Looking to rein in fraud, waste, and abuse in the federal Lifeline program, the FCC has pulled out almost every bureaucratic tool in the box.

As we all know, the federal Lifeline program, overseen by the FCC, provides subsidized phone service to low-income households. In 2010, the Government Accountability Office released a report revealing a significant lack of direction and control within the Lifeline program. In response, the FCC has now adopted comprehensive measures to combat fraud, waste, and abuse in the program. By doing so, it hopes to trim “up to” $200 million from the Lifeline program this year and $2 billion over the next three years.

The FCC’s Report and Order and Further Notice of Proposed Rulemaking (R&O/FNPRM) spans 231 pages (and another 100 pages or so of appendices). Eligible telecommunications carriers (ETCs) will want to familiarize themselves with the many specific requirements detailed in the R&O/FNPRM in order to assure compliance. The following provides an introductory overview of the highlights of the FCC’s action. (Important note: this post does not address (a) Lifeline issues specific to Tribal lands or (b) state-conducted eligibility review.)

The R&O/FNPRM focuses on two main problem areas: (1) support for more than one person per household; and (2) support for ineligible consumers.

One per household.  The R&O/FNPRM codifies the policy that each household gets support for only one phone line, mobile or fixed. (The agency already clarified, back in June 2010, that an individual gets only one Lifeline-supported service.) A “household” is assumed to consist of everyone who lives as a single address (not a P.O. Box), unless the residents self-certify that they are financially independent from each other (for example, unrelated adult roommates). Commenters (including Commissioner Clyburn) have pointed out that this is increasingly out of sync with the way modern families use phones, but the Commission has rejected the extra cost of providing phones to multiple individuals within a single household. For customers who want to show that they are financially independent of their housemates, the FCC has directed the fund administrator, the Universal Service Administrative Company (USAC), to come up with a certification form within 30 days of the publication of the new rules in the Federal Register.

National eligibility standards.  Right now, eligibility for Lifeline varies by state, although the FCC has developed certain “federal default” criteria applicable to the handful of states that have not claimed jurisdiction over Lifeline eligibility.  Based on those federal default criteria, the R&O/FNPRM establishes as uniform national eligibility criteria: (1) household income at or below 135 percent of the Federal Poverty Guidelines; or (2) participation in one of a number of federal assistance programs, such as Medicaid or Food Stamps. The idea is to give uniform opportunities to low income consumers nationwide, make compliance easier for carriers, and make auditing easier for USAC. States must recognize consumer eligibility under the federal rules, but can add other qualifying criteria, such as participation in a state program.

Clear marketing.  When advertising Lifeline services, ETCs (carriers) must explain in clear, easily-understood language: that the offering is a Lifeline-supported service; that only eligible consumers can enroll; what documentation is necessary; and that the program is limited to one benefit (either wireline or wireless) per household. ETCs must also explain that Lifeline is a government benefit program, and false statements to obtain it may be punishable by fine, imprisonment, or being barred from the program.

Consumer certification.  When enrolling a new Lifeline customer, carriers must obtain a signed (including electronically or by interactive voice response) certification form from the customer. The required certifications include, but are not limited to, confirmation that the customer: understands how the Lifeline program works; is the only person in their household getting service; is eligible for Lifeline; and will let their carrier know if anything changes (within 30 days). Other distinct certifications not itemized here must be included on this form, so carriers should review the requirements carefully.

Annual recertification.  In addition to the initial certification, carriers must recertify the continued eligibility of all of its customers by contacting them for confirmation. This is to be done by checking with an eligibility database, when available. If no such database is available (or if the database does not confirm eligibility), the carrier must contact the customer – in person, in writing, by phone, by text message, by email, or otherwise through the Internet – to confirm his/her continued eligibility. Previously, sampling could be used for this reconfirmation; that is no longer the case. No documentation is required at recertification. Again, there are a number of specific requirements regarding recertification in the order that carriers should review carefully (no, texting “BTW R U still eligible for Lifeline?” is not enough).

Duplicates database.  The R&O/FNPRM establishes a new, nationwide duplicates database that carriers must query before signing up a new Lifeline customer. If that query indicates that the prospective customer is already getting support, the carrier can’t enroll the customer until the customer de-enrolls from the other service. The database will facilitate the transfer of Lifeline benefits from one ETC to another and will keep track of when a query was made and what information was submitted in the query. It will also verify the subscriber’s identification (without which the ETC will not receive reimbursement).

Two sidenotes on the duplicates database: (1) States can opt out of the national duplicates database if they can show that they have established their own state duplicates process at least as robust as the national; and (2) USAC will conduct a “scrubbing” of duplicates once the database has been populated. USAC will notify subscribers if they are receiving duplicate support and help them select a single provider.

Eligibility database.  Lifeline consumers will no longer be able to simply self-certify their eligibility. Instead, the FCC will establish an eligibility database. The database will confirm – at least initially – enrollment in the three most common programs through which consumers qualify for Lifeline (i.e., Medicaid, food stamps, and SSI). Until the database is established (ideally by the end of 2013), ETCs will be required to review documentation from the consumer to verify eligibility. The Commission is still seeking comment on the eligibility database at a fairly high level, including:

  • How to encourage state eligibility databases to provide state-specific eligibility data, including potentially conditioning receipt of federal Lifeline funds on the implementation of a state eligibility database;
  • Whether to help pay for state eligibility databases;
  • What privacy issues are implicated;
  • Whether to implement a national eligibility database instead of or in addition to state databases; and
  • Whether the eligibility database should be integrated with the duplicates database.

Reporting subscriber data.  Carriers must populate the duplicates database by obtaining and reporting the following information about customers:

  • name;
  • address;
  • phone number;
  • date of birth;
  • last four digits of the social security number;
  • initial and de-enrollment dates;
  • the means through which the subscriber qualified for support (e.g., Medicare, income); and
  • the amount of Lifeline support received per month for each subscriber.

ETCs will have to provide an initial data dump of subscriber information within 60 days of notice that the database is capable of accepting data. Because many carriers may not be currently collecting all the information required by the database, they must collect such information from both new and existing subscribers (which can be done as part of the annual re-certification described below).

The carrier that gets customer data into the database first is entitled to reimbursement for that customer, regardless of which ETC the consumer signed up with first.

Disenrollment.  If a customer fails to respond to the annual recertification request, or if a carrier otherwise discovers duplicative support or lack of eligibility, the carrier must, after sending notification of impending service termination, disenroll the customer from Lifeline service. Likewise, prepaid ETCs cannot receive Lifeline support for customers who do not activate their service, or who do not use their phones for a consecutive 60-day period.

Carrier certification.  Carriers must certify, annually, that they are in compliance with the Commission’s Lifeline rules when submitting FCC Forms 497 to USAC for reimbursement. As part of this certification, an officer must certify that the carrier has procedures in place to review consumers’ documentation of income- and program-based eligibility and that it has obtained valid certifications forms from each consumer.

Audits.  New Lifeline carriers will be audited within their first year of providing service. Carriers receiving more than $5 million in annual support will be audited biennially.

Enforcement.  Violators of the rules will be notified of the failure to comply and given 30 days to come into compliance. Penalties for violations include: suspension of payments; monetary forfeitures (up to $150,000 per violation or per day of a continuing violation); revocation of authorization to operate as a carrier; and/or revocation of ETC designation.  Also, funds obtained in violation of the rules are subject to recapture by the government.

The measures described above are addressed to fraud, waste and abuse. Beyond those, the Commission took measures to update and simplify the Lifeline system:

Reimbursement.  The R&O/FNPRM replaces the tiered reimbursement system, which was based on incumbent subscriber line charges, with an interim flat rate of $9.25 (except on Tribal lands). Comment is sought on what would be an appropriate permanent flat rate. Reimbursement will also be based on actual subscriber counts, rather than projected subscriber counts. Starting July 1, 2012, to be paid by the end of the month, carriers will have to submit Form 497 by the eighth day of that month. Carriers may also file on a quarterly basis, with a single quarterly payment (rather than separate monthly payments).  Any new or revised Form 497s that may be necessary to reconcile records may be filed within a year of the original due date of the Form 497.

Phasing out toll limitation support.  Back in the day, a frequent cause of phone service termination was customers’ inability to pay their long distance phone bills. To prevent this, the Commission required ETCs to provide a service that would automatically limit, or block, the amount of long distance charges a customer could receive in one month. Carriers were permitted to claim reimbursement from the FCC for the “incremental costs” of providing the blocking service. Nowadays, however, many service plans don’t distinguish between local and long distance calls, instead charging a set monthly fee for a certain number of minutes. This effectively creates a “toll limitation” service. And the recovery of “incremental costs” has apparently been subject to creative interpretation: carriers were claiming reimbursement for anywhere between $0 and $36 per Lifeline subscriber per month, and were not required to substantiate their claims. So, the R&O/FNPRM requires toll limitation in the future only for old-fashioned service plans that charge separately for long distance calls – capping reimbursement for “incremental costs” at $3/month in 2012, $2/month in 2013, and no reimbursement at all starting in 2014.

Eliminating Link Up.  Another payout historically subject to abuse is the Link Up program, which reimburses carriers for half of their “customary charge” of initiating service, up to $30. (It does not cover the cost of providing a mobile handset). Over time, many carriers’ “customary” service initiation charge migrated to $60, the number that would maximize the Link Up payout. In addition, many carriers were not charging the remaining $30 to their customers. Also, some carriers imposed the initiation charge only on Lifeline customers and not on “regular” customers.  In essence, carriers were simply collecting $30 each time they signed up a Lifeline customer. In response, the Commission is eliminating Link Up altogether, except for Tribal areas. Although the offending practices have been largely associated with wireless competitive carriers, the Link Up phase-out applies to wireline carriers as well.

Support for VoIP.  The R&O/FNPRM incorporates the Connect America Fund order’s “voice telephony” definition of supported service into the Lifeline rules, making IP-enabled VoIP an expressly supported service. Of course, VoIP is increasingly the norm as carriers move from circuit-switched to IP networks.

Support for bundled service plans.  The R&O/FNPRM provides support for voice telephony service even if it’s bundled with broadband, contains optional calling features, or is part of a family shared calling plan. Historically, the FCC’s rules have been silent on this issue, and not all states permit reimbursement for such bundled plans. The new rules do not require carriers to apply Lifeline to any bundled service, although the Commission seeks comment on such a requirement.

The R&O/FNPRM also establishes a Broadband Adoption Pilot Program to assess how Lifeline can best be used to increase broadband adoption among Lifeline-eligible consumers. The Wireline Competition Bureau will solicit applications from ETCs to participate in the Pilot Program. The Bureau will then test various amounts and durations of subsidies, geographic areas, and types of networks/technologies through a number of diverse projects. Carriers who are interested in participating but are not yet designated as ETCs should get their ETC designation applications in ASAP.

The R&O/FNPRM also cleans up some aspects of the ETC designation process for Lifeline-only carriers by:

  • formalizing the Commission’s practice of forbearing, for Lifeline-only wireless resellers, from requiring that an ETC have its own facilities. (That practice dates back to the 2005 TracFone order.) This forbearance is subject to certain conditions. The Commission did not address the status of Lifeline-only facilities-based carriers, who may need forbearance from the requirement that their service area completely overlap rural phone company service areas. (Wireless services are generally authorized by county boundaries, while rural phone company service areas are drawn by blindfolded three-year-olds, so they hardly ever match up).
  • confirming that carriers can’t get around the TracFone conditions by providing a component service – such as operator, directory, or toll limitation service – over their own switch and then claiming to be “facilities-based.” This is because the new definition of “supported service” is “voice telephony service” as a whole – not its individual components.
  • eliminating the requirement that Lifeline-only applicants submit a five-year network improvement plan.
  • adding a requirement that Lifeline-only ETCs demonstrate technical and financial capacity to provide the supported service, among other showings.

Lastly, the NPRM portion of the R&O/FNPRM seeks comment on additional issues, including:

  • whether universal service support should be used for digital literacy training;
  • whether Lifeline support should be limited to ETCs that provide Lifeline service directly to subscribers (rather than wholesale), precluding the flow-through of Lifeline support to resellers;
  • whether the Women, Infants, and Children (WIC) program and homeless veterans should be added to the Lifeline eligibility criteria;
  • whether the record-keeping requirement for consumer eligibility should be extended to ten years to cover litigation under the False Claims Act.

Comments in response to the NPRM will be due 30 days after publication in the Federal Register; reply comments within 60 days. Check back here for updates.