do not know whether they do get a phone. 

Chairman JOHNSON. I am shaking my head again here. 

Mr. BAGDOYAN. Yes, I know. I am not trying to compound your 

problem, but we really do not know, and we really do not know 

how many of these individuals have other phones, like the 12.3 million or so subscribers that I mentioned in my opening remarks, we 

have no idea how many other phones they have and from whom. 

So, that is also a problem. 
15 

Chairman JOHNSON. I will get to that in my next round, but it 

was also pretty stark that it was like one in eight or one in nine 

did not have another phone, or whatever. We will get into that in 

the next round. Senator McCaskill. 

Senator MCCASKILL. I do not even know where to start. There is 

so much. 

Chairman JOHNSON. That was one of the problems with this 

hearing. 

Senator MCCASKILL. Let us go with enforcement first. I have a 

list of folks who received NALs, and NALs are basically for the 

folks you found that have done bad stuff. Right, Ms. Robinson? And 

on this list, Icon was referred for criminal prosecution, but that 

ended up as a money-laundering case. 

Mr. PAI. Correct. 

Senator MCCASKILL. And, the only person I know of that has 

ever been convicted of anything was this guy, and it was not for 

anything having to do with Lifeline. He was convicted of money 

laundering. 

Mr. PAI. Right. 

Senator MCCASKILL. So, let us take that case and put it aside. 

I have $94 million—take his out, so that means I have $90 million 

that has been identified from 10 carriers, $90 million from 10 carriers. Now, keep in mind those same 10 carriers you wrote checks 

totaling $2.4 billion to in the last three years. 

Now, how in the world are we writing these people checks when 

they owe us $90 million? How is that happening? 

Mr. PAI. Senator, that is a great question, which I asked when 

I was a Commissioner, and we are committed to stopping that now 

that I have the privilege of serving as Chairman. 

Senator MCCASKILL. Well, you are not. Nothing is happening 

here. There is no enforcement in this program. These guys know 

they can get away with it. I mean, you have done three. You have 

done three settlements with AT&T, Bluejay and Total Call. But nobody has gone to jail. And, let us look at what the GAO did. They 

did a secret shopper program, and they applied with fraudulent information, and 63 percent of the time they were deemed eligible. 

This is after 2012, Chairman Pai. This is after all these reforms. 

This is after the database. This is after all of that. Sixty-three percent of the time they were made eligible. 

So, why you guys do not internally have a secret shopper program? And, the minute you catch somebody doing that, why you do 

not immediately slap a lawsuit on them and go after them? This 

is not hard. I am a prosecutor. I guarantee you a jury will convict 

these guys. It is outrageous to me that they have gotten away with 

this level of fraud for this long, $90 million that you guys have 

identified and you keep writing them checks. I mean, I do not know 

what I have to do to stop this. 

Mr. PAI. Senator, what I can tell you is that, again, this is a top 

enforcement priority for us. We are moving aggressively. And, 

again, I cannot give particular information in this setting, but what 

I can tell you is this is not falling through the cracks under my 

leadership. 

Senator MCCASKILL. Is there a statute of limitations problem? 
16 

Mr. PAI. There are legal issues such as that that we have to take 

into account. 

Senator MCCASKILL. OK. I need to know what you are going to 

do about all those things. I mean, this is like the third hearing I 

have had where I have said, ‘‘You have collected no money, much 

less sent anybody to jail.’’ Of course, this is going to continue. 

Let us talk about overrides. Basically, right now, the Lifeline 

providers are supposed to use the databases to confirm eligibility. 

When they cannot be confirmed, the Lifeline requires that the providers independently review income. Prior to February 2016, you 

guys had no way to confirm they were doing so other than literally 

taking their word for it. 

So, we now know that 63 percent of the time that GAO applied 

with fake info, they were getting a phone. You indicated you found 

in June of last year that between October 2014 and April 2016, carriers were overriding the duplicate database 35 percent of the time. 

So, we put this database in there for duplicates, and then they 

are just going in and overriding it. No harm, no foul. Is anybody 

calling them when they override it and saying, ‘‘What are you 

doing?’’ Thirty-five percent of the time, one of out three times, they 

are not paying any attention to the duplicate database. 

Ms. ROBINSON. Ranking Member McCaskill, that is a very fair 

question, and under the existing rules, I think, and with all the 

universal service programs, as I understand the Commission’s policy, there is always a balance between program integrity and trying 

to manage and balance program participation. 

Senator MCCASKILL. Believe me, program integrity is lost on this 

one. 

Ms. ROBINSON. Sure. 

Senator MCCASKILL. In that battle they are not even close. 

Ms. ROBINSON. Right. 

Senator MCCASKILL. It is not even close. I mean, I think there 

are various ways you could confirm if it is a nursing home or a 

homeless shelter. 

Ms. ROBINSON. Sure. 

Senator MCCASKILL. The notion that you are letting one out of 

three override the duplicate verification process is outrageous on 

its face. Outrageous. So, what is going to keep them from overriding the National Verifier? Have you got any ideas on that? 

Mr. PAI. Senator, that is one of the issues that I am concerned 

about, given the fact that, as you pointed out, in my own investigation in 2016 we found that overrides for some companies in particular was more the norm than the exception. And, that is one of 

the things that we have to make sure—— 

Senator MCCASKILL. Yes, those guys are cheating, the ones that 

are overriding the most. I will just tell you right now they are 

cheating. You want to go out and send an investigator and then 

bring whatever jurisdiction they are in to the local prosecutor, I 

will be glad to call the local prosecutor and walk them through putting them in jail. They are cheating. I mean, you guys just have 

to decide. Why can we not hand these phones out when someone 

signs up for unemployment insurance? Why can we not hand these 

phones out when someone signs up for Supplemental Nutrition Assistance Program (SNAP) benefits? Why can we not have these 
17 

phones handed out at the very setting where their eligibility 

verification has been done? Why are we providing these companies 

with this massive opportunity for fraud? Is there a reason why we 

cannot do that? 

Ms. ROBINSON. Ranking Member McCaskill, I want to just kind 

of clarify a couple of things. 

First, in the first instance, with respect to the overrides, literally 

through the ongoing investigation and things that have been pointed out, we have been getting more aggressive with—and the process for allowing overrides through the dispute process has been 

modified as a result of seeing that there was clearly a level of 

abuse that was occurring, and we have modified and significantly 

reduced the instances in which providers would be able to sort of 

override the system to sort of say, no, this actual subscriber is eligible. So, that is what I want to say in the first instance. 

Second, with respect to the National Verifier, there is no override 

function being contemplated within there, so we have actually 

taken that lesson and learned from NLAD and have no intent in 

working with the Commission to sort of duplicate what some subscribers are using as a loophole to take—— 

Senator MCCASKILL. So, there will be no override? 

Ms. ROBINSON. No. 

Senator MCCASKILL. OK. So, if there is not a local database and 

the National Verifier cannot, then it will be upon the person who 

wants the phone to prove their verification to the National Verifier 

or to the local phone company? 

Ms. ROBINSON. Right, and we also have a manual review process 

as well, so it is three components. There will be the Federal—— 

Senator MCCASKILL. Well, I will be interested to learn all about 

that. I would really love to see the proposal on that. I know, and 

why we do not stop the override on the duplicate database? Why 

do we not just say you cannot do it anymore? Why can we not do 

that? Do you not have the power to do that, Chairman Pai. 

Mr. PAI. We would have to change our rules to do that, but that 

is—— 

Senator MCCASKILL. I am down for that. And, by the way, we 

have two people here that are all about getting rid of stupid regulations, and if there is a regulation that is keeping you from quickly 

changing the rule to stop the override on the duplicate database, 

you have three champions right here, three warriors that will help 

you. 

Mr. PAI. Well, I appreciate that and would be happy to work with 

you and your staffs on it going forward. 

Senator MCCASKILL. Thank you. 

Chairman JOHNSON. Or, come up with a whole new system that 

is fraud-proof in terms of distribution of these phones. Senator 

Heitkamp. 

OPENING STATEMENT OF SENATOR HEITKAMP 

Senator HEITKAMP. I want to start out by just telling you that 

I hope we all appreciate how critically important this program is 

to saving lives. The access to communications, if you have ever 

seen any example of how critical maintaining access to communications is, you can look at Hurricane Harvey, you can look at what 
18 

happened with Hurricane Irma. This is a program that is about 

saving lives. When I look at this program, I think about it in the 

context of 911 programs. I think of it in the context of all of the 

other availability for especially older elderly to live in their homes, 

to live worry-free in their homes, and still have that access. So, this 

is not a choice for me of throwing out the baby with the bath water. 

But, you have to get it right. 

And so, I want to talk about what could be kind of a reaction to 

the GAO report. In the report issued by GAO in May, they recommend the Universal Service Administrative Company transfer 

their funds which are currently held in private bank accounts into 

the Treasury. I am concerned that that could be done without assurances that the funds would be rated or transferred around to 

help pay down the debt, or in the case of extraordinary measures, 

used when we are hitting close to the debt ceiling. And, I think it 

is critical that the universal service fee maintain its ability to access these funds without implementation to maintain the continuity providers rely on. 

And one thing, we all grouse when we pay the additional taxes 

and we pay the additional fees when we pay our communications 

bills, but I do it with a smile because I think that means that a 

Grandma in her home still able to live has access to important and 

critical communications services. 

And so, those funds are intended for that purpose, and what are 

we going to do to guarantee if we do follow the GAO recommendation to transfer them into bank accounts that those funds are insulated or protected against utilization for other purposes? Mr. Pai. 

Mr. PAI. Senator, thank you for the question. My understanding 

is that the funds being transferred to Treasury actually make the 

universal service funds more insured against the risk of loss, that 

there are Federal management and other practices that the Treasury observes that will make sure that those funds are there for the 

grandmother that you spoke about. 

The second point is that my understanding is that those funds, 

once transferred to Treasury, would be used to offset debts that are 

owed by payees. And so, for example, if Party X owes money to the 

IRS and that party is also getting Lifeline subsidies from the FCC, 

those funds being in Treasury would be allowed to be an offset, 

which is a way of giving the Federal Government more flexibility. 

Senator HEITKAMP. Well, we are going to be watching very closely the administration of those funds to guarantee that those funds 

are utilized the way, when I pay my bill, I expect them to be utilized. 

I want to just talk more systematic, because I think Senator 

McCaskill and Senator Johnson—I mean, we are always amazed 

because it is like when people come in front of our Committee and 

you think, oh, we just discovered this problem, guess what? We did 

not just discover this problem. This is a problem that has been ongoing for a lot of years. Why is it that there never seems to be urgency in solving this problem when we discover it, a problem of 

fraud, waste, and abuse? We would think you would jump on that, 

say, man, we do not want to go in front of Claire and Ron because 

they are going to have our lunch. Why is it that I envision them 

in 2 years we are going to be back here talking about the same 
19 

thing unless people really get that our expectation is that in protecting the Federal fisc, you have to act with immediacy and urgency when you see a problem. And, why is it that we do not seem 

to get that? 

Mr. PAI. Senator, I could not agree with you more, and as Senator McCaskill knows, because we have talked about this issue, she 

and I, for many years now, when I was a Commissioner, I was irritated about the fact that the prior administration of the FCC did 

not make this a priority. That is why I started my own investigation as a minority Commissioner because I wanted to get facts. I 

sent USAC a number of letters in my capacity as a Commissioner 

because I did not have the chance to set the agenda for the agency, 

but I wanted Congress and the American public to know that someone at the FCC was looking at this issue. 

Now that I am in the driver’s seat, it is a top priority, and we 

have an enforcement plan to go after the unscrupulous actors. I 

sent to USAC a very detailed letter on July 11th saying weed out 

the dead subscribers, weed out the ineligible subscribers. Make 

these sales agents register with USAC before they get to dip into 

the database. These are some of the steps we are taking to make 

sure that the problems we saw in 2014, 2015, and 2016 under the 

prior leadership do not continue. And, I want you to be able to go 

back to North Dakota and say, ‘‘This program is delivering for the 

grandmother who deserves it and nobody else, no unscrupulous actors, no undeserving beneficiaries.’’ 

Senator HEITKAMP. Mr. Pai, you are a big thinker. That is your 

reputation in town, that you think beyond what you are doing. 

Offer us some advice on how we can create a greater sense of urgency in the bureaucracy—I am not even going to say ‘‘the administration’’ because I do not think—this is an administration to administration to administration problem. We do oversight. We cannot sit here and administer agencies, and we only respond when 

we have hearings like this. But, give me three good ideas on how 

we can create a greater sense of urgency when people spot fraud, 

waste, or abuse or just have a good idea that could promote government efficiency. 

Mr. PAI. Well, that is a good question, Senator, and you are certainly putting my reputation, if that is earned, on the line. 

Senator HEITKAMP. I do not always agree with you, but you are 

known as a big thinker. [Laughter.] 

Mr. PAI. We were doing so well. Senator, I will say a couple different ideas that spring to my mind, especially after reading the 

GAO report. 

First, it is always better, I think, to have up-front verification as 

opposed to after-the-fact enforcement. The pay-and-chase model 

that was described in the GAO report is never going to be sufficient. It is going to be, as Senator McCaskill has described it before, sort of like whack-a-mole. You just hope to catch the ones that 

you can after the fact. So, having up-front verification is very important. 

Second, one of the things that Senator McCaskill has talked 

about, including today, is having a cap, a budget for the program. 

I think any family in the United States knows, OK, before going 

out and spending a bunch of money, let us see how much money 
20 

we have available, and we do not want to go above that money. We 

do not have a meaningful budget mechanism for the Lifeline program, and that is something that I think many advocates have 

talked about as well. 

The third thing—and this is much bigger picture, but we have 

to think about what is the purpose of the program and does the 

FCC, and USAC on our behalf, have the ability to monitor with key 

metrics whether we are meeting that goal? As the GAO report 

points out, we do not have the ability right now to know, for example, are these funds actually going to people who otherwise have 

non-Lifeline phone services and other services? We need to make 

sure that we figure out what the goal is and then measure whether 

the program is meeting that goal in a very quantitative way. That 

is something, I think, that Congress could certainly look at. 

Senator HEITKAMP. Just to close the loop on that, Mr. Chairman, 

Senator Lankford and I just had a hearing yesterday talking about 

government efficiency, and we talked about the lack of cost-benefit 

analysis on existing programs. We do it on regulations, major regulations, but we do not analyze ongoing programs probably as adequately as what we should. 

Chairman JOHNSON. Is that term not an oxymoron, ‘‘government 

efficiency’’? [Laughter.] 

Thanks, Senator Heitkamp. 

I do want to point out, the three witnesses we have before us, 

they are wearing white hats. These are individuals who are going 

to be partners with this Committee to do this. We will hold everybody accountable, but we are venting frustration up here, but I 

think we really do have three individuals before us that want to 

get to the bottom of this, want to take a look at the rules and regulations, alter them, control this, and fix this problem. So, I want 

to point that out. Senator Daines. 

OPENING STATEMENT OF SENATOR DAINES 

Senator DAINES. Thank you, Mr. Chairman, Ranking Member 

McCaskill. I first want to thank the witnesses for highlighting the 

need to reform the Lifeline program in order to curb the waste, 

fraud, and abuse. I cannot even think how many times I have used 

the words ‘‘waste, fraud, and abuse’’ as it relates to programs in 

the Federal Government, and I applaud your efforts in doing this. 

And, Mr. Chairman, as well, thank you for your leadership here as 

taxpayers. 

I also appreciate the leadership we have seen from Chairman Pai 

and the reform of the FCC has already made to the program. It is 

a very good start. 

Chairman Pai, you often speak of closing this digital divide. This 

is an important goal. But, I want to also add one more part which 

is probably closing the rural-urban divide as well, closing that rural 

gap. I see so often your decisions in government focus on the needs 

of the population centers, and I understand that rationale, but 

sometimes forget States like Montana that have a very strong rural 

thread that runs through it, and I know you grew up that way in 

Kansas. A decision or solution that might make sense and work in 

San Francisco may not work and probably will not work in a place 

like Richey, Montana. We are seeing a broadband explosion across 
21 

the United States. However, it is confined more to cities and to 

urban areas. Free Wi-Fi can be found in coffee shops, book stores, 

and now even whole cities are adopting municipal Wi-Fi systems. 

While they are thinking about going from 4G to 5G, we still have 

not found the alphabet sometimes in parts of Montana. However, 

with each new expansion in our major cities, rural States are left 

with nothing. 

In fact, I just saw a Brookings Institution study that showed one 

in four rural residents do not have access to broadband. And, as 

a Westerner, sometimes when I come back here, back east, there 

is kind of this highbrow mentality on the East Coast where you 

grew up, where you went to school. I can tell you the folks out in 

rural America are as sophisticated, as well educated, and have, 

frankly, more common sense than most in this Nation. Compared 

now to 0.6 percent of those living in cities, so one in four in rural 

areas do not have access, 0.6 percent in the cities. This rural gap 

hurts Montana, it hurts rural States where we lack access to even 

the most basic forms of broadband communication. 

As you know, I was part of building a world-class cloud computing company headquartered in Montana that Oracle later acquired, that had products in 33 different languages. In fact, Oracle 

took our cloud expertise and elevated that to leave the entire Oracle cloud, the seventh largest cloud computing company in the 

world, and they took Montana expertise here, elevated it to the 

world. 

Chairman Pai, how can we reform Lifeline and other USF programs to focus on those who have nothing before upgrading those 

who already have good access? 

Mr. PAI. Senator, thanks for the question, and you put your finger on the central problem that we are discussing today, which is 

that, by definition, a dollar that goes to somebody who does not 

need the help is a dollar denied from someone who does. And, that 

is the core of this FCC’s mission in terms of closing the digital divide, is ensuring that scarce Federal dollars are devoted to where 

they are absolutely needed. And, in the Lifeline context, that 

means that we weed out the waste, fraud, and abuse, the dead subscribers who are getting Lifeline benefits, the $137 million or more 

annually that GAO pointed out that is wasted. We need to make 

sure that those dollars are directed to the people who are on the 

wrong side of the divide, who need the help, to make sure that they 

have a chance to participate in the digital economy just like the 

folks in bigger cities. 

Senator DAINES. Yes, as we have said, technology now has removed geography as a constraint, where some of our best and 

brightest who bring incredible capacities to the workforce, but have 

been disconnected because of this divide, and this is closing. And, 

as a Nation, as we think going forward here of bringing not only 

their competencies professionally to the 21st Century economy, 

they bring a work ethic that is exceptional. When you get raised 

getting up early, having to take care of what needs to be done, you 

are up early—I was struck the other day. Some farmers and ranchers came here to the office, and they are struck by the fact that 

D.C. does not start until 9:00 in the morning, oftentimes. And, I 

remind them, I said they do stay here late. But, they reminded me, 
22 

the Montana Legislature, their hearings start at 8 a.m. That would 

be unheard of here in Washington, D.C. But, the point is you have 

a strong work ethic, and you have this great workforce here that 

is ready to engage in this global economy. 

I want to shift gears here to the National Verifier. One of the solutions GAO has proposed and the FCC has already taken action 

on is the National Verifier. Although no solutions are ever perfect, 

I think this is a step in the right direction, reducing the waste, 

fraud, and abuse. There, I said it again. 

Mr. Chairman, could you outline the status of the National 

Verifier program and some of the benefit and shortfalls? And, the 

second part of this question would be: How will this program work 

in a State like Montana where many of these rural customers do 

not have access to the broadband needed to even sign up or may 

have other difficulties that arise from living a long ways from 

town? 

Mr. PAI. Sure, Senator. So, in terms of the status, we are working actively with USAC, and I am sure Ms. Robinson could also 

give you an update. But we are on track to roll out the National 

Verifier in six States by the end of this year, a couple dozen more 

by the end of 2018, and then full national implementation by the 

end of 2019. That is certainly our goal, and we are actively working 

with all relevant jurisdictions, including States like Montana, to 

make sure that we have a chance to integrate the data that they 

have into that verifier. 

I also should add, by the way, that the National Verifier is an 

important tool with respect to Lifeline in terms of eligibility. It is 

not the only tool. There are other administrative actions that the 

FCC needs to take, and USAC on our behalf can take, as well as 

potential programmatic changes that could help stop this problem. 

So, eligibility is important, but there are other tools in the toolbox 

that we need to consider as well. 

Senator DAINES. I am running out of time. Ms. Robinson, I am 

just reading lots of body language here. You have some things to 

share here. I have limited time, but I would like your thoughts as 

well, please. 

Ms. ROBINSON. I am happy to add a little bit, some additional detail around the status of the National Verifier. We are very passionate about that, and we think it will be a great tool. 

Senator DAINES. Yes. 

Ms. ROBINSON. Your State is one of the six States that will be 

included in the initial launch of the six States. I am happy to report again or to reiterate that currently we are running on budget 

and to be on time. We are projecting to have our soft launch of the 

National Verifier in December of this year, going with the six 

States, including Montana, and we also have secured an agreement 

with the Department of Housing and Urban Development (HUD) to 

have Federal matching of eligibility using Federal housing information. And, we are targeting our hard launch in March 2018, so 

things are moving along great. 

Of course, there have been some challenges we have to deal with 

various privacy issues and things of that nature when looking to 

deal with States, but they are not insurmountable. And, we also 

recognize that there will not necessarily be matching in all of the 
23 

States, and we are moving along with the understanding that we 

will have a combination of matching with States, Federal databases, but also some manual use. I can give you information on 

cost if you would like that as well, Senator. 

Senator DAINES. I am out of time, so I will respect the Chairman. 

But we can follow up with you on that. 

Ms. ROBINSON. Absolutely. 

Senator DAINES. Thank you for including Montana. 

Ms. ROBINSON. Absolutely. 

Senator DAINES. If you get a chance to come out there, you are 

going to find you will meet some great folks out there. They will 

be very excited about moving forward. 

Ms. ROBINSON. We are excited about that. 

Senator DAINES. Thank you. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator McCaskill. 

Senator MCCASKILL. First, for the argument that has been made 

in other settings to GAO that this report is outdated based on the 

changes to the program that have actually been implemented since 

2014, do you believe your results would have been significantly different based on the changes that have actually been implemented? 

Mr. BAGDOYAN. Thank you for the question, Senator McCaskill. 

The analytics we performed were a point in time. I want to be absolutely clear with that, and their purpose was first and foremost 

to flag indicators of potential fraud, waste, or abuse, not reach a 

definitive conclusion about that. So, that is very important to know 

that. 

As you know, we are working with the FCC IG and with this 

Committee to provide referrals for follow up action to see exactly 

what happened, both in the analytics part as well as the undercover part. So, that is the first point. 

The second point is I believe, my team believes, that while what 

has happened since the analytics were performed, a lot of our audit 

work was performed, are steps in the right direction. But, to be 

perfectly candid, they would not materially change what we found 

and what it means. 

Senator MCCASKILL. Thank you for that. And briefly, you mentioned about contractor oversight, the fact that we now know that 

these carriers are now farming out to sometimes overseas call centers calling to try to sign up customers. Did I hear you say you 

have taken a step—that they cannot do that now without being 

cleared by USAC? 

Mr. PAI. Senator, I did not mention that. I do not know if Ms. 

Robinson did. But, obviously we hold the providers responsible and 

liable for any actions that their agents might take on their behalf, 

and that is one of the things we have reiterated. 

Senator MCCASKILL. OK. I am sure those contractors are being 

compensated by virtue of how many people they sign up. 

Mr. PAI. And, that is one of the issues that we flagged. So, long 

as those incentives remain, the behavior will tend to follow. 

Senator MCCASKILL. Finally, on contribution audits, I was interested in that portion of your report. We know that they are incorrectly assessing these fees based on this audit. Sometimes they are 

charging under. Importantly, many times they are charging over. 
24 

1The report referenced by Senator Johnson appears in the Appendix on page 151. 

What are you doing to make sure consumers get refunds? I mean, 

this is a class-action lawsuit waiting to happen. I am surprised it 

has not happened yet. Have you guys not been sued in a class action yet for people being charged too much for these fees on their 

phone bills, being assessed incorrectly? 

Mr. PAI. We have not yet, but the day is young, I suppose. 

Senator MCCASKILL. Yes, I bet you do, because it is perfect for 

a class-action suit because one individual, it is what, maybe a dollar a month? But if you have thousands of people that are being 

overcharged a dollar a month, that is a lot of money to these carriers, and they clearly are getting away with that. So, what steps 

have you taken on that? 

Mr. PAI. Senator, here, too, I was disturbed by some of the findings of the GAO, and we accepted that recommendation, and that 

is one of the things we are looking at going forward, is making sure 

that if a customer sees that line item on his or her bill, he or she 

can have, must have confidence that, OK, this is the exact amount 

that I am owed, because as you pointed out, a lot of these folks, 

customers who were overcharged, they will never figure it out. Or 

even if they figure it out, there is not much recourse they can have. 

Senator MCCASKILL. And, it is real found money for these guys. 

Mr. PAI. Oh, it is a lot of money. 

Senator MCCASKILL. So, I hope you get after that. I will be following up on that one, too. 

Mr. PAI. Absolutely, Senator. 

Senator MCCASKILL. Thank you, Mr. Chairman. And, tell everybody at GAO how proud I am of this audit. This is a really good 

job. 

Mr. BAGDOYAN. Thank you, Senator. I really appreciate that. 

Thank you. 

Chairman JOHNSON. Thank you, Senator McCaskill, and I know 

you have to leave for Finance, so I will close it out here after a couple of questions. 

I do want to ask consent to enter in the record a study by Olga 

Ukhaneva from Georgetown University.1 It is ‘‘Universal Service in 

a Wireless World,’’ and it kind of gets to the point that I made earlier about prioritization of spending, where maybe money from the 

Universal Service Fund might be better spent, kind of what Senator Daines was talking about, it is great if you can get a phone, 

but if you do not have the broadband to be able to effectively use 

it. 

The summary of this study, on the front page it says, ‘‘Results 

indicate that the Lifeline program increases a households propensity to subscribe to phone service. However, the effects are quite 

small. Findings reveal that the subsidy, as it has evolved, suffers 

from a great deal of infra-marginal subscribers and would benefit 

from restructuring.’’ I would call that an understatement. 

But here is kind of the data behind this, and I want to get your 

reaction. They really found that out of all the landlines and wireless, basically one out of eight of the subscribers needed the program. In other words, seven out of eight would have had a landline 

or wireless anyway. When it was just wireless, only 1 out of 20, 
25 

which means that 19 of the subscribers of wireless would have had 

a phone anyway and truly did not need it. 

Now, everybody likes free money. Everybody likes to get that 

subsidy. But it is kind of beyond the Lifeline, and when we are $20 

trillion in debt, when we have a Universal Service Fund that we 

really could allocate money to the Mobility Fund for rural access 

to broadband to increase that access, does this really make sense? 

So, kind of what I am hearing within this hearing is this is an 

important service. Now, I think for some people, certainly the Lifeline name is relevant, but maybe not to 19 out of 20. And so, I just 

kind of want to get your reaction to this study. We will start with 

you, Mr. Bagdoyan, and does this kind of comport with what you 

found in your assessments? 

Mr. BAGDOYAN. Well, we really did not look at it from the policy 

and impact perspective, certainly, but throughout this study, it is 

pretty consistent that historically this has been a low participation 

program. I think roughly we mentioned a third, 33 or so percent 

penetration of the eligible universe, which means the other 66 or 

so percent pay into the program without benefiting from it. 

Chairman JOHNSON. And, by the way, of the third, some of those 

were 10,000 being billed to one household. 

Mr. BAGDOYAN. Well, since you bring that up, I would also add 

that we verified with the Postal Service that that is not a valid address, by the way. So, I just wanted to make sure that we close the 

loop on that example. But, yes, in a prior report, GAO mentioned 

that study by the professor, and we thought that it was robust 

methodologically, so the findings are pretty eye-opening in terms of 

who gets what and for what purposes. 

Chairman JOHNSON. I want the other two witnesses to react to 

that, but while I am talking to you, your study was really, like you 

said, trying to find indicators of waste, fraud, and abuse. 

As opposed to an overall study that says this is how much waste 

we believe really exists. 

Mr. BAGDOYAN. Correct, right. 

Chairman JOHNSON. Could you expand this with relative ease? 

Or, are there other studies being undertaken either through the Inspector General or through the FCC directly to try and get some 

figure of the $1.5 billion we are spending, that this much is being 

wasted? 

Mr. BAGDOYAN. That is a great question, and we are working 

with the FCC OIG, their investigative component, to make referrals. We are in the process of untangling the original analysis so 

that we identify individuals and the phone companies that they got 

their service from among the 1.2 million, as well as provide the appropriate leads from our undercover work for them to follow up. 

They are fully staffed and eager to work with us to get those referrals to really get to the bottom of what happened in these cases, 

whether these are fraudulent or legitimate ones that simply fell 

through the cracks in terms of the process. 

So, we are not going to do that work, but we are going to make 

the referrals and track them over time to see what happens. 

Chairman JOHNSON. In business, you generally follow the 80/20 

rule: 80 percent of your sales really go through about 20 percent 
26 

of your customers. Is that kind of true in terms of these providers 

as well? 

Mr. BAGDOYAN. Yes, that is a great point. I believe—and Chairman Pai may correct me—that roughly the top 30 providers account for maybe 85 or 90-plus percent of the business. 

Chairman JOHNSON. So, how difficult would it be to go in there 

and do a real detailed forensic audit of 30 providers to really get 

to the bottom of this? Is that not the way we should approach this? 

Mr. BAGDOYAN. Of course, yes, it would be a pretty good undertaking for GAO, but also the OIG would have a vast role in doing 

that as well. 

Chairman JOHNSON. Again, financial audits are relatively simple, 

so that would be from my standpoint—is anybody doing that? Is 

that an action that is being taken right now? 

Mr. PAI. Not currently, Senator, but that is certainly something 

that I think we should think about very seriously. 

Chairman JOHNSON. I would highly recommend that. I would 

start that next week. You want to get some control over this thing, 

send in 30 audit teams to those 30 top providers, and we would 

have a pretty good indication very early on, how much really is 

being wasted and what kind of enforcement action needs to be 

taken. 

Chairman Pai, why don’t you kind of comment on the one out of 

8 and one out of 20. 

Mr. PAI. That study to me is exceptionally disturbing, and if the 

study’s methodology and conclusions are sound, then it means that 

the benefit is not necessarily worthy of the name, that the program 

is not necessarily closing the digital divide, because the entire 

premise is that we give these $9.25 subsidies to people who otherwise would be disconnected. And, if they are otherwise willing and 

able to subscribe to communications services or do, in fact, have 

non-Lifeline subscriptions already, then essentially we are not 

doing anything other than going on the treadmill, so to speak. So, 

I think it is incredibly important for us to make sure, as I mentioned in our exchange with Senator Heitkamp, that the agency 

has a goal in mind. What is the goal of the program? And then, 

measure us against that goal to make sure that we are not subsidizing people who do not actually need the help. 

Chairman JOHNSON. We just do not have the money to waste. 

Ms. Robinson, do you want to comment on that at all? 

Ms. ROBINSON. Sure. I just would add two or three points, Chairman Johnson. 

On the first point, with respect to sort of what we are doing with 

the FCC to actually sort of measure the effectiveness of the program, just yesterday we actually released a Request for Proposal 

(RFP) to actually begin to do that work, to do a risk assessment, 

to actually begin to ask those hard questions. Is the Lifeline program working as it is intended to work? Because that is important. 

That is really the question that is before us, and we are doing that 

in close coordination with the FCC, and we look forward to begin 

to do that work, to have it inform what we are doing in this regard. 

And, that was really as a result of GAO’s great work a few years 

ago. It has taken us a while to get there, but we are doing it now 
27 

under Chairman Pai’s leadership, and I think that is a great undertaking. I have appreciated the support in that regard. 

Also, with respect to—you also talked about auditing and taking 

a look at some providers and outliers, Chairman Pai has actually 

directed us to do that in his July 11th letter, to take the top 10 

offenders, as it were, in GAO’s report and to begin to do sampling 

work to really sort of dig behind things that they are doing. And, 

we are beginning that work as well. So, we are taking really an allhands approach both in terms of looking at the effectiveness of the 

program, but also looking at right now who is sort of on the radar 

right now and what can we do about it. 

Chairman JOHNSON. So, let me just interject. Let me suggest 

that there are really 30 top suppliers. Go to the private sector, go 

to the big three or four accounting firms, have them send in a forensic audit team. You could pay them on a commission basis 

based on what they are able to recover. They would probably do it 

for 1 percent. OK, get in there and do it now. My concern about 

kind of doing it the old government way is we go in there, we do 

assessments, then we have another study and we have another 

hearing like this 2 years from now. Go in there assuming—because 

I think it is a pretty good assumption—you are going to find a lot 

of waste, a lot of fraud, that we need to get under control like right 

now. This is your money. That would be my suggestion. You will 

probably be getting a letter from me suggesting exactly that. But 

I interrupted. 

Ms. ROBINSON. That is really all I had to say, Mr. Chairman. I 

thank you for your suggestion and look forward to your letter. 

Chairman JOHNSON. Again, we have gotten a little grumpy up 

here, not directed at you whatsoever. This is just a real head shaker here. And, I realize all three of you are really trying to work and 

get this under control, and we truly appreciate your efforts, and, 

again, your time, your testimony, your answers to our questions. 

With that, I will close out the hearing by saying the hearing 

record will remain open for 15 days until September 29th at 5 p.m. 

for the submission of statements and questions for the record. 

This hearing is adjourned. 

[Whereupon, at 11:36 a.m., the Committee was adjourned.] 

(29) 

A P P E N D I X 
30 

Opening Statement of Ranking Member Claire McCaskill 

Thursday, September 14,2017 

"FCC's Lifeline Program: A Case Study of Government Waste and Mismanagement" 

First, I'm really grateful Mr. Chairman that you agreed to hold this hearing. It is really 

important. I have been working on this, as Chairman Pai will tell you, for years. It all began 

when I got a solicitation for a free phone at the condominium I stay at in Washington. I looked 

at it and thought "what in the world?" and brought it to work and said "what is this?" I then 

began to dive in and realized how poorly designed this program was from the get-go. You 

correctly pointed out that this program began under Reagan. The wireless part of this program 

began under President Bush. This program was set up in a way that was fatally flawed under 

President Bush. Then these phones became known as the "Obama Phones," so I want to make 

sure everyone knows there are lots of parents of this particular program that has gone awry. We 

are going to spend a lot of time talking today about what has gone wrong with the lifeline 

program. I know there are lots of people who depend on the lifeline program, and I know that 

we need to look at ways we can support them. But the idea that we can continue a program that 

is still structurally deficient, in the same way we have been doing it, is frankly a non-starter for 

me. 

The combination of ineffective oversight and the greed of private carriers has led to 

hundreds of millions of dollars of wasted public money. Since 2014, when the GAO began the 

most recent audit that I requested, the FCC has identified and pursued several companies that 

have fraudulently profited from the lifeline program. However, this investigation demonstrates 

this may only be the tip of the iceberg. GAO's multiyear audit found evidence suggesting that 

lifeline may have paid more than $13 8 million a year in subsidies for 1.2 million potentially 

fraudulent accounts. We're not talking about highly sophisticated fraud here. There were 1.2 

million accounts that were either duplicates of existing subscribers or there was no record that 

the listed subscriber was actually eligible or where the subscriber is dead. It should not have 

taken a three-year GAO audit to spot these glaring red flags. I am so grateful for GAO's hard 

work. I asked them to assess the effectiveness of the 2012 reforms, which began after my 

solicitation in 20 II, and 1 began hollering about this on the Commerce Committee. I don't 

believe any of us could have anticipated the extent of the problems that GAO would uncover, in 

spite of the 2012 refonns. 

I would like to personally thank GAO who has spent more than three years on this, and I 

would like to thank the team, your team Mr. Bagdoyan, that did this. I know that, as a former 

auditor, there is a tremendous amount of focus and dedication needed for an audit like this. I 

also know that the FCC and the USAC have taken steps to improve the oversight. Today we will 

hear from the FCC Chairman and the Acting Executive Director ofUSAC about the efforts 

underway to combat the waste, fraud, and abuse that have long plagued this program. l do not 
31 

doubt the sincerity of the FCC and USAC and their desire to address the shortcomings. The 

reality is that these are not new problems, which investigative journalists and the FCC OIG and 

many of my colleagues in congress have pointed out time and time again over the last decade. 

Chairman Pai, you have been among those who have brought attention to lifeline's 

serious weaknesses. During your time as an FCC Commissioner, you urged the FCC to 

implement much needed reforms and called for proactive measures to increase accountability 

and more aggressive enforcement. Now that you are leading the Commission, I am cautiously 

optimistic about the possibility of meaningful reform. I know that you are aware that past 

attempts to increase accountability have fallen woefully short. One ofthe reasons for these past 

failures is that many of the weaknesses are deeply entrenched in the basic structure of the 

program. You don't tell people that they get to verify whether or not somebody needs a phone 

when they are the ones that are going to make the money if they verify the phone. It will never 

work because the incentives arc in the wrong place. The incentives are to override the database. 

The incentives are to put more people on the program because every person you put on the 

program is $9.25 a month to your company, and it is just a money maker to push the envelope. 

It docs not take an auditor to tell you it might not be the best idea to blindly trust the 

companies that are going to make the money who receive $1.5 billion from this program based 

on the number of accounts they receive. The FCC has taken the initial step to address this 

structural f1aw by creating the National Eligibility Verifier to independently screen eligibility; 

however, last year's lifeline reform order does not require that crucial reform to be complete 

until the end of 2019 and there are still mechanisms to override that the companies can do. So if 

we know the companies are overriding the database now, I have no confidence they are not 

going to override and self-certify over the National Verifier. 

We have made progress-! do want to acknowledge that. This program went from about 

$800 million to $2.2 billion in breakneck speed, then we began the reforms and found massive 

duplications, and it fell down to about $1.5 billion now. We just skimmed the surface and found 

$600 million which, by the way, is real money that is desperately needed tor rural broadband 

deployment. I have a lot of questions particularly on the enforcement end. We have $94 million 

that has been identified that should be paid back. The companies that should be paying this back 

get over $1 billion a year from this program and, guess what, they have not paid us a dime-not 

one thin nickel. I do not understand why we keep paying these companies who owe us money, 

so be prepared for that question as I need an answer. Thank you, Mr. Chairman, for this hearing. 

2 
32 

For Release on Delivery 

Expected at 1 O: 15 a.m. ET 

Thursday, September 14, 2017 

GA0-17-BOST 

United States Government Accountability Office 

Testimony 

Before the Committee on Homeland 

Security and Governmental Affairs, U.S. 

Senate 

TELECOMMUNICATIONS 

Additional Action Needed 

to Mitigate Significant 

Risks in FCC's Lifeline 

Program 

Statement of Seto Bagdoyan, Director, Forensic 

Audits and Investigative Service 
33 

......................................................................... , .. ,.".·"·'················ !.!;::i~!E:;f, i[>;irnt-m: ~~ .. ;;::--:-.;;.rn;;;,;;;;;;i .~m:;:;:=:mi:Eiil!!;~-r tr:ffil;;,;: 
34 

Chairman Johnson, Ranking Member McCaskill, and Members of the 

Committee, 

I am pleased to be here today to discuss the Federal Communications 

Commission's (FCC) oversight of the Lifeline program (Lifeline). Over the 

past two decades, telecommunications carriers and their customers have 

paid over $100 billion to support the federal policy of "universal service." 

Universal service is the principle that all Americans should have access to 

communications services. FCC carries out this policy through four 

programs, including Lifeline. 1 Lifeline was created in the mid-1980s to 

promote telephone subscribership among low-income households. In the 

mid-2000s, such service came to include wireless communications, and, 

in December 2016, FCC also began including broadband service. 

Average Lifeline enrollment as of the fourth quarter of calendar year 2016 

was approximately 12.3 million subscribers. 

To participate in Lifeline, households must either have an income that is 

at or below 135 percent of the Federal Poverty Guidelines or participate in 

one of several qualifying assistance programs, such as Medicaid or the 

Supplemental Nutrition Assistance Program (SNAP). 2 After subscribers 

are enrolled in Lifeline, they receive a monthly benefit on home or 

wireless phone and broadband service. The Lifeline benefit can lower or 

eliminate the cost of a subscriber's monthly phone or Internet bill. 

By statute, every telecommunications carrier providing interstate 

telecommunications services-including Lifeline providers-must 

contribute to federal universal service unless exempted by FCC. 3 

Contributions are deposited into the Universal Service Fund (USF). 

Although not required to do so, carriers typically pass on the cost of USF 

fees as a separate line item to their customers' phone bills. A not-for1

The other three programs are (1) the High-Cost Program, which assists 

telecommunications carriers serving high-cost, rural, or insular areas; (2) the Schools and 

Libraries Program, which assists eligible schools and libraries in procuring 

telecommunications services, Internet access services, internal connections, and basic 

maintenance of internal connections; and (3) the Rural Health Care Program, which 

provides support to eligible health-care providers through discounts for broadband and 

telecommunications services. 

2Medicaid is a joint federal-state health-coverage program for certain low-income and 

medically needy individuals. SNAP, previously known as the Food Stamp Program, offers 

nutrition assistance to eligible, low~income individuals and families. 

347 u.s.c. § 254(d). 

Page 1 GA0·17·805T 
35 

profit, private corporation designated by FCC as the administrator of 

universal service programs, the Universal Service Administrative 

Company (USAC)' pays Lifeline providers a subsidy from the USF for 

each subscriber to offset forgone revenues. From calendar year 1998 

through 2016, USAC had disbursed approximately $20.2 billion to Lifeline 

providers. 

In May 2017, we published a report on FCC's oversight of Lifeline that 

identified steps FCC has taken in the last few years to enhance the 

integrity of the program and stated the weaknesses that remained. 5 We 

also made seven recommendations to improve FCC's oversight of the 

program, which the agency agreed to implement. 

My statement today discusses key findings from our May 2017 report, as 

well as steps FCC has taken and the related recommendations we made. 

Specifically, this testimony discusses (1) the extent to which Lifeline 

demonstrates effective performance towards program goals; (2) steps 

FCC and USAC have taken to improve financial controls in place for 

Lifeline and the USF, and any remaining weaknesses that might exist; (3) 

steps FCC and USAC have taken to improve subscriber eligibility 

verification, and any remaining weaknesses that might exist; and (4) 

steps FCC and USAC have taken to improve oversight of Lifeline 

providers, and any remaining weaknesses that might exist. 

For our May 2017 report, we reviewed documents and interviewed 

multiple stakeholders associated with Lifeline, including FCC, FCC's 

Office of Inspector General (OIG), and USAC, among others. We also 

examined USAC financial data, including USF bank account statements 

and payment data, and interviewed USF account managers at the bank 

that holds USF funding. Further, we reviewed internal financial controls 

established by FCC and USAC and performed data matching and 

analysis to identify potential improper payments using Lifeline's 

enrollment data from the National Lifeline Accountability Database 

(NLAD) and relevant beneficiary databases. The results of the data 

4

According to USAC documents, USAC is not a federal agency, government corporation, 

government-controlled corporation, or other establishment in the executive branch of the 

U.S. government. USAC is also not a contractor to the federal government, but is an 

independent, Delaware, not~for~profit, private corporation, subject to all applicable federal, 

state, and local taxes. 

5

GAO, Telecommunications.· Additional Action Needed to Address Significant Risks in 

FCC's Lifeline Program, GA0-17-538 (Washington, D.C .. May 30, 2017). 

Page 2 GA0·17-ll05T 
36 

FCC Has Not 

Evaluated Lifeline's 

Performance in 

Meeting Program 

Goals but Has Taken 

Recent Steps toward 

Evaluation 

analysis are illustrative rather than generalizable. We also performed 

undercover work to test the vulnerability for improper payments of funds 

disbursed to both subscribers and Lifeline providers. For example, we 

submitted 21 Lifeline applications using false information and fabricated 

supporting documents to determine whether we could obtain Lifeline 

benefits. These undercover tests were for illustrative purposes to highlight 

any potential internal control vulnerabilities and are not generalizable to 

the broader universe of subscribers and providers. Additional information 

on our scope and methodology is available in our May 2017 report. Our 

audit work was performed in accordance with generally accepted 

government auditing standards, and our related investigative work was 

done in accordance with investigative standards prescribed by the 

Council of the Inspectors General on Integrity and Efficiency. 

FCC has not evaluated Lifeline's performance in meeting program goals 

but, as we found in May 2017, has taken recent steps toward evaluation. 

According to GAO's Cost Estimating and Assessment Guide, to use 

public funds effectively the government must meet the demands of 

today's changing world by employing effective management practices and 

processes, including the measurement of government program 

performance. 6 In the past. FCC has called for program evaluations to 

review the administration of universal service generally, including Lifeline. 

but has not completed such evaluations. For example. FCC specified that 

it would review USAC 1 year after USAC was appointed as the 

permanent administrator to determine whether the universal service 

programs were being administered effectively. This review, which was 

planned to have been completed by 1999, was never done. In 2005, FCC 

awarded a contract to the National Academy of Public Administration to 

study the administration of the USF programs generally, examine the 

tradeoffs of continuing with the current structure. and identify ways to 

improve the oversight and operation of universal service programs. 

However. we reported in May 2017 that FCC officials stated FCC 

subsequently terminated the contract and the study was not conducted. 

In March 2015. we found that FCC had not evaluated Lifeline's 

effectiveness in achieving its performance goals of ensuring the 

availability of voice service for low-income Americans. while minimizing 

GAO Cost Estimating and Assessment Guide: Best Practices for Developing and 

Managing Cepftal Program Costs, GA0-09-3SP (Washington, D.C.: March 2009). 

Page 3 GA0-17-BOST 
37 

the burden on those who contribute to the We recommended, and 

FCC agreed, to conduct a program evaluation to determine the extent to 

which Lifeline is efficiently and effectively reaching its performance goals. 

Our May 2017 report raised additional questions about Lifeline's 

effectiveness in meeting its program goals. For example, we reported 

that: 

FCC did not know how many of the 12.3 million households receiving 

Lifeline as of December 2016 also have non-Lifeline phone service 

(for which they pay out of pocket) along with their Lifeline benefit 

Without knowing whether participants are using Lifeline as a primary 

or secondary phone service, we concluded that it is difficult for FCC to 

determine whether ~is achieving the program's goal of increasing 

telephone subscribership among low-income consumers while 

minimizing the USF contribution burden. 

FCC revamped Lffeline in March 2016 to focus on broadband 

adoption and generally phase out phone service, in part because FCC 

recognized that most eligible consumers have phones without Lifeline 

and to also close the "digital divide" of broadband adoption between 

low-income households and the rest of the country. However, 

broadband adoption rates have steadily increased for the low-income 

population absent a Lifeline subsidy for broadband. We found that at 

least two companies operating in a total of at least 21 states had 

begun offering in-home non-Lifeline broadband wireline support for 

less than $10 per month to individuals that participate in publicassistance programs, such as SNAP or public housing. 8 The offered 

rate of these providers' own low-income broadband service of $1 0 per 

month was less expensive than FCC's broadband reasonablecomparability cost benchmark of approximately $55 per month, which 

Lifeline subscribers would be paying for a similar level of service. 

Our May 2017 report also found that FCC has recently taken some steps 

toward evaluating Lifeline's performance in meeting program goals. 

Specifically, in the 2016 Lifeline Modernization Order, FCC instructed 

USAC to hire an outside, independent, third-party evaluator to complete a 

program evaluation of Lifeline's design, function, and administration. The 

7 GAO, Telecommunications: FCC Should Evaluate the Efficiency and Effectiveness of the 

Lifeline Program, GA0-15-335 (Washington, D.C .. Mar. 24, 2015). 

8These advertised prices do not include taxes. 

Page 4 GA0·17·B05T 
38 

Financial Controls 

Exist, with Others 

Planned, for the 

Lifeline Program, but 

Weaknesses Remain 

order stipulated the outside evaluator must complete the evaluation and 

USAC must submit the findings to FCC by December 2020. As FCC 

expects Lifeline enrollment to increase as the program is expanded to 

include broadband service, this expansion could carry with it increased 

risks for fraud, waste, and abuse, as was the case with past expansions 

of the program. Completing the program evaluation as planned, and as 

we recommended in 2015, would help FCC determine whether Lifeline is 

meeting its stated goals of increasing telephone and broadband 

subscribership among low-income consumers, while minimizing the 

burden on those who contribute to the USF. 

In our May 2017 report we found that FCC and USAC have established 

financial controls for Lifeline, including obtaining and reviewing 

information about billing, ccllecting, and disbursing funds. They have also 

developed plans to establish other controls, such as establishing a 

national eligibility verifier (National Verifier) for Lifeline providers to 

determine the eligibility of applicants seeking Lifeline service. However, 

as discussed in our May 2017 report, we found that weaknesses remain, 

including the lack of requirements to effectively central program 

expenditures above approved levels, concerns about the transparency of 

fees on customers' telephone bills, and a lack of FCC guidance that could 

result in Lifeline and other providers paying inconsistent USF 

contributions. To address these concerns, we reccmmended the 

Chairman of FCC (1) require Commissioners to review and approve, as 

appropriate, spending above the budget in a timely manner; (2) require a 

review of customer bills as part of the contribution audit to include an 

assessment of whether the charges, including USF fees, meet FCC 

Truth-in-billing rules with regard to labeling, so customer bills are 

transparent, and appropriately labeled and described, to help consumers 

detect and prevent unauthorized changes; and (3) respond to USAC 

requests for guidance and address pending requests ccncerning USF 

contribution requirements to ensure the contribution factor is based on 

complete information and that USF pass-through charges are equitable. 

FCC generally agreed with those recommendations. 

In addition, we found that USAC's banking practices for the USF resun in 

oversight and accountability risks that FCC has plans to mitigate. 

Specifically, FCC maintains USF funds-whose net assets as of 

September 2016 exceeded $9 billion-outside of the U.S. Treasury 

pursuant to Office of Management and Budget (OMB) advice provided in 

April 2000. OMB had concluded that the USF does not constitute public 

money subject to the Miscellaneous Receipts Statute, 31 U.S. C.§ 3302, 

Page 5 
39 

a statute that requires that money received for the use of the United 

States be deposited in the Treasury unless otherwise authorized by law. 

As such, USF balances are held in a private bank account. However, 

subsequent to this OMB advice, in February 2005 we reported that FCC 

should reconsider this determination in light of the status of universal 

service monies as federal funds. 9 

As discussed in our May report, according to correspondence we 

received from the FCC Chairman's Senior Legal Counsel, as of March 

2017, FCC had decided to move the funds to the Treasury. FCC identified 

potential benefits of moving the funds to the Treasury. For example, FCC 

explained that having the funds in the Treasury would provide USAC with 

better tools for fiscal management of the funds, including access to realtime data and more accurate and transparent data. According to FCC, 

until the USF is moved into the Treasury, there are also some oversight 

risks associated with holding the fund in a private account. For example, 

the contract governing the account does not provide FCC with authority to 

direct bank activities with respect to the funds in the event USAC ceases 

to be administrator of the USF. After we raised this matter with FCC 

officials during the course of our review, beginning in November 2016, 

FCC sought to amend the contract between USAC and the bank to 

enable the bank to act on FCC instructions independently of USAC in the 

event USAC ceases to be the administrator. However, as of May 2017, 

the amended contract had not yet been signed. 

While FCC has put in place a preliminary plan to move the USF funds to 

the Treasury, as well as plans to amend the existing contract with the 

bank as an interim measure, several years have passed since this issue 

was brought to FCC's attention without corrective actions being 

implemented. Further, under FCC's preliminary plan, it would not be until 

next year, at the earliest, that the funds would be moved to the Treasury. 

In May 2017, while reviewing a draft of this report, a senior FCC official 

informed us that FCC experienced some challenges associated with 

moving the funds to the Treasury, such as coordinating across the 

various entities involved, which raised some questions as to when and 

perhaps whether the funds would be moved. Until FCC finalizes and 

implements its plan and moves the USF funds, the risks that FCC 

identified will persist and the benefits of having the funds in the Treasury 

9

GAO, Telecommunications: Greater Involvement Needed by FCC in the Management 

and Oversight of theE-Rata Program, GA0-05-151 (Washington, D.C.: Feb. 9, 2005). 

Page 6 GA0-17-805T 
40 

FCC and USAC Have 

Implemented Some 

Controls to Improve 

Subscriber Eligibility 

Verification, but 

Weaknesses Remain 

will not be realized. As a result, in our May 2017 report, we recommended 

that the Chairman of FCC take action to ensure that the preliminary plans 

to transfer the USF funds from the private bank to the Treasury are 

finalized and implemented as expeditiously as possible. FCC agreed with 

this recommendation. 

FCC and USAC have implemented controls to improve subscriber 

eligibility verification, such as implementing the NLAD database in 2014, 

which helps carriers identify and resolve duplicate claims for Lifelinesupported services. However, as discussed in our May 2017 report, our 

analysis of data from 2014, as well as our undercover attempts to obtain 

Lifeline service, revealed significant weaknesses in subscriber eligibility 

verification. Lifeline providers are generally responsible for verifying the 

eligibility of potential subscribers, but we found that their ability to do so is 

hindered by a lack of access to, or awareness of, state eligibility 

databases that can be used to confirm eligibility prior to enrollment. For 

example, not all states have databases that Lifeline providers can use to 

confirm eligibility and some providers with whom we spoke were unaware 

of databases that were potentially available to them. These challenges 

might be overcome if FCC establishes a National Verifier, as it plans to do 

nationwide by the end of 2019, to remove responsibility for verifying 

eligibility from the providers. Additionally, since USAC was not 

maintaining and providing information to providers about these 

databases, we recommended they maintain and disseminate an updated 

list of state eligibility databases available to Lifeline providers that 

includes the qualifying programs those databases access to confirm 

eligibility, to help ensure Lifeline providers are aware of state eligibility 

databases and USAC audits of Lifeline providers can verify that available 

state databases are being utilized to verify subscriber eligibility. FCC 

agreed with the recommendation. 

For our May 2017 report, to identify Lifeline subscribers who were 

potentially ineligible to participate in the program, we tested the eligibility 

of subscribers who claimed participation in Medicaid, SNAP, and 

Supplemental Security Income (SSI) using NLAD data as of November 

2014. We focused our analysis on these three programs because FCC 

reported in 2012 that these were the three qualifying programs through 

which most subscribers qualify for Lifeline. We compared approximately 

3.4 million subscribers who, according to information entered in NLAD, 

Page 7 GA0·17·805T 
41 

were eligible for Lifeline due to enrollment in one of these three programs 

to eligibility data for these programs. 10 

On the basis of our analysis of NLAD and public-assistance data, we 

could not confirm that a substantial portion of selected Lifeline 

beneficiaries were enrolled in the Medicaid, SNAP, and SSI programs, 

even though, according to the data, they qualified for Lifeline by stating on 

their applications that they participated in one of these programs. 11 In 

total, we were unable to confirm whether 1,234,929 subscribers out of the 

3,474,672 who we reviewed, or about 36 percent, participated in the 

1

D-rhe six states selected for our Medicaid analysis had eligibility dates from the third 

quarter of 2012 through the most-recent eligibility fiscal quarter available for each stateat the time of our data analysis-which ranged from the third quarter of 2012 to the fourth 

quarter of 2014. For our analysis of NLAD and Medicaid data, we only matched against 

Lifeline subscribers wtlo enrolled prior to the latest Med'icaid' eligibility data available for 

each state, Our nationwide SSI eligibility data ranged from October 2012 to December 

2014, and each of the five selected states' SNAP data ranged from October 2013 to 

December 2014. Therefore, it was not necessary to exclude any Lifeline subscribers prior 

to matching_ To ensure a conservative estimate of unconfirmed eligibility, in the event that 

any of the Lifeline subscribers were only shown as eligible for the month of December 

2014, they were nevertheless counted as a match and deemed likely eligible for Lifeline, 

even though NLAD data were only as of November 2014. For more information about our 

scope and methodology, see the full report, GA0--17-538. 

11When matching NLAD data against eactl of the qualifying programs that we tested, we 

used the number of subscribers listed in NLAD as belonging to each program at the state 

level and matched it to the corresponding state's qualifying program's eligibility database. 

We took the difference between the subscribers listed as belonging to SNAP, SSI, and 

Medicaid at the state level in NLAD and our confirmed matches to determine the number 

of subscribers who could' not be confirmed to qualify for the benefit program. 

Page-8 GA0·17·805T 
42 

qualifying benefit programs they stated on their Lifeline enrollment 

applications or were recorded as such by Lifeline providers. 12 

If providers claimed and received reimbursement for each of the 1.2 

million subscribers, then the subsidy amount associated with these 

individuals equals $11.4 million per month, or $137 million annually, at the 

current subsidy rate of $9.25 per subscriber. Because Lifeline 

disbursements are based on providers' reimbursement claims, not the 

number of subscribers a provider has in NLAD, our analysis of NLAD data 

could not confirm actual disbursements associated with these individuals. 

Given that our review was limited to those enrolled in SNAP or Medicaid 

in selected case-study states, and SSI in states that participated in NLAD 

at the time of our analysis, our data results are likely understated 

compared to the entire population of Lifeline subscribers. These results 

indicate that potential improper payments have occurred and have gone 

undetected. We plan to refer potentially ineligible subscribers identified 

through our analysis for appropriate action as warranted. 

Our undercover testing, as discussed in our May 2017 report, also found 

that Lifeline may be vulnerable to ineligible subscribers obtaining service 

and the testing found examples of Lifeline providers being nonresponsive, 

or providing inaccurate information. To conduct our 21 tests, we 

contacted 19 separate providers to apply for Lifeline service. We applied 

using documentation fictitiously stating that we were enrolled in an eligible 

public-assistance program or met the Lifeline income requirements. We 

were approved to receive Lifeline services by 12 of the 19 Lifeline 

providers using fictitious eligibility documentation. We also experienced 

12For the purpose of our analysis, we considered a subscriber in NLAD to be a likely 

match and enrolled in SNAP if at least four of the following fields matched between NlAD 

and SNAP data from each state: subscriber first name; subscriber last name; subscriber 

date of birth; last four digits of the subscriber's Social Security number (SSN); and an 

exact address, zip-code, state match. We considered a subscriber listed in NlAD to be a 

likely match and enrolled in SSI if the subscriber first name, last name, date of birth, and 

last four digits of the SSN matched exactly with SSI program data. To ensure that our 

tabulations of unconfirmed eligibility do not overstate potential problems with the data, we 

counted as a "likely match" for both SNAP and SS! data matching. Specifically, for SNAP 

and SSI we counted first and last name matches with inexact, but similar, spelling to be a 

likely match and enrolled in the qualifying programs. Whereas, for Medicaid, we 

considered a subscriber listed in NLAD as a likely match enrolled in the qualifying program 

if the date of birth, last four digits of the SSN, and zip code matched exactly with Medicaid 

data for each state, because the Medicaid data we utilized did not contain first or last 

name. By not requiring the first or last name as part of the NLAD/Medlcald matching, we 

may understate the unconfirmed eligibility rate for NLAD subscribers coded as eligible via 

Medicaid. 

Page9 GA0~17·805T 
43 

FCC and USAC Have 

Taken Some Steps to 

Improve Oversight of 

Lifeline Providers, but 

Remaining Gaps 

Could Allow 

Noncompliance with 

Program Rules 

instances during our undercover tests where our calls to providers were 

disconnected, and where Lifeline provider representatives transmitted 

erroneous information, or were unable to provide assistance on questions 

about the status of our application. For example, one Lifeline provider told 

us that our application was not accepted by the company because our 

signature had eraser marks; however our application had been submitted 

via an electronic form on the provider's website and was not physically 

signed. While our tests are illustrative and not representative of all Lifeline 

providers or applications submitted, these results suggest that Lifeline 

providers do not always properly verify eligibility and that applicants may 

potentially encounter similar difficulties when applying for Lifeline benefits. 

As described above, these challenges might be overcome if FCC 

establishes a National Verifier, as it plans to do nationwide by the end of 

2019, to remove responsibility for verifying eligibility from the providers. 

FCC and USAC have implemented some mechanisms to enhance 

oversight of Lifeline providers, as discussed in our May 2017 report, but 

we found that remaining gaps could allow noncompliance with program 

rules. For example, in July 2014, FCC took additional measures to 

combat fraud, waste, and abuse by creating a stn'ke force to investigate 

violations of USF program rules and laws. According to FCC, the creation 

of the strike force is part of the agency's commitment to stopping fraud, 

waste, and abuse and policing the integrity of USF programs and funds. 

Similarly, in June 2015, FCC adopted a rule requiring Lifeline providers to 

retain eligibility documentation used to qualify consumers for Lifeline 

support to improve the auditability and enforcement of FCC rules. 

However, we found FCC and USAC have limited oversight of Lifeline 

provider operations and the internal controls used to manage those 

operations. The current structure of the program relied throughout 2015 

and 2016 on over 2,000 Eligible Telecommunication Carriers (ETC) to 

provide Lifeline service to eligible beneficiaries. These companies are 

relied on to not only provide telephone service, but also to create Lifeline 

applications, train employees and subcontractors, and make eligibility 

determinations for millions of applicants. USAC's reliance on Lifeline 

providers to determine eligibility and subsequently submit accurate and 

factual invoices is a significant risk for allowing potentially improper 

payments to occur, and under current reporting guidelines these 

occurrences would likely go undetected and unreported. Federal internal 

control standards state that management retains responsibility for the 

performance and processes assigned to service organizations performing 

operational functions. Consistent with internal control standards, FCC and 

Page 10 GA0-17-BOST 
44 

USAC would need to understand the extent to which a sample of these 

internal controls are designed and implemented effectively to ensure 

these controls are sufficient to address program risks and achieve the 

program's objectives. 

We identified key Lifeline functions for which FCC and USAC had limited 

visibility. For example, we found instances of Lifeline providers utilizing 

domestic or foreign-operated call centers for Lifeline enrollment. When we 

asked FCC officials about Lifeline providers that outsource program 

functions to call centers, including those overseas, they told us that such 

information is not tracked by FCC or USAC. With no visibility over these 

call centers, FCC and USAC do not have a way to verify whether such 

call centers comply with Lifeline rules. FCC and USAC have limited 

knowledge about potentially adverse incentives that providers might offer 

employees to enroll subscribers. For example, some Lifeline providers 

pay commissions to third-party agents to enroll subscribers, creating a 

financial incentive to enroll as many subscribers as possible. Companies 

responsible for distributing Lifeline phones and service that use incentives 

for employees to enroll subscribers for monetary benefit increase the 

possibility of fictitious or ineligible individuals being enrolled into Lifeline. 

Highlighting the extent of the potential risk for companies, in April 2016 

FCC announced approximately $51 million in proposed fines against one 

Lifeline provider, due to, among other things, its sales agents purposely 

enrolling tens of thousands of ineligible and duplicate subscribers in 

Lifeline using shared or improper eligibility documentation. 

To test internal controls over employees associated with Lifeline for our 

May 2017 report, we sought employment with a company that enrolls 

individuals to Lifeline. We were hired by a company and were allowed to 

enroll individuals in Lifeline without ever meeting any company 

representatives, conducting an employment interview, or completing a 

background check. After we were hired, we completed two fictitious 

Lifeline applications as an employee of the company, successfully 

enrolled both of these fictitious subscribers into Lifeline using fabricated 

eligibility documentation, and received compensation for these 

enrollments. The results of these tests are illustrative and cannot be 

generalized to any other Lifeline provider. We plan to refer this company 

for appropriate action as warranted. As staled above, these challenges 

might be overcome if FCC establishes a National Verifier, as it plans to do 

nationwide by the end of2019, to remove responsibility for verifying 

eligibility from the providers. In addition, in May 2017, we made two 

recommendations to help address control weaknesses and related 

program-integrity risks. Specifically, we recommended that FCC establish 

Page 11 GA0-17-BOST 
45 

GAO Contact and 

Staff 

Acknowledgments 

(102300} 

time frames to evaluate compliance plans and develop instructions with 

criteria for FCC reviewers how to evaluate these plans to meet Lifeline's 

program goals. We also recommended that FCC develop an enforcement 

strategy that details what violations lead to penalties and apply this as 

consistently as possible to all Lifeline providers to ensure consistent 

enforcement of program violations. FCC generally agreed with these 

recommendations. 

In conclusion, Lifeline's large and diffuse administrative structure creates 

a complex internal control environment susceptible to significant risk of 

fraud, waste, and abuse. FCC's and USAC's limited oversight of 

important aspects of program operations further complicates the control 

environment-heightening program risk. We are encouraged by FCC's 

recent steps to address weaknesses we identified, such as the 2016 

order establishing a National Verifier, which, if implemented as planned, 

could further help to address weaknesses in the eligibility-determination 

process. We also plan to monitor the implementation status of the 

recommendations we made in May 2017. 

Chairman Johnson, Ranking Member McCaskill, and Members of the 

Committee, this concludes my prepared remarks. I would be happy to 

answer any questions that you may have at this time. 

For further information regarding this testimony, please contact Seta J. 

Bagdoyan at (202) 512-6722 or bagdoyans@gao.gov. In addition, contact 

points for our Offices of Congressional Relations and Public Affairs may 

be found on the last page of this statement. Individuals who made key 

contributions to this testimony are Dave Bruno (Assistant Director), Scott 

Clayton (Analyst-in-Charge), and Daniel Silva. 

Page 12 GA0-17-BOST 
46 

TESTIMONY OF FCC CHAIRMAN AJIT PAl 

BEFORE THE U.S. SENATE COMMITTEE ON 

HOMELAND SECURITY & GOVERNMENTAL AFFAIRS 

"FCC'S LIFELINE PROGRAM: 

A CASE STUDY OF GOVERNMENT WASTE AND MISMANAGEMENT" 

SEPTEMBER 14,2017 

Chairman Johnson, Ranking Member McCaskill, and Members of the Committee, thank you for 

holding this important hearing and inviting me to testify today. 

I have often said that my highest priority as Chairman is closing the digital divide-the gap 

between those who have access to next-generation technologies and those who don't. The Lifeline 

program can play a role in our efforts to bring digital opportunity to all Americans. But unfortunately, it 

continues to be riddled by waste, fraud, and abuse. This is doubly destructive: every dollar wasted comes 

from the pockets of ratepayers and does nothing to help low-income families actually in need of 

communications services. The FCC owes it to everyone who contributes to or receives benefits from the 

Universal Service Fund to make sure the Lifeline program is efficient, effective, and free of waste, fraud, 

and abuse. 

The Government Accountability Office (GAO) report we will discuss today represents a careful 

review of the program's mismanagement in recent years. And it confirms for me the serious concerns I 

have had for some time about waste, fraud, and abuse in the Lifeline program. 

Prior to becoming FCC Chairman, I conducted my own investigation of the Lifeline program as a 

Commissioner in 2016. It spanned several months, encompassed multiple letters to the Universal Service 

Administrative Company (USA C) requesting detailed information about USAC's oversight of the 

Lifeline program, and revealed significant abuses of the program by Lifeline providers. I have attached 

that correspondence for the Committee's review. And GAO's May 2017 report confirmed some of the 

same issues I identified in my investigation. 

First, because the Lifeline program Jacks adequate safeguards, it has paid for subscribers who are 

not eligible to participate, potentially to the tune of hundreds of millions of dollars a year. In its 

investigation, GAO was unable to confirm whether more than 1.2 million individuals, or 36% of the 

sample reviewed, participated in the Lifeline-qualifying programs they or their provider claimed during 

the Lifeline enrollment process. That is, the subscriber was supposedly eligible for Lifeline because of 

his or her participation in a program like Medicaid, Supplemental Nutrition Assistance Program (SNAP), 

or Supplemental Security Income (SSI). But when GAO went to confirm this alleged participation in 

those other programs, it could not. Even worse, GAO noted that this "likely understates" the magnitude 

of ineligible subscribers receiving benefits. 

Second, Lifeline rules only allow one subsidy per household. But loopholes in enforcing the 

program's one-per-household rule have allowed providers to enroll hundreds of subscribers at a single 

address, including one address that was associated with I 0,000 separate subscribers. Think about that. 

One address, getting over $90,000 per month, and every dime of it paid for by the American people. 

Third, for years, a Jack of robust verification procedures has allowed providers to claim support 

for "phantom" and deceased subscribers, as well as to unlawfully claim multiple benefits for yet other 

subscribers. Phantom subscribers-that is, subscribers who don't actually exist in real life but still collect 

a Lifeline benefit-have numbered in the thousands for multiple providers. The FCC's Office of 

Inspector General has identified this area as a significant and ongoing source of waste, fraud and abuse. 

GAO also has identified over 6,000 individuals who were deceased at least one year before their 
47 

enrollment or most recent recertification in the program. Similarly, GAO uncovered approximately 5,500 

potential cases involving subscribers receiving duplicative benefits from the same provider. 

Finally, some Lifeline providers' sales agents' practices continue to be a key driver of 

inappropriate enrollments in the program. The FCC's Inspector General has determined that the payment 

structure many Lifeline resellers use to compensate sales agents can incentivize those agents to commit 

fraud. This is because agents are often paid based on the number of new subscribers they sign up. Not 

surprisingly, a number of agents are less than scrupulous about who they enroll. 

In light of these serious problems, I have directed USAC to implement aggressive administrative 

changes to correct the problems that GAO, my office, and the FCC's Inspector General have identified. 

Specifically, as set forth in a July II th letter that I sent to USAC's Acting CEO, Vickie Robinson, 

I have asked USAC to take immediate action to strengthen its administrative processes and the National 

Lifeline Accountability Database (NLAD). Among other measures, I have asked USAC to review 

addresses associated with large numbers of subscribers. It should also prevent providers from claiming 

subsidies for more than their total number of enrolled subscribers. It should block benefits for deceased 

subscribers and actively detect and remove duplicative benefits found for the same household. To hold 

sales agents accountable, USAC should require them to register with USAC before using the Lifeline 

enrollment systems. In addition to these immediate efforts, in early 2018 the program will only make a 

payment for a subscriber if USAC's systems show the subscriber has passed all checks in the NLAD. 

This will help prevent providers from claiming support for phantom subscribers. 

Any improper payments that USAC identifies in these processes will be reported to the FCC's 

Enforcement Bureau and Office of the Inspector General for administrative, civil, or criminal action, as 

appropriate. Moreover, once GAO gives us the subscriber data underlying its report of ineligible, 

duplicative, and deceased subscribers, we will act quickly to ensure that those subscribers are no longer 

enrolled in the program, attempt to reclaim any improper payments, and review enrollments by eligible 

telecommunications carriers (ETCs) associated with those fraudulent claims. 

To combat eligibility-related waste, fraud and abuse, the FCC will launch the Lifeline National 

Eligibility Verifier in at least six states this year---<lxceeding the benchmark set last year. The National 

Verifier will take on the responsibility of determining subscriber eligibility, making it more difficult for 

those who would defraud the program from abusing the eligibility process to claim ineligible or duplicate 

subscribers. The National Verifier will also use federal and state data sources to automate eligibility 

checks, which both improves accuracy and minimizes administrative expenses. 

And as I have said before, the FCC also must support state commissions' roles in policing against 

fraud and abuse committed by providers. When so much work remains to be done, we cannot afford to 

stand in the way of our state partners that are on the ground and ready to fight program abuse. (It bears 

mentioning, too, that Congress explicitly gave the states this function in the Communications Act.) 

Finally, to fulfill its obligation to be a responsible steward of the Universal Service Fund, the 

FCC must evaluate the efficacy of the aforementioned efforts and consider whether further programmatic 

changes are necessary to ensure that Lifeline funds are efficiently and properly directed to those families 

who need it most. The challenges that lay ahead of the Commission are significant. But it is imperative 

that we learn from past mistakes and set the Lifeline program on the proper course . 

• • • 

One last note. The GAO report also raised concerns regarding universal service funds being held 

in a private bank outside of the United States Treasury. The FCC is actively working with the Treasury 

Department and USAC to implement a project plan to move USF funds to the Treasury as soon as 

possible in recognition of the fact that these are federal funds. This move will enhance controls over USF 

operations by bringing the USF in line with standard Federal payment and collection processes. 
48 

Thank you once again for holding this hearing and allowing me to testifY this morning. I look 

forward to answering your questions, listening to your views, and continuing to work with you and your 

staff to improve the Lifeline program. 
49 

A.jit Pm 

Com1nissioner 

FEDERAL COMMUNICATIONS COMMISSION 

WASHINGTON. DC 20554 

Mr. Chris Henderson 

ChierExccutive OfJicer 

Universal Service Administrative Company 

2000 L Street NW, Suite 200 

Washington, DC 20036 

Dear Mr. flenderson, 

April 18.2016 

I seek your aid in combating the waste, f'raud, and abuse 1hat has riddled the Universal Service 

Pund's ure!ine program since \Virclcss rcsc!lcrs began participating i!1 this program in earnest in 2009 

The Commission's recent investigation of Total Call Mobile l\3vcalcd much ~lbout the dubious 

practices of the industry. \Vc learned, fOr example, how Total Cull Mobile's salc:s agents 

registered duplicate subscribers to the addresses or local homeless shelters and used f<_l~C Security 

numbers to register duplicate subscribers-aU resulting in USAC's !inding 32,498 enrolled duplicates. 

We learned how Total Ca!! Mobile's sales agents repeatedly overrode the sarcgtmrds or the NHtional 

Lirclinc ;\ccountabi!ity Database (NLAD)-abusc so far-reaching that at one point, 99.8% of Total Call 

Mobile's new subscribers were the result of overrides. And \VC lcamcd how Total Call \!fobilc hc;wily 

relied on Supplemental Nutrition Assistance Program (SNAP) cards to register subscribcrs···--in IClrgc part 

because that program can so easily be abused. 

Di.sturbingly, we also learned that Tota! Call Mobile was. not alone. Total c,dl rv1obilc's sales 

a~g~e>~ll~s~tc~s-ti~fi~c~d that they worked side-by-side with the sales agents or other Lifeline wi1-clcs.s rcs.cllcrs, like 

and They also testified that they learned how to t::-.:ploit the 

program from sales agents and supcrv.is~o~rs~v~v~h~o~w~·o~r~ke~d~a~t various points for other Ufdinc wireless resellers, like and 1 

f hope you agree that we must be vigilant in stopping abuse or the Universal Service Fund. 

American taxpayers deserve to know that the money they contribute e-ach month to the Fund is not vvas1cd 

or put to fraudulent use. 

Therefore, I request th<Jt USAC provide the following inrormatlon to my ollicc. 

!. For each of the four LifC!ine wireless resellers named 

U.e.,Q W,l!llll,ij WI, 

t\.'lobHc sales agents 

a. A description of any investigations, audits, or reviews that USAC has conducted 

on such companies from October 2014 to the present, along with any reports 

drafted or issued by t.:SAC or, in the case. ol'no such report, a summary or 

USAC's findings. 

b. f f USAC informed any such carrier of duplicalc enrollments, the numbl'r or 

duplicate enrollments involved and the datc(s) on which the carrier de-cnrolkd 

them. 
50 

c. For each study area of each company from the period of Octobet· 20 I 'Ito the 

present, a table showing how many subscribers enrolled each month: how mam 

subscribers yvcrc newly enrolled or transfers !'rum other Lircllnc carriers: hm\ 

many such subscribers were accrued as a result of an override of the NLi\l)·s 

safeguards: and among subscriber-overrides) how many were attributnb!c to the 

third-party-indcpcndenl-vcrification check. the postal-address check. ancl the 

indcpcndcnt~cconomic-unit check. 

d. To the extent USAC kno\vs, how many subscribers relied on SN,\P u1rds !(J:· 

eligibility verification and how many of' such subscribers used tcmpor<ll")' Clr 

blank SNAP cards for such verification. 

2. i\ list of any and all L.ifC!ine wireless rcscllers that overrode the s<Jicgu<Jrds ol'thc N\ :\I) 

more than 500 times between October 20 !4 and the present, noting the num her and t~ pc 

of such overrides as well as the percentage or new subscribers that\\ ere enrolled through 

the use ofsueh overrides. reported on a monthly basis by study area. 

_), J\n explanation of USJ\C's plan for rcvicvvi11g, auditing, and investigating eligibility 

documentation retained hy Lifeline wireless rcscl!crs since February 1 :20!(} (the day 

that requircrncnt took cffCc!), as well as the results ol' any such review, (ludit. o1 

investigation. 

I aprrcciatc lJSAC's contfnucd work to protect the Amc:ricall taxpayer and s;dCgunrd the 

Universal Service Fund. Given the many millions in taxpayer runcls that have already gone to waste.! t1Sk 

that you respond with the requested information by May 2, 2016. I I' you have any q11csl ions, pic'"" reel 

free to contact Nicholas Degani in my of'licc at (202) 418-2000. 

Sincerely, 

/\jit Pai 

Commissioner 

Federal Communlca!ions Commission 

2 
51 

USAC 

Confidential, Not for Public Inspection for Disclosure 

May 2, 2016 

The Honorable Ajit Pai 

Commissioner 

Federal Communications Commission 

445 l2'h Street, S.W. 

Washington, DC 20554 

Dear Commissioner Pai: 

Thank you for your letter concerning the Universal Service Fund's (USF) Lifeline 

Program. The Universal Service Administrative Company (USAC) is dedicated to working with 

the Federal Communications Commission (FCC) to combat waste, fraud and abuse in the USF 

programs. We welcome this opportunity to respond to your questions and share with you some 

of the efforts USAC has undet1aken to reduce duplicate subscribers in the Lifeline Program. As 

clearly articulated in your letter, the ability to override the third-party identity verification 

(TPIV) in the National Lifeline Accountability Database (NLAD) created the ability to misuse 

the process, which is why we supported the elimination of that oven·ide ability as of Febtuary 2, 

2015. USAC has also strengthened algorithms in the NLAD to improve the detection and 

prevention of duplicate enrollments and modified our audit programs to better identify entities 

with a higher likelihood of non-compliance. including the four carriers named in your letter. We 

have provided responses to your specific questions below along with several attachments 

detailing the data and information you requested. 

I. For each o('tlll1 elf,li;lulriLIII/c.'llilllLI'IHI'ilrcl'/lels.1,.1,.1e .• vc~·l~h~,,~·si/IWIII!'lledliblyiiiTolllaiiiCI'(IIIIIIMiohi /e sales 

agents (i.e.,. 

a. A description o(ony im·estigalioJJS, audits. or revicHs that USAC fwd conducted 

oil s~tch companies/hiln October 2014 to the prcse111. along with any reports 

dra(icd or issued /Jy USAC or. in 1/1c case of' no such report, a summarv u( 

[/SAC 's(indings. 

reports for those two carriers 

:: "'" __ -:....:c:._:.:_a udi ts ot.llillililillllllliilil 

USAC has not conducted any 

during the applicable period. 
52 

Commissioner Pai 

May 2, 2016 

Page 2 of 7 

In addition to the BCAP audits, USAC conducts Payment Quality Assurance (PQA) 

reviews to determine if there were any improper payments to program beneficiaries as required 

by the Improper Payments Elimination and Recovery Improvement Act of2012 (!PERlA) (Pub. 

L. No. 112-248). Specifically, USAC detennines if speci!lc payments made to select 

beneficiaries in the Lifeline Program and other support mechanisms were made in accordance 

with FCC rules and requirements, and reports the results to the FCC. As pari of this process, the 

PQA review determines if the carrier claimed any duplicates in its FCC Form497 filing. A 

summary ofUSAC's PQA results for the four named carriers is provided in response to Question 

1 (b) below. 

Beyond the BCAP audits and PQA reviews, and pursuant to the Commission's 2012 

Lifeline Reform Order, Lifeline Program service providers receiving $5 million or more in 

Lifeline annual disbursements are required to hire an independent auditing firm to conduct a 

review of their overall compliance with the Lifeline Program rules. 1 In response to that 

requirement, submitted Biennial Audit Reports to USAC 

and the FCC for the calendar year ending December 31, 2013. The three reports arc attached for 

your reference. 

USAC also perfonned an intemal review of all subscriber records in NLAD in early 

2015. Duplicate subscriber records were identi!led during that review, and USAC initiated a 

process to de-enroll those subscribers, which was completed in May 2015. As pari of this 

intcmal review, additional system safeguards were implemented in March 2015 to strengthen the 

system controls and prevent the entry of duplicate subscribers into NLAD. The duplicate 

subscriber resolution process is detailed below, and on USAC's website.' 

Duplicate Resolution Processes 

Automatic de-enrollment: Subscribers are identified as duplicates in NLAD based on 

cenain matching identification information. In some cases, one oft he records will 

pass the third-party identity verification (TPIV) with no issues, while other records 

will not. In these cases, the records with failed TP1V results were automatically deenrolled with their respective carriers, and the one successful identity validated was 

retained. This de-enrollment took place in NLAD, and USAC provided rcpot1s to 

carriers oC these de-cmollmcnts so that they could update their own systems within 

live business days. 

De-enrollment by consumer choice: lfthe above situation did not apply, consumers 

were contacted by letter and given 35 days to select one of their multiple canicrs to 

retain the benefit. effectively de-enrolling them from the other carriers in NLAD. A 

delimit canicr was selected, and in the event no response was received, the default 

1 Li[L'Iinc and Unk Cp Rt:(mm and AfoJcrni::ation. L(/(>/fnc and Link Up, Federal-State Joint Board in Unh·crsa! 

Sen·icc. Adl'tmcing BroadhanJ Awtilabili(r Through Digital Litt;racy Training. WC Docket No. 11-42, ct af.. Report 

and Order and Further Notice ofPruposcd Rulcmaking. 27 FCC Red 6650, 67R2-S6. 1'1i 291-97 (2012) (20/2 

Re(imn Order). 

llSAC Nnticmul Lifeline 1\c,coii:Jmn' 

<II hill'> 
53 

Commissioner Pai 

May 2, 2016 

Page 3 of 7 

carrier would retain the consumer. USAC provided reports to carriers of these deemollmcnts so that they could update their own systems within five business days. 

h. I( USAC i11/im11ed any such carrier of duplicate enrollments. the number of 

duplicate enrollments in\'0/ved and the date(\') on which the carrier de-enrolled 

them. 

USAC uses multiple levels of analysis, review, and data analytics to identify and remove 

duplicate Lifeline subscribers and has taken additional actions to prevent the enrollment of 

duplicates. 

The PQA review process is one method used to identify and notify carriers of Lifeline 

duplicate subscribers. As part of this process, USAC requests and reviews a copy of the catTier's 

subscriber list used to support their FCC Form 497 filing for Lifeline Program disbursements. 

For each of the four named carriers, the PQA review identified the following number of 

duplicates in those subscriber lists for disbursements made !i'om October 2014 to December 

2014. 

USAC is currently conducting its PQA rcvie1v of disbursements issued in 2015, which remains 

open at this time. 

After the completion of a PQA case and notification to the catTier, USAC contitms that 

the carrier files a FCC Form 497 with a downward revision for the applicable data month. 

USAC is currently developing a process to ensure that the catTier also de-enrolls the subscriber 

' During this time period. Tel rite Corporation- WV, Case No. Ll~20 14-1 0-Case-251 and Trac Fone Wireless. Inc.-

~-1F. Case No. Ll-20 14-ll-Case-2R4 did not identif~' any duplicate subscribers. but in both cases the review did 

identify missing or incomplete subscriber data . 

.i l!SAC notes that TracFone filed an appeal of the findings in Cases 279, 256 and 2R2, which remains pending with 

USA C. 
54 

Commissioner Pai 

May2, 2016 

Page 4 of7 

as required by the FCC's rules and does not include the duplicate subscriber on future support 

filings.~ 

ln addition to the PQA review, the Lifeline Program team is constantly reviewing and 

analyzing the subscriber infonnation in NLAD for anoma lies, duplicates, or other errors that may 

signal improper payments or potentially fraudulent behavior. As set forth above in the 

description of the Duplicate Resolution Process, for any duplicates identified in NLAD, USAC 

notified each carrier of the duplicate enrollments that were identified as a result ofUSAC's 

internal review of records from Febmary 2015 to May 2015, as detailed in the summary table 

below. A detailed listing of these duplicates, including the date the duplicate subscriber was deenrolled from NLAD, is provided as an attachment. 

c. f·iJI' each :muly area v( ead1 company.fi'Omlile period of October 2014 10 the 

pn•senl, a table ,hawing how many subscriber.~ enrolled each monlh; how 111011)' 

subscriber.\' wen: 11cw~y cum/led or trtm.~(cn./i'Oin other Lifeline carrie1:s: ho11· 

mo11y such subscriher.1· ll'ere occrued as a resu/1 qfan override ofilu: NLAD 's 

S<!(eguards: and among subscriber-overrides. lww numy were aflributable fo /he 

independent-ecO/IOmic-ullit check. 

Based on data in the NLAD system, USAC developed the attached report, ''Enrollment 

Override Analysis by Company,'' wl1ich provides the requested data. The attached chan includes 

override information for October 2014 through Fcbmary 2015 when the self-help overTide 

feature was removed ti'Om NLAD. As such, as of February 2, 2015, can·iers can no longer 

directl y perJorm an override in NLAD. With the elimination of this function, when a ca1Tier 

receives a TPIV failure notillcation in NLAD. they must now enter a TPIV resolu tion ticket that 

is reviewed by USAC sta!T. The resolution request must list the type of document used to verify 

the subscriber's identity, the agent's name or identification and a ccr1ificat'ion statement, made 

under penalty of perjury. The exception will not be processed until USAC approves the request. 6 

As a result o f this cbange in the resolution pi'Ocess, ovcn·ides have decreased fmm 34% of total 

enrollments to only 4% of enrollments. 

' S,•e 47 C.F.R. § 54.405(eX2J. 

• USAC. :-.:ation<JII.ifdine Accounrability D~tabasc ()<LAD). Third Party ldentil)' Verific:ltion (TPIV) Failure 

Resolution. (lvail3ble at http;!/www.u:-:ac.orgniltools:'nlndldispulC·n .. :solution tph•-f3i lu rc-dr.~sp:< . 
55 

Commissioner Pai 

May 2, 2016 

Page5of7 

During the time period the self-help override function was available in NLAD, TP!V 

overrides made up 99.9% of all oveJTides, while overrides of address enors and subscriber age 

limits made up the remaining 0.1% of the overrides. For the four named companies, over 99% of 

the overrides used by these companies were TPlV oven·ides. None of the four named companies 

entered an override for an address error or subscriber age limitation. 

d. To the extent USAC knows, how many subscribers relied on [Supplemental 

Nutrition Assistance Program] SNAP card>fbr eligibility verification and how 

many o(such subscrihcrs used tempormy or blank SNAP carcl.1·fbr such 

verification. 

The attached report, "SNAP Enrollment," is based on data reported by the carriers in the 

NLAD system. Please note that NLAD requires carriers to select the type of eligibility program 

from a drop-down menu, which lists SNAP as one of several eligible programs. As such, the 

attached list includes all subscribers for October 2014 through present for which the carrier 

selected the SNAP program, but the list does not specify the exact type of documentation 

reviewed by the carrier. 

2. A list o{any am! all LljCline wireless rcsellers that overrode the safi;guards o(thc 

NLAD more than j()() times /)(!tween Octoher 2014 and the present, noting the 

number and type o{such overrides as well as the percentage of new subscribers 

that \H're enrolled through the we olsuclt overrides, reported on a month(F basis 

by studv area. 

Using the NLJ\D system, USAC provides the attached report, "Lifeline Wireless 

Company Ovenide Usage," which provides the detailed data requested of all Lifeline wireless 

rescllers who used the override more than 500 times fl·om October 2014 to Febmary 2015. As 

noted above, the selt~hdp override was eliminated on February 2, 2015 and replaced with a new 

resolution process. [n addition, USAC added new system safeguards to NLAD in March 2015, 

which strengthened controls and fi.trther helped to prevent the enrollment or duplicates into the 

NLAD system. 

3. An explanation o( USAC 's plan fin· rel'iewing, auditing, and investigating 

eligibifitv documentation rerained l>v Lifeline >l'ircless resel/crs since Fehruary 

17, 2016 (the day that requirement look c(fi:cl), as \vel/ as rhe results o{anv such 

rel'icw, audil, ur investigation. 

Beginning with Lifeline Program audits announced in2016. USAC's lAD, in 

consultation with the FCC Of'!ice of Managing Director and the Wirclinc Competition Bureau, 

jointly developed an audit program that is designed to focus audit resources on entities meeting 

,·arious risk l~lctors indicating potential noncompliance with FCC rules. This new plan was built 

on the following key principles: 

Improved ability to detect and deter non-compliance; 

Reduced burden on lower risk applicants; 
56 

Commissioner Pai 

May 2, 2016 

Page 6 of? 

Use process to support or enhance compliance; and 

Focused approach to audit selection and procedures. 

Data analytics were used to identify areas of foeus and the ~:ntities to audit. The teams 

collectively used eighteen risk factors to perform the data analysis and the risk factors centered 

on the following themes: 

I 

I 

For audit periods starting February 2016 and later, USAC will select a sample of Lifeline 

Program subscribers with start dates on or after February 17, 2016 based on the sampling 

guidelines established by the Govemmenl Accountability Otliec. For each of the selected 

subscribers, USAC will request that the audited carrier provide a copy ofthe eligibility 

documentation it reviewed to confirm the subscriber's eligibility. USAC will then examine the 

documentation to confirm it relates to the selected subscriber, was valid during the audited time 

period, and is an acceptable {1)rm of documentation per the FCC's rules. 7 USAC has not yet 

commenced audits of this time period. 

USAC remains committed to ensuring the Universal Service Fund is protected from 

waste, fraud, and abuse and looks forward to continuing to work with the FCC to ensure that 

contributions from consumers are disbursed in accordance with FCC rules and regulations. 

Please let us know if you need any additional int(Hmation or have any questions about the 

responses provided. 

Enclosures 

7 See 47 C.F.R. §§ 54.410(b)(l)(B) and (c)(l)(B). 

Sincerely, 

7 ;I (;L~ tl~ 

Chris llcndcrson 

Chief Executive Officer 

Universal Service Administrative Company 
57 

Index of Attachments 

Attachment 1 ~ BCAP Audit Report for················· 

Attachment 2 · ••••••••• ,Audit Report No .•••• 

Attachment 3 ·· Lifeline Biennial Audit Report 

Attachment 4 Lifeline Biennial Audit Report 

Attachment 5 ~ Lifeline Biennial Audit Report 

Attachment 6 ·- NLAD Duplicates with De-enrollment Date (Confidential) 

Attaclunent 7 Enrollment Ovenide Analysis by Company (Confidential) 

Attachment 8- SNAP Enrollment (Contldential) 

Attachment 9 Lifeline Wireless Company Ovenide Usage (Confidential) 
58 

BCAP Audit Reports 

Attachments Redacted in Their Entirety 
59 

Biennial Audit Reports 

Attachments Redacted in Their Entirety 
60 

Attachment 6 - NLAD Duplicates with 

De-enrollment Date (Confidential) 

Attachment Redacted in its Entirety 
61 

Attachment 7 - Enrollment Override Analysis by 

Company (Confidential) 

Attachment Redacted in its Entirety 
62 

Attachment 8- SNAP Enrollment (Confidential) 

Attachment Redacted in its Entirety 
63 

Attachment 9 - Lifeline Wireless Company 

Override Usage (Confidential) 

Attachment Redacted in its Entirety 
64 

USAC 

Confidential, ~ot for Public Inspection for Disclosure 

The Honorable Ajit Pai 

Commissioner 

May 18,2016 

Federal Communications Commission 

445 12'h Street, S.W. 

Washington, DC 20554 

Dear Commissioner Pai: 

Your otTtce contacted the Universal Service Administrative Company (USAC) with 

several follow-up questions and requests for supplemental data in response to our May 2, 2016 

letter. The requested information related to USACs audits of specific carriers and its 2016 audit 

plan are provided below. 

unutctwHv, and we anticipate it 

-ljl.ilil!lt Director's meeting. II! audits are being 

conducted by external auditors under the direction of Audit Division (lAD) as 

pat1 of our external audit program developed during the 2014-2015 audit plan years, and we 

expect those repm1s to be completed in time to present at the USAC Board of 

Director's meeting. 

In addition to the previously referenced audits, \JSAC will also be conducting new audits 

of all four carriers named in your April 18, 2016 letter as of its 2016 audit 

Speci USAC will conduct audits 

DUling our conversation with your office, USAC described its risk-based audit program, 

which is designed to focus audit resources on entities with a heightened risk of noncompliance 

with FCC rules. Spccit!c~llly. USAC collaborated with the fCC Office of Managing 

and fCC Wirdine C n Bureau to devel the risk factors for the Lifeline 

' See Lt/clinc w1d Unk LJ; Rc:Jinm and ,\1odcmi::arion ct a!., \VC Docket :-Jo. 11 ~42 u a!., Report and Order and 

Further Notice of Pmposcd Rule-making, 27 FCC Red 6656, on 1-H1 (2012). 
65 

Commissioner Pai 

May 18,2016 

Page 2 

s req pursuant to a 

filing, USAC would advise the Commission that disclosure of this material should 

be withheld pursuant to FOIA Exemptions 4, 5, and/or 7(e). 

USAC is working diligently to gather and prepare the additional data requested by your 

office and expects to provide it by Wednesday, May 25. Please let us know if you need any 

additional information or have any questions about the responses provided. 

Sincerely, 

Chris Henderson 

Chief Executive Ofiicer 

Lniversal Service Administrative Company 

Enclosure 
66 

Lifeline Program Risk Factors 

Attachment A Redacted in its Entirety 
67 

USAC 

Confidential, Not for Public Inspection for Disclosure 

May25,2016 

The Honorable Ajit Pai 

Commissioner 

Federal Communications Commission 

445 12'11 Street, S.W. 

Washington, DC 20554 

Dear Commissioner Pai: 

Your office contacted the Universal Service Administrative Company (USA C) with 

several follow-up questions and requests for supplemental data in response to our May 2, 2016 

letter. The requested infonnation and supplemental response to Questions l(c)-(d) and 2 are 

provided below. 

1. For cac/1 ofthefour Lifidine wireless resellers named by Total Call Mobile sales 

agents (i.e., , anc~· 

c. For each study area a( each companyfi·om the period o(October 2014 to the 

present, a ta/Jie showing how many suhscribcl:Y enrolled each month; how many 

subscribers were ncwlv enrolled or trans(ersfi·om other Lif'c/ine carriers; how 

many suc/1 subscribers were accrued as a result of' an rwerride oft he f National 

L~fc/ine Accountability Database} NLAD 's safeguards; cmd among subscribersov~rrides, how manv were atrrihurab/e to !he independent-economic-unit check 

On May 2, 2016, USAC provided the "Emollmenl Override Analysis by Company,'' 

labeled as Attachment 7, which provided the third-party identity verification (TPIV) override 

data for the f()ur named carriers fl·om October 20 14 through F cbmary 2015 when the feature was 

deactivated. In response to a request from your otlice, USAC developed the attached 

supplemental rcpott, '"Enrollment Override Analysis by Company - Supplement," which 

includes all ovenides or exemption types allowed by NLAD. Specifically, NLAD includes or 

has included: (I) flags for addresses (tural and tribal) and independent-economic-household 

(IEH) certifications; (2) TPIV oven·idc information (until Febmary 2, 2015); and (3) requests for 

resolution of a TPIV f~1ilure process that results in manual review by USAC staff (after February 

2, 20 15). 1 All of' these various override or exemption functions arc rcf1ected in the attached 

chart, which was also extended to cover the tim<: period of October 2014 through April30, 2016. 

1 After February 2, 201 S. USAC added a TPIV resoltltlon ticket pmccs~ into NLAD, which allmvs carriers to ask 

( lSAC to approve an override of the TPIV error based on informBtion and certification provided by the carrier to 

USAC through the ticket rc-,·olution process. 
68 

Commissioner Pai 

May 25, 2016 

Page 2 

USAC notes that the inclusion of the mral, tribal and IEH flags into NLAD was 

contemplated by the Commission in the 2012 Lifeline Rc(imn Order. With regard to the two 

address related flags (rural and tribal), the Commission stated that "the database [NLAD] and 

identification verification process must be able to accommodate consumer addresses that are not 

recognized by the U.S. Postal Service (e.g., residences on Triballands)." 2 The lEH flag was 

included in NLAD to allow carriers to identify subscribers who qualified as an independent 

economic household under the Commissions' rules. 3 The Commission noted that "it is 

preferable to implement procedures to enable applicants to demonstrate at the outset that any 

other Lifeline recipients residing at their residential address are part of a separate household."4 

d. To the extent USAC knOltS, how many subscribers relied on [Supplemental 

Nutrition Assistance Program] SNAP cards for eligibility verification and how 

many of such subscribers used temporary or hlank SNAP cards for such 

verification. 

On May 2, 2016, USAC also provided the "SNAP Enrollment" chart, identified as 

Attachment 8, which listed the Lifeline subscribers for October 2014 through present for which 

the carrier selected the SNAP program. The attached supplemental chart, "SNAP EnrollmentSupplement," provides the requested infonnation through April 30, 2016 and adds the state 

location information for each study area code (SAC). 

2. A list of'any and all Lif'eline wireless resellers that overrode the sqfi•guards of the 

NLii.D more than 500 times between Octoba 2014 and the present, noting the 

number and type o{'such overrides as well as the percentage of new subscribers that 

were enrolled through the use ofsuch overrides, reported on a momh(y basis by studv 

area. 

USAC also previously provided the "Lifeline Wireless Company Override Usage" chart, 

identified as Attaclunent 9, which detailed data for all Lifeline wirdess resellers who used the 

TPIV ovcn·ide more than 500 times fi·om October 2014 to Febmary 2015 when that ovciTide 

f1mction was disabled. The attached supplemental chart, "Lifeline Wireless Company Override 

Usage - Supplement;· provides the requested TPIV ove1ridc inf(mnation from Febmary 2015 to 

April 2016 when it was provided as a ticket resolution process and we added additional 

information about the usc of the flags for rural, tribal and IE H. 

Sec L(fdin~.' und l.iHk L}> R(.{orm and ,Hodeml:ation eta!.. WC Docket No. ll-42 eta! .. Report and Order and 

Further "'otice of Proposed Rulemaking, 27 FCC Red 6656, par". 201 (2012) (2012 L1Minc Rc/imn Order). 

'See j.;cncrallv 47 C.F.R. ~ 54.400(h). 

"2012 Li(e!ine R'-form Order. at para. 77. 
69 

Commissioner Pai 

May 25,2016 

Page 3 

Please let us know if you need any additional information or have any questions about the 

responses provided. 

Sincerely, 

Chris Henderson 

Chief Executive Officer 

Universal Service Administrative Company 

Enclosures 
70 

List of Supplemental Attachments 

Attachment 7B -Enrollment Ovenide Analysis by Company~ Supplement (Confidential) 

Attachment SB - SNAP Enrollment Supplement (Confidential) 

Attachment 9B - Lifeline Wireless Company Override Usage Supplement (Confidential) 
71 

Attachment 7B- Enrollment Override Analysis 

by Company- Supplement (Confidential) 

Attachment Redacted in its Entirety 
72 

Attachment 8B - SNAP Enrollment -

Supplement (Confidential) 

Attachment Redacted in its Entirety 
73 

Attachment 9B - Lifeline Wireless Company 

Override Usage- Supplement (Confidential) 

Attachment Redacted in its Entirety 
74 

FEDERAL COMMUNICATIONS COMMISSION 

WAS!IINOTON. DC 20554 

1\ii1 em C0m111i~s1one1 

Mr. Chris Henderson 

Chief Executive Officer 

Universal Service Administrative Company 

2000 L Street NW, Suite 200 

Washington, DC 20036 

Dear Mr. Henderson, 

May 31,2016 

Thank you very much for your letters dated May 2, May 18, and May 25 regarding the waste, 

fraud, and abuse that has riddled the Universal Service Fund's Lifeline program since wireless resellers 

began participating in this program in earnest in 2009. I appreciate your responsiveness. 

My last letter to you explained how the Commission's recent investigation of Total Call Mobile 

revealed apparent holes in the federal safeguards that are supposed to protect taxpayer funds. For 

example, the National Lifeline Accountability Database (NLAD) is intended to verify a person's identity 

and address, among other things, before deeming that person eligible for Lifeline support. Identity 

verification is done by a third party, which reviews a person's first and last name, date of birth, and the 

last four digits of his Social Security number. But the FCC learned how Total Call Mobile's agents 

apparently overrode these third-party identity verification (TPIV) safeguards of the NLAD for 99.8% of 

its new subscribers in the last quarter of 2014. 

Your responses have confmned that Total Call Mobile was not alone. Three of the companies 

identified by Total Call Mobile's agents indiscriminately overrode the TPIV safeguards between October 

2014 and February 2015. 1 overrode the safeguards for 98.5% of its new subscribers; 

- overrode the safeguards for 96.2% of its new subscribers; and overrode the 

safeguards for 96% of its new subscribers. Furthermore, eight other wireless resellers overrode federal 

safeguards more than half of the time between October 2014 and February~ 

(99.5%), (99.4%), (97~(95.3%),~ 

- (89.4%), (74.2%), and__.-rs0.6%). 

The aggregate numbers for just these five months of enrollment are staggering. Roughly one 

third of the 2.5 million Lifeline subscribers enrolled by wireless resellers, or 821,482 subscribers, were 

enrolled using a TPIV override. And, even setting aside Total Call Mobile, the other II wireless rese!lers 

mentioned above were responsible for 616,937 of those enrollments. That's outrageous. 

I commend USAC for changing the TPIV override process on February 2, 2015, to stem this 

widespread abuse. But I remain concerned that existing safe!,•1Jards still may let unscrupulous carriers 

exploit the program. As explained in your letter and on USAC's website,' USAC staff still does not 

review any document that verifies a person's identifY before authorizing a TPIV override (now called a 

"TPIV dispute resolution"). Instead, staff only review a certification from the carrier that the requisite 

documents are in order. In other words, the integrity of the process relies on the integrity of the carriersthe only ones who know if a subscriber's identity is legitimate. 

1 USAC, Third Party Identity Verification (TPIV) Failure Resolution, http://www.usac.org/liitools/nlad/disputeresolution/tpiv-failure-dr,aspx. 
75 

277,599 subscribers have been enrolled through the new TPIY process. with some wireless 

resellers relying on that process much more heavily than others. Six of the resellers identified 

relied on the new TPIY override a 1,000 

"l!""~~"""""~-(~10,8 

these 

That's not all. Although the NLAD is also supposed to verify a person's address, it allows 

carriers to override that check with the press of a button. As USAC's website explains,' staff does not 

review any document that verifies a subscriber's address before authorizing an address override. Instead, 

if a carrier indicates that an enrollee's address is in a rural or tribal area and thus is not verifiable by the 

United States Postal Service, the override is automatically granted. As a result, here too the integrity of 

the process still depends on the integrity of the carriers-the only ones who know if a subscriber's 

address is legitimate. 

494,921 subscribers have been enrolled through the address override process since October 2014. 

with some wireless resellers relying on that process much more heavily than others. Fourteen ofthe 

wireless rescllers identified have relied on the 

,101 

There is apparently much work to be done before American taxpayers can know that the money 

they contribute each month to the Fund is not wasted or put to fraudulent usc. In our continued effort to 

investigate and combat the waste. fraud, and abuse that has plagued the Lifeline program, I respectfully 

request that you provide the following information to my office: 

I. Your responses highlight 13 wireless resellers that have fmon<>ntllv 

and were not identified in letter 

a. A description of any investigations, audits, or reviews that USAC has conducted on 

such companies from October 20 J 4 to the present, along with any such reports 

drafted or issued by USAC or, in the case of no such report, a summary of USAC's 

findings. 

b. If USAC informed any such carrier of duplicate enrollments, the number of duplicate 

enrollments involved and the date(s) on which the carrier de-enrolled them. 

c. To the extent USAC knows, how many subscribers for each carrier relied on 

Supplemental Nutrition Assistance Program (SNAP) cards for eligibility verification 

and how many of such subscribers used temporary or blank SNAP cards for such 

verification. 

2. Please explain the rationale and the process USAC used to establish the current TPIY 

override process (now called the TPIY dispute resolution process). Specifically, please 

2 USAC, Address Resolution, http://www.usac.org/li/tools/nlad/dispute-resolutionladdress-resolution.aspx. 

2 
76 

explain why staff do not review any documents identifying a person before authorizing a 

TPIY override. 

3. Please describe any investigations, audits, or reviews that USAC has conducted from October 

2014 to the present to verifY that subscribers enrolled through either the previous or the 

current TPIY override process did in fact provide proper documentation to establish their 

identities. Please include any such reports drafted or issued by USAC or, in the case of no 

such report, a summary ofUSAC's findings. 

4. Please explain the rationale and the process USAC used to establish the current address 

override process. Specifically, please explain why staff do not review any documents 

establishing a person's address before authorizing an address override. 

5. Please describe any investigations, audits, or reviews that USAC has conducted from October 

2014 to the present to verifY that subscribers enrolled with an address override did in fact 

provide proper documentation to establish their addresses. Please include any such reports 

drafted or issued by USAC or, in the case of no such report, a summary ofUSAC's findings. 

6. In your May 18 letter, you explained that USAC has the ability to compare the number of 

subscribers in NLAD with the number of subscribers reported on the Fonn 497 on a case-bycase basis. I am interested in comparing those numbers on a monthly basis for each of the 16 

identified wireless resellers, and my staff has identified a sample state for each one to make 

this inquiry more tractable. For each month from October 2014 to the present, please provide 

the number of subscribers in the NLAD as well as the number of subscribers reported on 

relevant Forms 497 for: 

a. in Ohio, i. in Oklahoma, 

b. in Michigan, j. in Pennsylvania, 

c. in Georgia, k. -in New York, 

d. in Oklahoma, I. in Maryland, 

e. in Puerto Rico, m. in Kansas, 

f. in Minnesota, n. -in Kentucky, 

g. in Hawaii, 0. in Rhode Island, and 

h. in Oklahoma, p. in Arkansas. 

Again, I appreciate USAC's continued work to protect the American taxpayer and safeguard the 

Universal Service Fund. Given the many millions in taxpayer funds already lost to waste, fraud, and 

abuse through the Lifeline program, I ask that you respond with the requested information by June 14, 

2016. If you have any questions, please feel free to contact Nicholas Degani in my office at (202) 418-

2000. 

Sincerely, 

~,~.r~- Commissioner 

Federal Communications Commission 

3 
77 

FEDERAL COMMUNICATIONS COMMISSION 

Ap! P!!l 

Comn11~~ione.r 

Mr. Chris Henderson 

Chief Executive Oftlcer 

Cniversal Service Administrative Company 

2000 L Street NW, Suite 200 

Washington, DC 20036 

Dear Mr. Henderson, 

WASHINGTON. DC 20554 

June 8, 20!6 

Thank you again for your May 25 letter, which contained detailed data on how wireless resellers 

have used the National Lifeline Accotmtability Database (NLAD). My staff has concluded further 

analysis of that data, and I am now concerned that abuse of the Universal Service Fund's Lifeline 

program is more widespread than I first thought. 

Before 20 !2, it was well known that duplicate subscribers (that is, individuals getting multiple 

subsidies) plagued the Lifeline program. In the 2012 Lifeline Reform Order, the Commission codified the 

one-per-household rule, which prohibits more than one Lifeline subscription fi·om going to a single 

household. To curb the problem of duplicate subscriptions and enforce the one-per-household rule, the 

FCC established the NLAD. The NLAD is designed to help carriers identify and resolve duplicate claims 

for Lifeline service and prevent future duplicates from enrolling. 

Although the NLAD rejects multiple subscribers at the same address, the FCC also instructed 

USAC to "implement procedures to enable applicants to demonstrate at the outset that any other Lifeline 

recipients residing at their residential address are part of a separate household." USAC did so by allowing 

carriers to override NLA D's rejection of an applicant with the same address as another subscriber. As 

!;SAC's website explains, to carry out an independent economic household (IE H) override (as USAC 

calls it), an applicant must merely check a box on a forrn and neeU not provide any supporting 

documentation.\ 

Unfm1unately, this well-intentioned exception to the override process appears to be undermining 

the one-per-household rule. The NLAD is not preventing a large number of duplicate subscribers fi·om 

claiming Lifeline subsidies, 

\Ve saw in the Total Call Mobile case how unscrupulous carriers could regularly register 

duplicate subscribers by fraudulently using the address of a local homeless shelter, altering a person's 

name, and using fake Socia! Security numbers to evade detection. As a result, USAC had to de-enroll 

32,498 duplicates from Total Call Mobile's rolls. 

But your May 25 letter reveals an even greater problem. Specifically, USAC's data reveal that 

carriers enrolled 4,291,647 subscribers between October 2014 and April 2016 using the IEH 

override process. Thut's more than 35.3°/o of all subscribers enrolled in NLAD-participating states 

1 USAC, NLAD FAQ, http://www.usac.org/li/about/faqs/faq-nlad.aspx (June 8, 2016) ("Carriers will receive [a 

·Duplicate Address') error message if another subscriber is currently clEJiming this address in NLAD. To resolve 

this error message, collect a Lifeline Household Worksheet from the subscriber. In the 'Subscriber Eligibility 

Information' section on the 'Enroll Subscriber' page, select 'Yes' for' Independent Economic Household,' enter the 

date in 'IEH Certification Date,' then proceed with enrollment"). 
78 

during that period. Indeed, that's more people than live in the State of Oregon. And the price to the 

taxpayer is steep---just one year of service for these apparent duplicates costs taxpayers $476 million. 

It is alarming that over one-third of subscribers---costing taxpayers almost haifa billion dollars a 

year-were registered through an IEH override. Therefore, I respectfully request that you provide the 

following information to my office: 

I. Of the 4,291,647 subscribers enrolled using an !EH override between October 2014 and April 

20 I G, how many are still enrolled in the Lifeline programry To the extent these subscribers 

arc no longer enrolled, please quantify (I) how lllilny subscribers left the program of their 

0\\11 volition. (2) IJO\\ !lltll1) de-enrolled a:; a rt.-:sult ufa specific in\estigation. audit, or 

review, and (3) how many dc-enrolkd as a result of annual verification checks. 

2. Please explain the process USAC used to establish the current !EH override process. 

Specifically, please explain why carriers are not required to collect any documentation 

demonstrating that a subscriber is "part o[ a separate household" for purposes of an !EH 

override and why staff do not review either the cer1ification form or any documentation 

before authorizing an fEH override. 

3. !'lease describe the "cps USAC has wken to verify the integrity of the lEI-! override process. 

Specifically, 1 am interested in understanding the steps taken to verify that subscribers 

enrolled with an IEH override are in fact economically independent ii·om other Lifeline 

subscribers at the same address. 

a. For example, one Total Call Mobile sales agent testified that he filled out 

applications, checking off the boxes he knew applicants needed to check to enrolL 

What process docs USAC usc to minimize and detect such behavior? 

b. Does USAC contact cxistin?, subscribers nt a particular address before enrolling n 

!WV>" subscriber at th<l1 address io v~rif~l economic independence? 

c. Has USAC sampled a set of subscribers to determine whether subscribers can 

demonstrate economic independence through documentation (such as tax forms)'' 

d. Has USAC coordinated with federal or state agencies to determine whether 

subscribers have consistently represented themselves as economically independent? 

4. According to the 2014 Lifeline Biennial Audit Plan. independent auditors were required to 

create a list of apparent duplicates l(>r each carrier subject to the audit and verify for a sample 

of'30 apparent duplicates that "at least one subscriber at each address [has] complcte[d] a 

one-per-household worksheet." Were auditors required to verify whether such subscribers 

were actually economically independent from other Lifeline subscribers at the some address 

for a sample of apparent duplicates'' If not, why not? 

5. Please describe any investigations, audits, or reviews that USAC has conducted from October 

20\4 to the present to veri f)· that subscribers enrolled with an IEH override are in fact 

economically independent li'om other Lifeline subscribers at their address. Please include 

any such reports drafted or issued by USAC or, in the case of no such report, a summary of 

USAC's findings. 

6. Please describe any recommendations USAC has to improve the IEH override process to 

ensure that taxpayer funds are not wasted. Please identify any FCC rule changes that would 

be necessary to effectuate such improvements. 

7. You reported in your May 2 letter that USAC also conducts Payment Quolity Assurance 

(PQAJ reviews and regularly analyzes the NLAD for "anomalies, duplicates, or other errors 

that may signal improper payments of potentially fraudulent behavior." As a result of those 

2 
79 

reviews, USAC discovered and de-enrolled 3 73.911 duplicates ti·om the NLAD between 

February and May 2015. Please describe any other investigations, audits, or reviews that 

USAC has conducted from October 2014 to the present to eliminate duplicate subscribers 

from the NLAD. Please include any such reports drafted or issued by USAC or, in the case 

of no such report, a summary ofUSAC's findings. 

8. In the Total Call Mobile case, one sales agent alleged that he could enroll the same person 

multiple times in the NLAD so long as the applicant used different devices within a J 5-

minute tirnespan. Is this claim true? If so, what steps will USAC take to close this apparent 

loophole? 

I appreciate USAC's continued work to protect the American taxpayer and safeguard the 

Universal Service Fund. 1 also appreciate thnt USAC often takes instruction from the FCC in fulfilling its 

role. Given the hundreds of millions in taxpayer funds apparently lost to unscrupulous behavior in the 

Lifeline program. I hope you will agree that USAC's paramount task must be to eliminate waste, fraud, 

and abuse fmm the Lifeline program. I therefore ask lhat you respond with the requested information by 

June 28,2016. lfyou have any questions, please feelli·ec to contact Nicholas Degani in my office at 

(202) 418-2000. 

Sincerely, 

~~p~ 

Ajit Pai 

Commissioner 

Federal Communications Commission 
80 

The Honoiablc Ajh Pai 

Con11nissioner 

F.:deral Corrurmnic"tions Commisfion 

445 12111 Street, S.W. 

1\'z;shingtm'. DC 20554 

Dear Cormnissioner Pai: 

Than .. \; you for yom follow··up letter conceming the Univc:rsal Service Fund's (LT:Sf) 

Lifeline Program. The Universal Service Adminiw ative Company (USA C) is d~;dreat~d to 

·:ontinuing to working whh thr Federal Co:Ttmtmicrttio:ls Comn1ission (fCC) tu combat waste, 

l':'snri flf,d abuse in the USF prog,n:m. We wckome the insights prm-id"'d in your detailed 

inquiries :mel VJ!uc this opportunity to work with you to improve th<? Lifeline Program. 

As you know, the 1012 Lifeline Reform Order implemented significant chrmges to 

cnlmnct~ accounl:ibilii) ;:md prevent waste, ti·aud and abuse of in the Lifeiinc Program, hcluding 

the l:n;nch ofthc National Lifeline Acc,ountability Database (NLAD). 1 The 2015 ''"'1d 20lfi 

L(feiine Ref'orrn c1tdr?·.,· built on tl·use etT01ts, which a1nLmg other things n1nnd~te t(:tenticmof 

Lifelir1e eligibility documcm:Hion and establish a National Eligibility \i~rifier to make digibi!ity 

d~c··:minnri;.r>« the Lifeline P;·ogrmn. 2 USAC is v,orldng diligently to devdop and lam;dt :he 

-.\~r1tlonal Rllgibilit~ Verifier} including tneeting \Vith states, public utility con:.1ni~sinns ard nther 

rt,;encies to eoord[natc effotts and f11lly utilize the new tools provided in those ord..,rs tc ensure 

that onl} eligible subscribers are enrolled in the Lifeline Program. With the la1mc,h of the new 

pmgram will ~:o longer have to rdy upon the int~grity of individual carri~rs, as ;,o,J 

!etter, but instead will!d)' Gpon USAC <md oqr ir:depend<;nt wrificBtion of identity 

befote .f~inds :1rc provid~..;·,.J tc the carriers \Ve are ct<ntinui:lf!- to 'vork \Vith Lhe 

""""'""''' the \Virelille Ccmpc-tition Bureat1 anJ E1~forccauent Bnrean~ to ensure th~t \'-'..:: 

lcatued, and co.ntb11.:e to ~fotect the USF h' enst~re that the l i ft'l!ne 

t-'rogr.:un .:-cnrir.ues t\.' :;;%ist H:n." ihtcnded ~cnctidaries. 

i L! r,-;,:J1.C t.;nd .. hk r •. /p Rt:f(J";t; and lvlcdt''l!iZ:JlfOl'!, Life Nne ,i!Hll ink lh,\ F~dc~·al~Stti!r..: ,fuil'tf So:.'!·d fp (Jr1:'Y'?rt~·,} 

3en fl./.'. Broadband Avaflubllity Thr(~;:?h Dir:;iwl Lfier n'-J' nafnfng, \VC Docket No. 1 l· 42, e1 :.£., Rl'por~ 

ofPropo3d Ru!em"kin;'. 27 FCC Rd 66.'6 (:'01 ::) (2012 Lifeline R\fr· '" Or.:ie") 

1-~.-··e:fr?e ,-:'1:1 f.,.:nk Lf,t' kc/:;rm -1nd I'JoJ!'.rr:rzaJion, tPl,;co.'nPu.nications Ccn irrs Slig/!,lt.j.:Jf' L/nfNrsd .)',,,,.,.,.~~·ce 

-.-.n, (. .. ~.':ne~·t Amer!::a F'•md1 \\¥C DuGk~;t No. ~ 1 112, c: :d., Set:c.nd ft.~rmer Notict: uf P:-opo:;.;;d Rulemuidng. 

0n Hccor.:iider:~tion, Secord and Order) rmd ivkmomnt!um Ur..it~ion nnd 01de:·, 30 fCC R~~d 7~18 

(~015) r_Z~ff5 Lfj'eifm· !?efcn:• ')rder); enri Link Up R~ti .. H·m and M~dernization. Tei,~c~rnmt:nication~ 

~~:l'' t.;1s E:ijole f.x tmi ... crsal S~1 \·ice S~ppO't, COil!lect America Fund, \VC Dncket No. l i -42 era/.,~~ hird R,;IX~n 

~l.'lfi Ort~.:r. F:.~Jther l~ep01 tend i)rJer C;YJ R ·'( o:~s;dr:a: L.m, 20 I 6 \VL J 70697~l (April 27, 20 16) (20 10 I te:;rr:; R.cjJ,·m 

!r;;.te:·). 
81 

Commissioner Pai 

June 14,2016 

Page 2 

Below, we provide responses to your specific questions along with several attachments 

detailing the data and information you requested. 

1. 

a. A description of any investigations, audits, or reviews that USAC has conducted 

on such companies fi'orn October 2014 to the presem, along with any such reports 

drafted or issued by US'A Cor, in the case of no such report, a surnma1y of 

USAC '~'findings. 

OW' May 2, 2016 letter described the Beneficiary and Contributor Audit Program 

(BCAP), the Payment Quality Assurance (PQA) reviews, the Biennial Audits, and the Lifeline 

Program Duplicate Resolution processes. As with the companies noted in that letter, USAC 

provides infom1ation regarding audits and/or reviews as applicable, for the 13 companies named 

in your May 31, 2016letter. 

First, since October 2014, USAC's Internal Audit Division (JAD) has not completed any 

BCAP audits of the 13 named carriers. BCAP audits of 

USAC also conducted PQA reviews of the 13 companies. A summary ofUSAC's PQA 

results for the 13 named carriers is provided in response to Question I (b) below along with the 

result of our Duplicate Resolution Process. 

b. If USAC informed any such carrier of duplicate enrollments, the number of 

duplicate enrollments involved and the date(s) on which the carrier de-enrolled 

them. 

As noted in our May 2, 2016 letter, USAC uses multiple levels of analysis, review, and 

data analytic.~ to identify and remove duplicate Lifeline subscribers and has taken additional 

actions to prevent the enrollment of duplicates. 
82 

C:::nnrnissloner P~\i 

J•Bc<' 14, 2016 

Pnec 3 

The PQA review Drocess is one method used to identity and notify canicrs of Lifeline 

As part o.Cthe Dup!ic.ate Res,,:utior. Process, USAC notified each carrier of the duplicat~ 

ennJlhnents that were identific-:d as a re&ull ofUSAC's intcrn;,.i review of records fron1 F0bru:1rv 

2015 to May 2015, A detailed listing of these duplicates, includill(( the date the dupl.ieate . 

sutscriber was de-enrolkcl fi'om NLAD, is prcvided lwlow. 

\Vc aLso wHntt:d to bring to yom attention tl1 thl' completion of Put"rto Ri~o dupiicete 

tTso!utbn pro;;ess. This :'l'Cl~ess was just completed on June .l, 20 t 6 f<Jllowing th~ loading of 

snb~c.ribe1 datr: frun1 Pt!Crto Ri~o. \;;.'hich vvns prcvivusly an opi·out leuitory for NI AD. As a 

!"(.;SUlt {Jfthis i"T(\C\'!3S, proVi(1C additional infonnation r~gzrrding four CatTiers n:.uncd in 

~---r,:,viG"liS \:mre~pnndetlCe. 
83 

Commissioner Pai 

June 14,2016 

Page4 

' c. To th~ extent USA C knows, how many subscribers for each carrier relied on 

Supp{emental Nutrition Assistance Program (SNAP) cards for eligibility 

verification and how many of such subscribers used temporary or blank SNAP 

cards for such verification. · 

The attached report, "SNAP Enrolhnents (June 2016) (Confidential)," is based on data 

reported by the carriers in the NLAD system. As noted in USAC's May 2, 2016letter, NLAD 

requires carriers to select the type of eligibility program from a drop-down menu, which lists 

SNAP as one of several eligible programs. As S\.lch, the attached list includes all subscribers for 

October 2014 through present for which the carrier selected the SNAP program, but the list does 

not specify the exact type of docwnentation reviewed by the carrier. 

2. Please explain the rationale and the process USAC used to establish the current 

TPIVoverride process (now called the TPIV dispute resolution process). 

Specifically, please explain why staff do not review any documents identifYing a 

person before authorizing a TPIV override. 

In the 2012 Lifeline Reform Order, the Commission mandated creation and use of the 

NLAD with specified features and fu:nctionalities, including a third-party identity verification 

(TPIV) serv,lce, to detect and eliminate duplicate support? Recognizing that any "duplicates 

elimination process must balan~e the need to reduce waste in the [USF) against mistakenly 

denying cmisum~rs Lifeline benefits," the Commission directed USAC, in consultation with the 

Wireline Competition Bureau, to establish dispute resolution processes to resolve disputes over 

duplicate support consistent with the Commission's rules.4 

Pursuant to the 2012 Lif~line Reform Order, in July 2014, USAC established processes to 

manage an<:[ resolve disputes OVI(r duplicative support, including a TPIV override feature in 

NLAD wh!'re an eligible telecommunications carrier (ETC) could submit a TPIV override at the 

time they received a TPIV failure after attempting to enroll a consumer. To use this process, · 

ETCs were required to review one of a list of approved documents provided to the ETC by the 

subscriber that would serve to verifY the subscriber's identity. The Wireline Competition Bureau 

and USAC believed at the time that this flexible approach was necessary to prevent hundreds of 

'2012 Lifeline Reform Order, 27 FCC Red at 6734,42, paras. 179,200. 

'I d. at 6747,6749, paras. 212,217. 
84 

Cammissioner Par 

.luue 14,2016 

P?.gc 5 

thousands of otherwise eligible subscribers from being denied Lifeline servire in contravention 

:''1L· J')l? (),·.·!1:, .. 5 

'1\:T(:ftTC:d thd: 

•••••••••••••••••••••••• and lh~~- V3St rn9.}~.n:ty ofth·se 

duplicate records were entered into NL/1 D 11 "nugh the TPlV OiiC!Tide process. On February 2. 

2015, following discussi011s with Wireline Competition Bureau Staff, USAC remov~d the TPIV 

override and implemented the eunent TP!V d.ispute resoh;tion proce~s. 

Today, th~ .lisputc resoluti0n proce3s requites ETCs t<, subwit 3 TPIV resolution ticket 

f<)r USAC approv:1l when subscribers fail the TPIV che-ck. The resolution ticket must include the 

name or idcntilication m'mber nffne R:?cnt, the prop.;r dvC1111Knt tevie,wd to override the failure 

sr;d "cenitication that the documentation was reviewed to whicb any false claims could result in 

:·1·,1inal prosecution and civil penalties. Ur:x)n st;bmission, USAC reviews each dbpute and 

~"'~rovidcs ~n ovciTidc upon veritlcP.tir.~n 1hat the subscdber's td~:":~~tity was ap-propriately validated. 

Umillhe document retention mks were c:han1!ed ill the 2rl5 Lifeline 1'-ieform Order. '• 

ETCs Wf.lC prohtbited iiom ;elain;ng cories of dowmerotmioP ased to verify subscriber 

eli;;ibility. As such, pri0r to Fehru~ry 2iJl6, there Wt're no documents ftvailable fm USAC's 

review 8S p.ut of a TPIV dispute resolution ticket, or a BCAP audit \11' PQA review. Going 

i·nr\vatd, because this do'- m~1entcdon musl be r~tHi:J.ed by the E'i'Cs, audits of Lifel!nt c:::rrier~ 

\viii confinr: lh,Jl docmn:n!~t~iou 1.vo.s :1rt"~t•)pri:.!tdv revie,.vcd to verify r1 subsnlher's id.;ntity. 

J. Ple05'1? dt~sc~·zbe an.v i:tve~·tfgt1fit'!f~''\ audit.:;, Dl' rericw\ iha! (/.')'lAC has condw:t~d 

}i·om Ocwber :!fi 14 t!:e pr<'sozr tu ·,·erify rlw! subscriber.\' enrolled lhroufih 

,j.:thf.!J' tne _pret.'iGi!S or tlte CU•" 1't'Uf TPIV override procJJss did iufuct provide 

proper docJunentotior; to establish ihclir identities. Please tnc!w.-le an . ..v ... ~?!Ch 

reports drt:J?ed or issued hy USAC or! in the case ofr:o such repod, a SU11UY:cn;. c?f 

US.·1C ·s¥1iltf'lings. 

As clrscr~bej abo\.<~: until Febnl8!"J' '20 l6, c~~rriers v:erc nnt pcrr1itted tJ rel.Hin th~: 

:·efcrc:1~c:d sltb~crib<ol ciocnncentati,)n. Hmve,·er, liSAC has tmplO\·C:d muhiplc methods for 

rt?vt.__~w ~1f LHeli!1c .:>.etvi.;c provider~, indudint; f1f:;\P 3.wJits ~md PQA reviews that have 

,-,·ovidcd inr~ig,ht iutn the Ca!Tiers~ cer~:if:t.::anon :n:d t·ec:crti fic':'.tica p··ocess:e'), In af!dition~ USAC 

IM~ unden:akcn its dtila analytk~ re·,;ic,v intiwnution S!rhmitted lr;to Nl AO. As 

we have :dentificd 3nd discussed with the Wireline itio:1 

; Alll'PiV proCnets hr;ve a:t aw~tag;~ f~i!J;'f' rate {:nr\-,t:.;nz 1h-:: irl~nn~y ,~fJ real person <.:armo! be reliJbly vcrifi;~d by 

:

1·.•,; T F'iV datJi1~1se) ~hat is lik:::-ly w be !ligt'cr r-.~no~;g j("lw inc0me c:)nsum~n dJe w their typically ie% robust public 

t:;c._rd th ... t vct:dc·r dnnv1 ·JpOP to conduct 8- TPIV clwck. 

<. 2UJ5 f..((::d':-:<Z Ref 7w Order, 30 rCC R~r! at 739J, p~lr:_, 1.31. 
85 

Commissioner Pai 

June !4, 2016 

Page 6 

4. Please explain the rationale and the process VSAC used to establish the current 

address override process. Specifically, please explain why staff do not review any 

documents establishing a person's address before authorizing an address 

override. 

As explained in USAC's May 25, 2016letter, the inclusion of two address related flags 

(rural and tribal) in NLAD was required by the FCC in the 2012 Lifeline Reform Order, which 

required USAC to implement an exceptions mana.rement process to ensure that consumers are 

not improperly denied access to Lifeline benefits. As noted in our response to Question 2 

above, until February 2016, ETCs were not permitted to retain copies of documentation used to 

verify subscriber eligibility. As such, there were no documents available for USAC's review. 

Going forward, because this documentation must be retained by the ETCs, audits and other 

reviews of Lifeline carriers will confirm that documentation was appropriately reviewed to verify 

a subscriber's identity. 

5. Please describe any investigations, audits, or reviews that USAC has conducted 

from October 2014 to the present to verifY that subscribers enrolled with an 

address override did in fact provide proper documentation to establish their 

addresses. Please include any such reports drafted or issued by USAC or, in the 

case of no such report, a summary ofVSAC'sjindlngs. 

As described above, until February 2016, carriers were not permitted to retain copies of 

the referenced documentation. In addition to the methods discussed above, USAC continues to 

invest in data analytic capabilities to enhance our in-depth data validation processes to prevent 

and remove abuse of IEH flag. 

6. In your May 18 lette1; you explained that VSAC has the ability to compare the 

number of subscribers in NLAD with the number of subscribers reported on the 

Form 497 on a case-by-case basis. I am interested In comparing those numbers 

on a monthly basis for each of the 16 identified wireless resellers, and my staff 

has identified a sample state for each one to make this inquiry more tracfclble. 

For each month from October 2014 to the present, please provide the number of 

subscribers in the NLAD as well as the number of subscribers reported on 

relevant Forms 497 

a. 

b. 

c. 

d. 

in Ohio, 

in Michigan, 

'2012 Lifeline Reform Order, 27 FCC Red at 6747-48, para. 212 (noting, for example, that some residences on 

Tribal lands lack U.S. Postal services addresses, and that without an exception process, consumers with addresses 

not recognized by the U.S. Postal Service may be inappropriately denied Lifeline suppon). 
86 

Cumm:ssioner Pai 

J'tEe 14,2016 

Page 7 

e. 

k. 

I. 

Ill. 

n. 

rJ. 

The NLJ\D system i; a d::n>mic, real-timt data bas~ that rer1e.cts minute·· by ·minuk 

changes made through enr.;l.lme!lt;,, de··enrnllments, and tramfers. For the purpoae of L1feline 

Progra:n disburFCTlcnts, ETCs reporl their !otal subscribers at a particular pomt in time on each 

FCC Fc;·m <197. However, the ru!es do not rec:uile can·iers to submit the FCC Fom1 497 on a 

1:wnthiy basis, bm inste,ld all•lll·s rhem lo submit \\·ithin a year af :he applicable month claimed. 

In additic•n. carric.:rs tnay revise.: their FCC Fonu 497 for a full year, 'vhich ca~ also cause changes 

in the mnnber of sub,cr.beJ·3. As snc:h, :t is not possible to match the cuunt 0f subs(<ril,ers in 

NLAD ;;;_t the exact point in tirr.e th.n subscribers \Vere <.,ounted by a carrier for the purpose of 

111hrnitling the Fer~ Forn 497. U'SAC: a:so ekes not retain wp1es or snct]'·'hots n:'NLAD, out 

em ~.:se tran;.:&ct:l·,n histcr) to recreate E:ny point in titne rf:'qUe'Jted: wt:ieh \Ve have done in order 

to n,-_-::pond to t.hi:) rer1ue;...:t Thcr~:.i~::.r~, to pcrft;rnt the analysi:;, lTSAC retroactively pr\':duced :t 

!istlng 0f any subscriber ever mtribvted to each carrier in NLAD during the cakudc:r fll('iith and 

the suhscri.ber em.mt w;;s then c:ompzrred the FCC Form 497 filed by the c~tnkr r0r that s<:mc 

d .. \ls munth. A >tnnmary 0fth;s com;,,mson is pro'lrded in the attachcrl charL "fCC form 4'!7 

8.nd NLr\D Su!J~cnb~r Counts (C'-'Itfidcntr(.1l)" 

USAC !'eln~tins cornrnined i(l ~nsming the Uuiversul Service Fund is protcct~d frorn 

Vtaste~ ~h;.nd~ and nhu3c nnd look;; fo~·\Yetrd !,o ccntinuing i.D work t_;>,:ith the FCC tv e.n~ure th~d 

c:t::ncributlons fr~rn consurncrs ttr~ d:~bttr<;;ed i:1 accordance \Vith FCC rules ~;.ud rc5u!a:.iun;;. 

Pka:<e let us kno•x if you need any adr;::io::al i•tf.1Tu<3tion cr have nny cp_,e~tions; l•c,nt :l:c 

: ~spUll)e.S pi'l.._:vic!ed 

Enc:!us\!:c'S 

Sinccrdy. 

Chris Ecr;derson 

Chiert2sec.c~live OH)cc• 

Universal 5~ervice Arlrnin:stra1;vt:• Corrtp3ny 
87 

-1111111111111111 Bknui?J And]i R~~pu;·l 

~---- Bicrdul Anrlit Rtpmt 

11 ·h.:h!Fer:l 7 -111111111 Bicnni.:d 1\udit f( :..·rrx't 

!G .. rcc r 
88 

Biennial Audit Reports 

Attachments Redacted in Their Entirety 
89 

Attachment 9- SNAP Enrollments (June 2016) 

(Confidential) 

Attachment Redacted in its Entirety 
90 

Attachment 10- FCC Form 497 and NLAD 

Subscriber Counts (Confidential) 

Attachment Redacted in its Entirety 
91 

USAC 

Confldrntial, Not for Public Inspection for· Disclosure 

July 14,2016 

The Honorable Ajit Pai 

Commissioner 

Federal Communications Commission 

445 121

h Street, S.W. 

Washington, DC 20554 

Dear Commissioner Pai: 

Thank you for your letters concerning the Universal Service Fund's (US F) Lifeline 

Program. The Universal Service Administrative Company (USAC) is dedicated to continuing to 

working with the Federal Communications Commission (FCC or Commission) to combat waste, 

f!·aud and abuse in the USF programs. We welcome your questions about the independent 

economic household (IEH) designation established in the 2012 Lifeline Reform Order. 1 

As you know, in the 2012 Lifeline Reform Order, the FCC codified the rule limiting 

Lifeline suppo11 to a single subscription per household and defined "household" as "any 

individual or group of individuals who are living together at the same address as one economic 

unit."2 The Commission also took steps to anticipate and resolve instances where multiple 

households reside at the same address finding it "preferable to implement procedures to enable 

applicants to demonstrate at the outset that any other Lifeline recipients residing at their 

residential address are part of a separate household."1 ln order to determine if individual 

applicants living at the same address are separate economic units, the FCC mandated the use of 

the IEH worksheet that must provide:"(!) an explanation ofthe Commission's one-perhousehold rule; (2) a check box that an applicant can mark to indicate that he or she lives at an 

address occupied by multiple households; (3) a space for the applicant to certify that he or she 

shares an address with other adults who do not contribute income to the applicant's household 

and share in the household's expenses or benet1t from the applicant's income ... ; and (4) the 

penalty for consumer's failure to make the required one-per-household certification (i.e. deenrollment)."4 As a result of this rule, the !EH tlag was included in the National Lifeline 

1 Ufeline and Link Up Reform and Modernization. U{eline and Link Up, Federal-State Joint Board in Universal 

Service. Advancing Broadband Availability Through Digital Literacy Training, WC Docket No. J 1-42, el a/., Report 

and Order and Further Notice of Proposed Rulemaking, 27 FCC Red 6656 (2012) (2012 Lifeline Rfform Order). 

'!d. at 27 FCC Red at 6689, para. 74 (noting this definition is "consistent with the definition used in the LowIncome Home Energy Assistance Program"). 

'!d. at 27 FCC Red at 6690, para. 77. 

'!d. al 27 FCC Red at 6691, pam. 78. 
92 

Commissioner Pai 

July 14,2016 

Page 2 

Accountability Database (NLAD) to allow carriers to identify subscribers who qualified as an 

independent economic household under the Commission's rules. 

Bdo". "t pro' ide responses to ) OUr specific questions along " ith an anachment 

d~tailing the data and infonnation you r.:qucsted. 

I. Of the 4,291.647 subscribers enrolled using an IEH override between October 2014 

and Apri/2016, how many are still enrolled in the Lifeline program? To the extent 

these subscribers are no longer enrolled, please quantify (I) how many subscribers 

left the program of their own volition, (2) how many de-enrolled as a result of a 

specific investigation, audit, or review, and (3} how many de-enrolled as a result of 

annual verification checks 

The detailed data related to subscribers who were enrolled in NLAD between October 

2014 and April 2016 with an IEH flag is provided in the attached Excel spreadsheet. 

The approximately 4 million subscribers referenced in this question include all of the 

subscribers enrolled in NLAD from October 2014 through April 2016 with an IEH flag. USAC 

believes that some carriers may automatically request an lEH worksheet and select the flag in 

NLAD as pa" of their routine enrollment process, and therefore some subscribccs may be 

enrolled " 'ith the IEH flag checked when it is not necessary. While it is difficult to calculate 

when an I EH worksheet was actually needed, as the overrides and the need for overrides change 

minute by minute, we've reviewed the "current" state of addresses to illustrate this point. 

Specifically, of those 2.6 million addresses currently associated with the IEH designation, there 

are approximately 890,000 addresses that have more than one subscriber living at them (35%), 

and 1.7 million IEH flags associated with addresses where only a single subscriber is present 

(65%). It can be inferred that since I. 7 million addresses associated with the IEH designation 

only have one subscriber present atthe address, then those 1.7 million active subscribers out of 

the 3.9 million active subscribers with the IEH flag do not in fact need the lEH flag to remain 

enrolled in the program. In other words, 43% of all current subscribers marked with the IEH flag 

do not in fact need the JEH flag, as set fo"h in the cha" below. 

Address Typ< Addressts % Addrt.u Sulmribers •;. Subscriber 

>I active subscribers at address 887,569 35Yo 2,186,815 S7% 

only I active subscriber at address 1,663,907 6S% 1,663,907 43% 

Total Active IEH Subscribers 2,55t,476 100% 3,850,722 100% 

2. Please explain the process USAC used to establish the current IEH override 

process Specifically, please explain why carriers are not required 10 collect any 

documentation demonstrating that a subscriber is "part of a separate household" 

for purposes of an IEH ovunde and why staff do not review either the 

certification form or any documentation before authorizing an IEH override. 
93 

Commissioner Pai 

July 14,2016 

Page 3 

As described above. the definition of"household" and the related IEH worksheet was 

established by the Commission in the Z0/2 Lifeline Reform Order. The Commission provided 

for a self-certifying process for subscribers to establish their status as an independent economic 

hou~ch ld and did not require the carrier or USAC to tonduct any verification of that 

certillcation. Specifically, the Commission stated that: 

"(W]e are requiring consumers to furnish only as much information as is needed 

for the ETC to verify the consumer's compliance with the one-per-household rule, 

which allows more than one Lifeline-supported service at a given address in 

specific circumstances. We are not expecting a consumer, for example, to list the 

names of other residenlS of their household or explain personal or familial 

relationships on the Lifeline application form. Rather ... it would be sufficient 

for a consumer to state that he or she shares an address with other adults who do 

not contribute income to their household or share in the household expenses. We 

are not imposing an obligation on ETCs to investigate or inquire further about the 

specifics of those household arrangements.''5 

Consistent with the 2012 Lifeline Reform Order, carriers have never been obligated to 

collect documentation underlying the certification. In addition, until February 2016, carriers 

were prohibited from retaining documentation related to the subscriber's identity or eligibility.

6 

Carriers are, however, required to obtain an IEH worksheet completed by the subscriber that 

indicates they qualify as a separate economic household. As part of USAC's Beneficiary and 

Contributor Audit Program (BCAP) and Payment Quality Assurance (PQA) reviews, USAC 

requires carriers to produce the lEH worksheet for sampled subscribers and those worksheets are 

carefully reviewed. 

USAC does not currently request the IEH worksheet before perrn.itting each individual 

enrollment. However, with the creation of the National Lifeline Eligibility Verifier (National 

Verifier) and USAC's role as the neutral third-party Lifeline eligibiliry administrator, we will 

work with the Commission to determine the necessary level of review of IEH worksheets and 

other related documentation to ensure program integrity. 

3. Please describe the steps USAC has taken to verify the integrity of the IEH 

override process. Specifically, I am interested in understanding the steps taken to 

verify that subscribers enrolled with an IEH override are in fact economically 

independent form other Ufe/inc su o~crib s at the same address. 

' ld. at 27 FCC Red at 6694-95. para. 84. 

' /d. at 27 FCC Red at 6703, para. 101 ("While ETCs wotl be required to examine such documentation a,s appropriate 

to verify 1 consumer's program or income-based eli,ibitity for initiating Lifeline service, ETCs are not required to 

and should not retain copies of the doeumenllllion."); Stt also Lift/,t ond Unk Up RtjOTm ond Modtrnizoflon. 

Teltcommumcallofll Carritrs Eligible for Universal Svvic1 SuppOTt, Conntct Amtrico Frmd, WC Dod:et No. t t· 

42, et al., Second Funh(r Notice of Proposed Rulemakong. Order on Reconsideration. Setond Repon and Order, and 

Memorandum Opinion and Order, 30 FCC Red 78 18, 7891-96. paras. 224-235 (2015) (2015 Lifeline Rt/OI'm Ordtr). 
94 

Commissioner Pai 

July 14, 2016 

Pagc4 

a. For example, one To1al Call sales agenl/estifted that he filled out applications, 

checking off the boxes he kn11w applicants needed tO check ta enroll. What 

prQd'fl Joes l:SAC uu w minimi;;e anJ tlnect tudr hehmior? 

b. Does USAC contact existing subscribers at a particular address before enrolling 

a new subscriber at that address to verify economic independence? 

Currently, USAC does not enroll subscribers into the Lifeline Program. At this time. the 

responsibility to determine subscriber eligibility within the Lifeline Program and compliance 

with the IEH limitation resides with the carriers. Also, as noted in response to Question 2, the 

FCC did not require subscribers to provide any additional proof to support the self-certification 

made on the IEH worksheet. As such, USAC has not contacted existing subscribers, but does 

work with the Commission's Enforcement Bureau and Office of Inspector General when 

anomalies or other information is identified that needs further review. 

c Has USAC sampled a set of subscribers tO determine whether subscribers can 

demonstrate economic independence through documentation (such as tax forms)? 

As noted above, the FCC's 2012 Lifeline Reform Order did not require subscribers to 

provide any documentation to suppor1 the self-certification made on the IEH worksheet. In 

addition, carriers were prohibited from retaining any documentation related to identity or 

eligibility until February 2016.

7 

' ld. 

d /las USAC coordinated with federal or state agencies to determine whether 

subscribers have consistently represented themselves as economically 

mdependent? 
95 

Commissioner Pai 

July 14,2016 

Page 5 

For its upcoming role as administrator of the National Verifier, USAC is evaluating how 

it may utilize data from federal and state Mgencies to verify eligibility including the subscriber's 

status as an independent economic hou chold. 

4. Accordmg to the 20/.1 Lifeline Bi~nnial Audit Plan, independent auditors were 

required to create a list of apparent duplicates for each carrier subject to the 

audit and verify for a sample of JO apparent duplicates rhat "at least one 

subscriber ar each address {has] complete{d] a one-per-household worksheet. " 

Were auditors required to verify whether such subscribers were actually 

economically independent from other Lifeline subscribers at the same address for 

a sample of apparent duplicates? If not, why not? 

The 2014 Lifeline Biennial Audit Plan was developed in coordination with the FCC 

OMD. Witn regard to the JEH requirement, the procedures were limited to obtaining an IEH 

worksheet for a sample of subscribers that appeared to be duplicates. As noted above, the FCC 

rules now require carriers to obtain the completed IEH worksneet from the potential subscriber to 

verify subscriber eligibility. However, during the time period covered by the 2014 plan, carriers 

were only required to maintain the worksheet rather than other supporting eligibility 

documentation. In addition, documentation to establish subscriber identity was not required by 

the FCC until it modified the relevant rule, which became effective on February 17,2016. 

Because carriers were not allowed to investigate subscribers living at the same household 

beyond obtaining a completed IEH worksheet, the procedures for the 2014 Lifeline Biennial Plan 

did not require USAC's auditors to go beyond obtaining a copy of those worksheets to verify 

whether such subscribers were actually economically independent from other Lifeline subscriber 

at the same address. 

5. Please describe any investigations, audits, or reviews that USAC had conducted 

from October 2014 10 the present to verify that subscribers enrolled with an lEH 

override are in fact economically indepcndenl from other Lifeline subscribers at 

their address. Please include any such reports drafted or issued by USAC or. in 

the case of no such report, a summary of USA C 's findings. 
96 

Commissioner Pai 

July 14,2016 

Page6 

6. !'leas!! describe any recommendations USAC has to improve the IEH override 

prnccH to ensure that ruxpay.:;rfunds art not wasted Ple(J}jf! identify any FCC 

rulr lum~es thor" tlllltl he necestan rr, ef/ecruare such impro1·emenrs 

USAC continues to support the Comm s~ion 's efforts to reduce waste, fraud and abuse in 

the Lifeline Program and believe that administrative checks on eligibility must be balanced with 

reasonable access to the program for the individuals it is designed to serve as set forth in the 

Commission's framework for the program.

8 We will work collaboratively with the Commission 

to implement the National Verifier in a maMer that will address these risks to the greatest extent 

possible. 

7. You reported in your May feller that USAC also conducts Payment Quality 

Assurance (PQA) reviews and regularly analyzes the NLAD for "anomalies, 

duplicates, or other errors that may signal improper payments of potentially 

fraudulem behavior." As a result of those reviews, USAC discovered and deenrolled 373,91 I duplicates from the NLAD between February and May 2015. 

Please describe any other investigations, audits, or reviews that USAC has 

condu,·redfrom October 2014 to the present to eliminate duplicate subscribers 

.from tire NLAD. Please include any such reports drafted or Issued by USAC or, in 

the case of no such reports, a summary ofUSAC'sfindings. 

8. In the Total Col/ Mobile case, one sales agent alleged that he could enroll the 

same person multiple times in the NLAD so long as the applicant used different 

dt'vices within a 15-minute timespan. Is this claim ~ue? If so. what steps will 

USAC take to close this apparent loophole? 

Based on our design and testing of the NLAD system, USAC does not believe that the 

scenario described in this question is nor has it ever been the Ital-time 

enrollment used the OiliA~I.SC . 

0 1012 Lifeline Refi>rm Order, 27 FCC Red al 6689, 6690·91, para. 74, 77·78. 
97 

Commissioner Pai 

July 14,2016 

Page 7 

USAC remains committed to ensuring th..: Universal Service Fund is protected from 

waste, ti·aud, and abuse and looks forward to continuing to work wilh the FCC to ensure that 

contributions from consumers are disbursed in accordance witl1 FCC rules and regulations. 

Please let us know if you need any additional infom1ation or have any questions about ilie 

responses provided. 

Sincerely, 

f!!_/L_ 

Chris Henderson 

Chief Executive Otlicer 

Universal Service Administrative Company 

Enclosure 
98 

Lifeline Subscribers Enrolled Between October 

2014 and April2016 (Confidential} 

Attachment Redacted in its Entirety 
99 

\!il!'a; 

f'·wmll5>1'-'11'-"r 

FUlFil;\! l'O\iMIINIC,\TIONS C()M\11S~ICJN 

i\ugc!Sl l. 2016 

fvlr. Chris Henderson 

Chief Executive OC!icer 

Universal Service t'\dministrativc Company 

2000 L Street NW, Suite 200 

Washington, DC 20036 

Dvar Mr. I Icndcrson. 

Thank you verv much for your letter' dated June 14 and July 14 regarding the waste, ll·auJ, and 

ahu:w that has riddled the Universal Sen ice rund's Lifeline program since wireless resellers bega11 

partit.:ipating ln this program in earnest in 2009. I appreciate your diligence. 

My· letters thus tar have explained our investi~ation into Total Call Mobile and its apparent 

e:-,.ploitation uf!uophol\?\ in the National Life:!il!e Accuuntabilit_v Database (NLAD), which is supposed to 

pnJle\.'t taxpayer funds. :Vly inr1uir; today conctTJlS tht..~ ability ufuns~;.;rupu!uus \Vireh:ss re,<:,elh:rs to avoid 

the sakguard~ oCtht' NLAD altuget!Jcr 

ln your May 18 letcer. yuu explained that the NL!\D docs not prevent wireless resellcrs iJ·om 

and receiving federal subsidies for subscribers who are not enrolled in the NLAD. 

yuu explained that a wireless resel!er receives support based on the number of subscribers it 

.;!aims 011 Fnnn-197 -~nor based on the number of subscribers cmollcd in the NLAD. You furlher 

explained thm the NLt-\D does not automatkally verify a wireless rese!ler's claimed number of 

subscribers each month but that USAC can com pan; these numbers on a case-by-case basis. 

In other words. a v;ircle>S rescller may seek federal funds for subscribers who aren't subject to 

fed ern! safeguards at aiL These ··subscribers'' might he actual customers whose Lifeline eligibility has not 

been verified through the NLAfJ. Or they might be phantom customers who do not even exist. In either 

C!he, thr r(:'-.:r·lkr c::Jn e,t~t nwAy with rc·<~eiving federr-d fnnrl-: on!r~-.:o:. they'n:>: rnneht !'lfte·r the hr.t 

June 14 letter. you conllrmed that certain wireless resellers did indeed exploit this 

example. in ivlay 2016 claimed it served 

more- tlwn recorded in the !\LAD. And this month was no outlier. That 

same ... vire!ess rc:::e!lcr ci<Hrncd, on aYcrag:co 22,325 more subscribers on lts Form 497 than nppeared in the 

"-LAD, exploiting this loophole -146,51 J times Uetwcen October 2014 and the present One otl1cr 

wireless resel!er. , used this loophnk 5,91 X times in Among the other 14 

"ireless rescllers surveyed, six claimed subsidies tor more subscribers than recorded in the NLi\D a total 

o!'7.601 ti1ncs) and eight others appear not to have relied on the loophole at alL 

If American taxpD)·cr:; an~ tv have Faith in the Universal SE'rvice Fund, th~;y must "-now that th~ 

Lifeline progn:~~n only .supp011s actual, eligible subscribers, not phantoms. To that end, J request that you 

prL1 \ ide tn) office wlth the following infcmnation: 

1. !n Y\1ur June Jll letter, you explained that ''ETCs report their total subscribers at a particular point 

in time on each FCC form '197." but that it ''is not possible t0 match the count of subscribers in 

'iLAD nt the exact point in time that subscribers were counted by a caJTier.'' As snch, USi\C's 
100 

'JL\D cnrollm~nt numbers conservativdy indude everv .. subscriber ever attributed to each 

carrier in NLAD during the calendar month.'' ;\s such, .is there a legitimate reason why a carrier 

cc•tlld submit a higher subscriber count c,n it> ['onn ~97 than in the NLAD enrollment numbers 

you prov·ickd': If nuL please explain IVhctber LS,\V plans to recover any improperly paid 

:,ub::,idil:s. 

The vast majorit) of unvcrillcd c>r phantom oubscribcrs arc anributHble to 011e rcscller,-

....... with a signiticant number attributable tel another, for each month 

t!·c•m Octe1ber 2014 to the presenL please provide the number of subscribers in the ~LAD as well 

as the ncnnb~r of sn bscribers r~ported on relevant Forms .:1'17 i()r these resellcrs in every state in 

which they llffered Lifeline service. 

3. The' a~t majority of un\ erified ur phanhHn subscribers are ttttrlbutable to one qatc. -' 

with a significant number attributable to another. For each month from October 

2014 tu the prc·scnt, pk;,sc pmvidc the nutnbcr of subscriber> in the NLAD as \\ell as the number 

ur "ul1~crlht:r" rcpclftl'd P!l n:kv;1nt Ft)nns -107 for cv~r: Lif\..'lint carrier tha[ ofrl.!rs sen ice in 

these :-,tak-... 

4. Please describe \\hat saJC,guards the program has in place. it' any. tll ensure that every subscriber 

claimed Pn a Fmm 497 was properly enrolled in the \LAD and assigned by the' "iLAD tu that 

l'it!TH.:r To illl~ L':\ll~llt !thlpilrdl':-; e\:[;;L pk•;J:-ic explain \'rhether lJS!\C could c!u..;;e !host~ llH)ph(llc.;; 

on ih ll\1..11 (·r \\ h~.:!l1cr clf.)Si!l£'. th:..: loophnlc• \h)uld require Fl '(·action. 

). Pk:ts~ de::cribc ;Jnv· inv ~stigatl<'ll>, audits. or reviews that US!\C has cunducted from October 

2014 to the pr,:sent that C<'mpared a carrier's subscribers in the NLAD to the number of 

,subscribers it reported on rcl<:vant Form(s) 497. Please explain whether any such investigations, 

audits. <•r r¢view> led to rd'erral;, to the relevant state commission, to the FCC's Inspector 

Gcm;raL to thc FCC', l:nfelrcemcnt Bureau, or to any other person at the FCC. 

6. Yuu have prev ioc"lv explained that USAC CLllnparc> NLAD datu to Form497 data only 011 a 

caSe'- b) -case b:his. Celtild you pleas,: explain vvh) that is'! Would an automatic Ctllllparison help 

dec: eel 1111\Trilie'd t'r ph.JIIlt1111 subscrib~rs better than cas~· by-case review'' Would it be possible 

t(>r I'\,·\( to ,•omp:1re such daL1 autotnatically each nlo!Jlh_ I'Jag~iug discrepancies for further 

investi9-ati~.1n. ~wdit. (JC r~vicw? 

,, Your June 14 leiter revealed anothcor problem \\ith the NLAD: bloat. Some of the 16 wireless 

rcsellcrs ~urvcvecl had thousands or even tens of thousands of subscribers enrolled in the NLI\D 

wlw vwrc not ~I aimed ,,n their hmm 497. For example,- in reported eJn 

a\·~rag,__• 15,031 t'ew~..·r ..,ub:->cribcrs on ib Forms 4t)7 t!wn it had cnrolkd in t.h.: NL,\D. The 

exJstcncc ofthi:-. hLJat rnakc~ ddcrm!ning compliance with federal safeguards mon.:. difficult. 

I hat i::. Lh:C<lU~t..' ~lll Hlhrrupukllh rl·:-.clit:r coold increase its reimbursements sub:-,.tantially '' ithout 

subjc~ting ncw subscriber;, t:J the :-:LAD's safeguards--the c> .. Ua subscribers in the· NLAD would 

mask the 1:1ct that the ne" subscribers claimed on a Form ~97 may not in fact be eligible (or tlla) 

not even exist) :md give unscrupulous cmrduct the aura of legitimacy. 

a. Please describe th<: procedures wireless resellers ar-e supposed to follow to de·cnroll 

subscribers ti·om the NLAD. 

b. Please describe what safeguards exist if any. to ensure that wireless rc-scllcrs proper!) 

fulllm those dc-c·nrllllmcmpm.:cdurcs. 

c. Please describe !'urther anv investigations, audits, or rc>iews that US,\C has conducted 

hom Ocwbcr 2014to the present to verify that \V·irelcss rescllcrs arc properly deenrolling subscribers and tu n:ltlovc the non-subscriber bloat from the '!LAD. 
101 

J appreciate USAC's continucu work to protect American taxpayers and safeguard the Universal 

Service fund. Given the many millions in taxpayer funds that haw already gone to waste. J ask that you 

n.:.srond \\·]th the requested information by August 15.2016. If you have any questions, please fee! free to 

-.'ontact :'<iL·ho!a~ Degani i11 m,:- o!ficc ut (:02) 418-2000. 

Sincen:l;.. 

~,~,,L Commissioner 

Federal Communication:, Commissin11 
102 

USAC ,;,, 

Confidential, Not for Public lmpcctiou for Disclosure 

August 15, 2016 

The Honorable Aj.it Pai 

Commissioner 

Federal Conm1Unications Commission 

445 12'h Street, S.W. 

Washington, DC 20554 

Dear Commissioner Pai: 

Thank you for your letters concerning the Universal Service Fund's (USF) Lifeline 

program. The Universal Service Administrati\'e Company (USA C) is dedicated to continuing to 

working with the Federal Communications Commission (FCC or Commission) to combat waste, 

frnud and abuse in the USF programs, and we welcome the continued dialogue regarding the 

Lifeline program. 

Below, we provide responses to your specific questions along with attachments detailing 

the data and infonnation you requested. 

I. In your June 14 Iefier. you cxplai11ed ilwr "ETCs report their rota/ subscribers ill 

a parricular point in lime on each FCC Form 497, "hut llwr it "is not possible ro 

match the count ofsubscrihers in [the National Liji?line Aewuntability Databasu 

(NLAD)} at the exacr point in time thm subscribers were counted l1y a carrier. " 

As such, USAC 's NLAD ellrollmelll numbers conservatively include eve;~,, 

",vuhscribcr C\'cr attributed to c.acll carrier in 1YLAD during !he calendar mont!L " 

As such. i,Y there a legitimate reasnn lrhy a carrier cordd submit a higher 

suhscriber count on its Form 497 than in file NLAD enrollmenliiumbcrs you 

JWCJ1 1ided? If not, pleavc ct.p!ain Hhc!her USAC pian\· to recoFcJ any impropr...T~V 

paid subsidies. 

1 Lr:tter l•) C'ommission~r Pai. FCC. from Chris Hcndcr~o~t USAC {Jtnk 14 2016). 
103 

Commissioner Pai 

August 15,2016 

Page 2 

mr1mt"r1tl·v since 

Form 497 claims for reimbursement exceeded the number of subscribers in NLAD. 

Some of the challenges with comparing the FCC Fotm 497 and NLAD data will be 

reduced with the establishment of the "unifotm snapshot date" adopted in the 2015 Lifeline 

Reform Order. 3 As you know, the 2015 Lifeline RejiJrm Order provided for a standard snapshot 

date by which subscribers claimed on the FCC Form 497 for a pmticular data month must be 

equal to the active subscribers counted on the first day of the following month. 4 The first use of 

this method will be on September I, 2016, when caniers count their active subscribers and repmi 

them on the FCC F01m 497 for the August data month. Going forward, USAC will be better 

enabled to run reports to compare NLAD on the first of the month to the subsctibers claimed on 

the FCC Form 497 and investigate differences. 

2. The vast majority of unver!fied or phantom subscribers are attributable to one 

reseller,--- with a significant number attributable to another, 

--For each month from October 2014 to the present, please 

provide the number a/subscribers in the NLAD as well as the number of 

subscribers reported on relevant Forms 497 for these resellers in eveiJ' state in 

which they offered Lifeline service. 

Attachment 1, (Confidential) and Attachment 2,-

••llliiii(1(C~o~n~_fidential) provides the requested detailed subsctiber infonnation. 

3. The vast majority of unverified or phantom subscribers are attributable to one 

state, with a significant number attributable to anotize1:····· 

For each month ji'OII! October 2014 to the present, please provide the number of 

subscribers in the NLAD as well as the number of subscribers reported on 

relevant Forms 497 for eve1y Lifeline carrier that offers service in these states. 

2 Life'line and Link Up Reform and Modemization, Lifeline and Link Up, Federal-State Joint Board in Universal 

Sen•ic.~e. Advancing Broadband Availability 11zrough Digit(Il Literacy Training, WC Docket No. 11-42, eta/., Report 

and Order and Further Notice of Proposed Rulemaking, 27 FCC Red 6656,6788, para. 305 (2012) (2012 Lifeline 

Reform Order). 

3 ' See also Lifeline and Link Up Reform and !vfodernization, Telecommunications Caniers Eligible for Universal 

Se~Vice Support, Connect America Fund, WC Docket No. 11-42, et al., Second Further Notice of Proposed 

Rulcmaking, Order on Reconsideration, Second Report and Order, and Memorandum Opinion and Order, 30 FCC 

Red 7818 (2015) (2015 Lifeline Refomt Order). 

4 !d. at 7898-99, para. 243. 
104 

Commissioner Pai 

August 15,2016 

Page 3 

Attachment 3, (Conjidemial) and Attachment 4, ••••••• 

!Conjidential) provide ilw rL'<lll">'tc:d detailed infonnation for those two states. 

4. Please describe what safeguards the program has in place. !f any. to ensure that 

eve1y subscriber claimed on a Form 497 was proper(y enrolled in/he NLAD and 

assigned by the NLAD to that carrier. To the extent loopholes exist. please 

explain whether USAC could close those loopholes on its own or whether closing 

the loophole would require FCC action. 

The Lifeline program leverages its audit reviews to ensure that subscribers claimed on a 

FCC F01m 497 are properly enrolled in the NLA.D. Audit reviews, including the Beneficiary and 

Contributor Audit Program (BCAP) audits and Program Quality Assurance (PQA) assessments, 

conducted by the Intemal Audit Division (lAD) compare the carrier's FCC Fonn 497 subscriber 

listing to NLAD to determine whether the canier only claimed subscribers for reimbursement on 

the FCC Form 497 that were enrolled in NLAD. There are additional activities that could further 

improve the integrity of this process, which are already in progress. For example, as described in 

our response to the first question, the implementation of the standard snapshot date will allow 

USAC to more easily and consistently compare subscribers in NLAD to those claimed on the 

FCC Form 497 and follow up more frequently with the canicrs. As we develop these processes, 

we anticipate being able lll perform certain prioritized follow up in advance of processing a FCC 

F(>tm 497 for reimbursement. In addition, the 2016 Lifeline Modernization Order adopted a 

process to phase out the FCC Form 497, and instead creates a payment mechanism that relies 

upon the subscribers validated by the National Verifier, which will eliminate the existing 

discoru1cct between claims for reimbursement and the NLAD. 5 

5. Please describe any inl'estigations, audits or re\'iews tlwt USAC h'u conducted 

.fi'om October 2014 to the present !hat compared a carrier '.1· suhscrihcrs in the 

NLAD to the number ofsubscribers it reported on relevant Form(•) 4Y7. Please 

explain whether any such investigations, audits, or reviews led to referrals 10 the 

re/e\'<Wt state commission, !o the FCC's fnspcetor General, to tile FCC '.1 

Enforcemcnl Bureau. or to anv other person at the FCC. 

Attachment 5. Sumnwt:)' ofLifcline Program Audits (Coufidentia/), provides a summary 

of audit; conducted by lAD that included a Gomparison of the catTier's subscribers in NLAD to 

the number of subscribers reported on the FCC Fom1 4LJ7 and indicates if there was a rde!Tal t0 

the FCC. 

o. You have pre\'ious(v explained that USAC compares NLAD data to Form 4')7 

data only 011 a case-by-case basis. Could you please explain why thot is? Would 

an automatic comparison help detect unverified or phantom subscribers better 

than casr::-by-case r~vicw? Would it be possihle(in· USAC to compare such data 

~ S(e also Li(elinc o.nd Link U[! Re}ill'lt1 cmd Atfoderni:(:fion. Telecommtmic:.Jtion·; Carriers Eli!iiblej~Jr U11h'i.:t:wl 

Serl'ice .Support. CO!t1H:CI Amt!ricu F1nd, \VC Dorket :-Jo, 11-42, eta!.. Third Report anti Order, Further Report and 

Order. ancl Order on P,c:consiccrotlon. 31 FCC Red J062. 4015 para. 143 (2016) (~II /6 lifeline Moderni:,iliu!l 

Ord.:rl. 
105 

Commissioner Pai 

August 15,2016 

Page4 

alllomatically each month, flagging discrepancies for further invest.lgation, audit, or review? ' . 

7. Your June 14/etter revealed another problem with the NLAD: bloat. Some o.fthe 

16 wireless resel/ers sun•eyed had thousands or even tens of thousands of 

subscribers enrolled in the NLAD who were not claimed on their Forms 497. For 

example, in eported 011 average I 5,9JJ fewer subscribers on 

its Forms 497 than it had enrolled in the NLIJ.D. The existence of this bloat makes 

determining compliance with federal safeguards more difficult. That is because 

an tmscmpulous reseller could increase its reimbursements substantially without 

subjecting new subscribers to the NLAD 's safeguards- the extra subscribers in 

the NLAD would mask the fact tJwt the new subscribers claimed 011 a Form 497 

may not in fact be eligible (or may not even exist) and give tmscrupulous co11duct 

the aura of legitimacy. 

Beyond the timing described in our response to the first question, which might cause a 

variance between NLAD and FCC Form 497 subscriber counts, there are legitimate reasons why 

a catTier may claim fewer subscribers on the FCC Fonn 497 than it enrolls in the NLAD system. 

One is related to non-usage procedures, where a "subscriber identified as having not used their 

phone service may not be claimed for reimbw-seme11t. Ifthis non-usage continues for 60 days, 

the subscriber must be notified aod given an option to cure their non-usage within 30 days, or 

otherwise be de-enrolled from NLAD.6 Another reason a subscriber may not be claimed on the 

FCC Form 497 is due to the period between signing up for the service and having it actually 

activated. In these cases, a subscriber will be enrolled in NLAD, but may not be claimed until 

the service is actually made available. In addition, there are certain carriet:S that Wlder-report 

subscribet:S in an abundance of caution so as not to make an overstatement on the FCC Fonn 

497. For example, AT&T entered into a consent decree with the FCC Enforcement Bureau 

6 47 C.F.R. § 54.40S(eX3). 
106 

Commissioner Pai 

August 15,2016 

Page 5 

i. Please describe the procedures wireless resellers are supposed to follow to deenroll subscribers/rom the NLAD. 

USAC' s procedures are designed to facilitate de-enrollment based on the FCC's mles, 

which provide specific deadlines and processes for de-enrollments generally, 8 de-enrollment 

upon ~he finding of a duplicate, 9 de-enrollment for no~-us~9e, 10 de-enrollment for failure to 

recCJtlfy, 11 and de-enrollment requested by the subscnber. -

For de-emollment from NLAD, the FCC rules require providers to transmit the deenrollment inf01malion to NLAD within one business day. 13 Carriers have three methods by 

which they can transmit a de-enrollment transaction to NLAD. First, the carrier may log-in to 

NLAD and select the de-enrollment option, then enter the subscliber' s information and select deenrollment type. After the correct subscriber is found in the database, the can-ier will click on a 

"de-enroll" button to complete the process. Altematively, many earners submit their 

transactions, including new enrollments, transfers and de-enrollments, through a batch file 

process that is uploaded into NLAD and the transaction are processed together with a report 

provided to the earner after it is complete. Finally, many carriers use the Application 

Programming Interface (API) system to transmit transactions, including de-enrollments, to 

interface with NLAD, which provides an option to delete a snbscriber from the database. USAC 

provides detailed procedures on our website to assist caniers with submitting a de-enrollment 

transaction to NLAD. 

ii. Please describe what safeguards exist, if any, to emure that wireless rese//ers 

proper~y follow those de-enrollment procedures. 

The Lifeline program has several procedures to ensure that carriers follow the FCC 

mandated de-enrollment processes. In cases where USAC has identified duplicates through its 

own programmatic reviews, such as scrubbing ofNLAD data, USAC de-emolls the duplicates 

from NLAD at the conclusion of the process, and a list of the du]pli<Jat<~S 

NLAD de-enrollment from their own 

7 AT&T Sen•ices,lnc., eta!., Order, 30 FCC Red 3728 (Enforcement Bur. April 29, 2015). 

'47 C.F.R. § 54.405(e)(l). 0 47 C.F.R. § 54.405(e)(2). 

<C 47 C.F.R. § 54.405(e)(3). 11 47 C.F.R. § 54.405(e)(4). 

"47 C.F.R. § 54.405(e)(5). 13 47 C.F.R. § 54.404(b)(!O). 
107 

Commissioner Pai 

August 15,2016 

Page 6 

iii. Please descriherfurlher any investigations, audits, or revie>~' I hat USAC has 

conductedfi"om Oc10ber 2014 to the present to verifY thO! wireless resel/ers are 

properly de-enrolling subscribers and to remove the non-subscriber b/oatfi·om 

the NLAD. 

Attachment 6, Summary of Lifeline Program Wireless Audits (Confidential), provides a 

detailed list of the audits USAC haq completed of wireless Lifeline program providers, which 

included a review of de-enrollment of subscribers. 

**************** 

USAC remains committed to ensuring the Universal Service Fund is protected from 

waste, fraud, and abuse and looks forward to continuing to work with the FCC to ensure that 

contributions from consumers are disbursed in accordance with FCC rules and regulations. 

Please Jet us know if you need any additional information or have any questions about the 

responses provided. 

Sincerely, 

Chris Henderson 

Chief Executive Officer 

Universal Service Administrative Company 

Enclosure 
108 

Attachment 1 Redacted in its Entirety 
109 

Attachment 2 Redacted in its Entirety 
110 

Attachment 3 Redacted in its Entirety 
111 

Attachment 4 Redacted in its Entirety 
112 

Attachment 5 Redacted in its Entirety 
113 

Attachment 6 Redacted in its Entirety 
114 

Nicholas Degani 

From: 

Sent: 

To: 

Cc: 

Subject: 

Attachments: 

Follow Up Flag: 

!=!ag Status: 

Dear Nick, 

Kristina McNeff @usac.org> 

Friday, September 02, 2016 5:56 PM 

Nicholas Degani 

Vickie Robinson; Michelle Garber 

Follow up from Call with USAC Legal 

Attachment 1- AT&T Letter.pdf; Attachment 2- De-enrollment Audit Procedures (Confidential). pdf 

Follow up 

Flagged 

Thank you for the opportunity to provide additional information to supplement USAC's August 15, 2016 letter 

to Commissioner Pai. We have summarized the questions we discussed during our August 23 call below, 

together with our responses. 

l(a). In USAC's response to question 1, USAC states that there "are legitimate reasons why the 

subscriber count information included on a carrier's FCC Form 497 may he higher than the 

information reflected in the NLAD." What are the legitimate reasons? The examples cited don't 

provide an explanation of why the 497 would he higher than the NLAD counts, even accounting 

for short-term subscribers. 

As discussed in our previous response, the primary, legitimate reason for variances between NLAD and 

the FCC Form 497 subscriber information would be an issue of timing. However, timing would only account 

ftlf minor variances and the use of the snapshot date going forward will help to eliminate even those minor 

differences. USAC recognizes there arc variances that arc not likely related to timing, and that those variances 

are likely not legitimate. \Vl1en USAC identifies these types of anomalies through its routine reviews and data 

analysis. we refer such information to the FCC's Enforcement Bureau and Oftice oflnspector General for 

further review and investigation. With the implementation of the uniform snapshot date on September I, USAC 

looks forward to conducting more consistent and automated data comparisons between the FCC Form 497 and 

NLAD. This process will be free of the majority of timing differences, allowing for prioritized review and 

fa !low up. 

l(b). Carriers can report mid-month to mid-month subscribers. If that happens, wouldn't NLAD 

reflect the subscriber in both months? In that case, NLAD should still be higher than the 497s. 

For the purposes of this analysis, USAC described that it included any active subscriber that was 

associated with a carrier within a calendar month. However, not all carriers claim subscribers served on a 

calendar month basis, and may use a mid-month to mid-month basis. For example, a subscriber might be deenrolled from NLAD on January 25, but be claimed by the carrier for reimbursement in February because the 

subscriber was included in a mid-January to mid-February cycle. However, NLAD would not contain that 

subscriber in the calendar month of february, As a result, the February FCC Form 497 would include that 

subscriber, but USAC's February NLAD data count would not This is merely an additional timing scenario, 

however, and as noted above, it does not generally justify any significant variances in reporting. 

2. In USAC's response to question 7 regarding non-usage procedures, USAC states that if a "nonusage continues for 60 days, the subscriber must be notified and given an option to cure their non-
115 

usage within 30 days, or otherwise be de-enrolled from NLAD." At what point do carriers have to 

stop claiming subscribers for non-usage- during the 60 days, at de-enrollment or during some 

other time period? 

Consistent with Section 54.405(e)(3) of the Commission's rules, if a subscriber fails to use the Lifeline 

program service f()r 60 consecutive days, the relevant carrier must provide that subscriber with 30 days' notice 

of possible termination. In order to determine when a subscriber could be claimed during this process, USAC 

obtained guidance from the FCC. Pursuant to this guidance, where a carrier notifies a subscriber on the 61" day 

of non-usage, the carrier should not claim the subscriber on the FCC Form 497 for the time period covering 

days 61 to 90. 

Section 54.404(b)(l0) requires carriers to remove subscribers from NLAD within one business day of 

de-enrollment. Because a subscriber may cure non-usage by using the phone before the 901

h day, the carrier 

may legitimately wait to remove the subscriber from NLAD until the 91" day. As such, it is possible for a 

subscriber to drop off of the FCC Form 497, but remain in NLAD until the completion of one additional 

month. 

3. Also with respect to question 7, USAC states that "AT&T entered into a consent decree with the 

FCC Enforcement Bureau requiring it to under-report its subscribers by five percent." Please 

explain what information USAC receives from AT&T about their monthly filings and 

reductions. Arc there any letters, explanations, certifications, etc.? Do you verify the reduction? 

Each month, USAC receives an email from AT&T with a copy of a letter addressed to Jeffrey Gee, 

Chief, Investigations and Hearing Division Enforcement Bureau. The letter states that AT&T performs a 

monthly statistically signilicant sample of the eligibility records for new Lifeline subscribers, and they confirm 

whether it has complete, current, and accurate eligibility certification for each subscriber. AT&T also 

compares the sample of subscribers to the NLAD database to conlirm eligibility. The lower and upper limits of 

the monthly and weighted average error rates reflecting a 95% conlidcnce interval are determined and provided 

as an attachment to the letter. The submitted FCC Form 497 reflects the application of the upper limit of the 

weighted average error rates to the total number of retail subscribers, reducing the total claim for each study 

area code by the respective error rates. Attachment 1. AT&T Letter, provides the most current letter received 

from the carrier. Because this is an ongoing matter before the FCC, USAC docs not take any separate action to 

verify the reduction in claimed subscribers. 

4. With respect to question 7(iii), please explain what audit procedures are in place to properly verify 

de-enrollment. 

Attachment 2, De-enrollment Audit Procedures (Confidential), provides a detailed description of the 

procedures used by 1:SAC's Internal Audit Division to verify the de-enrollment of subscribers from NLAD. 

Please do not hesitate to contact us should you require any additional clarification or explanation. 

Kind regards, 

Kristina 

Kristina G. McNeff 

Deputy General Counsel 
116 

USAC 

~~dC<lJgl 

The information contained in this electronic communication and any attachments and links to websites arc 

intended for the exclusive use of the addresscc(s) and may contain confidential or privileged information. If you 

arc not the intended recipient, or the person responsible for delivering this communication to the intended 

recipient, be advised you have received this communication in error and that any use, dissemination, 

forwarding, printing or copying is strictly prohibited. Please notify the sender immediately and destroy all 

copies of this communication and any attachments. 
117 

Attachment 1 Redacted in Its Entirety 
118 

Attachment 2 Redacted in its Entirety 
119 

·\pl p,)l 

('1>1nm1~~Hl!l~r 

FEDERAl COMMl!l-iiCA f!ONS COMMISSION 

\\ i\SJ !IN(IHlN. DC 2055-J. 

September 7, 2016 

Mr. Chris Henderson 

Chief Executive Officer 

Universal Services Administrative Company 

2000 L Street NW, Suite 200 

Washington, DC 20036 

Dear Mr. Henderson1 

Thank you for your August 15 letter regarding phantom subscribers as well as your continued and 

diligent work to root out the waste, fraud, and abuse that has riddled the Universal Service Fund's 

Lifeline program since wireless resellers began participating in this program in earnest in 2009. 

Although much of my investigation thus far has focused on the exploits of Total Call Mobile and 

other wireless rescllers that appear to have employed similar practices, a recent enforcement action has 

raised another concern: the validation of subscribers for enhanced subsidies. 

As you know, the Lifeline program authorizes an enhanced subsidy (up to $25 per month) for 

eligible residents of Tribal lands, which comes on top of the standard $9.25 per month subsidy. The 

enhanced subsidy offers a tremendous incentive for unscrupulous carriers to try to exploit our rules, and 

we know that some have. Icon Telecom, for example, claimed tens of thousands of phantom customers in 

Oklahoma to profit from the enhanced subsidies on Tribal lands before its scheme was ultimately 

uncovered and Icon's owner pleaded guilty to money laundering. 

More recently, the FCC settled an investigation into Blue Jay Wireless's practices in Hawaii. 

According to the FCC's official release, Blue Jay had claimed subscribers as eligible for the enhanced 

subsidy in November 2013 and added thousands of such subscribers to its rolls. Even though Blue Jay 

collected every subscriber's address, it did not verifY whether those addresses were on Tribal lands; in 

fact, it sought enhanced subsidies even when a subscriber's address made him/her clearly ineligible. By 

2014, the Hawaii Public Utilities Commission staff had discovered that Blue Jay was claiming more 

subscribers than the total number of households in the Hawaiian Home Lands! Thanks to the work of the 

Hawaii Public Utilities Commission and FCC staff, we were able to recover $2 million in wrongful 

disbursements to Blue Jay. 

The recent consent decree with Blue Jay suggests that there may be substantial gaps in our federal 

safeguards for Lifeline. To that end, I request that you provide my office with the following information: 

1. Our rules state that the enhanced subsidy can only be received by an "eligible resident of 

Tribal lands," meaning a qualifYing low-income consumer "living on Tribal lands." 47 

C.F.R. § 54.400(e). Does USAC have a map of qualifYing Tribal lands that it uses to verifY 

eligibility for the enhanced subsidy? Does USAC share that map with wireless resellers so 

they can verifY whether they are serving Tribal lands? Does USAC share that map with state 

commissions responsible for overseeing wireless resellers in the Lifeline program or the 

FCC? Please include a copy of any maps USAC uses for verifYing eligibility for the 

enhanced subsidy. 
120 

2. One safeguard required by our rules is that a subscriber must certifY under penalty of perjury 

to residency on Tribal lands. 47 C.F.R. § 54.410(d)(3). Do wireless resellers retain these 

certifications? Do they submit them to USAC, and if so, when? What other federal 

safeguards, if any, are there to ensure that every subscriber receiving an enhanced subsidy 

does in fact live on Tribal lands before USAC disburses the enhanced subsidy? 

3. Must a wireless reseller record a subscriber's eligibility for an enhanced subsidy in the 

National Lifeline Accountability Database (NLADF If so, does the NLAD compare the 

subscriber's inputted address against a map ofTriballands to ensure that only subscribers 

actually living on Tribal lands receive the enhanced subsidy? If not, why not? 

4. What is the relationship, if any, between a subscriber's eligibility for enhanced support and 

the NLAD's Tribal Flag, which you highlighted in your May 25 letter? 

5. Please describe any investigations, audits, or reviews that USAC has conducted from October 

2014 to the present that examined whether a wireless carrier sought enhanced subsidies only 

for eligible subscribers living on Tribal lands. 

a. Please explain the steps USAC has taken in such investigations, audits, or reviews to 

verifY eligibility for the enhanced subsidy. Does USAC check whether a subscriber 

has appropriately certified that he or she lives on Tribal lands? Does USAC verifY 

that the subscriber's address is actually located on Tribal lands? 

b. Please explain whether any such investigations, audits, or reviews led to referrals to 

the relevant state commission, to the FCC's Inspector General, to the FCC's 

Enforcement Bureau, or to any other person at the FCC. 

6. As mentioned above, the Hawaiian Public Utilities Commission detected that Blue Jay was 

enrolling more subscribers than households in the Hawaiian Home Lands. What automatic 

checks does USAC have in place to detect similar conduct? 

7. In June 2015, the FCC changed what parts of Oklahoma qualified as Tribal lands for 

purposes of the enhanced subsidy. Effective June 8, 2016, subscribers in Oklahoma must live 

with the boundaries reflected in the Oklahoma Historical Map or the Cherokee Outlet to 

qualifY for the enhanced subsidy on a going-forward basis. The FCC has made maps (digital 

shapefiles) available for wireless resellers and others to use to enact this change. 

a. What process does USAC have in place to ensure that wireless resellers do not 

continue to claim enhanced subsidies for subscribers in Oklahoma who no longer 

qualify under this change? 

b. Can USAC determine whether each Oklahoma subscriber in the NLAD now resides 

on Tribal lands (and therefore qualifies for the enhanced subsidy)? lfnot, what other 

information would USAC need to make such a detcnnination? 

c. Please provide the following information for the ten largest wireless resellers in 

Oklahoma for each month from February 2016 to the present: 

1. The number of subscribers claimed by the reseller, 

ii. Of those, the number receiving an enhanced subsidy, 

iii. The maximum number of subscribers enrolled in the NLAD during a given 

month for the reseller, 

iv. Of those, the number whose address showed that they lived on Tribal lands 

(for June, please use both definitions ofTriballands). 

2 
121 

I appreciate USAC's continued work to protect American taxpayers and safeguard the Universal Service 

Fund. Given the millions in taxpayer funds that have already gone to waste, I respectfully ask that you 

respond with the requested information by September 21, 2016. If you have any questions, please feel 

free to contact Nicholas Degani in my office at (202) 418-2000. 

3 

~:l_ AjitPai 

Commissioner 

Federal Communications Commission 
122 

USAC 

Confidential, Not for Public lnspeclion for Oisclosure 

September 21, 2016 

The Honorable Ajit Pai 

Commissioner 

federal Communications Commission 

445 12th Street, S.W. 

Washington, DC 20554 

Dear Commissioner Pai: 

Thank you for your letters concerning the Universal Service Fund's (US!') Lifeline 

program. The Universal Service Administrative Company (USAC) is dedicated to continuing to 

working with the Federal Corrununications Commission (FCC or Commission) to combat waste, 

fraud and abuse in U1e USF programs, and we welcome the continued dialogue regarding the 

Lifeline program. including now enhanced Lifeline support for residents of Tribal lands.' 

Below we provide responses to the questions outlined in your September 7, 2016letter, 

along with supporting attachments detailing the data and information you requested. 

I. Our rules stale !hat the enhanced subsidy can only be received by an "eligible 

resident ofTriballands." meaning a qualifYing low-income consumer "living on 

TriballmJds. " 4 7 C.F R §54. 400(e). Does USAC have a map of qualifYing 

Tribal lands that il uses to verify eligibility for the enhanced subsidy? Does 

USAC share thar map with wireless resel/ers so they can verifY whether they are 

serving Tribal lands? Does USAC share that map with state commissions 

responsible for overseeing wireless resel/ers in the Lifeline program or with the 

FCC? Please include a copy of any maps USAC uses for verifYing eligibility of 

the enhanced subsidy. · 

In its 2015 Lifeline Reform Order, the FCC clarified the boundaries of the fonner 

reservations of Oklahoma for enhanced Tribal support in that state. 2 In so doing, it provided a 

map, and later issued shapefiles,3 for use in comparing current addresses to the Oklahoma Tribal 

boundaries. USAC has provided a link on its website to the FCC's Oklahoma map for use by 

carriers, states, and others. While the FCC has not provided maps to define the boundaries of 

1 47 C.F.R. § 47.54.400(e) (defining "Tribal lands" for purposes of the Lifeline program). 

'See Life/me and Link Up Reform and Modernization, Telecommunicalions Carriers Eligible for Universal Service 

Supporl, Connect America Fund, WC Docket No. 11-42, et al., Second Further Notice of Proposed Rulemaking, 

Order on Reconsideration, Second Report and Order, and Memorandum Opinion and Order, 30 FCC Red 7818, 

7903 .. 07, paras. 257-67 (2015) (2015 Lifeline Reform Order). 

'See Oklahoma Enhanced Lifeline Support Maps, FCC website, available at 

hnps:/lwww. fcc.govlgeneraUoklahoma-enhanced-lifeline-support-maps. 
123 

Commissioner Pai 

September 21, 2016 

Page 2 

Triba1lands in other states for enhanced Lifeline support, we note that there are other maps of 

federally recognized Tribal areas, such as those provided by U.S. Census or U.S. Geological 

Survey, that USAC understands anecdotally arc used by ;;arriers to verify consumer addresses 

eligible f()r {;nbanced rribal support. 

2. One safeguard required by our rules is that a subscriber must certify under 

penalty ofperjury to residency on Tribal land~. 47 CF.R §54.410(d)(3). Do 

wireless resellers retain these certifications? Do they submit them to USA C. and 

if so, when? What other federal safeguards, ifany, are there to ensure that every 

subscriber receiving an mhanced subsidy does in fact live on Tribal lands before 

USAC disburses the enhanced subsidy? 

The FCC noted in the 20 I 2 Lifeline Reform Order that it is "often difficult, if not 

impossible, to determine" the exact location of Tribal addresses, and that self-certification of 

residency within Tribal lands helps to further the goal of providing universal service in those 

!ocations4 All carriers are required to retain subscriber certification fonns, including 

certification fonns for any subscriber who will receive enhanced Lifeline support, 5 and, as you 

note, those certification forms must be signed under penalty of petjury pursuant to the 

Commission's mles6 Carriers are required to provide copies of those forms to lJSAC or the 

FCC upon request, including as part of an audit. 7 

In general, any subscriber who is suspected to be ineligible for his or her benefit must be 

notified by the carrier and provide documentation to resolve the potential ineligibility, as 

required by section 54.405(e)(l) of the FCC's rules.8 At lJSAC, trend reports are produced in 

advance of the monthly disbursement cycle to identify any unusual variances in carrier claims for 

support, including enhanced Tribal support. We are not aware of any other federal agency rules 

or requirements related to the provision of Lifeline benefits on Tribal lands. 

3. lvfust a wireless reseller record a subscriber's eligibility for an enhanced subsidy 

in the National Lifeline Accountability Database (NLAD)? Ifso, does the NLAD 

compare the subscriber's inputted address against a map of Tribal lands to 

ensure that only subscribers actual(v living on Tribal lands receive the enhanced 

subsidy? !(not. why not? 

Currently, carriers enrolling subscribers into NLAD may designate whether a subscriber 

is receiving the enhanced Tribal Lifeline support, using the Lifeline Tribal Benefit field. At this 

time, the Lifeline Tribal Benefit field is an optional designation; however, USAC is changing it 

' See Lifeline and Unk Up Reform and Modernization, eta/. WC Docket No. 11-42, eta/., Report and Order and 

Further Notice of Proposed Rulemaking, 27 FCC Red 6656,6728, para. 165 (2012) (2012 Lifeline Reform Order). 

'47 C.F R. § 54.417. 6 47 C.F.R. § 54.410(d)(3). 7 47 C.F.R. §§ 54A 17, 54.707. 8 47 C.F.R. § 54A05(e)(1). 
124 

Commissioner Pai 

September 21, 2il !6 

Page 3 

to a mandatory field that can be used to identit} subscribers receiving enhanced Lifeline 

suppon9 

system Improvement processes. 

to determine whether the NLAD system should prevent enrollment of certain subscribers, 

or should alert the carrier to potential ineligibility for Tribal support and request that they take 

additional steps. 

4. What is the relationship. if any. between a subscriber's eligibility for enhanced 

support and the NLAD 's Tribal Flag, which you highlighted in your May 25 

letter? 

The "Tribal Flag" in NLAD refers to the subscribers· address while the Lifeline Tribal 

Benefit field is used to designate if a subscriber is receiving the enhanced benefit As such, our 

response relates to the Lifeline Tribal Benefit field. 

Today, disbursements are not paid based on the Lifeline Tribal Benefit field in the NLAD 

system. As a result, this field in NLAD is not directly related to the number of subscribers who 

receive enhanced Lifeline support. USAC expects these numbers to be the same, but has found 

in its reviews ofNLAD data that such is not always the case. Specifically, USAC has typically 

found fewer Tribal subscribers recorded in NLAD for a given carrier than are claimed on the 

FCC Form 497. Through its analysis, USAC believes the root cause of this inconsistency may 

be that when inputting information into NLAD, the Lifeline Tribal Benefit field defaults to nonTribal unless changed by the canier. and because the carrier does not rely on the accuracy of this 

designation tor disbursement purposes, it may overlook the field. USAC is developing a change 

lo NLAD to require the canier to affirmatively choose either Tribal or non-Tribal status for each 

subscriber in the Lifeline Tribal Benefit field, and expects this system change to be implemented 

as early as next month. Moreover, with the implementation of the National Verifier, 

disbursements will be paid automatically based on data retained in the NLAD or National 

Verifier systems, rather than through separate claims submitted by carriers. This, combined with 

the potential geospatial capabilities noted above, will create a stronger set of controls around 

enhanced Lifeline support. 

5. Please describe any investigations, audits. or reviews that USAC has conducted 

ji'om October 2014 to the present that examined whether a wireless carrier sought 

enhanced wbsidies only for e/igih/e subscribers living on Tribal lands. 

'We would like to note that this Lifeline Tribal Benefit field is different than the Tribal Address flag. The Lifeline 

Tribal Rene !it field is used by the carrier to indicate whether the subscriber is receiving the enhanced Tribal Lifeline 

hcnefit while the Tribal addres~ flag is used when a Tribal address cannot be automatically verified through NLAO's 

address checking integration with the U.S. Postal Scn·ice. 
125 

Commissioner Pai 

September 2 I, :w 16 

Page 4 

a. Please explain the steps USAC has taken in such investigations, audits. or 

reviews to verify eligibility/or the enhanced subsidy Does USAC check 

wherher u subscribn has appropriarely certified that he or she lives on 

Tribal lands~ Does LSAC \'erij)• that the subscriber's addre1·s is actually 

localeJ on Trifn!llanJs '! 

Attachm_eJlJl, Tribal Proceduresfor Lifeline BCAP Audits (Highly Confidemial) , 

provides detailed information on the multiple steps undertaken by USAC's Internal Audit 

Division (!AD) to verify eligibility as part of the Beneficiary and Contributors Audit Program 

(BCAP). 

b. Please explain whether any such investigations, audits .. or reviews led to 

referrals to the relevanr state commission, to the FCC's Inspector 

General, to the FCC's Er1lorcement Bureau, or to any other person at the 

FCC. 

Attachment 2, Lifeline Wireless BCAP Audits (Corifidential) provides a list of the BCAP 

audits undertaken during the relevant time period that included Tribal eligibility testing. We 

note that none of the BCAP audits that e11amined whether a wireless carrier sought enhanced 

Lifeline support only for eligible subscribers living on Tribal lands raised concerns of waste, 

fraud, or abuse sufficient to refer to state commissions or the FCC. 

6. As mentioned above, the Hawaiian Public Utilities Commission detected that Blue 

Jay was enrolling more subscribers than households in the Hawaiian Home 

Lands. What automatic checks does USAC have in place to detect similar 

conduct? 

7. In June 2015, the FCC changed what parts of Oklahoma qualified as Tribal lands 

for purposes of the enhanced subsidy Effective June 8, 20!6, subscribers in 

Oklahoma must live with the boundaries reflected in the Oklahoma Historical 

Map or the Cherokee Outlet to qualifY for the enhanced subsidy on a going 

forward basis. The FCC has made maps (digital shapefiles) available for wireless 

resel/ers and others to use to enact this change. 

a. What process does USA C have in place to ensure that wireless rese/lers 

do not continue to claim enhanced subsidies for subscribers in Oklahoma 

who no longer qualifY under this change? 

Since the Tribal boundaries in Oklahoma were clarified by the FCC, USAC has been 

monitoring Tribal subscribership trends closely. In the first disbursement cycle following the 

effective date of the Oklahoma map, enhanced Tribal support claims in Oklahoma dropped by 
126 

Commissioner Pai 

September2l. 2016 

Page 5 

approximately $1.9 million, indicating that subscribers were being converted from Tribal to nonTribal in carrier claims. We also note that, as described in response to Question No. 5(a) and the 

related Attachment, USAC s BC AP audits evaluate whether a carrier is designated to provide 

in Tribal iard:; and validates that it is appropriate fur the carrier to obtain enhanced 

support claims. 

b. Can USAC determine whether each Oklahoma subscriber in the NLAD 

now resides on Tribal lands (and therefore qualifies for the enhanced 

subsidy)? ([not, what other information would USAC need to make such 

a determination? 

c. Please provide the following information for the ten largest wireless resellers in 

Oklahoma for each month from February 2016 to the present.· 

i. The number of subscribers claimed by the reseller, 

ii. Of those. the number receiving an enhanced subsidy, 

iii. The maximum number of subscribers enrolled in the NLAD during a given 

month for the reseller, 

iv. Of those, the number whose address showed that they lived on Tribal 

lands (Jar June, please use both definitions of'Tribal/ands). 

Attachment l· Wireless Rese//er Tribal Data (Co!!fidrmtial), provides information 

responsive to items (i), (ii), and (iii). Please note that for item (iii), we were not certain whether 

your request referred to the total subscribership in NLAD or the total Tribal subscribership in 

NLAD, so we have included data for both sets of subscribers, Upon reviewing the data, you will 

notice that the total Tribal subscribers receiving the Tribal enhanced Lifeline support (based on 

the FCC Form 497) varies from the total subscribers listed as receiving the · 

NLAD the 
127 

Commissioner Pai 

September 21, 2016 

Page 6 

**************** 

USAC remains committed to ensuring the Universal Service Fund is protected from 

waste, fraud, and abuse and looks forward to continuing to work with the FCC to ensure that 

contributions from consumers arc disbursed in accordance with FCC rules and regulations. 

Please let us know if you need any additional information or have any questions about the 

responses provided. 

Sincerely, 

CL_,~ 

Chris Henderson 

Chief Executive Officer 

Universal Service Administrative Company 

Enclosure 
128 

OFFICE OF 

THE CHAIRMAN 

FEDERAL COMMUNICATIONS COMMISSION 

WASHINGTON 

July 11,2017 

Ms. Vickie Robinson 

Acting Chief Executive Officer and General Counsel 

Universal Service Administrative Company 

700 12'h St NW, Suite 900 

Washington, DC 20005 

Dear Ms. Robinson, 

Last year, I sought USAC's aid in combating the waste, fraud, and abuse that has riddled the 

Universal Service Fund's Lifeline program since wireless resellcrs began participating in this program in 

earnest in 2009. I appreciate your responsiveness to those inquiries. 

As you know, 1 was not the only one concerned with waste, fraud, and abuse in the program. ln 

parallel with my office's investigation, the FCC's Office of Inspector General has been reviewing the 

probrram, its Enforcement Bureau has been investigating specific instances of potential fraud and abuse, 

and its Wireline Competition Bureau and Office of the Managing Director have been studying how to 

improve programmatic safeguards. In addition, the nonpartisan Government Accountability Office 

recently issued a report stemming from its thorough review of the program and the National Lifeline 

Accountability Database (NLAD). 

In light of these investigations and their tindings, l believe immediate action is warranted. We 

must be vigilant in stopping abuse ofth~ Universal Service Fund. American taxpayers demand, and 

deserve to know, that the money they contribute each month to the Fund is not wasted or put to fraudulent 

use by unscrupulous eligible telecommunications carriers (ETCs). 

Please implement the following safeguards to mitigate the risk of waste, fraud, and abuse as soon 

as possible: 

I. Ineligible Subscribers.-GAO was "unable to confirm whether I ,234,929 individuals out of 

the 3,474,672 that [it) reviewed, or 36 percent, pnrticip<~ted in the qualifying benefit programs 

they stated on their Lifeline enrollment applications or were recorded as such by Lifeline 

providers." That translates into :1pproximately $!37 million a ye<1r in potentially wasted funds, 

which GAO said "likely understate[s]" the magnitude of the problem given that GAO only 

reviewed applicants claiming eligibility through the Supplemental Nutritional Assistance 

Program (SNAP), Medicaid, and the Supplemental Security Income (SSI) program in certain 

states. 

a. USAC shall identify the top ten ETCs (on a holding company basis) with the highest 

number of potentially ineligible subscribers according to GAO's study. USAC shall 

audit each of these ETCs to determine whether they are properly verifying the 

eligibility of their subscribers. 

b. Every month over the course of the next year, USAC shall review a statistically valid 

sample of subscribers enrolled or recertified by each of these ten ETCs in the prior 

month to determine whether those subscribers are. in fact eligible to participate in the 

Lifeline program. USAC's sampling should focus on qualifying programs and states 
129 

c. USAC shail all ETCs with GAO-identified potentially ineligible subscribers 

to verify the of such subscribers and to de~enroU from the Lifeline program 

any subscribers whose dig!bilily the ETC camwt properly verify. 

d, USAC shall refer the substantial enrollment or recertification of ineligible subscribers 

by any ETC to the Commission's Office of Inspector Gt:neral for evaluation as to 

whether civil or criminal action is appropriate and to the Enforcement Bureau for 

administrative action and remedies. 

2. Oversubscribed Addresses.-GAO identified 59 instances where a single address was 

associated with 500 or more subscribers, including "a single address . , . associated with 

10.000 separate subscribers. all recetving Lifeline benefits through the same Lifeline provider. 

This address could not be vcriticct by the U.S. Postal Service address verification system [the 

GAO] consulted." Although there may be a reasonable explanation in some circumstances 

(e.g., the address is that of a large homeless shelter). the Total Call Mobile case revealed 

oversubscribed addresses arc also an opportunity for abuse. 

3, 

a. USAC shall identify and review cvny address associated with 500 or more 

subscribers, USAC shall require- aH relevant ETC's to de-enroll any subscribers that 

cannot verify 1hclr resith~nce at a location that ~:ould tT<lSonab!y accommodate them 

as well as an;." subscnbcrs that cannot confirm they wre ''independent economic 

households" (within the meaning of the FCC's rules) from other subscribers at that 

address. 

b. Every quarter going forward, beginning with the third quarter of2017 (JulySeptember), USAC shall review a statistically valid sample of addresses associated 

with 25 or more subscribers. USAC shall require all relevant ETC's to de-enroll any 

subscribers that cannot verify their residence at a locution that could rcasonubly 

accommodate them as well as any subscribe-rs that cannot -.:onfirrn they are 

independent economic households from other subscribers at that addres~>. 

c. USAC shall recapture any improper payments associated \Vith such Uewenrolled 

subscribers from the relevant ETC(s). 

ct. USAC shaH explore automating the process of detLJcting oversubscribed addresses: !n 

theNLAD. 

~. USAC shall ro,;fer the substantial enrollment or rccl..'rtification ofindividw:ds at 

oversubs1.:r!bed addresses in tb~ Lifeline prugrnm to the. Conuni-Ssion 's Office of 

Inspector Genera! for evaluation as to whether civil or criminal action is appropriate 

and to the Enforcement Bureau for administrntive action and remedies. 

1iiiliiii~~:~:,;, oftice's investigation revealed in August 2016 that one ETC, 1 claimed support for 22,325 more subscribers (on average) than it had 

each n1ooth for more than a year. The following month,-

,!~!,e~~:i~i=~~;f~: FCC that it had erroneously received over $13 million in Lifeline ? the Inspector G!.!nera! ha:; identdtt.~d that the lack of correlation 

between NLAD ond support claims created an "increased risk th::it fcdcrul funds are provided 

to carriers for Lifeline-supported services to ineligible subscribers, subscribers receiving 

multiple Lifeline-supported services, or household receiving multiple Lifeline-supported 

services that are enrolled in NLAD; and fictitious subscribers that are not enrolled in NLAD.' 

2 
130 

a. USAC shall develop a process to identity ETCs with material discrepancies that 

cannot be adequately explained between the NLAD and claimed support on their 

Form 497 submissions. 

b. Every quarter going forward, USAC shall direct FTCs with discrepancies that cannot 

be adequately explained to correct their NLAD listings and Form 497 submissions as 

appropriate. 

c. As part ofUSAC's audits ofETCs, USAC shall check any discrepancies between the 

NLAD and the claimed support of the aLtditecl ETC. USAC shall require such ETC 

to correct any material differences in their NLAD listings and Form 497 submissions 

as appropriate. 

d. USAC shall recapture any improper payments associated with such de-enrolled 

subscribers from the relevant ETC(s). 

e. USAC shall explore automating the process of comparing NLAD listings and Form 

497 submissions. 

f. USAC shall refer ETCs with material differences between their NLAD listings and 

their Form 497 submissions to the Commission's Office oflnspector General f\lf 

evaluation as to whether civil or criminal action is appropriate and to the 

Enforcement Bureau for administrative action and remedies. 

4. Deceased Subscribers.-Gi\0 identified 6.378 individuals who enrolled in Lifeline, 

recertifred eligibility, or both after they were reported dead. Each such individual was 

recorded as deceased in the Social Security Master Death Index more than one year before 

enrollment or recertification. 

a. USAC shall require the relevant ETCs to immediately de-enroll the deceased 

subscribers identified by GAO and recover improper Lifeline payments associated 

with these subscribers. 

b. Every quarter going forward, USAC shall check a statistically valid sample of 

subscribers enrolled or recertified during the previous quarter against the Social 

Security Master Death Index. The sampling should be risk-based, including a focus 

on subscriber age groups with a higher potential risk of mortality. USAC shall 

require the relevant ETCs to de-enroll any deceased individuals. USAC shall use the 

results to determine whether additional testing accompanied by de-cmollment is 

warranted. 

c. USAC shall recapture any improper payments associated with such de-enrolled 

subscribers from the relevant ETC(s). 

d. As part of USAC's ami its of ETCs, USAC shall check at least a sample of 

subscribers against the Social Security Master Death Index. USAC shall require the 

relevant ETCs to de-enroll any deceased individuals. 

e. USAC shall explore automating the process of comparing subscriber records against 

the Social Security Master Death Index at the time of subscriber enrollment or 

recertification. 

f. USAC shall refer ETCs with the substantial enrollment or recertification of deceased 

individuals in the Lifeline program to the Commission's Office oflnspector General 

for evaluation as to whether civil or criminal action is appropriate and to the 

Enforcement Bureau for administrative action and remedies. 

3 
131 

5. Exact Duplicates.-GAO's analysis of NLAD revealed 5,5 I 0 potential cases involving 

internal duplicate subscribers-that is, cases in which the first name, last name, date of birth, 

last 4 digits of a Social Security Number, street address, and zip code of one subscriber 

exactly matched that of another subscriber in the program. Although USAC reported that it 

scrubbed the NLAD record to identify additional duplicates in May 2015, safeguards should 

be in place to protect NLAD from new exact duplicate subscriber entries. 

a. USAC shall continue requiring ETCs to verify the identities of the ETCs' potentially 

duplicate subscribers. 

b. As part of USAC's audits of ETCs, VSAC shall review a statistically valid sample of 

transferred subscribers to verify their old subscriptions have been removed in the 

NLAD from the subscriber's prior carrier. 

c. For any new subscriber who can provide proof of address and identity but cannot 

enroll in the program because someone else has already enrolled using his or her 

address or personal information, USAC shall request that the existing service Ltsing 

that personal information or address should be discontinued. 

d. USAC shall recapture any improper payments associated with such de-enrolled 

subscribers from the relevant ETC(s). 

e. USAC shall explore automating the process of detecting exact duplicates in the 

NLAD. 

f. USAC shall refer ETCs with the substantial enrollment or recertification of exact 

duplicates in the Lifeline program to the Commission's Office of Inspector General 

for evaluation as to whether civil or criminal action is appropriate and to the 

Enforcement Bureau for administrative action and remedies. 

6. Sales Agent Accollntability.--The Inspector General has dckrmined that the payment 

structure that many Lifeline rcsellers use to compensate sales agents can create substantial 

incentives for fraud. Further, the Inspector General has found that sales agents are the 

primary drivers of inappropriate data manipulation in the Lifeline program. 

a. USAC shall require each sales agent to register with USAC with sufficient 

information so that USAC can verify the agent's identity and determine the ETC(s) 

he or she works for. Each registered sales agent shall receive a uniqtre identifier that 

must be used for all such agent's interactions with the NLAD. 

h. USAC shall adjust the NLAD to lock sales agents out of the system for a set period 

of time after too many invalid subscriber entry attempts. USAC shall determine the 

appropriate parameters for this lock-out system, and may escalate the length of any 

Jock-out period based on repeated misuse. USAC may also determine that certain 

sales agents must be locked out of the system pending further investigation. 

c. USAC shall determine how best to incorporate the inclusion of sales agent 

registration data and unique identifiers into its existing audit programs or whether 

special audits of sales agents would further reduce waste. fraud, and abuse within the 

Lifeline program. 

d. USAC shall refer any substantial enrollment or recertification of ineligible 

subscribers by particular sales agents, as well as any program violations by sales 

agents, to the Commission's Offrce of Inspector General for evaluation as to whether 

civil or criminal action is appropriate and to the Enforcement Bureau for 

administrative action and remedies. 

4 
132 

Thank you for your attention to these issues. I would appreciate a report on USAC's 

implementation of these safeguards by August 8, 2017. I also ask that you share this letter with the 

USAC Board of Directors, whom I trust will work with you to implement these recommendations. I 

would also welcome any further recommendations the Board may have to tighten federal safeguards for 

this program. In addition, J appreciate the joint project between USAC and FCC staff to review the 

information technologies used by USAC to carry out its mission and bow they could be improved. Once 

that review is complete, I may follow up with additional requests to curb waste, fraud, and abuse in the 

Lifeline program. 

Again, 1 appreciate USAC's continued work to protect the American taxpayer and safeguard the 

Universal Service Fund and am grateful for your leadership of the company. 

-:"'\; ~a~ AjitV. Pai 

Chairman 

Federal Communications Commission 

5 
133 

fhc Honorable Ajit V. Pai 

Chairman 

F.cderal Communkations Commission 

445 12th Street. S. \\. 

Vvashington, DC 20554 

August R. 2017 

Rc: C'S;I( · 's Lijdine .\'ale guard Implementation Plan 

Dear Chairman Pai. 

1 hm1k you for your July 11. ~.017 kner concerning the Universal Service Fund's tUSI·) Lifeline 

program. rhe Universal Sen ice Administrative Company (l'SACl is dedicated to combatting v'aste. 

lraud. and abuse in the USF programs. l.'SAC has had ongoing dialogue v\ ith your olf!cc and other 

Offices and Bureaus within the Federal Communications Commission (FCC or Commission), as \\ell 

as the Government Accountability Of!icc (GAU). Rs part of the collective efforts to strengthen the 

LiLlinc progrmn. l welcome and value the opporrunity to continue working \\ilh the Commission 

and other stakeholders in furtherance of the important mission of universal service. 

In \-lew 2017. the G-\0 released a report outlining actions needed to address tisks in the Lifeline 

pro~c'!'am. In light of your ongoing investigation of the Lifeline program, in parallel \\ith reviews, 

investigations. and studies being undertaken by the FCC's Offices oflnspcctor (rencral ROd \im1aging 

Director and the Enforcement and Wirciinc Competition Bureaus. as well as the recent GAO report. 

jOU have directed \'SAC to implement specific safeguards to mitigate the risk of\\astc, fraud and 

abuse in the program ":t'i soon a<> possible." You also invited US.-\C to work with mtr Board of 

Directors (l 1SAC Board or Born-d) to provide further recommendations to tighten federal safeguards 

in the program. 

The attached I S4 ( ReJJort on Li/i:line Sqfe~-,murds Jmp/emen!Uiion provides l:SAC's plan to 

imrlcment the Lii~'linc safeguards outlined in your letter covering the following categories: (]) 

Ineligible Subscribers .. (2) Oversubscribed Addresses, (3) PhROtom Subscribers, (4) Deceased 

Subsct~bcrs. (5) Exact Duplicates. and (6) Sales Agent Accountabilit). For each category, USAC 

provides some context f(Jr its existing processes and internal controls, then provides a ddailcd 

description ofits f(lrthcoming activitics to implcmL,nt your directives. Also attached is the Ulclinc 

s·atc:.;uard 1-fi/eswnc.> and Acri,·ity Tracker (Sa/eguards Tracker). which provides the Commission 

with a comprehensive timdinc of the future actions in this area ROd detailed completion dates for 

imporwnt milestones. 

l note that at the tinK llfthe exit conference v.v.ith Gi\0 last Fall and in our subscljucnt 

communications. including cuncspondcncc in connection with rcvic\\ of' the GAO's draft report 

earlier this )-Car. liS!\C repeatedly requested the data zmalysis pertt1m1cd by GAO that fonned the 

basis of its finding;;, hut it \\as not provided. Cpon receipt of;our letter, !jSAC engaged \\ith the 
134 

Chairman ,\jit V. Pai 

August 8, 2017 

Page 2 

G.'\0 staff again to ohtain the data analysis that formed the hasis for your recommendations and 

directives. t'SAC sta.ffhas communicated with UAO weekly to ohtain updates on the status of our 

request, ~ceping the Wirdine Competition Bureau and the Oftice of Managing Director informed of 

\'SACs communications with the GAO. :viost recent!). on 1\ugust:l. GAO staff indicated it would 

be at least a few more weeks before any in formGtion would he shared. Once we receive the requested 

int(lmlation. v..c will immediately notify the ICC and begin tore' iev\ the underlying data. l !SAC will 

pro' ide an additional response that updates you on our data analysis of the GAO analytics within 30 

Jays of receipt and will then provide updates ever) quarter thcreallcr. !'he Safeguard\' Tracker 

identifies the items that arc dependent on the GAO dma: howe\er, USAC \Vii! undertake multiple 

actions irnm~diatd; and independent ofthc CiAO data. 

I have Glso included a third at1achmcnt Uje/inc Supplemental Recommenda!ions. which provides 

additional recommendation, thr saii::guarding the Lifeline pro&'Tam. These recommendations are 

infi1rmed by recem experiences leveraged from our work to stand up the \.iational Lit dine Eligibility 

Verifier (t\atiunal Vcrilicr) and additional strides that USAC has made in our data mining and data 

anal;tic~ capabilitic:s. USAC "ill work close!; with the appropriate FCC Bureaus and Offices to 

implement any additional sat\? guards related to these recommendations. 

l :pon receipt of your letter. we immediately began working with the CSAC Board to solicit their ideas 

and r~commcndations. !'he CSAC Hoard rev icv\cd the attached reports and engageJ in several 

V>orking discussiom around l.ifdine program integrity. The Board asked me to convey the 

seriousness with which they take this oppmtunity to provide additional insights and recommendations. 

and aflirm their intention to continue wor~ing \\ith l S.\C in the corning months to refine its 

additional rccnmmcndation,; to improve etl(Jrts to address fraud. waste. and abuse in the Lifeline 

progran1. 

vlr. l'hainnan. I thank you tor your leadership on these important issues and your unwavering 

commitment to universal service. !look f(lrvv:u·d to continuing our work together to ensure that the 

Lifeline program can help hridge the digital divide and provide access to necessary communications 

Sl~n·ic.cs. 

Sinccrclv. 

L~ !'?vb~/UM Vi,·kit: S. Robinson 

.\ctinl:' Chief Executive Otliccr and General Counsel 

Lnivcrsal Sci'\ icc <\dministrative Company 

.\ttachment A: l'SAC Report on Lifeline Sati:guards Implementation 

/\ttachmcnt B: Lifdine Supplemental Rc~comrnendations 

Attachment C: Liklinc Safeguard Milestones and Acti,ity Tracker 
135 

Attachment A Redacted in its Entirety 
136 

Attachment B Redacted in its Entirety 
137 

Attachment C Redacted in its Entirety 
138 

Statement of Vickie S. Robinson 

Acting Chief Executive Officer and General Counsel 

Universal Service Administrative Company 

Before the United States Senate Committee on 

Homeland Security and Governmental Affairs 

FCC's Lifeline Program: A Case Study of Government 

Waste and Mismanagement 

September 14, 2017 

Good morning, Chairman Johnson, Ranking Member McCaskill, and Members of the 

Committee. Thank you for this opportunity to represent the Universal Service Administrative 

Company (USAC) and its hard-working professionals who conscientiously strive to ensure 

Lifeline program integrity and performance. I look forward to discussing USAC's efforts to 

effectively and efficiently implement the Federal Communications Commission's (FCC) Lifeline 

program as part of the Universal Service Fund (USF). 

I am honored to appear here today alongside Chairman Pai. It is my privilege to work 

together with him and our colleagues at the FCC to ensure that the intent and expectations of this 

Congress and the FCC are met and yes, even exceeded, for the Lifeline program. 

I am also honored to be here today with Mr. Bagdoyan ofthe Government Accountability 

Office (GAO). My colleagues and I at USAC appreciate the hard work and keen eye his staff 

have brought to their review of Lifeline and universal service issues. Their analysis and 

questions, as reflected by this most recent GAO report and all of the GAO reports on the Lifeline 

program, raise the right issues and directly contribute to our ability to improve program 

performance and root out waste, fraud and abuse. 

!joined USAC in February 2016, after serving in various positions at the FCC for over 

14\1, years. I held leadership roles in the FCC bureaus charged with universal service policy and 

enforcement matters. As such, I brought to USAC an up-close understanding of the FCC's goals 

Page I of 13 
139 

for the USF and its programs as well as an understanding of the importance of a strong working 

relationship between the FCC and USAC. I am committed to building upon that relationship. 

I want to assure the Committee that sound fiscal stewardship of the taxpayers' money, 

who ultimately fund the universal service programs, is of paramount importance to me and to my 

colleagues at USAC. I am committed to ensuring that not one cent of universal service funds is 

wasted, and that the USF monies are spent only as directed by the FCC's rules and requirements. 

In this testimony, I seek to describe the role USAC plays in administering the Lifeline 

program. I will endeavor to provide you with the fullest accounting possible of the efforts 

USAC is taking to improve program integrity and performance, including actions initiated before 

and since the release of the 2017 GAO Lifeline Report. In particular, I will describe our efforts 

to be responsive to the GAO report and Chairman Pai's subsequent directive, as well as other 

administrative changes that USAC has implemented to strengthen the subscriber eligibility 

verification process and the oversight of Lifeline providers. 

The Role ofUSAC 

Over 30 years ago, the FCC began the Lifeline program, and in the Telecommunications 

Act of I 996 ( 1996 Act), Congress ratified and expanded the program with the aim of narrowing 

the digital divide through the principle that "consumers in all regions, including low-income 

consumers ... should have access to telecommunications and information services." The 

Lifeline program impacts the lives of millions of Americans every day and meets the goals set 

forth by Congress in Section 254 of the Communications Act, as amended by the 1996 Act. 

Since it was established, USAC, as USF administrator, has endeavored to ensure that the 

intent of Congress and the FCC is faithfully followed. In 1998, USAC was designated as the 

permanent administrator to manage the day-to-day operations ofthe Lifeline program and other 

Page 2 of 13 
140 

USF programs including the Schools and Libraries program (commonly referred to as the E-rate 

program), High Cost (now referred to as the Connect America Fund), and the Rural Health Care 

program, and overall management of the fund, including contributions, disbursements, auditing 

USF recipients and contributors, and reporting to the FCC. USAC does not establish policy and 

may not advocate policy decisions. 

As administrator, USAC works closely with the FCC to implement policies and guidance 

promulgated by the FCC. USAC also works with program participants and the public to provide 

training and information concerning the Lifeline program. USAC has built upon its experience 

and has used technological advances, such as the use of third-party identity verification, to 

safeguard the USF and to make its programs more effective and efficient. Where problems have 

arisen, we take responsibility and drive hard to implement solutions. USAC is committed to 

continuous improvement. 

In May 2017, the GAO issued a report casting a critical spotlight on the administration of 

the Lifeline program. Among its many findings, the GAO expressed concern about efficiencies 

in the Lifeline program, program oversight, and the risk of waste, fraud, and abuse. Over the last 

few years, USAC has partnered with the FCC to implement modernization of the universal 

service programs and eliminate the sources of waste, fraud and abuse that were the focus of the 

most recent GAO report. This testimony focuses on our deliberate and comprehensive efforts to 

improve Lifeline, but of course, our approach to this program has implications for our 

contributor activities and USAC's overall management. 

Pre-GAO Report Creation of the National Lifeline Accountability Database 

In 2014, USAC executed the FCC's direction to create a National Lifeline Accountability 

Database (NLAD) to help eliminate fraud by detecting duplicate subscribers within the program. 

Page 3 of 13 
141 

The NLAD is one of the most important tools we have to prevent waste, fraud, and abuse in the 

Lifeline program. Under the FCC's rules, Lifeline subscribers may only receive support for one 

connection per household. The NLAD is a database of Lifeline subscriber information collected 

and submitted by the service providers. Service providers and USAC use the database to 

perform name and address verification, duplicate checking, and management of enrollment, deenrollment, and transfer of subscribers between Lifeline service providers. 

Implementing the NLAD has drastically reduced instances where subscribers had more 

than one connection, and were therefore violating Lifeline program rules. Once identified, 

USAC takes all necessary actions to recover wrongly-disbursed funds. Upon initial launch in 

2014, the NLAD detected over 2.5 million duplicate subscribers that have since been eliminated. 

This led to hundreds of millions of dollars in savings. Lifeline disbursements dropped from $2.2 

billion in 2012 to $1.5 billion in 2015 following implementation of the NLAD. 

USAC has continually worked to upgrade the functionality of the NLAD and to improve 

Lifeline program safeguards. For example, we added safeguards that prevent service providers 

from selecting eligibility programs for a subscriber that is not actually available in the state or 

territory were service will be provided. We also set up restrictions on the phone numbers that 

can be enrolled to ensure numbers enrolled reflect a valid number under the North American 

Numbering Plan. In addition, we improved the NLAD's search logic to detect unobvious 

duplicates using algorithms that must remain secret for enforcement reasons. We are using more 

data analytics to improve the rigor for duplicate detection and to enhance the accuracy of the 

NLAD, including automated reports and alerts that are sent to USAC staff for detailed review 

and further inquiry or referral to the Commission as necessary. These improvements and other 

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142 

upgrades help USAC identifY funds erroneously disbursed and to recover the funds from service 

providers. 

Additional Steps to Combat Waste, Fraud, and Abuse 

In-Depth Data Validation & Analysis. Additional steps have been taken by USAC both 

before and after the NLAD came into being to combat waste, fraud, and abuse. For example, in 

2013, USAC conducted In-Depth Data Validation (IDV) on select providers to identify any 

duplicate subscribers within their subscriber listing. This effort led to the elimination of 

approximately 2.2 million duplicate subscribers from the Lifeline program before the NLAD was 

implemented. USAC notified the FCC's Enforcement Bureau of the Lifeline rule violations 

from the IDV efforts, resulting in the issuance of Notices of Apparent Liability (NALs) for tens 

of millions of dollars against the violators. USAC continues to collaborate with the FCC on 

these matters. We are continuously refining our data analysis methodologies in order to better 

identifY, detect, and eliminate waste, fraud, and abuse from the Lifeline program. We have also 

improved our processes for referring possible incidents of waste, fraud and abuse to the FCC's 

Enforcement Bureau and the Office of the Inspector General. 

Using the NLAD for Lifeline Disbursement Calculations. Another example of our efforts 

to combat inefficiencies is in the upcoming changes to the reimbursement process that will 

further reduce fraud. Current Lifeline program rules require service providers to enroll 

subscribers in the NLAD to perform certain verifications and prevent duplicate enrollments. At 

the same time, service providers separately claim reimbursement from the Lifeline program on 

the FCC Form 497. As the GAO report noted, this process creates a risk that Lifeline service 

providers may be claiming subscribers that were not validated by the NLAD. This risk will be 

reduced significantly when, beginning with the January 20!8 data month (February 2018 

Page 5 ofl3 
143 

disbursement), all Lifeline program reimbursement claims will be calculated based on the 

subscribers actually recorded in the NLAD. Also, starting this month (September 20 17), and 

until the FCC Form 497 is eliminated in January 2018, USAC will reject any reimbursement 

requests where the subscriber count exceeds the NLAD subscriber count. USAC will continue to 

actively monitor the NLAD to address any unusual trends in reimbursements to ensure improved 

program integrity. 

Coordination and Consultation with the FCC. USAC cooperates closely with the FCC to 

facilitate the efficient management, oversight, and execution of the FCC's universal service 

programs. USAC regularly consults with the FCC concerning program implementation. USAC 

also provides the FCC with many reports on USAC's administration of the USF, including the 

Lifeline program. These detailed reports include improper payment analysis, risk assessments 

and remediation efforts, as well as audit follow-up efforts. From these meetings and reports, 

USAC is able to continually identify and rectify areas requiring improvement. 

The National Verifier 

The FCC's 2016 Liftline Modernization Order directed USAC to establish the National 

Verifier to authenticate program eligibility prior to enrollment. USAC is closely working with 

the FCC, state and federal agencies, program participants and other interested parties to develop 

a system that will ensure program integrity by placing under USAC's control responsibility for 

verification of subscriber eligibility. 

The National Verifier will complement the NLAD. The NLAD was designed to help 

detect duplicate subscribers; it was not designed as a portal to intake new applications for 

Lifeline service, or to interface with other systems or databases for automated eligibility 

verification, which are functions to be incorporated within the National Verifier. The NLAD did 

Page 6 of 13 
144 

not alter the rules permitting service providers to seek new subscribers, to certify them as 

eligible, and then obtain reimbursement for these new program participants. 

The National Verifier working in tandem with the NLAD will comprise a more 

comprehensive system to verify eligibility and prevent waste, fraud and abuse. The two systems 

combined will interface with one another to provide an end-to-end review of the eligibility of 

both existing and potential subscribers to the Lifeline program. This integration will provide a 

much-needed eligibility verification system, in a cost-effective manner, to improve the integrity 

of the program. The National Verifier development is on track to be completed on time and on 

budget. 

Using the National Verifier, prior to allowing enrollment of new Lifeline subscribers, 

USAC will check available federal and state agency databases to verify that the applicants are 

eligible for Lifeline qualifYing programs, such as the Supplemental Nutritional Aid Program 

(SNAP), Medicaid, Supplemental Security Income, Federal Public Housing Assistance, and 

Veterans and Survivors Pension Benefit. USAC has already entered into computer matching 

agreements with the Department of Housing and Urban Development (HUD) and several state 

agencies allowing for automated eligibility verification of enrollment in qualifYing programs. At 

the end of August, USAC and the FCC announced that by the first week in December 2017, the 

National Verifier will launch in six states- New Mexico, Colorado, Utah, Mississippi, 

Wyoming, and Montana. It will also utilize the connection with the HUD database to verifY 

federal housing eligibility in all of these states. And this is just the start- working in close 

consultation with the FCC, as well as other federal and state agencies, our intent is that many 

more states and more federal agencies will join the National Verifier in 2018. 

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145 

USAC is committed to ensuring the privacy of the information retained in the National 

Verifier. Each of the computer matching agreements with federal and state agencies comply 

with the federal Privacy Act. We are also designing the National Verifier system to comply with 

all applicable federal privacy and data security requirements, and USAC will also require 

mandatory privacy and security training of all individuals working on the National Verifier. 

Using the National Verifier system, subscriber eligibility will be re-checked with these 

databases yearly, as required by the FCC's rules. If no data sources are available, USAC will 

manually review documentation collected from the consumer applicant to verify eligibility and 

require each subscriber to certifY their continued eligibility through self-attestation, as required 

by the FCC's rules. 

As more and more states and federal agencies join the National Verifier, and its 

capabilities expand to nationwide coverage, USAC will use the databases to verifY the eligibility 

of all existing subscribers in those states as they become partners in the National Verifier. If 

eligibility cannot be determined by a National Verifier data source, USAC will require service 

providers to either (I) submit documentation they have on file for subscribers or (2) obtain 

current eligibility documentation from subscribers and submit it to the National Verifier for 

review. If eligibility documentation cannot be obtained or the documentation submitted is not 

suftlcient, USAC will de-enroll those subscribers from the NLAD and notifY the service 

provider. 

The execution of the National Verifier, coupled with the NLAD duplicates review and 

USAC's aggressive program monitoring, ensures that both new Lifeline applicants and already 

enrolled applicants will be carefully reviewed to confirm their eligibility to receive the benefits 

of the program. 

Page 8 of l3 
146 

The NLAD and the National Verifier combined will serve as a considerable and effective 

tool for combatting waste, fraud, and abuse. Eligibility checking and verification combined with 

identity and address verification, duplicate checking, and management of enrollment, deenrollment, and transfer of a subscriber between Lifeline service providers, are all critical to 

Lifeline program administration and integrity. The NLAD showed the possibilities for 

identifying and eliminating waste, fraud and abuse in Lifeline; the National Verifier will build on 

that base and expand it exponentially. USAC will continuously review the NLAD and National 

Verifier systems to make improvements to its efficiency and effectiveness. 

USAC's Lifeline Safeguard Implementation Plan 

The NLAD's and the National Verifier's waste, fraud and abuse detection capabilities are 

greatly improving USAC's ability to safeguard Lifeline funds. However, duplicate detection and 

eligibility verification are only a part of how USAC prevents and detects waste, fraud and abuse. 

The Commission has directed USAC to be vigilant in its efforts to combat against waste, fraud, 

and abuse. We are therefore grateful that the 2017 GAO report identified additional tools that 

may assist this effort. 

USAC has studied the 2017 GAO report and taken its findings to heart, as we know the 

FCC and Chairman Pai have. In his letter to USAC dated July II, 2017, Chairman Pai identified 

six key areas from the GAO report for action and increased USAC collaboration with the FCC: 

Ineligible Subscribers, Oversubscribed Addresses, "Phantom" Subscribers (i.e., subscribers who 

were not enrolled in the NLAD), Deceased Subscribers, Exact Duplicates, and Sales Agent 

Accountability. Building upon the data analytics and program integrity projects already 

underway at USAC, we developed the "Lifeline Safeguard Implementation Plan" (Plan), which 

focuses on the six areas identified by Chairman Pai as detailed below. 

Page 9 ofl3 
147 

• Ineligible subscribers- USAC will review the GAO data to determine the status 

of the 1.2 million individuals identified as ineligible and de-enroll any remaining 

ineligible subscribers. Given the age of the data analyzed by the GAO, USAC 

believes many ofthese issues have been resolved. In addition to resolving any 

ineligible subscribers identified by the GAO, USAC will continue to verifY the 

compliance and accuracy in eligibility verification processes of carriers during its 

audits. USAC is also beginning a monthly sampling effort to check the eligibility 

verification work of carriers on a routine basis until the National Verifier is 

implemented. 

• Oversubscribed Addresses- USAC will review and conduct outreach on any 

addresses with 500 or more subscribers, with continuing review of addresses with 

25 or more subscribers going forward. We will report our results to the 

Commission, along with proposals for administrative action. 

• Phantom Subscribers USAC is implementing processes by the first quarter of 

2018 to make certain that payments for reimbursement for Lifeline subscribers are 

not issued before subscribers are confirmed in the NLAD, thus eliminating the 

question of issuing payments for phantom subscribers. In the interim, USAC will 

reject any Lifeline support claims where the number of subscribers exceed the 

number of subscriber in NLAD. 

• Deceased Subscribers- USAC will work with GAO data and determine if any of 

the individuals identified as deceased remain in the NLAD. USAC will work to 

de-enroll ineligible subscribers, initiate recovery and report results to the FCC. 

Page 10 of 13 
148 

USAC is also evaluating additional death verification features with its third party 

identity verification vendor. 

• Exact Duplicates- Because the data relied upon by the GAO for its report was 

provided several years ago, USAC believes it is highly likely these duplicates 

have already been removed from the database. However, USAC will review the 

GAO data, and resolve any remaining issues including de-enrollment and 

recovery of funds. 

• Sales Agent Accountability- USAC is working with the FCC to develop a 

detailed plan on the technical requirements and processes for adding information 

about sales agents to our databases. A final plan and timelinc for implementation 

will be provided to the FCC by January 2018. 

USAC is incorporating additional processes, reviews, and reporting in order to better 

protect the Lifeline program. Our team is working assiduously to automate several of these 

checks into the NLAD's processes. We are also working with Chainnan Pai and the FCC to 

develop new tools and conduct reviews to prevent and detect fraud where the NLAD or the 

National Verifier cannot be leveraged. For example, we expanded the USAC Lifeline Program 

Integrity Team, and we are incorporating data-driven analytics to better identify trends and fraud 

risks. As a first step, USAC has identified service providers who have a higher than nonnal 

percentage of subscribers that trigger certain "red flags" in the NLAD or other data sources. 

USAC has requested to review a sample of supporting identity or eligibility documentation for 

those subscribers. In another process, USAC will identifY addresses with 500 or more 

subscribers and, if the location is not a homeless shelter, nursing home or similar facility, USAC 

Page 11 of 13 
149 

will conduct outreach to the applicable service providers to ensure the address is verified and the 

necessary certifications have been obtained as required by FCC rules. 

Additionally, USAC is working with its Board of Directors to develop and refine insights 

and recommendations to address waste, fraud and abuse in the Lifeline program. For example, 

several members of the USAC Board are involved with program integrity functions in other 

government programs, and provided informed recommendations based on lessons learned from 

these activities. The Board's High Cost and Low Income Committee actively works with USAC 

staff to ensure compliance with the FCC's rules and regulations. We rely on our experienced 

Board to provide leadership and guidance in our administration of Lifeline and other universal 

service programs. 

USF Fund Accountability 

One area of concern raised by the GAO report warrants further elaboration- fund 

accountability. Since the issuance of the report, USAC has taken concrete steps to ensure 

accountability for the USF funds. Along with the FCC, we reached agreement with our current 

private bank to ensure an FCC role in the oversight of the funds until they are transferred to the 

U.S. Department of the Treasury. USAC is working closely with the FCC and the U.S. 

Department of the Treasury to transfer the funds in the second quarter of2018. Further, as 

recommended by the GAO report, USAC has formalized its banking relationship by entering into 

a new contract with the bank that handles the USAC administrative funds for expenses such as 

rent, salaries, and benefits. These actions will resolve specific concerns expressed by the GAO. 

Conclusion 

Thank you to the Committee for providing me with the opportunity to describe the efforts 

underway at USAC to improve program integrity and performance. On behalf of all USAC team 

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150 

members, I want to assure you that we are committed to being responsible stewards of the 

taxpayers' dollars and delivering an effective and efficient program that fulfills its intended 

purpose, as defined by Congress and the FCC. We have made real progress, but much remains 

to be done. With the GAO's keen observations and Chairman Pai's recommendations, USAC 

will work diligently to ensure that the specific past weaknesses found do not persist, and no new 

weaknesses arise. 

Be assured that USAC will continue to take a multi-pronged approach to strengthening 

the integrity of the Lifeline program and ensuring program compliance. Specifically, USAC will 

continue to improve the NLAD by refining its processes, adding additional data collection to 

support investigations into non-compliance, and increasing the use of data for analysis and 

detection of potentially improper actions. USAC will move forward vigorously with 

implementing the National Verifier plan as it begins to roll out later this year and expands in the 

next two years. USAC will also implement the detailed plan provided to Chairman Pai to study 

the results issued by the GAO, and is working to implement immediate changes. In addition, 

USAC will continue to work to develop an even closer partnership with the FCC to improve 

communications and transparency, including better coordination on referring possible noncompliance to the appropriate offices or bureaus of the FCC for further investigation and 

enforcement. 

I look forward to responding to the Committee's questions. 

Page 13 of 13 
151 

Universal Service in a Wireless vVorld 

0 lga Ukhaneva 

Georgetown University 

oru @georgetown. ed u 

November 17, 2015 

Abstract 

In 2005, Lifeline, the primary federal program designed to promote uni\'ersal basic 

phone service, was expanded to inc:lucle discmmts to qualifying low-income telephoneservice consumers to prepaid wireless as well as for traditional wireline service. Since 

then. the cost of Lifeline program has greatly increased along with calls for its reform. 

In this paper. I seck lo provide furthPr insights into the e!Iccts of the Lifeline program 

on hoJJs<>hold adoption of basic phone service. I focus first on two aspects: the impact 

of the size of the discount and the impact of the recent program expansion to include 

cliscount.s for prepaid wireless service. Second. I conduct cost-benefit analysis of the 

oubsidy ns a whole rmd of its wireless element. I utilize a unique database taken from 

the National Health Interview Snrvcy (NIIIS) for the 2003-2010 period. The results 

indicate that the Lifeline program increases a household's propensity to subscribe to 

phone service, however tlw effects are quite small. Dased 011 the c:ountcrfactnal experiments. only one out of eight. households that receive the subsidy subscribes to t.c'lephone 

service because of the subsidy. The extension of the Lifeline subsidy to include prepaid 

wireless service has at.tractccl additional subscribers. However, the counterfactual experiment shows that only one out of twenty households enrolled in the wireless Lifeline 

program subscribes to telephone service because of the subsidy. 
152 

1 Introduction 

Universa].";rvice has been a central (',Oal of telccmmnunications policy for over 100 years. 1 

Over that period. policymakcrs have focm;ed on a variety of metrics for judging the "univer-

,;nlity" of spn·ice, but the most common has been the so-called "penetration rate" of landlinc 

telephone service among American honscholds 2 Universal service policies lmve been implemented to ensure that all Americans have the opportunities and secnrity that telephone 

service provides. 

Against this backdrop. in 1984 the Federal Communications Commission (FCC) implemented the Lifeline program. Lifeline is a mca.IlS-t\'stcd program that provides low-income 

honseholds with a discount on their monthly telephone bill. Between 1988 and 2014 the 

nmnhcr of Lifeline beneficiaries grew from roughly 1.8 million to more than 13.7 million. 

The corresponding expenditmcs of the program grew from approximately 32 million dollars 

m 1988 to 1.7 billion dollars in 2014-" 

The growth of the suiJsidv was significantly affected by the policy change that the FC'C' 

introduced in 2005. InitiAllv the Lifeline subsidy was available only to subscribers of wirclinc 

services. Due to low enrollment rates and the spread of new wireless technology, the FCC 

allowed companies offering prepaid wireless services t.he opportunity to offer Lifdinc service 

to eligible households. 

In the wake of this new policy. Lifeline subscriptions and the costs of Lifeline grew rapidly 

from roughly $800 million in 2008 to $1.7 billion in 2014 peaking at $2.1 billion in 2012. 

These ballooning costs of the subsiclv provoked considerable criticism of the program, calls 

for program reform. and even proposed legislation to c;nd the Lifeline program altogether or 

at least eliminate its wirdess demcnt . .'1 

The merits of this policy change. hereinafter rdc•nHi to as the wireless L(fclinc initiative, 

to inducle not only wirclin\' but also wireless telephony in the Lifeline program. has not 

lThis diort fir~t begau through plivatc'-:.,(>ctor calls for ··uuivcrsul servin, .. (sec Pur.suus <tHd Dixby (2010)) 

but later became au explicit public policy objective. See ·17 U.S.C. § 151) :::;t,ating that ·'communication h,y 

'.vin· and radio so as to make available, so f<lr ns po~sible 1 to all the p<•ople of thr United States, 'Without 

discrimination ... \vith adequntP facilities at reasonable charg('s." Subsequently in Section 2G4 (b)(3) of the 

TelPcommtmicat.ions Act of 1990. t ht• goal was nuvle eYcn more explicit. stating that "Consumers in all regions. 

including lm\'-income consumcrs ... should have access to telccomrnunication.s and information services." 2Thc Communications Act. of HJ90 expa.ndnl the notion of universal servicr to include advanced telecommtmications service;-; as they evo]YP. In particuhu, in 2005, the unin'rsal S<'rvices policies were extendt:~d 

to indnde wireless sen·icc: in 2010 the FCC relea:-:;ed the National Broadband Plan that started to shPtpe 

policies tow<-trd promotion of the high-:.:;pt~ed Internet access. 

"Sre FCC (2011). . 

'See, e.g., S]wnccr E. Ante ·'~lillions Improperly Cle1imerl U.S. Phone Subsidies," Washington Post, 

Fchrum.1· 11. 2013, p. Al. Also see. the \.Jill "Stop Taxpayer Funded Cell Phones Act of 2011" introduced 

by Ht>p. Tim Griffin: and "Eliding i\.Iobill' Phunl' \Velfr.ue Act of 201~f" introdnced by Hep. David Vittcr. 

2 
153 

under?,onc a systematic economic anuly,;is. Sperifically, while some observers huve defended 

the Lifeline subsidy notiug that. under the program the telephone penetration rate among 

low-income households increased from 80 perceut. in 1984 to 92.6 percent by 201:3, 5 this 

growth in subscrihership may have hecu driven by factors other than the Lifeline program. 

:\either the postming of critics or supporters of Lifeline provide specific insights on several 

key economic questions surrounding the program. Principal among these is whether the 

progrmn as it has evolved has acted to promote connectivity of American households and at 

what cost. 

This paper lws two goals. First, I seck to providl' furtlwr insights into the effects of the 

Lifeline program on household adoption of telephone service. In particular, I focus on two 

aspects: the impact of the amount of the subsidy, and the impact of the recent evolution 

of the subsidy from being a wirdinc-only program to supporting both wirelinc and wireless 

services. Second. based on my estimation, I conduct a cost-benefit analysis of the subsi(k 

These questions are important in light of JTcent proposed rulemaking issued by the FCC. 

wh<ere the Commission proposes steps to extend the Lifeline progr<~m to broadband service. 6 

To study the impact of the Lifeline subsidy, I utilize a unique database that combines 

both public and proprietary (location) household-level data takm from the National Health 

lntcJYiew Survey (:.JHIS) for the 2003-2010 period7 The theoretical framework is a utilitybased model of consmner behavior that incorporates characteristics suggested by the data 

and controls for the levels of snbsidy benefits and regulatory changes. These data are not 

ideal there is no information on whether a household participates in the Lifeline program 

or not. In fact. tlwre is no nationwide databaose that captures participation of households in 

Lifeline. To mitigate this problem. the empirical estimation is conducted under two scenarios: 

first, only households that arc eligible for Lifeline rccei\'C the subsidy (perfect enforcement): 

second. the Lifeline rules an• not enforced and all households n•ccivc the subsid\' (inefficient 

enforecment). Tlw second scenario is considered because of the evidence that a substantial 

mnnber of non-eligible households rcceiwd the subsidy this phenomenon was especially 

aggravated after implementation of the wireless Lifeline initiativc 8 In the post-estimation. 

I conclnct two counterfactunl experiments to aw1lvze how subscription elwin's of households 

clwnge if the wireless Lifeline initiative is eliminated (i.e., the subsidy is not available; for 

wireless service), and if the subsidy is eliminated altogether. D<J..~ed on the results of these 

FCC \,lonitoring Rcporl. 2013. 

{iScc FCC SPcond Further Notice of Proposed Rulemaking, Order on Recon.sideration. Second Report and 

Order, all(! \,lcmornmlnm Opinion (2015). 7 Public NHIS data arc available for the later period of time 1 but proprietary data tha.t I use for my 

estimation are avnih)lJle only for the 2003-2010 period. 

'See FCC (2012). 

3 
154 

count<'rfactnal Pxperiments. I calculate' the cost of adciing a marginal subscriber. 

In the perfect enforcement scenario. the results indicate that larger subsidies increase the 

propensity of households to subscribe~ to telephone service. Adoption of the new policy 

wireless Lifeline initiative - also increased telephone penetration rates among households. 

However. the estimates show that Rdcling a marginal subscriber to the telephone network 

is quite costly. Given that the Lifeline payments in 2010 accounted for approximately SL2 

billion, the estimated cost of adding a marginal wirdinc or wireless subscriber is 81,151 per 

year. Given that the actual cost of the subsidy is only $138 per year, the estimates indicate 

that onlv one of Pight households enrolled in Lifeline suhscribcs to telephone service because 

of the subsidy; the other seven are infra-marginal subscrihers householcb that would 

subscribe to telephone service even in the absence of the subsidy). I3ased on the results 

of a counterfactm1l expNiment specific to the wireless Lifeline initiative, the estimated cost 

of adding a marginctl subscriber to a wireless network is S2,8:l5 per year. That means 

that only one out of twenty households that receive SLrbsidies for wireless prepaid service 

subscribes to the telephone scn·ice because of the 8llbsidy: the other nineteen are infrauwrgirlill subscrilH'rs. I also find that if the Life! ill<' program were climinat cd alt og<'l hn, 

owr one million households would have cancelled telephone; service in 2010, which would 

have d('Crcasccl the telephone penetration rate among US hou~eholds from 95.8 percent to 

9.1,9 percent. 

In the inefficient enforcement scenario, the lew! of Lifeline benefit and extension of the 

subsidy to wireless service also increase the propensity of households to subscribe to telephone 

service. Howewr t hcse effects. while significant, arc much smaller than in tlw first scenario. 

Thus. the estimated cost of adding a marginal subscriber to the telephone network, wirelinc 

or wireiPss, is higher than in the first scenario approximately S3,093 per year. while the 

cost of adding a marginal subscriber to a wireless network is S5,486 per year. In this scenario 

tiH• consnnH~r behavior is qnit<' different than in til<' perfect enlinu'JIH'llt case. The rcsnlts 

from the countcrfactual experiment indicate that if the subsidy were cancelled for both 

wirdinc ctnd wireless services, the majority of consnmcrs would switch from the ''wirelessonh·'' category to either "both" or ''lanclline-only" categories. Only about 400,000 households 

wonld han' disconnected tl'!ephone service in 2010, which would have decreased the overall 

telephone subscription rates from 95.8 percent to 95.5 percent. 

This study complements the literature in sen~ral wavs. First. I estimate my model in the 

framework where consumers have a choice of wireless, wireline or both services." while existpaper builds on the lit,crature that studies tclccommunlcations demand, e.g., Perl (198~3) 1 T;tylor 

and !<ride! (1990), Dell Canada (Bodnar et aL 1988), Train, lvlcFadden and Ilcn-Akiva (1987), Taylor (1994). 

Schement (1995). rtiordan (2002). Rodini. Ward and \\'oroch (2003), Gideon and Gabel (201J). and ~Iacher 

ct aL (2015), 

4 
155 

ing empirical studies of the Lifeline program focus primarily 011 traditional landlinc sen-ice 

:Garbacz and Thompson(1997, 2002, and 2003), Eriksson, Kaserman and Mayo (1998), and 

Ackerberg et al. (2014)]. Second, I analyze how the extension of Lifeline to include wireless 

service affected a household's propensity to adopt a phone. To my knowledge, there has 

been no empirical study of this regulatory change. Finally, I provide a cost-benefit analysis 

of the subsidy as a whole and of its wireless element. 

f-ly results are similar to the existing findings. i\lost of the economic research on the 

Lifeline program has indicated that it has promoted telephone subscriptions, but the gains 

have been costly. Erickson, Kaseman and Mayo (1998) estimate that the cost per new 

subscriber was between $133 and $55G depending on the poverty level for the 1985-1993 

period. Garbacz and Thompson (2002) show that the cost per added household was $191 in 

1990, and it increased to $1581 in 1998. The most recent study by Ackerberg et al. (2013) 

estimates that the cost of adding; a new subscriber was S519 in 2000. 

The next section provides background of the Lifeline program. 

2 Evolution of the Lifeline Program 

The Lifeline program was established in 1984 after the divestiture of AT&T in response 

to the concerns that. potential rate increases could harm low-income consumers and decrease 

their telephone subscription rates. 10 Initially Lifeline was available to low-income subscribers 

of wireline service, the only telephone option widely available to the public at the time. 

The Lifeline program promotes telephone subscribership by providing low-income households with monthly discounts on the cost of telephone service. To qualify for Lifeline. the 

household income must be at or below 135 percent of the Federal Poverty Guidelines, or one 

of tlw household members must participate in one of the welfare programs specified by the 

FCC. 11 Each eligible household can subsidize at most one phone, regardless of the number of 

telephone snbscriptions in a household. Currentlv, the level of Lifeline benefits is the same 

with Lift-line in 1987 the FCC established another low-income subsidy program Link Up. Link 

Up is a one time subnidy that reduces the inicial subscription fee to the public switched nct,vork or tht' 

activation fer to wireless service. Link Up has been a much smaller program than Lifeline. it accounted for 

less than 10 percent, of total low-income subsidy payments. It was eliminated except to recipients on Tribal 

lands in February 2012 as a result of FCC reforms (sec FCC (2012)) and it is not addressed in the current 

fed{'ral programs include: ?v[edicaid. Supplemental Nutrition Assistance Program (Food Stamps or 

SNAP), Supplement.al Security Income (SSI), Federal Public House Assistance (Section 8), Low-Income Home 

Energy Assistance Program (LIHEAP), Tempormy Assistance to Needy Families (TANF). National School 

Lunch Prognun·s Free Lunch Program, I3urcau of Indian Affairs General Assistann.\ TriGally-Admiui~tcrcd 

Temporary Assistance for Needy Families (TTANF), Food Distribution Program on Indian Reservations 

(FDPIR), Head Start (if income eligibility criteria are met), or State assistance programs (if applicable). 

5 
156 

in all states $9.25 per month. Before 2012, the amount of the subsidy varied across states. 

:Vly estimation strategy leverages this variation to evaluate the importance of the size of the 

benefit .. Table 1 shows the mnounts of Lifeline benefits across US states in 2010. 12 

Historically, the program waB not very popular among eligible households. Figure 

compares Lifeline program participation with household participation in the Supplemental 

Nutrition Assistance Program (SNAP), a welfare program that is used by the FCC toestablish the eligibility criteria for participation in Lifeline, over 1996-201;1. This comparison 

suggests that many eligible households do not take advantage of Lifeline benefits. 13 The 

Commission undertook several attl'mpts to increase participation rates in the program. 

First, in 2000 the FCC enhanced the program benefits for residents living on or near 

federally-recognized tribal lands and reservations. 14 Second, in 2004, the Commission expaneled the federal default eligibility to include an income-based criterion of 135 percent 

of the federal poverty guidelines and additional means tested programs. 15 Finally, in 2005, 

the FCC decided to forego a "facilities requirement" for approving telephone companies as 

Eligible Telecommunications Carriers (ETCs) for Lifeline support only. This change in regulation, which from now on is referred to a:; wireless Lifeline initiative, provoked rapid growth 

of Lifeline subscribers and consequently costs of the subsidy. 

Since the 1996 Telecommunications Act the FCC had maintained a requirement that 

only facilities-based telephone companies could serve ns ETCs for the purpose of providing 

the Lifeline subsidy. However, based on the petition of TracFone, a non-facilities-based, 

commcn·ialmobilc mdio service provider (rcsdlcr) offering prepaid sm·vicc, the FCC decided 

to eliminate the facilities requirement. 

Although TracFone was granted a forbearance from the facilities requirement in 2005, its 

designation as an ETC was conditional on implementation of several FCC requirements. 16 

t:'tatistics an· provided for 2010. hecansc the sample used in the empirical estimation is for the 

zoo:l-2010 period. 13Stndies by Burton, Macher and Mayo (2007) and Hauge, Jamison and Jewell (2008) examine Lifeline 

pmticipntion ratt~ and rharacrrristics of thP program that might infht<'nCP rnrollmrnt in tlw snbsidy. 14Federal-Statc Joint Board on Universal Service: Promoting Deployment and Subscribcrship in Unserved 

and Underserved Areas, Including Tribal and ln,snlar Area.-,, Twelfth Report and Order, and Further NoticE-~ 

of Proposed Rulemaking·, CC Docket No. 96-45, FCC 00-208, 1.5 FCC Red 12,208 (2000). 

lf'Sec Lifeline and Lmk Up, Report and Order and Further :N"otice of Proposed Rulemaking, 19 FCC Red 

8:102 (200cl), 10The grant of the ETC status was conditional on TtacFone (a) providing its Lifeline customers with 

911 and enhanced 911 (E!Jll) access regardless of activation st.a.tus and availability of prepaid minutes; (b) 

providing its Lifeline customers with E911- compliant handsets and replacing, at no additional charge to the 

customer, non-compliant. handsets of existing customers who obtain Lifeline-supported SC'rvice; (c) complying 

witl1 condition:::; (a) aud (b) as of the date iL provides it provides Lifeline ~crvicc (d) obtaining a certification 

from each Public Safety Answering Point (PSAP) where TracFone provides Lifeline servk~~ confirming that 

TracFone c01nplies with condition(<-\); (e) requiring its customers to self-ct'rtify at time of service activation 

aud annually thereafter that tlwy are the head of household and receive Lifeline-supported service only from 

6 
157 

The first Lifeline offerings by TracFone appeared in 2008 in Florida, Tennessee, and Virginia. 

In fact, facilities-based carriers had provided Lifeline support for wireless service before 

2008; however, the Lifeline wireless payments were negligible. The elimination of the "facilities requirement:' opened a way for many rcsellers that previously had not qualified as ETCs, 

to apply for provision of Lifeline support - by 2014 prepaid wireless carriers were offering 

Lifeline subsidy in 49 states. For this reason, the wireless Lifeline initiative is often referred 

to as the beginning of subsidized wireless phones, popularly called "Obama phones.'' 17 

Since implementation of the wireless Lifeline initiative, the number of Lifeline participants 

has grown significantly. Figure 2 shows that the number of program participants grew from 

6.7 million in 2008 to almost 14 million in 2014. As a result the payouts under the Lifeline 

program have progressed as well; Figure 3 shows that the costs of the program increased 

more than two times from S785 million in 2008 to $1.7 billion in 2014. 

The increasing costs of the Lifeline program have resulted in higher fees passed along 

to consumers. All universal service support mechanisms, including Lifeline, are funded by 

the Universal Service Fund (USF). Companies pay a percentage (or contribution factor) 

of their interstate and international end-user wvenues that appear on consumers' monthly 

wireline and wireless service bills. Figure 10 displays the growth of Lifeline quarterly spending 

requirements and USF contribution factor. In 2008 the average Lifeline spending per quarter 

was around $200 million, in 2012 quarterly spending rose three times to $600 million, and fell 

to $400 million quarterly in 20H. At the same time the USF contribution factor grew from 

10 percent to 16 p<ercent. According to the FCC 2014 Monitoring report each household 

faces an approximately $3 monthly charge that goes to USF, that amounts to approximately 

$36 out of pocket expenditures per household per year. 

To better understand the nature of this increa.'ie in participation rates and program 

costs, I segmented Lifeline beneficiaries into subscriber groups of wireline, wireless excluding 

prepaid, and prepaid wireless services. Fignres 4 and 5 show that most of the growth since 

2009 in the number of program subscribers and payments can be attribntecl to the growth 

of Lifeline subscribers to prepaid wireless service. From 2008 to 2014 the percentage of 

Lifeline reimbursements to re,;ellers increased from 1 to 76; while the percentage of Lifeline 

reimbursements to wireline carriers decreased from 90 to lG. 

The extem;ion of the subsidy to prepaid wireless service might have benefited low-income 

consumers, the majority of whom have been relying solely on wireless service in the recent 

TracFone; and (f) establishing safr.guards to prevent itA customers from receiving multiple ·n·acFone Lifeline 

snbsidies at the same t~ddress. 

17This moniker is however inapt. The change in the regulation \Vas approved in 2005. during the Bush 

Administration. 

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158 

years. 18 Figure 6 ~bows subscription rates to telephone service among low-income and all 

US households over the 1984-2014 period. The telephone subscription rates among lowincome households have increased from 89.7 percent in 2008 to 93.1 percent in 201<1. Also, 

over time the difference in subscription rates between low-income and all US households has 

significantly narrowed. 

On the other hand, even though the growth of the Lifeline program coincided with the 

growth of telephone subscriptions (this tendency is shown in Figure 3), there might be other 

factors that prompted households to subscribe to telephone service such as improved quality 

of wirele:;s service or decrease in prices of telephone service. Potentially, the growth of Lifeline 

may be caused by the worsened economic conditions and decreases in income. Note that 

concurTent with the efFective implementation of the wireless Lifeline initiative in 2008, the 

US entered a period of significant financial turmoil and recession, during which other social 

welfare programs also experienced significant increases in the number of participants and in 

program costs. 

l3esides worsened economic conditions there are several other possible causes of growth 

of the Lifeline program related to the introduction of wireless Lifeline initiative that do 

not necessarily result in increased subscription rates. First. the wireless Lifeline initiative 

might have attracted eligible customers who had not been enrolled in Lifeline before the 

subsidy expansion. These could be either customers who had not subscribed to telephone 

service before Lifeline expansion (marginal consumers), in which case subscription rates 

would increase, or customers who would have subscribed to telephone service anyway but 

who now fine! it more a.t.\ractive to take Lifeline (infra-marginal subscribers). in which case 

subscription rates would stay the same. 

A second source of change that might be caused by the wireless Lifeline initiative is that 

the filter by which households arc deemed to be eligible becomes less binding. The program, 

initially designed for traditional wireline service, was not adjusted for extension to wireless 

service which is quit.e different in nature. This led to fraud and waste of federal funds. 10 In 

particular, the rule of one phone service per household is harder to sustain once the subsidy 

is available to cell phone service subscribers in the absence of unified database of all Lifeline 

custu1ners. 

Finally, the verification procedures during initial enrollment in the program have also 

proved inefficient in some states. Lifeline subscribership data reflects troubling evidence 

suggesting that non-eligible households may be enrolling in the program at a particularly 

ra.pid rate in states that do not require documentation of program-based eligibility at signStephen .J., anJ .Julian V. Luke (2015). 19.Julic A. Veach (2013). 

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159 

up2o 

This re>search seeks to explore the role of Lifeline in the growth of telephone subscribership 

among US households. If in fact Lifeline increased telephone penetration rates, how much 

docs it cost to add a marginal subscriber to the telephone network under the program? 

3 Data 

Data for this research are taken from the National Health Interview Survey (NHIS) conducted by the National Center for Health Statistics (NCHS). The NHIS is a household survey 

that collects data on roughly 35,000 40.000 households and 75,000 - 100,000 individuals 

annually. The survey does not follow the same individuals through the conrse of interviews, 

hence my sample is a pooled sample of cross-sections. The NHIS includes questions on demographics, the health status of the population, and telephone coverage. Specifically, the 

survey includes qumtions about the status of household subscription to telephone services: 

either wireline or wireless. both or none. The !'\HIS conducts the survey in person and covers 

the civilian and non-institutionalized population residing in the United States at the time 

of the interview. 21 

'While most of the NHIS data arc publicly available, specific household location is confidential. With the approval of the Center for Disease Control and Prevention (CDC), I 

obtained the restricted portion of the data and could therefore link the NHIS sample to data 

from the Federal Communications Commission (FCC), the United States Census Bureau, the 

United States Bureau of Labor Statistics, and the United States Department of Agriculture. 

3.1 Data Overview and Descriptive Statistics 

The initial NHIS data set contains 190,072 household-level observations. I eliminate 

observations for which essential information is missing. The sample used in the estimation 

contains approximately 20.000 observations in each year for the 2003-2010 period, or 167,397 

household-level observations in total. Table 2 shows the annual percent of households without 

phone service in the sample. It stays around 1.5 percent rvery year with small variation.22 

example, the numlH:'r of Lifeline subscribers in Louisiana, which dors not require documentation of 

program participation at enrollment, increa,cd by 1.565 percent from 2008 to 2011. Over t,he same period, the 

nnmber of Lifelim' suhscrib<..'rs in Kansas 1 which dors require documentation, increased only by 105 percent 

from 2008 to 2011 (See FCC (2012)). Based on the ETCs' snrveys conducted in 2011, 9 percent of the 

respondents surveyed responded that they were no longer eligible for Lifeline, and 27 percent of subscribers 

failed to respond to the carriers) verific<~tion surveys. 2 'For further detaib, see http:/ jwww.cdc.gov/nchs/nhisjabouLnhis.htm. 22 As shown in Tahlc 2, the fnll NHIS sample contains larger percentage of households without telephone 

service; however for :-~orne houtlehold::; in the sample essential information is missing. In most cases, it is 

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160 

Figures 7, 8, allCl 9 show annual telephone subscription choices for the whole sample, lowincome households, and households that l identify as eligible for Lifeline, respectively, for the 

period of 2003-20l!l. The telephone choices include no phone, landlinc only, wireless phone 

only. or both services. Low-income households are households with income below poverty 

level, and tlwy arc a subset of eligible households. As shown in these figures, low-income 

households experience the lowest subscription rates, followed by eligible households. 

Both eligible and low-income households are more likely to choose subscription to only 

one service, and there has been a dramatic shift in preferences toward wireless service among 

all groups of households. In the period 2003-2008, both eligible and low-income households 

exhibit heavy reliance on landlinc. In 2009, across the entire sample for the first time the 

percentage of households that subscribe to cell phone only service exceeded the percentage 

with land line service. The same shift occurred among eligible and low-income households. In 

2014, almost 57 percent of eligible households were wireless-only, and more than 62 percent 

of low-income households subscribed only to cell phone service. In contrast, the US average 

was around 4 7 percent in 2014. 

Table 4 provides summary statistics based on the sample used in the estimation. 

3.2 Variables 

To determine the main factors that influence demand for telephone service, and in particular the dicct of subsidies and rcp;ulatiou. I employ .'cvcral groups of cxplancttory va.riablc,;. 

Variables of primary interest are levels of subsidy and measures of changes in regulation. 

Second, I incorporate price nwa.-;ures along with household income. Third, I include demographic characteristics that have been historically shown to affect the demand for telephone 

service. Finally, I control for quality characteristics of wirelinc and wireless services. Below 

I provide a gt~Iwral ovcn·icw of the vr:-triablcs. Appendix n iucludes the notation, definition~ 

and sonrcres of all variables. 

Low-Income Program Variables To account for the effect of the subsidies, I include 

combined federal and state monthly Lifeline support per beneficiary by state (Lifeline Benr'fit) for the 2003-2010 period. These data are available within the FCC "Universal Service 

:llonitoring Report.'' I expect that higher program benefits will result in an increased propensity of telephone subscriptions. 

the information about incorne level r;hat is not provided. However, as shown in Appendix A, demographic 

charactcriscico of the "!HIS data set clooely resemble those of the U.S. population. For this reason, I believe 

that 1 he estimates ba~ed on restricted samplr, of households for which all information is represented are 

correct. 

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161 

To control for the availability of the wireless Lifeline initiative in a particular state, I 

use total prepaid wireless Lifeline payments within the state for each year ( Wireless Lifeline 

Initiative). Zero or very small payment amounts under the wireless Lifeline initiative mean 

that there is no ETC in the state that offers Lifeline for wireless prepaid service, or that 

eligible customers are unaware of the subsidies. The greater the amount of payments under 

the wireless Lifeline initiative, the more likely that the subsidy for prepaid wireless service 

is easily available to eligible households in that particular state 2 :> 

Finally, from the NHIS data, I identify households eligible for low-income benefits according to the federal eligibility criteria (Eligible Household). 

Price and Income Variables In order to estimate consumer demand empirically, I include measures of wireline and wireless prices. I usc 2002 data on the bask flat mont hlv 

charges by wire centers throughout the U.S 2 ; Thee areas served by wire centers typically 

comprise parts of several counties. I usc population weights within individual wire centers to 

construct a weighted price by county for residentiallandlinc service throughout the U.S. To 

update these data for the :20o:J-2010 period, I ulilize the Federal Communication Commission's "Reference Book of Rates, Price Indices, and Household Expenditures for Telephone 

Service" (Reference Book). The Reference Book reports the results of an annual survey of 

local monthly fixed telephone rates for 95 cities located throughout the U.S. The year-to-year 

Pearson correlations between the priceo are very high, averaging .96 during the relevant time 

period, indicating that the major source of wireline price variation is captured by the spatial 

disaggregation of prices at the beginning of the sample period. The prices are updated by the 

values of the Consumer Price Index (CPI) for local exchange service during the 2003-2010 

sample period. 

Finding a measure of wireless price is quite a challenge. :\Iobile carriers offer numerous 

subscription phns to consumers. A phm usnillly incluclc•s a "bucket:' of minutes for a fle~t 

rate charge. For consumers whose uoage levels remain within the purchased bucket, the 

price can be taken as an average monthly expenditure for the service. Data on average 

robustne~s check. I used other controls for the wireless Lifeline initiative. such as an indicator that 

~ubsidies f(H" wirelesH ptepaid Sf'I"Vice are offered in a particular state, and win··less Lifeline prepaid payments 

per capita. The regression re~·mlts with either of these measures are very similar to the ones with the t.ot.al 

prepaid wireless pa.yments. 24These data \n-:re graciously providcrl by Greg Rosston, Scott Savage and Bradley 'Vimmcr. See Rosston, 

Savage and \Vimmer (2008) for their rr-search using these data. \Vhilc many local telephone companies offer 

local measured service in \Vhich customers pay a smaller monthly subscription charge and (after a call or 

minute aJlnwance) pay a marginal charge per minute or call, industry sources report that the percentage of 

custorm'rs who avail themselves of this option is de minimus. Accordjngly, T focus on consumers' choices 

based on variations in flat monthly ratPs. For a detailed study of the cconornics of such optional calling 

plans, see i\limvete (2002). 

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162 

expenditure per user (including roaming charges and long-distance toll calling) were taken 

from the Cellular Telephone and Internet Association (CTIA). CTIA conducts a semi-annual 

survey of its rncrnber companies eallecl Wireless Indnstry Indices. The survey includes data 

from companies representing over 95 percent of all U.S. wireless subscribers between 2003-

2010. To account for spatial variation in the mea8ure of wireless prices, I incorporate local 

and state taxes paid by consumers in different locales. Data on state and local taxes arc 

provided by the Committee on State Taxation (COST). The tax data are collected every 

three years starting in 1998 2001, 200·1, 2007 and 2010) 2 " COST reports the prevailing 

state sales tax inclusive of general sales taxes. Local tax rates for each state were calculated 

as the average of those imposed in the largest city and those imposed in the capital city. The 

lirot. two reports include the oingle measure of local and state taxes applied to wirelinc local 

and long dist a nee service as well as mobile service. In later reports, taxes levied specifically 

on wireless service were reported separately. I used linear interpolation to calculate tax rates 

for the years between reports. 

Drawing on the NHIS survey data, I also include measures of household income. Household income is categorized relative to an annual poverty threshold U8ing four dichotomous 

variables. Household income below the poverty threshold (Income1 ), between one and two 

times the poverty threshold (Income2), between two and four times the poverty threshold 

(Income3), and more than four times the poverty threshold (lncome4) are relevant categorie;.;. 

Endogenous Variables and Exclusion Restrictions I consider the potential cndogeneity of prices and the amount of the Lifeline subsicly. The endogeneity of prices may rise for 

several reasons: for example, where there is an unobserved attribute of the service, such as 

quality or advertising, that is correlated with price. vVithout correcting for endogcneity, the 

aggregated demand is e8timatecl to be upward-sloping, suggesting that omitted attributes 

are positively correlated with demand. 

The enrlogeneity concPrn regarding the amount of the Lifeline subsidy arises from the 

presumption that states with lower telephone subscription rates might proviclc higher lowincome support in order to increase penetration rates. This aosumption is supported by the 

statistics from the FCC Monitoring Report, 2010. Table 3 shows that in 1997 the penetration 

rates among low-income households in the states with high assistance is lower than in the 

states with intermediate or low assistance. The same holds for the sample of all households: 

however, the difference in penetration rates among states with different levels of assistance 

is smaller. By 2009, the difference in telephone subscription rates diminished for states with 

COST (2002. 2005) and Mackey (2008, 2011). 

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163 

different support levels. 

As always with endogencity, the selection of exclusion restrictions is an issue. Exclusion 

restrictions should be correlated with the endogenous variables, but should not affect the 

dependent variable. The exclusion restriction I use in the equation (2) for estimation of 

the wireline price is the Hansman-Type Instrv.ment 26 The price instrument for county i is 

calculated as the average price in other counties in the same state. This instrument. seems 

to be appropriate, because carriers face the same regulations and fees within the same state. 

so the prices of the same carrier in other counties should reflect common costs within the 

state. 

To estimate the wireless price, I use Mobile Penetration. It is plausible that economies of 

scale exist in the wireless industry. Economies of scale imply cost reductions with increased 

penetration. Thus, mobile penetration might impact the price as a cost-shifter. Regression analysis shows that the mobile penetration rate does not influence telecommunications 

demand27 Hence, it seems to be a reasonable choice of instrument. 

lnse the percent of families at or below 135 percent of the poverty level (Families Below 

135) as the exclusion restriction for the subsidy payments. This variable does not directly 

affect the telecommunications demand, but states with higher poverty levels may be more 

prone to provide higher social benefits. To check for robustness, I also use the party affiliation 

of the governor (Democrat Governor) as an exclusion restriction for the amount of the 

suhsid:v. In the majority of the states, a public utility commissioner is appointed by the 

governor. The Public Utility Commission plays a major role in determining the size of 

the Lifeline subsidy. Democrats might be inclined to provide more generous subsidies than 

Republicans. 

Demographic Variables I include demographic variables that are conventionally regarded as important determinants of telephone demand. 1 control for age (Age of Head of 

Household), education (Educated Household), houo;ehold size (Household Size), home ownership (Own Home), ratio of employed members in a household (Ratio Working), number of 

children (Children), the presence of a student in a household (Student), the presence of members with health limitations (Limited Yonth and Limited Adult) in a household, the presence 

of a retire in a household (Retired Ho1tsehold); racial composition (White, Black, Hispanic 

and Native American Households), and gender composition (Female Household and .Male 

Household). 

Hausman (1996), Petrin and 1\·aiu (2010). 27 Sce Barnett and Kaserman (1998). 

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164 

Quality Variables/Geographic Variables I include population density (Population 

Density) to account for potential network effects, or in contrast, the potential extra value 

of connection to a resident of a rural area. 28 To capture the increase in demand rlue to 

inter-temporal variation in the wireless service quality, I control for a number of cell sites 

deployed by the wireless industry in each year between 200a-2010 (Cell Site.s ) 2 'l 

4 Econometric Specification 

For empirical estimation I utilize a mixed logit modeL This model allows to account for 

heterogeneity in consumers' preferences, does not restrict substitution patterns, and allows 

for correlation in unobserved factors over time. The price coefficifmt varies across consumers, 

while other coefficients are fixed. The price coefficient is indqJende!tlly normally distributed. 

I also account for potential endogeneity of the prices and lewis of subsidy benefits. 

Consider a consumer who faces four alternatives for a telephone: (1) no phone, (2) 

landlirw only, (3) cell phone only, or ( 4) both landline and cell phone, and chooses the 

alternative with the highest level of utility. The utility of option j (.j = 0, N, \V, NW), which 

accordingly corresponds to the choice of no phone (0), wireline only (N), wireless only (W). 

or both phones (N\V) can be written as: 

(1) 

wlwre is the price of service j (j N, W, NW) faced by household n at time t, 

and price of outside option (no phone) is zero; LLnt denotes the amount of Lifeline benefits 

that household n faces at time t; W Lin;t represents the wireless Lifeline initiative (it is 

<lpproxinmtcd by the total amount of subsidy payments to wireless prepaid ETCs in the 

state of household n's residence at time t); Xnt is a k x 1 vector chat includes all other 

controls, such as income and demographic characteristics of household n at time t and some 

alternative-specific characteristics in the area where household n resides: .Bn is a random 

price coefficient that represents taste of consumer n; En;t is the unobserv!"d portion of utility. 

To address the issue of potentia.! enclogcncity of prices and low-income benefits, I follow 

Petrin and Train (2010) by implementing a control function approach. The idea behind 

the control function approach is to derive proxy variables that condition on the parts of 

Macher et al. (2015). 29The anmHtl data are available in the CTIA report. It includes repeaters and other cell-extending devices 

huL excludes microwave hops. The location of the specific cell site is confidential, thus I am unable to account 

for their geographic distribution. 1'v1y mea::mre of cell sites might also underestimate inter-temporal wireless 

service qualit.Y improvement due to Lt>dmological differences of towers deployed in the different periods. 

14 
165 

endogenous variables that are correlated with the unobserved utility fnJt· This can be done, 

if endogenous variables are regressed on all the exogenous variables that enter utility and 

some exclusion restrictions Zn that do not directly enter utility, but impact endogenous 

variables. [n the first stftgc I estimate the following syslcm of equations: 

{

Pricenjt = f(X. nt, z,,) + Vnjt, 

LLnt = J(X,,, z,,) + Vnt· 

(2) 

System of equations (2) is estimated by simple OLS regression of prices and subsidy benefits on exogenous variables Xnt and exclusion restrictions Znt· Then I recover the estimated 

residuals to use them as control functions in the estimation of mixed logit: 

(3) 

where CF(vnjt• Vnt; Ap, >.ll) denotes the control function with corresponding parameters Ap 

and .AD· I specify the control function as linear in Vnjt and vn1 ; fnjt are i.i.d. extreme value 

and independent of other regressors. 

The utility function with the control function that generates the mixed logit model is 

specified as: 

(4) 

where TJnJ is i.i.d. standard normal, and cr is standard deviation of 1/nj 

Conditional on the CF, the probability that consumer n chooses alternative i is equal to 

where ll is an indicator function. 

Given that the error terms follow extreme value distribution, the mixed logit probability 

based on this utility is specified as: 

(6) 

In the framework of perfect enforcement, the subsidy levels as well as the expansion 

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166 

of Lifeline are relevant only to eligible households. To account for that, the amounts of 

the Lifeline benefits, and control for tlw wireless Lifeline initiative enter utility· function 

intersected with the dummy variable indicating that a household is eligible to enroll in 

the program. In the framework of ineffective enforcement, I assume tlutt any household is 

" potmtial beneficiary of Lifeline. In this case, subsidy levels and Lifeline expansion are 

relevant for every household and these variables enter utility without any intersection. 30 

5 Results 

First, consider mixed logit model in a perfect enforcement framework, where it is assumed 

that only eligible households are able to enroll in the subsidy program. In each regression 

the unit of observation is a household and the dependent variable is telephone choice of the 

household. 

The independent variable of interest is the amount of subsidy benefits (Lifeline Benefit), 

and the total amount of Lifeline payments for wireless prepaid service in a state (Lifeline 

Wireless Initiative). All subsidy-related variables enter the model interacted with an indicator of eligible household (El·igible Household). 

Other independent variables are the prices of all telephone options (wireline, wireless, or 

both services): the price of the outside option (no phone) is zero. I include controls for household income and demographic characteristics (Retired Hou.sehold, Age of Hea.d of Hov.sehold, 

Own Home, Black Household, Hispanic Household, Native American Ho1tsehold, Populat-ion 

Density, Household Size, Ma.le Hovsehold, Educated Ho1Isehold, Ratio Working, Children, 

Student, Limited Youth, Eligible Hov.seholrl),~n a number of cell sites (Cell Sites) to control 

for inter-temporal changes in the quality of wireless service, and year dummies to account 

for tinw fixed effects and the potential impact of recession. Following the methodology of 

control function approach, I include estimated residuals from the equation (2). 

Table 5 reports the estimation results for this model. The reference category is the 

out.sid<' option (no phone). The retained price rcsiclua]s from tlw first step are not signifinmt. 

indicating that the hypothesis of price exogeneity cannot be rejected. The retained residual 

of Lifel-ine Benefit is negative and significant, confirming the hypothesis of the enclogeneity 

of amount of subsidy. 

Determinants of Telephone Subscription The estimates confirm findings in the 

existing literature: the major drivers of telephone demand are found to be price, income, 

30This approach is used in the majority of existing studies of Lifeline (see 1 Garbacz and Thompson (1997 1 

2002, 2003)), except fOr the study by Ackerberg et a!. (2014) who conduct analysis on the sample of lowincome households. 

:nsce '\,Iacher et al., (2015). 

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167 

age. home ownership, and quality of mobile serviceJ2 Lower prices increase the propensity 

of households to adopt a phone. The results, not. surprisingly, indicate that the most pricesensitive groups of consumers are households below th(' poverty level, and with the ratio 

of income to the poverty level between one and two. The price-sensitivity does not vary 

significantly among consumers in two highest income categories. 

Wealthier and elderly households have a higher propensity to subscribe to the telephone 

network. Wealthier households tend to subscribe to both services, and are less likely Lo be 

wireless-only. The greater age of the head of the households and home ownership are both 

associated with an increased propensity of subscription to wircline service only, or to both 

wircline and wireless services, and a decreased propensity of subscription to wireless service 

only. 

The results also indicate that. improved quality of wireless service, measured by the 

number of cell sites, considerably increases the propensity of households to subscribe to 

wireless service only. and decreases the propensity of households to subscribe to only a 

landlinc. 

Effects of Lifeline. Perfect Enforcement Turning to the principal variables of interest, the results re\·eal that higher levels of Lifeline benefits increase the likelihood of subscription to telephone services among eligible households. The results also indicate that the 

FCC's wireless Lifeline initiati\·e has had a positive and significant impact on the propensity 

to subscribe to landlinc only and to wireless only services. As expected the implementation of subsidies for wireless prepaid service increases the propensity to subscribe to wireless 

service. It is quite surprising that the wireless Lifeline initiative increases t.hc household 

propenoity to subscribe to landline service. A possible explanation is that the extension of 

Lifeline made the subsidy program more popular among eligible households, perhaps due to 

advertising. :\Jore eligible households started enrolling not only in wireless Lifeline, but also 

in Lifeline for wireline service. 

To surmnarize, the results indicate that the subsidy, in fact, has increased telephone 

penetration rat.es among eligible households, and the subsidization of prepaid wireless service 

has encouraged even more low-income households to subscribe to telephone network. 

To test the goodness of fit of the mixed logit model, I estimate the predicted frequencies 

of alternatives. Table 6 shows that the estimated probabilities closely match the shares of 

customers choosing each altemative. 

Countcrfactual Policy Experiment. Perfect Enforcement Using \.he estimates 

from the mixed logit model reported in Table 5, I conducted a policy experiment to see how 

elimination of Lifeline altogether, or its prepaid wireless part, wonld impact penetration rates 

for example, Riordan (2002), J\lacher et al. (2012). 

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168 

and telephone choices of households in general. Table 7 provides the results of this cxcrcioe. 

Tlw estimates show that if the prepaid mobile service were not subsidized, households would 

switch from being wireless only to '·both'' and "landline only" categories. Houocholds would 

switch to the "both" category. because the two service<; arc substitutes; hence. a household 

can partly substitute the more expensi,·c service (win•less) for the less expensive one (landline). and still enjoy the convenience wireless service. In addition, 147.034 households give 

up the telephone service altogether, 

If the program were to be eliminated entirely. then over one million households would 

cancel telephone sen·icec; (that is 2:.l.6 percent of households that currently do not. have 

telephone service); 60 pPrcent of disconnected households arc coming from the "wireless 

only'' category, 30 percent from the "landlinc only" category, and 10 percent from the "both" 

category. The elimination of the subsidy would have decreased telephone penetration rate 

from 9.5.8 percent to 94.9 percent in 2010. 

Dased on the results of the counterfactual expPrimcnt conducted above, I estimate the 

cost. of adding a nwrgimd subscriber (in this contPxl. a household) to telephone network. 

win~lcs:; or wirelinc, in 2010. I divide Lifeline expenditures in 2010 approximately 81.24 

billion dollars by t.he number of households that. would disconnect telephone service if 

subsidy was not nvailablc. :lly calculations show that. it costs $1.151 per year to add a. new 

subscriber to the telephone network. while the aetna] aYerage cost of the subsidy is $138 

per horwehold per year. This result indicates that out of eight households that receive the 

snboidy only one household subscribes to telephone service because of the subsidy, and the 

other se\·en would have trlt•phone serviC(• even if the subsidy were not available. 

Similar!\-. I calculate the cost of adding a marginal subscriber to the wireless network. 

find that the wireless Lifeline initiative has attracted new subscribers at em even higher 

expt'nsc of $2,835 per additional subscriber per year. That means that only one out of 

twenf'\· households is a marginal subscriber: and the remaining nineteen are infra-marginal 

subscribers. 

Inefficient Enforcement of Eligibility The FCC reported cases when non-eligible 

consrm1crs enroll<·d in the low-income support programs clue to self-certification of eligibility.'n \Yith this evidence, I consider a scenario with ineffective enforcement of subsidy rules, 

that is when uon-digible households arc also able to receive the subsidy. 

To estimate a mixed logit model in this setting, 1 include controls from the previou:; 

model. except now the program benefits and control hJr the wireless Lifeline initiative enter 

the model without intersection with eligibility. 

Table 8 reports estimation results for this model. The results closely mimic estimates 

FCC (2012) 

18 
169 

under the perfect enforcement scenario. The level of the Lifeline subsidy has a positive 

and statistically significant impact on the propensity of households to adopt. a phone. The 

introduction of subsidies for prepaid wireless service also enhances the subscription to all 

t.hrce telephone options. However, both coefficients are smaller than in the case of perfect. 

enforcement of Lifeline rules. 

Table 9 presents the goodness of fit test for this mixccllogit model. The predicted frequencies of alternatives closely match the actual shares of consumers choosing each alternative. 

Counterfactual Policy Experiment. Inefficient Enforcement Table 10 provides 

the results of the policy experiments. The elimination of the wireless Lifeline initiative 

results in a massive switch of wireless-only subscribers to landline and both services, where 

the majority would subscribe to a landline in addition to a cell phone. Furthermore, 76,001 

households would cancel a phone service altogether. If the Lifeline program is eliminated 

entirely. then the majority of switching household;; would migrate to "wireless-only" category 

(2.2 million), while tlQJ ,911 households would give up the telephone service (8.8 percent of the 

total number of households that currently do not have telephone service). In this scenario, 

the elimination of the Lifeline program would have decreased telephone penetration rates 

only by 0.3 percent - from 95.8 to 95.5 percent in 2010. 

The bottom line is, if non-eligible consumers arc also able to receive a subsidy for telephone sencicc, the penetration rates would slightly increase, but to a greater extent it would 

influence the telephone choices of households, not the subscription decision. Under this scenario, the overall cost of adding a marginal subscriber to telephone network (wircline or 

wireless) in 2010 is $3,093 per year, while the cost of adding a marginal subscriber to the 

wireless network is $5,486 per year. 

6 Conclusion 

An extensive body of literature has evaluated universal service and the policies implemented to achieve ubiquity of access to the historical wircline network. Over the years. the 

Lifeline program has undergone significant changes that include changes in benefit levels, 

eligibility criteria, and services supported by this program. The existing literature does not 

provide sufficient research on universal service policies as they have evolved. This paper seeks 

to fill that gap and investigates if the low-income program has acted to promote connectivity 

of American households and at what cost. 

The results reveal that when the rules of the program are strictly enforced and only 

eligible households arc able to enroll in Lifeline, higher amounts of the subsidy increase the 

propensity of households to subscribe to telephone service. The policy experiment based on 

19 
170 

the estimates from the mixecllogit model showed that if the wirelc;;;; prepaid part of Lifeline 

were to be eliminated, 147,();34 household,; would cancel telephone services. lf the Lifeline 

program were to lw terminated altogether. then over one million households would give up 

telephone services, which would have increased the rate of households without telephone 

service from 3.9 percent to ,!,8 percent in 2010. The overall estimated cost of adding a new 

subscriber to the telephone network in 2010 is :ii1,1S1 per year; while the cost of adding a 

new oubscriber under the prepaid wireless part of Lifeline io much higher: $2,835 per year. 

Under the assumption that any household is able to enroll in the subsidy program, the 

results indicate that the hif;her Lifeline benefits encourage subscription to the telephone 

network Introduction of subsidies to prepaid wireless service abo has a positive impact on 

the likelihood of subscription to all three telephone options. However, in this setting, the 

subsirlv to a greater extent influences tlH' choice of telephone options, not the subscription 

decision. In this setting the estimated cost of adding a marginal subscriber to the telephone 

network in 2010 is 83,093 per year, while the cost of adding a marg·inal su bscribcr under the 

wireless Lifeline initiative is SGASG per year. 

The le>sson here is that prior to the extension of the subsidy to additional services, rhe 

policy-makers should thoroughly consider the changes in the program that need to take place 

in order to make the program efficient in fulfilling its purpose (help marginal consumers to 

subscribe to relcphone network). Also. given how man:--· infra-marginal subscribers currently 

rccciv<' the suhsidv, more research is needed to identify the eligibility filters that would 

dficienlly target consumers that need subsidy assistaiHT. In addition, the structure of t lH; 

cowmmcrs receive the subsiclv dirPctly might be lwneficial, lll'ccusc it would allow consumer 

to subscribe to only one plan. 

20 
171 

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pdf 

24 
175 

APPENDIX A 

COMPARISON OF NHIS AND THE US CENSUS BUREAU DEMOGRAPHICS 

General General General General 

Demographic NHJSSample Demographic NHIS Sample Demographic NHIS Sample Demographic 

Characteristics: 2007 Characteristics: 2008 Characteristics: 1009 Characteristics: 

July 2007 July 2008 July 2009 Jufy 2010 

5fX ANDAGf 

Male 49.29% 48.35% 49.31% 48.35% 49.33% 48.19% 49.20% 

Female 50.71% 5165% 50.69% 51.65% 50.67% 51.81% 50.80% 

Under 5 years 6.87% 7.71% 6.91% 7.50% 6.94% 7.37% 6.50% 

5 to 9 years 6.58% 7.79% 6.60% 7.70% 6.71% 7.90% 6.60% 

lOto 14 years 6.74% 7.81% 6.60% 7.50% 6.51% 7.65% 6.70% 

15 to 19 years 7.12% 7.54% 7.08% 7.38% 7.02% 7.50% 7.10% 

20 to 24years 6.97% 6.49% 6.93% 6.50% 7 02% 6.19% 7.00% 

25 to 34 years 13.46% 13.31% 13.46% 13.47% 13.54% 13.15% 13.20% 

35 to 44 years 14.31% 14.44% 13.98% 14.01% 13.53% 13.89% 13.30% 

45 to 54 years 14.55% 14.14% 14.59% 14.22% 14.52% 14.28% 14.50% 

55 to 59 years 6.05% 5.54% 6.11% 5.95% 6.18% 5.91% 6.40% 

60 to 64 years 4.80% 4.34% 4.97% 4.63% 515% 5.05% 5.50% 

65 to 74years 6.42% 6.04% 6.62% 6.10% 6.77% 6.26% 7.10% 

75 to 84 years 4.32% 3.72% 4.28% 3.84% 4.28% 3.67% 4.20% 

85 years and over 1.83% 1.13% 1.88% 1.21% 1.83% 1.18% 1.80% 

Median age 36.6 34 36.8 34 36.8 35 37.2 

18 years and over 75.50% 71.85% 75.68% 72.68% 75.72% 72.36% 76.00% 

21 years and over 71.31% 67.86% 71.43% 68.61% 71.41% 68.34% 71.50% 

62 years and over 15.24% 13.25% 15.41% 13.57% 15.79% 14.00% 16.30% 

65 years and over 12.56% 10.89% 12.78% 11.15% 12.89% 11.11% 13.10% 

1Byears and over 75.50% 71.85% 75.68% 72.68% 75.72% 72,36% 76.00% 

Male 36.75% 33.89% 36.86% 34.33% 36.91% 34.04% 38.91% 

Female 38.75% 37.96% 38.82% 38.35% 38.81% 38.32% 37.09% 

65 years and over 12.56% 10.89% 12.78% 11.15% 12.89% 11.11% 13.10% 

Male 5.30% 4.73% 5.41% 4.77% 5.48% 4.90% 5.65% 

Female 7.26% 6.16% 7.37% 6.38% 7.41% 6.20% 7.45% 

RACE 

Wh1te 79.96% 67 29% 79.80% 66.62% 79.57% 66.15% 74.20% 

Black or African 12 85% 15.51% 12.85% 15.59% 12.91% 15.75% 12.60% 

American !nd1an 0.97% 1.16% 1.01% 1.10% 1.03% 0.81% 0.80% 

Asian 4.43% 5.88% 4.46% 6.30% 4.56% 6.41% 4.80% 

HISPANIC OR 

Hispanic or Lat1no 15.09% 24.64% 15.44% 23.85% 15.77% 25.34% 16.40% 

Not Hispanic or 84.91% 75.36% 84.56% 76.15% 84.23% 74.66% 83 60% 

25 
176 

APPENDIX 8 

Dependent variables 

Phone 

Demographic variables 

Age of Reference person 

Retired Household 

Ratio Working 

Children 

Student 

Limited Youth 

Limited Adult 

Own Home 

Educated Household 

Mole Household 

Black Household 

Hispanic Household 

Native American Household 

Household size 

Population Density 

Eligible Household 

Price and income variables 

Wireline Price 

Wireless Price 

CPI for Wireless Telephone Services 

VARIABLES DESCRIPTION AND SOURCE 

Description and source 

This variable is dichotomous, taking on a value of 1 if the surveyed household 

subscribed to telephone service (wire line or wireless) at the time of the survey, 

and is zero otherwise. 

Source: National Health Interview Survey, annual, 2003-2010. 

Description and source 

Age of reference person in the suveyed household. 

Source: National Health Interview Survey, annual, 2003-2010. 

This variable is dichotomous, taking on a value of 1 if the surveyed household 

includes retired person. 

Source: National Health Interview Survey, annual, 2003-2010. 

Ratio of people in the surveyed household who work. 

Source: National Health lnterv1ew Survey, annual, 2003-2010. 

Number of household members under age 18. 

Source: National Health Interview Survey, annual, 2003-2010. 

This vanable is dichotomous, taking on a value of 1 if the surveyed household 

includes students. 

Source: National Health Interview Survey, annual, 2003-2010. 

This variable is dichotomous, taking on a value of 1 if the surveyed household 

includes member under 31 years old who has health limitations. 

Source: National Health Interview Survey, annual, 2003-2010. 

This variable is dichotomous, tak1ng on a value of 1 if the surveyed household 

includes member older than 30 years old who has health limitations. 

Source: National Health Interview Survey, annual, 2003-2010. 

This variable is dichotomous, taking on a value of 1 if someone in the surveyed 

household owns the home. 

Source: National Health Interview Survey, annual, 2003-2010. 

This variable IS dichotomous, taking on a value of 1 if the surveyed household 

includes at least one member with college degree or higher. 

Source: National Health Interview Survey, annual, 2003~2010, 

This variable is dichotomous, taking on a value of 1 if the surveyed household 

1ncludes only males, and is zero otherwise. 

Source: National Health Interview Survey, annual, 2003-2010. 

This variable is dichotomous, taking on a value of 1 if the surveyed household 

consists of Black/African American people only, and is zero otherwise. 

Th1s variable is dichotomous, taking on a value of 1 if the surveyed household 

consists of Hispanic people only, and is zero otherwise. 

This variable IS dichotomous, taking on a value of 1 if the surveyed household 

consists of Indian people only, and is zero otherwise. 

Number of members in the surveyed household. 

Source: National Health Interview Survey, annual, 2003-2010. 

Population density, county level. 

Source: U.S. Census Bureau, annual2003-2010. 

This variable is dichotomous, taking on a value of 1 if the surveyed household is 

eligible to receive Lifeline benefits. 

Source: National Health Interview Survey, annual, 2003-2010. 

Description and source 

Source: data was supplied by Greg Rosston, Scott Savage and Bread ley 

Wimmer, who collected it for the purposes of the research in Rosston, Savage 

and Wimmer (2008), adjusted for years 2003-2010. 

Source: CTIA's Wireless Industry Report Indices, 2008. 

Source: FCC "Reference Book of Rates, Price Indices, and Household 

Expenditures for Telephone Service", annua12002-2010. 

26 
177 

CPI for Wireline Telephone Services 

State and Local Taxes an Wireless Telephony 

lncomel 

lncome2 

lncome3 

/ncome4 

Quality/Geographic variables 

Cell Sites 

Low-income program benefits 

Lifeline Benefit 

Wireless Lifeline lnitiaftive 

Exclusion restrictions 

Mobile Penetration 

Housman- Type Instrument 

Famtlies Below 135 

1 Democrat Governor 

Source: FCC "Reference Book of Rates, Price Indices, and Household 

Expenditures for Telephone Service", annual2002-2010. 

Source: The Council on State Taxatfon (COST), years 2001, 2004, 2007, 2010. 

This variable is dichotomous, taking on a value of 1 if the surveyed household 

has fam1ly income below poverty threshold, 

This variable is dichotomous, taking on a value of 11f the surveyed household 

has ratio of family income to poverty threshold between 1 and 2. 

This variable IS d~ehotomous, taking on a value of 1 if the surveyed household 

has ratio of family 1ncome to poverty threshold between 2 and 4. 

This variable is dichotomous, taking on a value of 1 if the surveyed household 

has rat1o of family income to poverty threshold above 4. 

Source: National Health Interview Survey, annual, 2003-2010. 

Description and source 

Number of registered eel! s1tes. 

Source: CTIA's Wireless Industry Report Indices, 2008. 

Description and source 

Monthly federal and state Lifeline support. 

Source: FCC "Universal Service Momtonng Report", annual, 2003-2011. 

Total amount of prepaid wireless Lifelme payments in a state. 

Source: FCC "Universal Service Monitoring Report", annual, 2003-2011. 

Description and source 

Proport1on of households subscribed to wireless servtees in an economic area, 

or county. 

Source: National Health Interview Survey, annual, 2003-2010. 

Hausman-type instrument for wireline price. 

Source: data was supplied by Greg Rosston, Scott Savage and Bread ley 

Wimmer, who collected it for the purposes of the research in Rosston, Savage 

and Wimmer {2008), adjusted for years 2003-2010. 

Percent of Families at or below 135 percent of the poverty level. 

Source: Current Population Survey, 2003,2010. 

This variable is dichotomous, taking value of 1 if the surveyed household is 

located in a state where governor is affiliated with DemocratiC party. 

Source: National Governors Association, 2003-2010. 

27 
178 

FIGURE 1 

NUMBER LIFELINE VS FOODS STAMPS/SNAP BENEFICIARIES 

25,000 

20,000 

15,000 

10,000 

5,000 

0 

"""~~~!-Number of Lifeline Beneficiaries (in thousands) 

-+-Number of Food Stamps/SNAP Beneficiaries (in thousands) 

Source: FCC 2014 Universal Service Monitoring Report, Table 2.1 and Table 2.7; USDA Trends in 

Supplemental Nutrition Assistance Program Participation Rates: Fiscal Year 2010 to Fiscal Year 2012 (July 

2014); USDA SNAP Monthly Report {July 5 2015). 

20,000 

18,000 

16,000 

14,000 

12,000 

10,000 

8,000 

6,000 

4,000 

2,000 

Source: 

"' "' "' 

~ "' 

~ 

FIGURE 2 

NUMBER OF BENEFICIARIES IN THE FCC LIFELINE PROGRAM, 

1987-2014 

"' 0 r-< N "" "' U'l «> "' "' "' 0 r-< N "" "' U'l «> "' "' "' ;; "' "' "' "' "' "' "' "' "' "' "' 0 0 0 0 0 0 0 0 0 0 

~ ~ ~ ~ ~ ~ ~ ~ "' ~ ~ 0 0 ~ ~ 0 0 0 r-< N N N N N ~ ~ ~ ~ 

-Number of lifeline Beneficiaries (in thousands) 

FCC 2014 Universal Service Monitoring Report, Table 2.1 and Table 2. 7. 

28 

::: N ;'1 r-< :"\ 0 0 0 N N N ~ 
179 

2,500 

2,000 

1,500 

1,000 

500 

0 00 

00 

s:: 

FIGURE 3 

LIFELINE PAYMENTS AND PERCENT OF LOW-INCOME HOUSEHOLDS 

WITH TELEPHONE SERVICE, 1988-2014 

Ill ••• .. uniiiiUII 

"" 0 a; "' " <T V\ co r-- 00 en 0 rl N "' " Ul UJ r-- 00 "' ;:; rl N 

00 "' "' O'l O'l Vl "' "' "' 0> 0 0 0 0 0 0 0 0 0 0 rl rl 

s:: s:: ~ ~ ~ ~ ~ s:: s:: s:: s:: ::::: ::::: 0 0 0 0 0 ::::: ::::: 0 0 0 0 N N N N N N N N N 

" :"; rl 

0 0 N N 

~lifeline Payments {!n millions} Low-Income Households with Telephone Service 

94% 

92% 

90% 

88% 

86% 

84% 

82% 

80% 

Source: FCC 2014 Universal Service Monitoring Report, Table 2.2, Table 2.7, and Table 3.2; FCC 2010 

Universal Service Monitoring Report, Table G,l4, 

FIGURE 4 

LIFELINE PAYMENTS (IN MILLIONS), 2003-2014 

2,500 

2,000 

1,500 

1,000 

500 

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 

lifeline Wire!ine Lifeline W:reiess (ExcL Resellers) Wifeline Wireless Resellers 

Source: FCC 2013 Universal Service Monitoring Report," Supplementary Report Material, Ll Support by 

Study Area. 

29 
180 

FIGURE 5 

liFELINE SUBSCRIBERS {IN THOUSANDS), 2003-2.014 

20,000 

18,00() 

16,000 

14,000 

12,000 

10,000 

8,000 

6,000 

4,000 

2,000 

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 

''; Ufeiine Wire!me Lifeline Wireless (ExcL ReseHers) Wireless ReseHers 

Source: fCC 2013 Universal Service Monitoring Report," Supplementary Report Material, Ll Support- by 

Study Area. 

100% 

85% 

80.1% 

75% 

~ \.!l 

~ c-- 00 00 

;'1 ~ "' rl "' 8 

FIGURE 6 

HOUSEHOlDS WITH TELEPHONE SERVICE, 

1984-2014 

'" 0 ~ N 

~ <t en ill ~ 00 "' 0 rl N M ;"!; 

~ "' "' a; 

~ a; m m "' "' 0 0 0 0 

;:; ;.'.) m 8 ::: m ::: ;.'.) :'l g ~ 0 

rl N ~ 

All Households with Telephone Service 

u; ill 

0 0 

:'l g 

Low-Income Households with Telephone Service 

~ 00 "' ;:; rl N 0 0 g rl 

?J 0 :'l :'l 0 N N N 

Source: FCC 2014 Universel Service Monitoring Report, Table 3.2; FCC 2010 Universal Service Monitoring 

Report, Table 6.14. 

30 

96.3% 

M 

rl :'\ 

:'l g 
181 

0% 

FIGURE 7 

HOUSEHOlDS TElEPHONE SUBSCRIPTION CHOICES, 

2003-2014 

1.09% 

On!y No Phone 

Interview Survey/ 

FIGURE 8 

lOW-INCOME HOUSEHOLDS TELEPHONE SUBSCRIPTION CHOICES, 

2003-2014 

2.26% 

No 

Source: National Health 
182 

FIGURE 9 

ELIGIBLE HOUSEHOLDS TELEPHONE SUBSCRIPTION CHOICES, 

2003-2014 

100% 3.23% 1.89% 2.28% 2.60% 2.06% 2.30% 2.24% 2.51% 2.63% 2.50% 2.79% 3.45% 

90% 17.76% 14.43% 12.58% 11.53% 10.14% 

22.77% 

80% 34.93% 30.2291, 

70% 48.63% 34.68% 33.50% 29.44% 61.82% 57.00% 66.13% 37.61% 60% 40.81% 

SO% 42:41% 

42.65% 

40% 42.70% 

30% 31.90% 

27.26% 

20% 27.35% 

25.67% 

10% 

0% 4i!l:~'% 

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 

"Wireless Only Both Landline Only No Phone 

Source: National Health Interview Survey, 2003-2014. 

FIGURE 10 

GROWTH OF THE LIFELINE PROGRAM SPENDING AND USF CONTRIBUTION FACTOR, 

1Q 2009-4Q 2014 

$800 20% 

$700 18% 

16% $600 

14% 

$500 12% 

$400 10% 

$200 Ill Ill II $300 8% 

6% 

4% 

$100 2% 

$0 0% 00 00 00 00 "' "' "' "' 0 0 0 0 "" "" "" "" N N N N M M M M " .,. 0 0 0 " " § 0 0 0 § s 8 8 8 8 g 8 8 s 8 8 8 s 8 8 rl s 8 8 8 S' 0 0 S' 0 0 0 N M " N M " N M " rl M " N M " N M " N M " 

-Lifeline Program Spending _._USF Contribution Factor 

Source: FCC 2014 Universal Service Monitoring Report, Table 1.6 and Table 1.11; FCC 2013 Universal 

Service Monitoring Report, Table 1.9 and Table 1.11; FCC 2012 Universal Service Monitoring Report, Table 

1.9; FCC 2019-2011 Universal Service Monitoring Reports, Table 1.10. This figure is also available in the I lA 

White Paper (November 6, 2014). 

32 
183 

TABLE 1 

AMOUNT OF LIFELINE SUPORT PER STATE, 2 010 

State Tatal Li eline Sunnort State Toto/ Lifeline Sunnort 

Alabama $13.56 Nebraska 

Alaska 13.45 Nevada 

Arizona 11.76 New Hamoshire 

Arkansas 12.03 New Jersev 

California 11.75 New Mexico 

Colorado 13.46 New York 

Connecticut 11.31 North Carolina 

Delaware I 12.97 North Dakota 

District of Columbia 10.80 Ohio 

Florida 13.44 Oklahoma 

Georeia 13.45 Oreeon 

Hawaii 8.25 Pennsvlvania 

Idaho 13.30 Puerto Rico 

Illinois 8.74 Rhode Island 

Indiana 7.94 South Carolina 

Iowa 7.09 South Dakota 

Kansas 11.55 Tennessee 

Kentuckv 13.53 Texas 

Louisiana 11.54 Utah 

Maine 13.25 Vermont 

Marvland 12.64 Vir2in Islands 

Massachusetts 13.35 VirQinia 

Michiean 11.56 Washineton 

Minnesota 9.76 West Virginia 

Mississiooi 13.39 Wisconsin 

Missouri 11.93 Wvomine 

Montana 12.35 Total 

Source: FCC 2011 UnJVersa/Serv1ce Momtonng Report, Table 2.3. 

TABLE 2 

PERCENT OF HOUSEHOLDS WITHOUT TELEPHONE SERVICE, 

2003-2010 

Year Full NHIS so mole Samole used for estimation 

2003 3.59% 1.71% 

2004 3.48% 1.35% 

2005 3.52% 1.09% 

2006 3.82% 1.77% 

2007 2.90% 1.39% 

2008 2.87% 1.37% 

2009 2.52% 1.41% 

2010 2.64% 1.78% 

33 

12.06 

10.98 

11.83 

13.23 

13.20 

13.23 

13.26 

11.23 

12.58 

8.43 

13.46 

11.22 

13.50 

13.37 

13.63 

8.42 

13.30 

12.62 

13.32 

13.23 

13.50 

12.99 

11.24 

13.16 

10.99 

13.50 

512.07 
184 

TABLE 3 

COMPARISON OF PENETRATION RATES BY LEVEL OF LIFELINE ASSISTANCE 

Low~fncome Households A/1 Households 

Lifeline Categary Penetration Mar-97 Penetration Mar-09 Penetration Mar-97 Penetration Mar-09 

Full or High Assistance 85.60% 90.20% 93.70% 95.30% 

Intermediate 87.20% 91.80% 95.00% 96.60% 

Basic or Low 86.20% 89.10% 93.90% 95.20% 

Source: FCC 2010 Un1versaiServ1ce Momtonng Report, Table 6.7. 

TABLE4 

DESCRIPTIVE STATISTICS 2003·2010 ' Demoaraohic Variables and Attributes Percent 

Income Grouos 

Jncome1 14.93% 

lncome2 19.27% 

lncome3 29.62% 

/ncome4 39.19% 

Own Home 62.50% 

Household Size 

1 oerson 25.56% 

2 oeoole 31.47% 

3 aeaale 16.61% 

4 oeoole 14.88% 

5 or more oeoole 11.48% 

Mean Number of Children 0.74 

Chosen Phone Ootion 

No Phone 1.17% 

Landline Onlv 28.82% 

Wireless Onlv 16.46% 

8oth 53.54% 

Eliaible Households 24.24% 

Black 14.67% 

Hisoanic 16.46% 

Native American 0.67% 

Wireline Price $16.81 

Wireless Price $58.55 

Lifeline bene it $11.48 

34 
185 

TABLE 5 

PARAMETER ESTIMATES FOR MIXED LOGIT MODEL 

(PERFECT ENFORCEMENT) 

VARIABLES Both Landline On/ I Wireless 

Price -0.007*** 

(0.002) 

Price*lncome2 -0.011 ••• 

10.003\ 

Price*lncome3 -0.004 

(0.002) 

Price*lncome4 -0.003 

10.003) 

Price St. Error 0.003 

(0.004) 

Income 

lncome2 1.319*** 0.428*** -0.135 

(0.246) (0.088) (0.193) 

lncome3 1.336*** 0.388*** -0.836*** 

10.242) /0.105\ /0.195) 

lncome4 1.745*** 0.266** -0.904*** 

(0.254) (0.120) (0.207) 

DemQqraphic characteristics 

Retired Household 0.450*** 0.649*** -0.243** 

10.101) 10.101\ 10.107) 

Aae of Reference Person 0.010*** 0.022*** -0.018*** 

10.001) 10.001) (0.001) 

Own House 1.026*** 0.698*** -0.175*** 

10.057) f0.057l (0.058) 

Black Household -0.126* -0.069 -0.348*** 

(0.065) _i0.065l 10.067) 

Hisoonic Household -0.570*** -0.212*** -0.427*** 

f0.060) 10.060) (0.062) 

Native American Household -0.727*** -0.645*** -0.584 ••• 

(0.172) (0.173) (0.178) 

Household Size 0.246*** 0.054 -0.036 

10.035\ 10.035\ 10.036\ 

Male Household -0.799** -0.504*** -0.022 

10.060) 10.060\ 10.061\ 

Educated Household 0.436*** 0.134* 0.167** 

10.069) 10.069\ f0.070l 

Ratio Workina 0.174** -0.219*** 0.683*** 

10.079\ 10.079) 10.082\ 

Limited Youth 0.330*** 0.112 0.280*** 

10.092\ 10.093\ i0.095l 

Student 0.480*** 0.178 0.582*** 

{0.108) (0.109) (0.110) 

Children 0.072 0.150*** 0.051 

10.046) 10.047) {0.047) 

Eliaible -1.330** -1.052* -3.776*** 

10.594\ 10.593\ 10.595} 

Pooulation Densitv 0.065*** 0.032** -0.036** 

10.015) 10.014) (0.014) 

Low Income Proaram 

Lifeline Benefit x Eliaible 0.086* 

lo.o5ol 

Preoaid Wireless Lifeline Pavments 0.004 I 0.005* 0.033*** 

x Eliaible f0.003l I 10.003) 10.003) 

35 
186 

Qualitv Control 

Cellsite 0.321 -1.029*** 4.297*** 

0.344 10.340l t0.370l 

Control Finctions 

Li eline Bene it Residual -0.118 .. 

o.os4l Price Residual 0.000 

10.004\ 

Constant -2.436 14.444*** -47.536*** 

14.154\ 4.08ll l4.470l 

Year Dummies ves 

State Dummies no 

Observations 167 397 

Loa-Likelihood -134 190 

McFadden R"2 0.231 

Note: The reference category 1s "No Phone.'1 The exclus10n restnctwns used 1n the f1rst stage are: 

Hausman-Type !nstrument1 Mobile Penetration1 and Democrat Governor. Variables that have one 

coefficient for all alternatives are alternative-specific (e.g., Price). 

Standard errors in parentheses; significant at:*= 0.10, ** = 0.05, *"'* = 0.01 

TABLE6 

ACTUAL AND PREDICTED FREQUENCES OF ALTERNATIVES (PERCENT) 

Actual Shares 

Predicted Shares 

TABLE 7 

EFFECTS OF PRICE/POLICY CHANGES (NUMBER OF HOUSEHOLDS) 

36 
187 

TABLE 8 

PARAMETER ESTIMATES FOR MIXED LOGIT MODEL 

(INEFFECTIVE ENFORCEMENT) 

VARIABLES Both Landline Wireless 

Price -0.015*** 

(0.003) 

Price*lncome2 -0.007** 

f0.003) 

Price*lncome3 0.001 

(0.003) 

Price*lncome4 0.003 

(0.003) 

sd.orice -0.000 

(0.005) 

Income 

lncome2 1.058*** 0.362*** -0.850*** 

(0.260) {0.090) (0.204) 

lncome3 0.914*** 0.283*** -1.731*** 

10.255) /0.106) 1_0.204) 

lncome4 1.249* •• 0.145 -1.867*** 

(0.266) (0.121) (0.216) 

Demographic characteristics 

Retired Household 0.428*** 0.631 ••• -0.322*** 

{0.101) {0.100) (0.108) 

Aae of Reference Person 0.010*** 0.022*** -0.018*** 

{0.001) {0.001) {0.001) 

Own House 1.027*** 0.699*** -0.194*** 

10.056) {0.057l (0.058) 

Black Household -0.113* -0.055 -0.311*** 

(0.064) (0.065) (0.067) 

Hisoonic Household -0.573*** -0.218*** -0.454*** 

10.060) 10.060) 10.062) 

Native American Household -0.733*** -0.650*** -0.624*** 

(0.171) _1_0.173) 10.182\ 

Household Size 0.248*** 0.057 -0.033 

{0.035) (0.0356) {0.036) 

Mole Household -0.800** -0.505*** -0.027 

(0.060) 10.0602\ 10.061) 

Educated Household 0.432*** 0.132* 0.144** 

(0.069) {0.0699) (0.070) 

Ratio Workina 0.153 •• -0.235*** 0.587'** 

10.078\ 10.0788\ 10.082\ 

Limited Youth 0.332*** 0.113 0.313*** 

(0.092\ 10.0930} 10.096} 

Student 0.457*** 0.164 0.518*** 

(0 107) (0.1090) (0.111) 

Children 0.070 0.147*** 0.027 

{0.0468) 10.0470) (0.048) 

Eliaible -0.318*** -0.048 -3.766*** 

10.076) (0.076) (0.081) 

Pooulation Densitv 0.081*** 0.046*** -0.007 

(0.015) {0.0149) (0.015) 

Low Income Proaram 

Lifeline Benefit 0.024*** 

(0.002) 

Preoaid Wireless Lifeline Po ments 0.010*** I 0.008*** 0.010*** 

f0.002) I f0.002l (0.002) 

37 
188 

Quality Control 

Cel/site 0.229 -1.079*** 4.220*** 

0.337) I {0.335 0.367) 

Control Finctions 

U eline Benefit Residual -0.062*** 

0.005 

Price Residual 0.007*** 

0.002) 

Constant -1.182 14.777*** -45.764*** 

4.070) I 14.030 4.433) 

Year Dummies es 

State Dummies no 

Observations 167 397 

Loa-Likelihood -131420 

McFadden RA2 0.247 

Note: The reference category 1s "no phone." The exc!us10n restncttons used m the f1rst stage are: 

HausmanMType Instrument, Mobile Penetration, and Families Below 135. Variables that have one 

coefficient for all alternatives are alternative-specific {e.g., Price). 

Standard errors in parentheses; significant at:*= 0.10, ** = 0.05, ••• = 0.01 

TABLE 9 

ACTUAL AND PREDICTED FREQUENCES OF ALTERNATIVES (PERCENT) 

Actual Shares 

Predicted Shares 

TABLE 10 

EFFECTS OF PRICE/POLICY CHANGES (NUMBER OF HOUSEHOLDS) 

No Phone 

76 001 

401 911 

38 
189 

l.lmtcd States ZmJtc 

The Honorable Ajit V. Pai 

Chainnan 

Federal Communications Commission 

445 12th Street SW 

Washington, DC 20554 

Dear Chaim1an Pai and Ms. Robinson: 

July 19,2017 

Ms. Vickie Robinson 

Acting CEO and General Counsel 

Universal Service Administrative Company 

700 12th Street NW, Suite 900 

Washington, DC 20005 

We are writing with regard to the Lifeline program, which helps provide basic 

telecommunications and broadband services to eligible low-income Americans who may not 

otherwise be able to afford these services. The Lifeline progran1 is one important component of 

the Federal Communications Commission's (FCC) commitment to the policy of universal 

service 1 and affords Americans in every state the opportunity to stay connected and succeed in 

today's interconnected digital economy. Unfortunately, a recently released report from the 

Government Accountability Oftice (GAO) documents troubling instances of waste, fraud, and 

abuse in the Lifeline program2 We are concerned that the risks to program integrity outlined in 

this report threaten a service that is essential to ensuring that low-income Americans can connect 

to employment opportunities, family members, and emergency services. 

Current policy places the responsibility of verifying program eligibility with the diffuse network 

of over 2,000 Eligible Telecommunications Carriers (ETCs), who often subcontract further with 

third-party entities in order to approve or deny Lifeline benefits3 In conducting an analysis of 

subscriber data in select states, however, GAO was unable to independently verify the eligibility 

of a considerable number of Lifeline beneficiaries.• FCC's ongoing development of a National 

Verifier eligibility system is a positive sign, but both FCC and the Universal Service 

Administrative Company (USAC) are well-positioned to take immediate steps to improve 

provider oversight and overall program integrity. 

Given the problems identified in the current administration of the Lifeline program, we ask that 

you provide answers to the following questions as soon as possible but no later than August 18, 

2017: 

l. !low do FCC and USAC measure the effectiveness of the various compliance and 

enforcement mechanisms that have been developed to improve oversight of Lifeline 

providers and sales agents? 

1 See 47 U.S.C. § 254. 2 Govemment Accountability Office, Additional Action Needed to Address Significant Risks in FCC's Lifeline 

Pro~::ram (May 2017) (GA0-17-538). 1 /d., p. 15. 

·I /d., p. 37. 
190 

The Honorable Ajit V. Pai and Ms. Vickie Robinson 

July 19,2017 

Page 2 

a. What training and guidance on the Lifeline program is offered to or required for 

ETCs and sales agents? 

b. Has FCC instituted criteria and timelines for evaluating individual ETC 

compliance plans? 

c. What is the extent of FCC and USAC's oversight of third-party entities contracted 

by ETCs to determine program eligibility? 

d. How many times has FCC determined that an ETC is no longer qualified to 

provide Lifeline benefits, and what is the process for making this determination? 

2. What steps are being taken to ensure that ETCs and subcontractors are aware of the 

federal and state databases and other information available to them in order to determine 

program eligibility? 

3. What is your projected timeline for testing and implementing the National Verifier 

system? 

a. What are your projected costs? 

b. What impediments, if any, have you encountered with state and local jurisdictions 

in acquiring the information you believe is necessary to implement the National 

Verifier system? 

c. To what extent will the existing National Lifeline Accountability Database 

(NLAD) be utilized in the development and implementation of the National 

Verifier system? 

4. Chairman Pai's July II, 2017, letter to USAC regarding the Lifeline program establishes 

a number of new USAC review and audit requirements5 GAO's report, however, states 

that in at least one instance, USAC's routine audit functions have been constrained by 

"limited audit resources."6 Is USAC adequately resourced and staffed to conduct the 

reviews and audits of ETC and subscriber data outlined in the July II letter? 

Diligent and continuous efforts to improve the integrity of the Lifeline program will ensure that 

the li.mds collected from providers and consumers are administered appropriately and that all 

Americans stand to benefit from the opportunities of the global digital economy. 

'Letter rrom Ajit V. Pai, Chainnan, Federal Communications Commission, to Vickie Robinson, Acting CEO and 

General Counsel, Universal Service Administrative Company (July II, 2017). 6 Government Accountability Office, supra at p. 28. 
191 

The Honorable Ajit V. Pai and Ms. Vickie Robinson 

July 19,2017 

Page 3 

If you have any questions about this request, please contact Sydney Paul of Senator Peters's staff 

at Sydney_Paul@peters.senate.gov or Lot Kwarteng of Senator Stabenow's staff at 

Lot_Kwarteng@stabenow.senate.gov. We share your goal of reducing waste and fraud in the 

administration of federal programs and look forward to your prompt response. 

Sincerely, 

~~~ Gary C ters 

United tales Senator United States Senator 
192 

August 18,2017 

Senator Gary C Peters 

United States Senate 

Hart Senate Office Building, Suite 724 

Washington, DC 20510 

Dear Senator Peters and Senator Stabenow: 

Senator Debbie Stabenow 

United States Senate 

Hart Senate OtTtce Building, Suite 731 

Washington, DC 20510 

Thank you for your July 19, 2017 letter concerning the Universal Service Fund's (USF) Lifeline 

program and the related report issued by the Government Accountability Office (GAO). The 

Universal Service Administrative Company (USAC) is dedicated to the important work of 

ensuring access to vital communications and broadband services while combatting waste, fraud, 

and abuse in the USF programs. We welcome your questions and interest in the Lifeline 

program. 

USAC has been working diligently on the development and launch of the National Lifeline 

Eligibility Verifier (National Verifier), which will remove verification of subscriber eligibility 

from the service providers and place it in USAC's control as the neutral administrator. As 

detailed in our response below, we are working with the Federal Communications Commission 

(FCC or Commission) to announce the initial five states to be rolled into the National Verifier at 

the end of this year. The National Verifier will be a vital tool in helping to ensure program 

integrity. In addition, USAC has continued to take a multi-pronged approach to strengthening 

Lifeline program integrity and increasing compliance. Specifically, USAC has continued to 

improve the National Lifeline Accountability Database C~LAD) by refining its processes, adding 

additional data collection to support investigations into non-compliance, and increasing the usc 

of data for analysis and detection of potentially improper actions. In response to Chairman Pai 's 

July 11, 2017 letter. USAC also developed a detailed plan to study the results issued by the GAO 

and are working to implement immediate changes. In addition to these internal improvements, 

USAC has been working to develop a deeper partnership with the FCC to improve 

communications and transparency, including better coordination on referring possible noncompliance to the appropriate offices or bureaus of the FCC for further investigation and 

enforcement. 

Below are USAC's responses to your specific questions. This letter details how we are working 

to measure compliance and enforcement mechanisms, ensure Lifeline service providers and 

agents are aware of available state and federal databases, develop and implement the National 

Verifier, and respond to the GAO's findings and recommendations. We look forward to 

continued discussions with you on these issues. 
193 

Senator Peters and Senator Stabenow 

August 18, 2017 

Pagc2 

1. How do FCC and USAC measure the effectiveness of the various compliance and 

enforcement mechanisms that have been developed to improve oversight of Lifeline 

providers and sales agents? 

USAC's Lifeline Program team, Internal Audit Division (lAD) and Compliance and Risk group 

in the Office of General Counsel (OGC) have stafi focused on monitoring Lifeline service 

provider compliance with the FCC's rules and requirements. Pursuant to the FCC's rules, 

Lifeline eligible telecommunications carriers (ETCs) may only claim Lifeline support for eligible 

subscribers. 1 In addition, Lifeline ETCs are required to enter each potential subscriber into the 

NLAD before claiming the subscriber for reimbursement in order to ensure the individual is not 

already receiving servicc 2 The FCC's rules also require ETCs to retain all documents they 

relied upon to verify a subscriber's eligibility, which USAC and the FCC review through audits 

and other checks to ensure compliance. 3 

Lifeline Program Team 

The Lifeline Program team generates monthly operational metrics (discussed below) that are 

used to identify possible non-compliance with program rules by Lifeline ETCs. Among other 

efforts and developments, USAC would like to highlight three key metrics used by the Lifeline 

Program team to mea-;ure effectiveness of compliance and enforcement mechanisms. 

Variance Between FCC Form 497 and NLAD Subscriber Numbers: ETCs must enroll all 

subscribers into the NLAD system and request reimbursement for Lifeline support for eligible 

subscribers using the FCC Form 497. Generally, the number of subscribers in the NLAD and the 

number of subscribers listed on the FCC Form 497 should be approximately the same; however, 

the Lifeline Program team has identified variances between these numbers in some cases. As 

such, the team monitors the variances and then prioritizes such Lifeline ETCs with reporting 

discrepancies for appropriate follow up individually. From January through June 2017, USAC 

resolved issues with approximately 30 Lifeline ETCs who claimed more subscribers on the FCC 

Form 497 than were enrolled in the NLAD. 

Effective with the January 2018 data month (February 2018 disbursements), all Lifeline program 

reimbursement claims will be calculated based on the subscribers recorded in the NLAD, 

eliminating the FCC Form 497, and therefore eliminating the risk of this variance. Beginning in 

September 2017, and until the FCC Form 497 is eliminated, USAC will reject any FCC Form 

497 that is filed with subscriber counts in excess of the NLAD. Upon elimination of the FCC 

Form 497, USAC will continue to monitor activity in the NLAD to address any unusual trends in 

reimbursements. 

1 47 C.F.R. § 54.407(a). 2 47 C.F.R. § 54.404(b). 3 47 C.F.R. § 54.417. 
194 

Senator Peters and Senator Stabenow 

August 18,2017 

Page 3 

Number o(Manual Disputes Submitted to NLAD: The FCC requires that all subscribers be 

entered into the NLAD to verify identity and address information as well as perform duplicate 

checking. Since the NLAD's automated processes cannot verify all subscriber identities or 

addresses, a dispute resolution process allows subscribers to prove their identities or addresses 

through a manual review of documentation. 4 The manual review of documentation is currently 

conducted by Lifeline ETCs, but will transition to the National Verifier. The Lifeline Program 

team reviews the percent of enrolled Lifeline subscribers requiring manual review of 

documentation, including analyzing the data to detect unusual trends or anomalies that might 

indicate non-compliant behavior by the Lifeline ETCs. Although these manual disputes are 

permissible under the FCC's rules, they do introduce risk to the program and must be monitored 

closely. When USAC detects unusual trends or anomalies, it takes corrective action, as 

appropriate, such as: reaching out to the Lifeline ETC for an explanation; notifying the FCC to 

collaborate on possible next steps, such as a targeted audit of a Lifeline ETC; or referring the 

matter to the FCC's Office of Inspector General (010) or Enforcement Bureau (EB). In addition 

to monitoring these metrics, USAC will begin requesting documentation from ETCs that shows 

they reviewed eligibility documentation for manual disputes in compliance with the FCC's rules 

starting in the third quarter of 2017. 

In addition to these pr:~c~~~~~~~~~ unauthorized purposes. ii.iijiiiiijusAC was consumers a 

particular eligibility program and was using the NLAD to look each consumer up for marketing 

purposes. This was a clear violation of the NLAD terms and conditions, which prohibit using the 

database for any purpose beyond those set forth in the FCC rules, as well as a violation of the 

consumers' privacy, and USAC worked with the FCC to follow up appropriately. 

'Lifeline and Link Up Reform and Modernization, eta/., WC Docket No. 11-42, eta/., Report and Order and 

Further Notice of Proposed Rulemaking, 27 FCC Red 6656, 6749, para. 217 (20 12). 
195 

Senator Peters and Senator Stabenow 

August 18,2017 

Page4 

Sales Agent Tracking Process: In addition to the three metrics discussed above, USAC's 

Lifeline Program team is implementing a sales agent tracking process in its database systems. 

Beginning with the launch of the National Verifier in five states in December 2017, sales agent 

activity will be tracked with each transaction. In addition, USAC will build functionality to 

collect information on sales agents and employees who interact with Lifeline subscribers and 

perform enrollment and transfer functions within the NLAD. This functionality, at a minimum, 

will have the following attributes: (I) ability to generate a unique identifier that is linked to the 

identification number and area code 

Internal Audit Division 

USAC's lAD also plays an important role in monitoring the effectiveness of compliance for 

Lifeline ETCs and has recently enhanced its audit processes to improve and better address highrisk compliance areas. lAD is responsible for conducting in-depth audits of Lifeline ETC 

compliance with the rules. Specifically, lAD, in consultation with the FCC's Office of 

Managing Director (OMD) and Wircline Competition Bureau (WCB), jointly developed a new 

audit program that is designed to focus audit resources on USf participants with the highest risk 

of non-compliance with FCC rules. Starting with the Fiscal Year 2016 audit plan, the audit plans 

are now "risk-based'' and centered on the following key principles: (1) detect and deter 

noncompliance; (2) promote and enhance compliance; (3) reduce burden on lower risk ETCs; 

and (4) advance the audit selection process and procedures. Because USAC lAD's audit 

methodology recently shifted from a random to risk-based approach, there is insufficient data to 

provide an accurate conclusion or make inferences at this time regarding the success of the riskbased audit plan. However, lAD will continue to analyze the results of the risk-based audits to 

further clarify the approach and ensure the audit plan provides the greatest value and oversight of 

the USF. 

In addition to audits, lAD performs assessments through its Payment Quality Assurance (PQA) 

reviews to assist the FCC in meeting its federal reporting obligations. 5 In conjunction with 

OMD, lAD's PQA team develops procedures and performs payment verification on a 

statistically valid sample of selected Lifeline ETCs to determine if these payments were made in 

accordance with FCC rules. lAD uses the results of these assessments to calculate estimated 

improper payment rates and provides this information to the fCC. Unlike the risk-based audits, 

PQA does not measure the effectiveness of reviews based on the outcomes of the ETCs selected 

for review, but rather measures its effectiveness based on the operational impact on USAC and 

5 See Improper Payments Elimination and Recovery Act of2010, Pub. L. No. 111-204, 124 Stat. 2224, as amended 

by the Improper Payments Elimination and Recovery Improvement Act of20 12, Pub. L. No. 112-248, 126 Stat. 

2390 (Jan. 10, 2013). 
196 

Senator Peters and Senator Stabenow 

August 18, 2017 

Page 5 

its stakeholders. Further details regarding lAD's audit functions and efforts are set forth below 

in response to question 4. 

In addition, in 2016, USAC established its "circle oflife" initiative. This initiative was designed 

to provide feedback to USAC and external stakeholders about audit results in an attempt to 

reduce non-compliance. Through this initiative, lAD provides USAC Financial Operations and 

Lifeline Program teams with detailed information on the findings identified during audits and 

PQA assessments, and those teams use this information to prepare action plans designed to 

reduce future instances of those findings thus improving progran1 integrity and success. USAC's 

Office of General Counsel tracks the progress of these action plans and reports this information 

to the FCC on an annual basis. 

Compliance and Risk Group 

Finally, lJSAC's Compliance and Risk group works to facilitate risk discussions and coordinate 

enforcement actions with all divisions ofUSAC. Among other things, this team manages the 

circle of life initiative, works with program teams, including Lifeline, to develop corrective 

actions plans, and manages whistleblower reports and referrals. This work is integral to our 

efforts to track compliance and enforcement and track our effectiveness in ensuring compliance 

and facilitating enforcement in our role as the USF administrator. 

a. What training and guidance on the Lifeline program is offered to or required.for ETCs 

and sales agents? 

lJSAC provides various voluntary training opportunities to Lifeline ETCs, as well as numerous 

outreach efforts. These trainings and outreach efforts are used primarily to remind providers of 

existing processes, educate providers about new or changing processes, and highlight how to 

avoid common mistakes or errors made by providers in the Lifeline program. These training 

etTorts include: (I) monthly wcbinars; (2) regular newsletters; (3) website updates including 

common audit findings; and (4) user guides for the NLAD and other Lifeline systems. 

b. Has FCC instituted criteria and time lines for evaluating individual ETC compliance 

plans? 

It is USAC' s understanding that the FCC will respond separately to this question. 

c. What is the extent of FCC and USA C 's oversight of third-party entities contracted by 

ETCs to determine program eligibility? 

Regarding lJSAC's oversight of third-party entities contracted by ETCs, lAD includes the 

review of a sample of subscribers in its audits and PQA assessments and requires ETCs to 

provide copies of the documentation obtained by either the ETC or their third-party contractors 

to determine the selected subscribers· eligibility for the Lifeline program. lAD examines this 
197 

Senator Peters and Senator Stabenow 

August 18,2017 

Page 6 

documentation to determine whether the ETC or its third-party contractor properly determined 

the selected subscribers' eligibility for the Lifeline program in compliance with FCC rules. If 

lAD identifies any situation where the subscribers' eligibility was not properly determined, an 

audit finding is issued with a recommended recovery for each of the subscribers and a 

requirement that the ETC de-emoll the subscribers from the Lifeline program. If significant 

anomalies or non-compliance are identified during the audit or PQA, lAD works with USAC's 

OGC to refer these findings to the FCC's OIG and EB. 

any was 

aeterrmned~ an audit finding will be issued with a recommended recovery for each of 

the subscribers and a requirement that the ETC de-enroll these subscribers from the Lifeline 

program. Further, if significant anomalies or non-compliance arc identified, lAD will work with 

USAC's OGC to refer such matters to the FCC's O!G and EB. 

d. How many times has FCC determined that an ETC is no longer qualified to provide 

Lifeline benefits, and ·what is the process for making this determination? 

It is USAC's understanding that the FCC will respond separately to this question. 

2. What steps are being taken to ensure that ETCs and subcontractors are aware of the 

federal and state databases and other information available to them in order to 

determine program eligibility? 

USAC is not aware of any federal databases that arc currently accessible to ETCs for purposes of 

determining subscriber eligibility for the Lifeline program. Regarding state databases, USAC is 

leveraging the relationships it has built through efforts to establish the National Verifier to work 

with state agencies to compile a comprehensive list of those databases available to Lifeline ETCs 

to verify Lifeline subscriber eligibility. By the end of September 2017, USAC will post a listing 

on its website that indicates whether a state has such a database, and what agency can be 

contacted for access to the database. USAC will also email Lifeline ETCs regarding the 

availability of this list and will send email reminders periodically to encourage ETCs' use of 

these databases as required under the FCC's rules. USAC will also work routinely with state 

agencies to keep the list updated until such time that the National Verifier is fully implemented 

nationwide. 
198 

Senator Peters and Senator Stabenow 

August 18,2017 

Page 7 

3. What is your projected time line for testing and implementing the National Verifier 

system? 

The FCC directed USAC to implement the National Verifier in phases beginning in December 

2017 through December 20196 Pursuant to the 2016 Lifeline Modernization Order, USAC is 

currently preparing for the initial launch of the system in at least five states in December 2017. 7 

This will begin a "soft launch" period, during which the system is available but not required for 

use by Lifeline ETCs in those states. The soft launch allows ETCs time to ensure that their 

processes and systems are aligned with the National Verifier. USAC will also independently 

verify the eligibility of all existing subscribers enrolled in the Lifeline program in the applicable 

states during the soft launch. In March 2018, the soft launch period will close, and USAC will 

"hard launch" the system, making it required for use by all providers in the applicable states. 

Leading up to these launch dates, USAC is tracking against several key milestones to ensure a 

successful implementation. In the first half of this year, USAC conducted a series of feedback 

sessions with providers, state agencies, and consumers and consumer groups to solicit input for 

consideration in the processes and system design. By the end of August 2017, USAC and the 

FCC will announce the states included in the initial launch, as well as additional details on 

technical or process requirements, so that providers in those states may begin to prepare. In 

October 2017, USAC will begin training the users of the National Verifier on the processes and 

systems. 

This initial launch offers USAC and the FCC the opportunity to learn what works well during 

implementation and where refinements to the project approach would benefit future launches. 

As a result, the specific timelines for 2018 and 20 19 are not yet defined and will be informed by 

the completion of the first launch. The following website provides routine updates and access to 

various resources to stay abreast of National Verifier project information, including the National 

Verifier Plan (July 31, 2017 version), which provides a more detailed overview of the project: 

hl!R:.' :,, ww.usnc.om!Jj1tcl_ols/national-1ui licr/ dcfa ul Ul!ifl!i· 

a. What are yow· projected costs? 

The initial launch of the National Verifier, through March 2018, is projected to cost 

approximately $21 million. This includes costs associated with the outsourced systems 

integrator procured to develop the National Verifier system, the business process outsourcing 

vendor that USAC is procuring to stand up the manual review, the call center processes that will 

support the National Verifier, and USAC employees. Although this predominantly reflects 

actual and anticipated build costs, this estimate includes a small portion of production processing 

during the soft launch period. Because the initial launch will inform future implementation 

6 Lifeline and Link Up Reform and Maderni=ation, eta/., WC Docket No. 11-42, eta!., Third Report and Order, 

Further Report and Order, and Order on Reconsideration, 31 FCC Red 3962, 4020, para. 164 (20 16) (Lifeline 

Aioderni::ation Order). 

7 !d. 
199 

Senator Peters and Senator Stabenow 

August 18, 2017 

Page 8 

decisions, the budget for 2018 and beyond is not yet finalized. However, a very high level 

estimate of potential costs is available in the National Verifier Plan, estimating total build costs 

over three years to be approximately $35 million and ongoing operational costs of $40 million 

per year. USAC believes this to be a conservative estimate, as it assumes that interfaces would 

be built to several federal databases as well as databases in all 56 states and territories, which 

may not be realistic or cost-effective. as described in our response below. 

b. What impediments, if any, have you encountered with stale and local jurisdictions in 

acquiring the information you believe is necessary to implement the National Verifier 

system? 

USAC is pursuing computer matching agreements and related technical interfaces with both 

federal and state or territory agencies that administer Lifeline-qualifying programs. As an initial 

matter, it is not always cost-effective to develop a computer matching agreement and technical 

interface with each state agency. Given the nationwide verification available through potential 

federal interfaces, and the fact that lower subscribership in certain states could be more 

efficiently managed through manual verification, USAC is not expecting to pursue a connection 

to every state and territory. In addition, USAC has encountered resource prioritization or legal 

considerations while working with state or territory agencies. From a prioritization perspective, 

some agencies may not be able to provide access to their data due to resource constraints or due 

to technical constraints within their systems. From a legal perspective, states have different 

existing statutes defining what data they can share, and new legislation has been required in 

some cases to allow the National Verifier access to the data. Notwithstanding these challenges, 

USAC has signed computer matching agreements with four states and is actively working to 

complete agreements with several more. 

c. To ;vhat extent will the existing National Lifeline Accountability Database (NLAD) be 

utilized in the development and implementation of the National Verifier .IJIS/em? 

The functions of the NLAD, including identity and address verification, duplicate checking, and 

management of enrollment, de-enrollment, and transfer of a subscriber between Lifeline ETCs, 

continue to be critical to Lifeline program administration. The NLAD system, however, is not 

designed as a portal to intake new applications for Lifeline service, or to interface with other 

systems for automated eligibility verification, which are functions essential to the National 

Verifier framework. USAC's system design aims to retain the best features of the NLAD while 

building new eligibility checking functionality in the new National Verifier system. The two 

systems are designed to interface with one another to provide a comprehensive review of a 

potential subscriber to the Lifeline program. This integration balances increased costs to the 

program with the necessary development of eligibility verification systems to improve the 

integrity of the program. As it has done with the NLAD since its initial implementation, USAC 

will continue to review the NLAD and National Verifier systems on a continuous basis to make 

improvements to its efficiency and effectiveness. 
200 

Senator Peters and Senator Stabenow 

August 18,2017 

Page 9 

4. Chairman Pai 's July II, 2017, letter to USAC regarding the Lifeline program establishes 

a number of new USAC review and audit requirements. GAO's report, however, states 

that in at/east one instance, USAC 's routine audit.fimctions have been constrained by 

"limited audit resources." Is USAC adequately resourced and staffed to conduct the 

review and audits of ETC and subscriber data outlined in the July II letter? 

In GAO's report on the Lifeline program, the GAO made reference to "limited audit resources." 8 

In making this reference, USAC believes the GAO was referring specifically to USAC's lAD 

contributor revenue audits. Contributor revenue audits focus on entities that make contributions 

to the USF ("contributors") and assess whether these entities contributed the appropriate amount. 

Because Lifeline program disbursements arc derived from USF contributions, the GAO included 

its findings concerning contributor revenue audits in its report. USAC clarifies that a separate 

lAD team is responsible for performing Lifeline audits. 

Each year, USAC's lAD and the FCC's OMD and WCB meet to discuss the risk-based 

methodology used to select entities for audits as well as the appropriate count of Lifeline audits 

for the next fiscal year audit plan. This decision is driven by the level of other oversight 

activities related to the Lifeline program, including PQA assessments, Lifeline program 

management reviews, and biennial audits of Lifeline ETCs that receive $5 million or more 

annually in Lifeline program support as required by the Commission's rules. After lAD, OMD, 

and WCB determine the appropriate level of Lifeline audits and activity for the next fiscal year 

audit plan, lAD determines the number of auditors necessary to perform these audits. To the 

extent that lAD does not have the resources to internally perform these audits, lAD contracts 

with an external audit firm to conduct these audits on lAD's behalf USAC will ensure that it 

has sufficient resources to conduct all audits, utilizing a mix of internal and external auditors as 

necessary in consultation with the Commission. 

While lAD performs the audits identified in the FCC Chairman's letter, the Lifeline Program 

team will resolve the subscribers noted by GAO as requiring de-enrollment from the program as 

well as the ongoing monthly or quarterly sampling of subscriber records going forward. USAC's 

Lifeline Program team will work closely with the Commission to prioritize these activities, 

ensuring that existing resources are used effectively to gel the most impact from the reviews 

performed. 

*** 

8 Government Accountability Office, Additional Action Needed to Address Si[!.niflcant Risks in FCC's Lifeline 

Program, at p. 28 (May 20 I 7). 
201 

Senator Peters and Senator Stabenow 

August 18.2017 

Page 10 

Senators. !thank you for your leadership on these important issues. I look forward to continuing 

our work with members of Congress, the FCC. and other stakeholders to continue our collective 

efforts to improve the integrity of the Lifeline program and ensure that universal service supports 

the global digital economy. 

Sincerely, 

Vickie S. Robinson 

Acting Chief Executive Officer and General Counsel 

Universal Service Administrative Company 
202 

FEDE>'tAL COMM UN !CATIONS COM M ISSlON 

WASH1NGTON 

The Honmable Gary Peters 

United States Senate 

724 lbrt Senate Oflice Building 

Washington. D.C. 205 I 0 

Dear Senator Peters: 

August2L2017 

Thank you lClr vour letter requesting information related to the recent Government 

\.ccounwbility Ontce (CiAO) report ickntitYing waste. fraud. and abuse in the Lifeline program. 

J share your views on the overall importance o!'the Lifeline program. It's vital that lowincome Americans have access to communications services. including broadband Internet. M) 

focus has been-and will continue to be so long as J have the privilege of serving as Chainnan 

everything within the Commission ·s power to close the digital divide. I also belicw 

that it critical to strengthen the I.iCdine program's eJT]cac.v and integrity by respecting the 

.;;;tate;; n)k' ]!) the program. ·~·nsurin~ the program is fiscal!~ responsible, and reducing \\astc. 

t·raud. and abuse. ;\ddrc"ing thc·sc '"ucs""""especiall 0 tho,;c identilled in the GAO report--· 

\\OUid CJbllrL' the program i:o ;1clually advancing the(_ ·omrnission's goal of ensuring low-income 

r\mt:rican;; have access t~l allordabk communications sen ic~. 

Bcln\\. please find the n::'sp(lnses to the specific questions included in your lener 

L lion do FCC and l'S,\C measure the effectiveness of the various compliance and 

enforcement mt•chnniSim that h:n"C been developed to improve oversight of Lifeline 

pro\ idl'rs and sales agt:nts'? 

Response: To measure the e!Tectiveness or existing compliance and enforcement 

mechanisms. on a monthly hn:->is. USAC tracks program metrics, including tbe percentage uf 

Lilcclille subscribers enrolled through carrier manual review of eligibility or identity 

do-:uu~,.'JJUtion. 1 lh~...· oJ prO\ idcr nun11.: look-ups in the ~C1tional Lifeline 

.'\c'-'(lUl~lilhiliLy Uutahtl~.._, 1 :<l.. \D 1 to actu:tl 1'-iL\D L'nrollmcnts, and the Yariance between the 

numbc1 ur· subscribl'r-, in \.! .:\l) and the: number of subscribers for which service providers 

claim !Timbursement Oil their FCC Forms 497.' LJSi\C' provides rcpurts to FCC staff Oil 

lllc:-,e mctrics on a quurk'ri:· h~1"ii.'-. l :sAC. under tht' ovt:rsight oftht: I:cc. then takes steps to 

~-h.Jdrc:-.'; an; \\ask. l'wud. ur a bus~.: concerns indicated in the metrics uncl refer issut~s to the 

i"t:"<iL'\\., \\ill "hin tl·orrl carriers to the '\!ntion<ll Verirler 

pcnud tfor [_ifeltne '\upp1xt pnymenrs to be issued in 2018), 

, 1\ ill di~,hurs..: Lil'..:line based on number of 

in'ltv; d 1ii i""11in~ di:;hurs~ments 
203 

Page 2-The Honorable Gary Peters 

FCC's Enforcement Bureau and Ot1ice of Inspector General, when appropriate. USAC and 

the FCC also maintain whistleblower hotlines, and USAC refers any allegations of waste, 

fraud and abuse in the Lifeline program to the Enforcement Bureau and Office oflnspector 

General. 

The FCC and USAC also use the results ofUSAC's Payment Quality Assurance (PQA) 

reviews and Benefrciary and Contributor Audit Program (BCAP) audits to measure the 

effectiveness of existing compliance and enforcement measures. USAC tracks common 

audit findings for Lifeline service provider audits, annually analyzes the root cause of each 

audit finding, and takes steps or makes recommendations to address the root causes. USAC 

provides FCC staff with a copy of the root cause analysis. 

At the Commission's direction, USAC is cunently implementing mechanisms by which to 

monitor and track the activity of individual sales agents to more quickly detect and address 

potential fraud or abuse. 

a. What training and guidance on the Lifeline program is offered to or required for 

ETCs and sales agents'? 

Response: USAC, overseen by FCC staff, provides guidance and training materials for 

service providers and their agents, including summaries of the Lifeline program rules and 

common audit tindings on LJSAC's website, monthly webinars on Lifeline program rules, 

a quarterly Lifeline newsletter, and email news briefs 3 Service providers and their agents 

can subscribe to a Rich Site Summary (RSS) feed to receive the latest news from USAC 

concerning the Lifeline program, including information on new FCC orders or guidance, 

program deadlines, and upcoming webinars. 4 USAC also conducts regular service 

przwider outreach to identify areas where additional guidance or training is needed. In 

addition. service IJI'O\'iders and their agents can directly contact USAC and FCC staff with 

questions about specitic LiCcline program rules or requirements. 

The FCC's audit plan for Lifeline service providers that must obtain third party biennial 

audits requires an examination of the service providers' training for employees and agents 

concerning the Lifeline eligibility rules 5 In addition, when the FCC enters into consent 

decrees with Lifeline service providers to resolve violations of the Lifeline program rules, 

hJrp;:>S_':~-"'I.:_·_~l~~lc.or_\1 l1 

-1 See Subscription Center, h_tlll 

2017). 

5 See Wireline Compelition Bur~'ml Annull!1t.-'r!S Release ~[Final Lif'e/ine Biennial Audit Plan, Public Notice, 29 FCC 

Red 3568, 3602, Attachment 3. Biennial Audil Plan (WCB 2014). See also 47 CFR § 54.420(a) (requiring 

companies. rect:iving $5 million or more in Lifeline reimbursements annually in the aggregate, on (1. holding 

company basis, to obtain third party biennia! audits). 
204 

Page 3-The Honorable Gary Peters 

the consent decrees typically require service providers to develop and distribute Lifeline 

compliance manuals and establish and implement Lifeline compliance training for 

employees and third-party employees covered under the consent decree. 6 

b. Has FCC instituted criteria and timelines for evaluating individual ETC compliance 

plans? 

Response: The Wire line Competition Bureau conducts reviews of non-facilities-based 

providers' proposed compliance plans to participate in the Lifeline program as a way of 

seeking to prevent improper payments from non-facilities based providers .. These reviews 

focus on a number of factors, including the service provider's proposed Lifeline o±Terings, 

internal procedures, service history, past compliance with Commission rules, and financial 

and technical ability to provide Lifeline service in compliance with Lifeline program 

rules. 8 The FCC has not established a specific timeframe for completing reviews of 

Lifeline compliance plans0 

c. What is the extent of FCC and USAC's oversight of third-party entities contracted 

by ETCs to determine program eligibility? 

Re;pouse: The Commission has made clear that Lifeline service providers are liable for 

any conduct by their employees. agents, contractors. or representatives (acting within the 

scope of their employment) that violates the Lifeline program rules. 10 In addition, the 

Ent(Jrcement Bureau has taken action against Lifeline service providers for rule violations 

committed by sales agents. 11 As noted above, at the FCC's direction, USAC is currently 

implementing mechanisms by which to directly monitor and track the activity of individual 

saks agents to more quickly detect and address potential fraud or abuse. 

'See, e.g .. Blue .Jay Wireless. LLC. Consent Decree, J I FCC Red 7605,7610-11, para, 20 (EB 2016); Yow·Te/ 

America, Inc .. Consent Decree. 28 FCC Rccll.\39. 1545-46, para. 14 (EB 2013): TerraCom. Inc., Consent Decree, 

28 FCC Red 1529, 1533-34. para. 14 (LI32013). 3 See 20 I 2 L1j"i!line Reform 01'der. 27 FCC Red at 68! 6-6817, paras. 3 79-81 (20 12); Wire/ine Compet;tion Bureau 

Provides Guidance for the Submis.Ywn qlCompliance Plans Pursuant Ia the Lifeline Reform Order, Public Notice, 

27 FCC Red at 2188 (WCB 20121. 9 The Commission requires non-!llC!!ities-based service providers to submit compliance plans for the Wireline 

Competition Bureau's reviev .. · ami npproval before they can receive Lifeline support. See L((eline and Link Up 

Reform and :\Judernization eta/., Rt•pon and Order and Further Notice of Proposed Rulemaking, 27 FCC Red 6656, 

6813-6814, 6816-6817, paras 386-369 .. 179-381 (20 12) (2012 Li/eline Reform Order); Wireline Compel/lion Bureau 

Provides Guidunce.fOr !he S'uhnli~Y.vion oj"C 'omplicmce ?Ions ?ursuum to the Lifeline Rejbrm Order, Public Notice, 

27 FCC Red 2186,2187 (WCG 20121 10 See, e.g., 2012 Lifeline Rejimn Order. 27 FCC Reel at 6709, para. 110 ("ETCs may permit agents or 

representatives to revie.,.v documentation of consumer program eligibility for Lifeline. However, the ETC remains 

liable for ensuring the agent or compliance with the Lifeline program rules."); 

Lifeline ?rm:iders are Liable Agents or Representatives Violate the FCC's Lifeline Program Rules, Public 

Notice, 28 FCC Red 9022, para. I (E820 13) ("The FCC's Enforcement Bureau reminds Eligible 

Telecommunications Carriers (ETCs) receiving federal universal service supp011 from the Lifeline program that they 

are liable for any conduct by their agents, contractors, or representatives (acting within the scope of their 

employment) that violates the FCC's Lifeline rules."). 11 See genera! I\· Tow/ Call NA I. 3 I FCC Red 4191. 
205 

Page 4-The Honorable Gary Peters 

d. How many times has FCC determined that an ETC is no longer qualified to provide 

Lifeline benefits, and what is the process for making this determination? 

Response: The Commission has terminated or denied the pmiicipation of two service 

providers that the FCC determined to be unqualified to participate in the Lifeline program. 

In December 2016. following an Enforcement Bureau investigation of Total Call Mobile, 

Inc. (Total Call) for\ iulation of Lifeline program rules, Total Call agreed via a consent 

decree to cease participating in the Lifeline program. relinquish all of its ETC 

designations, and withdraw its pending ETC designation applications. 12 In October 2015, 

the Commission prohibited Icon Telecom, Inc. (Icon) fi·om participating in the Lifeline 

program for a three-year period. after Icon was convicted of making a false statement in 

violation of federal law in connection with fi·audulent claims involving the Lifeline 

progrmn. 13 

Enforcement Process 

The FCC's Enforcement Bureau may open an investigation upon receiving timely 

information about actionable Lifeline rule violations and gathers additional information 

through a Letter of Inquiry (10!). 15 If the Enforcement Bureau determines that violations 

of applicable statutes and FCC rules have occurred, the Enforcement Bureau may take 

enforcement actions that include issuing a Notice of Apparent Liability for Forfeiture 

("iAL). which identiJies the apparent violations and proposes penalties, including 

monetary penalties. 11' or resolving the investigation through a settlement agreement in a 

consent decree. lf anNAL is issued, the service provider has an oppotitmity to respond to 

the allegations in the NAL. 17 lfthe service provider does not pay the penalty or 

demonstrate that a forfeiture penalty should not be imposed, the Enforcement Bureau 

issues a forfeiture or(kr." lf the violations are instead resolved through a consent decree 

the service provider may be required to return improperly claimed reimbursements to the 

Universal Service Fund. make an appropriate tinancial contribution to the U.S. Treasury, 

and adhere to a compliance plan to prevent the recurrence of the rule violations. 19 

21t21cnsion and Debarment Process 

12 See Total Coli Mobile. Inc., Consent Decree, 3 I FCC Red t 3204, I 32 I 4. para. 27 (EB 20 I 6). The Consent 

Decree resolved the Notice of Apparent Liability concerning Total Call's violation of Lifeline program rules by 

enrolling duplicate and ineligible subscribers. See Total Call NAL. 31 FCC Red at 421 1-13, paras. 74-83. 13 See Letter from Jeffrey Gee, Chief, Investigations and Hearings Division, Enforcement Bureau 1 to Wes Yui Chew, 

President. Icon Telecom. Inc .• 30 FCC Red I 0939 (EB 20 I 5). 15 Enforcement Primer. (last visited July J I. 20 17). 16 See id See also 47 ~ 503(b)( I )(13): ~7 CFR § !.SO( a)( I). (f). 17 See 47 U.S.C, § 50J(b)(4); 47 CH:Z ~ 1.80(t)(3): Enforcement Primer. tLt.tPX .. :.\'c~\~2\J~.-:~-,~~l\·_g£!.l~fUL:~)JJQr.f_~!1J_g]JJ: 

QrimQI (last visited July J I, 201 7). 18 See 47 CPR§ l.80(f)(4); Enforcement Primer, ll!!P~-~-:.Y~_\\.~:.-L<~·-.:;.'-!\..~~..!J.~r.D.L~nl'oq; __ c;_]Jl~'-~Dl.:UiiU!._~::l (last visited July 

31' 2017). 

I<J See Enforcement Primer, h1q _..,. ,._I.\\', gcq~uJU;D.L~l!\l'!1J>:-'JU.¥PI~I])~r (last visited July 31, 20 17). 
206 

Page 5-The Honorable Gary Peters 

The Commission may suspend and debar persons20 from pa1ticipating in the Lifeline upon 

a criminal conviction of. or civil judgment for fraud against a USF program, including the 

Lifeline program.21 When cause exists for suspension and debarment, the FCC suspends 

that person and begins a proceeding to debar the person from future participation in the 

USF program, including providing thirty (30) days in which to respond to the suspension 

and proposed debarment 22 Within ninety (90) days of the response date, the Commission 

may issue a notice of deharment to the service provider.23 The debarment period is 

generally three years, but the Commission can set a longer period of debarment if 

necessary to protect the public interest24 

Compliance Plan Review Process 

To promote program integrity, the Wire line Competition Bureau conducts a thorough 

review of compliance plans submitted by non-facilities-based ETCs. If the ETC fails to 

provide the required information.2; the Wireline Competition Bureau notifies the ETC and 

the ETC has an opportunity to submit a revised compliance plan26 The Wireline 

Competition Bureau may issue an order denying the compliance plan if the ETC fails to 

respond to an inquiry to the Wireline Competition Bureau's satisfaction or otherwise fails 

to demonstrate that it has met the requirements for compliance plan approval established 

in the 20/2 Life/in~ Orda. 2

' In addition to the information required in the compliance 

plan. information ti·om the FCC's Enforcement Bureau, Office oflnspector General, or 

state commissions concerning the service provider may also inform the Wireline 

Competition Bureau's decision on a compliance plan.28 In the event the Wireline 

Competition Bureau denies a compliance plan, the ETC cannot receive Lifeline support as 

a non-facilities-based provider29 

2. Whm .1teps are being tal,en to ensure that ETCs and subcontractors are aware of the 

federal and state databases and other information available to them in order to 

determine program eligibility'? 

Response: USAC, under the oversight of the FCC's Wireline Competition Bureau and Office 

of Managing Director. is developing a comprehensive list of available state and federal 

eligibility databases that service providers must check while the National Verifier is still being 

20 Thc FCC's dcb::1rment rules de!'inc a "pcrso!f' as "[a]ny individual, group of individuals, corporation. partnership, 

association, unit of government or legal entity, however organized." 47 CFR § 54.8(a)(6). 21 See 47 CFR S 54.8(c). 22 See 47 CFR § 54.8(e)(l), (3). 23 See 47 CFR s 54.8(e)(5). 24 See 47 CFR § 54.8(g). 25 See 20/2 Li/dine Reform Order, 17 FCC Red at 68 I 6- I 7, paras. 379-81; Wire/ine Competition Bureau Provides 

Guidance filr the Submission ofC 'omp/iance l'la11S Pursuant/a rhe Lifeline Reform Order, Public Notice, 27 FCC 

Red at 2188 (WCB 2012). 26 See 2012 Lifeline Reform Order, 27 FCC Red at 6816, para. 380, n. 1000. 27 See hi .. ' Cone.rions Compliance /'/an Orr.ler. :29 FCC Red at ! 4430-32, paras, 8-1 L 28 See 2012 Lifeline Refimn Order, 17 FCC Red at 68 I 8, para. 388. 29 See id. 27 FCC Red at 6816, pma. 380: Conexions Compliance Plan Order, 29 FCC Red at 14432, para. 12. 
207 

Page 6-The Honorable Gary Peters 

implemented. This list will be posted on USAC's website, and USAC will update this list 

every six months and regularly email the list to service providers. 

As the National Verifier is rolled out, stmting with live states in December 2017, eligibility 

determinations will shift tl-om service providers to the National Verifier. 

3. What is your projected tim cline for testing and implementing the National Verifier 

System'? 

Response: The technical build of the National Verifier is already underway, and the initial 

system launch in at least live states will occur in December 2017 30 Testing will occur 

throughout the build process. From December 2017 through February 2018, service providers 

in the initial states will be able to test the system and transition to the National Veritier31 

During this period. USAC will be verifying the eligibility of all existing subscribers in these 

states as they are migrated to the National Verifier. By March 2018, all enrollments and 

recertifications in the initial states will be conducted by the National Verifier. 32 The National 

Verifier will be expanded to at least 25 states by the end of2018, and in all remaining states 

and territories by December 3 L 20 !933 

(a) What are your projected costs? 

Re.1ponse: Through March 2018 (the initial launch), the projected costs associated with 

i!llplementing Nutional Veri tier are $21 million. This total includes the costs associated 

with the development of the core system (consumer and service provider application 

port~ls). federal and state interface implementation for the initial launch, user suppmt 

(including training. stand up. and operation of a call center), compensation and benefits of 

al! l"ull-time USAC stuff dedicated to implementing and managing the National Verifier, 

and three months or opt:rations of the National Verifier during the soft launch period. 

(b) What impediments, if any, have you encountered with state and local jurisdictions 

in acquiring the information you believe is necessary to implement the National 

Verifie1· system? 

Re,ponse: USAC. ()\ ersccn b) Commission staff. has been coordinating extensively 

with states to obtain the information necessary to implement the National Verifier. The 

L''- ,J 

National Plan, at 23 (as updated July 

National-Veri fter-Pian.pd[ 31 See Lifeline National Verifier Plan, a! I 04 (as 

ll.un;_ __ lD~k 

Verifier 

. \l~lt~ l .. I_(;;Jin~_-J!IQ~I.L<U.Jl· l 'psJill~.~\~Lcl;_i_tl;!_L,.mtf'; 

20 t7). http://usac.orgi _rcs/documents/li/pdf/nv/DraftSee Lifeline Plan, at 23 (as updated July 31, 

http://usac.org/ _res/documents/! ilpdf/n yiDraft-National-Verifier-PI an. pdf 
208 

Page 7-The Honorable Gary Peters 

process of reaching u computer matching agreement varies depending on the state. Some 

states have required legislative changes prior to being able to share data with USAC, 

while others have complex procurement processes that USAC must navigate. Some state 

agencies are unable to provide access to their data due to technical challenges, such as a 

lack of resources necessary to make system modifications. 

We note that while the goal is to automate eligibility verifications as much as possible, it 

may not be cost-effective to build a connection to all state databases. especially if the 

National Verifier has automated connections to federal databases3 " 

(c) To what extent will the existing National Lifeline Accountability Database (NLAD) 

be utilized in the development and implementation of the National Verifier system? 

The National Lifeline Accountability Database (NLAD) will be fully integrated into the 

National Verifier. NLJ\D will continue to perform identity, address, and duplicate 

checks for Lifeline subscribers 3 ' NLAD will also continue to serve as the official record 

of enrolled Lifeline subscribers, and service providers will still be required to update 

subscriber information in NLAD (e.g., address changes, service provider changes, deenrollments).J6 The NLAD will produce monthly reports of each service provider's 

Lil'eline subscribers and service providers will certify and request reimbursement based 

tm that list instead or the program's current practice of reimbursing service providers 

ba\tcd on their FCC Form 497 submissions 37 

4. Chainnan Pai's July II, 2017, letter to USAC regarding the Lifeline program 

establishes a number of new USAC review and audit requirements.38 GAO's report, 

however, states that in at least one instance, USAC's routine audit functions have been 

constrained by "limited audit resources." 39 Is USAC adequately resout·ced and staffed 

to conduct the reviews and audits of ETC and subscriber data outlined in the July II 

letter? 

Response: USAC is adequately resourced and staffed to conduct the reviews and audits of 

ETC and subscriber data outlined in my July 11,2017 letter to USAC. In addition, FCC staff 

continues to coordinate >vith USt\C' to prioritize and strengthen efficiencies in conducting 

audits and reviews. 

I further note that USAC's routine audit functions for the Lifeline program are not 

constrained by "limited resources." In fiscal years 2014 through 2016, USAC and extemal 

J<~ See id. at 3 I. 35 See id. at 12. 20. 36 See id 8t 19. 20. 

"See id. at 19. 20.49-50. 38 Letter from Ajit V. P'li. Chnirman, Fed~rnl Communications Commission, to Vickie Robinson, Acting CEO and 

General Counsel. Universal Service Administrative Company (July II, 2017). 39 Government Accountability Office. supra at p. 28. 
209 

Page 8-The Honorable Gary Peters 

auditors overseen by L:sAC completed 94 Beneficiary and Contributor Audit Program 

(BCAP) audits of Lifeline SC!Yicc providers, and in fiscal years 2015 and 2016 USAC 

completed 600 Payment Quality Assurance (PQA) reviews of Lifeline service providers. 

I appreciate your interest in this matter. Please let me know if I can be of any further 

assistance. 

Sincerely, 

fLu v-(l· 

"QitV.Pai 

\VlNJtQA, ~-fA ~ ~ '~· 'P~ Gv1 ~~ope ~~J,_ ~~ Fc:c~~ 

om4vc4 1f ~b.AJ._Aj ~ 0QM_ ~~~ ~j~ 

~c ~ W)v li~ ~ tJv.. u,p, 
210 

Septemlx:r 12. 2017 

Senator Gar; C Peters 

\'nited States Scnatc 

Hart Senate Office Building. Suite 724 

Washing10n. DC 10510 

Dear Senator Peters and Senator Stabenow: 

Senator Debbie Stabcno'~ 

t'nitcd States Senate 

Han Senate Office Building. Suite 7J 1 

Washington, DC 20510 

Thank you for your follow-up questions related to our August 18, 2017 letter concerning the 

linivcrsal Service Fumr, (l"SF) Lifeline program and the rclat<:d rcpol1 issued b) the 

(],)\Crnmcnt Accountabilit) Ot1icc (G.\0). 1 he l Jni\·crsal Sen icc Administrative Company 

(\'SAC) is plcasct.l to pro' ick additional information related to your July 18. 2017 inquiry about 

the l SF and l.ifelinc program. Below arc lSACs responses to the !i)llow-up questions pos.:d 

bv your staff during confcwnce call on September 8. 2017. Our resp0nsc details the annual ongoing operational CO'-ts for the ~ational Lifeline Fligibility Verifier (National Verifier) and 

clarities the costc:flectivcnl'Ss analysis and role of state databases for the l'ational Verifier. We 

look forward to continued discussions v. ith you on these issues. 

Supplememal Response 10 Jfa1 and rh;· 

11. Plea'" provide a ddailed hre,ikdo~·n ofthe projee!ed opaational costs ofS-10 million 

per year. 

\s detailed in our August 18, 2017 response, at a Ycry high level estimate of pot.:ntial costs. 

t 1

S. \C has projected the \rational Verifier"' ill have total build costs over three years of 

approximately S35 million. and ongoing operational costs of'$40 million per )Car. USAC 

continues to believe that this is a conservati>c estimate, as it assumes that interfaces would be 

built to scv~ral federal interfaces as well as all 56 states and territories. which ma'y not he 

realistic or cost cfkcti\ c. as described in our response bclov.. 

f'hc' estimated annual operational costs arc detailed as follows: 

Cost<:::~_tt:gol} _ _ 

. _ full:Em~l:f11plo,vccs 

Ongoing T.:chnical Operation 

and "vlaintcmmcc System 

Business 

(B~()J Vendor 

. Total S39.8 

The BPO vendor will provide a full service call center for the National Verifier stakeholders and 

participants. as well as process cligibilit; \crification for initial enrollment and annual re-
211 

Senator Peters <md Scnatur Stabenow 

September 12. :CO 17 

Pag:c 2 

cc~rtifications where automated verification is not possible, as described belo,v. The cost of these 

ser' ices are predominantly based on volumes, which llSAC has consercatively projected for the 

period in which the \ational Verifier framework is in place nationwide. 

I) I !mv will LS. 1< ·determine whether to luun<:h an automated connection or use manuul 

verification for the .\'ational Verifier:) 

CSAC has a team in place that is continuing to actively develop relationships with the state 

public utility commissions and other agencies that manage Lifeline-qualifying programs to 

determine what type of databases arc available in the 56 states and territories. !he availability of 

consolidated, automated dataha,es varies across the states and territories. For example, some 

states alrcad: hano developed and implcmcmed intcrf'ace portals through which USAC can 

c:onnect the \:ational Vcritkr with minimal inf(Jrmation technology den:lopmenL ln other states. 

the databases are nut current!) connected to any outside agencies and thus additional 

de\ dopment and cost would he necessary to develop a connection. In addition, some states have 

combined databases f(w programs such as the Supplemental \'utrition Assistance Program 

(S\'i\P). \kdicaid, and Supplemental Security Income (SSl). 'Ahile other states have separate 

databases. and thus V\OuiJ require not one but multiple connections to be developed 'Aith the 

.state. As such. CS,\C looks fit a varidy of factors in dctcnnining whether to launch an 

automated connection in a state. including (ll accessibility of available databases; (2) the number 

of subscribers in the state; and (3) cost of one-time build out and deployment as wdl as ongoing 

cost to maintain the connection, Then, l'S:\C compares all of these factors lll the alternative cost 

of manual rcvie" for the state to determine if an automated connection is cost e!Tcctive. Where a 

state database is not available, CSAC will rely upon federal databases and manual review to 

conduct eligibility verification in a state, 

To reiterate. states can and will be rolled into the National Verifier even 'A here no automated 

connection with a state eligibility database is established. USAC is working to de> clop 

contk'Ctions to federal databases that will provide eli~ihilit)- information on a nationwide basis 

and\\ ill h10 used in addition to state sources, Further. l!SAC will usc manual processes to rC\ ie'A 

documentdtion submitted by consumers hl verify eligibilit} where a sTate or federal data source is 

unabk to validate digibilit). We also note that <'VCn in ;,tates whc:re thc federal or state database 

connections exists, m:>nual review "ill still he necessary [(Jr two reasons. First. 'AC may not he 

able to conncct tc> a database that automatically addresses all of the potential qualifying programs 

or income levd and thus will need to validate eligibility through a manual review process 

conducted hy USAC Second, each of the computer matching agreements established for these 

database connections and devdoped by USAC and the Federal Communications Commission for 

the \'ational Verifier must comply with the federal Privac: Act of !974 (Privacy Act), When 

cligibilit} is denied based on~ failure to match using a database, the Privacy Act requires USAC 

to provide an opportunity hJr appeal or revi.:w. As such. even \\here USAC uses atttomatcd 

matching with a state or l'c:deral database, we will proYidc a mechanism through which a 

consumer may demonstrate eligibility using manual revie" of documentation when information 

is not matched in a database. 
212 

'lcnator Peters and 'l~nator Stabenow 

Sept~mber 12, 2017 

Page 3 

[:SAC is committed to devdoping automated dat3bas.; connections whs're they arc cost effective: 

hovvcvcr, stJtes can and "ill he included even \\here no automated databases are available or arc 

not cost d'fectivc. l.'SAC lo(Jks f(Jrward to partncring '' ith more states on the "iationa! Verifier. 

but the success of the 'iational Verifier is not dependent on access to these state cligibilit) 

databases. Once the \ational Verifier is fully implemented, USAC will be the third party neutral 

administrator determining subscriber eligibilit: and such processes will rw longer reside "ith th~ 

eligible telecommunications carriers. 

Senatc;rs. [ thank you again for your lcadcr>hip on these important issu~s and l welcome any 

aJditinnal questions. 

~~ 

~erd). 

,\cting Chief Executive Officer and General Counsel 

l'niversal Service Administrative Company 
213 

llmtn1 ,StJtrs ,Scnarc 

The Honorable Ron Johnson 

Chaim1an 

U.S. Senate Committee on Homeland 

Security & Governmental Affairs 

340 Dirksen Senate Office Building 

Washington, DC, 20510 

September 13,2017 

The Honorable Claire McCaskill 

Ranking Member 

U.S. Senate Committee on Homeland 

Security & Governmental Affairs 

340 Dirksen Senate Oftice Building 

Washington. DC, 20510 

Dear Chairman Johnson and Ranking Member McCaskill: 

Chaim1an Richard Burr has scheduled a special meeting of the Senate Select Committee 

on Intelligence tomorrow, Thursday, September 14,2017, pertaining to the committee's ongoing 

investigation into Russia's interference in the 2016 election. This classified meeting is scheduled 

outside of Washington D.C. at the same time and date as the Homeland Security and 

Governmental Affairs Committee's (HSGAC) hearing entitled "FCC's Lifeline Program: A Case 

Study of Government Waste and Mismanagement." As a result, I will not be able to attend 

tomorrow's HSGAC hearing. 

Internet and telephone service are essential to participation in the modem economy, and 

federal efforts to ensure low-income Americans have access are of great importance. I look 

forward to continuing to work with you and the rest of our colleagues on the HSGAC committee 

on this i mponant issue. 

Sincerely. 
214 

Smith Bagley, Inc 

September 29, 2017 

The Honorable Ron Johnson, Chairman 

The Honorable Claire McCaskill, Ranking Member 

The United States Senate Committee on 

Homeland Security and Governmental Affairs 

340 Dirksen Senate Office Building 

Washington DC 20510 

Via Email to: !32®L.sllD_~rstein@hsgac.senate.goy 

Re: Committee Hearing, September 14, 2017 

FCC's Lifeline Program: A Case Study of 

Government Waste and Mismanagement 

Submission for the Record 

Chairman Johnson and Ranking Member McCaskill: 

On behalf of Smith Bagley, Inc., d/b/a Cellular One, I write to provide the Committee 

with information about Cellular One's participation in the Lifeline program, and suggest 

possible reforms as the Committee decides whether to legislate or to continue to monitor the 

FCC's progress on these important matters. 1 

We note with approval the FCC's substantial undertaking, under multiple 

administrations, to reform and improve the Lifeline program. Our purpose in writing today is to 

inform the Committee about how facilities-based carriers are increasing telephone penetration 

on Tribal lands and to advocate for reforms that do not inadvertently harm at-risk Tribal 

members living in far different circumstances from those experienced by other Americans living 

in urban, suburban, and even rural locations. Reforms must be calibrated so as to prevent 

people living on remote Tribal lands, many of whom lack basic infrastructure, from losing 

critical connectivity that has been achieved through the federal Lifeline program. 

Serving Tribal Lands Can Be Nothing Like Serving Rural America. 

When it comes to infrastructure, some Tribal lands across the country are not much 

different than the rest of America. Others face extraordinary challenges with infrastructure 

development, poverty, unemployment, lack of electricity or running water, and long distances 

between homes and basic services. 

1 At the above-referenced hearing, Chairman Johnson announced that the record would be held open through 

September 29, 2017 for the submission of additional information. 

1500 S White Mountain Road, Suite 103 • Show Low, Arizona 85901 •Phone: 928-537-0690 
215 

Han. Ron Johnson 

Han. Claire McCaskill 

September 29, 2017 

Page 2 

We serve the Navajo Nation, the Hopi Tribe, the Pueblo of Zuni, the White Mountain 

Apache Tribe, and the Ramah Navajo. While each face similar challenges, I will focus on the 

Navajo Nation because it is the largest Native nation within the lower 48 states and it faces all 

of the challenges set forth above. 

At over 27,000 square miles, the Navajo Nation is roughly the size of West Virginia, with 

a 2010 Census population of approximately 173,000. 2 While Cellular One and competing 

carriers provide service in many Navajo towns, this letter focuses on people living in remote 

high desert lands, with a population density oftentimes less than five per square mile. 3 The 

combination of low population density and poor demographics have made it impossible for 

Cellular One (or other carriers) to invest in new cell sites beyond the towns and major roads 

without support from the federal universal service mechanism. 

A report prepared by the Arizona Rural Policy Institute, using 2010 Census data and 

2010 American Community Survey estimates, indicates that: 

Poverty rates on the Navajo Nation Reservation (38%) are more than twice as 

high as poverty rates in the State of Arizona (15%). Almost half (44%) of all 

children under 18 years of age are considered to be living in poverty, while onethird (34%) of tribal members between 18 and 64 also live in poverty. Almost 

one-third (29%) of persons living in families on the Navajo Nation live in poverty, 

twice the rate of families living in poverty in the State of Arizona (13%), for 

example. More than one-third of all persons over age 65 (39%) also live in 

poverty, five times higher that the State of Arizona (8%) for this age group. 4 

Most important for your consideration of Lifeline, according to the 2000 Census, while 

over 90% of the rest of America enjoyed basic telephone service at home, only 38% of 

households on the Navajo Nation had access to a phone of any kind. 5 Many areas of the Navajo 

2 U.S. Census 2010. 

'For example, according to the 2010 Census, Navajo County, AZ, including non-Tribal lands, has only 10.8 

inhabitants per square mile, while Apache County, AZ, including non-Tribal lands, has only 6.4. See 

.. _._,~."'-"~·'""''"·'' ····•·= '"-"""' ''-' "-'-"'"L ,,, ~'-''-"''"'-'"-"'""''-"~=-•u••··_.,_,,,_.,._,,._,,.,,,_.,,_,, "·''-'-="''. On Tri ba !Ian ds with in 

these counties, many areas are below 5 inhabitants per square mile. 

4 Arizona Rural Policy Institute, Demographic Analysis af the Navajo Nation Using 2010 Census and 2010 American 

Community Survey Estimates (2013), at 34. Unpublished. The relevant pages are enclosed as Exhibit A. 

5 See, Telephone Penetration by Income by State (Data Through 1999}, Industry Analysis Div., Common Carrier Bur., 

FCC (March, 2000} at 4, accessed at 
216 

Hon. Ron Johnson 

Hon. Claire McCaskill 

September 29, 2017 

Page 3 

Nation lacked a basic landline infrastructure, poles and wires commonly seen throughout the 

rest of the country. As a result, thousands of Tribal residents lacked the ability to participate in 

the modern world, including the ability to summon help via 911, to communicate with relatives, 

doctors, and schools, or to engage in numerous other types of interactions that those of us with 

access to telephone service take for granted. 

The FCC's Tribal Lifeline Program Has Significantly Increased 

Telephone Penetration on Tribal Lands. 

The FCC's Lifeline program was designed to increase telephone penetration and connect 

those least able to afford telecommunications services, or the cost of installing new service. In 

2000, the FCC added $25.00 per month of federal Lifeline support for each qualifying citizen 

residing on Tribal lands. The express purpose of the increase was to incent investment in 

facilities on unserved and underserved Tribal lands such as the Navajo Nation: 

By providing carriers with a predictable and secure revenue source, the 

enhanced Lifeline support ... is designed to create incentives for eligible 

telecommunications carriers to deploy telecommunications facilities in areas 

that previously may have been regarded as high risk and unprofitable. We note 

that, unlike in urban areas where there may be a greater concentration of bath 

residential and business customers, carriers may need additional incentives to 

serve tribal lands that, due to their extreme geographic remoteness, are 

sparsely populated and have few businesses. In addition, given that the financial 

resources available to many tribal communities may be insufficient to support 

the development of telecommunications infrastructure, we anticipate that the 

enhanced Lifeline and expanded Link Up support will encourage such 

development by carriers. In particular, the additional support may enhance the 

ability of eligible telecommunications carriers to attract financing to support 

facilities construction in unserved tribal areas. Similarly, it may encourage the 

deployment of such infrastructure by helping carriers to achieve economies of 

scale by aggregating demand for, and use of, a common telecommunications 

infrastructure by qualifying low-income individuals living on tribal lands. 6 

U.S. Gen. Accountability Office, Challenges to Assessing and Improving 

Telecommunications far Native Americans an Tribal Lands, at 14 & Fig. 3 (2006), accessed at 

8 t W :LL~Y~"{::."(,_fu!_Q_E.Q:d Qr~(.ci ~L\~t~/§A~!:_Q§_:.U~. 

6 See, Federal-State Joint Board an Universal Service; Promoting Deployment and Subscribership in Unserved and 

Underserved Areosf Including Tribal and Insular Areas, Twelfth Report and Order, Memorandum Opinion and 
217 

Han. Ron Johnson 

Han. Claire McCaskill 

September 29, 2017 

Page 4 

In hindsight, the FCC was correct in predicting that increased Lifeline support for Tribal 

lands would cause carriers (especially wireless carriers) to construct facilities in remote areas, 

to capture customer revenue, plus Lifeline support. Shortly after the Tribal Lifeline Order was 

adopted, Cellular One began constructing new cell towers on Navajo lands, focusing on areas 

that had been largely ignored due to sparse population and difficult demographics, and in part 

due to carriers' unwillingness to navigate a sovereign nation's unique regulatory requirements. 

Between 2000 and the present day, Cellular One has initiated service at 144 new tower 

locations on Tribal lands, it has upgraded its network from 2G to 3G, and it is now in the process 

of upgrading to 4G LTE service. Building, upgrading, and maintaining this network has cost 

several hundred million dollars. 

Two facts are important to this Committee. First, between 2000 and 2015, the 

percentage of households with access to a telephone on Navajo land increased from 38% to 

over 75%. 7 Second, I can attest that the substantial construction and infrastructure 

development undertaken by Cellular One could not possibly have happened without the FCC's 

Tribal Lifeline program. Without question, the Lifeline program has significantly improved the 

lives of hundreds of thousands of Tribal citizens nationwide, many of whom Cellular One serves, 

by providing an incentive for Cellular One to invest in new and upgraded facilities. This is a 

huge success for Lifeline. 

It is also important to note that the incentive set up by the FCC was competitively 

neutral. That is, any carrier willing to take the risk to first build facilities, and then to succeed in 

getting a customer, would receive the support. Today, any carrier is free to enter the market 

and compete with Cellular One, and indeed both Sacred Wind Communications and CommNet 

Wireless have done so. The fact that support is competitively neutral and market-based 

requires each entrant to invest, earn customers, and keep them, lest the Lifeline support be 

ported out to a competitor. If you get the customer, you get the support, and if you lose the 

customer, you lose the support, so there is no concern about "duplication of facilities." 

Order, and Further Notice of Proposed Rulemaking, 15 FCC Red 12,208, 12,235-36 (2000) ("Tribal Lifeline Order") 

(emphasis added, footnotes omitted). 

7 See, e.g., Letter from Russell Begaye, President of the Navajo Nation, to Ajit Pai, Chairman, FCC (filed Feb. 3, 2017), 

showing a chart of household telephone penetration on the Navajo Nation between 2000 and 2015. A copy is 

enclosed as Exhibit B. 
218 

Hon. Ron Johnson 

Hon. Claire McCaskill 

September 29, 2017 

Page 5 

lifeline is Critical to Maintaining and Improving Service on Tribal Lands. 

On the Tribal lands where Cellular One serves, there remains much work to be done. 

For example, 88% of Cellular One's towers on Navajo lands move wireless traffic between 

towers and switches via microwave facilities. That is a very high-quality solution for voice and 

basic Internet access, however, for Cellular One to deliver high-quality, fast 4G LTE broadband, 

towers must be directly connected to fiber. 

Yet, in extreme cases, such as Cellular One's tower in Pueblo Pintado, New Mexico, the 

closest fiber is approximately 31 miles away and industry experts estimate that the cost to 

extend fiber to this one site is approximately $25 per foot, or $4.1 million {31 x 5,280 x $25). 

With the potential coverage area being sparsely populated and having little business or 

agricultural activity, it is impossible to make a business case to extend fiber to this tower, and 

many like it, without universal service support. Without fiber to these remote towers, Navajo 

citizens are denied access to high speed broadband. 

Fiber to towers can accelerate broadband access which is not present in most of the 

Navajo Nation. Enclosed as Exhibit Care pages from the FCC's National Broadband Map, 

breaking out broadband data for all Native Nations, and for the Navajo Nation. As of June 30, 

2014, the most recently available National Broadband Mapping data, only 26.1% of the Navajo 

population has access to the Internet at speeds greater than 3 Mbps. Only 18.6% has access at 

speeds greater than 10 Mbps. 

In sum, there's much to be done. Were the FCC or Congress to cut the Tribal Lifeline 

program, service to over 100,000 individuals in Cellular One's service area (including those not 

participating in Lifeline) would be jeopardized. There is not enough economic activity and 

customer revenues to make up for any significant loss of support. Accordingly, we urge 

measured and carefully calibrated changes to Lifeline to avoid harming at-risk Tribal 

populations throughout the country, and to preserve and extend what has been a foundational 

victory for the FCC over the past seventeen years, through the leadership of both Democratic 

and Republican administrations. 

Recommendations for Improving Lifeline. 

In Cellular One's experience, Lifeline compliance problems appear to be most acute 

among third-party agents with a financial incentive to sign up customers, namely a one-time 

commission. Many, if not most, third-party agents appear poorly trained and ill-equipped to 

follow fairly detailed FCC rules for signing up customers, verifying eligibility, and assuring 
219 

Hon. Ron Johnson 

Hon. Claire McCaskill 

September 29, 2017 

Page 6 

ongoing compliance. Cellular One cannot speak for the entire industry, but our company does 

not use a third-party agent system with commission fees. We rely on employees, who can be 

trained and held accountable. 

As you know, the National Lifeline Accountability Database (NLAD) was set up to ensure 

that a household only receives one Lifeline subscription. At the recent hearing, both of you 

correctly pointed out that sales agents have the ability to "override" the third-party identity 

verification (TPIV) mechanism in NLAD, sometimes resulting in ineligible citizens accessing 

lifeline benefits. While the TPIV override function has a salutary purpose, to prevent eligible 

consumers from being denied benefits due to an inaccurate database, when an agent works on 

commission there is an incentive to misuse this override capability. 

Another issue discussed at the hearing involves verifying customer addresses in NLAD 

through the US Postal Service Address Matching Service (AMS). When a customer address is 

rejected by the AMS, the customer must provide documents confirming that the address is 

deliverable, for example a driver's license, utility bill, paycheck stub, or tax return. Carriers are 

able to enter the name or identification number of the agent who reviewed the subscriber 

information and specify what documentation was reviewed. Our understanding is that some 

carriers have used the address override process to qualify customers who might not otherwise 

be eligible for Lifeline benefits. 

We urge the Committee to continue its oversight in these areas. The FCC and Universal 

Service Administrative Company (USAC) are tightening standards for TPIV and address overrides 

to minimize program waste. Increasing accountability for actions of third-party agents, or 

requiring lifeline sales to be carried out directly by company employees, are two reforms that 

should be considered. 

Reforms to the FCC's "Tribal Flag" Must be Carefully Calibrated. 

As discussed above, Cellular One serves some ofthe most remote Tribal lands in the 

nation, including Apache County, AZ, and McKinley and Cibola Counties in NM, three of the 

FCC's "Critical Need Counties in Broadband and Health- Priority 2017." 8 On the Navajo Nation, 

the Postal Service has yet to establish a postal addressing system. To be clear, except for 

residences located in and around established Navajo towns, Navajo citizens do not receive 

Postal Service mail delivery at their homes. 

8 See Critical Need Counties in Broadband and Health- Priority 2017 at 
220 

Han. Ron Johnson 

Han. Claire McCaskill 

September 29, 2017 

Page 7 

Cellular One serves approximately 7,500 Tribal households in remote areas beset by 

extreme poverty, having no modern household facilities, or means of transportation. Many of 

these families live in high desert areas of Arizona, New Mexico, and Utah in traditional Navajo 

hogans or trailers, located well off established roads. People pick up mail and parcels at a post 

office in the nearest town. In short, they are almost completely "off the grid." According to 

2015 Census data, approximately 20% lack plumbing facilities, while other sources indicate that 

fully 40% of Navajo homes lack running water 9 

Because the Postal Service has never established a postal addressing system for most of 

the Navajo Nation, Tribal residents living in remote areas use a descriptive address. A 

descriptive address may be, for example, "Three hundred yards east of Navajo Service Route 

8063, and three miles north of Highway 12." Cellular One's representatives know the area from 

experience, and can confirm on a map where a customer lives. Because multiple dwellings in 

the same settlement may use the same descriptive address, Cellular One works with customers 

to add details to the descriptive address so that each separate dwelling has a unique 

description. 

In order to address this problem, several years ago Cellular One worked with the FCC to 

develop a "Tribal Flag" that would enable the company to use non-standard addresses in the 

NLAD system. To be clear, the Tribal Flag is a form of override, made necessary when a person 

lives at an address not recognized by the Postal Service. Use of the Tribal Flag in areas where 

the Postal Service has no addressing system has been integral to ensuring that some of the 

most difficult-to-serve households, those most at risk in the entire country, are able to receive a 

Lifeline benefit. 

Congress should monitor the FCC's efforts to stop carriers from abusing the Tribal Flag 

process to qualify ineligible applicants for Tribal Lifeline benefits. At the same time, an 

overbroad regulatory response that eliminates the Tribal Flag will put some of the most remote 

and lowest-income Tribal citizens at risk of harm. 

Cellular One asks this Committee, as part of its oversight responsibility, to ensure that 

the Tribal Flag process is protected for carriers serving the most at-risk Tribal citizens, living in 

areas that do not have a Postal Service addressing system in place. 

'A copy of the 2015 Census data is enclosed as Exhibit D. See also, The Navajo Water Project, which estimates 

that 40% of Navajo Americans live without running water. h.!!P5_:j)~i_~~--nX?Y_<liQ_~}_1.c:rJ?I9i~f_t:_Q.!J:':! (accessed Sept. 

28, 2017). 
221 

Hon. Ron Johnson 

Hon. Claire McCaskill 

September 29, 2017 

Page 8 

Committee and FCC Oversight Should Focus on Lifeline Resellers. 

Cellular One believes that facilities-based carriers, those with FCC licenses, 

telecommunications plant, and employees, have been and will continue to be responsible 

stewards of Lifeline funds. A facilities-based carrier has a lot at risk, and cannot close up shop 

in the face of enforcement activity lest it forfeit its FCC authorization to provide service and put 

at risk its entire business enterprise. In Cellular One's case, the company is heavily invested in 

the local community. Thirty-one percent of Cellular One's nearly 200 employees are Native 

Americans. We support our Tribal communities by paying Tribal taxes, donating to 

scholarships, school programs and natural disaster relief. 

Wireless resellers, on the other hand, have no facilities, no switches, towers, wires, or 

FCC licenses. They buy minutes and data from major carriers at a very low price and resell 

them to consumers, along with a handset. Most do not directly employ sales personnel to sell 

service to the public, but instead use third-party agents, most of whom are not connected 

directly to the telecommunications industry, such as check cashing companies, pawn shops, and 

money transfer outlets. 

While some resellers have put enormous efforts into FCC compliance, and have acted 

responsibly, there are several high-profile cases of resellers taking advantage of the program, as 

discussed in your recent hearing. 

Cellular One urges the Committee to focus its investigative and legislative efforts on 

resellers, especially those with a history of misusing public funds. 

Lifeline Resellers Should Not be Eligible for Tribal Lifeline. 

As noted above, the FCC's Tribal Lifeline program, which in 2000 added $25.00 of 

Lifeline support for Tribal residents, has been an enormous success. In Cellular One's case, the 

funds have been used to build over one hund.red cell towers and to upgrade facilities on Tribal 

lands that had not previously been served by any telecommunications carrier. 

Tribal Lifeline should only be made available to facilities-based carriers who are capable 

of constructing facilities to serve Tribal lands. That was the FCC's intent back in 2000, some five 

years before resellers were permitted to participate in the Lifeline program. Resellers have no 

facilities to invest in. As a result, the extra $25.00 that a reseller could capture from Tribal 

Lifeline goes to the reseller, oftentimes located in another state, or another country, frustrating 

the FCC's intent that funds be used for investment on Tribal lands. 
222 

Hon. Ron Johnson 

Han. Claire McCaskill 

September 29, 2017 

Page 9 

Accordingly, Cellular One ask5 the Committee to communicate to the FCC that Tribal 

Lifeline benefits should only be available to facilities-based carriers who have the ability to use 

such funds to invest in building, maintaining, and upgrading telecommunications infrastructure 

on Tribal lands. 

We trust that you will find this information to be useful. Should you have any questions, 

please call me directly. 

cc: Committee Members 

Srrith Bagley, Inc., d/b/a Cellular One 

Ju~.tin E. Hinkle, President 

jhi n kle @cellula roneaz.com 

David La Furia, Esq. (dlafuria@fcclaw.com) 
223 

Demographic Analysis of the 

Navajo Nation 

Exhibit A 

Using 2010 Census and 2010 American Community Survey Estimates 

Completed for: 

Planning and Development 

P.O. Box 17779 

Window Rock, Arizona 85269 

Completed by: 

Arizona Rural Policy Institute 

Center for Business Outreach 

W.A. Franke College of Business 

Northern Arizona University 
224 

Introduction 

Navajo Nation 

Demographic Analysis 

This analysis of the Navajo Nation was undertaken by the Arizona Rural Policy Institute (ARPI) in 

the W.A. Franke College of Business at Northern Arizona University for the planning 

department of the Navajo Nation. The ARPI has produced the Demographic Profile for Navajo 

Nation with the latest information available from the 2010 Census and the 2010 American 

Community Survey (5-year estimates). This document is provided to Arizona tribes as a product 

of the EDA Technical Assistance Grant provided to the ARPI at Northern Arizona University. 

Although the American Community Survey (ACS) produces population, demographic and 

housing unit estimates, it is the Census Bureau's Population Estimates Program that produces 

and disseminates the official estimates of the population for the nation, states, counties, cities 

and towns and estimates of housing units for states and counties. Therefore, this report 

incorporates two major data sources. First, the official 2010 Census, primarily from the SF1 data 

report to produce data on the population, age, race and ethnicity relative to Navajo Nation. The 

second data source is the American Community Survey, 5-year estimate data for the period 

2006 to 2010 and is annotated in the document as ACS 2010 (5-year estimates). The 2010 ACS 

5-year estimates are based on data collected between January 2006 and December 2010. The 

data were used to analyze household income, poverty rates, employment, language use and 

household characteristics for Navajo Nation. Only the 5-year estimates are used as the data was 

provided for small geographic areas, representing the average characteristics over the 5-year 

period. 

The analysis of demographics for the Navajo Nation first examines the 2010 Census and then 

the American Community Survey where data is available. Demographic characteristics for the 

Navajo Nation are outlined in three state partitions for Arizona, New Mexico and Utah. 

Comparisons between the state partitions serve to provide further levels of comparison when 

examining demographic characteristics of the tribe. 

Appendix A contains official Census 2010 data and Appendix B contains American Community 

Survey data (5-Year Estimates) and Appendix C contains the margin of error estimates to be 

used to calculate the estimates for the American Community Survey data. 

5 
225 

Poverty 

Poverty rates on the Navajo Nation Reservation (38%) are more than twice as high as poverty 

rates in the State of Arizona (15%). Almost half (44%) of all children under 18 years of age are 

considered to be living in poverty, while one-third (34%) of tribal members between 18 and 64 

also live in poverty. Almost one-third (29%) of persons living in families on the Navajo Nation 

live in poverty, twice the rate of families living in poverty in the State of Arizona (13%), for 

example. More than one-third of all persons over age 65 (39%) also live in poverty, five times 

higher that the State of Arizona (8%) for this age group. Poverty rates are consistent for Navajo 

Nation tribal members residing in all three states. See Table 15 and Figure 16. 

Table 15 Poverty Status over the Last 12 Months 

Total 

New Navajo 

Arizona % Mexico % Utah % Nation 

Persons for whom poverty 

status is determined 98,106 64,143 6,212 168,461 

Persons Below Poverty 37,063 38% 24,039 37% 2,442 39% 63,544 

Persons under 18 for whom 

poverty status is determined 33,700 20,752 2,226 56,678 

Persons under 18 in Poverty 14,589 43% 9,281 45% 924 42% 24,794 

Persons aged 18 to 64 for whom 

poverty status is determined 54,970 37,731 3,558 96,259 

Persons aged 18 to 64 in I 

Poverty 18,888 34% 12,475 33% 1,304 37% 32,667 

Persons over 65 for whom 

poverty status is determined 9,436 5,660 428 15,524 

Persons over 65 in Poverty 3,586 38% 2,283 40% 214 50% 6,083 

Persons in Families for whom 

poverty status is determined 87,592 57,241 5,684 150,517 

Persons in Families in Poverty 30,639 35% 19,971 35% 2,181 38% 52,791 

Unrelated Persons in Poverty 6,424 7% 4,068 6% 261 4% 10,753 

Source: ACS 2010, 5 Year Est1mates 

34 

38% 

44% 

34% 

39% 

35% 

6% 
226 

THE NAVAJO NATION 

AJII P:u. Chairman 

FederJI Communit.:ation.s Commission 

H~ 12• Strcct. SW 

Eighth floor 

Washin~mn. DC lOSS~ 

Fcb<uar) J. 2017 

Exhibit B 

RUSSELL BEGAYE I'll! -.1111 'I 

JONATHAN NEZ \ HI I'll! 'till ' I 

I ''rite to c\prcs~ m) Gnll'"e concerns about 1 r«ffll decision by the Uni\crsal S<f'\'k~ Adminisuative Com pan> 

r·L~AC .. J that Y.ould (orcc O\·er a thousand low-income Navajo Nation rtsidtnts 10 lose essential phone Stni« 

supported h) the Lifeline program. 

Smuh lla¥1<). Inc. d'bla Cellular One i$ on< of • number of carriers that provide discounted tollphonc krvic< on 

1\3\D)O Nation Cellular One has pro\ided "'"i<t throush the FCC"s Lifeline proaram for over 16 >••rs Tht 

compan) has b«n focu~ on ~ing our communities. and has built "~rctcs~ K" ICc lO somt of our most rtmoct 

aru~ \\ htn out citizens ofttn bclo. accns 10 basic kf' ices. 

!-SAC h..s tnstructtd Ctllubt Ont to obtain doc:umtnts from approximatrl) 3.000 CUStomm 10 ,"tfil) lh<ir rdtntll) 

for L1fclmt purposes "nh a lime limit of 45 da) s. Most of these cu.stomt'tS. li' lOJ in some of the most unr~achable 

arn ... \ in the countr,. ha"c no mail SCf\ ice to their homes. Some have no or limiu:d tltctrkil)•. so k~p their Lifeline 

ph<:lncs turned on· cxc:.cpt for t-m<ryency use. Many are <lderly and disobled. Espcc:ialt)' in "''inter. it is 11 S<rious 

challenge for people In these orcas to travel Ions distonccs. In ~tnt da)S. Vice President Ncland I declared a state 

of emtrgcnc) throushout Navajo Nalion due 10 stvert winter weathtr. Ytl USAC demands lhat all of lhesr poop!< 

tra\tl lh«t dlstan<es b) Febru31) t&. 2017. in the middle ofthelons Na,·ajo winttr or lose their phones. 

l undt<Jland thai Cellular One has bttn doin& int<nsi\t outr<a<h in""""""' to USAC"s instruction. but more than a 

thou~ cusromm rtmain. ~ cusromm 1\Hd time to ha'~ :a ch.atK't to pro' •de the:K pape-rs. 

Our NO\OJO N•toon T<...,ommunocations Rf¥ulat0t) Commission (NNTRCI has tr1<d to Lttp the FCC abrrast of the 

umqut' challcna,c~ fa«d b) the NavaJO Nauon in bringing C\tn basic telephone sco ict to its people. Yet the) tell 

me that on a recent rcpon r<kased by the FCC ju>l last month. the data show thai sine< lhe FCC h3S adop1ed 

"reform~ .. '" tht- l.irctint' service. panic:ipalion by JM'Ople on tribal lands has dropped 6S pertent (from a hiah of 

8SS ~l0 par11ci1>ants to • curr<nt 1.-el or lQ9.96S). while participatlocr b) subs<ribers in non-tribal areas has be<n 

reduced b} i<S> than 30 p<r(Otnl. h apptarS that th<S< rcfonns have had a htghl) disproponional and draconion efftct 

on Nati\ t Amct1Cans. 

1M lifeline PrQ~ram ts csstnlmlto t~ NauJO N:\lion. both because H pnntdn a subsid) to man) , a\ajos "M 

mh<n< osc could noc afford phone "'"'K:t. and b) pro,iding a Wtbk subsrnbn ba~ for <arri<rs -.ho arclhtn "Ilion& 

a,, .:'p•nd tnfra.struc.-~urc to reach C:\Cn mon >ubscnbcrs. The e:han bc'ICh\, pU'plltcd b)' m) NNTRC. and PK'iou"l} 

submnrrd 10 the FCC. sho"s \\1\at has happcnf'd sinc:c the bcginnin .. of the L1fc1inc program. 

t'lh l Ill I It-t. ll()\ 7H v • \\ t:>:UO\\ IIOt-1- A/. !<b;H l'll. i9l~l g?I·?•J<J<J I l'A (?! l S1t.tvli-
227 

Comparison of U.S. Telephone Penetration and Navajo Nation 

Telephone Penetration 

(!OO'l\1-

As you can see. when the Lifeline Program began in 1985. barely 20 percent of Navajos had telephones. That 

number didn't really begin to in~rease until the FCC adopted the "Tier 4" Enhanced Lifeline subsidy in 2000 (and 

even that "as slightl> stalled because the FCC didn't consider the Ne" Mexico portion of the Navajo Nation (the 

"Eastern Agencl ")to be Tribal lands until2005). Today appwximatel} 75 percent of Navajos have telephones. but 

thm is on I} compw•ble to nationwide telephone penetration during the Eisenhower Administration in the 1950s. 

Thousands of Na,aj<lS have alread} lost their Lifeline phones. Thousands more losing their phones because USAC 

will cut them ot1' in the dead of winter may jeopardize the viability of the telephone system on the Navajo Nation. I 

implore you to step in and direct USAC' to work with the carriers and our NNTRC to resolve this issue in a way that 

doesn't jeopardize the safety of my peL,plc. 

R"sp<ctful!y. 

l c: Cmmnissioncr Mignon Cl_: bum 

< 'onunissloner Michu.et O'Rt!ilb 

Offi~~ of Native A !Tait-s and Policy 

POST OFFICE BOX 7440 I WINDOW ROCK, A.Z 86515/ PH: (928) 871-7000 I FAX: (92S) 8714025 
228 

;.ql; .S.J::ensus Bureau 

.Finder \ I 

' DP04 SELECTED HOUSING CHARACTERISTICS 

Exhihit C 

2015 American Community Survey 1-Year Estimates 

coverage rates, allocation rates, and response rates) can be fourd on the Amencan Communiiy 

Subject 

HOUSfNG 'occUPANCY 

0,0 IX) (X) 

(X) (X) 

2.0'% 

•t·19$ 

14,974 

40 

68,019 (Xl 

215 

9.604 

13,823 

7,662 

2.261 +f-392 

SUitt 1940 to 1949 7413 

589' 

1 of 5 10!23i2016 
229 

ROOMS 

T ota! housing units 

1 room 

2 rooms 

3 rooms 

4 rooms 

5 rooms 

6rooms 

7fO"Jms 

8 rooms 

9 rooms or more 

Median rooms 

BEi:moOMS 

$-or more- bedrooms 

Sllbje'Ct 

3 or more vehldes available 

Coal or coke 

wOOct 

S"o!ar energy 

Other fuel 

No fuel used 

2 of 5 10/23/2016 
230 

Subject NavaJo Nation Reservation and Off~Reserva:tlon Trust Land, AZ-NM¥• 

"eStimate UT. Margin 'Pe.J:cent Mal-gin' Of' of Error Percent 

SELEctED cHARACTERISTICS Erro~ 

Occupied housing units +/-1,777 46,212 (X) 

Lacking complete plumbing facilities 

Lackmg complete kitchen fac1lit1es 

No telephone service available 7,146 +f-673 15.5% 

46,212 +1-1,777 (X) 

37,773 

1.51 or more +!-503 

VALUE 

Owner-occupied umts 35,751 35,751 (X) 

18,421 51.5% +/-2.1 

9,027 

3,731 +1-466 

591 

499 

Medla.n {dollars) +/-"2,743 

MORTGAGE. STATUS 

Owner-occupied units 35,751 +/-1.514 35,751 (X) 

4,089 

875 

93 

56 

0 

0 

684 

Housing units without a mortgage 31,662 

Less than $250 22.582 

5.,817 

2,437 

$1,000 or more 59 +/-51 0.2% 

Median (dollars) 179 +/-5 (X) (X) 

3,915 +/-504 3,915 (X) 

2,095 +/-416 53.5% 

20.0 to 24.9 percent 479 

25.0 to 29.9 percent 217 

30.0 to 34.9 percent 219 +1~2.5 

35.0 percent or more 905 +/-264 +/-6.1 

3 of 5 10/23/2016 
231 

Subject Navajo Nation ReseNaUon and Off-ReseNatlon Trust Land, AZ~·NM·· 

UT -percent Maf9in--ot Estimate Margin of Error P~rc-ent" ,!:rror:' 

Not computed 174 +/~100 (X) (X) 

29,142 +/-1.330 29,142 (X} 

~6,8~ +/-989 +1~2.3 

10.0 to 14.9 percent 4,382 +/-566 +/-1.8 

15.0 to 19.9 percent 2,521 +f-447 8.7% +/-1.4 

20.0 to 24.9 percent 1,267 +f-219 

25.0 to 29.9 percent 892 ~/-3_1?.' 30.0 to 34.9 percent 678 +/-220 

35.0 percent or more 2,552 +/-447 

Not computed 2,520 +/-382 (X) (X) 

GROSS RENT 

Occupied units paying rent 8.607 +/-739 8,607 (X) 

Less than $500 4,392 +/-609 +/-5.2 

$500 to $999 3,711 +/-519 +/-5.3 

383 +/-166 +/-1.9 

121 +1-174 1.4% +f-2.0 

s~.ooo to $2.499 0 +/-189 +1-1.7 

+/-189 +/-1.7 

+/-189 

+/-40 

~?. r:nt paid 1,854 +/-325 (X) _(X) 

GROSS RENT AS A PERCENT AGE OF HOUSEHOLD 

INCOME; (9RAPI} 

Occupied units paying rent (excluding units where 8,120 +1-727 8,120 (X) 

GRAPI cannot be computed) 

Less than 15.0 percent 3,538 +/-550 

15.0 to 19.9 percent 1.~~3 +!:_341 ~ 

20.0 to 24.9 PerCBrlt ns +1-226 

25.0 to 29.9 percent 471 +/~209 

30.0 to 34.9 percent 388 +/-184 

35.0 percent or more 1,805 +/-348 

Not computed 2,341 +/-388 (X) (X) 

Data are based on a sample and are subject to samp!lng variability, The degree of uncertainty for an estimate arising from sampling Variability is 

represented through the use of a margin of error. The value shown here is the 90 percent margin of error. The margin of error can be interpreted 

roughly as providing a 90 percent probability that the interval defir.ed by the ostimate minus the margin of error and the estimate plus the morgin of 

error (the lower and upper confidence bounds) contains the true value. In addition to sampling variability, the ACS estimates are subject to 

nonsamp!ing error (for a discussion of nonsampling variability, see Accuracy of the Data). The effect of nonsampling error is not represented in these 

tables 

Households not paying cash rent are excluded from the calculation of median gross rent. 

While the 2015 American Community Survey (ACS) data generally reflect the February 2013 Office of Management and Budget(OMB) definitions of 

metropolitan and micropolitan statistical areas; in certam instances the names, codes, and boundanes of the pn'ncipal dties shown in ACS tables may 

d11'fer from the OMB definitions due to differences m the effective dates of the geographic entitles 

Estimates of urban and rural population, housing units. and characteristics reflect boundaries of urban areas defined based on Census 2010 data. As 

a result, data for urban and rural areas from the ACS do not necessarily reflect the results of ongoing urbanization 

Source: U.S. Census Bureau, 2015 American Community Survey 1-Year Estimates 

Explanation of Symbols: 

4 of 5 10/23/2016 
232 

of 3n 

following d rned1aro estn-nate menr~s tl>e medmn fnlls 1r1 the lowest :ntotv<:ll of an open-endod distribution 

4 o'\n '+' tlllltw<~ir,g ~l mcd1cm esnmate rncil!'S the rnechw f<Jiis m tne of an t11stnbut1on 

IP the ol error column md,cHtes tf,ot the rned1an 

;)f error co:umr 

::1ra marg-r' ot error colunms .n\J,cJtes that data fc1 ths geogr ,lpf'lt 
233 

Analyze » Summarize 

Native Nations )) ALL Native Nations 

see more mformat1on 

Pnntth1s page• Export Data 

Wirelino 

Download UploAd 

Speed 

Dcwnload ::.3Mbps 

Dcwnload"'6Mbps 

Download> 

10Mbps 

Downioad> 

25M bps 

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Download> 

10Mbps 

2\9% 

Download> 14 3'/o 

2SMbps 

11 

Dow111oad> 11 

100M bps 

Dowr>load> 1Gbps OO'Y, 

ExhibitD 

Homepage • Analyze • Map • Developer • .About • Na.Uve Nat1ons 

954'\1,, 

942% 

829% 

853% 

832% 

648% 

79•!(, 

So(I(Ca 

993% 

9B5% 

982'% 

140'1'> 

66'/L 

43% 

01% 

Share 

Share thts page Wlth my cnmmumty 

~Pnnt 

• I 

Demosraehics 

Por.ul~tlon 

HO<l$H1S}Vn<!S 

20-;>4 21.62% 

26:4BS 

1756% 

51 

A,~'""~-"'~ 

¢> Mapbo~, ® OP"nStreetMao 

111,169 

974.892 

44~.216 

NatloriwirJe 

573% 

2076-'X, 

i95JC,(~ 

3266% 

21.28% 

Nationwide 

6932% 

1119% 

1491% 

40S% 

048% 

Nationwide 

7993% 

2484% 

AP1Cail 
234 

Number of Internet Providers 

Wiro!ine VV'ireless 

28% ;G 

03% 

8+ 00% 

Broadband Speed Test (Mbps} 

OOWI'\Ioad Upload 

C<JrT'ula\lve 

LOC!ltion 

Home 1.034 

Scllools. L1bcat!es, 145 

CommunftyCenters 

Medll.Jmtlatge 103 

BusiMS$ 

Smal!Business 132 

Mob He 4.443 

Other " Source API Call 

Community Anchor Institutions 

Download Up!Qad 

Sub:;cnbetoBroactband 

Total 

Number of Not Spoods 

Reported 

Schools K tl1rough 12 670 445 "' 406 

University. College, 68 31 " 29 

otherpo$1-secondat}' 

Ubror~ 168 106 61 97 

Medicai/HeaJthcare 241 ao 60 

Public Safety 575 84 80 411 58 

Communtty Cenle!'S. 350 238 109 192 

Governmen!support 

CommunrtyCenlers- 98 41 57 36 

Non-Government 

suppoti 

SollfO<l APt Call 

Download Community Anchor !nst1tutions data on the downkJad pafle 

Sour~'(! ;\PIC-aft Map )} 

Map my community 

Rank,, 

Nat•onw1de Rank my community 

Souil::e 

results_ 6 51 secoods 

30% 

s.e% Provider 

32-4% View stalisllcs about providers 

369% 

13,7% Broadband Classroom » 

36% Learn more about broadband 

04% Enqaqe 

'" 

Build a better map for my community 

Slog" 

Your Feedback is lmpDf'Uint! 

posted by Anne Nevi\la-on Februal)' 16, 20J1 

Updates» 

Sign up and receive updates abOuUhe National 

BroadMnd Map 
235 

Share 
236 

Wire line 

Popu!atcn 

00% 

oo·;o 

00''' 

00% 

8> 00% 

Broadband SyJeed Test {Mbps) 

Ouwnfoatf Upload 

5 ,, 

Smai!Busmess 

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Other 

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Natbnw!Cle 

30% 

88% 

324% 

36.9% 

137% 

3 G'l~ 

04°1, 

Source API Call 

89$ 

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Rank 

Rallk my wmmunity 

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Viewstalisticsaboulproviders 

Broadband Classroom » Leam more about broadband 

Engaqe 

Build a barter map for my comr'l11.ff11fy 

Blog '' Your Feedback is Important! 

posted by Anne Neville on february 16,2011 

Updates» 

S1gn wp and receive lipdates obo~t the Nai!Onal 

BroatlbandMap 

S\ibScnb'-'!OBrc:xKlb<Hld 

Institution "io: Sp!.'!€ds 

P!Ovl\led Repo11W 

SchoolsKthrough12 89 38 51 33 

18 13 

Ubt'i,!.nes 10 

Medlr.a\IHca!thcare 42 33 

PobheSafety 37 36 

76 50 25 30 

Download Community Anchor lnst1tutmns data on the download page 

results 65Sseconds 

Homepage • Analyz:o • Map • Developer • About • Native Nations 

Rank • Summanze • Provider· Engage· Slog • Download • FAQ 
237 

September 12, 2017 

The Honorable Ron Johnson, Chairman 

NATIONAL GRANGE 

OF THE ORDER OF PATRONS OF HUSBANDRY 

1616 H St. NW, Washington, DC 200061888·4-GRANGE 

www.nationalgrange.org I information@nationalgrange.org 

Senate Committee on Homeland Security and Governmental Affairs 

328 Hart Senate Office Building 

Washington, DC 20510 

The Honorable Claire McCaskill, Ranking Minority Member 

Senate Committee on Homeland Security and Governmental Affairs 

503 Hart Senate Office Building 

Washington, DC 20510 

Dear Chairman Johnson and Senator McCaskill: 

The National Grange, the nation's oldest rural advocacy organization, appreciates the work reflected in 

the Government Accountability Office (GAO) report on the Federal Communications Commission's 

(FCC) Lifeline program. While the report details problems and vulnerabilities of the program, the Grange 

urges continued support for the Universal Service Fund's Lifeline program and the many rural Americans 

it currently serves. 

Through the Lifeline program, substantial numbers of low-income Americans - including millions in 

rural areas of our nation - are able to communicate with prospective and current employers, connect with 

emergency, health, social, and educational services, and keep in touch with family and friends. There are 

currently as many as 15 million low-income households who, without Lifeline benefits, would have to 

choose between feeding their children and going without a dial tone that could save their lives or put them 

on a better economic path through employment. 

A survey of Lifeline users indicated that nearly 70% use their Lifeline service to pursue employment and 

remain employed. In today's challenging economy, giving these individuals the resources they need to 

join or remain in the workforce is an absolute must. Rural America in particular needs Lifeline to remain 

connected and as a backstop in the many areas in which landline-based high-speed broadband is not 

available. 

We recognize that, as is true of many government programs, there have been issues with Lifeline. That is 

why we strongly support the actions of the Federal Communications Commission (FCC) to reform and 

modernize the Lifeline program to eliminate waste, fraud and abuse and to improve effectiveness and to 

reflect the changing needs of the communities served by Lifeline. We will continue to work with 

companies, government and Congress to find solutions to these challenges and to make the program more 

efficient and to reduce fraud and abuse. 
238 

The National Grange remains resolute in our backing of the Lifeline program and would encourage 

members of Congress and the FCC to continue to support Lifeline's ability to provide both wire line and 

wireless phone services. Rural America needs Lifeline and needs to have this important program fixed 

rather than sidelined. 

Thank you, 

Betsy Huber, President 

CC: Committee Staff 

Elevating rural interests since 1867 
239 

"\ \ \ )'( 

STATEMENT OF 

RUSSELL BEGAYE 

PRESIDENT OF THE NAVAJO NATION 

BEFORE THE 

COMMITTEE ON HOMELAND SECRUITY AND GOVERMENTAL AFFAIRS 

UNITED STATES SENATE 

September 14, 2017 

"FCC's Lifeline Program: A Case Study of Government Waste and Mismanagement" 

Chainnan Johnson and Members of the Committee, thank you for the opportunity to provide 

this Statement concerning your September 14,2017 hearing entitled: "FCC's Lifeline Program: A Case 

Study of Government Waste and Mismanagement." I would like to make three points in response to 

the testimony presented: 

1) The Navajo Nation provides tbe best case study of how the Lifeline Program has worked 

effectively and efficiently to increase telephone penetration; 

2) The Lifeline refonns initiated in 2012 have disproportionately banned Native Americans, the 

most vulnerable population in the United States; 

3) The National Verifier will exacerbate this disproportionate impact unless Indian tribes 

participate in the verification process. 

At the hearing on September 6, 2017, witnesses testified that the Lifeline Program is ineffective, 

inefficient, and questioned whether tbe entire program should be eliminated. Furthennore, it was 

stated that there is no evidence that the Lifeline program actually increases telephone penetration and 

use and that most Lifeline subscribers would continue to pay for service even if their subsidies were 

removed. Witnesses including tbe Government Accountability Office (GAO), stated a new National 

Verifier system will improve the program. As I will discuss, all of those statements are incorrect and 

assumptions, when looking from the Navajo perspective. 

1) The Navajo Nation provides the best case study of how the Lifeline Program has worked 

effectively and efficiently to increase telephone penetration 

\ ~. \. 
240 

As the largest land based Indian tribe, the Navajo Nation consists of 17 million acres (26,111 

square miles) in portions of three states (Arizona, New Mexico, and Utah). The Navajo Nation is 

comparable in size to West Virginia. If the Navajo Nation were a state, the Navajo Nation would rank 

as the 4th smallest in population density; with only Montana (6.5 persons per square mile), Wyoming 

(5.4) and Alaska (1.2) being less densely populated. 

On Navajo, we struggle to combat other demographics that are barriers to Federal and state 

communications policies that are not focused on serving Native Americans. The Navajo Nation has a 

42 percent unemployment rate, and median family income that is half of the state of Arizona, where 

the majority of the Navajo Nation is located. There are 38 percent of Navajo people that live below the 

federal poverty line. Just 20 years ago, telephone penetration on the Navajo Nation stood at 25% 

meaning approximately one in four Navajos had a phone. It was only after the FCC established 

Enhanced Tribal Lifeline ("Tier 4") Support that telephones began appearing on the Navajo Nation 

with any regularity. The chart (Figure I) below shows the slow but steady progress that Lifeline made. 

Figure I: 

Telephone Penetration in U.S. and Navajo Nation by Decade 
241 

Comparison of U.S. Telephone Penetration and Navajo Nation 

Telephone Penetration 

100.00% 

~)000% 

fl(l[)f\% 

6000% 

_1QOO% 

)000% 

1\)00% 

. ~---~-~-1 2005- Enhanced Tribal 

StJpp·ott~xtended to 

Eastern Agency , ___ ~~-""'-~~---~ 

1980 t9fl'> 1990 t'l9S Noo }005 nno 201s 

It is important to point out that the US remains relatively flat from 1965 to 2015 when 

compared to Navajo, where there are large increases in telephone penetration. Also, it is critical to 

note that initially the FCC did not extend Tier 4 support to the Navajo Eastern Agency (New Mexico) 

because of the land status inconsistencies in that particular region. Telephone penetration continued to 

languish in the Eastern Agency until 2005, when the FCC issued an order extending Tier 4 Support to 

the Eastern Agency .1 There can be no better "controlled" study to demonstrate the importance of the 

Lifeline Program to bring telephone service to those who had never had a telephone. It was only after 

the FCC extended Tier 4 Support that carriers began to build out large portions of the Navajo Nation 

that were without service. Without the stable subscriber base that Lifeline provides, no carriers could 

close the business case to build on Navajo Nation. Remove those subsidies, and carriers can't afford to 

continue offering service to Navajo people. 

t Smith Bagley. Inc .. FCC 05-77 in WC Docket No. 03-109, released March 20, 2005. 

i'<l\1 Ollll'll\0\ 71'10 111'\ll<l\1 ROCK,\/ .%m PIH92kJk717000 I l\:<'l2klH71+025 
242 

2) The Lifeline reforms initiated in 2012 have disproportionately harmed Native Americans, 

the most vulnerable population in the United States. 

Since the 2012 Lifeline Reform Order, Lifeline subscribership has plummeted in Indian 

Country. According to the 2016 Universal Service Monitoring Report/ since the height of enrollment 

in the Lifeline Program in May, 2012, the overall rolls have been reduced by more than 35% 

nationwide. However, Lifeline participation in Indian Country has been reduced by over 65%, as 

depicted in the table at the end of this document (Figure III). Moreover, whereas non-Tribal lifeline 

subscribers rebounded slightly after January, 2015 (and increased by 1.3 million subscribers), Lifeline 

subscription in Indian Country continues in a tailspin, as depicted in the graphs below (Figure 11).3 

20,000,000 

18,000,000 

16,000,000 

14,000,000 

12,000,000 

10,000,000 

8,000,000 

6,000,000 

4,000,000 

2,000,000 

0 

../"'.... 

\ 

\,.../ 

!· 

~ ~ ~ ~ ::1 ::1 0 0 0 0 0 0 N N N N N N 

~ ,:; '§. ~ :i ~ '§. .<> 

" .. 0 " .. ~ " c'5 rn 

Figure II: 

Non-Tribal Lifeline Subs 

- .....__,__ .....-

--Non-Tribal Lifeline Subs 

::1 ::1 ~ ~ ~ ~ !:'1 !:'1 !:'1 !:'1 ~ ~ 0 0 ~ ~ ~ 0 0 0 0 0 0 0 N N N N N N N N N 

,:; :i ~ ,:; <u > ,:; ~-

~ ii_ ~ ii_ ~ ~ ~ '§. .<> .<> rn .<> 0 " .. 0 " .. 0 .. t ~ 2 ~ t 0 0 ~ 

2 This report is available for download at: http:llwww.fcc.gov/encyclopedialfederal-state-joint-boardmonitoring-reports. 

'The attached charts and graphs are derived from the 2016 Universal Service Monitoring Report, p. 28, Table 

2.6. 

POST ( liTICT BOX 7+40 \\ 1"-:I>U\\. R< JCK . . V HMI5 PI k (')28) 37!-7000 . L\X, <928l 87! +025 
243 

Tribal Lifeline Subs 

1,000,000 ,-~---

900,000 l--nA 

I \ I '"""'-._ 

""'\.... 

800,000 

700,000 

600,000 

500,000 

\ --Tribal Lifeline Subs 400,000 

300,000 

200,000 

100,000 

0 N N N N "' "' "' ::1 ;; "' ;; ;; ,.; ,.; ,.; ,.; ,.; ,.; ,.; ,.; ,.; "' ~ "' ,.; ,.; "' ~ ~ 0 ~ ~ 0 ~ ~ ~ ~ ~ ~ ~ ~ ~ 0 0 ~ ~ ~ "' "' "' "' ~ "§. > :u' ~ -- > ;;' ~ > ~ !!' 'E .?: ~-

~ -- ~ i5_ ~ ~ Ql i5_ -" -" "- -" "' "- ~ -" " "' t "' t "' t " "' 0 " ] "' 0 ] 0 ] 0 ] 2 ] 

If Oklahoma eligible telecommunications carriers (ETCs) are set aside, the 13 ETCs fined for 

violating the Lifeline rules by signing up ineligible and fictitious subscribers are not operating in 

Indian Country. Native Americans are not the source of the "waste, fraud and abuse," yet are 

disproportionally being dropped from the Lifeline Program. 

Through process of elimination, it is most likely because of the recertification process. I speak 

from experience when I say that this federally recommended and endorsed "redtape" philosophy has a 

negative direct impact on a normal day's freedom for Navajo people. So much so that Chairman Pai 

had to recently intervene with USAC on behalf of one carrier serving the Navajo Nation that simply 

couldn't complete the certification process for such a large population in the time prescribed under 

l\)"1 ( !H.! BCl\ 7-i !0 \\l'\.lhn\· R<J( \I 
244 

USAC's rules. If Congress wants a truly fair Lifeline Program, it should order the FCC to study this 

disparity and enact changes that do not have the effect of discriminating against a single community. 

According to U.S. census statistics, Native Americans as a group have the highest percentage 

living below the poverty line (28 percent), almost twice the national average of 14.3 percent.4 Nine 

states have poverty rates above 30 percent for Native Americans (Arizona, Maine, Minnesota, 

Montana, Nebraska, New Mexico, North Dakota, South Dakota, and Utah), and it is no surprise that 

this includes nine of the ten largest reservations.5 People qualifY for Lifeline support if they are at or 

below 135% of the U.S. Poverty line. This is a clear indication that Native Americans living on 

reservations are even more likely to qualify for Lifeline support. 6 

While some of the disparity in Lifeline reduction rates might be because of non-financial 

changes to the Lifeline rules (including enforcing the "one phone per house" rule), that can't explain 

the reduction in Tribal Lifeline subscribers being twice that of non-Tribal Lifeline subscribers. The 

answer must lie within the recertification process. 

The current recertification process, conducted by carriers, is onerous. Many Navajo Lifeline 

participants live I 00 or more miles from the nearest store where they can interact with telephone 

carriers. Many live in areas with little cellular service, so calls from carriers trying to recertify them 

can't reach them and often times texts from carriers are dismissed as spam or marketing material. 

Thirty percent of Navajos don't even have electricity in their homes to charge their phones. 

Subscribers who don't usc their phones for 60 days are automatically de-enrolled. Many ETCs have 

native speakers who can assist Tribal Lifeline subscribers through the process. Nonetheless, for a 

variety of reasons, including language, culture, and a distrust of providing anyone private information 

4 See hllps:1/www.census.gov/prod120 13pubs/acsbrll-l 7.pdf (data through 2011 ). 

s U.S. Census Bureau (2000). U.S. Census Fact Finder. Washington, D.C.: U.S. Census Bureau. 

6 !d., p. 2. 

hi f;[l)(.i 1

1

,()\ /1 i() '.\J~iJr'r\\ i\l)( 
245 

about themselves, Native Americans are not getting recertified at alarming rates, even after many tribal 

communities have undertaken extensive education efforts for their tribal governments. 

3) The National Verifier will exacerbate this disproportionate impact unless Tribes 

participate in the verification process. 

At the September 6, 2017 hearing, several of those testifying indicated that the new National 

Verifier could greatly improve the accountability of carriers and the Lifeline Program. If the goal of 

the National Verifier is to find ways to reduce the rolls of Lifeline, then it will no doubt be a success. If 

the goal of the National Verifier is to establish a system that correctly determines eligibility, its 

implementation dooms it to utter failure. For example, according to the USAC website,? New Mexico 

is one of the six "pilot" states that will be rolled out early next year, yet the databases that will be 

available from New Mexico to the National Verifier will only be SNAP and Medicaid. There is no 

indication that the National Verifier will have access to any Navajo Nation benefit program databases 

that will include for example a food distribution program that is administered by the Navajo Nation. 

For Navajos living on the Navajo Nation's Eastern Agency located in New Mexico, that means there is 

a huge loophole in the criteria that is simple not going to be successful. The FCC's 2016 Order stated: 

"We direct USA C to seek the most cost effective and efficient means to incorporate 

electronic eligibility certification into the National Verifier wherever feasible. We 

expect USA C and the Bureau to work closely with the states, other federal agencies, 

and Tribal Nations to foster partnerships that will help the National Verifier develop 

the most efficient pathways to determining subscriber eltgibtlity.8" 

To my knowledge, the Navajo Nation government has not been contacted by USAC concerning 

gaining access to Navajo Nation databases that would detennine eligibility. If the eligibility database 

for New Mexico only contains SNAP and Medicaid data, Navajos will be excluded from the automated 

'in the Matter ofLifeline and Link Up Reform and Modernization, Third Report and Order, Further Report and 

order, and Order on Reconsideration,~ 135 (WC Docket No. 11-42, Apri127, 2016). 

>\ i \\ 
246 

recertification process, that already has barriers. Instead, they will be subject to manual recertification 

in a process that is even more onerous than that imposed by the FCC in 2012.9 Rather than certifying 

that they remain eligible, Navajos will have to produce paperwork demonstrating that they qualify. The 

National Verifier Plan states that only English and Spanish will be used, so Navajo speaking 

subscribers will be further discriminated against.1o 

I suspect this will lead to the removal of hundreds, if not thousands, of Navajos who qualify for 

Lifeline, by not accounting for cultural appropriate services to provide a new and accurate delivery. 

Navajo people want to live on Navajo but they do not want more paperwork, more dangerous travel. 

Once again, the Lifeline Program is adopting measures that single out Native Americans for 

inequitable treatment. Congress should seek to find out from USAC why they have ignored the 

FCC's directives to engage with Tribes. 

I suggest an alternative. The USAC must engage Indian tribes in this process, and utilize the 

expertise and Indian tribes' databases to certify eligibility and conduct the manual certification, if 

necessary. This can work. On August 22, 2017, at a FCC Tribal Consultation held on the Navajo, 

Chairman Pai heard from a representative of the Nez Perce Tribe in Idaho. The Nez Perce contracted 

with wireless ETCs serving the reservation to have the Tribe handle Lifeline recertification. The Nez 

Perce were able to recertify 98% of their Lifeline subscribers, and were able to confirm that the two 

percent that were no longer eligible had gained employment taking them above the income threshold, 

thus making the administration and verification process local. This is something that should be a 

model national policy goal for Indian policy and one that all should embrace. 

'See National Verifier Plan (July, 2017), at slides 47-48 (showing complexity of the process for a Native 

American to prove eligibility). https:llusac.orgl resldocumcnts/lilpdtlnv/Draft-National-Verifier-Pian.pdf. 

1o National Verifier Plan, supra note 9, slide 105. 
247 

Indian tribes are going to need financial assistance in carrying out the administration of this 

process. The Third Report and Order directed USAC to pay for the National Verifier Program through 

its administrative resources. The USAC should provide funding in proportion to Native American 

participation in the Lifeline Program to reimburse Tribes for their participation in integrating their 

databases into the National Eligibility Database, and conducting manual eligibility verification, if 

necessary. It is vital that those conducting the manual eligibility verification be able to communicate in 

Navajo, which the Navajo government can do. 

Next, USAC could provide the Navajo Nation with the training to conduct the necessary 

certifications. Finally, because of the land base and amount of individual participate in the Lifeline 

Program, an Indian tribe would need some flexibility in the timing on the certification process. 

If the real goal of Lifeline reform is to ensure that only eligible subscribers receive Lifeline 

subsidies, then let's work together to make that happen, not set up a system where Native Americans 

are forced further across the Digital Divide. The Navajo Nation government stands ready to work with 

Congress, the FCC, the USAC, and the National Verifier to establish an effective Lifeline verification 

program that works for Navajo people. 

Thank you again for the opportunity to submit this Statement. 
248 

Figure Ill: 

Lifeline Participation Since 2012 

Month/yr Tribal Non-Tribal Total % 

Lifeline Lifeline Subs Tribal 

Subs 

January, 2012 549,258 15,908,572 16,457,830 3.34% 

February, 2012 575,873 16,238,084 16,813,957 3.42% 

March, 2012 662,135 16,534,059 17,196,194 3.85% 

April, 2012 722,144 16,848,841 17,570,985 4.1!% 

May, 2012 782,131 17,317,869 18,100,000 4.32% 

June,2012 815,448 17,320,169 18,135,617 4.50% 

July, 2012 846,735 16,864,804 17,711,539 4.78% 

August, 2012 843,864 16,515,337 17,359,201 4.86% 

September, 2012 842,986 16,233,523 17,076,509 4.94% 

October, 2012 831,010 16,019,555 16,850,565 4.93% 

November, 2012 858,420 15,780,413 16,638,833 5.16% 

December, 2012 804,793 15,276,872 16,081,665 5.00% 

13 687,500 13,303,601 13,991,101 4.91% 

February, 2013 717,866 12,944,960 13,662,826 5.25% 

March, 2013 740,955 13,107,807 13,848,762 5.35% 

April, 2013 717,869 13,230,187 13,948,056 5.15% 

May, 2013 708,103 13,602,507 14,310,610 4.95% 

June, 2013 695,699 14,016,431 14,712,130 4.73% 

July, 2013 628,293 14,220,097 14,848,390 4.23% 

August, 2013 611,198 14,445,164 15,056,362 4.06% 

September, 2013 576,375 14,522,851 15,099,226 3.82% 

October, 2013 578,042 14,498,009 15,076,051 3.83% 

November, 2013 577,593 14,291,510 14,869,103 3.88% 

December, 2013 555 234 13,825,919 14,381,153 3.86% 

January, 2014 534,297 13,440,283 13,974,580 3.82% 

February, 2014 534,514 13,500,445 14,034,959 3.81% 

March, 2014 521,050 13,451,544 13,972,594 3.73% 

April, 2014 518,193 13,353,226 13,871,419 3.74% 

May, 2014 496,124 13,195,365 13,691,489 3.62% 

June, 2014 497,065 12,960,680 13,457,745 3.69% 

July, 2014 501,207 12,768,490 13,269,697 3.78% 

August, 20 14 499,504 12,760,942 13,260,446 3.77% 

September, 2014 491,794 12,850,377 13,342,171 3.69% 

October, 2014 490,887 12,738,688 13,229,575 3.71% 

November, 2014 481,829 12,377,023 12,858,852 3.75% 

December, 2014 463,711 11,937,157 12,400,868 3.74% 

January, 2015 435,069 11,185,755 11,620,824 3.74% 

!'i l'l ill i I( T l)( l\ iO \\ !'\[)< )\\' PJ li \/ Ri,SIS I'll i'!/S) 8717000 I \X: i92/ll R?l ·102'l 
249 

February, 2015 428,917 11,232,909 11,661,826 3.68% 

March, 2015 426,328 11,365,933 11,792,261 3.62% 

April, 2015 421,320 11,528,461 11,949,781 3.53% 

May,2015 412,426 11,807,905 12,220,331 3.37% 

June, 2015 417,384 12,025,179 12,442,563 3.35% 

July, 2015 421,869 12,323,680 12,745,549 3.31% 

August, 20 15 415,091 12,544,240 12,959,331 3.20% 

September, 2015 416,913 12,709,537 13,126,450 3.18% 

October, 2015 411,406 12,815,696 13,227,102 3.11% 

November, 2015 405,301 12,786,852 13,192,153 3.07% 

December, 2015 407,253 12,756,858 13,164,111 3.09% 

January, 2016 390,984 12,320,964 12,711,948 3.08% 

February, 2016 391,732 12,293,281 12,685,013 3.09% 

March, 2016 397,651 12,369,189 12,766,840 3.11% 

April, 2016 372,256 12,494,820 12,867,076 2.89% 

May, 2016 375,290 12,533,397 12,908,687 2.91% 

June, 2016 299,965 12,473,765 12,773,730 2.35% 

Maximum 858,420 17,320,169 18,135,617 5.35% 

Minimum 299,965 11,185,755 11,620,824 2.35% 

Variance 65.06% 35.42% 35.92% 

I'< l'. I C l!! I< T I\(!\ 71 "li) II I'd l< l\1 Rl )( K V f\1,')1'; I'll ('J2fiJ .~71 7000 I \\: <'!2:-ll X71 ·I()'S 
250 

The Honorable Ron Johnson 

Chairman 

Federal Communications Commission 

Office of Legislative Affairs 

Washington, D.C.20554 

November 3, 2017 

Committee on Homeland Security and Governmental Affairs 

United States Senate 

340 Dirksen Senate Oftice Building 

Washington, D.C. 20510 

Dear Chairman Johnson: 

Enclosed please find responses to Questions for the Record submitted for Chairn1an Ajit 

Pai regarding his appemance before the Homeland Securiiy and Govemmental Affairs 

Committee on September 14,2017, at the hearing titled "FCC's Lifeline Program: A Case Study 

in Government \Vaste and Mismanagement." 

If you have further questions, please contact me at (202) 418-2242. 

Si=2~ 

/',4_~--~ 

~B. Strachan 

Director 
251 

Post-Hearing Questions for the Record 

Submitted to the Honorable Ajit Pai 

From Senator Heidi Heitkamp 

FCC's Lifeline Program: A Case Study of Government Waste and Mismanagement 

September 14, 2017 

I. It's my understanding that when universal service funds were maintained in a 

commercial bank, those accounts generated maybe tens of millions of dollars per 

year in interest. I presume those interest earnings were used to help administer the 

USF or for the purposes of the fund. Is the loss of that interest going to hurt the 

USF programs? 

Response: No. Transferring universal service monies to the Treasury will strengthen the 

program by reducing the risk of loss or misappropriation of more than $8 billion in federal 

funds should they be held outside of Treasury. What is more, the USF program budgets and 

disbursements are established and determined pursuant to the Commission's orders and rules, 

and the move of universal service monies to Treasury does not change those processes. 

2. Given the low subscribership on Tribal Lands, do you have plans to target outreach 

and education of Lifeline to the residents of Tribal lands in 20 IS as part of your 

effort to bridge the digital divide? 

Response: I too am concemed about connecting residents of Tribal lands to digital 

opportunity. That's one reason why. earlier this year, I asked the Universal Service 

Administrative Company (USAC) to work to ensure residents on Tribal lands had sufficient 

ability to certify their qualifications to participate in the Lifeline program-and I'm pleased 

to say we were able to do so without risking taxpayer funds. Moreover, just last week I 

circulated a proposal to my colleagues to ensure that providers that receive enhanced Lifeline 

support for serving Tribal lands reinvest that support in broadband-capable networks on 

Tribal lands. 

That's why I'm also glad to report that we already have in place tools to help connect Tribal 

residents. For example, USAC maintains an up-to-date toolkit and other Lifeline related 

materials for outreach to residents on Tribal lands. 1 Additionally, the Commission's Office 

of Native Affairs and Policy conducts regular Tribal Consultations in Washington, DC and 

on Tribal lands across the eountry2 These outreach efforts are intended both to educate the 

Tribes about Commission programs and to engage in conversations to better assist the Tribes. 

1 USAC, Community Outreach (last visited Oct. 30. 2017), ht_tjl;_·~)il'i::_Y.,Usq5?,.m:£.:li.fQHllllill1jl)._::~~1!.Lrcadtil~l1:i· 

2 FCC, Native Nations (Oct. 6, 2017), hwcc~:c~UU'-K':.J,;\:•u.~:G.llmtiY.c:·:.ililJ.iQ!L'-
252 

Post-Hearing Questions for the Record 

From Senator James Lankford 

1. I recognize the importance of the Lifeline program to serve those most in need for 

connectivity. We have previously discussed the unique issues facing the Lifeline 

program where companies target Oklahoma due to higher reimbursement rates 

associated with the tribal lands eligible for enhanced support. Oklahoma has the 

largest subscription rate for tribal recipients, representing 148,251 of the 269, 985 

nationwide total. However, due to verification reforms and redefining of 

Oklahoma's Enhanced Lifeline Support maps, Oklahoma has seen subscription 

rates decline from its 2014 total of313,773. To keep with the intent of the program 

and ensure that Lifeline funds are being spent in the most effective manner it is my 

suggestion the FCC examine refining the subscriber requirements for enhanced 

support. As the FCC continues implementing reforms with USAC and the Lifeline 

program, have you considered updating the verification requirements or processes 

for subscribers to the enhanced tribal support? 

Response: Yes. Just last week 1 proposed to my colleagues several improvements to the 

rules governing enhanced Lifeline support for Tribal lands. These changes would target 

enhanced Lifeline support to residents of rural areas on Tribal lands, establish mapping 

resources to identify rural Tribal lands for enhanced Lifeline support, require independent 

certification of residency on mral Tribal lands, and direct enhanced support to facilitiesbased providers. 

If adopted, the amended rules would improve broadband deployment and curtail waste in the 

program by focusing enhanced Lifeline support on providers that are directly investing in 

networks on Tribal lands. The amended rules would also only allow a subscriber to receive 

enhanced Lifeline support if their residential address is on mral areas within federallyrecognized Tribal Lands, according to mapping resources identified by the Commission. 

This would replace the existing system, in which subscribers self-certify that they reside on 

Tribal lands-a process unacceptably vulnerable to fraud and abuse. 

2. Have you considered studying the feasibility of requiring subscribers to the 

enhanced tribal support to show verification of tribal citizenship or enrollment? 

Response: I believe that enhanced Lifeline support is most effective when it is used to 

encourage deployment of broadband-capable networks in digitally redlined areas. In keeping 

with that goal, I believe eligibility for enhanced Lifeline for Tribal lands should tum not on 

Tribal citizenship or enrollment, but on whether a low-income consumer resides in rural 

Tribal lands-lands that historically have received less service and have offered consumers 

fewer competitive options. As we move forward with our refonns, I look forward to 

considering this suggestion as one alternative means of achieving what 1 believe is our 

common end: a Lifeline program that no longer tolerates waste, fraud, and abuse. 

2 
253 

Eligibility Verification 

Post-Hearing Questions for the Record 

From Senator Claire McCaskill 

The FCC's 2012 Lifeline Reform Order called for the creation of the National Lifeline 

Accountability Database (NLAD) to prevent duplicate subscribers. The NLAD is designed 

to reject any applicant who appears to be a duplicate of an existing subscriber or who 

shares an address with an existing subscriber. 

Although Lifeline providers are required to query this database before enrolling new 

subscribers, one loophole- the manual override process- has significantly undermined the 

success of the NLAD. 

1. Please describe the safeguards currently in place to prevent the improper use of manual 

override process. 

Response: You are right to be concerned about the manual override process. The NLAD allows 

providers to use cetiain manual dispute resolution processes to enroll a subscriber even when the 

enrollment was initially rejected. Specifically, if the NLAD cannot verify an applicant's identity 

through the LexisNexis Identify Verification and Authentication system, current federal 

regulations allow a carrier to manually override the system. Current rules state that the carrier 

must review and retain documentation that demonstrates the subscriber's identity and notify the 

Universal Service Administrative Company (USAC) of the type of documentation it reviewed. 

But under current rules, USAC does not review that documentation before the override is 

effective. 

I believe that we must ensure the enrollment processes designed to prevent eligible low-income 

consumers from being denied benefits are not being used fraudulently by unscrupulous 

providers. That's why last week, I proposed to my colleagues a Notice of Proposed Rulemaking 

that, among other issues, would seek comment on requiring USAC to directly review 

subscribers' documentation before a manual override can occur-adding a much-needed control 

to the current process. 

An investigation you led as an FCC Commissioner found that between October 2014 and 

April2016, Lifeline carriers enrolled 4.3 million subscribers using the manual override 

process. During the hearing, you stated that you would need to "change the rules" in order 

to prevent these providers from continuing to override the database. 

1. Please identify any statute, regulation, or administrative policy, which currently 

restricts your ability to prevent providers from continuing to override NLAD 

determinations even if they are suspected of abusing the override process. 

Response: Unlike other universal service programs, the Lifeline program does not yet have rules 

that allow the Commission or USAC to prohibit particular agents from abusing our processes. In 

3 
254 

addition to the proposal, described above, that would limit the value of the manual override 

process for unscrupulous agents, I proposed last week to my colleagues new rules that would 

require Lifeline agents to register with USAC before accessing the NLAD or National Verifier, 

would allow the Commission to take direct enforcement actions against agents that violate 

program rules (including prohibiting further participation in the program as a Lifeline agent), and 

would exclude commission-based sales agents entirely from the verification process. 

4 
255 

Ron Johnson, Chainnan 

l!nit<.'d Senate 

Committee on Homeland 

and \iovcrnmcnta! Affairs 

Dear Johnson and 

Senator Claire McCaskill 

States Senate 

Commit1ec on llomcland Security 

and Governmental Affairs 

503 Hart Senate Of1lcc Building 

Washington, DC 205!0 

Thank you for your recent letter \ h1ivcrsal Service /\dministrativc Company's 

(\!SAC) response to certain post-hc:1ring questions for the record (QFRs). these 

questions rdatc to the September 14, 20 l hearing hdd by the Committee on Homeland Sccurit;. 

aml (Commil1ce). titled '"FCCs Lifeline Program: Case Study in 

Ucn.:mmcnt Waste and Managt:mcnL" 

lt was my honor to before the Committee and to pro\iJc information on the Universal 

Fund's ( l program and the related audit report issued by the \_T S. 

(iovcmmcnt Accountability Office (GAO). CSAC dedicated to working with the Federal 

Cmnmunications Commission (ICC) other federaL state, and Tribal partners to ensure 

to communications and broadband while protecting the CSF from fraud, 

and abuse< We welcome your questions and interest in the Lifeline program. 

instructions, we have repeated the questions 
256 

Senator Johnson and Senator McCaskill 

November 1, 2017 

Page 2 

Question 1: 

Please identify the states with which U~'>AC has reached a data sharing agreement in connection 

>rith the l\'ational Verifier, 1 For each state identified please describe: 

a, The type and source of data covered hy the agreement (e.g Medicaid enrollment data 

from state departmenr of health); 

To date, USAC has entered into computer matching agreements for the National Verifier with 

the following states: Colorado, Mississippi, New Mexico and Utah. In addition, as discussed in 

response to Question 2 below, USAC has also entered into a computer matching agreement with 

the U,S. Department of Housing and Urban Development (HUD). USAC continues to work 

diligently with other state and federal agencies to obtain access to qualifying eligibility program 

databases. 

The following is a list of the type of data (either the Supplemental Nutrition Assistance Program 

(SNAP) andior Medicaid) shared by the above-named states and the name of the applicable state 

agency providing access: 

Colorado- SNAP and Medicaid data from the Colorado Office of lnfonnation 

Technology: 

Mississippi- SNAP data from the Mississippi Department of Human Services; 

New Mexico SNAP and Medicaid data from the New Mexico Human Services 

Department; and 

Utah- SNAP and Medicaid data from the Utah Department of Workforce Services, 

As set forth in the 2016 Lifeline ,Hodernization Order,2 liSAC is required to launch the National 

Verifier with at least five states in 2017. In 2018, USAC will add more states to the National 

Verifier for a total of25 states and territories by the end of next year, and the remaining states 

and territories will be added in 2019. On August J l, 2017, USAC, in coordination with the FCC, 

announced that the four states listed above, along with Montana and Wyoming, will be included 

in the initial launch of the National Verifier. In Montana and Wyoming, Lifeline subscriber 

eligibility will be evaluated by USAC using available federal data sources, as well as through the 

Act of 1974, as amended, provides 10r certain protections for individuals applying for and receiving 

The lav. governs the use of computer matching by federal agencies when records in a system of 

records arc matched with other federal, state, or local government records. See 5 U.S.C § 552(a). Herein, we use 

rhe term ··computer matching agreements'' to respond to those questions posed about data sharing agreements. 2 See L~feline and Liri.k Up Rf!form and lvfodcrmzation at., Third Report and Order, FUJ1her Report and Order, and 

Order on Reconsideration. 31 FCC Red 3962, 4021, para. 164 (20 16) (2016 Lifeline Modernization Order). 
257 

Sena10r Johnson and Senator McCaskill 

November l. 2017 

Page 3 

manual submission of eligibility documentation, such as a SNAP or Medicaid card, which meets 

th~ validation standards devdoped in coordination with the FCC. 

h. Any databases maintained hy that state related to participation in any of Lifeline's 

qualifving eligibility programs. !Jut which are not covered by the data sharing 

agreement: and 

USAC has made inquiries with the state public utility commissions, health and human service 

agencies and similar state agencies regarding available databases in the above-named states and 

identified the following databases that provide information related to participation in any of 

Lifeline's qualifying eligibility programs, but which are not covered by our computer matching 

agreements: 

• In Colorado and "few Mexico, there appear to be no additional state databases not 

covered by our computer matching agreements with those states. 

• In Mississippi, the state's Medicaid data is maintained by the Mississippi Division of 

Medicaid, which is not included in our computer matching agreement with that state. 

USAC has entered into a computer matching agreement with the Mississippi Department 

of Human Services. Thus. USAC is working with the Mississippi Division of Medicaid 

to evaluate the opportunity to access its Medicaid eligibility database. 

ln Utah. USAC has recently learned that the Utah Department of Workforce Services 

may also have a database containing eligibility data for Supplemental Security Income 

(SSI) recipients and is working with the state to potentially add access to the SSI data for 

the National Verifier. 

In addition, USAC is working to engage with the various Tribal nations and representatives in 

these four states and throughout the country to determine if there are accessible databases with 

eligibility infonnation for Tribal-specitic federal assistance programs. 

c. Whether USAC and the J\'ational Verifier will have an automated connection to each data 

source covered by the agreement. 

USAC has developed an automated connection. using an Application Programming Interface 

(API), with the above-referenced state databases in Colorado, Mississippi, New Mexico, and 

Utah. As discussed above, Lifeline subscriber eligibility for applicants in Montana and 

Wyoming will be validated through any available federal data sources and the submission of 

eligibility documentation to USA C. 
258 

Senator Johnson and Senator McCaskill 

November l, 2017 

Page 4 

USA<' reached a data sharing agreement in 

ln addition to the t(lur computer matching agreements with the states described in to 

1, USAC has abo entered into a computer matching with HUD 

public housing assistance data. USAC continues to with other federal agencies, 

such as the U,S. Department of Veterans Altairs (Veterans Benefits Administration) and the 

Centers for Medicare & Medicaid Services, well as with other states and Tribal nations, to add 

additional qualifying eligibility data to the National VcrilkL 

dcscrihe the h.tking that sensitive per/.,'Onal used by the 

Sa!ional will 

USAC takes the stewardship of Lifeline subscribers· personally identifiable information (Pll) 

data seriously and has made the protection of this data a top priority. The computer matching 

agreements that USAC has entered into with federal and state agencies require that all data used 

by the National subject to and must comply with the requirements set forth by th\~ 

Federal Privacy Act of l 974 (Privacy Act), the Federal Information Security Management Act 

(F!S:\tA), and related Office of:\'lanagement and Budget (OMB) circulars and memoranda such 

Circular A-130, '·Managing Federal lntormation as a Strategic Resource," and applicahle 

National lnstituk of Standards and Technology (NJST) directives. 

!iJ!l;!_~ll.QfRecgi'J~. The National Veritkr. as of records, is subject to the Privacy Act 

The Privacy Act embraces the Information Practice that 

collection. maintenance. usc, and dissemination of information about is 

maintained in of records by federal agencies. ln compliance with the Privacy Act 

descriptions categories of individuals covered by the of the records in 

the and routine uses fi.1r the I'll that collected and retained tb.; National Verifkr 

publicly available in the National Vcrifkr's System of Records Notice (SORN). On August 

20 l the published the SORN for the National Verifier the Federal Register. 

SUQ'i£ril>.>:J:_(Q.Q~!'Jl(Jll]d Acccs~. Lifeline suhscribcrs provide at1irmative consent to the 

and retention oftheir PH within the National Verifier. Prior to the 

in the National Verifier, Lifeline subscribers arc provided a Privacy Act notice 

the basis for the collection and the routine uses of the information. Lifeline 

subscribers may also contact CS/1.C or the fCC to access, correct or amend any P!I within the 

National Verifier. 
259 

Johnson and Sc:nator McCaskill 

November 

s 

administrative, technical, and physical salcguards in place' to meet the 

adhere to N!ST guidance, Consistcnt with these safeguards, l;SAC 

information establishes risk levels, implements security controls, 

obt;lins certification and accreditation and maintains continuous 

monitoring of t]SAC designed the National Verifier to contain the applicable 

information s.ccuril) and privacy controls in accordance with N!ST Special Publication (SP) 800-

53, Revision 4, The National Verifier includes a comprehensive and dynamic set of inforrnation 

protocols and !Caturcs to meet the federal privae) standards. to this data 

restricted to authorized USAC and c.ontractor employees on "need to know" basis and can only 

be acce,scd f{lr authorized uses. AJl data transmitted and stored within the National V crificr is 

cncrvptcd at standards that meet the requirements of Fcdcrallnl(mnation Processing Standard 

(F!PSJ Publication 140-2. No scnsitiw Pll is displayed or available in reports generated 

from the :'-Jational /\ll transactions within the National Verifier arc monitored and 

of accrediting the National Verifier in accordance 

R00-37, R~vision 

I'JLJr;~il),i.n,g, i\nnmllly, all USAC employees and contractors who will collccL usc, share or 

retain Pll will receive role-based privacy training and must certify to completing this training. 

rhis training is in addition to tht' in!(mnation security and privacy awareness training that all 

CSAC sr.aff and contractors must complete ccnify each year. 

(2J11ract<JL~J?Ql_i_ci1,l;:i,li_t]:, As required the and FISMA, USAC's contractors fiJr 

the National V crificr arc contractually bound to the same information and privacy 

requirements as t iS,\C 

!he computer matching agreements between ( iSAC and the 

agencies require that all tmnsmitted data must meer the following F!PS 

Publication ] 40-2 requirements: ( J) all automated matching records must be maintained in a 

secured environment that includes the use of authorized access codes (passwords or 

(PKl)) to restrict access, (2) encryption using algorithms, (3) 

crcdcntialing using t iscr lD password, and\ ·(l individual tmcking tCl safeguard against the 

unauthorized ac,:.:ss and usc uf the system, The computer matching agreements require the 

parties protect data in accordance with the Privacy Act, and FIS\1A security and privacy 

requin:mcnts. 

of!hefederal and 

docs not have the authorit; to test or assess the of the data contained in the state 

or federal databases: however, pm1 of each computer matching agreement, the source agcncy 

to the accuracy of the data they are providing to c:s,\C ln addition, USAC has 
260 

Senator cv!cCaskill 

nnH:t'·"'''' !(>safeguard the rights of eligible ikline appiic:ants to participate in the 

while also prowcting the USF and abuse. 

l!S.\C to provide th~ opportunity applicant to dispute 

In vv here applicant's information not matched 

database:;. tht: applicant provide copies of eligibility documcnt::ttion, such 

card. "hich vv ill be manually reviewed by based on criteria 

established in cv>ordinmion with the FCC. ln the '"em the applicant denied. but he or she 

bdieves the· digibility determination incorrect, the applicant dispute the results and 

\."SAC \\ill informatiun provided the 

conto::mplated" fhr the 

in place ru pren:nt using the 
261 

Sc:nah>r Johnson and 

'Jovernhcr 2017 

l\icCaskill 

7 

l:nder the current FCC rules, prior to enrollment Lifelin~ subscriber in the NL/\D, eligible 

!Cs) must colkct one-per-household tOP H) worksheet for 

subscriber~ "ho are associated with an address where another subscriber is receiving a 

Subscribers are required to that they are an independent economic household 

(lEH). 1 ln addition, when cnroli new f ifcline subscribers into NLAD. they must 

indicate the OPl worksheet on file in order to complete the enrollment. 

provide this indication through use of a or checkbox in the 

v,hich prcvic~usly been refarcd to as an override." As acommissioncL Chairman Pai 

raised concerns about this process in letters to 'SAC in the second and third quarters of 

t :sAC monitored revis:\\cd the usc: of the I Jlag that '" hik 

rnaintaining 

ln 201 rcpm1 results of its forensic audit of the Lifeline 

program and systc:m. ln response: to that rcpol1, on July l , 201 Chainnan Pai sent an 

inquiry to \'SAC that, among other raised questions about "oversubscribed addresses'· 

uvcrsubscribcd addresses arise >vhcn use the to indicate that more 

one subscriber resides a physical address because the individuals independent 

households under the FCC's ruks. USAC believes that the IEH !1ag is most 

used addresses that house multiple people, such homeless shelters and nursing 

that investigations have sho,vn sales agents have confessed 

a homekss shclwr us the address for 11 consumers because it would he 

impossible. disprove. 

rer;ornnJert<l3t!C>nS contained therein, USAC 

,.'>arcr,ua,~ds annit'nu:·ntallon Plun, which set:, out a project plan to review 

AD that huve a significant numhcr of subscribers oversubscribed ""1•·ire"''' b~ginning in September the: l program team identified ETCs 

addn"scs with 500 or subscribers, of which there arc l 0 

owrsubsc:ribcd addrc:sscs sen iced by ·' ln September, USAC issued letters to 

them to validate the oversubscribed and provide a sample of 

ilJr subscribers those The responses from the targeted ETC's 

Nc>1·cmbcr 20 !7. ln addition, as directed by Chairman PaL began the same 

with sam ph: of addresses with or more subscribers. In October, USAC issued 

the first round of letters witb responses due by Dt'cembcr 2017. USAC will continue to sample 

and send letters on quarterly to with :;ubscribers of 25 more pcopk at the same 

addrecss. 
262 

for oversubscribed addresses depending on the results provided by 

in respcmse to the inquiry referenced Such further actions include: 

to the FCC's Office of lnspectnr General (OKi) and 

Bureau (2) requiring non~compliant to de-enroll oversubscribed 

individuals accordance with trw rules:6 and (3) 

compliant ETCs. USAC will wurk v.ith the FCC to <iPI·,,nnn'" 

course of an audit USACs Internal 

to instances of 

and possible 

FCC 

the rhar upon im,uicm<mtation 

abov<e under current process, ETCs are required to 

obtain and retain OPH hom subscribers dcmonstrat<~ compliance with the oneper-household rule. Witb the implementation of the National Verifier, the applicant now 

the OP!l worksheet will be by staff The ETC 

will not he able to an address with an 

on file with USAC The transition 

attempts to incorrect or questionable data, 

attempted enrollments unusual patterns and act 

to de-
263 

S~nator Johnson and Senator VkCaskill 

'\ovcmbv'r 1, 2017 

Page 9 

enroll subscribers as a result Chairman Pai July 201 directive:' 1/so, please identify the 

ji1l!owing 

As discussed below in detail, USAC is currently engaged in a review of potential phantom. 

duplicate. <md deceased subscribers in the'\ LAD system and has not yet directed any ETCs to 

de-enroll any individuals. The GAO has provided the FCC with the results of its 21 covert test 

enrollments using fictitious eligibility documentation, and communicated to the FCC that it is 

working to provide the source data f(lr ineligible. duplicate. and/or deceased subscribers 

identified in its imestigation to the fCC's EB and O!G. L:SAC v.ill then review and process the 

source data to ensurt• ineligible ,;ubscribcrs are not still enrolled in the program. Aller review, 

l 'SAC will recover any improper payments and refer appropriate cases to the FCC f(Jr 

en!(Jrccment action. 

Phantorrl Subscribers, In September 2017. in order to prevent phantom subscribers, USAC 

began rejecting any Lifeline support reimbursement requests where the subscriber count on the 

FCC Form 497 exceeded the Nl .AD subscriber count. These subscribers are refem~d to as 

phcmtorn subscribers. Starting in January 2018. all Lifeline program reimbursement claims will 

be calculated based on the subscribers enrolled in the NLAD. This change vvill eliminate the risk 

of phantom suhscrib~rs by directly t) ing rl'imbursement with NLAD subscriber enrollment. 

t:SAC in coordination '\ ith the f·CC is also undertaking review of phantom subscribers that 

may have been claimed by f·.T('s in the past. t:SAC will be conducting future outreach to ETCs 

regarding this matter. 

Q.ecease,lLSubs~c:I.ih~r~. Regarding the issue of deceased subscribers, USAC is working to add 

functionality to the NLAD system that will validate subscribers against the Social Security 

!\'laster Death Index. Later this month. (!SAC will implement this functionality in NLAD. After 

L'SAC accesses the index, we will also validate existing subscribers against that data and take 

steps to dc-enwll any deceased subscriber and recover any improperly disbursed support. 

In its Lifeline audit report. the OAO id..:ntilicd 6,378 individuals that may be decc,ased but v.ere 

listed in NLAD at the time of the audit. LSAC has not yet received data from the OAO 

regarding the deceased subscribers identified in the GAO's Lifeline audit. Once USi\C receives 

data from the GAO, we will review and determine if any of the deceased subscribers identified 

by the GAO remain in the ?-;LAD. 

QJ1_plic_<\tc S~c!hs~ril?<::I~, Upon receipt of Chairman Pal's letter, USAC conducted a detailed data 

analysis of the current NLAD data to detect any duplicate subscribers and none were identified. 

ln its audit report, the GAO identified 5.510 potential duplicates in the NLAD data at the time of 

the audit. l SAC has not yet received any data from the GAO regarding the duplicate 

subscribers dentif!ed in the· audit. Once 1.'SAC receives data from the GAO. we will review and 

determine i any of the duplicate subscribers idemitied by the GAO remain in the Nfi\D. 
264 

Senator Johnson ami Senator :VlcCaskill 

Nowmhcr I. 2017 

!0 

a. numher o(FTCs thai have heen inslructed to de-enrol/ suhscrihers. and the total 

numher o(suh.,crihers to he de-enrolled: 

:\s detailed above, when USAC identifies any phantom. deceased or duplicate subscribers, we 

will instruct the FTC's to de-enroll those subscribers in compliance with the FCC's rules. 

h L\',j(' ha.1 taken to veri6• thai these suhserihers have been de-enroiled 

l 'SAC not yet instructed any ETCs to de-enroll subscribers as part of Chairman Pai's 

directives. Om:c the Safeguard\ ln!f>lemenlafion Plan review process for these categories has 

concluded, ifl,SAC id.:nti!les any phantom. duplicate or deceased subscribers. we will ensure 

they arc' dc-enrc,llcd. (:SAC developing a verification process ensure that any subscribers 

identified non-compliant with the rules through an audit or other review arc properly dcenrollcd and improper payments arc rccmucd. 

c Has L'SA( · improper payments in cunncclion with any de-enrollmentS:' I{ 

so, wl~·al the tolalamoun.l that fur·; bn>n recaptured? 

i\o; detailed aboVco. when USAC identitles deceased or duplicate subscribers, we 

''iII instruct the to de-enroll those with the FC("s rules and will 

work "ith the FCC 

ojrhc July has [SA (' refhrrcd any ElY ·to the F( ·c 

Enj('JI-ct:mem Bureuu or O(fice o(Inspecwr lfso, please the nwnher and 

ot 

CS>\C has dc,doped strong data analytics, program integrity projccts and a risk-based audit 

program to detect waste. l!·aud, and abuse tht: Liklinc program. These efforts haw resulted in 

several referrals to the FCC O!G and EB. In addition to the processes already in place, we are 

impk'mcnting the safeguards directed by Chairrnanl'ai and wmking with GAO to obtain and 

rnkw the underlying data used in the GAO's audit report. ,\s additional data is received and 

rcvit~wed. l'SAC is committed to working closely with the FCC's Enforcement Bureau and 

Office of Inspector ()en era] to refer any rule violations. USAC nutcs that since July 2017, we: 

haw rdl:rrcd l\\o ETCs to the FCC lclr possible violations of the Lifdine rules, but those 

rcl\:rrals unrelated to Chairman Pai's July 11 lcner. 

*** 
265 

Æ 

Senator Johnson and Senator McCaskill 

November 1, 2017 

Page II 

Senators, I appreciate the opportunity to respond to these QFRs. !look forward to continuing to 

work with members of Congress, the FCC, and other stakeholders to continue our collective 

efforts to improve the integrity of the Lifeline program and reduce waste, fraud, and abuse. 

Sincerely, 

Robinson 

Acting Chief Executive Officer and General Counsel 

Universal Service Administrative Company