[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
THE LIFELINE FUND: MONEY WELL SPENT?
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
APRIL 25, 2013
__________
Serial No. 113-36
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
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COMMITTEE ON ENERGY AND COMMERCE
FRED UPTON, Michigan
Chairman
RALPH M. HALL, Texas HENRY A. WAXMAN, California
JOE BARTON, Texas Ranking Member
Chairman Emeritus JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky Chairman Emeritus
JOHN SHIMKUS, Illinois EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska ANNA G. ESHOO, California
MIKE ROGERS, Michigan ELIOT L. ENGEL, New York
TIM MURPHY, Pennsylvania GENE GREEN, Texas
MICHAEL C. BURGESS, Texas DIANA DeGETTE, Colorado
MARSHA BLACKBURN, Tennessee LOIS CAPPS, California
Vice Chairman MICHAEL F. DOYLE, Pennsylvania
PHIL GINGREY, Georgia JANICE D. SCHAKOWSKY, Illinois
STEVE SCALISE, Louisiana JIM MATHESON, Utah
ROBERT E. LATTA, Ohio G.K. BUTTERFIELD, North Carolina
CATHY McMORRIS RODGERS, Washington JOHN BARROW, Georgia
GREGG HARPER, Mississippi DORIS O. MATSUI, California
LEONARD LANCE, New Jersey DONNA M. CHRISTENSEN, Virgin
BILL CASSIDY, Louisiana Islands
BRETT GUTHRIE, Kentucky KATHY CASTOR, Florida
PETE OLSON, Texas JOHN P. SARBANES, Maryland
DAVID B. McKINLEY, West Virginia JERRY McNERNEY, California
CORY GARDNER, Colorado BRUCE L. BRALEY, Iowa
MIKE POMPEO, Kansas PETER WELCH, Vermont
ADAM KINZINGER, Illinois BEN RAY LUJAN, New Mexico
H. MORGAN GRIFFITH, Virginia PAUL TONKO, New York
GUS M. BILIRAKIS, Florida
BILL JOHNSON, Missouri
BILLY LONG, Missouri
RENEE L. ELLMERS, North Carolina
Subcommittee on Communications and Technology
GREG WALDEN, Oregon
Chairman
ROBERT E. LATTA, Ohio ANNA G. ESHOO, California
Vice Chairman Ranking Member
JOHN SHIMKUS, Illinois EDWARD J. MARKEY, Massachusetts
LEE TERRY, Nebraska MICHAEL F. DOYLE, Pennsylvania
MIKE ROGERS, Michigan DORIS O. MATSUI, California
MARSHA BLACKBURN, Tennessee BRUCE L. BRALEY, Iowa
STEVE SCALISE, Louisiana PETER WELCH, Vermont
LEONARD LANCE, New Jersey BEN RAY LUJAN, New Mexico
BRETT GUTHRIE, Kentucky JOHN D. DINGELL, Michigan
CORY GARDNER, Colorado FRANK PALLONE, Jr., New Jersey
MIKE POMPEO, Kansas BOBBY L. RUSH, Illinois
ADAM KINZINGER, Illinois DIANA DeGETTE, Colorado
BILLY LONG, Missouri JIM MATHESON, Utah
RENEE L. ELLMERS, North Carolina G.K. BUTTERFIELD, North Carolina
JOE BARTON, Texas HENRY A. WAXMAN, California, ex
FRED UPTON, Michigan, ex officio officio
C O N T E N T S
----------
Page
Hon. Greg Walden, a Representative in Congress from the State of
Oregon, opening statement...................................... 1
Prepared statement........................................... 3
Hon. Marsha Blackburn, a Representative in Congress from the
State of Tennessee, opening statement.......................... 6
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 7
Hon. Leonard Lance, a Representative in Congress from the State
of New Jersey, prepared statement.............................. 132
Witnesses
Julie Veach, Chief, Wireline Competition Bureau, Federal
Communications Commission...................................... 9
Prepared statement........................................... 11
Answers to submitted questions............................... 277
Phillip B. Jones, Chairman of the Board and President, National
Association of Regulatory Utility Commissioners................ 19
Prepared statement........................................... 21
Answers to submitted questions............................... 285
Jessica Gonzalez, Vice President of Policy and Legal Affairs,
National Hispanic Media Coalition.............................. 40
Prepared statement........................................... 42
Answers to submitted questions............................... 291
Geoff Feiss, General Manager, Montana Telecommunications
Association.................................................... 58
Prepared statement........................................... 60
Answers to submitted questions............................... 294
Christopher Guttman-McCabe, Vice President, Regulatory Affairs,
CTIA--The Wireless Association................................. 73
Prepared statement........................................... 75
Answers to submitted questions............................... 298
Billy Jack Gregg, Billy Jack Gregg Universal Consulting.......... 85
Prepared statement........................................... 87
Answers to submitted questions............................... 300
Submitted Material
Letters of support, submitted by Ms. Eshoo....................... 133
Letters of support, submitted by Mr. Rush........................ 267
Chart entitled ``2012 Top Ten High Cost Disbursements by State,''
submitted by Ms. Eshoo......................................... 276
THE LIFELINE FUND: MONEY WELL SPENT?
----------
THURSDAY, APRIL 25, 2013
House of Representatives,
Subcommittee on Communications and Technology,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:33 a.m., in
room 2123 of the Rayburn House Office Building, Hon. Greg
Walden (chairman of the subcommittee) presiding.
Members present: Representatives Walden, Latta, Shimkus,
Terry, Blackburn, Scalise, Lance, Guthrie, Gardner, Kinzinger,
Long, Ellmers, Eshoo, Matsui, Braley, Welch, Lujan, Rush, and
Waxman (ex officio).
Staff present: Gary Andres, Staff Director; Ray Baum,
Senior Policy Advisor/Director of Coalitions; Sean Bonyun,
Communications Director; Matt Bravo, Professional Staff Member;
Andy Duberstein, Deputy Press Secretary; Neil Fried, Chief
Counsel, Communications and Technology; Debbee Hancock, Press
Secretary; David Redl, Counsel, Telecom; Charlotte Savercool,
Executive Assistant, Legislative Clerk; Dan Tyrrell, Counsel,
Oversight; Lyn Walker, Coordinator, Admin/Human Resources; Phil
Barnett, Democratic Staff Director; Shawn Chang, Democratic
Senior Counsel; Patrick Donovan, Democratic FCC Detailee;
Margaret McCarthy, Democratic Professional Staff Member; Roger
Sherman, Democratic Chief Counsel; and Kara van Stralen,
Democratic Special Assistant.
OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OREGON
Mr. Walden. I call to order the Subcommittee on
Communications and Technology, and welcome our witnesses here
today. We appreciate the work that you have put into your
testimony and the thoughtfulness behind it, and we look forward
to hearing from you.
When the government spends other people's money, it has an
ongoing obligation to ask a fundamental question: has it spent
that money wisely? After all, the people whose money it is
spending might have preferred to do something different with
it, especially in these tight economic times. And if the answer
to the fundamental question of whether the money is being well
spent is ``no,'' then the government must ask a second
question: how should it fix the situation?
Last year, the FCC spent $2.2 billion of other people's
money on the Lifeline program. Specifically, it spent $2.2
billion of your money, my money, virtually every American's
money, since the Lifeline program and the entire Universal
Service Fund is paid for through a charge on phone bills.
Carriers provide discounted service and collect the difference
from the program. Some give away phones to gain the subscribers
and the recurring revenue. But at the end of the day, it is
still the same taxpaying people who bear the cost, since 96
percent of the country has phone service and see a fee on their
bill.
The fund has increased 266 percent since 2008, and grown
almost six-fold since 1998, all while the cost of phone service
has actually gone down. Despite the limit of one subsidized
subscriber per household, published reports suggest some
subscribers have eight or more phones with subsidized service,
with one woman saying that to get one ``she just goes across
the street and gets it.'' One man has claimed to have a bag
full of 20 phones on the program that he sells ``for about 10,
15, 20 bucks'' each. Our hearing today is to determine what can
be done to curb these kinds of potential abuses.
And it is not clear the money is even really helping low-
income families. According to some reports, as many as 41
percent of those receiving Lifeline support either could not
demonstrate eligibility for the subsidy or refused to respond
to requests for certification. Moreover, 92 percent of low-
income households have phone service but only about 58 percent
of those households participate in the program, so many low-
income homes apparently obtain phone service without the
subsidy. And despite spending $7 billion on the program over
the last 5 years, the phone penetration rate among low-income
households has only grown 2 percent, with only some of that
growth likely attributable to the Lifeline program since at
least \1/3\ of low-income phone households don't use the
subsidy.
There may be a number of ways to interpret these data and
other data, but it certainly does not paint a picture of
success. So as far as that first fundamental question goes,
there is near unanimity among the FCC, both parties of
Congress, and almost anyone familiar with the program that the
Lifeline fund has been fraught with waste, fraud, and abuse and
that the money has not been spent as wisely as it should have
been.
Now there is more than enough blame to go around. The path
we have found ourselves on was paved by many people, presumably
with the best intentions. But it does not change the fact that
we are spending large sums of money and probably squandering
much of it. Which brings us to the second question, which is
how to fix the situation.
Now, Senators McCaskill and Coburn say eliminate the
program. Indeed, as recently as last month, Senator McCaskill
concluded, and I quote, that ``there is just no reason this
program should continue, given its history of extensive waste
and abuse.'' Senator Pryor and Congressman Griffin say exclude
wireless providers from the program. Congresswoman Matsui,
Ranking Members Waxman and Eshoo, and a number of their
colleagues say expand it to broadband. Whatever we do, staying
on the present course seems out of the question.
To the FCC's credit, the agency has embarked on a number of
reforms since 2011. For example, to ensure only eligible
households participate and to combat duplicative subsidies to a
single household or even a single user, the FCC is moving
forward with beefed up certification processes and creation of
eligibility and duplication databases. It has also imposed
independent audit requirements on carriers receiving more than
$5 million a year in Lifeline funding. The FCC says its efforts
will save $2 billion over the next 3 years, but are the steps
the Commission is taking enough? With only a 58 percent
penetration rate, the fund may still continue to grow,
especially if it is expanded to cover broadband.
Should the program be eliminated? If not, should a freeze
be put in place until reforms are complete? Should the program
be placed under a cap or budget? I note that the 2012 FCC
reform order suggested the agency would establish a budget by
early 2013, but disappointingly, I see no mention of such a
budget in today's FCC testimony. Should subscriber co-payments
be required? Should the program be moved to a voucher system so
the subsidy goes directly to the user rather than through a
carrier? Should the FCC consider the waivers allowing
participation by non-facilities based carriers? These are among
a host of questions that many in industry, in the press, in
Congress and in the public are asking and they are among the
many issues that we hope to examine with today's hearing.
So I thank the witnesses for being here. Your testimony and
expertise are welcome and we look forward to your ideas about
this program gone awry.
[The prepared statement of Mr. Walden follows:]
Prepared statement of Hon. Greg Walden
When the government spends other people's money, it has an
ongoing obligation to ask a fundamental question: has it spent
that money wisely? After all, the people whose money it is
spending might have preferred to do something different with
it, especially in these tight economic times. And if the answer
to the fundamental question of whether the money is being well
spent is ``no,'' the government must ask a second question: how
should it fix the situation?
Last year, the FCC spent $2.2 billion of other people's
money on the Lifeline program. Specifically, it spent $2.2
billion of your money, my money-virtually every American's
money-since the Lifeline program and the entire Universal
Service Fund is paid for through a charge on phone bills.
Carriers provide discounted service and collect the difference
from the program. Some give away phones to gain the subscribers
and the recurring revenue. But at the end of the day, it is
still the same taxpaying people who bear the cost, since 96
percent of the country has phone service and see a fee on their
bill.
The fund has increased 266 percent since 2008 and grown
almost six-fold since 1998, all while the cost of phone service
has gone down. Despite the limit of one subsidized subscriber
per household, published reports suggest some subscribers have
eight or more phones with subsidized service, with one woman
saying that to get one ``she just goes across the street and
gets it.'' One man has claimed to have a bag full of 20 phones
on the program that he sells ``for about 10, 15, 20 bucks''
each. Our hearing today is to determine what can be done to
curb these kinds of potential abuses.
And it's not clear the money is even really helping low-
income families. According to some reports, as many as 41
percent of those receiving Lifeline support either could not
demonstrate eligibility for the subsidy or refused to respond
to requests for certification. Moreover, 92 percent of low-
income households have phone service but only about 58 percent
of those households participate in the program, so many low-
income homes apparently obtain phone service without the
subsidy. And despite spending $7 billion on the program over
the last five years, the phone penetration rate among low-
income households has only grown two percent, with only some of
that growth likely attributable to the Lifeline program since
at least one-third of low-income phone households don't use the
subsidy.
There may be a number of ways to interpret these and other
data, but it certainly does not paint a picture of success. So
as far as that first fundamental question goes, there is near
unanimity among the FCC, both parties of Congress, and almost
anyone familiar with the program that the Lifeline fund has
been fraught with waste, fraud, and abuse and that the money
has not been spent as wisely as it should have been.
There is more than enough blame to go around. The path we
have found ourselves on was paved by many people, presumably
with the best of intentions. But it does not change the fact
that we are spending large sums of money and probably
squandering much of it. Which brings us to the second question:
how to fix the situation.
Senators McCaskill and Coburn say eliminate the program.
Indeed, as recently as last month Senator McCaskill concluded
that ``there's just no reason this program should continue,
given its history of extensive waste and abuse.'' Senator Pryor
and Congressman Griffin say exclude wireless providers from the
program. Congresswoman Matsui, Ranking Members Waxman and
Eshoo, and a number of their colleagues say expand it to
broadband. Whatever we do, staying on the present course seems
out of the question.
To the FCC's credit, the agency has embarked on a number of
reforms since 2011. For example, to ensure only eligible
households participate and to combat duplicative subsidies to a
single household or even a single user, the FCC is moving
forward with beefed up certification processes and creation of
eligibility and duplication databases. It has also imposed
independent audit requirements on carriers receiving more than
$5 million a year in Lifeline funding. The FCC says its efforts
will save $2 billion over the next three years, but are the
steps the Commission is taking enough? With only a 58 percent
penetration rate, the fund may still continue to grow,
especially if it is expanded to cover broadband. Should the
program be eliminated? If not, should a freeze be put in place
until reforms are complete? Should the program be placed under
a cap or budget? (I note that the 2012 FCC reform order
suggested the agency would establish a budget by early 2013,
but disappointingly I see no mention of such a budget in
today's FCC testimony.) Should subscriber co-payments be
required? Should the program be moved to a voucher system so
the subsidy goes directly to the user rather than through a
carrier? Should the FCC reconsider the waivers allowing
participation by non-facilities based carriers? These are among
the questions many in industry, in the press, in Congress and
in the public are asking and they are among the issues we will
examine today.
I thank the witnesses for being here. Your testimony and
expertise are welcome and we look forward to your ideas about
this program gone awry.
# # #
Mr. Walden. With that, I yield back the balance of my time
and recognize the gentlelady from California, Ms. Eshoo.
Ms. Eshoo. Thank you, Mr. Chairman, for agreeing with our
request, the Democrat's request, to hold this morning's hearing
on the Universal Service Fund's low income program known as
Lifeline.
Started nearly 30 years ago under the Reagan
Administration, the Lifeline program advances an important
public policy goal of ensuring affordable monthly telephone
service for tens of millions of low income Americans. The
program, as you know, was expanded to include wireless service
during the Bush Administration, and on our side, we have
consistently not only pursued the efficacy of the program, but
worked to weed out any problems with it, so we appreciate the
fact that you would have this hearing this morning to examine
it.
Now while most of us take basic phone service for granted,
for many Americans, including seniors, veterans, and the
disabled who are unable to work or are temporarily unemployed,
Lifeline support can be the only means for regularly staying in
touch with a doctor, applying for a job, or contacting 911
during an emergency. Oversight hearings will ensure the
Lifeline program is achieving its intended goals and doing so
without waste, fraud or abuse.
Thanks to the reform measures implemented under FCC
Chairman Genachowski, the Commission expects to save more than
$2 billion through 2014. These savings have come through
commonsense reform such as scrubbing subscriber roles of
duplicates, requiring proof of eligibility, and de-enrolling
subscribers who are not actually using service. As we look
toward the future, the FCC and states must continue to take
corrective action as soon as problems are identified. The
timely implementation of a national database to ensure program
eligibility and prevent duplication must be a top priority. I
commend Congresswoman Matsui for her steadfast commitment to a
21st century Lifeline program.
In order to compete in today's economy, every American
needs high speed access to the Internet, whether to apply for
jobs or receive healthcare or education. We know this. This is
a given fact. The Broadband Affordability Act introduced
earlier this week creates a permanent program for Lifeline
support for broadband, while directing the FCC to ensure
accountability for carriers participating in the program.
So I want to thank each of our witnesses for the important
testimony that you will offer today, the important answers to
the important questions that are going to be asked of you, and
for your steadfast commitment to strengthen the Lifeline
program.
I now yield the balance of my time to Congresswoman Matsui
of California.
Ms. Matsui. Thank you, Ranking Member Eshoo, for yielding
me time, and I would also like to welcome our witnesses here
today.
It is my hope that this hearing focuses on the facts about
the Lifeline program, and not the fiction. Up until recently,
Lifeline has enjoyed bipartisan support. Lifeline was created
by President Reagan and expanded for wireless service by
President Bush. Lifeline provides a benefit to many of
America's disabled veterans, seniors, tribal areas, and
families in Head Start and a school lunch program.
In my district of Sacramento, nearly 30,000 of my
constituents participate in Lifeline, 17,000 of whom are
seniors on fixed income. The Lifeline program must be reformed
and modernized in a responsible manner, and it must account for
the Internet and innovation economy. Nearly 100 million
Americans still have not adopted broadband, which is only more
concerning given more than 80 percent of available jobs in this
country now require online applications. To help address the
digital divide, along with Ranking Members Waxman and Eshoo, I
introduced a Broadband Adoption Act to allow eligible Americans
in rural and urban areas to use Lifeline for broadband
services. The bill also requires the FCC to implement a
national eligibility database to ensure one Lifeline per
eligible household. This will prevent the growth of a Lifeline
fund in a responsible manner, while ensuring Lifeline is
eligible for the millions of Americans who need it. We need to
reform and modernize Lifeline, not eliminate it.
I yield back the balance of my time.
Mr. Walden. Gentlelady yields back the balance of her time.
We now recognize the vice chair of the full committee, the
gentlelady from Tennessee, Mrs. Blackburn.
OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TENNESSEE
Mrs. Blackburn. Thank you, Mr. Chairman, and I want to
welcome all of our witnesses. We are pleased that you are here,
because this is a program that we are hearing quite a bit
about, the Lifeline program.
You know, it was started with good intentions, and bear in
mind, now it is a $2.2 billion expense. It started in 1984, and
it wasn't even a $380 million program until 1998. So this is
the kind of explosive growth that this program has seen, and it
is why so many of our constituents are questioning the program
and are questioning the use of Obama phones, as they are
commonly called. And I think that what it has come to be is
more or less a symbol of the mismanagement, not only within
this program, but with the entire USF and the FCC's budget.
So there are plenty of questions that are springing up
around this. What you are going go hear us focus us on is
accountability. You know, this is an Administration that said
we want to be transparent. We want to be accountable. We want
to be the best at that. And we are repeatedly shown
mismanagement and lack of transparency, and a shuttling, if you
will, of accountabilities, and so we do look forward to
reviewing this. Should it be reauthorized? Should it be wound
down? Should it be eliminated? How do we hold it accountable?
What reforms should go into place if it is allowed to stay? I
think if it were up for sunset today, that many in this
Congress would view and vote to take it down because of the
mismanagement that is there.
I think that also the qualifications for individuals that
are enrolled in the program, making certain that there is
vetting and verification done for the individuals that are
enrolled in that program.
Also questions that you get are the ones that are receiving
the phones, are they obligated to use those phones on the
networks, the carriers from whom they have received the phone,
or can they unlock their subsidized phone and go onto their own
private networks? I even had one constituent, after it came out
that the bombing--the terrorist that committed the bombings in
Boston were receiving welfare benefits, were they in this
program? I think those are the kinds of questions that our
constituents are asking, and we turn to you to be able to get
those answers and to look for the way to reform and to hold
this program accountable.
I thank you so much for your time, and Mr. Chairman, I
yield back.
Mr. Walden. The gentlelady yields back.
I now recognize the vice chair of the subcommittee, Mr.
Latta, for the remaining time.
Mr. Latta. I thank the chairman for yielding the time, and
I also appreciate you holding this hearing today, and I thank
our distinguished panel of witnesses for testifying today.
Unfortunately, waste, fraud, and abuse are words too often
associated with government programs. While the Universal
Service Fund Lifeline program serves an important purpose in
connecting low income Americans, the tripling of the program
from 2009 to 2012, and the all the too frequent stories of
abuse of the program are cause for concern. I do commend the
FCC for the reforms adopted in 2012; however, I have concerns
that the program is still on an unsustainable path.
I look forward to hearing more about the implementation of
the Commission's reforms, and if additional actions need to be
taken. Since all Americans invest in the program through a
surcharge on their phone bill or through participation in
Lifeline, our discussion here today is significant, not just
for this subcommittee, but for all Americans across the
country.
I thank the chairman, and I yield back.
Mr. Walden. Gentleman yields back.
Anyone else on the Republican side want the remaining 56
seconds? If not, all time is yielded back on our side.
We will turn now to the ranking member of the full
committee, Mr. Waxman, for 5 minutes.
OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Waxman. Thank you, Mr. Chairman.
Last month, I joined with my colleagues Representatives
Eshoo and DeGette to call for a hearing on Lifeline. We asked
for a hearing because we believe bipartisan oversight can
strengthen this important program, and I thank Chairman Walden
for agreeing to hold this hearing.
We have a national commitment to ensure every American has
access to the communications services they need to fully
participate in our economy and democracy. The $8 billion spent
annually by the FCC's Universal Service Fund is supposed to
advance that goal, but because USF is ultimately paid for by
consumers, we must demand accountability to ensure the funds
are spent responsibly.
Since its beginning during the Reagan Administration,
Lifeline has helped millions of Americans living in poverty get
home phone service. Without this assistance, these families
would not be able to call for help in emergencies or
participate in our economy. In advance of today's hearing, we
heard from victims of domestic violence, homeless veterans, and
families caring for children with disabilities that this
relatively small subsidy has a big impact in keeping them
connected.
Regrettably, some have made up myths about the program to
score political points. Here are the facts. President Obama did
not create Lifeline. The government does not give away free
cell phones or iPads. Nowhere in America, except in Tennessee,
do they call it an ``Obama Phone.'' Eliminating the Lifeline
program or disqualifying wireless services would not reduce our
Nation's budget deficit by a single penny.
Under Chairman Genachowski, the FCC has improved efficiency
and curbed incentives for waste, fraud, and abuse across all
four USF programs. For Lifeline, the FCC has instituted tough
measures that require consumers to demonstrate that they are
eligible for benefits before they can sign up. As a result of
these reforms, the size of the Lifeline program is declining.
That progress must continue, and the Commission should remain
open to additional proposals that could enhance accountability.
We should also continue to modernize the program to meet
the 21st century communications needs of low income Americans.
That is why I am proud to be an original cosponsor of the
Broadband Adoption Act introduced by Representative Matsui. The
bill would allow eligible low income households to apply the
Lifeline support towards broadband services. It also directs
the FCC to prevent waste, fraud, and abuse and does not add a
single new household to the program.
But our oversight shouldn't just stop with Lifeline. Since
1998, the High Cost Fund has distributed over $51 billion to
rural telecom carriers--nearly four times as much as the low
income program. I believe strongly that Americans in rural
areas of our Nation need access to communication services just
as much as my constituents in LA, but there are certainly
equal, if not greater, incentives for waste, fraud, and abuse
in the High Cost Fund.
Under Lifeline, the phone companies get $9.25 per month of
Lifeline support per household, but until recently, the High
Cost Fund paid some carriers thousands of dollars per month per
household. Although the FCC has taken positive steps to reduce
these enormous High Cost Fund subsidies, many phone companies
still receive hundreds of dollars per month per household, and
unlike the Lifeline program, one high cost household can have
multiple subsidized lines. A low income family of five in Los
Angeles is allowed one Lifeline phone to share as an economic
unit. In contrast, a high cost household in Arkansas is
eligible to have multiple subsidized lines going to one
address. The low income family is eligible for a discount of $9
per month, while the household in Arkansas is eligible for
subsidies up to $250 per line, with no limit on the number of
subsidized lines. And the Arkansas subsidy is available
regardless of household wealth.
Now I am not opposed to oversight of the Lifeline program.
In fact, I was one of the members who requested this hearing.
But I am opposed to those who want to turn this into a partisan
issue or to pick on subsidies to low income families while
ignoring the even larger subsidies their constituents receive.
Thank you, Mr. Chairman. I look forward to hearing from our
witnesses.
Mr. Walden. Gentleman's time is expired.
We will now go to--hear from our witnesses, and first up is
Julie Veach, who is the Chief of the Wireline Competition
Bureau, Federal Communications Commission. Ms. Veach, we are
delighted to have you here. Please pull that microphone pretty
close to you, uncomfortably close, turn the button on, and you
are set to go.
STATEMENTS OF JULIE VEACH, CHIEF, WIRELINE COMPETITION BUREAU,
FEDERAL COMMUNICATIONS COMMISSION; PHILLIP B. JONES, CHAIRMAN
OF THE BOARD AND PRESIDENT, NATIONAL ASSOCIATION OF REGULATORY
UTILITY COMMISSIONERS; JESSICA GONZALEZ, VICE PRESIDENT OF
POLICY AND LEGAL AFFAIRS, NATIONAL HISPANIC MEDIA COALITION;
GEOFF FEISS, GENERAL MANAGER, MONTANA TELECOMMUNICATIONS
ASSOCIATION; CHRISTOPHER GUTTMAN-MCCABE, VICE PRESIDENT,
REGULATORY AFFAIRS, CTIA--THE WIRELESS ASSOCIATION; AND BILLY
JACK GREGG, BILLY JACK GREGG UNIVERSAL CONSULTING
STATEMENT OF JULIE VEACH
Ms. Veach. Good morning, Chairman Walden, Ranking Member
Eshoo, and members of the subcommittee, and thank you for the
opportunity to address the FCC's reforms to the Lifeline
program.
For more than 25 years, the Lifeline program has helped
ensure that the neediest among us have access to basic
telephone service, a gateway to finding a job, accessing
healthcare, connecting with family, and calling for help in an
emergency. The program was originally designed for old-
fashioned wireline phone service. In the 2000s, as consumers
increasingly adopted wireless services, the program adapted to
support wireless service for low income families, but adequate
protections were not put in place and the Lifeline program
became a target for waste and abuse.
Seeing the facts, in 2009 the Commission started
overhauling the program to root out waste, fraud, and abuse,
and to modernize it to meet the communications needs of low
income Americans. Building on recommendations from the Joint
Board on Universal Service, in 2011 the FCC initiated
comprehensive Lifeline reforms. The reforms are expected to
produce $2 billion in savings through the end of 2014. In
addition, for the first time, the Commission adopted clear
goals for the program: ensuring the availability of voice and
broadband services for low income Americans, and minimizing the
burden on consumers and businesses who pay for it.
Let me walk you through the major reforms. First, the
Commission took steps to ensure that only one eligible consumer
per household participates in the program. Our rules now
require that low income consumers prove eligibility at the time
of enrollment. We are working closely with states and other
federal agencies to automate this process. The FCC also put in
place an annual recertification requirement to ensure that only
eligible subscribers remain in the program. This reform alone
is projected to save $400 million in 2013. We have also been
working since 2010 to eliminate duplicative Lifeline support.
Through targeted data reviews, we have eliminated 1.5 million
duplicate subscriptions, saving $180 million a year. In
addition, the National Lifeline Accountability Database, which
will be operational by the end of the year, will permanently
detect and prevent duplicative support.
The FCC took several other steps. We eliminated Link Up
support to providers offering service on non-Tribal lands,
support originally intended to defray the cost of dispatching a
technician. This reform resulted in savings of over $93 million
last year. The FCC also adopted new oversight and auditing
requirements, and we are actively enforcing our rules.
Recently, the FCC's Endorsement Bureau pursued cases against
two providers that resulted in an enforcement action over $1
million, and issued nearly 200 warnings to individuals
notifying them that they violated the program rules.
Finally, using savings from the reforms, we launched a
broadband pilot that will provide critical data as the
Commission considers how best to ensure that low income
Americans have access to broadband, which is becoming essential
to access jobs, education, and economic opportunity.
Before closing, I would like to emphasize the critical role
of our state partners. Under the Communications Act, states
designate the providers to participate in the Lifeline program,
including in most cases wireless providers. In addition, states
can operate as laboratories for reform by adopting rules and
safeguards that go beyond the FCC's baseline, and by using
their own systems to detect and eliminate duplicative support.
In closing, I wish to emphasize that access to phone
service increases access to jobs, medical care, and social
services, things that can lift consumers out of poverty. We
look forward to continuing to work with you, our state
partners, other federal agencies, industry, consumer groups,
and the low income community to ensure that our program is
disciplined and effective. Thank you.
[The prepared statement of Ms. Veach follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Walden. Thank you, Ms. Veach. We appreciate your
testimony and the work at the FCC.
We will now go to Mr. Phillip Jones, Chairman of the Board
and President of the National Association of Regulatory Utility
Commissioners. We appreciate not only your testimony, but the
response to our letter as well where we had sought your input
and that of your members across the country, so Mr. Jones, I
thank you and please go ahead.
STATEMENT OF PHILLIP B. JONES
Mr. Jones. Thank you, Chairman Walden. Good morning,
members of the committee, Ranking Member Eshoo. I am pleased to
testify today on the federal Lifeline program.
I am a Commissioner of the Washington State Utilities and
Transportation Commission, and also as the chairman noted,
President of NARUC. We are a group that represents public
utility commissions around the country, 50, plus the District
of Columbia, plus certain territories. Over 200 commissioners
and 8,000 staff are regulating, hopefully with humility, in the
public interest, and we take this responsibility, as Ms. Veach
said, seriously. This is a valuable program. It has been
operated under a federalist construct for 3 decades. It is
bipartisan, but we recognize the need for more accountability
today. And as we said in our letter to you last Friday,
Chairman Walden, we tried to answer your questions on
accountability, and we did a survey. We got 30 responses.
Just let me say a few things about background on this. When
this program was created in 1985 after the breakup of AT&T, the
program applied only to landline service and the opportunity
for abuse was limited under the old AT&T system. There was
little competition in the marketplace. Wireless was not
available. Cable VoIP was not available. But in 2005, the FCC
broadened the program by making discounts available, as Ms.
Veach noted, to non-facilities based carriers. These are
resellers of equipment and networks offered by the wireline
folks. These new entrants, led by a company called TracFone,
developed business plans, for profit business plans, providing
not only low income consumers with free cell phones and free
minutes, but generating healthy profits. Nothing wrong with
that. It was just new. Such plans were not possible or even
heard of in 1985 or 1996. What happened? Explosive growth.
Explosive growth in the low income fund.
In November of 2009, NARUC called for improved verification
practices to overhaul a system grounded in self-certification.
This program is grounded in self-certification. Yes, under the
penalty of perjury, but it is basically self-certification.
Many NARUC members had issues with that, Mr. Chairman, right
from the start, me included, but the FCC chose not to deal with
it then and we have kind of the problem that we have today.
As the FCC, however, continues to work on databases to
eliminate duplicate support and verify eligibility, some states
moved ahead. Ranking Member Eshoo and Congresswoman Matsui,
your State of California has been a leader in this regard. 2006
they started a new program on verification. You may disagree
because 500,000 people were de-enrolled, but they really
stepped up to the plate even before the FCC acted.
So there are five states now that have opted out of the
FCC's program. Vermont is included, Representative Welch, and
California has opted out of this new order last year. And at
least 11 states social service databases are being used to
confirm consumer eligibility at the front end, including my
State of Washington. More states are considering establishing
such databases, but the cost can be prohibitive and the
expectation of federal databases may cause some states to avoid
the cost of creating their own.
I was pleased when the FCC took action on Lifeline in 2010,
and let me commend the FCC for referring this to the Joint
Board. The Joint Board process with the states was set up to
deal with difficult technical issues like this. I note at the
time Ray Baum served as the Commissioner. He was very active on
the Joint Board, and I think Ray would agree with me that the
Joint Board process for Lifeline worked well. Referred to the
Joint Board, came back with a recommended decision within 6
months, record time, and then the FCC--as Julie said, the FCC
acted on it. This is a textbook example of how the
congressionally mandated Joint Board process should work.
We have some results in the State of Washington. I won't
dwell on those now. I can respond in questions, but about 35,
37 percent with one carrier, 25 percent with another. They
either didn't respond or they were de-enrolled last year. So
this certification and recertification process does work.
I have some questions about why people don't respond. I
think there are some legitimate concerns about why these people
don't respond. Maybe a homeless person without an address. It
may not be addressed to the proper person. The carrier may not
have the resources to follow up. And I think legitimate people
who qualify at 135 percent of the federal poverty guidelines
should get this service.
So in closing, I think it is a valuable program. I commend
Julie and the FCC staff. They worked hard on this. As I said,
this is a shared responsibility--states, FCC, carriers, low
income groups. So I look forward to the questions and answers.
Thank you.
[The prepared statement of Mr. Jones follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Walden. Thank you, Mr. Jones. We appreciate, again, the
work of your organization and you personally.
We will now move to Ms. Jessica Gonzalez, who is the Vice
President of Policy and Legal Affairs for the National Hispanic
Media Coalition. Ms. Gonzalez, we are delighted to have you
here today. Please go ahead with your testimony.
STATEMENT OF JESSICA GONZALEZ
Ms. Gonzalez. Thank you. Thank you, Chairman Walden----
Mr. Walden. Go ahead and push that little button there.
Ms. Gonzalez. Thank you, Chairman Walden, Ranking Member
Eshoo, members of the subcommittee. I am Jessica Gonzalez of
the National Hispanic Media Coalition. We are an organization,
a nonprofit organization that scrutinizes telecommunications
policies through the lens of how they impact Latinos and other
people of color.
The question posed by today's hearing is whether the
Lifeline program is money well spent. I answer with a
resounding yes.
Lifeline has an important goal to ensure that all people
have access to affordable communications. It is a treasured
tool that achieves broad societal goals, such as upward
mobility. It positively and directly affects our economy,
employment, healthcare, public safety, strong families, civic
participation, and education.
The idea that we as a country should remove barriers so
that all people can access communications is not a new one. In
fact, the concept dates back to the Postal Act of 1792.
Lifeline's roots are in the Reagan FCC, which created Lifeline
at the behest of a bipartisan group of Congressmen and
Senators. In the Telecom Act of 1996, Congress further codified
the concept by establishing the Universal Service Fund, stating
that consumers in all regions of the Nation, including low
income consumers and those in rural, insular, and high cost
areas, should have access to telecommunications and information
services. And in the aftermath of Hurricane Katrina, the Bush
FCC used USF monies to support prepaid wireless service, and
ensure that those displaced by the storm would stay connected.
Lifeline now provides phone service to more than 15 million
people. Who are these people? According to one provider, most
of them have an annual household income of less than $15,000
per year. Nearly \1/3\ are over the age of 55, and over \1/3\
are disabled.
Stories in the media of corporate abuse for profit have
drowned out the voices of the very real people that use
lifeline as a tool to improve their lives and move away from
government assistance. I sit here before you this morning to
tell their stories.
The story of a disabled mother from Tennessee caring for a
child with Down's Syndrome who said it gives me peace of mind
to know that I can pick up the phone and call for help. The
story of a veteran and double amputee who uses wireless
Lifeline to coordinate doctor's appointments and communicate
with family while away from home. A single father who was laid
off, but secured a job in just a few months with his Lifeline.
A pediatrician in Boston who treats fragile children living in
shelters, in public housing, and on the streets. She can
monitor those children because of wireless Lifeline service. A
mental health therapist in Baltimore who explained that
Lifeline could have helped the day that one of her third grade
clients attempted suicide at school. His mother had no phone
and was difficult to reach that day.
I think you get the picture. The vast majority of Lifeline
recipients are grateful seniors, deserving veterans, and many
folks who are going through the hardest times in their lives,
facing job loss, illnesses, disability, and family tragedies.
For these people, Lifeline literally lives up to its name, and
must continue.
Speaking from personal experience, I used Lifeline about 10
years ago after being laid off from my teaching job. I
subscribed for a very brief period of time, but the media isn't
telling my story because it isn't sensational. I used Lifeline
to enhance my education, and today I am an attorney, and I,
like everyone else I know that has ever relied on a government
service, was not flaunting it around town. In fact, if
anything, I was embarrassed about it. I wanted to get off the
assistance as soon as I could and never look back, and that is
what I did until today when I realized that voices like mine
are going unheard to the detriment of this important program.
So yes, Lifeline is money well spent.
Thank you, and I look forward to your questions.
[The prepared statement of Ms. Gonzalez follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Walden. We appreciate your testimony, and look forward
to coming back with some questions, I am sure, from all--to all
the panel members.
We will now go to Mr. Geoff Feiss, who is the General
Manager of the Montana Telecommunications Association. Mr.
Feiss, we are glad to have you here today as well. Please go
ahead with your testimony.
STATEMENT OF GEOFF FEISS
Mr. Feiss. Thank you, Mr. Chairman. It is a pleasure and it
is an honor to be invited to testify.
Rural telecommunications providers are pleased to support
the Lifeline program. We strongly endorse the principles of
Universal Service, which are aimed at ensuring that all
Americans have access to advanced communications services no
matter where they live, and regardless of their income. The
Lifeline program not only is the law, it is good policy. The
program has been successful in enabling low income Americans to
share in the many benefits of access to vital communications
services.
It is well known that the progress has suffered from
exponential growth in recent years. While other Universal
Service program funding has been flat over the years, Lifeline
support exploded from $800 million to $2.2 billion in just a
few years, almost entirely because of a rapid influx of prepaid
wireless providers into the program. The number of wireless
Lifeline providers grew from 41 in 2004, to nearly 700 today.
The contribution factor has grown commensurately because of
what Senator McCaskill terms ``the wireless explosion.''
Continued growth of the Lifeline program threatens to
jeopardize the integrity of the Universal Service Fund itself,
including essential support for broadband investment in our
Nation's schools and libraries, rural healthcare facilities,
and high cost communities.
The FCC last year took important steps to mitigate waste,
fraud, and abuse that plagued the program by releasing the
Lifeline reform order. The savings attained by the order are
substantial. What would have been a $2.4 billion Lifeline
demand at the end of 2012 was reduced to $2.2 billion, and the
savings continue to come in. In fact, it appears that the
Lifeline program funding may be less than $2 billion in 2013.
But there is an end to these anticipated savings. While
most of the savings from the reform order will have been
achieved by the end of this year, there are many factors that
threaten to put the program back on a growth path. For example,
at least some portion of subscribers who were de-enrolled at
the end of 2012 can be expected to reenroll in 2013 because
they neglected to recertify during the recertification period.
Second, the eligibility base has been expanded
substantially to include several new programs. In Montana, at
least anecdotally, we are seeing considerable growth in
subscribership as the result of this expanded eligibility.
Third, if broadband access becomes a permanent part of the
program, we can expect further growth in demand.
Fourth, only about 55 percent of those consumers who are
eligible for Lifeline service actually subscribe. It may be
unreasonable to expect 100 percent participation, but it is not
unreasonable to anticipate greater growth.
And finally, states and the FCC continue to designate
Lifeline-only prepaid wireless providers as eligible to receive
Lifeline support. There are two such applications in the
pipeline and Montana alone.
I submit that the program continues to offer considerable
financial incentives for prepaid wireless providers to enter
the market. First, while the FCC has made it a priority to
transform Universal Service to support broadband investment,
they have waived the requirement that Lifeline providers make
any investment in facilities at all. Senator Pryor has called
for the elimination of support for what he calls these
``virtual networks.''
Second, the second financial incentive attracting prepaid
wireless Lifeline-only providers to the program is found in the
level of support that these providers receive. That is, prepaid
wireless Lifeline-only providers receive $9.25 per subscriber,
regardless of what it costs to provide service. Since these
providers can offer their Lifeline service for free, it is
reasonable to assume that $9.25 is more than enough to cover
their costs. And by the way, there is nothing in the law that
defines comparable rates as free.
The Lifeline support mechanism, in my opinion, is similar
to the identical support mechanism in the high cost program.
When the level of identical support for competitive carriers
reached $1 billion, half the amount of the Lifeline program,
the FCC froze high cost identical support in 2008, and the
Universal Service reform order released at the end of 2011, the
FCC eliminated identical support altogether, saying that the
level of support received under the mechanism ``bears no
relation to the efficient cost of providing mobile service.''
I believe the same logic applies to the amount of support
provided to prepaid wireless Lifeline-only providers in the
Lifeline program. Thus, I suggest that the FCC could eliminate
the Lifeline identical support mechanism. The FCC either could
make Lifeline support cost-based for prepaid wireless
providers, or it could establish a default benchmark level of
$3 per subscriber. Providers could submit cost data to the FCC,
demonstrating why $3 is insufficient. A $3 benchmark could save
the Lifeline program as much as $1 billion, while saving the
same number of--while serving the same number of qualified low
income consumers. Or, if the program were capped at today's
level of around $2 billion, the Lifeline program would have
room for considerable future growth in low income
subscribership, and/or expansion of the program to include
broadband access. Thus, any further growth of the program would
be curtailed without putting additional pressure on the
contribution factor or jeopardizing the other goals of
Universal Service.
Thanks again for the opportunity to testify. I look forward
to any questions.
[The prepared statement of Mr. Feiss follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Walden. Thank you, Mr. Feiss. We appreciate your
comments and testimony.
We will now turn to Mr. Christopher Guttman-McCabe, who is
Vice President, Regulatory Affairs, CTIA--The Wireless
Association. Welcome.
STATEMENT OF CHRISTOPHER GUTTMAN-MCCABE
Mr. Guttman-McCabe. Thank you, and good morning, Chairman
Walden, Ranking Member Eshoo, and members of the subcommittee.
On behalf of CTIA, I appreciate the opportunity to be a part of
today's conversation about the Lifeline program.
Throughout its history, the Lifeline program has advanced
the goal of ensuring that every American has access to
telecommunications services, and the wireless industry plays an
increasingly vital role in furthering that objective.
Nearly 3 decades after its creation and through an
evolution shaped by Congress and FCC leaders from both parties,
data demonstrates that Lifeline has been a critical component
in the effort to expand telephone subscribership, particularly
among those who live at or below the federal poverty level. But
in spite of this progress, our work is not yet done. According
to 2012 data from the Center for Disease Control, there are
still several million American households that lack any phone
service, something essential for full participation in the
modern economy and the promotion of public safety.
While the Lifeline program has played an important role in
driving penetration, its growth during the recent recession has
led some to question its value and cause what has traditionally
been a program with broad bipartisan support to become
politicized. This is unfortunate and I would like to take a
moment to clear up two common misconceptions that skewed
discussions over the program.
The first misconception about the Lifeline program is that
it relies upon taxpayer funds. This idea has been repeated in
the press and on talk radio with such frequency that it is
simply accepted by many as true. It is not. The fact is that
like all Universal Service programs, Lifeline is funded through
levies imposed on providers of interstate telecom services.
Wireless companies, wireline companies, and VoIP providers
contribute to the fund and generally recover those
contributions from their end user customers. Funds are remitted
not to the U.S. Treasury, but rather to USAC, an independent
organization established by the FCC to administer the four USF
programs. Congress appropriates no money for the fund, and
monies collected and distributed by USAC do not impact the
federal budget, the deficit, or the debt in any way. Because of
that, increasing or decreasing the size of the Lifeline
program, or any other component of the overall USF program,
will not have an impact on the federal budget.
The second frequent misconception about the Lifeline
program is that it provides free cell phones to people. Some
have taken this untrue assertion so far as to claim that
government is subsidizing iPhones or will soon be subsidizing
low income people with iPads. The reality is that some carriers
provide a lower end device to eligible consumers. Lifeline
support is attached only to the service, not to the devices.
I hope you don't take my pushback on these points as a
suggestion that we don't take the efficient operation of the
Lifeline program seriously, because we do. The fact is that
wireless consumers provide nearly half the funds that are
collected for USF, and thus CTIA's members are very interested
in assuring that all USF programs are run efficiently and with
full accountability.
Because CTIA is committed to the responsible stewardship of
the Universal Service Funds, we supported the FCC in its effort
to enact new Lifeline accountability measures. These reform
measures include rules eliminating Lifeline support for more
than one connection per household, a new monthly usage
requirement, new standards for determining Lifeline
eligibility, and new requirements for ETCs to review Lifeline
subscribers' eligibility, something carriers previously were
prohibited from doing. The FCC also committed to the creation
of a database to prevent duplication of support across carriers
in real time, as well as to create a nationwide eligibility
database to ensure that only qualified consumers receive
benefits. We look forward to the completion of these two
efforts.
Going forward, CTIA believes that the most important step
that can be taken to safeguard the program and prevent fraud is
for the FCC's 2012 reforms to be fully implemented. This is
particularly true with respect to the creation of the duplicate
and eligibility databases, which must be completed as
expeditiously as possible.
Over the nearly 3 decades since its creation, the Lifeline
program has served an important purpose and enjoyed bipartisan
support. CTIA is committed to working with the subcommittee and
the Commission to advance this effort in a way that is
technologically and competitively neutral and fiscally
responsible. We believe this a laudable and attainable goal.
Thank you. I look forward to your questions.
[The prepared statement of Mr. Guttman-McCabe follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Walden. We appreciate your testimony as well.
For our final witness today, we will go to Billy Jack
Gregg, who is head of Billy Jack Gregg Universal Consulting. We
appreciate your testimony.
STATEMENT OF BILLY JACK GREGG
Mr. Gregg. May it please the committee, as you have heard
here this morning, there are two sides to the advent of prepaid
wireless providers as part of Lifeline. On the one hand,
prepaid wireless service has been the most successful measure
ever adopted to expand Lifeline service to low income
consumers. On the other hand, prepaid wireless service has
opened the door to numerous abuses and caused a rapid rise in
the cost of the Lifeline program. Some states currently have
more--have Lifeline subscribers far in excess of the eligible
number of households. At the same time, other states have seen
a decline in Lifeline subscribers, even though the number of
low income households has risen.
[Slide shown.]
The first slide you are looking at today shows graphically
the increase in the low income fund since 2006. Prior to 2008,
the line that you see went off to the left in almost a flat
manner, but then beginning with 2009 with the advent of prepaid
wireless service, we see the rapid escalation, almost a
tripling to $2.2 billion. Virtually all of this increase has
been caused by payments to prepaid wireless carriers.
Currently, payments from the fund average 58 percent of its
potential maximum size based on the number of low income
households in each state. However, Lifeline payments to the
states vary widely. Six states currently receive more in low
income support than the potential maximum indicated by the
number of low income households in those states, and these are
shown as--at the top of the slide. These states are Oklahoma,
Maryland, Alaska, Louisiana, Arkansas, and Georgia. On the
other end of the spectrum, the six states at the bottom of the
slide currently receive only 10 percent or less of their
potential support: Montana, South Dakota, Nebraska, Colorado,
Hawaii, and Wyoming.
The greatest increase in Lifeline subscribership has
occurred in Maryland. In the third quarter of 2009, there were
only 6,504 Lifeline subscribers in Maryland, representing only
2 percent of the eligible low income households in that state.
By the third quarter of 2012, the number of Lifeline
subscribers in Maryland had risen almost 100 fold to 645,000.
Moreover, the current number of Lifeline subscribers in
Maryland is almost double the number of low income households
in the state, as shown by the graph. The dashed red line is the
number of eligible low income households. The blue line is the
number of Lifeline subscribers by quarter. I would note,
however, that in the last quarter shown that the number of
subscribers drop by 100,000. This is the first quarter that the
FCC's reforms took effect. We can expect to see a continuation
of this trend as the quarters progress.
In spite of the nationwide increase in Lifeline subscribers
over the past 3 years, the number of subscribers in 11 states
actually declined, with the largest drop occurring in
California, traditionally one of the largest recipients of
Lifeline support. Over the past 3 years, California has lost
almost half a million Lifeline subscribers. At the same time,
the number of low income households in California has risen by
over 400,000. Once again, you can see the dashed red line is
the number of eligible households, the blue line is the number
of Lifeline subscribers.
The FCC decisively addressed numerous flaws in the low
income program in its 2012 Lifeline reform order. In order to
build on the positive aspects of prepaid wireless Lifeline
service, while at the same time guarding against further abuse
of the system, the following additional measures should be
adopted.
One, the low income fund must operate within a budget, like
all the other constituent funds of the Universal Service Fund.
Two, the overall budget for the low income fund should be
composed of caps on support to individual states. If demand in
a particular state exceeds the cap, then payments to carriers
in the state should be proportionally reduced to fit under the
cap.
Third, the FCC should conduct multiple pilot programs to
determine whether a required minimum contribution from Lifeline
recipients is appropriate, and if so, at what level.
Fourth, the FCC should explore ways to provide incentives
for state involvement in providing Lifeline service to as many
eligible customers as possible.
Fifth, the Lifeline subsidies should be portable and
recipients should receive the same level of subsidy, regardless
of the service they choose: landline, post-paid wireless,
prepaid wireless, or broadband.
And finally, federal and state governments should continue
to promote participation by the low income customers in the
Lifeline program by removing barriers to participation and
encouraging automatic enrollment.
In order to continue the public policy success of the
Universal Service Fund and the low income fund, we must
continue to support access, not excess.
Thank you.
[The prepared statement of Mr. Gregg follows:]
[GRAPHIC] [TIFF OMITTED]
Mr. Walden. Mr. Gregg, thank you for your testimony, and
for the charts, graphs, and data behind them, and for your
recommendations.
We will now--and I want to thank all the witnesses for your
testimony again.
I will start out with questions. Ms. Veach, in the Lifeline
reform order, the Commission said the reforms would put the
Commission in a position to determine the appropriate budget
for Lifeline in early 2013. Well, we are kind of into early
2013. We are about out of early 2013. What is the status on the
budget? When will we see that?
Ms. Veach. Thank you, Mr. Chairman, and as you say, when
the Commission adopted the reforms in 2012, the Commission
unanimously determined not to put a budget on the program----
Mr. Walden. Right.
Ms. Veach [continuing]. Until it had an opportunity to
assess the impact of the reforms. Rather, the Commission
adopted a savings target for 2012, which----
Mr. Walden. Right.
Ms. Veach [continuing]. As the Bureau reported, we
exceeded. And at the same time, the Commission wanted to assess
the reforms and also has sought further comment on what the
optimal rate should be. So the specific timing of when the
Commission will move to a budget is up to the commissioners.
Mr. Walden. Is what?
Ms. Veach. Is up to the commissioners.
Mr. Walden. So in other words, you don't know when we are
going to see a budget.
Ms. Veach. We continue to assess the impact of the reforms.
Mr. Walden. Right. I don't mean to be rude, but the order
said early 2013. We kind of expect the FCC to follow its own
timelines there, and so we will keep pressing for that budget
because I personally think that is important to have.
Do you all--just quickly down the row in kind of a John
Dingell yes or no answer, do you think it is important for the
FCC to develop a budget in this area?
Mr. Jones?
Mr. Jones. Yes, I think it is important to have a budget,
but before we adopt a budget there is a very technical and
complex program, and I would urge the FCC to work with states
that are reforming it. I think we proposed 15 ways----
Mr. Walden. Yes, you did.
Mr. Jones [continuing]. You could prohibit activation of
phones, you could cut them off at 75 percent, benchmark for
reactivation. There are ways instead of a top down approach, a
bottoms up approach that may work.
Mr. Walden. All right. Ms. Gonzalez, real briefly here on
budget. Yes, no?
Ms. Gonzalez. Yes, but I think first the FCC needs time to
assess the reforms, and we wouldn't want it to set an arbitrary
number that would cut anyone off from service.
Mr. Walden. Mr. Feiss?
Mr. Feiss. I agree, yes.
Mr. Walden. Mr. Guttman-McCabe?
Mr. Guttman-McCabe. You know, I think--echoing some of the
earlier points, we need to see what the status is of the
reforms, and I don't think this is simple. I mean, I think when
you look at what do you do with the next person who becomes
unemployed if you set a budget that limits the amount of
support? You have a difficult decision to make.
Mr. Walden. Mr. Gregg?
Mr. Gregg. Yes, the total maximum size of the non-tribal
Lifeline fund right now would be $2.9 billion if every eligible
household received a year's worth of subsidy at $9.25. However,
there are different ways you can cut that. You could establish
a two-tiered system where the Federal Government would supply
up to $2 billion of tier one support, basic fundamental
support, and then an additional half billion if the states
would match it. This would provide strong incentives for the
states to pony up some money to help support Lifeline service.
Currently, the reforms may have had the unintended impact
of reducing incentives or creating counter-incentives for
states to participate. In fact, Colorado just eliminated their
Lifeline program about 3 weeks ago, in part because of the
perception that the Federal Government is now paying the entire
cost of the program.
Mr. Walden. So I want to ask, perhaps you, Mr. Gregg, or
Mr. Jones, about the $9.25 rate. Where does that come from? Is
that evaluated on a regular basis? Is it an accurate rate?
Mr. Gregg. The $9.25 is simply an average of what was paid
out at the time the FCC adopted their reform order in 2012.
Mr. Walden. OK.
Mr. Gregg. It had been made up, and as people explained
earlier, originally the Lifeline subsidy was to offset the
subscriber line charge that was imposed when the Bell system
was broken up in the early '80s.
Mr. Walden. Right.
Mr. Gregg. Then, whenever the Lifeline program was included
in statute in the '96 Telecom Act, there were two additional
tiers added. One was an additional $1.75 that was given to all
states if they would guarantee it was passed through to
customers, and then an additional $1.75 based on state
matching. That is what is now gone away----
Mr. Walden. The market has changed so much since '96. In
all competition, Mr. Jones, is $9.25 an appropriate rate?
Mr. Jones. Probably not. NARUC has no resolution on this
point. I will speak for myself. When TracFone came before us
for a prepaid wireless ETC designation, my commissioner staff
and I asked the TracFone people a lot of questions on what does
it actually cost----
Mr. Walden. Right.
Mr. Jones [continuing]. To provide this service, and they
refused to give us any information. Why? Because under law, we
have no jurisdiction over wireless carriers and the FCC rules
do not permit a cost-based determination. So it kind of places
states in a difficult position to decide whether or not it is
cost-based or not. So the FCC just--as Billy Jack said, they
did an averaging of the select $9.25.
Mr. Walden. Mr. Feiss--do you have any comment on this, Mr.
Feiss?
Mr. Feiss. I think Commissioner Jones summed it up. We
don't have the data, but it----
Mr. Walden. So we don't know whether $9.25 is a lot, not
enough, but boy, it sure seems like there are a lot of entrants
in the non-facilities based----
Mr. Jones. Well, just based on our evidence, I mean, we
could have an argument about competition in a subsidy market,
but this is true competition in the subsidy market and I would
conclude that the non-facilities based ETCs are making a
substantial margin on the service.
Mr. Walden. There is a fine line between competition and
gluttony here, I think, so we have to watch for that.
I am going to turn now to my colleague from California, Ms.
Eshoo.
Ms. Eshoo. Thank you, Mr. Chairman.
First, I would like to ask for a unanimous consent request
to submit for the record--we have a long list of support
letters that we would like to have entered into the record.
Mr. Walden. I believe we have them all here, and we will
accede to that request.
[The information appears at the conclusion of the hearing.]
Ms. Eshoo. Thank you very, very much. Thank you to all of
the witnesses. You have given us, I think, excellent testimony
this morning.
Now, I don't know if this was given to all of the members,
but I think our respective staffs received this from the FCC.
It is the Lifeline reform overview, and on page 8, it is very
interesting because it starts with January 2012, and it goes to
April of 2013. And this is the number of Lifeline subscribers
in the millions. Starting in January of '12, it was 15.8. It
peaked August 2012 to 18.2, and the graphs show that it
continues to move down, and at the lowest rate right now in
terms of Lifeline subscribers, it is 13.2 million. So this says
to me that it is moving in the right direction, I mean, that
the reforms are working.
Now, I am trying to figure out what the biggest problem is,
most frankly. There are some wild allegations, full page ads,
pro and con, Obama phones, you know, I think what we need to
stay away from, with all due respect, is simply a disdain for
the President, and then moving that to apply to policies in
telecommunications. I mean, it just doesn't mix. That is like
water and oil. It doesn't make sense. It is not dignified. I
don't want to have anything to do with that.
But what I do want to hear from the witnesses are the
following things. To the FCC, this whole issue of a cap, what
do you think of that? I do think that the chairman has raised a
good point about the budget. When do you anticipate being able
to not only assess the success of the reforms that the FCC is
putting into place so that you can then arrive at a budget? I
don't know about this $9.25. Who has the authority to even dive
into that? I mean, I am hearing that, Mr. Jones, that your
organization can't, that is why you couldn't get an answer. Is
it the FCC or do we need to do oversight and bring people in
and do it ourselves? I mean, I think that that is a legitimate
question.
I also, to Mr. Guttman-McCabe, as you know, I strongly
support cell phone unlocking so consumers can switch carriers
while keeping their existing phones. Given that the Lifeline
program only subsidizes service and not the device, I don't
know how many members know this, but the government does not
provide any device. It is, most frankly, the wireless industry.
I mean, everything is moving to wireless anything, that is why
we are trying to find more spectrum to support all of this. But
wireless industry advertises, right?
Mr. Guttman-McCabe. Correct, yes.
Ms. Eshoo. I mean, you promote this, so----
Mr. Guttman-McCabe. Yes, Congresswoman. I mean----
Ms. Eshoo. I think that such a policy would enable support
dollars to go further and expand the use of the universe of
phones that can be used with the program. So I would like to
know what you think of that.
So maybe Ms. Gonzalez, you want to comment on cap, so why
don't we start with the FCC. Maybe, Mr. Jones, you want to
comment on the several items I have raised, Ms. Gonzalez, and
Mr. Guttman-McCabe. So why don't we go quickly. I have got 32
seconds, but I think the chairman will let you answer.
Mr. Walden. Quickly.
Ms. Veach. Thank you, Ranking Member.
Ms. Eshoo. I got it all in.
Ms. Veach. The issue of the cap is tied to the issue of
what the optimal subsidy amount should be. The Commission is
currently considering, after taking in public comment, the
$9.25 rate and----
Ms. Eshoo. So you have the authority to review that rate,
and if you think it needs to change, you have the authority to
change it?
Ms. Veach. That is correct.
Ms. Eshoo. And when do you think you are going to complete
that?
Ms. Veach. I can't speak as to when the commissioners----
Ms. Eshoo. This year?
Ms. Veach [continuing]. Would vote on that. It is just not
within my ability to say.
Ms. Eshoo. Can you get back to us on it?
Ms. Veach. That decision is highly relevant to what the
budget for the program should be.
Ms. Eshoo. Can you get back to us on that?
Ms. Veach. I will do so.
Ms. Eshoo. Thank you.
Mr. Jones. Just quickly, NARUC does not have a position
whether the $9.25 is appropriate or not. As I said, we operate
through resolution. We have two resolutions on plank, but
speaking for myself, I think Julie hit the nail on the head.
They do have the authority. It has to go to the five
commissioners--four commissioners, whatever it is going to be
right now with the chairman leaving. But the states could offer
their help. As I said, we do--I think certain states have had
better luck than we have in getting a composition of rates, and
as Mr. Feiss said, in Montana. Certain states may help out, so
this may be worthwhile to refer the issue to the Joint Board,
again, on Universal Service, to work out some of these details.
Ms. Gonzalez. To the extent that a cap may cut eligible
people off from service, it is a bad idea, and certainly right
now when the FCC has not fully implemented the reforms.
Ms. Eshoo. Thank you.
Mr. Feiss. Congresswoman, it is--this is the only program
that doesn't have a budget, and ironically, one could argue
that the FCC actually did it right with Lifeline to implement
reforms first, see how the reforms work, and then determine
what the appropriate level of that program is. They have not
done that with the other three programs. I wish they had, but
they haven't, so it is probably time to consider a budget and
work from there.
Ms. Eshoo. Thank you.
Mr. Guttman-McCabe. Congresswoman, I think it is fair to
point out there has been a lot of discussion and debate about
the provision of phones. The carriers subsidize the phones
themselves, and I have two here. I brought them just so people
can look. These phones will not make you the envy of your
friends and neighbors, oK. They are kind of circa-2000 at best.
Hopefully you can't see who the manufacturers are so I don't
get myself in trouble, but the reality is, these are not the
phones that get you advanced access to, you know, to
communications of the future. They are $19.95 at retail at
most. They are designed to do exactly what the program was
designed for, which is to get you access to basic
telecommunications.
So anyone wants to see them afterward, I am happy to bring
them to you, but you know, you can see we are not talking
iPhones, we are not talking iPads, we are talking basic
service. And that is funded by the carriers who participate in
the program.
Ms. Eshoo. Thank you.
Mr. Gregg. Congresswoman, as you saw in the second slide,
we need to work on both ends. We have some states that have
more Lifeline subscribers than there actually are low income
households. Obviously, that subscribership has to come down.
But we also have many more states that have fewer Lifeline
subscribers than there are low income households. So we need to
work on increasing participation there.
Ms. Eshoo. Thank you very much to all of you.
Mr. Walden. OK. We will now turn to the vice chair of the
subcommittee, the gentleman from Ohio, Mr. Latta.
Mr. Latta. Thank you, Mr. Chairman, and again, thank you
very much to our panel for being with us today. It has been
very, very informative and again, thank you for being here.
Mr. Jones, if I could start with you, if I may. In your
testimony, you listed a number of additional reforms that the
NARUC members have suggested to improve the integrity of the
Lifeline fund, including consumer co-pays, a return and
requirement that carriers have their own facilities, reforms to
the marketing practices of Lifeline carriers, and procedural
requirements for carriers enrolling new Lifeline customers.
Could you elaborate on those suggestions?
Mr. Jones. Thank you. Yes, I could. Again, NARUC does--
operates by resolution. We do not have resolutions on point on
these 15 recommendations that we made to you. We want it to be
responsive. So these are ideas for your consideration, you and
your staffs. But speaking for myself, I will mention three.
The national duplicate database is really important to get
up and going. I would encourage the subcommittee to have strong
oversight on Ms. Veach's program. USAC announced this week that
they were going to finish the duplicate database by the end of
the year. Let's get it done. It was supposed to be done in
February. We need to get that up and going. So the database
development, and then you have the other database, the
eligibility database. That is going to be more complex because
the order, as you know, introduces three more benchmarks,
including low income energy assistance, to feed into this
massive database for the initial eligibility. So it is very
important to get that eligibility database up and going.
The other thing I would urge them to do is rescind the
blanket forbearance on the facilities requirement given to
prepaid wireless carriers. This was done in 2005. The FCC could
rescind that if the subcommittee plays a useful role in
providing oversight. That is something you could do.
The other thing you could do is prohibit activation of a
handset before the initial eligibility is done. It doesn't make
sense to me--again, speaking personally--for a handset to be
activated before either a state database or a national database
is queried. You have the four last numbers of the Social
Security number or you have a subscriber ID. I mean, this is
just kind of commonsense business and database. You should be
able to develop a system to query, and if that person is a
duplicate, you can get it at the front end and not activate the
handset.
Those are three.
Mr. Latta. OK, thank you.
Mr. Guttman-McCabe, if I could turn to you. Senator Coburn
brought to life in disturbing press coverage out in Oklahoma of
people with model subsidized cell phones. I guess the question
is how widespread of abuse is this, and is the problem related
to vendors who advertise free cell phones in low income
neighborhoods, and what is the industry doing, if anything, to
combat that problem? And what is or could the FCC also be doing
to curb that abuse?
Mr. Guttman-McCabe. Sure. Thank you, Congressman.
First of all, I think at times people tend to conflate bad
actors and MVNOs, people that don't have networks, and conflate
MVNOs with bad actors. There are a lot of non-facilities based
carriers who are actually good actors, do a very good job with
this program as Mr. Gregg suggested, actually move services out
to people who otherwise wouldn't get them. The reality is there
are some bad actors in this program, and one thing you will
hear from us, and you may hear me say it, depending upon how
many times I am asked is if we can have responsibility,
efficiency, and accountability in this program, we are all for
it. I mean, 100 percent. We think it needs to happen. There
can't be states like Mr. Gregg suggested have significantly
above 100 percent participation above the poverty level.
So for us, we want a program that is smart, intelligent,
well-targeted, that allows for a range of technology neutral
participants. If companies decide that they want to subsidize,
you know, a relatively inexpensive phone to allow the person to
get access to it, I don't think that is much different than
someone who gets a free landline phone as part of their
landline service. So, looking at wireless differently, I find
it concerning because it is no different than--I don't pay for
my landline phone, in essence, in my house, which I still
happen to have. It seems to be moving towards the minority. But
you know, we are here talking about potentially removing
wireless from the program at the same time that all of us are
reading articles about the overwhelming majority of people are
beginning to move away from a landline phone. I just read this
week that the landline phone is now the third most popular
phone in the U.S. households, wireless being number one, VoIP
being number two, and then landlines.
So there definitely are things that have to be rooted out,
you know. I would question the advertising of some of the
companies and the marketing of some of the companies that are
providing the service, but I don't think you can say that MVNO
equals bad actor, because there are a great deal of them that
are very good actors and are really doing a positive thing with
this program. And if you look at their subscribers, I mean,
when 79 percent of your Lifeline subscribers have a household
income below $15,000, I think you are targeting the right
people. I think that is the good that this bipartisan program
was designed for.
Mr. Latta. Thank you. Mr. Chairman, my time is expired and
I yield back.
Mr. Walden. Thank the gentleman for his questions.
We will turn now to the gentlelady from California, Ms.
Matsui, for 5 minutes.
Ms. Matsui. Thank you, Mr. Chairman.
First of all, I just want to ask a quick question of Ms.
Veach. Is there such a thing as a free government phone? Yes or
no?
Ms. Veach. No, there is not.
Ms. Matsui. OK. Is it accurate to say that the Lifeline
program is not contributing to any current growth within the
USF fund at this point?
Ms. Veach. That is correct.
Ms. Matsui. OK. Mr. Guttman-McCabe, I strongly believe that
Lifeline should be reformed and modernized in a responsible
manner, and it must account for America's ever-reliance on the
Internet and innovation economy. One hundred million Americans
are still not adopted to broadband, and coupled with the fact
that nearly 80 percent of available jobs are only accessed by
online applications, and both need to be addressed. Do you
support the concept of modernizing Lifeline to support
broadband?
Mr. Guttman-McCabe. Congresswoman, I think--and I
congratulate you. It is a conversation that we as a country,
and particularly you as policymakers, have to have. I mean, the
country is absolutely moving in that direction. The reality, as
I said a moment ago, is that if people aren't choosing wireless
phones, they are sort of choosing sort of VoIP or over the top
phones with their broadband connection. You know, we are seeing
a movement in that way that makes absolute sense for us to have
this discussion, and we are having it as part of the broader
Universal Service program.
Ms. Matsui. No, and that is good, because I find it kind of
interesting we are having this discussion about landlines and
wireless and as we all know, that most of us have been moving
to wireless for quite some time. And now we are also talking
about broadband too, and everybody seems to want to do that,
but you got to get there and if we are stuck in the landline
business, we won't get there to the right degree.
I would also like to ask you, too. A study by the
Telecommunications Policy Institute found that 59 cents of
every dollar spent in the USF High Cost Fund goes to the
carrier recipient's overhead and administrative expenses. That
is only 41 cents out of every rural USF subsidy dollar goes to
building rural networks. But Lifeline offers a discount on the
monthly price of service. One hundred percent of every Lifeline
subsidy dollar goes to reducing a low income consumer's monthly
phone bill.
So given these differences, wouldn't you say that Lifeline
is already the far more efficient of the two programs, and that
we should devote as much attention to reducing waste, fraud,
and abuse in the subsidies we pay to carriers as we are in the
subsidies paid to low income consumers?
Mr. Guttman-McCabe. Yes, I think that is a key--those are
key points to focus on. I think that gets lost at times, but
the Lifeline subsidy goes directly to the consumer to offset
their bill. You know, Mr. Feiss talked a little bit about cost-
based support and things like that. The FCC has argued against
sort of a race to the top, against a race to say here are my
costs and I should have, you know, some return above that.
I know several of the panelists suggest that we also should
be looking at the High Cost Fund because of the fact that not
all of those dollars are rationally and intelligently spent. I
think you hit a key point, which is the Lifeline program, it is
means-tested, it is designed to target exactly to the people
who need it, people who, you know, we are talking household
incomes in the mid to low teens in the thousands of dollars,
and it is a one-to-one offset. I mean, every dollar that goes
in offsets the cost that they otherwise would pay.
Ms. Matsui. Well thank you very much. I compliment the FCC
on the reforms that have been taking place in, I guess, the
last 8 months in the reduction of, I guess, about $5 million.
And these reforms are taking place, and I think it is timely we
do this hearing. On the other hand, I believe we need more time
to really figure out the real impact of this.
And I also understand, too, that it goes beyond this to a
great degree because it is very uneven. We have states that are
maybe oversubscribed, and other states that, you know, are not
at all to point where we are reaching everyone. And so to me,
this needs to be looked at and studied to a degree that we have
not done yet.
My goal is to ensure that every American that qualifies get
access to one of three things, especially in my bill, that they
are able--landline, wireless, broadband, choose. But we are not
going to make any progress if we get stuck on things like caps
for Lifeline, because Lifeline is a different situation that I
believe even the High Cost Fund, and I am not denigrating High
Cost Fund at all, but I believe that we are looking at
something we want to expand access in a reasonable manner, and
we want to make sure we have accountability there.
So I ask each of you if you are agreed upon that, that
Lifeline needs to be expanded in a reasonable way so we capture
more of the qualified households and not get into a fight about
all about whether or not they are doing the right thing or not.
Are you all agreed that we need Lifeline?
Ms. Veach. Yes.
Mr. Jones. Yes.
Mr. Feiss. Yes.
Mr. Guttman-McCabe. Yes.
Mr. Gregg. Yes, and we should focus on the customer, rather
than the carriers. That is why we should have a straight
subsidy, whatever the level is, and let the customer apply it
to the service that they choose, that meets their needs, and
that way, their choices will drive the market.
Ms. Matsui. OK. You are all agreed on that one?
Mr. Feiss. I think Mr. Gregg's conclusion, access versus
excess, was well said.
Ms. Matsui. OK.
Mr. Jones. Congresswoman, just with the proper
accountability in place.
Ms. Matsui. I understand.
Mr. Jones. We have some strong concerns about the High Cost
Fund being at $4.5 billion. We think that is appropriate, too.
Ms. Matsui. OK. Thank you very much, and I am sorry, Mr.
Chairman.
Mr. Walden. That is all right.
Ms. Matsui. Thank you.
Mr. Walden. It is good to get the answers.
We will turn now to the gentleman from Illinois, Mr.
Shimkus, for 5 minutes.
Mr. Shimkus. Thank you, Mr. Chairman. This is a great
hearing. I like the terminology ``access, not excess.'' I think
probably a lot of us will use that, Mr. Gregg. Thank you for
that.
I actually appreciate the Minority's handing me the letters
and all this documentation. I did go to one comment from
Illinois that said make it more efficient. Don't drop it. There
is a reason it is called Lifeline. So that is where we need to
go, but I don't think you all understand the anger that is out
there in America over this.
I live right next to St. Louis, Missouri, so Senator
McCaskill's responding to this anger of a free phone, and to
say it is not a free phone is not accurate. It is a free phone.
Someone gets a phone and they get minutes and they don't get
billed, for the most part. And in this day and age, people
really have a hard time understanding it. So you all are
supporters of this. You are doing a terrible job of marketing
it, because you have lost the public opinion war on this, and
we can't--and it is tough to get the genie back in the bottle.
Actually, that is why I appreciate the Minority for asking for
the hearing. This is part of that educational process. But you
all got a long, long way to go.
And for Ranking Member Waxman to say no one uses an Obama
phone, he doesn't go to the web. There is an Obamaphone.net
that answers a lot of these questions accurately on who is
qualified and who is--but that is how you pull it up. You got
the Obama phone rap out there, and you can just Google it, and
that leads to this frustration and anger about people getting
free phones. And the free phones are--they are receiving it
based upon rate payers, right? People are paying rates. We are
all paying.
My first question to Mr. Guttman-McCabe, and I am a friend
of the industry, you know that. Can you tell me how many people
have one of these free phones but then use their 250 minutes,
go in, and pay for more minutes?
Mr. Guttman-McCabe. I don't know the answer to that,
Congressman. I think we can--I can see if we can track that
down and get back to you. I don't----
Mr. Shimkus. Some of my friends were not willing to provide
us that information, but let me pose a question. If they get a
free phone and then they can go in and pay for doubling of the
minutes, does that pose a question whether they should have a
free phone or not?
Mr. Guttman-McCabe. Well I think if you go back and you
look at--and the Commission has put in some of these, you know,
some of these measures, I think----
Mr. Shimkus. Should part of the measures be are they
purchasing more minutes?
Mr. Guttman-McCabe. Well, I think the measures should be do
you satisfy some threshold to qualify, and so if the
threshold----
Mr. Shimkus. Let me ask another question to your industry.
What incentive is there for the industry to do due diligence on
qualifications to receive an Obama phone?
Mr. Guttman-McCabe. Well in the past, not only was there
not--I won't say there was not incentive. We weren't allowed to
do eligibility requirements.
Mr. Shimkus. Well, and that is a problem.
Mr. Guttman-McCabe. It was self-certification.
Mr. Shimkus. Right.
Mr. Guttman-McCabe. But we--in 2010, we pushed for this, so
this is not something that, you know, came about on its own.
This is something we fully endorsed and strongly believe and
continue to push the Commission for an eligibility database and
a duplicates database. Because I agree with you, we are not
winning the PR discussion. It is about having something that is
efficient and accountable, and yet still works.
Mr. Shimkus. Let me give you the exact thing. We are going
to have issues with the young new staffers here in Washington,
D.C., and we are going to get to offer them, because of the
income qualifications, they will be able to qualify for a free
phone based upon how some of us compensate our employees and
our staff, and Medicaid. What a great benefit package to come
to work in Washington with that venue.
Ms. Veach, the final question that I have is there is
discussion about expanding this to broadband. Do you know what
percentage of current Lifeline subscribers already have
broadband service?
Ms. Veach. Congressman, we don't track individual
subscribers, so I don't have that data.
Mr. Shimkus. OK, I think we probably would try to look
forward to see if you can then provide that at some time,
especially as we move in this debate.
And with that, I yield back my time.
Mr. Walden. Now turn to the gentleman from New Mexico, I
believe. Mr. Lujan, I think you are up next.
Mr. Lujan. Thank you very much.
And I don't know how many of you have been to
Obamaphone.net, but here it is, and Obamaphone.net looks like--
it is a nice Web site, nice colors. I like the color blue, and
it is in here quite a bit. And it has this great picture of
President Obama up on top, but when you start scrolling down,
it says sign up now. So it says the Obama phone government
benefit program. And when I see this notion that says sign up
now, I would think, as a consumer, that if I am on this Web
site and I click there, that I am signing up now for a phone.
But if you scroll down to the bottom of this Web site--and I am
glad I have good eyesight, because it is really small--it says
``Obamaphone.net is an independently owned and operated Web
site that is in no way affiliated with the United States
government, departments within the Federal Government, or any
state or local jurisdiction located inherently therein.'' And
then it kind of runs away, because I guess the footnote is not
needed as much as the rest of the propaganda on this Web site.
And so I wonder if it is fraudulent or not for us to put on
a Web site that appears to be a federal Web site telling
consumers they can sign up for a Lifeline phone, collecting
information that is in no way affiliated with the Federal
Government, as opposed to encouraging people who go to this Web
site, I encourage you to go look at it so you never go to it
again, so that we can get through this. That is part of what
the FCC is trying to do. We are trying to crack down on waste,
fraud, and abuse here, and we shouldn't direct people into
areas that are purported to maybe sign up for a Web site that
are probably signing up for sharing their consumer information
in one way or another. I tried to get to the privacy notice on
the site, but I couldn't find it. I guess I am not savvy
enough. But I was able to get to that disclaimer at the bottom.
So I just think, Mr. Chairman, that as we talk about these
sites and what is happening here, that we agree that there are
important programs across the Federal Government that are
needed. I come from a rural state. This has been purported to
be a program that is abused in only urban parts or needed in
urban parts of the United States. I think that there are some
letters that have been submitted, and Mr. Chairman, I would ask
unanimous consent to submit two letters from two rural
organizations, the National Grains on the Order of Patrons of
Husbandry, and Rural Broadband, and in it, Mr. Chairman, one of
the letters cites that ``Lifeline is an essential to the
success of our country because it ensures that even the most
unserved areas are safe, able to communicate, and included.
Simply put, any cuts to Lifeline will leave rural, tribal, and
low income communities more vulnerable and locked out of full
participation.'' And I also have two letters from two tribes,
Gila River Telecom and Mescalero Apache Telecom, Incorporated,
that I would like to ask unanimous consent to submit into the
record.
Mr. Walden. I believe those were part of the Minority's
packet that has already been submitted. We went through that.
Mr. Lujan. Thank you very much. I thank Ms. Eshoo for her
wisdom, as well as for her submissions, so thank you and the
staff very much, Ms. Eshoo.
And so with that, Mr. Chairman, I want to--I have a few
questions to Mr. Jones, and I appreciate you being here, Mr.
Jones, having been a former member of NARUC myself when I was
fortunate to be part of the New Mexico Regulatory Commission,
which is the equivalent of utility commissions across the
country.
You stated in your testimony that ``The ability of some
states to audit and/or investigate waste, fraud, and abuse may
be hampered by rules or laws limiting or altogether removing
states' authority over wireless companies.'' Could you explain
how that could be the case, and with the concerns in some
states, what can NARUC do to help ensure that states will adopt
stronger policies in those areas where maybe we see rules that
aren't as strong?
Mr. Jones. Congressman, that mainly refers to many state
statutes across the country, largely, I think, with Mr.
Guttman-McCabe's companies that have gone and lobbied state
legislatures to prohibit PUCs from regulating or having
anything to do with wireless service. The laws are written a
little bit differently, but it makes it very difficult for
state PUCs to have jurisdiction over things like e-911, TRS,
High Cost Funds, or Universal Service. So that prevents us, and
also 214(e), Section 214(e) that governs eligible
telecommunications carriers, that is the federal statute that
we operate under. It is written very broadly and it doesn't
specify the type of technology, so this has been the subject of
litigation in many states where some of the wireless carriers
push hack on us.
What can we do? We can work with--I think the best thing we
can do is work with Ms. Veach and her colleagues at the FCC
through the Joint Board process where we deal with these
difficult issues. They have better access to information on
cost and all sorts of things than we do. And in that
confidential setting of the Joint Board process, I think we can
get at some of these issues.
Mr. Lujan. Mr. Chairman, thank you so much. I know my time
is expired. I have some other questions I will submit to the
record. I was so compelled with the Obamaphone.net, Mr.
Chairman, that I had to use a little of my time to talk about
that wonderful Web site. Thank you very much.
Mr. Walden. Appreciate the gentleman's questions and
comments.
We will now turn to Mr. Terry for 5 minutes.
Mr. Terry. Thank you, Mr. Chairman.
To Mr. Feiss, at least in the State of Nebraska over the
last couple of years we have seen now 51 different Lifeline
providers apply with our PUC in Nebraska. Are you seeing the
same explosion of--I am putting fictitional quote marks on
competitiveness and competition in Montana?
Mr. Feiss. Congressman Terry, we have two pending
applications for Lifeline--only prepaid wireless support.
Mr. Terry. Two?
Mr. Feiss. Right, and those----
Mr. Terry. Nebraska has 51 over the last couple years. Only
two. That is interesting.
Mr. Jones, is NARUC seeing that level of explosion, and
this builds--the next part of that question is how do we
determine what the appropriate price line is, because if there
is 51 carriers coming in Nebraska to get their $9.25 per phone,
there is a hell of an incentive going on.
Mr. Jones. Right. We have designated six wireless CTCs for
support with the wireline, and I think we have--I am going to
up the ante that Mr. Feiss said. I think we have eight or ten
pending before our staff right now. So we have designated six
on the wireline side. We have many more wireline carriers. But
to put this in perspective, of the eligible low income
households in the State of Washington, even with that support
we are only reaching 33 percent of the low income people in our
state. That is Lifeline, wireless, everything together.
So as Billy Jack said, if we want to get to 50, 60 percent,
if that is a valid social goal to have people connected for
these valuable services, we have a long ways to go. But
obviously it costs money.
What can we do to get at the cost? It is really with the
FCC, I think. The FCC has the ability to determine if the $9.25
per month is appropriate or not.
Mr. Terry. So Ms. Veach, how do you reply?
Ms. Veach. Congressman, on the question of the $9.25 rate,
we have sought public comment on that question and are looking
at the record, and will continue to conduct an open proceeding
to put the commissioners in a position to determine what the
optimal rate should be.
Mr. Terry. In a public comment process, will you be able to
obtain the true cost of providing this service?
Ms. Veach. I think there are different types of services.
As we have heard, there are wireless services as well as
landline services, so----
Mr. Terry. All right, so for the variety of services, are
you going to be able, in a public comment setting, obtain cost
information?
Ms. Veach. In addition to the record that is already
developed, if necessary the Commission can ask for more data if
it needs from Mr. Guttman-McCabe's members or others.
Mr. Terry. So is that a yes that you are obtaining that
information through the public comment?
Ms. Veach. We have invited comment. I would be happy to
work with your office to let you know whether we have obtained
the kind of information you are asking about already or need--
--
Mr. Terry. Is there a red flag with the FCC that there is
that many competitors coming into what used to be, just a few
years ago, a very limited market? Does that raise a red flag?
Ms. Veach. Well absolutely. In our reforms, we required
that before any non-facilities based carrier could be
designated to receive support, it first had to have a
compliance plan approved with the Commission, and we have only
approved 20 of those since the reforms went out. The next step,
then, is to approach the relevant state PUC to seek
designation.
Mr. Terry. OK. I will yield back.
Mr. Walden. Gentleman yields back his time.
Now recognize the gentleman from Illinois, my friend Mr.
Rush, for 5 minutes.
Mr. Rush. I want to thank you, Mr. Chairman. This has been
quite a hearing, and I am not surprised. I want to congratulate
the Ranking Member for bringing this issue to the floor.
But as I sit here and hear some of the questions and some
of the commentary, it really, really infuriates me about some
of the attitudes and opinions and some of the remarks that I
have heard. I am trying to maintain my cool, so to speak.
But first of all, Mr. Chairman, there are some letters that
I would like to enter into the record, and some of them may be
included, but I am told that--in your packet, but I am told
that they aren't included, and we have a statement from the
NAACP, the Leadership Council on Civil Rights and Human Rights,
the United Church of Christ, the National Organization for
Women, the Asian American Justice Center, Disability Rights,
Education, and Defense Fund, and from the CWL. I would like
those included in the record.
Mr. Walden. Without objection.
[The information appears at the conclusion of the hearing.]
Mr. Rush. All right. Mr. Chairman, I want to ask maybe Ms.
Veach or anybody can answer this question. Was there any
noticeable uptake in the Lifeline services program during and
immediately after Hurricane Katrina?
Ms. Veach. Congressman, as a matter of fact, it was during
the time of recovery from Hurricane Katrina when the Commission
permitted wireless providers to enter the program to provide
vital services to the consumers affected.
Mr. Rush. Well, this notion of this service or these phones
being called an Obama phone, what do you think is the rationale
behind it? Because if you are going to call it any kind of
nonpolitical, non-class, and I might indicate, non-racist way,
then it certainly should be called a Bush-Obama phone, isn't
that correct?
Ms. Veach. Congressman, you are absolutely correct that a
lot of the expansion of the program that happened without
proper oversight was during prior Administrations. The reforms
that the FCC has put in place in the last 3, 4 years will
ensure that only eligible subscribers can participate, and that
there are appropriate checks in place on the consumers as well
as the carriers.
Mr. Rush. Well, let's look at who uses Lifeline. It is
certainly not just members of citizen and urban centers. This
program supports older Americans. One carrier reported that 47
percent of its users are 50 years or older, and 16 percent are
over 60. Now I know, because that is my age category, I like
music, but I am not too fond of rap music, so for this service
to be characterized as being or associated with something
called Obama Rap, what do you think about that?
Ms. Veach. As you say, the service is available without
regard to any demographic characteristics: seniors, the
elderly, disabled, rural as well as urban, based on income
rates or participation in another federal assistance program.
It is available in all 50 states.
Mr. Rush. Let me ask--I see my time is winding down and I
have a lot of other questions. Is there any of the witnesses at
the table, are you aware of any increase in mobile phones in
Afghanistan?
Mr. Jones. No, sir, I am not.
Ms. Gonzalez. I can't answer that question.
Mr. Rush. I was at a meeting earlier today with an expert,
and there is an increase in mobile phone use in Afghanistan.
And my understanding that it is thoroughly subsidized. To a
great extent, it is thoroughly subsidized. So our taxpayer
dollars are going to Afghanistan to increase mobile phone uses
in Afghanistan, but here we are making much--and some of it
legitimate--much ado about possibly job seekers, 26 percent of
users reported by--unemployed and 62 percent are employed on
only a part-time basis. Fifty-two percent of the subscribers
are Caucasian, 30 percent are African American, and 10 percent
are Hispanic. I mean, we are making ado about something that
really doesn't--that has been a fairly good program.
The subject of this hearing is ``The Lifeline Fund: Money
Well Spent?'' with a question mark. My answer to that is yes,
it is well spent. There are some problems, but I think that FCC
is moving to address the problems. I think they should be
commended. But whether this program should be capped, no, it
should not be capped, especially when the unemployment--the
number of poor people in this country is on a dramatic
increase, then why would we try to cap this particular program?
Mr. Chairman, I yield back. I just want to--I don't like
the message that is emanating from this hearing, and I think it
is offensive to the best interest of the American people. I
yield back.
Mr. Walden. Thank the gentleman's comments. We appreciate
his comments. We are just trying to get to the truth and the
answers, and that is why it is a bipartisan hearing. So I
appreciate your participation.
We will now go to the gentleman from Louisiana, Mr.
Scalise, for 5 minutes.
Mr. Scalise. Thank you, Mr. Chairman. I appreciate you
having this hearing. It is a very important hearing to have
dealing with a program that has had a history of fraud and
waste and abuse. This program is the kind of program that
really angers, I know, a lot of my constituents, and I am far
from alone when I talk to colleagues of mine from all across
the country. Whether you want to call it an Obama phone or free
cell phone or whatever it is, it is a program that the Federal
Government has set up that taxes----
Mr. Rush. What about a Bush-Obama phone?
Mr. Scalise. Whatever you want to call it----
Mr. Walden. Regular order, please.
Mr. Scalise [continuing]. It is a free phone to some people
that is paid for by other people, and those other people that
are paying for that service, when they see the fraud and abuse
and the waste in this program, get incredibly angry, and to
discount that anger of hardworking taxpayers who are seeing
their cell phone bills go up, knowing that some of that money
is being used to pay for somebody else to get free cell phones,
and in many cases, in violation of the law itself, they have a
right to be angry. And their anger is very justified when they
look at the dramatic increase over the last few years of the
cost of this program.
I want to ask you, Ms. Veach, because it is being
considered by some and there is legislation filed to expand
this into broadband. I think that should tell you that if they
filing a bill to expand it into broadband, that means that the
law shouldn't currently allow you to provide broadband services
for free to some people at a cost to other people. If they are
filing a bill to try to make that legal, yet in your own
testimony, you talk about a pilot program that you all have
already undergone, started, to extend it to broadband. Under
what legal authority--first of all, with all the fraud, waste,
and abuse in the existing program, what legal authority do you
have to actually broaden it even more? And whether you want to
call it an Obama pad or a Bush pad or whatever you want to call
it, you are already expanding this program into an area that
the law doesn't say you can expand it to, and in fact, when our
colleagues on the other side file a bill to do this, they are
implying that you don't have the legal authority to do it
today. Where is that legal authority coming from?
Ms. Veach. Thank you, Congressman.
As you say, we have taken a small piece of the savings from
the other reforms----
Mr. Scalise. How much?
Ms. Veach. Fourteen million dollars to initiate a broadband
pilot that will inform us by testing different technologies,
different types of speeds and so forth to see what we can do
to----
Mr. Scalise. Under what--you tell me what you are doing.
What legal authority do you have to do it? Fourteen million
dollars of money that should be in the pockets of hardworking
taxpayers to lower their cell phone bill. You know, and this is
where we get to the, you know, the overall abuse of the
program, but also the overall public opinion of the program,
because there are--you know, in Louisiana, a family of four
making $35,000 a year is paying for this. They can't get the
free phone. You know, this is a family who made a decision, you
know, if they have got their own cell phone, and let's say they
got broadband at their house, they are paying for that with
after-tax dollars that they worked really hard for and they
made tough decisions. They might not go out to eat one night
because they--that is an important priority that they have set,
and it angers them when now they are paying somebody else's
free cell phone bill. And then you have identified waste,
fraud, and abuse that this committee had oversight on and that
has been identified by many people. We are trying to clean up
the fraud and abuse.
I am cosponsor--not a cosponsor directly, but a supporter
of legislation by Representative Griffin--I think there are
other bills that would actually go back to the original intent
and say no more free cell phones. But they are looking at this
and they are saying I am paying for this. And if instead of
saying oh, oK, we found waste, fraud, and abuse, what the
government should be doing is saying that money--every quarter
you assess the companies that ultimately taxpayers pay the
bill. You assess them every quarter. You could lower their cell
phone bill by the amount of money that you found in waste,
fraud, and abuse that we directed you to go find in waste,
fraud, and abuse. Instead, you have taken it upon yourself to
take that money and not lower the cell phone bill for that
family of four in Louisiana making $35,000 a year. They would
like to see their bill lowered. They are struggling in tough
times, but for whatever reason, you decided as a bureaucrat
that you are just going to go create a new program that you are
not even legally authorized to create to spend that money,
instead of letting them have that money back in their pocket.
So I would hope when you are trying to think of what to do
with the money that you are finally uncovering from waste,
fraud, and abuse, you don't see it as some kind of honey pot
that you can go and spend somewhere else. That is money that
ought to be in those hardworking taxpayers' pockets, not the
government to spend on something else, but finally give them a
break. Give the folks that are paying the freight a break so
that they don't have to pay as much, and maybe they can go out
to eat one night with their family of four, instead of having
to fund somebody's free broadband and free cell phones and all
this other stuff that they are irritated about.
And the final thing is I would ask you to get us the list--
because it has been asked before. Get us the list of the number
of people that are in this in this Lifeline program that have
free cell phones that actually pay out of their pocket to
upgrade it. For whatever reason, they have got enough money to
upgrade it, maybe they should be paying for their own phone and
not having the government pay for it, not having that taxpayer
pay for it. But will you get the committee the count of how
many people that are in the program actually pay to upgrade
their service? Can you get us that?
Ms. Veach. We will work with your office to provide what we
can, yes.
Mr. Scalise. We would like you to get us that count of how
many people actually do that.
I appreciate the chairman's discretion, and I yield back
the balance of my time.
Mr. Walden. Gentleman yields back.
I believe all the members have had an opportunity to ask at
least the first round of questions. We are not going to do a
second round, but there may be other questions for the record
we would like you to address, and we may need to probe deeper
into this issue from different angles, perhaps at a future
hearing.
Yes, I would recognize the gentlelady from California.
Ms. Eshoo. Thank you, Mr. Chairman. I would like unanimous
consent to place into the record the following. It is a listing
of the 2012 Top 10 High Cost Disbursements by States, and it
also lists out the 2012 top 10 Lifetime Disbursements by
States, and just----
Mr. Walden. Without objection.
[The information appears at the conclusion of the hearing.]
Ms. Eshoo. I just wanted to point out to the gentleman that
in Louisiana, there is 110,927--now these are--110,927,000 and
that is an overage--is that an overage? That is how much more
the state gets. But I think this is instructive, so thank you
for allowing us to place----
Mr. Walden. Without objection.
Ms. Eshoo [continuing]. It in the record.
Mr. Walden. And Mr. Long has returned, so we will turn to 5
minutes of questioning from Mr. Long.
Mr. Long. Thank you, Mr. Chairman, and thank you all for
being here today.
Start with Billy Jack Gregg, if I can. On the slide that
you showed earlier, the red line going across on Maryland, was
that at the poverty line?
Mr. Gregg. That was the number of low income households,
households at 135 percent of the federal poverty guidelines or
below.
Mr. Long. So that was at the 135 percent level?
Mr. Gregg. Right.
Mr. Long. And your graph showed that there is a
considerable number of people that are getting these phones
that are above that income level, correct?
Mr. Gregg. Right. Currently, for the most recent data, the
total number of low income households in Maryland was about
304,000. The number of Lifeline subscribers was 654,000, so
over double.
Mr. Long. And my understanding--go to Ms. Veach now. My
understanding is that the FCC does not use that data, is that
correct, or were you aware of that figure that so many more
people above that should be not qualified to get this phone are
actually getting it?
Ms. Veach. Congressman, I have seen the information that
Mr. Gregg provided, and we have also taken actions to ensure
that only customers who are eligible to sign up and only one
customer per household will be able to sign up. And we have, in
fact, notified consumers when we have identified that they have
duplicate phones that they are in violation of the rules and
next time could be fined by the FCC for that violation.
We are also standing up a database to prevent that from
happening again, and in the meantime, will continue to scrub
the roles.
Mr. Long. Staying with you, Ms. Veach, what percentage of
users go over their free 200 minutes on their phones?
Ms. Veach. I don't have that, Mr. Congressman.
Mr. Long. Could you get that and get back to us with that?
Ms. Veach. We will work with your office to provide what we
can, absolutely.
Mr. Long. OK, thank you. That takes out the second part of
my question. Ms. Veach, again, what percentage of the eligible
population are Lifeline recipients?
Ms. Veach. It is a complex estimate because we--you can be
eligible either based on your income or by participation in
another federal program. We estimate that is it about \1/3\ of
households.
Mr. Long. About \1/3\ of the eligible households----
Ms. Veach. That is right.
Mr. Long [continuing]. Are receiving this phone? What--on
this 200 minutes that they get, if someone has their own
personal cell phone and they have one of these phones we are
talking about here today, and they forward their personal phone
to their whatever you want to call it, Lifeline phone we will
call it, and first use up their minutes there, do you know--
have you looked into that or heard of any of that happening?
Ms. Veach. I have not, but we take all allegations about
abuse in the program very seriously and I would be happy to
check with my team and get back to you on that.
Mr. Long. If you would I would appreciate that, because I
have heard of that very thing. A congresswoman related to me
yesterday that one of her constituents related to her that that
is what she was doing with her phone was forwarding, and I am
trying to check with some of the providers to see if that would
even save money or not. Would that not use the minutes on their
personal phone, anyone on the panel?
Mr. Jones. Congressman, I would suggest each state does
this differently. I know that when we designated ETCs, some
were at 200, 250, 300 minutes. We had the 800-number issue to
deal with, if that would count. When you call an 800-number,
does that count toward the minutes? We decided no. I would urge
you to talk to Chairman Kinney of your Missouri Public Service
Commission, because they have designated these ETCs and
Chairman Kinney and the staff of the Missouri commission can
share with you the terms and conditions of all these ETCs.
Mr. Long. OK.
Ms. Gonzalez, going to you, you said, I believe, that
15,000 people of 15,000 per year and under make up \1/3\ of the
users of these phones, is that correct?
Ms. Gonzalez. Under $15,000 a year make up the majority, I
think about 80 percent, according to one provider. All the
providers provide different----
Mr. Long. What I had in my notes here that I wrote down as
you were speaking earlier, I thought you said \1/3\ were under
15, \1/3\ were over 65, and \1/3\ were disabled.
Ms. Gonzalez. No, please let me clarify. Nearly 80 percent,
according to one provider, make under $15,000 a year, nearly
\1/3\ are over the age of 55, and over \1/3\ are disabled.
Mr. Long. OK. Mr. Guttman-McCabe, you said that these are
not taxpayer funds that pay for these phones, so clarify again
who is paying for these phones?
Mr. Guttman-McCabe. Sure. They come from the consumer and
they go to USAC, so the carriers are given a percentage that
they must pay, a number that they must pay, and that money----
Mr. Long. And is that not passed on to their customers?
Mr. Guttman-McCabe. It is passed on but it is not a budget
line for it, it is not a debt or deficit number. It doesn't
touch the U.S. Treasury.
Mr. Long. Oh, it doesn't show up in the 42 percent more
that we are spending in this country right now than we take in
every year? It is not in that figure?
Mr. Guttman-McCabe. It is not in that figure.
Mr. Long. But it is taken out of the economy from the
people that----
Mr. Guttman-McCabe. Although it is also put back into the
economy----
Mr. Long. I am sorry?
Mr. Walden. It is on your bill though?
Mr. Guttman-McCabe. It is on your bill. It is paid by the
consumer but it is not a tax. It doesn't touch the Treasury----
Mr. Long. Yes, but it is not a voluntary thing on your
bill. The customer has to pay that if they want to keep their
phone going.
Mr. Guttman-McCabe. They do.
Mr. Long. So that money is coming out of the economy?
Mr. Guttman-McCabe. Yes, although arguably going back into
the economy as part of the, you know, the companies that are
hiring and paying employees, so it is almost circular, in a
sense. But it is not a budget line, it is not a debt or deficit
issue. It is not targeted to any budgetary implication.
Mr. Long. OK, but I am very concerned to see Mr. Gregg's
figures, for your benefit, Ms. Veach, where you have such a
huge percentage of people in the State of Maryland right next
door here that are--have these phones that unless these figures
are inaccurate, are not eligible to receive the phones because
they make way above the 135 percent above the poverty level, so
I would hope that somehow you all could take what you are not
doing now, take this information from Mr. Gregg and research
that, and if you will get back to me with those questions that
I asked you earlier that you said you would get to me, I would
appreciate it.
And again, thank you all very much for being here, and Mr.
Chairman, I yield back.
Mr. Walden. Gentleman yields back the balance of his time.
I think that wraps up our hearing. We appreciate, again, the
testimony you have given, the information you have shared with
us, the answers to our questions. I am sure there will be
additional questions that we may have back for you, maybe in a
bipartisan way as well. So again, thank you for your
participation today, and our hearing is adjourned.
[Whereupon, at 12:28 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Prepared statement of Hon. Leonard Lance
Thank you Mr. Chairman,
I am pleased that the Subcommittee is holding this hearing
today.I believe the federal Lifeline program, created during
the Reagan Administration almost 30 years ago, provides an
important public service, ensuring that all Americans,
regardless of income, are able to take advantage of basic
telecommunications services.
But even the most laudable programs must be scrutinized to
make certain they are being conducted in a fiscally responsible
manner consistent with using taxpayer dollars wisely and
efficiently.
Like many of my colleagues I applauded the many reforms the
FCC has enacted to the Lifeline program
Last year the FCC instituted new rules that required
carriers that received Lifeline funds certify that their
subscribers were eligible for the program, an effort to
streamline the program and reduce waste.
But as a result, according to a recent report from the Wall
Street Journal, 41 percent of the roughly 6 million subscribers
in the Lifeline program ``either couldn't demonstrate their
eligibility or didn't respond to requests for certification.''
And despite reforms by the FCC to address waste, fraud and
abuse in the program, spending on Lifeline increased 26 percent
last year--rising from $1.75 billion in 2011 to $2.2 billion in
2012.
I am optimistic that additional reforms scheduled to take
effect this year--including annual recertification
requirements, and independent audits--will provide greater
oversight of the Lifeline program and possibly discourage those
companies and individuals who have taken advantage of the
program and jeopardizing its future for those who desperately
need it.
I very much look forward to hearing the views of our panel
today on ways we can work together to ensure that the federal
Lifeline program is being conducted properly and efficiently in
the spirit in which it was created under President Reagan
almost 30 years ago.
Thank you Mr. Chairman, I yield back my time,
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