[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,

    [GRAPHIC] [TIFF OMITTED]     


                                 
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