[Senate Hearing 115-540]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 115-540

                  ADDRESSING THE RISK OF WASTE, FRAUD,
 AND ABUSE IN THE FEDERAL COMMUNICATIONS COMMISSION'S LIFELINE PROGRAM

=======================================================================

                                HEARING

                               BEFORE THE

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 6, 2017

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation
                             
                             
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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                   JOHN THUNE, South Dakota, Chairman
ROGER F. WICKER, Mississippi         BILL NELSON, Florida, Ranking
ROY BLUNT, Missouri                  MARIA CANTWELL, Washington
TED CRUZ, Texas                      AMY KLOBUCHAR, Minnesota
DEB FISCHER, Nebraska                RICHARD BLUMENTHAL, Connecticut
JERRY MORAN, Kansas                  BRIAN SCHATZ, Hawaii
DAN SULLIVAN, Alaska                 EDWARD MARKEY, Massachusetts
DEAN HELLER, Nevada                  CORY BOOKER, New Jersey
JAMES INHOFE, Oklahoma               TOM UDALL, New Mexico
MIKE LEE, Utah                       GARY PETERS, Michigan
RON JOHNSON, Wisconsin               TAMMY BALDWIN, Wisconsin
SHELLEY MOORE CAPITO, West Virginia  TAMMY DUCKWORTH, Illinois
CORY GARDNER, Colorado               MAGGIE HASSAN, New Hampshire
TODD YOUNG, Indiana                  CATHERINE CORTEZ MASTO, Nevada
                       Nick Rossi, Staff Director
                 Adrian Arnakis, Deputy Staff Director
                    Jason Van Beek, General Counsel
                 Kim Lipsky, Democratic Staff Director
              Chris Day, Democratic Deputy Staff Director
                      Renae Black, Senior Counsel
                            
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on September 6, 2017................................     1
Statement of Senator Thune.......................................     1
Statement of Senator Schatz......................................     3
Statement of Senator Wicker......................................    39
Statement of Senator Klobuchar...................................    40
Statement of Senator Markey......................................    42
Statement of Senator Cortez Masto................................    44
Statement of Senator Peters......................................    49
    Letter dated July 19, 2017 to Hon. Ajit V. Pai, Chairman, 
      Federal Communications Commission and Vickie Robinson, 
      Acting CEO and General Counsel, Universal Service 
      Administrative Company from Hon. Gary Peters and Hon. 
      Debbie Stabenow............................................    51
    Letter dated August 18, 2017 to Senator Gary C. Peters and 
      Senator Debbie Stabenow from Vickie S. Robinson, Acting 
      Chief Executive Officer and General counsel, Universal 
      Service Administrative Company.............................    53
    Letter dated August 21, 2017 to Hon. Gary Peters from Ajit V. 
      Pai........................................................    63
Statement of Senator Blumenthal..................................    67
Statement of Senator Duckworth...................................    69

                               Witnesses

Seto Bagdoyan, Director, Forensic Audits and Investigative 
  Service, United States Government Accountability Office........     4
    Prepared statement...........................................     6
Deborah Collier, Director, Technology and Telecommunications 
  Policy, Citizens Against Government Waste......................    12
    Prepared statement...........................................    13
Jeffrey A. Eisenach, Ph.D., Visiting Scholar, American Enterprise 
  Institute......................................................    18
    Prepared statement...........................................    20
Chris Nelson, Commissioner, South Dakota Public Utilities 
  Commission.....................................................    25
    Prepared statement...........................................    27
Jessica J. GonzaLez, Deputy Director and Senior Counsel, Free 
  Press and Free Press Action Fund...............................    29
    Prepared statement...........................................    30

                                Appendix

Hon. Bill Nelson, U.S. Senator from Florida, prepared statement..    73
Response to written question submitted by Hon. Maggie Hassan to 
  Jessica J. GonzaLez............................................    73

 
                     ADDRESSING THE RISK OF WASTE,
                        FRAUD, AND ABUSE IN THE
                  FEDERAL COMMUNICATIONS COMMISSION'S
                            LIFELINE PROGRAM

                              ----------                              


                      WEDNESDAY, SEPTEMBER 6, 2017

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:02 a.m. in 
room SR-253, Russell Senate Office Building, Hon. John Thune, 
Chairman of the Committee, presiding.
    Present: Senators Thune [presiding], Schatz, Wicker, 
Klobuchar, Markey, Cortez Masto, Peters, Blumenthal, and 
Duckworth.

             OPENING STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    The Chairman. Well, good morning. Welcome to today's 
hearing on the Federal Communications Commission's Lifeline 
program.
    What began some 32 years ago as a program to help protect 
consumers from increases in telephone charges following the 
break-up of AT&T has morphed, as many government programs tend 
to do, into something much broader and more expensive, a one-
and-a-half billion dollar a year program with no budget limit 
that provides, among other things, free phones and free service 
to millions.
    Let me be clear: the bipartisan principle of universal 
service has been the bedrock of our nation's communications 
policies for more than 80 years, and programs that efficiently 
and prudently further the goal of universal service have 
contributed greatly to our nation's economy, and to the safety 
and well-being of Americans.
    As someone who represents a rural state, which also 
includes nine Indian reservations, I am especially committed to 
the notion that consumers in all parts of the country should 
have access to communications services that are comparable, in 
both service availability and price, to those services provided 
in urban areas.
    Even when services and rates are reasonably comparable, 
there is value in efforts to ensure access for low-income 
Americans. Connectivity is necessary for health and welfare, 
and for full participation in the economy. A carefully 
designed, properly administered program to help those American 
who, without a subsidy, would be unable to afford a reasonable 
level of connectivity is an important part of universal 
service.
    Unfortunately, as has been demonstrated time and time 
again, the FCC's Lifeline program has not lived up to this 
promise, especially to those that rely on these services. The 
American people deserve better than a program so plagued by 
fraud, waste, and abuse. This marks our second hearing in as 
many years on those problems in the Lifeline program.
    Over the last 7 years, the Government Accountability Office 
has repeatedly documented the FCC's failure to properly oversee 
the billions of dollars paid by American families to provide 
Lifeline support. GAO has also highlighted the Commission's 
failure to assess whether the Lifeline program is meeting its 
stated goals. While much attention has rightly been focused on 
rampant fraud, duplicative payments, and unverified payments, 
an even more fundamental question has gone largely ignored: Is 
the Lifeline program an effective means of increasing telephone 
subscribership among low-income consumers?
    In 2010, GAO noted that the FCC has not prioritized the 
development of performance goals and measures for Lifeline, and 
as a result, the Commission has limited insight on what the 
program is actually accomplishing. FCC action in this regard is 
long overdue, and I call upon the Commission to undertake this 
fundamental analysis of the program.
    There is substantial evidence to indicate that even without 
the well-documented fraud, duplication, and unverified payments 
that have plagued the program, the Lifeline program could be an 
ineffective means of increasing telephone subscribership among 
low-income consumers. As it is currently designed, for example, 
the Lifeline program appears to do a poor job of directing 
support to those who truly need it namely, those who would not 
get service without a Lifeline subsidy.
    One study estimated that, because most Lifeline subscribers 
would have purchased telecommunications services even without 
the subsidy, it costs the program $1,100 annually for each 
truly new subscriber, and over $2,800 annually for each new 
prepaid wireless subscriber. That would mean Lifeline is 
costing American consumers between eight and twenty times the 
benefit amount actually received by program participants for 
each new low-income subscriber.
    The FCC's long-standing failure to make performance goals a 
priority is a failure to meet its obligation to American 
consumers. Let me put it another way: I have no doubt that the 
Lifeline program provides a critical service for many low-
income Americans, including my constituents, but I think we 
need an honest assessment of how best to deliver such services 
to those who need them the most.
    At the request of Senators Portman and McCaskill, the GAO 
completed a report earlier this year highlighting these and 
other issues in the administration of the Lifeline program. The 
report does note some areas of improvement. For example, under 
Chairman Pai, the FCC is finally taking the long-overdue step 
to move fees collected for the Universal Service Fund from a 
private bank account to the Federal Treasury, where they will 
benefit from the management practices and regulatory safeguards 
applied to other Federal funds. In addition, the number of 
duplicate subscribers, once a problem costing an estimated $160 
million per year, appears to have been reduced significantly.
    Separately, our colleagues Senators Fischer and Udall 
introduced legislation to overturn an Obama-era effort at the 
FCC to usurp state authority in designating eligibility for 
participation in the Lifeline program. Chairman Pai has 
disavowed the Commission's prior effort in favor of reform--I 
should say returning authority to the states. The states have 
long played a key role in preventing waste, fraud, and abuse, 
and so this move is an important one and why I'm especially 
pleased to have Commissioner Chris Nelson from the South Dakota 
Public Utilities Commission here as a witness today.
    Finally, the FCC announced last week that, by the end of 
this year, it will begin rolling out to a few states the 
National Lifeline Eligibility Verifier. We need to understand 
how this new tool will address the problems identified in the 
GAO report.
    Chairman Pai is making real progress toward improving 
oversight of the Lifeline program, but many serious issues 
remain. I look forward to hearing from our diverse panel of 
experts as we explore ways to fulfill the promise of universal 
service for all Americans.
    With that, I will yield to our Ranking Member, Senator 
Schatz, for an opening statement.

                STATEMENT OF HON. BRIAN SCHATZ, 
                    U.S. SENATOR FROM HAWAII

    Senator Schatz. Thank you, Mr. Chairman, for convening this 
hearing on the Lifeline program. Unfortunately, the Ranking 
Member of the Full Committee, Senator Nelson, cannot be with us 
this morning. He went home to Florida to assist with the 
state's preparations for the hurricane. We wish him and his 
constituents Godspeed. And we are all thinking of him and the 
people of Florida during this time of anxiety and preparation.
    Emergencies remind us just how important it is to be able 
to make a phone call or go online, but even without a 
hurricane, we know that in today's world, people need access to 
affordable communications services to participate in all 
aspects of society, whether it's paying a bill, accessing a 
government service, finding a new job, or even dialing 911.
    In 1985, under President Reagan, the FCC established the 
Lifeline program to provide discounted phone service for people 
who otherwise couldn't afford it. The goal was simple: give all 
Americans the security and opportunities that phone service 
brings. Following Hurricane Katrina, the Bush administration 
recognized the importance of this program and expanded it to 
include wireless services. Then in 2016, the Obama 
administration's FCC extended Lifeline to include broadband 
Internet service because we know that a broadband connection is 
necessary to society today, as phone service was in the 1980s.
    Lifeline is an essential part of our Nation's USF Universal 
Service Program. It complements the other Universal Service 
Programs that support service for rural and hard-to-reach 
areas, including health care facilities and schools and 
libraries. But just because it's necessary does not mean that 
Lifeline is perfect. The GAO report that is the subject of this 
hearing highlighted many areas where the Lifeline program fell 
short of our expectations. The program's administration needs 
to improve, and that includes accountability. Waste, fraud, or 
abuse within a government program must always be stopped and 
fixed going forward.
    It's worth nothing, however, the context of this report. 
Lifeline is a 30-year-old program that has continued to evolve. 
So while the data from the 2014 year is useful, it's also in 
the past. For example, the report doesn't fully account for the 
ongoing efforts of the FCC to modernize, reform, and strengthen 
the Lifeline program. The report itself acknowledges that some 
of these reform efforts could already be making an impact in 
solving some of those problems.
    In 1996, a group of bipartisan Senators came together to 
codify the Lifeline program as part of the Telecommunications 
Act of 1996. We should follow their example and work together 
to improve this important program, and we should do it for the 
millions of American families that have come to depend on it. 
The takeaway from the GAO report should be that more work 
remains to be done, not that we should give up on this program.
    I thank today's witnesses for joining us at this hearing, 
and I look forward to the discussion.
    The Chairman. Thank you, Senator Schatz. And I thank all 
members of this Committee and all the people in this room. 
We'll be watching carefully, and our thoughts and prayers will 
be with the people of Florida as they anticipate what may be 
coming their way and also with those who have already been 
impacted by Hurricane Harvey that swept through Texas.
    But we will continue with our panel today, and I want to 
say that we're grateful to all of you for your willingness to 
be here and to share your thoughts and perspectives about this 
issue. It's an important one and one that we need to make sure 
we're doing appropriate oversight of. And so we're going to 
start.
    We have Mr. Seto Bagdoyan, the Director of Audit Services 
for Foreign Audits and Investigative Services for the U.S. 
Government Accountability Office; Ms. Deborah Collier, who is 
the Director of Technology and Telecommunications Policy for 
Citizens Against Government Waste; Dr. Jeffrey Eisenach, a 
Visiting Scholar at the American Enterprise Institute; and 
Commissioner Chris Nelson, as I mentioned, of the South Dakota 
Public Utilities Commission; and Ms. Jessica Gonzalez, who is 
Deputy Director and Senior Counsel at Free Press.
    So we'll start on my left and your right with Mr. Bagdoyan, 
and then proceed, and would ask each of you, if you can, to 
confine your oral remarks as close to 5 minutes as possible. 
Your entire statements will be included in the record, but it 
will maximize the opportunity for members of the Committee to 
ask questions. So thank you again for being here.
    Mr. Bagdoyan, please proceed.

             STATEMENT OF SETO BAGDOYAN, DIRECTOR,

           FORENSIC AUDITS AND INVESTIGATIVE SERVICE,

         UNITED STATES GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Bagdoyan. Thank you, Mr. Chairman. Chairman Thune, 
Ranking Member Schatz, and members of the Committee, I am 
pleased to appear before you today to discuss GAO's May 2017 
report on FCC's Lifeline program.
    The program's expenditures currently total about $1.5 
billion annually, covering over 12 million beneficiaries. Given 
its scope and scale, Lifeline is inherently vulnerable to 
fraud. In this regard, our findings highlight multiple 
significant risks involving, for example, the program's 
financial management and beneficiary enrollment controls.
    Accordingly, today I'll highlight two of our report's 
principal takeaways regarding these particular risks. First, 
FCC and USAC, the not-for-profit corporation which administers 
Lifeline, have taken some steps to enhance controls over 
program finances. For example, FCC and USAC established 
financial management controls regarding billing, collection, 
and disbursement of funds for Lifeline and related USF 
programs. However, FCC maintains the USF with a cash balance of 
over $7 billion in net assets of about $8 billion as of June 
2017 outside of Treasury in a private bank account. In 2005, we 
recommended that FCC reconsider this arrangement, given that 
the USF consists of Federal funds.
    In addition to addressing any risks associated with having 
the funds outside the Treasury, where they do not enjoy the 
same rigorous financial management practices and regulatory 
safeguards as other Federal programs, FCC identified potential 
benefits of moving these funds, for example, by having the 
funds in Treasury, USAC would have better tools for fiscal 
management of the funds. In March 2017, FCC developed a 
preliminary plan to move the USF to Treasury.
    Second, to enhance Lifeline's ability to detect and prevent 
ineligible subscribers from enrolling, FCC, in 2014, 
established a database with a real-time list of subscribers. In 
2015, the agency adopted a rule requiring Lifeline providers to 
retain eligibility documentation used to qualify consumers for 
program support to improve the auditability and enforcement of 
FCC rules.
    Nevertheless, we found weaknesses in several key control 
areas. For example, the program structure relies on over 2,000 
Lifeline service providers to implement key program functions, 
such as verifying subscriber eligibility. This devolved 
internal control environment could actually exacerbate fraud 
risk, as companies may have financial incentives to enroll as 
many customers as possible. In this regard, based on data 
matching and related analyses, we were unable to confirm 
whether about 1.2 million individuals of the approximately 3.5 
million we reviewed, or 36 percent, participated in a 
qualifying program, such as Medicaid, as claimed on their 
Lifeline enrollment applications. Since we were able to review 
only about 28 percent of all subscribers due to methodological 
limitations, we believe that this number is actually 
understated. In terms of costs, providers would have received 
about $137 million in USAC disbursements annually for 
delivering Lifeline phone services to these individuals.
    To address enrollment control weaknesses, FCC's 2016 Order 
calls for the implementation of a third-party National 
Eligibility Verifier by 2019 to determine subscriber 
eligibility. In addition to data analyses, we covertly tested 
provider enrollment controls. Specifically, we made 21 attempts 
to enroll in Lifeline through 19 different providers using 
fictitious identities and documentation, and we were successful 
in 12 such attempts. Five providers we enrolled through were 
among the top 30 recipients of Lifeline disbursements from USAC 
in Calendar Year 2014, totaling about $494 million. One of 
these providers, who did not actually send us a Lifeline phone 
upon enrollment, collected almost $10 million in such 
disbursements.
    In closing, I would underscore that it's essential for FCC 
to place a high policy and operational priority on deploying 
effective preventative enrollment and other controls to help 
mitigate the risk for potential fraudulent activity in 
Lifeline, including the broadband expansion, and safeguard the 
government's substantial investment in this program. Fully and 
timely implementing our report's seven recommendations, in 
addition to any other actions FCC is taking independently, 
would be vital in this regard. To its credit, FCC has agreed to 
implement all of our seven recommendations.
    Chairman Thune, this concludes my remarks. I look forward 
to the Committee's questions. Thank you.
    [The prepared statement of Mr. Bagdoyan follows:]

  Prepared Statement of Seto Bagdoyan, Director, Forensic Audits and 
      Investigative Service, U.S. Government Accountability Office
Telecommunications
Additional Action Needed to Address Significant Risks in FCC's Lifeline 
        Program
    Chairman Thune, Ranking Member Nelson, and Members of the 
Committee,

    I am pleased to be here today to discuss the Federal Communications 
Commission's (FCC) oversight of the Lifeline program (Lifeline). Over 
the past two decades, telecommunications carriers and their customers 
have paid over $100 billion to support the Federal policy of 
``universal service.'' Universal service is the principle that all 
Americans should have access to communications services. FCC carries 
out this policy through four programs, including Lifeline.\1\ Lifeline 
was created in the mid-1980s to promote telephone subscribership among 
low-income households. In the mid-2000s, such service came to include 
wireless communications, and, in December 2016, FCC also began 
including broadband service. Average Lifeline enrollment as of the 
fourth quarter of calendar year 2016 was approximately 12.3 million 
subscribers.
---------------------------------------------------------------------------
    \1\ The other three programs are (1) the High-Cost Program, which 
assists telecommunications carriers serving high-cost, rural, or 
insular areas; (2) the Schools and Libraries Program, which assists 
eligible schools and libraries in procuring telecommunications 
services, Internet access services, internal connections, and basic 
maintenance of internal connections; and (3) the Rural Health Care 
Program, which provides support to eligible health-care providers 
through discounts for broadband and telecommunications services.
---------------------------------------------------------------------------
    To participate in Lifeline, households must either have an income 
that is at or below 135 percent of the Federal Poverty Guidelines or 
participate in one of several qualifying assistance programs, such as 
Medicaid or the Supplemental Nutrition Assistance Program (SNAP).\2\ 
After subscribers are enrolled in Lifeline, they receive a monthly 
benefit on home or wireless phone and broadband service. The Lifeline 
benefit can lower or eliminate the cost of a subscriber's monthly phone 
or Internet bill.
---------------------------------------------------------------------------
    \2\ Medicaid is a joint federal-state health-coverage program for 
certain low-income and medically needy individuals. SNAP, previously 
known as the Food Stamp Program, offers nutrition assistance to 
eligible, low-income individuals and families.
---------------------------------------------------------------------------
    By statute, every telecommunications carrier providing interstate 
telecommunications services--including Lifeline providers--must 
contribute to Federal universal service unless exempted by FCC.\3\ 
Contributions are deposited into the Universal Service Fund (USF). 
Although not required to do so, carriers typically pass on the cost of 
USF fees as a separate line item to their customers' phone bills. A 
not-for-profit, private corporation designated by FCC as the 
administrator of universal service programs, the Universal Service 
Administrative Company (USAC) pays Lifeline providers a subsidy from 
the USF for each subscriber to offset forgone revenues.\4\ From 
calendar year 1998 through 2016, USAC had disbursed approximately $20.2 
billion to Lifeline providers.
---------------------------------------------------------------------------
    \3\ 47 U.S.C. Sec. 254(d).
    \4\ According to USAC documents, USAC is not a Federal agency, 
government corporation, government-controlled corporation, or other 
establishment in the Executive Branch of the U.S. government. USAC is 
also not a contractor to the Federal government, but is an independent, 
Delaware, not-for-profit, private corporation, subject to all 
applicable federal, state, and local taxes.
---------------------------------------------------------------------------
    In May 2017, we published a report on FCC's oversight of Lifeline 
that identified steps FCC has taken in the last few years to enhance 
the integrity of the program and stated the weaknesses that 
remained.\5\ We also made seven recommendations to improve FCC's 
oversight of the program, which the agency agreed to implement.
---------------------------------------------------------------------------
    \5\ GAO, Telecommunications: Additional Action Needed to Address 
Significant Risks in FCC's Lifeline Program, GAO-17-538 (Washington, 
D.C.: May 30, 2017).
---------------------------------------------------------------------------
    My statement today discusses key findings from our May 2017 report, 
as well as steps FCC has taken and the related recommendations we made. 
Specifically, this testimony discusses (1) the extent to which Lifeline 
demonstrates effective performance towards program goals; (2) steps FCC 
and USAC have taken to improve financial controls in place for Lifeline 
and the USF, and any remaining weaknesses that might exist; (3) steps 
FCC and USAC have taken to improve subscriber eligibility verification, 
and any remaining weaknesses that might exist; and (4) steps FCC and 
USAC have taken to improve oversight of Lifeline providers, and any 
remaining weaknesses that might exist.
    For our May 2017 report, we reviewed documents and interviewed 
multiple stakeholders associated with Lifeline, including FCC, FCC's 
Office of Inspector General (OIG), and USAC, among others. We also 
examined USAC financial data, including USF bank account statements and 
payment data, and interviewed USF account managers at the bank that 
holds USF funding. Further, we reviewed internal financial controls 
established by FCC and USAC and performed data matching and analysis to 
identify potential improper payments using Lifeline's enrollment data 
from the National Lifeline Accountability Database (NLAD) and relevant 
beneficiary databases. The results of the data analysis are 
illustrative rather than generalizable. We also performed undercover 
work to test the vulnerability for improper payments of funds disbursed 
to both subscribers and Lifeline providers. For example, we submitted 
21 Lifeline applications using false information and fabricated 
supporting documents to determine whether we could obtain Lifeline 
benefits. These undercover tests were for illustrative purposes to 
highlight any potential internal control vulnerabilities and are not 
generalizable to the broader universe of subscribers and providers. 
Additional information on our scope and methodology is available in our 
May 2017 report. Our audit work was performed in accordance with 
generally accepted government auditing standards, and our related 
investigative work was done in accordance with investigative standards 
prescribed by the Council of the Inspectors General on Integrity and 
Efficiency.
FCC Has Not Evaluated Lifeline's Performance in Meeting Program Goals 
        but Has Taken Recent Steps toward Evaluation
    FCC has not evaluated Lifeline's performance in meeting program 
goals but, as we found in May 2017, has taken recent steps toward 
evaluation. According to GAO's Cost Estimating and Assessment Guide, to 
use public funds effectively the government must meet the demands of 
today's changing world by employing effective management practices and 
processes, including the measurement of government program 
performance.\6\ In the past, FCC has called for program evaluations to 
review the administration of universal service generally, including 
Lifeline, but has not completed such evaluations. For example, FCC 
specified that it would review USAC 1 year after USAC was appointed as 
the permanent administrator to determine whether the universal service 
programs were being administered effectively. This review, which was 
planned to have been completed by 1999, was never done. In 2005, FCC 
awarded a contract to the National Academy of Public Administration to 
study the administration of the USF programs generally, examine the 
tradeoffs of continuing with the current structure, and identify ways 
to improve the oversight and operation of universal service programs. 
However, we reported in May 2017 that FCC officials stated FCC 
subsequently terminated the contract and the study was not conducted.
---------------------------------------------------------------------------
    \6\ GAO, GAO Cost Estimating and Assessment Guide: Best Practices 
for Developing and Managing Capital Program Costs, GAO-09-3SP 
(Washington, D.C.: March 2009).
---------------------------------------------------------------------------
    In March 2015, we found that FCC had not evaluated Lifeline's 
effectiveness in achieving its performance goals of ensuring the 
availability of voice service for low-income Americans, while 
minimizing the burden on those who contribute to the USF.\7\ We 
recommended, and FCC agreed, to conduct a program evaluation to 
determine the extent to which Lifeline is efficiently and effectively 
reaching its performance goals.
---------------------------------------------------------------------------
    \7\ GAO, Telecommunications: FCC Should Evaluate the Efficiency and 
Effectiveness of the Lifeline Program, GAO-15-335 (Washington, D.C.: 
Mar. 24, 2015).
---------------------------------------------------------------------------
    Our May 2017 report raised additional questions about Lifeline's 
effectiveness in meeting its program goals. For example, we reported 
that:

   FCC did not know how many of the 12.3 million households 
        receiving Lifeline as of December 2016 also have non-Lifeline 
        phone service (for which they pay out of pocket) along with 
        their Lifeline benefit. Without knowing whether participants 
        are using Lifeline as a primary or secondary phone service, we 
        concluded that it is difficult for FCC to determine whether it 
        is achieving the program's goal of increasing telephone 
        subscribership among low-income consumers while minimizing the 
        USF contribution burden.

   FCC revamped Lifeline in March 2016 to focus on broadband 
        adoption and generally phase out phone service, in part because 
        FCC recognized that most eligible consumers have phones without 
        Lifeline and to also close the ``digital divide'' of broadband 
        adoption between low-income households and the rest of the 
        country. However, broadband adoption rates have steadily 
        increased for the low-income population absent a Lifeline 
        subsidy for broadband. We found that at least two companies 
        operating in a total of at least 21 states had begun offering 
        in-home non-Lifeline broadband wireline support for less than 
        $10 per month to individuals that participate in public-
        assistance programs, such as SNAP or public housing.\8\ The 
        offered rate of these providers' own low-income broadband 
        service of $10 per month was less expensive than FCC's 
        broadband reasonable-comparability cost benchmark of 
        approximately $55 per month, which Lifeline subscribers would 
        be paying for a similar level of service.
---------------------------------------------------------------------------
    \8\ These advertised prices do not include taxes.

    Our May 2017 report also found that FCC has recently taken some 
steps toward evaluating Lifeline's performance in meeting program 
goals. Specifically, in the 2016 Lifeline Modernization Order, FCC 
instructed USAC to hire an outside, independent, third-party evaluator 
to complete a program evaluation of Lifeline's design, function, and 
administration. The order stipulated the outside evaluator must 
complete the evaluation and USAC must submit the findings to FCC by 
December 2020. As FCC expects Lifeline enrollment to increase as the 
program is expanded to include broadband service, this expansion could 
carry with it increased risks for fraud, waste, and abuse, as was the 
case with past expansions of the program. Completing the program 
evaluation as planned, and as we recommended in 2015, would help FCC 
determine whether Lifeline is meeting its stated goals of increasing 
telephone and broadband subscribership among low-income consumers, 
while minimizing the burden on those who contribute to the USF.
Financial Controls Exist, with Others Planned, for the Lifeline 
        Program, but Weaknesses Remain
    In our May 2017 report we found that FCC and USAC have established 
financial controls for Lifeline, including obtaining and reviewing 
information about billing, collecting, and disbursing funds. They have 
also developed plans to establish other controls, such as establishing 
a national eligibility verifier (National Verifier) for Lifeline 
providers to determine the eligibility of applicants seeking Lifeline 
service. However, as discussed in our May 2017 report, we found that 
weaknesses remain, including the lack of requirements to effectively 
control program expenditures above approved levels, concerns about the 
transparency of fees on customers' telephone bills, and a lack of FCC 
guidance that could result in Lifeline and other providers paying 
inconsistent USF contributions. To address these concerns, we 
recommended the Chairman of FCC (1) require Commissioners to review and 
approve, as appropriate, spending above the budget in a timely manner; 
(2) require a review of customer bills as part of the contribution 
audit to include an assessment of whether the charges, including USF 
fees, meet FCC Truth-in-billing rules with regard to labeling, so 
customer bills are transparent, and appropriately labeled and 
described, to help consumers detect and prevent unauthorized changes; 
and (3) respond to USAC requests for guidance and address pending 
requests concerning USF contribution requirements to ensure the 
contribution factor is based on complete information and that USF pass-
through charges are equitable. FCC generally agreed with those 
recommendations.
    In addition, we found that USAC's banking practices for the USF 
result in oversight and accountability risks that FCC has plans to 
mitigate. Specifically, FCC maintains USF funds--whose net assets as of 
September 2016 exceeded $9 billion--outside of the U.S. Treasury 
pursuant to Office of Management and Budget (OMB) advice provided in 
April 2000. OMB had concluded that the USF does not constitute public 
money subject to the Miscellaneous Receipts Statute, 31 U.S.C. 
Sec. 3302, a statute that requires that money received for the use of 
the United States be deposited in the Treasury unless otherwise 
authorized by law. As such, USF balances are held in a private bank 
account. However, subsequent to this OMB advice, in February 2005 we 
reported that FCC should reconsider this determination in light of the 
status of universal service monies as Federal funds.\9\
---------------------------------------------------------------------------
    \9\ GAO, Telecommunications: Greater Involvement Needed by FCC in 
the Management and Oversight of the E-Rate Program, GAO-05-151 
(Washington, D.C.: Feb. 9, 2005).
---------------------------------------------------------------------------
    As discussed in our May report, according to correspondence we 
received from the FCC Chairman's Senior Legal Counsel, as of March 
2017, FCC had decided to move the funds to the Treasury. FCC identified 
potential benefits of moving the funds to the Treasury. For example, 
FCC explained that having the funds in the Treasury would provide USAC 
with better tools for fiscal management of the funds, including access 
to real-time data and more accurate and transparent data. According to 
FCC, until the USF is moved into the Treasury, there are also some 
oversight risks associated with holding the fund in a private account. 
For example, the contract governing the account does not provide FCC 
with authority to direct bank activities with respect to the funds in 
the event USAC ceases to be the administrator of the USF. After we 
raised this matter with FCC officials during the course of our review, 
beginning in November 2016, FCC sought to amend the contract between 
USAC and the bank to enable the bank to act on FCC instructions 
independently of USAC in the event USAC ceases to be the administrator. 
However, as of May 2017, the amended contract had not yet been signed.
    While FCC has put in place a preliminary plan to move the USF funds 
to the Treasury, as well as plans to amend the existing contract with 
the bank as an interim measure, several years have passed since this 
issue was brought to FCC's attention without corrective actions being 
implemented. Further, under FCC's preliminary plan, it would not be 
until next year, at the earliest, that the funds would be moved to the 
Treasury. In May 2017, while reviewing a draft of this report, a senior 
FCC official informed us that FCC experienced some challenges 
associated with moving the funds to the Treasury, such as coordinating 
across the various entities involved, which raised some questions as to 
when and perhaps whether the funds would be moved. Until FCC finalizes 
and implements its plan and moves the USF funds, the risks that FCC 
identified will persist and the benefits of having the funds in the 
Treasury will not be realized. As a result, in our May 2017 report, we 
recommended that the Chairman of FCC take action to ensure that the 
preliminary plans to transfer the USF funds from the private bank to 
the Treasury are finalized and implemented as expeditiously as 
possible. FCC agreed with this recommendation.
FCC and USAC Have Implemented Some Controls to Improve Subscriber 
        Eligibility Verification, but Weaknesses Remain
    FCC and USAC have implemented controls to improve subscriber 
eligibility verification, such as implementing the NLAD database in 
2014, which helps carriers identify and resolve duplicate claims for 
Lifeline-supported services. However, as discussed in our May 2017 
report, our analysis of data from 2014, as well as our undercover 
attempts to obtain Lifeline service, revealed significant weaknesses in 
subscriber eligibility verification. Lifeline providers are generally 
responsible for verifying the eligibility of potential subscribers, but 
we found that their ability to do so is hindered by a lack of access 
to, or awareness of, state eligibility databases that can be used to 
confirm eligibility prior to enrollment. For example, not all states 
have databases that Lifeline providers can use to confirm eligibility 
and some providers with whom we spoke were unaware of databases that 
were potentially available to them. These challenges might be overcome 
if FCC establishes a National Verifier, as it plans to do nationwide by 
the end of 2019, to remove responsibility for verifying eligibility 
from the providers. Additionally, since USAC was not maintaining and 
providing information to providers about these databases, we 
recommended they maintain and disseminate an updated list of state 
eligibility databases available to Lifeline providers that includes the 
qualifying programs those databases access to confirm eligibility, to 
help ensure Lifeline providers are aware of state eligibility databases 
and USAC audits of Lifeline providers can verify that available state 
databases are being utilized to verify subscriber eligibility. FCC 
agreed with the recommendation.
    For our May 2017 report, to identify Lifeline subscribers who were 
potentially ineligible to participate in the program, we tested the 
eligibility of subscribers who claimed participation in Medicaid, SNAP, 
and Supplemental Security Income (SSI) using NLAD data as of November 
2014. We focused our analysis on these three programs because FCC 
reported in 2012 that these were the three qualifying programs through 
which most subscribers qualify for Lifeline. We compared approximately 
3.4 million subscribers who, according to information entered in NLAD, 
were eligible for Lifeline due to enrollment in one of these three 
programs to eligibility data for these programs.\10\
---------------------------------------------------------------------------
    \10\ The six states selected for our Medicaid analysis had 
eligibility dates from the third quarter of 2012 through the most-
recent eligibility fiscal quarter available for each state--at the time 
of our data analysis--which ranged from the third quarter of 2012 to 
the fourth quarter of 2014. For our analysis of NLAD and Medicaid data, 
we only matched against Lifeline subscribers who enrolled prior to the 
latest Medicaid eligibility data available for each state. Our 
nationwide SSI eligibility data ranged from October 2012 to December 
2014, and each of the five selected states' SNAP data ranged from 
October 2013 to December 2014. Therefore, it was not necessary to 
exclude any Lifeline subscribers prior to matching. To ensure a 
conservative estimate of unconfirmed eligibility, in the event that any 
of the Lifeline subscribers were only shown as eligible for the month 
of December 2014, they were nevertheless counted as a match and deemed 
likely eligible for Lifeline, even though NLAD data were only as of 
November 2014. For more information about our scope and methodology, 
see the full report, GAO-17-538.
---------------------------------------------------------------------------
    On the basis of our analysis of NLAD and public-assistance data, we 
could not confirm that a substantial portion of selected Lifeline 
beneficiaries were enrolled in the Medicaid, SNAP, and SSI programs, 
even though, according to the data, they qualified for Lifeline by 
stating on their applications that they participated in one of these 
programs.\11\ In total, we were unable to confirm whether 1,234,929 
subscribers out of the 3,474,672 who we reviewed, or about 36 percent, 
participated in the qualifying benefit programs they stated on their 
Lifeline enrollment applications or were recorded as such by Lifeline 
providers.\12\
---------------------------------------------------------------------------
    \11\ When matching NLAD data against each of the qualifying 
programs that we tested, we used the number of subscribers listed in 
NLAD as belonging to each program at the state level and matched it to 
the corresponding state's qualifying program's eligibility database. We 
took the difference between the subscribers listed as belonging to 
SNAP, SSI, and Medicaid at the state level in NLAD and our confirmed 
matches to determine the number of subscribers who could not be 
confirmed to qualify for the benefit program.
    \12\ For the purpose of our analysis, we considered a subscriber in 
NLAD to be a likely match and enrolled in SNAP if at least four of the 
following fields matched between NLAD and SNAP data from each state: 
subscriber first name; subscriber last name; subscriber date of birth; 
last four digits of the subscriber's Social Security number (SSN); and 
an exact address, zip-code, state match. We considered a subscriber 
listed in NLAD to be a likely match and enrolled in SSI if the 
subscriber first name, last name, date of birth, and last four digits 
of the SSN matched exactly with SSI program data. To ensure that our 
tabulations of unconfirmed eligibility do not overstate potential 
problems with the data, we counted as a ``likely match'' for both SNAP 
and SSI data matching. Specifically, for SNAP and SSI we counted first 
and last name matches with inexact, but similar, spelling to be a 
likely match and enrolled in the qualifying programs. Whereas, for 
Medicaid, we considered a subscriber listed in NLAD as a likely match 
enrolled in the qualifying program if the date of birth, last four 
digits of the SSN, and zip code matched exactly with Medicaid data for 
each state, because the Medicaid data we utilized did not contain first 
or last name. By not requiring the first or last name as part of the 
NLAD/Medicaid matching, we may understate the unconfirmed eligibility 
rate for NLAD subscribers coded as eligible via Medicaid.
---------------------------------------------------------------------------
    If providers claimed and received reimbursement for each of the 1.2 
million subscribers, then the subsidy amount associated with these 
individuals equals $11.4 million per month, or $137 million annually, 
at the current subsidy rate of $9.25 per subscriber. Because Lifeline 
disbursements are based on providers' reimbursement claims, not the 
number of subscribers a provider has in NLAD, our analysis of NLAD data 
could not confirm actual disbursements associated with these 
individuals. Given that our review was limited to those enrolled in 
SNAP or Medicaid in selected case-study states, and SSI in states that 
participated in NLAD at the time of our analysis, our data results are 
likely understated compared to the entire population of Lifeline 
subscribers. These results indicate that potential improper payments 
have occurred and have gone undetected. We plan to refer potentially 
ineligible subscribers identified through our analysis for appropriate 
action as warranted.
    Our undercover testing, as discussed in our May 2017 report, also 
found that Lifeline may be vulnerable to ineligible subscribers 
obtaining service and the testing found examples of Lifeline providers 
being nonresponsive, or providing inaccurate information. To conduct 
our 21 tests, we contacted 19 separate providers to apply for Lifeline 
service. We applied using documentation fictitiously stating that we 
were enrolled in an eligible public-assistance program or met the 
Lifeline income requirements. We were approved to receive Lifeline 
services by 12 of the 19 Lifeline providers using fictitious 
eligibility documentation. We also experienced instances during our 
undercover tests where our calls to providers were disconnected, and 
where Lifeline provider representatives transmitted erroneous 
information, or were unable to provide assistance on questions about 
the status of our application. For example, one Lifeline provider told 
us that our application was not accepted by the company because our 
signature had eraser marks; however our application had been submitted 
via an electronic form on the provider's website and was not physically 
signed. While our tests are illustrative and not representative of all 
Lifeline providers or applications submitted, these results suggest 
that Lifeline providers do not always properly verify eligibility and 
that applicants may potentially encounter similar difficulties when 
applying for Lifeline benefits. As described above, these challenges 
might be overcome if FCC establishes a National Verifier, as it plans 
to do nationwide by the end of 2019, to remove responsibility for 
verifying eligibility from the providers.
FCC and USAC Have Taken Some Steps to Improve Oversight of Lifeline 
        Providers, but Remaining Gaps Could Allow Noncompliance with 
        Program Rules
    FCC and USAC have implemented some mechanisms to enhance oversight 
of Lifeline providers, as discussed in our May 2017 report, but we 
found that remaining gaps could allow noncompliance with program rules. 
For example, in July 2014, FCC took additional measures to combat 
fraud, waste, and abuse by creating a strike force to investigate 
violations of USF program rules and laws. According to FCC, the 
creation of the strike force is part of the agency's commitment to 
stopping fraud, waste, and abuse and policing the integrity of USF 
programs and funds. Similarly, in June 2015, FCC adopted a rule 
requiring Lifeline providers to retain eligibility documentation used 
to qualify consumers for Lifeline support to improve the auditability 
and enforcement of FCC rules.
    However, we found FCC and USAC have limited oversight of Lifeline 
provider operations and the internal controls used to manage those 
operations. The current structure of the program relied throughout 2015 
and 2016 on over 2,000 Eligible Telecommunication Carriers (ETC) to 
provide Lifeline service to eligible beneficiaries. These companies are 
relied on to not only provide telephone service, but also to create 
Lifeline applications, train employees and subcontractors, and make 
eligibility determinations for millions of applicants. USAC's reliance 
on Lifeline providers to determine eligibility and subsequently submit 
accurate and factual invoices is a significant risk for allowing 
potentially improper payments to occur, and under current reporting 
guidelines these occurrences would likely go undetected and unreported. 
Federal internal control standards state that management retains 
responsibility for the performance and processes assigned to service 
organizations performing operational functions. Consistent with 
internal control standards, FCC and USAC would need to understand the 
extent to which a sample of these internal controls are designed and 
implemented effectively to ensure these controls are sufficient to 
address program risks and achieve the program's objectives.
    We identified key Lifeline functions for which FCC and USAC had 
limited visibility. For example, we found instances of Lifeline 
providers utilizing domestic or foreign-operated call centers for 
Lifeline enrollment. When we asked FCC officials about Lifeline 
providers that outsource program functions to call centers, including 
those overseas, they told us that such information is not tracked by 
FCC or USAC. With no visibility over these call centers, FCC and USAC 
do not have a way to verify whether such call centers comply with 
Lifeline rules. FCC and USAC have limited knowledge about potentially 
adverse incentives that providers might offer employees to enroll 
subscribers. For example, some Lifeline providers pay commissions to 
third-party agents to enroll subscribers, creating a financial 
incentive to enroll as many subscribers as possible. Companies 
responsible for distributing Lifeline phones and service that use 
incentives for employees to enroll subscribers for monetary benefit 
increase the possibility of fictitious or ineligible individuals being 
enrolled into Lifeline. Highlighting the extent of the potential risk 
for companies, in April 2016 FCC announced approximately $51 million in 
proposed fines against one Lifeline provider, due to, among other 
things, its sales agents purposely enrolling tens of thousands of 
ineligible and duplicate subscribers in Lifeline using shared or 
improper eligibility documentation.
    To test internal controls over employees associated with Lifeline 
for our May 2017 report, we sought employment with a company that 
enrolls individuals to Lifeline. We were hired by a company and were 
allowed to enroll individuals in Lifeline without ever meeting any 
company representatives, conducting an employment interview, or 
completing a background check. After we were hired, we completed two 
fictitious Lifeline applications as an employee of the company, 
successfully enrolled both of these fictitious subscribers into 
Lifeline using fabricated eligibility documentation, and received 
compensation for these enrollments. The results of these tests are 
illustrative and cannot be generalized to any other Lifeline provider. 
We plan to refer this company for appropriate action as warranted. As 
stated above, these challenges might be overcome if FCC establishes a 
National Verifier, as it plans to do nationwide by the end of 2019, to 
remove responsibility for verifying eligibility from the providers. In 
addition, in May 2017, we made two recommendations to help address 
control weaknesses and related program-integrity risks. Specifically, 
we recommended that FCC establish time frames to evaluate compliance 
plans and develop instructions with criteria for FCC reviewers how to 
evaluate these plans to meet Lifeline's program goals. We also 
recommended that FCC develop an enforcement strategy that details what 
violations lead to penalties and apply this as consistently as possible 
to all Lifeline providers to ensure consistent enforcement of program 
violations. FCC generally agreed with these recommendations.
    In conclusion, Lifeline's large and diffuse administrative 
structure creates a complex internal control environment susceptible to 
significant risk of fraud, waste, and abuse. FCC's and USAC's limited 
oversight of important aspects of program operations further 
complicates the control environment--heightening program risk. We are 
encouraged by FCC's recent steps to address weaknesses we identified, 
such as the 2016 order establishing a National Verifier, which, if 
implemented as planned, could further help to address weaknesses in the 
eligibility-determination process. We also plan to monitor the 
implementation status of the recommendations we made in May 2017.
    Chairman Thune, Ranking Member Nelson, and members of the 
Committee, this concludes my prepared remarks. I would be happy to 
answer any questions that you may have at this time.

    The Chairman. Thank you, Mr. Bagdoyan.
    Ms. Collier.

            STATEMENT OF DEBORAH COLLIER, DIRECTOR,

           TECHNOLOGY AND TELECOMMUNICATIONS POLICY,

               CITIZENS AGAINST GOVERNMENT WASTE

    Ms. Collier. Good morning, Chairman Thune, Ranking Member 
Schatz, and members of the Committee. Thank you for inviting me 
to speak about the risk of waste, fraud, and abuse within the 
Federal Government's Lifeline program.
    Issues of waste, fraud, and abuse within the Lifeline 
program have been well documented. In October 2010, the GAO 
revealed multiple instrument--incidences of programmatic fraud 
and abuse, noticing that some recipients use Craigslist to 
advertise the sale of Lifeline-subsidized phones and services 
while other beneficiaries violated the one-phone-line 
restriction of the program by signing up for service for 
multiple carriers.
    On June 29, 2011, in response to the GAO report, the FCC 
issued final rules to address the fraud and eligibility issues 
by restricting eligible low-income consumers to one Lifeline-
supported service at a time, and ordered the removal of any 
subscriber receiving multiple benefits in violation of the rule 
from the program.
    On January 12, 2012, the FCC further reformed the Lifeline 
program by creating the National Lifeline Accountability 
Database to prevent multiple carriers from receiving support 
for the same subscriber and ensuring the one-per-household rule 
would be enforced.
    On March 24, 2015, GAO released another report, finding 
many of the FCC's 2012 reforms were not working, and the agency 
needed to do more to address deficiencies within the program. 
GAO recommended the agency determine whether the Lifeline 
program was efficiently and effectively reaching its goals of 
ensuring the availability of voice service for low-income 
Americans while minimizing the contribution burden on consumers 
and businesses.
    On June 12, 2015, a Consumer Reports expose revealed how 
easy it was to get around the 2012 reforms. Investigators found 
that, in some cases, Lifeline plans were registered with forged 
signatures, assigned to vacant homes, or given to individuals 
with fake credentials. The investigative team also found that 
salesmen were routinely accepting fake food stamp cards, 
including one clearly marked as a training card, and another 
printed from the Internet.
    On March 31, 2016, the FCC further reformed the Lifeline 
program by creating a National Lifeline Eligibility Verifier 
System to help determine subscriber eligibility in the future.
    On December 22, 2016, the FCC fined Total Call Mobile $30 
million for overbilling the Lifeline program. The FCC found 
that Total Call Mobile had enrolled tens of thousands of 
duplicate and ineligible customers onto the Lifeline program, 
with 99.8 percent of Total Call Mobile's enrollment occurring 
during the fourth quarter of 2014, and overriding the third-
party verification system.
    On May 30, 2017, GAO released its most recent report, which 
found that the National Database structure to verify 
eligibility continues to be susceptible to waste, fraud, and 
abuse, and creates an incentive for companies to enroll as many 
subscribers into the program as possible. Of the 3.5 million 
subscribers reviewed in GAO's investigation, the agency was 
unable to confirm the eligibility of 36 percent of its 
enrollees. Along with the inability of the Universal Service 
Administration Company's ability to coordinate efforts to 
reduce improper payments, GAO also noted that USAC currently 
uses a ``pay and chase'' model of oversight to check any 
noncompliance or improper payments rather than verifying 
eligibility for the program at the front end.
    On January 19, 2017, USAC awarded a contract to develop the 
verifier system to Accenture Federal Services. It is the hope 
of CHEW that as the USAC develops the verifier system, a front-
end approach will be instituted to further reduce incidents of 
fraud and abuse in the program.
    CHEW also strongly recommends that the FCC continue to 
engage in more stringent enforcement actions against companies 
that actively register ineligible or duplicate recipients into 
the program and skirting around the verification process.
    Again, thank you, Chairman Thune, Ranking Member Schatz, 
and the members of the Committee. I appreciate your review of 
the Lifeline program and hope that my testimony will help 
eliminate waste, fraud, and abuse within the Lifeline program. 
I look forward to your questions.
    [The prepared statement of Ms. Collier follows:]

    Prepared Statement of Deborah Collier, Director, Technology and 
      Telecommunications Policy, Citizens Against Government Waste
    Mr. Chairman and members of the Committee. Thank you for the 
opportunity to speak to you today. My name is Deborah Collier, and I am 
the technology and telecommunications policy director for Citizens 
Against Government Waste, a nonpartisan, nonprofit organization 
dedicated to eliminating waste, fraud, and abuse in government. 
Citizens Against Government Waste has not received at any time any 
Federal grant and we do not wish to receive any in the future.
    Many Americans have heard of the ``Obamaphones,'' made infamous by 
the viral 2012 video of a Cleveland woman touting the ``free'' Lifeline 
program.\1\ However, few Americans realize is that Lifeline is part of 
the Low-Income support program, which was created in 1985 to provide 
subsidies for low-income households to obtain a telephone enabling them 
to communicate in emergencies. Following the enactment of the 
Telecommunications Act of 1996, the Low-Income support program became 
part of the Universal Service Fund (USF), which is administered by the 
Universal Service Administrative Company (USAC). Participation in the 
program is based on eligibility for one of the following Federal or 
tribal assistance programs: Medicaid; Supplemental Nutrition Assistance 
Program (Food Stamps or SNAP); Supplemental Security Income; Federal 
Public Housing Assistance (Section 8); Bureau of Indian Affairs General 
Assistance; Tribally-Administered Temporary Assistance for Needy 
Families; Food Distribution Program on Indian Reservations; or Head 
Start (subject to income eligibility criteria).\2\ Over the years, the 
Lifeline program has evolved from initially providing one landline 
telephone per household in need, to offering low-income, qualified 
subscribers a choice between a landline telephone, a wireless phone, or 
broadband Internet service at a reduced cost (with a limit of one per 
household).
---------------------------------------------------------------------------
    \1\ Joshua Rhett Miller, ``Viral Video Touting Free `Obama Phone' 
puts spotlight on Federal program, Fox News, September 29, 2012, http:/
/www.foxnews.com/politics/2012/09/28/viral-video-touting-obama-phone-
puts-spotlight-on-16-billion-federal-program.html.
    \2\ ``How Lifeline Works,'' Lifeline Program Overview, Federal 
Communications Commission, viewed: July 31, 2017, https://www.fcc.gov/
consumers/guides/lifeline-support-affordable-communications.
---------------------------------------------------------------------------
    The USF is funded through fees on consumer telephone bills, and is 
used to support the following four programs: the Schools and Libraries 
program (also known as E-Rate); the High Cost program, which provides 
grants to build out telecommunications infrastructure in underserved or 
unserved areas of the country; the Rural Healthcare program, which 
provides telecommunications services, including broadband, to eligible 
health care providers; and, the Low-Income Support program, which 
includes Lifeline and Link-Up.
    In October 2010, the Government Accountability Office (GAO) 
published a report on the Lifeline and Link-Up programs that showed a 
significant increase in demand for the program from 2008 to 2009, 
attributable in part to the increased availability of discounted 
wireless service for eligible individuals.\3\ From 2005 to 2008, 
payments ranged from between $802 million to $823 million annually. 
However, in 2009, these payments increased to approximately $1 
billion.\4\
---------------------------------------------------------------------------
    \3\ ``Telecommunications: Improved Management Can Enhance FCC 
Decision Making for the Universal Service Fund Low-Income Program,'' 
U.S. Government Accountability Office, GAO-11-11, October 28, 2010, 
http://www.gao.gov/assets/320/312708.pdf.
    \4\ Ibid.
---------------------------------------------------------------------------
    GAO also revealed multiple instances of fraud and abuse within the 
program. For example, some recipients were using Craigslist to 
advertise the sale of Lifeline-subsidized phones and service. In other 
instances, Lifeline beneficiaries violated the one phone line 
restriction of the program by signing up for service from multiple 
carriers. On June 29, 2011, the FCC published final rules to address 
the fraud and eligibility issues highlighted in the GAO report, by 
restricting eligible low-income consumers to one Lifeline-supported 
service at a time and ordering that any subscriber receiving multiple 
benefits in violation of the rule must be removed from the program.\5\
---------------------------------------------------------------------------
    \5\ ``Federal Communications Commission, Lifeline and Link-up 
Reform and Modernization, Federal-State Joint Board on Universal 
Service, Lifeline and Link-up, Final Rule,'' Federal Register, Volume 
76, Number 125, Federal Communications Commission, June 29, 2011, 
http://www.gpo.gov/fdsys/pkg/FR-2011-06-29/pdf/2011-16312.pdf.
---------------------------------------------------------------------------
    In remarks before Third Way on January 9, 2012, then-FCC Chairman 
Julius Genachowski laid out plans to close loopholes in the program's 
eligibility requirements and strengthen cost controls to further reduce 
the amount of waste, fraud and abuse.\6\ He also suggested expanding 
the Lifeline program choices to include broadband services, emphasizing 
that he believed the current service options were outdated by providing 
only telephone service.
---------------------------------------------------------------------------
    \6\ ``FCC Chairman Genachowski Addresses Smart, Responsible 
Government and Reforms to Modernize the Lifeline Program for 
Broadband,'' Remarks before Third Way, Washington, D.C., January 9, 
2012, http://transition.fcc.gov/Daily_Releases/Daily_Business/2012/
db0109/DOC-311894A1.pdf.
---------------------------------------------------------------------------
    On January 31, 2012, the FCC approved a report and order (``2012 
Reform Order) to reform and modernize the Lifeline and Linkup 
programs.\7\ The rulemaking set a savings target of $200 million for 
2012; created the National Lifeline Accountability Database (NLAD) to 
prevent multiple carriers from receiving support for the same 
subscriber; created an eligibility database; established a one-per-
household rule applicable to all providers in the program; established 
clear goals and metrics to measure the program's performance and 
effectiveness; phased out support for certain services, such as toll 
limitations; and, established a uniform, interim flat rate of 
reimbursement.
---------------------------------------------------------------------------
    \7\ In the Matter of Lifeline and Link Up Reform and Modernization 
(WC Docket No. 11-42), Lifeline and Link Up (WC Docket No. 03-109), 
Federal-State Joint Board on Universal Service (CC Docket No. 96-45), 
Advancing Broadband Availability Through Digital Literacy Training (WC 
Docket No. 12-23), Federal Communications Commission, Adopted January 
31, 2012, Released February 6, 2012, https://apps.fcc.gov/edocs_public/
attachmatch/FCC-12-11A1_Rcd.pdf.
---------------------------------------------------------------------------
    The FCC also began a pilot program for a broadband initiative and 
proposed transforming the USF High Cost program into the Connect 
America Fund. According to the FCC, by July 31, 2012, the reforms had 
generated $43 million in savings, and were on track to save the USF 
fund a total of $200 million by the end of December 2012.
    However, despite the efforts made at the FCC to rein in fraud and 
abuse within the Lifeline program, some companies offering Lifeline 
phone services, known as Eligible Telecommunications Carriers (ETCs), 
found ways to skirt around the agency's new verification system.
    On February 11, 2013, The Wall Street Journal reported that 
government spending on the Lifeline program had reached $2.2 billion 
despite the efforts to reduce costs through stronger enforcement 
measures.\8\ The article showed ``that a large number of those who 
received the phones haven't proved they are eligible to receive them.''
---------------------------------------------------------------------------
    \8\ Spencer E. Ante, ``Millions Improperly Claimed U.S. Phone 
Subsidies,'' The Wall Street Journal, February 11, 2013, https://
www.wsj.com/news/articles/SB1000142412788732351180457
8296001368122888.
---------------------------------------------------------------------------
    Lack of accountability in the Lifeline program was described by 
Charles C.W. Cooke in a March 11, 2013 National Review article.\9\ 
Cooke noted that in response to an inquiry by Senator Claire McCaskill 
(D-Mo.), the FCC confessed that in the 15 years the program had been 
operational, the agency had yet to build a database of subscribers that 
could have helped companies avoid adding duplicate recipients to the 
rolls.\10\
---------------------------------------------------------------------------
    \9\ Charles C.W. Cooke, ``Life, Liberty, and a Free Phone,'' 
National Review, March 11, 2013, https://www.nationalreview.com/
magazine/2013-02-19-2300/life-liberty-and-free-phone.
    \10\ Ibid.
---------------------------------------------------------------------------
    On November 1, 2013, the FCC proposed imposing $33 million in 
penalties against three Lifeline providers for seeking duplicate 
payments for ineligible subscribers.\11\
---------------------------------------------------------------------------
    \11\ ``FCC Proposes Nearly $33 Million in Penalties Against 
Lifeline Providers That Sought Duplicate Payments for Ineligible 
Subscribers,'' Federal Communications Commission, Press Release, 
November 1, 2013, https://apps.fcc.gov/edocs_public/attachmatch/DOC-
323852A1.pdf.
---------------------------------------------------------------------------
    On February 13, 2015, FCC Commissioner Michael O'Rielly recommended 
further reforms of the Lifeline program, including a budget with a cap 
on spending.\12\ Noting that GAO's 2010 report also highlighted the 
lack of a budget cap, Commissioner O'Rielly concluded, ``setting a 
ceiling on reimbursements is a prudent step to protect ratepayers. 
Dollars lost to fraud may be returned to the Federal government, but 
not to ratepayers who have already footed the bill.'' He also 
recommended maintaining the existing reimbursement rate for broadband; 
limiting services eligible for support; prohibiting double dipping; 
improving the targeting of funding to those who really need it, 
tightening eligibility requirements; requiring a minimum contribution 
from beneficiaries; making carrier participation voluntary; 
implementing automatic safeguards against abuse; and, requiring 
document retention by providers to reduce abuse and fraud.\13\
---------------------------------------------------------------------------
    \12\ Michael O'Rielly, Commissioner, ``Sound Principles for 
Lifeline Reform,'' Federal Communications Commission, February 13, 
2015, https://www.fcc.gov/news-events/blog/2015/02/13/sound-principles-
lifeline-reform.
    \13\ Ibid.
---------------------------------------------------------------------------
    On March 24, 2015, GAO released another report finding that many of 
the FCC's 2012 reforms were not working, and the agency needed to do 
more to address deficiencies within the Lifeline program.\14\ GAO found 
that at its peak in 2012, the Lifeline program served about 18 million 
households following the introduction of prepaid wireless phone 
service. Following the 2012 Reform Order, that number was reduced to 
approximately 12 million households and disbursements in the program 
declined from $2.2 billion in 2012 to $1.7 billion in 2014 due to the 
elimination of many ineligible households. However, GAO determined that 
the FCC lacked an evaluation plan for the data it had gathered from its 
Lifeline broadband pilot program, and recommended the agency ``conduct 
a program evaluation prior to determine the extent to which the 
Lifeline program is efficiently and effectively reaching its 
performance goals of ensuring the availability of voice service for 
low-income Americans while minimizing the contribution burden on 
consumers and businesses.'' \15\
---------------------------------------------------------------------------
    \14\ ``Telecommunications: FCC Should Evaluate the Efficiency and 
Effectiveness of the Lifeline Program,'' U.S. Government Accountability 
Office, GAO-15-335, March 24, 2015, http://www.gao.gov/assets/670/
669209.pdf.
    \15\ Ibid.
---------------------------------------------------------------------------
    On June 12, 2015, a Consumer Reports (CR) expose revealed how easy 
it was to get around the restrictions imposed in the 2012 reforms.\16\ 
CR investigators in Oklahoma and Indiana found that in some cases 
Lifeline plans were registered with forged signatures, assigned to 
vacant homes, or given to individuals with fake credentials. In 
Colorado, the CR investigators and a Denver news team found that 
salesmen ``routinely accepted fake food stamp cards, including one with 
`training card' on it and another clearly printed from an Internet 
file.'' \17\ While the FCC continued to fine carriers and vendors (more 
than $96 million by the time the CR report was filed), the violations 
continued.
---------------------------------------------------------------------------
    \16\ Chris Raymond, ``FCC Lifeline Program has a Problem: This 
subsidized phone program for low-income Americans struggles with 
abuse,'' Consumer Reports, June 12, 2015, https://
www.consumerreports.org/cro/news/2015/06/fcc-lifeline-program-problems/
index.htm.
    \17\ Ibid.
---------------------------------------------------------------------------
    On March 3, 2016, as the FCC considered further expansion of the 
Lifeline program, Commissioner O'Rielly again called on the agency to 
put Lifeline on a strict budget to halt its runaway spending to allow 
for proper alignment with other USF programs, and limit its costs to 
consumers.\18\ Otherwise, Commissioner O'Rielly noted, ``the FCC is 
preparing to expand the size and scope of the Lifeline Program without 
the necessary inclusion of a hard budget or financial constraints.'' 
\19\
---------------------------------------------------------------------------
    \18\ Michael O'Rielly, Commissioner, ``Lifeline Reform: Add a Hard 
Budget,'' Federal Communications Commission, March 3, 2016, https://
www.fcc.gov/news-events/blog/2016/03/03/lifeline-reform-add-hard-
budget.
    \19\ Ibid.
---------------------------------------------------------------------------
    Despite Commissioner O'Rielly's entreaties, on March 31, 2016, the 
FCC adopted another expansion of the Lifeline program by adding 
subsidized broadband Internet service at the amount of $9.25 per month 
per eligible household, and increased the annual budget for Lifeline 
from $1.75 billion to $2.25 billion, without a spending limit or 
cap.\20\ The decision also stripped the ability of states to designate 
ETCs to administer the USF, and gave that responsibility to the FCC. 
This provision runs contrary to Section 214 of the Communications Act 
of 1934, which gave that authority to the states. The FCC also 
established a National Verifier System to assist in ensuring that only 
qualified households can participate in the Lifeline program.
---------------------------------------------------------------------------
    \20\ Third Report and Order, Further Report and Order, and Order on 
Reconsideration, In the Matter of Lifeline and Link Up Reform and 
Modernization (WC Docket No. 11-42), Telecommunications Carriers 
Eligible for Universal Service Support (WC Docket No. 09-197), and 
Connect America Fund (WC Docket No. 10-90), Adopted March 31, 2016, 
Released April 27, 2016, Federal Communications Commission, https://
apps.fcc.gov/edocs_public/attachmatch/FCC-16-38A1.pdf.
---------------------------------------------------------------------------
    In statements prior to the March 31 meeting, Commissioner O'Rielly 
noted that an expansion of the Lifeline program to broadband Internet 
would cost $750 million.\21\ Commissioner Ajit Pai stated, ``It's 
telling that the agency is already spending money in anticipation of 
getting a greater amount of revenue from the Universal Service Fund . . 
. That money is already being spent, and it has to come from somewhere. 
I would respectfully submit to you that ultimately, it's going to be in 
the form of a broadband tax.'' \22\
---------------------------------------------------------------------------
    \21\ ``Statement of Commissioner Michael O'Rielly on Circulation of 
Lifeline Expansion Order,'' Federal Communications Commission, March 8, 
2016, http://transition.fcc.gov/Daily_Releases/Daily_Business/2016/
db0308/DOC-338130A1.pdf.
    \22\ Rudy Takala, ``FCC Commissioner: Expect a Broadband Internet 
Tax,'' The Washington Examiner, March 2, 2016, http://
www.washingtonexaminer.com/fcc-commissioner-expect-a-broad
band-internet-tax/article/2584747.
---------------------------------------------------------------------------
    On April 7, 2016, the FCC announced it would impose a fine of more 
than $51 million on Total Call Mobile for overbilling the Lifeline 
program.\23\ According to the FCC, Total Call Mobile had enrolled tens 
of thousands of duplicate and ineligible customers onto the Lifeline 
program, with 99.8 percent of Total Call Mobile's enrollment during the 
fourth quarter of 2014 overriding the NLAD third-party verification 
system designed to catch duplicate enrollments. Ultimately, Total Call 
Mobile resolved the enforcement action by settling on a fine of $30 
million, after admitting its field agents engaged in ``fraudulent 
practices,'' and the company lost its authorization to participate in 
the Lifeline program anywhere in the United States.\24\
---------------------------------------------------------------------------
    \23\ ``FCC Charges Total Call Mobile with Overbilling the Lifeline 
Program, Plans $51 million Fine,'' Federal Communications Commission, 
April 7, 2016, https://apps.fcc.gov/edocs_public/attachmatch/DOC-
338774A1.pdf.
    \24\ ``Total Call Mobile to Pay $30 Million and End Lifeline 
Participation to Settle Fraud Investigations,'' Federal Communications 
Commission, December 22, 2016, https://apps.fcc.gov/edocs_public/
attachmatch/DOC-342666A1.pdf.
---------------------------------------------------------------------------
    Following the verification issues raised by the Total Call Mobile 
enforcement action, Commissioner Pai contacted the four states that do 
not utilize the NLAD verification program--California,, \25\ 
Oregon,\26\ Texas,\27\ and Vermont \28\--to ask them to review their 
own processes to prevent fraud.
---------------------------------------------------------------------------
    \25\ Letter from Federal Communications Commissioner Ajit Pai to 
Mr. Michael Picker, President, California Public Utilities Commission, 
July 5, 2016, https://apps.fcc.gov/edocs_public/attachmatch/DOC-
340181A1.pdf.
    \26\ Letter from Federal Communications Commissioner Ajit Pai to 
Ms. Lisa Hardie, Chair, Public Utility Commission of Oregon, July 5, 
2016, https://apps.fcc.gov/edocs_public/attachmatch/DOC-340182A1.pdf.
    \27\ Letter from Federal Communications Commissioner Ajit Pai to 
Ms. Donna L. Nelson, Chairman, Public Utility Commission of Texas, July 
5, 2016, https://apps.fcc.gov/edocs_public/attach
match/DOC-340181A1.pdf.
    \28\ Letter from Federal Communications Commissioner Ajit Pai to 
Mr. Christopher Recchia, Commissioner of the Vermont Public Service 
Department, July 5, 2016, https://apps.fcc.gov/edocs_public/
attachmatch/DOC-340180A1.pdf.
---------------------------------------------------------------------------
    On May 30, 2017, the GAO released its most recent report to 
Congress on Lifeline's verification system, detailing the continued 
need for reform and accountability within the Lifeline program.\29\ GAO 
found that the NLAD system, created in 2012, is susceptible to risk of 
fraud, waste, and abuse, as companies have an incentive to enroll as 
many subscribers under the program as possible. GAO was unable to 
confirm 1.2 million individuals of the 3.5 million it reviewed, or 36 
percent of the enrollees. As noted in a June 29, 2017 Washington Post 
article, ``It is unclear how many ineligible subscribers may be in the 
remaining pool of 8.9 million subscribers GAO did not study.'' \30\
---------------------------------------------------------------------------
    \29\ ``Telecommunications: Additional Action Needed to Address 
Significant Risks in FCC's Lifeline Program,'' U.S. Government 
Accountability Office, GAO-17-538, May 30, 2017, http://www.gao.gov/
assets/690/684974.pdf.
    \30\ Brian Fung, ``This low-cost phone and Internet program wastes 
millions in Federal funding, auditors say,'' The Washington Post, June 
29, 2017, https://www.washingtonpost.com/news/the-switch/wp/2017/06/29/
critics-say-this-low-cost-phone-and-internet-program-is-riddled-with-
waste-and-abuse-theyre-right/?utm_term=.17e3a76b9e30.
---------------------------------------------------------------------------
    CAGW is concerned about the inability of the USAC to coordinate its 
database with the Social Security Death Master File, and other efforts 
to reduce vulnerabilities within the system to combat improper 
payments. GAO noted that the USAC currently uses a ``pay-and-chase'' 
model of oversight to check for any noncompliance or improper payments, 
rather than verifying eligibility for the program at the front end. 
Without verifying eligibility at the front end, further fraud and abuse 
of the program will continue.
    CAGW supports GAO's recommendation that the USAC conform with GAO's 
Framework for Managing Fraud Risks in Federal Programs by conducting 
data matching to ``verify key information, including self-reporting 
data and information necessary to determine eligibility, prior to 
enrollment to avoid the `pay-and-chase' approach to risk management, 
which is typically a less cost-effective use of resources.'' \31\ GAO 
also noted that states play a role in helping to verify eligibility, 
however, information sharing between the states and the Federal 
government will require data-sharing agreements to enable an automated 
eligibility confirmation process, which may be prohibited by some state 
privacy laws.\32\
---------------------------------------------------------------------------
    \31\ GAO-17-538, p. 25.
    \32\ Ibid, p. 26.
---------------------------------------------------------------------------
    On July 11, 2017, FCC Chairman Pai wrote to the USAC ordering it to 
take action to address the myriad of problems found in the GAO report, 
his own investigations, and those of the FCC Office of Inspector 
General. He called upon the USAC to address the deficiencies in the 
NLAD system; identify and refer oversubscribed addresses to NLAD; 
identify and ask eligible telecommunications carriers with unexplained 
discrepancies in subscribers to take action to remediate the issues; 
check the Social Security Death Master File each quarter to avoid 
recertifying individuals into the program who have passed away, and 
recover Lifeline payments associated with those deceased subscribers; 
identify and remediate new exact duplicate subscriber entries; and, 
create a registration of sales agents to help reduce fraudulent 
activities, such as inappropriate data manipulation.\33\
---------------------------------------------------------------------------
    \33\ Letter from Federal Communications Commission Chairman Ajit 
Pai to Ms. Vickie Robinson, Acting Chief Executive Officer and General 
Counsel, Universal Service Administrative Company regarding his 
findings from his internal investigations, the FCC's Office of 
Inspector General Findings and the recent GAO report on waste, fraud, 
and abuse within the Lifeline Program, Federal Communications 
Commission, July 11, 2017, http://transition.fcc.gov/Daily_Releases/
Daily_Business/2017/db0711/DOC-345729A1.pdf.
---------------------------------------------------------------------------
    Continued fraud and abuse within the Lifeline program has continued 
despite efforts to reform the verification process in 2012 and again in 
2015. If Congress intends for the Lifeline program to continue and be 
sustainable in the future, CAGW strongly recommends that the USAC be 
required to implement a front end verification process, and the FCC 
engage in more stringent enforcement actions against companies that 
actively register ineligible or duplicate recipients into the program, 
and skirt around the verification process.
    I appreciate the Committee's review of the Lifeline program, and 
hope that my testimony will help eliminate waste, fraud, and abuse.
    Again, thank you for the opportunity to testify.
                                 ______
                                 
Deborah S. Collier, Director, Technology and Telecommunications Policy, 
                   Citizens Against Government Waste
    Deborah S. Collier is the technology and telecommunications policy 
director for Citizens Against Government Waste (CAGW). She specializes 
in information technology (IT) and telecommunications policy including 
cloud computing, IT procurement, information security, data privacy, 
broadband spectrum allocations, network neutrality, cable industry 
issues, e-commerce, and emerging technologies.
    Since joining CAGW in July 2011, Ms. Collier has authored numerous 
educational issue briefs; articles and blogs on technology and 
telecommunications policy, including three reports relating to cloud 
computing; and a report on the development of government mobile apps. 
In 2014, Ms. Collier joined with CAGW President Tom Schatz in co-
authoring ``Telecom Unplugged: Ushering in a New Digital Era.'' In 
November 2014, CAGW released a report she co-authored with Mr. Schatz 
entitled ``Intellectual Property: Making It Personal.'' She has been a 
guest on radio and television news programs to discuss Internet taxes, 
Title II reclassification of the internet, IT procurement reform, and 
other technology related issues.
    Prior to her work at CAGW, Ms. Collier spent 24 years on Capitol 
Hill working in IT and legislative arenas. From 1986 to 1992, she 
worked for Rep. Clarence Miller (R-Ohio) as a caseworker, legislative 
aide, and system administrator. In 1993, she joined the staff of Rep. 
Steve Buyer (R-Ind.) as his director of information technology. From 
2005 to 2010, she served on the House Committee on Veterans' Affairs as 
the Republican Legislative Director. Ms. Collier was a member of the 
House Systems Administrators Association, a congressional staff 
organization dedicated to improving information technology systems in 
Member offices, from 1989 until 2005; and served as the organization's 
president from 2002 to 2005.
    Ms. Collier holds a Bachelor of Arts (AB) degree in History from 
Ohio University.

    The Chairman. Thank you, Ms. Collier.
    Next up is Mr. Eisenach.

  STATEMENT OF JEFFREY A. EISENACH, Ph.D., VISITING SCHOLAR, 
                 AMERICAN ENTERPRISE INSTITUTE

    Dr. Eisenach. Chairman Thune, Ranking Member Schatz, 
members of the Committee, thank you for the opportunity to 
appear before you today.
    Before beginning, I just want to mention that I'm appearing 
today solely on my own behalf, and the views and opinions I 
express are and should not be attributed to any of the 
organizations with which I'm affiliated.
    I can summarize my testimony in three sentences. First, 
promoting universal access to modern communication services and 
the Internet, especially for low-income and disadvantaged 
Americans, is a noble cause and a pragmatic objective which 
deserves Federal support. Second, the Federal Communications 
Commission's current Lifeline program is not an effective or an 
efficient means of achieving these goals, and it's not likely 
to become one. Third, we can't give up. The doors of digital 
opportunity must be open for low-income and disadvantaged 
Americans, and it's therefore incumbent on policymakers to 
develop a new approach that's both effective and a good 
investment for taxpayers.
    Let me briefly address each point.
    First, the evidence regarding the positive effects of 
expanding availability and adoption of broadband communications 
services is incontrovertible. I cite some recent research in my 
written testimony, and while academics will always quibble on 
the margins, there is just no doubt that promoting broadband 
availability and Internet access is a legitimate Federal 
purpose and worth the objectives for public policy.
    My second point, directly addressing the main focus of 
today's hearing, is that the FCC's Lifeline program is both 
ineffective and inefficient as a means of promoting online 
access for the poor and disadvantaged Americans. Let me be 
clear what I mean by each of these words.
    It's ineffective because it has little, if any, impact, as 
you said, Chairman Thune, in your opening remarks, on behavior. 
There is no compelling evidence that Lifeline causes any 
significant number of people to get communications services 
they would not already have in the absence of the subsidy.
    Second, it's inefficient because it is extremely wasteful 
and prone to fraud and abuse, meaning that it costs 
communications users who pay for it, including low-income 
households, far more than it should.
    Thinking about the way the program is designed, these 
results are hardly surprising. Lifeline, after all, pays 
communications companies to identify people who are eligible 
for Federal income support programs, and if they are, gives 
them free or subsidized phone service. It does not reward the 
companies for signing up new subscribers; that is, subscribers 
who do not already have communications services. Nor does it 
provide funding or in any way encourage companies to reach out 
to difficult-to-serve populations. As my AEI colleague Daniel 
Lyons has noted, the 2016 expansion of the program does nothing 
to change these incentives, it just extends the availability of 
the $9.25 subsidy to broadband without any evidence that 
broadband subscribership will be measurably increased as a 
result.
    Now, if someone had to set out to design a Federal program 
that would be prone to waste, fraud, and abuse, it's hard to 
imagine how they could have done a better job than with the 
FCC's Lifeline program. The program is administered by over 
2,000 private companies, most of them resellers of services 
actually provided by others, which can be certified for 
participation by any of 55 or so state or territorial entities, 
or until lately, the FCC.
    The companies receive checks from the Universal Service 
Administrative Company based on how many qualifying customers 
they claim to serve. And once the customer is signed up--and I 
know this supposedly changed at the end of December--the check 
keeps coming in perpetuity until the company reports that the 
customer is no longer using the service.
    The companies self-certify that the participants are 
eligible, but as Mr. Bagdoyan has reported, in just over a 
third of the cases it recently reviewed, the GAO could not 
verify that the subscriber actually qualified for the subsidy.
    As Senator McCaskill put it after reviewing the most recent 
GAO report, a complete lack of oversight is causing this 
program to fail the American taxpayer, everything that could go 
wrong is going wrong. We're currently letting phone companies 
cash a government check every month with little more than the 
honor system to hold them accountable.
    Now, in my written testimony, I go through the history of a 
little bit of the abuse of the Universal Service Program, and I 
will skip that here, but as you've heard from the two prior 
witnesses, and I'm sure we'll get into in our questions, this 
is not a new problem. The FCC is a repeat offender.
    The history of the Lifeline program to me raises an 
important question, which is whether there is ever a point at 
which Congress will hold an agency accountable for gross, 
repeated, ongoing, systematic mismanagement of a multibillion 
dollar Federal program, because if there is such a point, this 
is the program, this is the agency, and this is the time.
    Now, this brings me to my third point, and I've run out of 
time, so I'll be very brief, but we do need an alternative. 
It's not enough to walk away. It is important and a legitimate 
Federal purpose that we seek to open the doors of digital 
opportunity to poor and disadvantaged and elderly Americans who 
are not online as much as we would like them to be and/or don't 
have the skills to make full use of the Internet, but the 
Lifeline program isn't achieving that objective.
    I outline in my written testimony four principles for how 
we can do a better job of doing that. I won't go over those 
here, except I will conclude by saying respectfully that it's 
time to consider a new delivery mechanism for these services, 
one that involves neither the Federal regulatory agency which 
has so grossly mismanaged the Lifeline program nor the 
telephone companies which have profited so handsomely from that 
mismanagement. If we want to help poor and disadvantaged 
Americans use the Internet and access the Internet, let's stop 
writing checks to telephone companies because it's not working.
    Mr. Chairman and members of the Committee, thank you very 
much.
    [The prepared statement of Dr. Eisenach follows:]

  Prepared Statement of Jeffrey A. Eisenach, Ph.D., Visiting Scholar, 
                     American Enterprise Institute
    Mr. Chairman and Members of the Committee, thank you for the 
opportunity to appear before you at today's hearing on Addressing the 
Risk of Waste, Fraud, and Abuse in the Federal Communications 
Commission's Lifeline Program.
    I have had the opportunity to study communications, media and 
Internet policy issues over the course of many years and in several 
capacities, including in my current positions as Co-Chair of the 
Communications Media and Internet Practice at NERA Economic Consulting, 
as an adjunct professor at George Mason University Law School, and as a 
Visiting Scholar at the American Enterprise Institute. While I am proud 
to be affiliated with these organizations, I am appearing today solely 
on my own behalf, and the views and opinions I express should not be 
attributed to any of the organizations with which I am or have been 
affiliated.
    I can summarize my testimony in three sentences. First, promoting 
universal access to modern communication services and the Internet, 
especially for low-income and disadvantaged Americans, is a noble cause 
and a pragmatic objective which deserves Federal support. Second, the 
Federal Communications Commission's (FCC) current lifeline program is 
not an effective or efficient means of achieving these goals, nor are 
current reform efforts likely to make it so. Third, we cannot give up: 
the doors of digital opportunity must be opened for low-income and 
disadvantaged Americans, and it is therefore incumbent on policymakers 
to develop a new approach that is both effective and a good investment 
for the American taxpayer.
    Let me address each point in turn.
    First, the evidence regarding the positive effects of expanding 
availability and adoption of broadband communications services and 
Internet access on economic progress and personal opportunity is 
incontrovertible. There is a broad and deep literature on overall 
economic effects which has consistently demonstrated a positive 
relationship between broadband and economic growth, employment and 
productivity.\1\ Research is also increasingly demonstrating the 
socioeconomic benefits of broadband for disadvantaged populations. For 
example, new research published in the Journal of Medical Internet 
Research shows that when people from low socioeconomic positions begin 
using the Internet they use it for a variety of capital enhancing 
activities, including education, job seeking and obtaining health 
information.\2\ Recent research from the Pew Internet Center also shows 
that broadband plays an important role in facilitating job search 
activity.\3\ There is also substantial research demonstrating the 
benefits of broadband expansion in rural areas. For example, Atasoy 
found that gaining access to broadband in a county increased the 
employment rate by approximately 1.8 percentage points, with larger 
effects in rural areas.\4\ A 2016 Hudson Institute study found that the 
rural broadband industry supported over 69,000 jobs and $100 billion in 
e-commerce in 2015.\5\
---------------------------------------------------------------------------
    \1\ See e.g., I. Bertschek et al, ``The Economic Impacts of 
Broadband Internet: A Survey,'' Review of Network Economics 14(4) 
(2015) 201-227 at 222 (``In sum, we find strong evidence for positive 
impacts of broadband Internet on economic outcomes.'').
    \2\ See R. McCloud et al, ``Entertainment or Health? Exploring the 
Internet Usage Patterns of the Urban Poor: A Secondary Analysis of a 
Randomized Controlled Trial,'' Journal of Medical Internet Research 
18:3 (2016) (available at http://www.jmir.org/2016/3/e46/f). (The study 
also finds that ``familiarity and skills in using the Internet enhance 
the capacity to use it for diverse purposes, including health and to 
increase capital. . . .'')
    \3\ See Aaron Smith, ``Lack of Broadband Can Be a Key Obstacle, 
Especially for Job Seekers,'' Pew Research Center (October 28, 2015) 
(available at http://www.pewresearch.org/fact-tank/2015/12/28/lack-of-
broadband-can-be-a-key-obstacle-especially-for-job-seekers/). See also 
Council of Economic Advisers, ``The Digital Divide and Economic 
Benefits of Broadband Access,'' (March 2016).
    \4\ See Hilal Atasoy, ``The Effects of Broadband Internet Expansion 
on Labor Market Outcomes,'' ILRReview 66(32) (April 2013) 315-345.
    \5\ See Hanns Kuttner, The Economic Impact of Rural Broadband 
(Hudson Institute, 2016) (available at https://s3.amazonaws.com/
media.hudson.org/files/publications/20160419Kuttner
TheEconomicImpactofRuralBroadband.pdf)
---------------------------------------------------------------------------
    Academics will always quibble about the details and the magnitudes, 
but there is widespread agreement that broadband availability and 
Internet access generate significant socioeconomic benefits and that 
expanding both availability and adoption are worthy objectives for 
public policy.
    My second point, directly addressing the main focus of today's 
hearing, is that the FCC's Lifeline program is both ineffective and 
inefficient as a means of promoting online access for poor and 
disadvantaged Americans. Let me be clear what I mean by each of those 
words. It is ineffective because it has little if any impact on 
behavior. Indeed, there is no compelling evidence that Lifeline causes 
a significant number of people to get communications services they 
would not already have in the absence of the subsidy. It is inefficient 
because it is extremely wasteful and prone to fraud and abuse, meaning 
that it costs the communications users who pay for it--including low 
income households--far more than it should.
    If Lifeline were effective in opening the doors of digital 
opportunity to low-income and disadvantaged populations, it could be 
argued that at least some reasonable level of waste or inefficiency 
should be tolerated. But it is not. When asked by Government 
Accountability Office (GAO) for evidence that the program achieves its 
public policy goals, the FCC could only produce to two academic 
studies, both of which suggest the program is ineffective in increasing 
subscribership. As the GAO explained:

        The studies that FCC referred us to suggest . . . that many 
        low-income households would choose to subscribe to telephone 
        service in the absence of the Lifeline subsidy. . . . As such, 
        the Lifeline program, as currently structured, may be a rather 
        inefficient and costly mechanism to increase telephone 
        subscribership among low-income households, because several 
        households receive the subsidy for every additional household 
        that subscribes to telephone service due to the subsidy.\6\
---------------------------------------------------------------------------
    \6\ See U.S. Government Accountability Office, FCC Should Evaluate 
the Efficiency and Effectiveness of the Lifeline Program, (GAO-15-335, 
March 24, 2015) at 14 (available at http://www.gao.gov/products/GAO-15-
335) (hereafter GAO 2015 Report). See also Daniel A. Lyons, To Narrow 
the Digital Divide, the FCC Should Not Simply Extend Lifeline to 
Broadband (American Enterprise Institute, March 2016) at 33 (hereafter 
Lyons 2016).

    In fact, one of the studies produced by the FCC found that only one 
out of twenty households enrolled in the wireless Lifeline program 
subscribes to telephone service because of the subsidy,\7\ and the 
other found that while the Link Up program had a modest effect on 
wireline penetration, Lifeline--though much more expensive--had very 
little effect.\8\
---------------------------------------------------------------------------
    \7\ See Olga Ukhaneva, ``Universal Service in a Wireless World'' 
(Georgetown University, November 2015).
    \8\ See Daniel A. Ackerberg, et al, ``Estimating the Impact of Low-
Income Universal Service Programs,'' International Journal of 
Industrial Organization 37 (2014) 84-98. Ackerberg et al found that 
while Link Up (which covers set up costs for new telephone 
subscriptions) was far more effective than Lifeline, which covers 
monthly bills. Link Up subsidies were eliminated except in tribal areas 
in 2012 Lifeline and Link Up Reform and Modernization, Order (27 FCC 
Rcd 15842 (WCB 2012)) (hereafter 2012 Reform Order).
---------------------------------------------------------------------------
    Thinking about the way the program is designed, these results are 
hardly surprising. Lifeline, after all, pays telephone companies to 
identify people who are eligible for Federal income support programs 
and, if they are, gives them free or subsidized phone service. It does 
not reward the companies for signing up new subscribers--that is 
subscribers who do not already have telephone service. Nor does it 
provide funding or in any way encourage companies to reach out to 
difficult to serve populations. Further, as my AEI colleague Professor 
Daniel Lyons has noted, the 2016 extension of the program to broadband 
services does nothing to change these incentives--it just extends the 
availability of the $9.25 subsidy to broadband, without any evidence 
that broadband subscribership will be increased measurably as a 
result.\9\
---------------------------------------------------------------------------
    \9\ Lyons 2016 at 1.
---------------------------------------------------------------------------
    If someone had set out to design a Federal program that would be 
prone to waste, fraud and abuse, it is hard to imagine how they could 
have done a better job than with the FCC Lifeline program. The program 
is administered by over 2,000 companies, most of them resellers of 
services actually provided by others, which can be certified for 
participation by any of 55 or so state and territorial entities, plus 
the FCC. The companies receive checks from the Universal Service 
Administrative Company (USAC) based on how many qualifying customers 
they claim to serve. Once a customer is signed up, the payments--about 
$9.25 per month, unless one happens to be serving a customer on an 
Indian reservation, in which case the amount is tripled--keep coming, 
even if the customer never actually uses the service. The companies 
self-certify that the participants are eligible, but in just over a 
third of the cases it recently reviewed, the GAO could not verify that 
the subscriber actually qualified for the subsidy.\10\
---------------------------------------------------------------------------
    \10\ See Government Accountability Office, Additional Action Needed 
to Address Significant Risks in FCC's Lifeline Program (May 2017) at 
Exec. Summary (``Lifeline's structure relies on over 2,000 Eligible 
Telecommunication Carriers that are Lifeline providers to implement key 
program functions, such as verifying subscriber eligibility. This 
complex internal control environment is susceptible to risk of fraud, 
waste, and abuse as companies may have financial incentives to enroll 
as many customers as possible. Based on its matching of subscriber to 
benefit data, GAO was unable to confirm whether about 1.2 million 
individuals of the 3.5 million it reviewed, or 36 percent, participated 
in a qualifying benefit program, such as Medicaid, as stated on their 
Lifeline enrollment application.'') (hereafter GAO 2017).
---------------------------------------------------------------------------
    As Senator McCaskill put it after reviewing the most recent GAO 
report:

        A complete lack of oversight is causing this program to fail 
        the American taxpayer--everything that could go wrong is going 
        wrong. We're currently letting phone companies cash a 
        government check every month with little more than the honor 
        system to hold them accountable, and that simply can't 
        continue.\11\
---------------------------------------------------------------------------
    \11\ Press Release, ``McCaskill-Requested Report Shows Massive 
Fraud, Waste in `Lifeline' Phone Program,'' (June 29, 2017) (available 
at https://www.mccaskill.senate.gov/media-center/news-releases/
breaking-mccaskill-requested-report-shows-massive-fraud-waste-in-
lifeline-phone-program).

    It should be noted that the FCC's mismanagement of the Lifeline 
program is not an outlier. The universal service program has been rife 
with waste, fraud and abuse throughout its history. For example, when 
the Commission first began subsidizing wireless competitive 
communications carriers in the mid-2000s, it ended up writing checks 
for hundreds of millions of dollars to cell phone carriers for serving 
customers they were already serving without a subsidy.\12\ Reviewing 
the FCC's high-cost programs in 2008, the GAO found that: the ``FCC has 
not established performance goals or measures'' for the program; 
``while some internal control mechanisms exist. . .these mechanisms are 
limited and exhibit weaknesses that hinder FCC's ability to assess the 
risk of non-compliance;'' ``the carrier certification process exhibits 
inconsistency across states that certify carriers;'' and, ``carrier 
audits have been limited in number and reported findings, and carrier 
data validation focuses primarily on completeness, not accuracy.'' \13\
---------------------------------------------------------------------------
    \12\ See e.g., Kevin W. Caves and Jeffrey A. Eisenach, ``The 
Effects of Providing Universal Service Subsidies to Wireless Carriers'' 
(Criterion Economics, June 2007). The study found ``no statistically 
significant relationship between subsidies and either the availability 
of wireless service from any carrier or the number of carriers offering 
service'' and concluded that ``USF funding does not significantly 
increase the availability of mobile telephone service in high cost 
areas.'').
    \13\ See Government Accountability Office, Telecommunications: FCC 
Needs to Improve Performance Management and Strengthen Oversight of the 
High-Cost Program (GAO-08-633, June 2008) (available at https://
www.gao.gov/assets/280/276644.html).
---------------------------------------------------------------------------
    The history of the Lifeline program, of course, is even more 
disturbing, especially as it relates to subsidies for mobile 
subscriptions from non-facilities based carriers.\14\ Almost 
immediately reports began emerging of rampant fraud and abuse as fly-
by-night operators took advantage of the same sorts of management 
failings that have characterized the Commission's oversight of other 
universal service programs.\15\ For example, in its 2010 report on the 
Commission's low-income programs, the GAO found:
---------------------------------------------------------------------------
    \14\ For a concise history of the FCC's expansion of Lifeline to 
non-facilities-based wireless carriers, see Government Accountability 
Office, Improved Management Can Enhance FCC Decision Making for the 
Universal Service Fund Low-Income Program (GAO 11-11, October 2010) 
(available at http://www.gao.gov/assets/320/312708.pdf) at 16-17 
(hereafter GAO 2010).
    \15\ See e.g., Phil Goldstein, ``TracFone, Icon and Others Face 
Fines in FCC Lifeline Crackdown,'' Fierce Wireless (October 1, 2013) 
(available at http://www.fiercewireless.com/wireless/tracfone-icon-and-
others-face-fines-fcc-lifeline-crackdown); see also ``Remarks of FCC 
Commissioner Ajit Pai at the Citizens Against Government Waste Policy 
Breakfast'' (July 28, 2014) (available at https://www.fcc.gov/document/
commissioner-pai-remarks-citizens-against-government-waste-bfast).

        Although FCC and USAC have some mechanisms in place to identify 
        and evaluate risks and monitor compliance with program rules, 
        [T]he Low-Income Program lacks key features of effective 
        internal controls. FCC and USAC primarily use audit findings to 
        monitor compliance with program rules. However, the number and 
        scope of USAC's audits have been limited and there is no 
        systematic process in place to review the findings of those 
        audits that are conducted. Further, FCC and USAC have not 
        conducted a risk assessment specific to the Low-Income Program 
        that includes consideration of all program vulnerabilities, 
        such as the possibility that multiple carriers may claim 
        support for the same telephone line and that households may 
        receive more than one discount, contrary to program rules.\16\
---------------------------------------------------------------------------
    \16\ See GAO 2010 at Highlights.

    The FCC did react to the 2010 GAO study by adopting its February 
2012 Reform Order, which the Commission claimed would ``substantially 
strengthen protections against waste, fraud and abuse'' and ``improve 
program administration and accountability.'' \17\ It is true that the 
2012 Order resulted in removing a significant number of ineligible 
subscribers from the roles--29 percent of them. As then Commissioner 
Pai pointed out, the Commission's mismanagement of the program resulted 
in paying out approximately $1.3 billion in subsidies to phone 
companies for serving subscribers who were later decertified.\18\
---------------------------------------------------------------------------
    \17\ Federal Communications Commission, In the Matter of Lifeline 
and Link Up Reform and Modernization, Report and Order and Further 
Notice of Proposed Rulemaking, WC Docket 11-42 (February 6, 2012) at  
1 (hereafter 2012 Reform Order).
    \18\ Federal Communications Commission, In the Matter of Lifeline 
and Link Up Reform and Modernization, Third Report and Order, Further 
Report and order, and Order on Reconsideration (WC Docket No. 11-42, 
April 27, 2016), Dissenting Statement of Commissioner Ajit Pai 
(hereafter 2016 Reform Order); dissenting Statement of Commissioner 
Ajit Pai at 4161 (hereafter Pai Dissent).
---------------------------------------------------------------------------
    Of course, we now know that the 2012 Order did not end waste fraud 
and abuse. Five years after releasing its 2010 study, in March 2015, 
the GAO again looked at the Lifeline program and found that of the 11 
key reforms adopted in the 2012 Order, the FCC had implemented only 
seven, and that the Commission still had not--as noted above, evaluated 
the effectiveness of the program. The 2015 GAO study also noted that 
the 2012 Order included a Further Notice of Proposed Rulemaking on how 
best to implement an automated eligibility verification system--but 
three years later--found that ``the FCC has not met the time-frame 
established in the Order or revised any timeframes for when or how this 
automated means would be available.'' \19\
---------------------------------------------------------------------------
    \19\ GAO 2015 Report at 12. The need for an eligibility database 
was actually raised in the 2011 NPRM that led to the 2012 Order. See 
Lifeline and Link Up Reform and Modernization WC Dkt. No. 11-42, Notice 
of Proposed Rulemaking, 26 FCC Rcd 2770 at  207 (hereafter 2011 NPRM).
---------------------------------------------------------------------------
    With this history in mind, the notion that the FCC's April 2016 
Lifeline Reform and Modernization Order is going to result in a well-
managed, cost-effective program represents the triumph of hope over 
experience. Indeed, the 2016 Order exhibits the same lack of 
seriousness, let alone urgency, that have brought us to where we are 
today. As then Commission Pai said at the time, the 2016 Order ``does 
not clean up the waste, fraud and abuse,'' ``does not address known 
loopholes that let unscrupulous carriers exploit the program,'' and 
even ``eliminates checks against waste, fraud, and abuse,'' such as 
safeguards against lifeline trafficking. \20\ Almost comically, the 
Order also does not contain a budget, but rather a non-binding trigger 
mechanism calling for further study.\21\
---------------------------------------------------------------------------
    \20\ Pai Dissent passim.
    \21\ As Commissioner O'Rielly put it in his dissent to the 2016 
Reform Order: ``A joke. Not a budget.'' (O'Rielly dissent at 4181).
---------------------------------------------------------------------------
    The Order did put in place a process for launching a National 
Verifier database, and the current Commission is to be credited with 
following through with that effort. But even assuming a best-case 
scenario, the National Verifier system will not be ``hard launched'' 
even in the six trial states until at least March 31, 2018--two years 
after the Order was signed. It will not be fully deployed until 
sometime in 2019 at the earliest--seven years after the Commission set 
out to create such a system in its 2011 Lifeline and Linkup NPRM.\22\ 
And given the loopholes and other shortcomings in the Order's other 
enforcement mechanisms, there is no reason to believe the National 
Verifier, even if it works, will bring an end to the waste, fraud and 
abuse of Lifeline.
---------------------------------------------------------------------------
    \22\ See Federal Communications Commission, ``Wireline Competition 
Bureau Announces Initial Launch of the National Lifeline Eligibility 
Verifier'' (August 31, 2017) available at http://transition.fcc.gov/
Daily_Releases/Daily_Business/2017/db0831/DA-17-816A1.pdf).
---------------------------------------------------------------------------
    For me, the history of the Lifeline program raises an important 
question: Is there is ever a point at which Congress will hold an 
agency accountable for gross, repeated, ongoing, systematic 
mismanagement of a multi-billion dollar Federal program. Because if 
there is such a point, this is the program, this is the agency and this 
is the time.
    This brings me to my third point: The need for an alternative. As I 
said above and deeply believe, it is essential that we continue working 
to open the doors of digital opportunity to low income and 
disadvantaged Americans. That means we need to design and implement 
something a lot better than Lifeline. While it is not within this scope 
of this testimony to lay out a complete program, let me suggest four 
principles for replacing Lifeline with a more effective approach to 
advancing digital opportunity.
    First, Federal and state governments should work to reduce barriers 
to broadband deployment and adoption, and to the efficient functioning 
of the broadband marketplace, so as to lower prices and increase the 
availability of affordable broadband services. That specifically 
includes reducing taxes--including universal service fees--on broadband 
services. Taxes and fees overall account for 18.6 percent of the 
average consumer's monthly bill, and while some of those are general 
sales taxes, Federal USF fees alone account for more than a third of 
the total, 6.64 percent.\23\ Financing communications subsidies by 
taxing communications users makes no economic sense--it is literally 
putting money into one pocket after taking it from the other. If 
universal service programs are worth funding--and I believe that 
properly constructed programs are worth funding--they are worth 
financing out of general tax revenues.
---------------------------------------------------------------------------
    \23\ See Scott Mackey and Joseph Henchman, Wireless Tax Burdens 
Rise for Second Straight Year in 2016, Tax Foundation (October 2016) 
(available at https://taxfoundation.org/wireless-tax-burdens-rise-
second-straight-year-2016).
---------------------------------------------------------------------------
    Second, regardless whether Lifeline is replaced or reformed, 
support should be targeted to those who do not already have service. As 
Commissioner O'Rielly put it in his dissenting statement on the 2016 
Order, the refusal to target support means that ``the agency prefers to 
give away money to people who already have broadband while other hard-
working Americans that sit just above the eligibility threshold pay 
ever higher fees to fund the program, possibly at the expense of being 
able to afford broadband themselves.'' \24\
---------------------------------------------------------------------------
    \24\ O'Reilly Dissent at 4182.
---------------------------------------------------------------------------
    Third, the replacement for lifeline should reflect an assessment of 
who needs help, and of what sort. What we know with certainty is that 
throwing more than a billion dollars a year at the problem in the form 
of $9.65 monthly checks written to telephone companies for serving 
anyone eligible for a Federal assistance program is not achieving the 
desired goal. A more effective approach would begin by realizing that 
the Americans most likely to be offline today are the elderly and those 
with low educational attainment, and that these populations likely need 
more than a free phone to make real use of the Internet.\25\ Similarly, 
while blacks and Hispanics are as nearly likely to own smart phones and 
tablets as whites, they are more than twice as likely as whites to say 
that training would help them use the Internet more effectively in 
making important decisions.\26\ And, as my colleague Daniel Lyons has 
suggested, a Lifeline replacement program ``should include ways for 
low-income recipients to acquire computers and other equipment they 
need to get online,'' perhaps drawing lessons from the old Link Up 
program.\27\
---------------------------------------------------------------------------
    \25\ Monica Anderson and Andrew Perrin, ``13 percent of Americans 
Don't Use the Internet: Who Are They?'' Pew Research Center (September 
7, 2016) (available at http://www.pew
research.org/fact-tank/2016/09/07/some-americans-dont-use-the-internet-
who-are-they/).
    \26\ Andrew Perrin, ``Smartphones Help Blacks, Hispanics Bridge 
Some--But Not All--Digital Gaps with Whites,'' Pew Research Center, 
August 31, 2017 (available at http://www.pew
research.org/fact-tank/2017/08/31/smartphones-help-blacks-hispanics-
bridge-some-but-not-all-digital-gaps-with-whites/).
    \27\ Lyons 2016 at 6-7.
---------------------------------------------------------------------------
    Fourth, and finally, I would like to respectfully suggest that it 
is time to consider a new delivery mechanism--one that involves neither 
the Federal regulatory agency which has so grossly mismanaged the 
Lifeline program nor the telephone companies that have profited so 
handsomely from that mismanagement. I hold Chairman Pad and the other 
members of the FCC in high regard, but the FCC has demonstrated 
repeatedly, under talented management from both political parties, that 
it is not very good at the low-income assistance business. Maybe it's 
time to try another path.
                                *  *  *
    Mr. Chairman and Members of the Committee, this completes my 
testimony. I look forward to answering any questions you may have.

    The Chairman. Thank you, Mr. Eisenach.
    Commissioner Nelson.

           STATEMENT OF CHRIS NELSON, COMMISSIONER, 
            SOUTH DAKOTA PUBLIC UTILITIES COMMISSION

    Mr. Nelson. Thank you. Chairman Thune, Ranking Member 
Schatz, Committee members, it's an honor for me to be here to 
visit with you all about a topic that I and my fellow utility 
commissioners across the country deal with on a regular basis.
    Why do we have Lifeline? A 2015 FCC Lifeline Order put it 
very well, and I quote, ``The purpose of the Lifeline program 
is to provide a hand up, not a hand out, to those low-income 
consumers who truly need assistance connecting to and remaining 
connected to telecommunications and information services.''
    So what are the priorities of state utility commissioners? 
First, states must remain involved in the Eligible 
Telecommunications Carrier, or ETC, designation process. 
Telecom carriers must receive an ETC designation before 
receiving Lifeline disbursements. Federal law mandates that 
states determine ETC designations. State involvement allows 
those of us with the hands and the eyes on the ground to make 
those determinations and have that oversight.
    Last year, the FCC sought to remove states from a part of 
that designation process, which only would have removed 
critical oversight of the program. Fortunately, Chairman Pai 
reversed that ill-conceived attempt to jettison state 
oversight. Simply put, states must remain involved in Lifeline 
oversight.
    Second, all involved must remain relentless at rooting out 
the waste, fraud, and abuse that we've heard about in this 
program. Every fraudulent Lifeline subscription is literally a 
theft from the consumers who pay into the Universal Service 
Fund. It takes dollars away from legitimate Lifeline 
subscribers, and dollars away that could be used for other 
Universal Service programs, like high-cost support, E-rate, and 
rural health.
    History has shown us that when strong action has been taken 
with the Lifeline programs, improvements can be dramatic. And I 
reference the FCC's 2012 reform order that required 
recertification of Lifeline participants. In that one 
requirement that dropped annual outlay from the program from 
$2.2 billion to $1.5 billion, Chairman Pai estimated that fully 
$1.3 billion was wasted through that time period by the fraud 
and abuse taking place. And to put that into context, those 
dollars could have incentivized the buildout of over 100,000 
broadband connections to people in this country that today have 
access to the--no access to the Internet whatsoever.
    Third, we need to make sure that the Federal program can 
work synergistically with the 23 states that have their own 
Lifeline programs.
    The GAO report raises some important issues, and I'll 
highlight four briefly.
    First, we need to determine the effectiveness of this 
program. Asking simple questions, like, How many of these folks 
would sign up for telecom services anyway? To what extent does 
this program lead to job attainment and upward mobility? And 
how important is this program to access 911 services?
    Second, the report made clear that the National Verifier 
System is essential to truly eliminate fraud and abuse. I've 
reviewed the USAC National Verifier plan, and it appears to me 
to be a good plan. However, developing a system that will 
literally ping hundreds of different state databases will be 
extremely complex. It's imperative that the FCC and USAC 
continue to push hard to complete that task.
    Third, the report showed the need for increased audits of 
Lifeline providers. I commend Chairman Pai for his recent 
letter asking for some very specific crosschecks in the system.
    And, fourth, there was a notation in the report about 
questions and confusion by some telecom providers regarding 
Universal Service Fund contribution requirements. The question 
of contribution methodology was referred by the FCC to the 
Universal Service Joint Board several years ago. I am a Member 
of that Board, and I can tell you that we had been making good 
progress working with Commissioner Rosenworcel toward a 
solution. Today, we've transitioned to a new leader, 
Commissioner Mike O'Rielly, and I look forward to working with 
him to quickly provide a recommendation to the FCC that 
hopefully will eliminate many of those questions that are being 
asked today.
    In closing, all of this can best be done with cooperative 
federalism, and that means the FCC and USAC working with 
states, as the Telecommunications Act provides, to accomplish 
these objectives.
    I look forward to your questions today, and thank you.
    [The prepared statement of Mr. Nelson follows:]

           Prepared Statement of Chris Nelson, Commissioner, 
                South Dakota Public Utilities Commission
    My thanks to Chairman Thune, Ranking Member Nelson, and committee 
members for allowing me the opportunity to visit with you about 
important issues relating to the Lifeline program as seen from a state 
utility regulator's perspective.
    By way of introduction, I am a public utilities commissioner in 
South Dakota, having been elected twice to this position in statewide 
elections. I have served six years as a commissioner. While not 
formally representing the National Association of Regulatory Utility 
Commissioners (NARUC) today, I am the immediate past chairman of the 
association's Committee on Telecommunications and serve on its board of 
directors. I also serve as one of five state members on the FCC's Joint 
Board on Universal Service.
    It is an honor for me to share my thoughts with this committee on a 
topic that I and my fellow utility commissioners across the country 
work with on a daily basis.
    Why do we have Lifeline? A 2015 FCC Lifeline Order \1\ states it 
well: ``The purpose of the Lifeline program is to provide a hand up, 
not a hand out, to those low-income consumers who truly need assistance 
connecting to and remaining connected to telecommunications and 
information services.'' It is imperative that we keep that mission in 
mind during these discussions.
---------------------------------------------------------------------------
    \1\ FCC 15-71 released June 22, 2015, Paragraph 1. https://
apps.fcc.gov/edocs_public/attachmatch/FCC-15-71A1.pdf
---------------------------------------------------------------------------
    What do I see as the priorities of state utility commissioners with 
regard to lifeline? I will highlight three.
    First, states must remain involved in the Eligible 
Telecommunications Carrier (ETC) designation process. 
Telecommunications carriers must receive an ETC designation before 
receiving Lifeline disbursements. Federal law \2\ provides state 
utility regulators with the sole authority (with one narrow exception 
\3\) for determining and granting ETC designations.
---------------------------------------------------------------------------
    \2\ 47 U.S.C. Sec. 214(e)(2)
    \3\ 47 U.S.C. Sec. 214(e)(6)
---------------------------------------------------------------------------
    There is good reason for that Federal law requirement. State 
regulator involvement provides oversight by the hands and eyes closest 
to where these companies operate. Obviously state regulators are in a 
good position to provide effective policing of these carriers.
    Unfortunately, the FCC in 2016 sought to remove states from part of 
that designation process,\4\ which would only have had the outcome of 
lessening critical oversight of the program. Fortunately Chairman Ajit 
Pai reversed that ill-conceived attempt to jettison state oversight.\5\
---------------------------------------------------------------------------
    \4\ FCC 16-38 released April 27, 2016, paragraph 229. https://
apps.fcc.gov/edocs_public/attachmatch/FCC-16-38A1.pdf
    \5\ Statement of FCC Chairman Ajit Pai on the Future of Broadband 
in the Lifeline Program released March 29, 2017. https://apps.fcc.gov/
edocs_public/attachmatch/DOC-344129A1.pdf
---------------------------------------------------------------------------
    State commissioners believe in cooperative federalism. That means 
we believe that state and Federal regulators share a role in properly 
managing programs such as Lifeline. That also means that each side, 
state and federal, must respect the role of the other and not attempt 
to usurp that role especially when doing so contravenes Federal law and 
effective policing of the program.
    A second priority is for all involved to remain relentless at 
rooting out waste, fraud, and abuse from the Lifeline program.
    Every fraudulent Lifeline subscription is literally a theft from 
the millions of hard working consumers who pay in to the Universal 
Service Fund. Fraudulent subscriptions take away from legitimate 
Lifeline subscribers. Those ill-gotten subscriptions also take crucial 
dollars away from the other Universal Service Fund programs such as 
high cost support, E-rate, and rural health.
    Lastly, it should be a priority to make sure the Federal Lifeline 
program can work synergistically with the 23 states (not South Dakota) 
that have state Lifeline programs. Those state program managers have a 
track record of being effective in finding and reporting fraud and 
waste in their programs.
    It is important to understand that when strong action has been 
taken in the past to deal with waste and abuse within the Lifeline 
program, the results have been dramatic. The best example is the FCC's 
2012 reform order \6\ which required recertification of participants.
---------------------------------------------------------------------------
    \6\ FCC 12-11 released February 6, 2012, paragraphs 129-130. 
https://apps.fcc.gov/edocs_public/attachmatch/FCC-12-11A1.pdf
---------------------------------------------------------------------------
    That singular requirement dropped the annual Lifeline outlay from 
$2.2 billion to $1.5 billion. Chairman Pai estimated that prior to that 
action, $1.3 billion \7\ was absolutely wasted by the fraud and abuse 
taking place. To put that dollar figure into perspective, that wasted 
money could have incentivized the buildout of 116,000 \8\ broadband 
connections in places that have absolutely zero access to the Internet 
today.
---------------------------------------------------------------------------
    \7\ FCC 16-38 released April 27, 2016, dissenting statement of 
Commissioner Ajit Pai, pages 202-203. https://apps.fcc.gov/
edocs_public/attachmatch/FCC-16-38A1.pdf
    \8\ $1,300,000,000 divided by the estimated ten-year ACAM 
disbursement per new broadband connection.
---------------------------------------------------------------------------
    The GAO report on the Lifeline program raises many important 
issues. I will highlight four.
    First is the need to determine the effectiveness of the Lifeline 
program. The report encourages finding answers to important questions 
such as ``How many Lifeline participants would subscribe to 
telecommunication services without the program?'' I would add several 
other questions such as ``To what extend does this offering play a part 
in upward mobility and job attainment?'' and ``How important are 
Lifeline phones for 911 access?''
    Anecdotal conversations with staff in the South Dakota PUC's 
consumer assistance division who assist Lifeline subscribers as part of 
their job tell me that those subscribers range from those who would 
truly be in desperate circumstances without a Lifeline phone to those 
who are simply looking for another ``freebie.''
    Second, the report makes it clear the National Verifier system is 
essential to effectively eliminate fraud and abuse. I have reviewed 
USAC's Lifeline National Verifier Plan and it appears to me to be a 
sound program with many positive features.
    Developing a system that will ping literally hundreds of different 
state-held databases is extremely complex. I am concerned there has 
been an underestimation on the part of USAC in how difficult it will be 
to obtain agreements from hundreds of different state agencies to 
access their databases and to design the computer interfaces for that 
access.
    For me the description of this system hearkens back to 2003 when I 
was South Dakota's Secretary of State charged with implementing the 
Federal Help America Vote Act, which required verifying voter 
registration data. Designing the interface with other databases within 
our own state government was challenging but relatively easy compared 
to the requirement to ping the Federal social security database. 
Obtaining permissions and complying with protocols from another 
government jurisdiction was a large hurdle. I expect that USAC is 
experiencing that same challenge in developing the National Verifier.
    It is imperative that the FCC and USAC continue to push hard to 
complete this task.
    Third, the report highlights the need for increased audits of 
Lifeline providers. I commend Chairman Pai for his recent letter \9\ 
asking for some very specific crosschecks within the Lifeline system.
---------------------------------------------------------------------------
    \9\ Chairman Pai Orders Immediate Action on Lifeline Waste, Fraud & 
Abuse. Letter to Universal Service Administrative Company on July 11, 
2017. https://apps.fcc.gov/edocs_public/attachmatch/DOC-345729A1.pdf
---------------------------------------------------------------------------
    Lastly, there is a notation in the GAO report about questions and 
confusion among some telecommunications providers regarding Universal 
Service Fund contribution requirements. The question of appropriate 
contribution methodology was referred by the FCC to the Joint Board on 
Universal Service several years ago.\10\ As mentioned earlier, I am one 
of the state members on that board and currently serve as the state 
members' chairman.
---------------------------------------------------------------------------
    \10\ FCC 14-116 released August 7, 2014. http://transition.fcc.gov/
Daily_Releases/Daily_Busi
ness/2014/db0807/FCC-14-116A1.pdf
---------------------------------------------------------------------------
    Prior to this year, the board had been working with the Federal 
chair, Commissioner Jessica Rosenworcel, making progress toward a 
recommendation to the FCC on an appropriate contribution methodology. 
We have now transitioned to a new Federal chairman, Commissioner 
Michael O'Rielly, and are working with him to resume our forward 
progress. I look forward to working with Commissioner O'Rielly to bring 
this referral to a close with a recommendation that will eliminate many 
of the questions the GAO referenced.
    My final point is this. All of the things I have highlighted in my 
testimony can best be accomplished through cooperative federalism. That 
means the FCC and USAC working with states as the Telecommunications 
Act provides to accomplish the objective of a Lifeline program that 
serves as a ``hand up'' and is devoid of waste, fraud, and abuse.
    Thank you for your consideration.

    The Chairman. Thank you, Commissioner Nelson.
    Next up is Ms. Gonzalez.

               STATEMENT OF JESSICA J. GONZALEZ,

              DEPUTY DIRECTOR AND SENIOR COUNSEL,

             FREE PRESS AND FREE PRESS ACTION FUND

    Ms. Gonzalez: Thank you. Chairman Thune, Ranking Member 
Schatz, and members of the Committee, thank you for having me.
    Thirty years ago, a bipartisan group of visionary leaders 
came together to create Lifeline to connect people to the 
essential communications service of the day, the telephone. The 
program has created opportunity for millions of Americans, 
including me. I was on Lifeline for a short while after I was 
laid off from my teaching job. My Lifeline connection ensured 
that I had a reliable phone number on my resume and that I was 
able to communicate with the law school admissions and 
financial aid offices at the school that I ultimately attended.
    Last year, the FCC modernized Lifeline for the digital age, 
recognizing that broadband helps people to meet their basic 
needs. Its 2016 order adopted reforms, building on those it 
enacted in 2012 to curb waste, fraud, and abuse.
    Modernizing Lifeline for broadband is critical for poor 
people and people of color, who are more likely to be on the 
wrong side of the digital divide and who cite cost as a major 
adoption barrier. Lifeline is the only Federal program poised 
to increase broadband adoption and provide a pathway out of 
poverty for millions of Americans.
    In May, the Voices for Internet Freedom Coalition, of which 
Free Press is a founding member, hosted a public forum in Skid 
Row to hear from Los Angelinos about why communications access 
matters. I promised to bring their stories to Washington.
    Susan explained that she had to track down an Internet 
connection even to find a homeless shelter. Marcos shared that 
the Internet allows him to access mental health services. 
Lourdes, a senior citizen and caregiver, told us that she 
struggles to afford a mobile connection, but needs it to find 
work. Takouie said that without Lifeline, she wouldn't be able 
to afford phone service, which she has used to access emergency 
services and other health care needs. Fifth grade teacher 
Melissa said parents shouldn't have to choose between Internet 
access and food for their families.
    L.A. residents are not alone in needing these supports. I 
can't help but wonder how many in Houston have used their 
Lifeline connections to call for help and access vital 
emergency information in the face of Hurricane Harvey, and how 
many more Puerto Ricans and Floridians will do the same with 
Hurricane Irma. We must protect Lifeline to ensure that 
everyone has access to information and emergency services in 
times like these.
    When talking about Lifeline, we hear a lot about waste, 
fraud, and abuse, but this narrative is often overblown and, 
frankly, offensive. There's a tendency to wage war on the poor, 
to demonize and assume the worst about Lifeline recipients. And 
I cannot sit here today, especially as white supremacy is on 
the rise around the country and in the White House, without 
directly confronting the racist undertones of these 
assumptions. We should avoid inflated stories of waste, fraud, 
and abuse at the expense of poor people and people of color, 
who rely on Lifeline to meet basic needs. We should not allow 
this narrative to excuse the FCC's new leadership, which is 
stalling implementation of the 2016 order. The FCC's foot-
dragging is stranding over 17,000 recipients who had already 
started receiving service and denying potential service to 
countless others.
    Nor should we tolerate the sensationalized narrative 
surrounding the 2017 GAO report. The outdated report's findings 
are an old snapshot of a program already modernized and 
improved several times over. The investigation period predates 
implementation of much of the FCC's 2012 and nearly all of its 
2016 reforms to address waste, fraud, and abuse. Indeed, as GAO 
states in the report, the FCC's planned National Verifier may 
address many of the issues we identified if it is fully 
implemented by the current plan date of 2019. And according to 
the FCC, it's on track to do just that.
    Our first priority should be expedient implementation of 
the 2016 order. We should reject radical measures, such as 
moving USF funds to the U.S. Treasury to offset other national 
debts, as the FCC Chair's office evidently suggested to the 
GAO. This could undermine all USF programs, including Lifeline 
and others designed to connect rural Americans, schools, and 
libraries.
    As I read about how people stranded by hurricanes are using 
the cell phone, their cell phones, as literal lifelines, I am 
reminded that, yes, we should strive towards a prudent program, 
but we also must ensure that everyone has access.
    Thank you.
    [The prepared statement of Ms. Gonzalez follows:]

 Prepared Statement of Jessica J. Gonzalez, Deputy Director and Senior 
             Counsel, Free Press and Free Press Action Fund
    Chairman Thune, Ranking Member Nelson, and esteemed members of the 
Committee, thank you for inviting me to testify.
    A little over thirty years ago, a bipartisan group of visionary 
leaders came together to create the Lifeline program, to connect poor 
people to the essential communications service of the day--the 
telephone. Over the past three decades, this program has created 
opportunity for millions of Americans, including me. I was a Lifeline 
subscriber for a short while in 2004, after being laid off from my job 
as a teacher. When times were tough, my Lifeline phone connection 
ensured that I had a reliable phone number on my resume, and it let me 
communicate with the admissions and financial aid offices at the law 
school that I ultimately attended.
The FCC's 2016 Lifeline Modernization Order Directly Addresses the 
        Digital Divide
    Last year, the FCC, with support from many on this committee, 
modernized Lifeline for the digital age, recognizing that Americans 
need broadband to meet their basic needs and to participate in our 
society.\1\ Its 2016 order adopted an additional set of reforms beyond 
those it had already adopted in 2012 \2\ to curb waste, fraud and 
abuse.
---------------------------------------------------------------------------
    \1\ Lifeline and Link Up Reform and Modernization et al., WC Docket 
No. 11-42 et al., Third Report and Order, Further Report and Order, and 
Order on Reconsideration, 31 FCC Rcd 3962 (2016) (``2016 Lifeline 
Modernization Order'').
    \2\ Lifeline and Link Up Reform and Modernization et al., WC Docket 
No. 11-42 et al., Report and Order and Further Notice of Proposed 
Rulemaking, 27 FCC Rcd 6656 (2012) (``2012 Lifeline Reform Order''). 
``In 2011 and 2012 the Commission, with the help of the Federal-State 
Joint Board on Universal Service, comprehensively reformed the program 
to address waste and abuse.'' 2016 Lifeline Modernization Order at 
3970.
---------------------------------------------------------------------------
    I cannot overstate how critical this Lifeline modernization is for 
poor people and people of color, who are more likely to be on the wrong 
side of the digital divide, and who cite the high cost of broadband as 
a major adoption barrier.\3\
---------------------------------------------------------------------------
    \3\ See, generally, S. Derek Turner, Free Press, Digital Denied: 
The Impact of Systemic Racial Discrimination on Home-Internet Adoption 
(Dec. 2016) (``Digital Denied'').
---------------------------------------------------------------------------
    The digital divide disproportionately affects low-income people and 
people of color. As of mid-2015, 81 percent of non-Hispanic Whites were 
connected to home broadband, compared to only 70 percent of Hispanics 
and 68 percent of Blacks.\4\ Only 49 percent of households with annual 
family incomes below $20,000 have Internet in the home, compared to 
nearly 90 percent of households with incomes above $100,000.\5\ But 
income inequality and other socio-economic factors alone do not explain 
the disparity in home broadband adoption. Free Press's report Digital 
Denied found that the ``racial and ethnic adoption gap persists [even] 
among the poorest households'' \6\ suggesting that ``structural racial 
discrimination or other structural factors beyond simple income 
differences'' are to blame for the disparity in home broadband 
adoption.\7\ Digital Denied found that, ``58 percent of [  ] low-income 
Whites have home Internet access, versus just 51 percent of Hispanics 
and 50 percent of Black people in the same income bracket.'' \8\
---------------------------------------------------------------------------
    \4\ Id. at 27.
    \5\ Id. at 25; see also id. at 26, Fig. 3.
    \6\ Id. at 63.
    \7\ Id.
    \8\ Id. at 4.
---------------------------------------------------------------------------
    Furthermore, the data indicates that increasing the availability 
and affordability of pre-paid broadband services would have a 
substantial impact on adoption in low-income communities of color.\9\ 
Thus ``all efforts that reduce the price of home Internet access and 
increase its affordability will help overcome the impacts of income 
inequality and systemic discrimination in other areas of American 
society.'' \10\ As the Federal program that most directly addresses the 
affordability barrier to home broadband adoption, Lifeline is 
positioned to increase adoption and provide a pathway out of poverty 
for millions of people, opening doors that otherwise would remain 
closed to economic and educational opportunities.
---------------------------------------------------------------------------
    \9\ See id. at 6, 8, 12, 15.
    \10\ Id. at 76.
---------------------------------------------------------------------------
Stories from Around the Nation Demonstrate That We All Benefit When 
        Everyone Is Connected to Essential Communications Services
    In May, the Voices for Internet Freedom Coalition hosted a public 
forum with FCC Commissioner Clyburn in the Skid Row neighborhood of Los 
Angeles, to hear from members of the community about why Internet 
access matters.\11\ I promised to bring their stories to Washington.
---------------------------------------------------------------------------
    \11\ See Letter from Joseph Torres and Jessica J. Gonzalez, Free 
Press, and Carmen Scurato, National Hispanic Media Coalition, to Ms. 
Marlene H. Dortch, Secretary, Federal Communications Commission, WC 
Docket Nos. 11-42, 17-108, 16-106, 13-184, 12-375 (filed May 12, 2017). 
This testimony contains a non-exhaustive summary of the issues 
discussed at that Forum. The ex parte letter cited above and the 
corresponding video of that event provide much greater detail.
---------------------------------------------------------------------------
    Susan explained that when she was unhoused, she had to track down 
an Internet connection first to find a homeless shelter.
    Marco, who's currently unhoused, shared that he couldn't find a 
culturally-competent therapist in his area, but that the Internet has 
allowed him to access a good therapist who lives far away from him, to 
address his mental-health issues.
    Lourdes, a senior citizen, told us that she struggles to afford a 
mobile Internet connection, but she needs one so that she can find work 
as a caregiver.
    Takouie said that without the FCC's Lifeline program she wouldn't 
be able to afford even telephone service, which she has used to access 
emergency medical assistance and other healthcare services.
    Fifth-grade teacher Melissa said the families of many of her 
students cannot afford home Internet access, which places their 
children at an educational disadvantage. She explained that all testing 
has moved online, which has greatly increased barriers for poor 
students to succeed. As she rightly noted, ``Parents shouldn't have to 
choose between Internet access and food for their families.''
    And finally, a writer, poet and Skid Row resident said she lives 
off of $221 a month, and relies solely on her Lifeline connection for 
phone and Internet access. She said that she wants to blog, write 
poetry and access mental health services online, but she does not have 
adequate access.
    Los Angeles residents are not alone in needing these supports to 
thrive and survive. I can't help but wonder how many Houstonians have 
used their Lifeline connections to call for help and access vital 
emergency information as the city faced Hurricane Harvey and continues 
its recovery. Indeed, the evidence is clear: poor people are 
disproportionately impacted by natural disasters.\12\ We must protect 
Lifeline--the primary Federal program that addresses the communications 
affordability gap faced by tens of millions of people--to ensure that 
everyone has access to communications and emergency services in times 
like these.
---------------------------------------------------------------------------
    \12\ See, e.g., David W. Moore, Gallup, Katrina Hurt Blacks and 
Poor Victims Most (Oct. 2005); Charles D. Ellison, Race and Class Are 
the Biggest Issues Around Hurricane Harvey and We Need to Start Talking 
About Them, The Root (Aug. 29, 2017, 1:10 PM), http://www.theroot.com/
race-and-class-are-the-biggest-issues-around-hurricane-1798536183; 
Daniel J. Weiss, Jackie Weidman, & Mackenzie Bronso, Center for 
American Progress, Heavy Weather: How Climate Destruction Harms Middle-
and Lower-Income Americans (Nov. 2012).
---------------------------------------------------------------------------
    Outside of the emergency services context too, universal adoption 
of telecommunications services has positive economic and social 
externalities that extend beyond the transaction to purchase the 
service.\13\ So as we honestly assess and analyze the successes of the 
Lifeline program and the policy changes made to modernize it, that 
discussion must focus first and foremost on these facts: our collective 
well-being, our public safety, and our economy as well, are all 
improved by giving a hand-up to others.
---------------------------------------------------------------------------
    \13\ See, e.g., ``The Impact of Broadband on the Economy: Research 
to Date and Policy Issues,'' International Telecommunications Union, 
pp. 104-109 (Apr. 2012), https://www.itu.int/ITU-D/treg/broadband/ITU-
BB-Reports_Impact-of-Broadband-on-the-Economy.pdf.
---------------------------------------------------------------------------
The Waste, Fraud and Abuse Narrative Is Overblown and Offensive, and 
        the GAO Report Cited to Support It Relies on Outdated Data
    I have long been troubled by the tenor of the Lifeline debate: 
there's a tendency to wage war on the poor, to demonize and make 
assumptions about Lifeline recipients. And I cannot sit here today, 
especially in this moment of rising white supremacy around the country 
and in the Oval Office, without directly confronting that these 
assumptions often have racist undertones.
    This narrative dehumanizes people to undermine a program that we 
should all be proud of, and working together to improve. But the 
narrative predominant in so many critiques of the program excuses 
policymakers now at the FCC for stalling implementation of the agency's 
2016 Lifeline Modernization Order. For instance, that 2016 decision 
created a streamlined Federal process for broadband providers to 
participate in the Lifeline program. The goal was to facilitate 
innovative business models providing low-cost, high quality services 
for low-income people, and to increase carrier participation in the 
program, thereby spurring competition. Starting in December of last 
year, the FCC approved nine Lifeline Broadband Providers (or ``LBPs'') 
to begin providing service. In February however, shortly after Chairman 
Pai took over, the Commission revoked those approvals,\14\ stranding 
over 17,000 subscribers who had already started receiving service from 
one of the providers \15\ and denying potential service to countless 
others. Until the Commission addresses these issues and then restarts 
this LBP approval process, providers are on hold and Lifeline broadband 
competition will remain limited.\16\
---------------------------------------------------------------------------
    \14\ See Telecommunications Carriers Eligible for Universal Service 
Support, Lifeline and LinkUp Reform and Modernization, WC Docket Nos. 
09-197, 11-42, Order on Reconsideration, 32 FCC Rcd 1095 (2017) 
(``Revocation Order'').
    \15\ See Letter from John J. Heitmann and Joshua Guyan, Kelley Drye 
& Warren LLP, Counsel to Boomerang Wireless, LLC d/b/a enTouch 
Wireless, to Marlene Dortch, Secretary, FCC, WC Docket Nos. 09-197, 11-
42 (filed Feb. 15, 2017).
    \16\ In February, I sent a letter to the FCC on behalf of 37 
organizations requesting reversal of the Revocation Order. The letter 
explained that, if properly and expediently executed, modernization of 
the Lifeline program to support broadband would help to close the 
affordability gap. The lack of affordable options is the driving force 
behind an ongoing digital divide that disproportionately harms poor 
people and people of color. Contrary to that goal of closing the 
digital divide, the Revocation Order erodes Lifeline's promise by 
eliminating subsidized broadband opportunities and introducing 
uncertainty into the program--chilling the type of robust competition 
contemplated in the 2016 Lifeline Modernization Order. We requested 
that the FCC immediately take two integral steps to bridge the digital 
divide: (1) rescind the Revocation Order, reinstating the nine LBPs 
that it had previously approved; and (2) commit, unequivocally, to 
immediately implementing the 2016 Lifeline Modernization Order and 
rejecting any future attempts to undermine it. See Letter from Jessica 
J. Gonzalez, Free Press et al., to Chairman Pai, Commissioner Clyburn, 
Commissioner O'Rielly, WC Docket No. 11-42 (filed Feb. 23, 2017).
    In response, the FCC sought comment on that letter. See Wireline 
Competition Bureau Seeks Comment on Request for Reconsideration 
Concerning Lifeline Broadband Providers, WC Docket Nos. 09-197, 11-42, 
32 FCC Rcd 1533 (2017). The Voices for Internet Freedom Coalition filed 
a comment responding to that request, explaining that ``the Revocation 
Order had an immediate negative impact: it harmed existing and 
potential Lifeline subscribers, generated uncertainty in the LBP 
marketplace, and relied on outdated and unsupported `waste, fraud, and 
abuse' claims.'' We also explained that the ``Revocation Order has 
undermined Lifeline's promise and directly abridged opportunities for 
poor people to connect to broadband. The Revocation Order has reduced 
Lifeline options in all fifty states and Puerto Rico, diminishing 
service options for the nearly 45 million households and over 126 
million people eligible for Lifeline. In his first speech as Chairman, 
Ajit Pai stated that one of the Commission's `core priorities going 
forward should be to bridge the digital divide' in order `to bring the 
benefits of the digital age to all Americans.' Yet the Revocation Order 
frustrates efforts to bridge the digital divide, making it more likely 
for people in marginalized communities and school-aged children to 
remain disconnected.'' Comments of Voices for Internet Freedom Members, 
WC Docket Nos. 11-42 & 09-197, at 2-3 (filed Mar. 16, 2017) (internal 
citations omitted). The vast majority of commenters in those dockets 
agreed that the FCC should reverse the Revocation Order and swiftly 
move to implement the 2016 Lifeline Modernization Order. See Reply 
Comments of Voices for Internet Freedom Members, WC Docket Nos. 11-42 & 
09-197, at 2-6 (filed Mar. 23, 2017). Support for the Revocation Order 
was limited, and rested primarily on a misreading of state jurisdiction 
over interstate broadband. See id. at 6-8. To date, the FCC has not 
acted to address our request, reversed the Revocation Order, nor 
granted any still-pending LBP applications.
---------------------------------------------------------------------------
    I am frustrated, too, with the sensationalized narrative 
surrounding the May 2017 report ``Additional Action Needed to Address 
Significant Risks in FCC's Lifeline Program'' prepared by GAO's 
Forensic Audits and Investigative Service team. In short, while the 
report highlights the importance of Lifeline and does not change the 
fact that millions of people rely on the program to access essential 
communications services, it fails to demonstrate systemic fraud. The 
investigation period also predated the FCC's 2016 Lifeline reforms, 
calling into question the current validity of some of its findings, 
which do not account for the ``Additional Action'' that the FCC has 
already taken.
    Unfortunately, some staunch opponents of any program that helps the 
poor have exploited this report to escalate their attacks on Lifeline 
and malign users. These critics will continue to disdain the tremendous 
opportunities Lifeline has provided for millions of people--and the 
millions more whose lives can improve with the Commission's newly 
minted broadband Lifeline offerings--so long as it serves their agenda.
    But let's review the facts about this report.
    The GAO analyzed data from 2012 through 2014 in its attempt to 
confirm participant eligibility and examine the processes that carriers 
use to confirm such eligibility.\17\ But the data gathered during this 
time period was compiled before and during implementation of the FCC's 
2012 reforms to reduce waste, fraud and abuse of these signup 
processes. GAO's work also was done long before the FCC had even 
adopted its 2016 reforms, which made Internet services part of the 
subsidy program.\18\ The 2016 reforms also initiated additional efforts 
to make the program more prudent.
---------------------------------------------------------------------------
    \17\ USAC, GAO-17-538, Additional Action Needed to Address 
Significant Risks in FCC's Lifeline Program at 69, 71 (2017) (``GAO 
Report'').
    \18\ See generally 2016 Lifeline Modernization Order.
---------------------------------------------------------------------------
    So the report's findings are a snapshot of a program since 
modernized and improved several times over. But is there anything to 
learn from its findings, even putting aside this historical context? 
While the GAO was unable to confirm the eligibility of 30 percent of 
Lifeline users it examined, it did not determine that these individuals 
were in fact ineligible. Indeed, GAO only examined three of the 
programs people can use to prove their eligibility (SNAP, Supplemental 
Security Income and Medicaid) from what the GAO describes as a 
``nongeneralizable selection of states,'' \19\ but in fact there are 
many other ways to qualify for Lifeline besides participation in those 
three programs.\20\ In addition, the GAO Report explains that states 
collect and maintain their own Medicaid data, that they ``can take up 
to 3 years to update their Medicaid data, and as a result beneficiaries 
can be excluded or included retroactively,'' \21\ and ``the 
consistency, quality and completeness of the data can vary from state 
to state.'' \22\ The GAO Report clarifies:
---------------------------------------------------------------------------
    \19\ GAO Report at 69-71.
    \20\ Lifeline: Do I Qualify?, USAC (Sept. 4, 2017, 7:10 AM), http:/
/www.usac.org/ls/do-i-qualify/default.aspx#programs. One may qualify 
for Lifeline if they or someone in their household uses SNAP, SSI, 
Medicaid, Federal Public Housing Assistance, Veterans Pension and 
Survivors Benefit, Tribal Programs, or if their income level is at or 
below 135 percent of the Federal poverty guidelines. In addition, 
during the time period of GAO's investigation, one could also qualify 
for Lifeline if they were on the Low Income Home Energy Assistance 
Program (``LIHEAP''), Temporary Assistance for Needy Families 
(``TANF''), or the National School Lunch Program (``NSLP'').
    \21\ GAO Report at 71.
    \22\ Id.

        [t]he results of our data matching are not generalizable to any 
        other state or qualifying Lifeline program. It is not possible 
        to determine from data matching alone whether these matches 
        definitively identify recipients who were not eligible for 
        Lifeline benefits without reviewing the facts and circumstances 
        of each case. For example, we could not identify based on the 
        data alone whether there were data-entry errors at the time of 
        enrollment incorrectly stating the qualifying Lifeline program 
        presented by the subscriber at the time of enrollment.\23\
---------------------------------------------------------------------------
    \23\ Id. at 72.

    The GAO also conducted undercover investigations from June 2014 
through May 2017,\24\ a period that predates implementation of the most 
critical 2016 Lifeline Modernization Order reforms.\25\ It submitted 21 
Lifeline applications using false information and falsified supporting 
documents.\26\ According to the GAO, it procured service from 12 of the 
19 Lifeline providers to whom it submitted under these false 
pretenses.\27\ Yet the GAO itself underscored that the ``undercover 
tests were for illustrative purposes and are not generalizable.'' \28\ 
And although it was able to leverage its expertise to deceive certain 
Lifeline providers, by its own admission GAO's result doesn't prove 
that this essential program is plagued by fraud.
---------------------------------------------------------------------------
    \24\ Id. at 73.
    \25\ See, e.g., infra nn. 30-39 and accompanying text.
    \26\ GAO Report at 72-73.
    \27\ Id. at 44. The GAO does not explain the distribution of the 21 
applications it submitted, as described on page 73 of the GAO Report, 
between the 19 providers it reported about on page 44. We presume that 
GAO submitted multiple applications to certain of these providers.
    \28\ Id. at 73.
---------------------------------------------------------------------------
    Indeed, as GAO plainly states, the ``FCC's planned National 
Verifier may address many of the issues we identified with the FCC's 
and USAC's oversight of the Lifeline provider operations if it is fully 
implemented by the current planned date of 2019.'' \29\
---------------------------------------------------------------------------
    \29\ Id. at 57-58 (emphasis added).
---------------------------------------------------------------------------
The National Verifier System Adopted in the 2016 Lifeline Modernization 
        Order and other Program Integrity Measures Will Significantly 
        Reduce Waste, Fraud and Abuse
    The FCC established this National Lifeline Eligibility Verifier 
(``National Verifier''), to which the GAO Report refers, in the 2016 
Lifeline Modernization Order. It did so to make eligibility 
determinations and perform a variety of other functions necessary to 
enroll subscribers in the Lifeline program.\30\ The National Verifier 
will verify subscriber eligibility, conduct checks to prevent duplicate 
benefits, recertify subscriber eligibility, and calculate support 
payments to eligible telecommunications carriers (``ETCs'').\31\ The 
National Verifier service provider portal will track activities down to 
the level of individual sales agents, and ETCs will be held liable for 
the actions of their agents.\32\ During the transition period, for 
carriers in states not yet in the National Verifier, USAC will monitor 
and track the activity of individual sales agents.\33\
---------------------------------------------------------------------------
    \30\ See 2016 Lifeline Modernization Order at 4006-4021,  126-166 
(comprehensively detailing the National Verifier, including performance 
management tools, and a reporting and internal controls component).
    \31\ See Wireline Competition Bureau Announces Initial Launch of 
the National Lifeline Eligibility Verifier, Public Notice, WC Docket 
No. 11-42, DA 17-816, at 1 (rel. Aug. 31, 2017), http://
transition.fcc.gov/Daily_Releases/Daily_Business/2017/db0831/DA-17-
816A1.pdf (``National Verifier Launch Notice''); see also 2016 Lifeline 
Modernization Order at 4006, 4009-10,  126, 132-134; see also USAC, 
Lifeline National Verifier (last visited Sept. 4, 2017), https://
usac.org/li/tools/national-verifier/default.aspx.
    \32\ Letter from Chairman Ajit Pai, FCC, to Senator Debbie 
Stabenow, at 2 (Aug. 21, 2017), http://transition.fcc.gov/
Daily_Releases/Daily_Business/2017/db0830/DOC-346443A1.pdf (``Pai 
Letter'').
    \33\ Id.
---------------------------------------------------------------------------
    Last week, the FCC announced a controlled roll out of the National 
Verifier in six states to begin in December,\34\ with at least 25 
states migrated to the National Verifier by the end of 2018 and the 
rest of the states and territories by the end of 2019.\35\ To the 
extent there has been fraud in enrollments due to sales agents' bad 
actions, this monitoring and tracking will help flag problems early and 
create better accountability.
---------------------------------------------------------------------------
    \34\ The first six are Colorado, Mississippi, Montana, New Mexico, 
Utah and Wyoming.
    \35\ National Verifier Launch Notice at 1.
---------------------------------------------------------------------------
    In addition, the following Program Integrity Measures have been put 
in place:

   ETC reimbursements will be based on a snapshot report of 
        participants using the National Lifeline Accountability 
        Database (``NLAD'') to weed out duplicates.\36\
---------------------------------------------------------------------------
    \36\ USAC, Lifeline National Verifier Plan, WC Docket Nos. 11-42, 
09-197 and 10-90, at 19 (filed July 31, 2017), https://usac.org/_res/
documents/li/pdf/nv/Draft-National-Verifier-Plan.pdf.

   As existing Lifeline recipients are migrated into the 
        National Verifier, there will be an eligibility check performed 
        by the National Verifier.\37\ Lifeline advocates have explained 
        that this process may actually be too stringent and result in 
        eligible households being de-enrolled if eligible households do 
        not realize that they must respond to requests for 
        documentation to certify eligibility yet again.
---------------------------------------------------------------------------
    \37\ Id. at 57-58.

   During the transition enrollment being handled by the 
        National Verifier, ETCs must keep copies of eligibility and 
        identity verification.\38\
---------------------------------------------------------------------------
    \38\ See Lifeline and Link Up Reform and Modernization et al., 
Second Further Notice of Proposed Rulemaking, Order on Reconsideration, 
Second Report and Order, and Memorandum Opinion and Order, 30 FCC Rcd 
7818, 7891-7897,  224-237 (2015); GAO Report at 52.

   USAC, under FCC oversight, is developing a comprehensive 
        list of available state and Federal eligibility databases that 
        ETCs will need to check until that particular state is migrated 
        to the National Verifier.\39\
---------------------------------------------------------------------------
    \39\ Pai Letter at 5.
---------------------------------------------------------------------------
Conclusion
    Comparatively speaking, Lifeline is an incredibly lean Universal 
Service Fund program. And the FCC's 2016 reforms, most notably the 
National Verifier, are still in early implementation stages. I only 
hope that the current FCC leadership will continue to implement them 
rather than stall them.
    Everyone is against fraud in government programs, and certainly the 
GAO report illuminates a few problems that the FCC has already 
endeavored to work out; but the time period for the GAO investigation 
predates the 2016 reforms--as the GAO Report itself makes clear--making 
its analysis less relevant as we look to Lifeline's future.
    We must put politics aside and devote ourselves to expedient 
implementation of the FCC's 2016 Lifeline Modernization Order. We 
shouldn't use this report to yet again concoct and inflate stories of 
waste, fraud and abuse at the expense of poor people, many of whom are 
people of color, and who rely on Lifeline to meet their basic needs.
    Nor should we frantically resort to radical measures such as moving 
USF funds to the U.S. Treasury to potentially not even cover 
communications, but rather ``to offset other national debts,'' as 
indicated in correspondence that GAO received from the ``FCC Chairman's 
Senior Legal Counsel.'' \40\ Connecting people to communications 
services is an important government priority, and we should not take 
USF funds away from their intended purpose and intended beneficiaries.
---------------------------------------------------------------------------
    \40\ GAO Report at 23. The FCC has not formally introduced this 
proposal to the public, and I first learned of the idea from the GAO 
Report. I would expect the FCC to pursue a transparent process that 
includes public comment for an extreme change like this that could 
undermine not only Lifeline but also other important Universal Service 
Fund programs such as E-rate (which subsidizes essential communications 
services in schools and libraries) and the High Cost Fund (which 
subsidizes access to essential communications services in rural areas).
---------------------------------------------------------------------------
    As I read stories about how people stranded in Houston are using 
their cellphones and smartphones as literal lifelines, I am reminded 
that yes, that we should ensure the program works as well as it can; 
but we must remain absolutely committed in those efforts to ensuring 
that the poorest amongst us have access.
    Thank you for this opportunity to testify, and I look forward to 
your questions.

    The Chairman. Thank you, Ms. Gonzalez.
    Mr. Bagdoyan, of the three and a half million Lifeline 
applicants it reviewed, GAO wasn't able to confirm whether 1.2 
million of them actually participated in a qualifying benefit 
program, such as Medicaid, as was stated on their Lifeline 
enrollment applications. What steps has the FCC taken since 
those applicants were deemed qualified to ensure that only 
eligible low-income consumers receive Lifeline benefits? What 
do those changes mean for your conclusions? Perhaps it gives 
you an opportunity to elaborate on Ms. Gonzalez's point that 
things have changed since your findings in your study. So tell 
us what steps the FCC has taken and whether or not you think 
those have been effective.
    Mr. Bagdoyan. Sure. Thank you, Mr. Chairman, for your 
question. Our data analysis, first of all, to put it in 
context, is based on 2014 data. We spent about a year analyzing 
those datasets in various forms, and we identified the 1.2 
million people who did not appear to be enrolled in the 
programs they selected on their Lifeline applications.
    There have been steps taken by the FCC, most of which are 
still unfolding, including the deployment of the National 
Verifier. The 2019 deadline is probably ambitious in my 
personal view, but we'll see how that plays out. Plus it looks 
like by the time it's fully functional, the National Verifier 
may not actually have access to all databases at the state 
level because of various privacy and other restrictions. But I 
think the states and the agency are in the process of working 
through those.
    Now, separately, the 1.2 million individuals we identified 
were in the process of essentially reengineering that analysis 
to provide the FCC and its Office of Inspector General with 
referrals of those and for their additional review to determine 
what exactly happened in each one of those cases to the extent 
that they can. So for those 1.2 million individuals, based on 
our interactions with the FCC, not much has been done. It is 
possible that as a result of an elimination of duplication in 
the program that was done in 2015, I believe, approximately 
400,000 additional duplicate enrollments were purged from the 
rolls, so to speak, that some of those purges actually were 
also part of our universe of 1.2 million.
    So on balance, I think FCC has taken some steps in the 
right direction. Execution is obviously the key here. National 
Verifier is clearly a good step forward, but its full 
implementation is going to be very important.
    The Chairman. Thank you. I would point out, too, that this 
Committee, we wouldn't be doing our job of oversight of Federal 
programs had we not attempted to try and get some of these 
answers to see how this program is working effectively, 
particularly in light of the reports like the GAO report, which 
was requested, I might add, by bipartisan Senators.
    Commissioner Nelson, you noted that states play an 
important role in preventing waste, fraud, and abuse in the 
Lifeline program. Can you describe what actions South Dakota 
has taken in this regard? Second, are there changes to the 
Commission's rules that would empower states to be more 
effective in combating waste, fraud, and abuse in the Lifeline 
program?
    Mr. Nelson. Thank you, Mr. Chairman. First of all, per 
Federal law, before a telecom provider can become an ETC, they 
must be reviewed by the state commissions. And we get to ask 
the hard questions about the integrity of the company, the 
plans that they have for serving within the state, the 
infrastructure that they may have or have to acquire in order 
to serve the state. And so we get to ask those hard questions 
before we actually grant that designation. And so that's really 
the first line that we have with those companies.
    And then, second, we get an annual review to determine, 
``Are you serving properly? Are things being done with 
integrity?'' And we've found just recently one of our providers 
that was having some issues, and so then we're able to deal 
with that and get those companies back on track. We feel that 
that's the kind of oversight that probably would not be 
effective coming from the FCC. And that's why I'm so insistent 
that states remain involved in that.
    I'll go one step further and talk about my counterparts in 
other states that have their own Lifeline programs, South 
Dakota does not, but those states then have additional ability 
to look at their Lifeline programs at the state level and find 
those instances of fraud and abuse and deal with those at that 
level.
    The Chairman. The follow-up was, are there any proposed 
changes to the Commission's rule that you think would empower 
states to be more effective in combating waste? Is there 
anything that they could do in terms--it sounds like a lot of 
it has to do with delegation and allowing states to have more 
involvement.
    Mr. Nelson. Absolutely. I don't have any specific 
recommendation other than we were obviously very disappointed a 
year ago when the FCC sought to remove states from a portion of 
that process. Now that has been restored. Hopefully, that will 
be a permanent restoration per Federal law, and we can remain 
involved.
    The Chairman. Thank you.
    Senator Schatz.
    Senator Schatz. Thank you, Mr. Chairman.
    Mr. Bagdoyan, can you, as quickly as possible, walk me 
through the seven recommendations in the report?
    Mr. Bagdoyan. Sure. Yes, I'd be happy to do that. Let me 
refer to my notes, Senator, just to make sure that I have all 
these lined up appropriately for you.
    The first one is to complete the transfer of the USF 
account into Treasury from the private bank. The second one is 
to figure out a way for the Commission to review and approve 
any spending above a preset budget. The third one is to provide 
the carriers a list of databases that they have access to so 
that that clarifies their knowledge in that regard. The fourth 
one is evaluation of compliance plans. Fifth is to come up with 
an enforcement strategy, which is key to make everything else 
flow better.
    Senator Schatz. What does that one mean?
    Mr. Bagdoyan. It's an enforcement strategy for----
    Senator Schatz. At the FCC level or for the carriers?
    Mr. Bagdoyan. It's essentially for the universe of players, 
essentially the carriers on the beneficiaries' side as well. So 
that's a good question.
    Then a review of customer bills to make sure that they are 
charged an appropriate amount rather than an inflated amount, 
or periodically amounts that are lower than what they should 
be. And then, finally, respond to USAC's request for various 
types of guidance. And I think our report details those 
recommendations at a high level. But as I mentioned earlier, 
the FCC has concurred with all seven of them and has efforts 
underway, to my understanding, to implement those.
    Senator Schatz. And so my sense is that the FCC did what 
they should do, which is say, ``Audits are helpful. We will 
implement your recommendations.'' Rather than, you know, 
getting into a knife fight over your recommendations, they've 
just decided, ``Look, we're going to try to fix this program.''
    My question is--I guess it's a two-part question. First, 
where are we with the implementation? I know you said 2019 is 
an ambitious deadline for the establishment of the database.
    Mr. Bagdoyan. That's my personal view, yes.
    Senator Schatz. Sure. But I guess my question is twofold. 
Where are we with the implementation of the rest of it? And how 
far--how much confidence do you have that that would settle it, 
that we won't be here 3, 4, 5 years from now with a new GAO 
report and a new set of issues?
    Because to Dr. Eisenach's question, I mean, his question is 
actually structural and public policy oriented, which is, to 
the extent that you set up a program where the subsidy goes to 
the carrier, and the carrier is enlisting participants, it's 
set up wrong because there's just too much money at stake, and 
if you want to help individuals who need universal service, 
then we ought to help individuals who need universal service 
rather than have a booth somewhere saying, ``Free Cell 
Phones.'' And that, I have to say, as sympathetic as I am to 
the principle involved, that rings true to me, that I can just 
imagine that if you're on the ground and your job is signing up 
people for free cell phones, you sign up people for free cell 
phones.
    And so I guess I'll ask this question to both of you, Where 
are we with implementation? And how do you address Dr. 
Eisenach's assertion that all of these reforms are fine, but 
they're not enough?
    Mr. Bagdoyan. Sure.
    Senator Schatz. And I'll give you a minute, and you 30 
seconds, Dr. Eisenach.
    [Laughter.]
    Mr. Bagdoyan. OK. All right. Very good. Fair enough.
    In terms of the National Verifier, it's supposed to come 
out in a phased approach, I think either five or seven states 
by the end of this year, an additional 20 or so states by the 
end of 2018, and the final remaining however many there are 
will be by the end of 2019.
    Two caveats on that. First, the testing of the system will 
occur while it's being deployed. And second, there is no 
guarantee that all available state-level databases will be 
integrated into the Verifier, meaning that there were 
potentially gaps still out there by the end of it all.
    Senator Schatz. Sure, more data is better, so even if----
    Mr. Bagdoyan. Correct, but I think in terms of a strategy, 
part of a strategy, it's clearly a step in the right direction, 
and if implemented, as intended, should go quite a ways to 
tightening things up.
    Senator Schatz. Dr. Eisenach.
    Dr. Eisenach. First of all, Senator, thank you very much 
for capturing precisely I think my deeper concerns about the 
program. I would love to believe--and certainly I have 
tremendous respect for Chairman Pai and all of the members of 
the current FCC, but looking back historically, the 
mismanagement that's gone on in this program has taken place 
over decades with talented management and oversight and 
leadership from members of both political parties, not a 
partisan problem.
    The National Verifier was first proposed by the FCC in 
2011, and we're now hearing it's unlikely to be up and running 
in 2019. How many billions of dollars will not have gone to 
help people in need during that period of time, and instead 
into the pockets of unscrupulous operators?
    Senator Schatz. Thank you.
    The Chairman. Thank you, Senator Schatz.
    Senator Wicker.

              STATEMENT OF HON. ROGER F. WICKER, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Wicker. Commissioner Nelson, you made a good point, 
and Dr. Eisenach just reiterated that. The money that is spent 
improperly could have been used to build out broadband. This is 
part of the infrastructure program that we need to be doing, as 
Americans. So this is really a stunning report actually, and 
takes money away from deserving people.
    Now, Dr. Eisenach, you mentioned oversight that we should 
be exercising, but also you seem to be really making a larger 
point. Do I understand really that it is your view that this 
whole program was just misdesigned from the start, and what we 
ought to do is go back and design and start from the ground up 
and design something that actually is more likely to work? Is 
that point of view? What would be the outline of that sort of 
program?
    Dr. Eisenach. Well, Senator, thank you for the question. 
And, yes, that is my view. And I outlined in my testimony four 
principles I think that we should follow in designing such a 
program. The first is just getting out of the way, and, you 
know, part of that is taxing telecommunications services. About 
18 percent on average is what is paid on mobile device, mobile 
broadband service bills. Nationwide, about 7 percent of that is 
directly from the U.S. Universal Service Fund taxes at the 
Federal level. That and other things ought to be done to stop 
taxing. It's an extremely regressive tax, so we ought to get 
out of the way in that regard, and in other respects, allowing 
broadband deployment to occur and prices to go down.
    Second, there is a question of targeting whatever we do, 
better targeting support. So the fact that 19 out of the 20 
people who were receiving subsidies already had a cell phone or 
already had Lifeline service, that's not an effective program. 
We ought to use the money more effectively.
    Third, and I think this is the hard part, and I don't want 
to suggest it's easy, but the type of support that is needed by 
the vast majority of people who are offline today is much more 
qualitative than simply writing a $10 check. And so I cite in 
my testimony a number of studies which show that people who are 
not sufficiently connected to the Internet today need training. 
They need personal assistance. We're talking about elderly 
people. We're talking about ethnic minorities who have problems 
with cultural and language issues. Those people need a lot more 
than a free or reduced price cell phone.
    And then, you know, last, as I say, I do think it's time to 
realize the FCC is just not the right vehicle for this, and 
certainly writing checks to communications companies is not the 
right way to go.
    Senator Wicker. Ms. Collier, Dr. Eisenach is speaking for 
himself, according to his testimony. I take it you are here 
speaking on behalf of Citizens Against Government Waste.
    Ms. Collier. Yes.
    Senator Wicker. Can we summarize that you largely agree 
with the position that Dr. Eisenach has taken?
    Ms. Collier. Over the years, we've seen a lot of waste, 
fraud, and abuse within the Lifeline program, and the way the 
system is set up, it's setting it up to induce fraud in the 
program. We've seen that across the board with companies 
sending salesmen out in Colorado and Indiana and other states 
just ginning up subscribership.
    So there does need to be a deep dive into the program to 
see where it can evolve. I think the National Verifier program 
that's been initiated, that's a good start. If we can have 
Memorandums of Understanding with the different states and the 
Universal Service program that will allow them to data share, I 
understand there are privacy concerns within states, but 
overall there does need to be an effective revamp of the 
program.
    Senator Wicker. Mr. Bagdoyan, Dr. Eisenach said we need to 
quit writing checks to phone companies. What did the phone 
companies say to GAO?
    Mr. Bagdoyan. Well, we did not have any contact with them 
other than when we performed our undercover work, which was 
essentially trying to enroll in the program and obtain the 
phone service.
    Senator Wicker. Do you think that would have been a good 
idea?
    Mr. Bagdoyan. I'm sorry?
    Senator Wicker. Do you think that would have been a good 
idea to hear their take on the situation?
    Mr. Bagdoyan. Well, the scope of our work was designed in a 
way that did not include extensive contact with the phone 
companies.
    Senator Wicker. Dr. Eisenach, what do you say to that?
    Dr. Eisenach. Well, one really important caveat I think we 
don't want to paint with too broad a brush here, there are a 
lot of people in this business who are doing the right thing 
for the right reasons, and I don't want to suggest every 
Lifeline provider out there is fly by-night, corrupt, or doing 
anything other than the Lord's work.
    Senator Wicker. Well, thank you for pointing that out.
    Dr. Eisenach. So that's number one. I don't want to be 
interpreted as painting with too broad a brush. But it is 
certainly true that there is a systematic incentive problem 
here. We have the fox guarding the henhouse. And all of these 
reforms essentially amount to, you know, let's find a better 
class of fox or put up more chicken wire around the henhouse. 
But the basic dynamics of foxes and henhouses isn't going to 
stop until we change the structure of the program.
    Senator Wicker. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Wicker.
    Senator Klobuchar.

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you very much, Mr. Chairman.
    Thank you to all of you today. In 2016, the FCC, as we have 
discussed here, directed the Universal Service Administrative 
Company to develop this Eligibility Verifier. It helps with 
reducing fraud within Lifeline.
    And, Mr. Nelson, what components exactly do you think are 
going to be helpful to reducing fraud?
    Mr. Nelson. As I said, as I reviewed the USAC's plan, I 
think it's a solid plan to ultimately reduce the fraud that 
we've been talking about. The concern that I've got with it, 
and you've heard it already, is the fact that the way this is 
going to be set up is the Verifier will ping hundreds of 
different state databases. And so USAC is going to have to 
contact social services departments in all 50 states and say, 
``Can I have access to this database and this database?'' and 
those social services agencies are going to say, ``And you are 
who? And you want into our database why? I don't think so.'' 
And so I think that's the challenge that they are going to be 
facing to get those kinds of permissions to actually access the 
databases.
    Senator Klobuchar. How do you think you could fix that?
    Mr. Nelson. Well, as I mentioned, you know, I'm big on 
cooperative federalism. I think Federal agencies need to work 
with State agencies, and vice versa, and so that's perhaps 
where state utility commissioners can come into the play in 
that we can work with our fellow state agencies to understand 
why this is important. Now, that said, there are some states 
where there are still going to have to be changes in state law 
and state rule to allow this Federal agency to access into a 
state database.
    Senator Klobuchar. Mr. Bagdoyan, as it's being rolled out, 
what steps do you think that USAC can take to ensure that the 
transition goes smoothly?
    Mr. Bagdoyan. Thank you for your question, Senator. I am 
not deeply familiar with the National Verifier strategy. I 
think the key, as Commissioner Nelson said, is to obtain access 
to as many databases as possible. And based on some 
correspondence between Chairman Pai and I believe Senators 
Peters and McCaskill, he has noted that the FCC and USAC are 
working very hard along with a contractor to get those 
agreements in place. I think, you know, the deployment schedule 
of late 2019 may allow those negotiations to continue and close 
as many of them as possible successfully. But without access to 
data, I think the rest of the system would be ineffective.
    Senator Klobuchar. And do you think the FCC has 
sufficiently evaluated the effectiveness of the program?
    Mr. Bagdoyan. It has not--we have a longstanding 
recommendation that they do so. They do have plans to do that 
by engaging a third party to independently take a look at the 
totality of the program. That was not part of our charge in 
this regard.
    Senator Klobuchar. What do you think they should be 
measuring? Are going to measure the effect?
    Mr. Bagdoyan. Well, I mean, the metrics area is a tricky 
one. You're looking for outcome over activity and output 
certainly. I think one way to look at it is, Would people have 
a phone notwithstanding the program? For example, right now no 
one can tell us definitively how many of the 12 million or so 
subscribers to Lifeline also have alternative phones. So that 
would be one area to start in.
    Senator Klobuchar. OK. Thank you.
    Ms. Gonzalez, a little related but different subject about 
the homework gap. And Commissioner Rosenworcel and I have 
talked about this in the past, and we've had this issue 
especially in some of our tribal lands in Minnesota. One house 
gets Wi-Fi, all the kids go there to do their homework because 
there's no other Wi-Fi. How has the changing nature of the 
classroom increased the need for students to have an Internet 
connection at home?
    Ms. Gonzalez. Thank you, Senator, for the question. I used 
to be a teacher before I went back to law school, and a lot of 
friends are still teaching in low-income communities, and with 
the Common Core, a lot of the testing is moving online. 
Textbooks, at least a third of the assignments involve going 
online, doing research, gathering data. We are leaving our kids 
who do not have access at home way far behind if we are not 
addressing their Internet needs.
    And if I may take the liberty, I'm a little concerned about 
measuring a program's effectiveness based on whether someone 
would have that service, but for the Lifeline subsidy, it's 
well----
    Senator Klobuchar. That's what I was asking, what the 
metrics would be.
    Ms. Gonzalez. Yes, yes. I mean, it's well established that 
people need telecommunications service and would forego other 
basic necessities in order to get it because people are making 
hard choices between food and clothing and Internet, and 
because it is so critical for families to make sure that their 
kids have access to the Internet, just it's like the paper and 
pencil of when I was a kid. If they don't have it, they 
cannot--they can't learn.
    Senator Klobuchar. All right. Thank you.
    The Chairman. Thank you, Senator Klobuchar.
    Senator Markey.

               STATEMENT OF HON. EDWARD MARKEY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Markey. Thank you, Mr. Chairman, very much. A very 
important hearing.
    You know, kind of the constitution of the Federal 
Communications Commission Act is Universal Service and 
affordability, and it's worked very well since 1934. I know 
that my father, a milkman, you know, he paid higher telephone 
rates for probably 60 years to subsidize rural. He paid higher; 
rural got it. OK? My father, the milkman, didn't have any extra 
money, but it was to ensure there is universal service. 
Everyone gets it. It's all part of it. And ultimately the 
Telecommunications Act is Medicaid for telecommunications 
service. That's what it is, just to make sure everyone gets it. 
And there the rural people needed it, so we gave it to them. 
And inner-city people needed it, you know, we gave it to them. 
So that's the heart of it, the essence of it.
    We codified it in the 1996 Telecommunications Act, which 
I'm very proud of, and it was a necessary step for us to have 
to do it. But it's evolved, since there were kind of party line 
phones in 1934. No one could have anticipated, you know, kind 
of something that moved up to a computer in your pocket, but it 
left room for innovation, left room for an evolution of what 
was a service that you needed to have access to. So this is 
kind of the heart and soul of our telecommunications policy. 
And the Lifeline modernization that took place in 2016 created 
a National Eligibility Verifier, and many here today have cited 
a GAO study has proved that the program is not working.
    But, Ms. Gonzalez, did the GAO report factor in this 
National Eligibility Verifier program in terms of whether or 
not the program is working?
    Ms. Gonzalez. Senator Markey, the GAO report states that 
the National Verifier may in fact address many of the concerns 
that it raised in its report.
    Senator Markey. So the GAO report, to a certain extent, is 
out of date because it doesn't factor in the E-Verifier program 
that is meant to in fact solve many of the problems that were 
raised, is that correct?
    Ms. Gonzalez. I think it looks at a data period before many 
of the reforms took place. So I think it's fair to say that in 
many respects, it is out of date. It also--if you read through 
the methodology section, the GAO explains in rather great 
detail that some of the underlying data on which it relies is 
not reliable and that it is not generalizable to the Lifeline 
program generally.
    Senator Markey. So what do you mean by that, saying that 
the information is not----
    Ms. Gonzalez. This was a snapshot, but it's not able to be 
extrapolated as an overall conclusion about shortcomings of the 
program.
    Senator Markey. Yes. So what's your sense, Ms. Gonzalez, if 
the E--the National Eligibility Verifier is put into place? I 
think it's 2019 is the date for implementation in terms of 
solving many of the problems that were raised in the GAO 
report.
    Ms. Gonzalez. Well, I can share with you what it's intended 
to do, which is to make eligibility determinations and perform 
a wide variety of other functions, conduct checks to prevent 
duplicate benefits, or certify subscriber eligibility, 
calculate support payments to eligible telecommunications 
carriers. And, in fact, the Chairman of the FCC recently said 
that they will actually track the actions of the sales agents 
and hold companies accountable for their activities.
    I'd also just like to point out that if you look at the 
Lifeline program and the improper payment rate, it's much lower 
than the improper payment rates across the Federal Government. 
The average improper payment rate across the Federal 
Government, according to the GAO, is between--has been between 
4 percent and 4.67 percent in the last few years. In 
comparison, the 2016 Lifeline rate was 2.93 percent, and the 
2015 rate was .45 percent. The 2014 rate was .32 percent. So I 
think we should be working to make sure that this is a prudent 
program and that we're on track.
    Senator Markey. Again, just let me make sure that we put 
this on the record. And the National Eligibility Verifier 
program is meant to lower that number even further.
    Ms. Gonzalez. That's correct.
    Senator Markey. Right. So we already have a number which is 
much lower than all other Federal programs, I mean, by a 
substantial percentage, and there is already a reform on the 
books. So to a certain extent--and we give the GAO credit for 
all of their great work because they were kind of handicapped 
by the fact that it's hard to factor in the answer to the 
problems that had been identified, but there are answers that 
have already been put on the books in 2016 by the FCC. And I 
think we just have to take note of that and understand that 
it's already a better program than any other program that is in 
this category, and that the reforms are already in place to 
knock that number down even more. And I just think that we 
shouldn't be making modifications to the Lifeline program, 
which helps so many millions of Americans, until we allow these 
reforms to be given a chance to work.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Markey.
    Senator Cortez Masto.

           STATEMENT OF HON. CATHERINE CORTEZ MASTO, 
                    U.S. SENATOR FROM NEVADA

    Senator Cortez Masto. Thank you, Mr. Chairman.
    Ms. Gonzalez, can you confirm for me whether you agree with 
Commissioner Clyburn that Chairman Pai's early action to cut 
broadband providers from the Lifeline program reduced 
competition in this space and could lead to minority-owned 
businesses and tribal residents, for example, from utilizing 
Lifeline effectively?
    Ms. Gonzalez. Yes, Senator, I do agree with her. Basically, 
the FCC has stalled the implementation of the 2016 order by 
revoking nine Lifeline broadband providers that were providing 
broadband-only Lifeline services that had already received a 
go-ahead from the FCC to begin providing service. One of those 
providers, Boomerang, already had 17,000 subscribers enrolled. 
So those people are in limbo. In addition, the other eight 
companies were in progress and about to launch new competitive 
innovated options for Lifeline service, including one African 
American-owned business that was set to do some really 
interesting things in Illinois to help address affordability of 
telecom services there.
    And, you know, from--while I do think the states play an 
incredibly important role, when it comes to Lifeline broadband 
only, the Chair of the FCC and I have a different 
interpretation of the law. Broadband-only is an interstate 
service and, therefore, the FCC, the Federal Government, is in 
charge of overseeing that; whereas, you know, the other parts 
of the program that are not broadband-only, the states play a 
very important role in overseeing them.
    Senator Cortez Masto. Thank you.
    And then, Commissioner Nelson, and also as well, Ms. 
Gonzalez, my understanding is that providers are offering 
discounts on their own low-cost Internet service to low-income 
households. Is that enough to bridge the digital divide, or is 
there a reasonable alternative to that?
    Mr. Nelson. They're all pieces of a puzzle. The way I like 
to explain it is access to broadband takes a lot of different 
solutions. In South Dakota, as with a lot of rural states, we 
have places that simply do not have any opportunity for access 
because the infrastructure isn't there yet. That has to be 
priority number one, to actually get the infrastructure there 
so folks have the availability.
    And then we look at programs such as you've mentioned where 
the telecom companies offer their own low-cost entry points 
into broadband access, and then what the FCC has done by 
extending broadband into the Lifeline program. They're all 
pieces of the puzzle to try to solve this access. And referring 
back to the homework gap that Commissioner Rosenworcel has been 
working on, I mean, that's a tremendous problem that has to be 
overcome. And this is all part of the answer.
    Senator Cortez Masto. And so would you say Lifeline also is 
an important or essential service as part of that puzzle as 
well?
    Mr. Nelson. Absolutely.
    Senator Cortez Masto. Thank you.
    And then I guess let me ask Mr. Bagdoyan--is that it?--is 
there--you report that there is a lack of FCC guidance to staff 
on how to evaluate the Lifeline provider compliance plans. Is 
that the only problem, or are there other issues that the FCC 
may be addressing or dealing with, such as not enough staff to 
address the FCC reviews and the backlog? Are staffing levels 
adequate to address some of the concerns? Or is that not an 
issue at all?
    Mr. Bagdoyan. Sure. Thanks for your question. We did not 
look at staffing per se. That is essentially an agency 
determination once they figure out what they have to do and 
then work back to staff up to that capability. So I would 
answer it in that regard.
    Senator Cortez Masto. OK. So that wasn't considered.
    Mr. Bagdoyan. We did not consider it in our--it was 
essentially out of scope for our audit.
    Senator Cortez Masto. OK. That's helpful for me to know.
    And then to Commissioner Nelson or Mr. Bagdoyan--and, 
listen, I'm all for data and metrics, I believe in audits and 
reviews, that is an important part of how we make sure that we 
are holding taxpayer money--we're spending it correctly, and 
we're holding agencies accountable, I think it's important. But 
I also think it's important that we allow companies, after 
those audits, to engage in reform, to learn from the audits, 
move forward. I don't think we scrap the whole program just 
because there was a bad audit. I think we learn from it, 
implement those reforms, and move forward, and that's what I'm 
hearing from you as well.
    And so let me throw that out there. Are there any concerns 
that you have right now that this program should be completely 
scrapped from what you're hearing?
    Mr. Nelson. That would certainly be--not be what I am 
advocating today. And this hearkens back to Senator Markey's 
question. We're in a transition period right now, a period from 
which we've had a lot of problems to a period with once the 
National Verifier is up and running, I am cautiously optimistic 
that that will solve a lot of those problems. But we are 
several years from getting there. And I think, again, it's 
going to be tougher to get there than what USAC originally 
anticipated. And so we're in a transition period, and until we 
get there and that is up and running, I don't know that we can 
make any firm determinations on exactly how this is going to 
work.
    Senator Cortez Masto. Thank you.
    Mr. Bagdoyan. Yes, in terms of the policy choice, 
obviously, that's not my charge. That's for Congress and the 
Commission to figure out. But I think National Verifier, as 
Commissioner Nelson mentioned, is part of the solution. This is 
a systems approach; you have to have multiple parts of your 
strategy. But it is a policy choice to take program integrity, 
which includes fraud, very seriously and then go from there.
    Senator Cortez Masto. Thank you. I notice my time is up. 
Thank you very much for the conversation today.
    The Chairman. Thank you, Senator Cortez Masto.
    Mr. Bagdoyan, just as a follow-up, there has been some 
discussion about improper payments that are verified between 
this program and other Federal programs. In your analysis of 
this program, was it your conclusion that there are, which 
there are obviously those payments that can be verified that 
were improper, but there is a lot of unknown out there. Could 
you kind of comment on that with respect to your analysis?
    Mr. Bagdoyan. Yes, sure, Mr. Chairman. Thank you for your 
question. We did not look exclusively or explicitly at improper 
payments. We did touch on them as part of our overall review. I 
would note that some of the rates that we referenced in our 
report, and I believe Ms. Gonzalez also mentioned, while they 
may appear to be relatively low to, let's say, the national 
average or compared to other programs, the FCC's Office of 
Inspector General has questioned those estimates over a period 
of time, both in terms of data reliability and the overall 
methodology used to arrive at those estimates.
    So I would take them at least at face value, but based on 
what we looked at, I would not conclude that they are 
definitive since they are questioned by essentially a sister 
agency to GAO.
    The Chairman. You report in a case because the majority of 
Lifeline-eligible Americans pay for communications services out 
of pocket, and pay USF fees on those services, the net benefit 
to low-income Americans is even less than it would appear. 
Could you maybe discuss that in a little bit more detail, 
elaborate on that?
    Mr. Bagdoyan. I'm not sure I'm following your question.
    The Chairman. Well, just that the majority of Lifeline-
eligible Americans pay for communications services out of 
pocket, so they pay USF fees.
    Mr. Bagdoyan. Correct. Right.
    The Chairman. So what I'm asking is, what is the net 
benefit to low-income Americans given that they also have to 
pay fees on that?
    Mr. Bagdoyan. Well, yes. Thank you. So we looked at 
essentially the eligible universe is approximately 48 million 
or so households or individuals. You have about 12 million 
people enrolled. So the bulk of the eligible population is 
essentially subsidizing a subset of that population that is 
actually enrolled. So there is definitely an inefficiency 
there, and that's what some of the academic studies that we've 
looked at and we cite in our report also mention as part of 
their analysis.
    The Chairman. One of the things that has been pointed out 
which I think is--in terms of the National Verifier and how 
quickly it can get online, because that seems to be the thing 
that everybody is sort of holding out there as the holy grail, 
how we're going to get rid of some of the well-documented 
problems with this program. The point that Commissioner Nelson 
raised about getting access to those databases seems to be a 
very valid one. It would also strike me that it would make 
sense to have the state public utilities commissions, or 
whatever that equivalent agency is in individual states, very 
involved in working with the FCC to get that access to make 
that program work. Just an observation, I guess, in terms of 
how that might work going forward, but clearly there is a lot 
of confidence, or at least hope, that the National Verifier is 
going to be effective in rooting out some of the fraudulent 
aspects, again, in the program.
    So this would be just a general question for members of the 
panel, and it is based on the GAO's good work or perhaps on 
your own expertise. Do any of you have recommendations about 
whether we ought to seek to improve the existing lifeline model 
or fundamentally rethink how we ensure that low-income 
Americans can participate more fully in our communications-
dependent society, which I think we all agree is something that 
we need to support? Is there another model? Is there something 
that would be more effective than what we have today or do we 
try to continue to tweak and make this thing work better?
    Mr. Bagdoyan. Yes. Mr. Chairman, we did not look at any of 
that, as I mentioned to Senator Cortez Masto. That is 
ultimately a policy choice. We took a narrow-slice look at 
fraud, waste, and abuse program integrity, so I wouldn't be 
able to comment on that. All right?
    The Chairman. I understand that's outside your lane, so to 
speak, of what you do, and I appreciate that. Feel free to 
speak on your own if you'd like to.
    For the other members, you know, we talked a lot today 
about some of the flaws over time in this program and perhaps 
dollars have been wasted over time that could have been more 
effectively deployed in terms of actually providing access and 
delivering services to low-income Americans. Can this program 
be fixed? Can it work with the improvements that have been 
proposed? Or do you have in your minds perhaps a different way 
of delivering a service, a different model, that might be more 
effective?
    Ms. Collier.
    Ms. Collier. Yes, Senator Thune. To me, it seems like the 
best way right now is to see how the National Verifier system 
is going to be implemented. I realize that it's not going to 
occur until 2019 as far as full implementation. However, there 
do need to be Memorandums of Understanding with the different 
states, whether they work with the public utility commissions 
or other entities within the state, to develop a sharing 
program of the data. There are key data points that have to be 
shared that only the state has. So those Memorandums of 
Understanding are really going to need to be in place, but 
until we see how the National Verifier system is going to work, 
we really don't know its impact. It also does need to be set up 
as a front-end verifier, not a ``pay and chase,'' as described 
the current system being.
    The Chairman. All right. Thank you.
    Mr. Eisenach.
    Dr. Eisenach. Chairman Thune, thank you for the question. I 
guess I think my views, my bottom line is clear, I think. And I 
would direct people to Chairman Pai's dissent on the 2016 order 
where he called out its weaknesses, which are present and 
remain present and will remain present into the future.
    I have spent a little time looking at the National Verifier 
Plan, and what I can tell you is that there are a lot of 75-
page PowerPoint decks on the Internet with lots of colors and 
arrows and promise dates and processes and procedures and so 
forth, all of which, in my experience, are unlikely to lead to 
a working program by 2019, or maybe ever, for the reasons that 
have been talked about here.
    The Lifeline program is a long way from effective today, or 
efficient. We think 1 in 20 of the recipients have broadband or 
telephone service because of the program. We think a little 
more than 1 out of 3 of the recipients that the GAO audited it 
could not find--it could not verify they were eligible in the 
first place.
    We haven't talked about it today, but the estimates of the 
administrative overhead of the program, there's a raging debate 
whether it's 40 percent or 60-some percent. Whichever it is, if 
you take those three numbers, 1 out of 20 are benefiting from 
the program in the sense of using a service they wouldn't 
otherwise use; 1 out of 3 or more are not eligible; and 50 
percent on the dollar is going to administrative overhead. That 
just can't be a model for a Federal income support program.
    Now, there are other models. And the Link Up program, for 
example, there is actually academic research which suggests 
that Link Up, which was terminated by the FCC except for tribal 
lands in 2012, was a program which supported the original 
signing up of someone to a new subscription. So a program which 
said, ``Let's support your getting online,'' is one concept 
that ought to be looked at.
    And one clear barrier is that people don't have computers, 
don't have the device that they need in order to connect. 
Another aspect is digital literacy and the need for training. 
And all of the evidence suggests that low-income and 
disadvantaged populations, the people who we need to help--and 
I'll come back to schools and the homework gap--that those 
people need something other than a $10-a-month subsidy, they 
need a more hands-on approach. A lot of times programs like 
that are best handled through state programs, state level 
social service agencies.
    Certainly in the schools, the homework gap is a serious 
problem and ought to be addressed, but we could give an awful 
lot of mobile broadband-connected laptop computers to children 
without broadband at home for the amount of money that we're 
spending, wasting, on Lifeline today. So those are some of the 
examples I've encouraged----
    The Chairman. Well, in your earlier testimony, it seemed to 
me at least, yours was sort of an indictment of the delivery 
mechanism being payments to carrier--or to providers.
    Dr. Eisenach. It's a recipe for----
    The Chairman. Right.
    Dr. Eisenach.--the incentives are all wrong.
    The Chairman. Right. OK.
    Very quickly, Commissioner Nelson.
    Mr. Nelson. Yes, as I've mentioned, if USAC can actually 
pull off implementing the Verifier as they've planned, I think 
that's going to go a long way toward solving the problems in 
the program. I would strongly recommend, though, the talk about 
needing to evaluate the effectiveness of the program can't be 
understated.
    And I'll just share with you anecdotal stories that come 
from our consumer assistance people in our commission, and most 
commissions have those. And what I'm told--and these are the 
folks that talk to Lifeline subscribers daily--is that there 
are those that are truly destitute, and without this program 
would have no means of telecommunication, and there are others 
they talk to that are simply looking for another freebie. And 
they talk to both. And if we can figure out a way to sort that 
out, I think that would go a long way toward helping the 
program also.
    The Chairman. Ms. Gonzalez?
    Ms. Gonzalez. So right now it's the only Federal program 
poised to address this. I'm loathe to repeal without replacing 
with better ideas. I'm open to more innovative ways to ensuring 
that all people have access to communications, but at this 
point, I think we really ought to see out the National 
Verifier. We've invested a lot of resources in developing it 
and building it out, and I think it has a really good shot of 
addressing the waste, fraud, and abuse raised here today.
    The Chairman. Thank you.
    We've been joined by other members of the Committee, and I 
think recognizing them in the order of their appearance, 
Senator Peters was here first this morning.
    Senator Peters.

                STATEMENT OF HON. GARY PETERS, 
                   U.S. SENATOR FROM MICHIGAN

    Senator Peters. Thank you, Chairman Thune. Thank you for 
holding this hearing.
    And thanks to the witnesses for coming here as well. We 
appreciate your testimony.
    I also want to agree with the opening statement that 
Chairman Thune made about your strong convictions that we need 
to make sure that everybody has access to telecommunications in 
this country. Hopefully, that's never something that we waver 
from, though, we have to understand that in this digital 
economy, if you don't have access to these services, you are at 
a significant disadvantage.
    And I think the way to look at this and this effort that we 
are undertaking here is similar to the electrification of our 
country, to make sure that everybody had access to electricity. 
Even if sometimes the economics of stringing that wire to that 
house out in the rural area didn't make a lot of sense from a 
dollars and cents perspective, it made a world of difference to 
that family and a world of difference to the entire country to 
be electrified. So the same concept is in place here with 
telecommunications.
    Having said that, we have to make sure we're doing it 
efficiently and effectively and making the kinds of reforms to 
make the Lifeline program work. And I agree with you, Ms. 
Gonzalez, that we don't want to throw out something unless you 
have some sort of tangible replacement that is seeking out to 
achieve the ends that I mentioned. So let's fix what we have. 
And I think there are some concrete fixes that are going 
forward. Let's try those out, but let's never stop seeking 
better ways to do it.
    I was certainly troubled, though, when the GAO report came 
out, as I think everybody was, very troubled, but I was 
particularly concerned about the GAO's inability to verify the 
eligibility of a considerable amount of Lifeline beneficiaries. 
So following the release of that report, I wrote a letter to 
the FCC as well as the USAC to explain many aspects of the 
report.
    And, Mr. Chairman, I would like to enter into the record, 
or whoever is chairing now----
    [Laughter.]
    Senator Peters. We'll leave that hanging out there for the 
Chairman to come back in. But I would like to introduce into 
the record the letter that I sent to the USAC and to Mr. Pai 
for the FCC and enter it into the record. And I would like to 
use my time to kind of follow up on the soon-to-be-entered-
into-the-record letters.
    Mr. Bagdoyan, the GAO report reveals that despite FCC 
efforts to curb waste, fraud, and abuse in the Lifeline 
program, the FCC Enforcement Bureau hasn't been consistent in 
taking action against fraudulent service providers, which, 
looking at the report, hold a great deal of the responsibility 
for the program's current structure and some of the problems 
associated with it.
    Why is it important for the FCC to develop a consistent 
enforcement strategy for Lifeline providers in violation of the 
rules? And do you believe that providers have a clear 
understanding of how the FCC will respond if they are found 
engaging in bad conduct?
    Mr. Bagdoyan. Thank you, Senator Peters, for your question. 
Where we come from at GAO's strategy is key. It drives 
everything else. It essentially implements the policy choice 
that has been made to keep the program on the books, so to 
speak. That's the premise we did our audit.
    So if there is inconsistency and lack of guidance, vis-a-
vis those who have been charged to verify enrollment 
eligibility, that type of gap, if you will, and knowledge and 
conveying of responsibility trickles down to what kinds of 
processes and procedures those providers themselves are going 
to put in place to manage fraud risk.
    So strategy is key. And I think, as we mentioned in the 
report, it has been absent, and because of that, the Commission 
itself has been unable at times to enforce its own rules across 
the board, so to speak. So I would not be overemphasizing 
strategy enough for that purpose.
    Senator Peters. What ways do you think the FCC and USAC 
could collaborate to enhance enforcement? Do you have any 
suggestions?
    Mr. Bagdoyan. Well, obviously, communication is key. It has 
to be, as I mentioned in my opening statement, at the very 
conclusion, it has to be a clear and unambiguous policy choice 
that fraud risk is going to be taken seriously, assuming that, 
again, the program will remain on the books so to speak to 
provide access to those who need it. So they have to make that 
commitment and also make sure that their respective staffs and 
executives work together to craft a strategy, and that's one of 
our recommendations.
    Senator Peters. Right. Thank you.
    And, Mr. Chairman, I have three letters to enter into the 
record with--ask for consent to enter into the record.
    The Chairman. They'll be added without objection.
    [The letters referred to follow:]

                                       United States Senate
                                      Washington, DC, July 19, 2017

Hon. Ajit V. Pai,
Chairman,
Federal Communications Commission,
Washington, DC.
  

Ms. Vickie Robinson,
Acting CEO and General Counsel,
Universal Service Administrative Company,
Washington, DC.

Dear Chairman Pai and Ms. Robinson:

    We are writing with regard to the Lifeline program, which helps 
provide basic telecommunications and broadband services to eligible 
low-income Americans who may not otherwise be able to afford these 
services. The Lifeline program is one important component of the 
Federal Communications Commission's (FCC) commitment to the policy of 
universal service \1\ and affords Americans in every state the 
opportunity to stay connected and succeed in today's interconnected 
digital economy. Unfortunately, a recently released report from the 
Government Accountability Office (GAO) documents troubling instances of 
waste, fraud, and abuse in the Lifeline program.\2\ We are concerned 
that the risks to program integrity outlined in this report threaten a 
service that is essential to ensuring that low-income Americans can 
connect to employment opportunities, family members, and emergency 
services.
---------------------------------------------------------------------------
    \1\ See 47 U .S.C. Sec. 254.
    \2\ Government Accountability Office, Additional Action Needed to 
Address Significant Risks in FCC's Lifeline Program (May 2017) (GA0-17-
538).
---------------------------------------------------------------------------
    Current policy places the responsibility of verifying program 
eligibility with the diffuse network of over 2,000 Eligible 
Telecommunications Carriers (ETCs), who often subcontract further with 
third-party entities in order to approve or deny Lifeline benefits.\3\ 
In conducting an analysis of subscriber data in select states, however, 
GAO was unable to independently verify the eligibility of a 
considerable number of Lifeline beneficiaries.\4\ FCC's ongoing 
development of a National Verifier eligibility system is a positive 
sign, but both FCC and the Universal Service Administrative Company 
(USAC) are well-positioned to take immediate steps to improve provider 
oversight and overall program integrity.
---------------------------------------------------------------------------
    \3\ Id., p. 15.
    \4\ Id., p. 37.
---------------------------------------------------------------------------
    Given the problems identified in the current administration of the 
Lifeline program, we ask that you provide answers to the following 
questions as soon as possible but no later than August 18, 2017:

  1.  How do FCC and USAC measure the effectiveness of the various 
        compliance and enforcement mechanisms that have been developed 
        to improve oversight of Lifeline providers and sales agents?

      a.  What training and guidance on the Lifeline program is offered 
            to or required for ETCs and sales agents?

      b.  Has FCC instituted criteria and timelines for evaluating 
            individual ETC compliance plans?

      c.  What is the extent of FCC and USAC's oversight of third-party 
            entities contracted by ETCs to determine program 
            eligibility?

      d.  How many times has FCC determined that an ETC is no longer 
            qualified to provide Lifeline benefits, and what is the 
            process for making this determination?

  2.  What steps are being taken to ensure that ETCs and subcontractors 
        are aware of the Federal and state databases and other 
        information available to them in order to determine program 
        eligibility?

  3.  What is your projected timeline for testing and implementing the 
        National Verifier system?

      a.  What are your projected costs?

      b.  What impediments, if any, have you encountered with state and 
            local jurisdictions in acquiring the information you 
            believe is necessary to implement the National Verifier 
            system?

      c.  To what extent will the existing National Lifeline 
            Accountability Database (NLAD) be utilized in the 
            development and implementation of the National Verifier 
            system?

  4.  Chairman Pai's July 11, 2017, letter to USAC regarding the 
        Lifeline program establishes a number of new USAC review and 
        audit requirements.\5\ GAO's report, however, states that in at 
        least one instance, USAC's routine audit functions have been 
        constrained by ``limited audit resources.'' \6\ Is USAC 
        adequately resourced and staffed to conduct the reviews and 
        audits of ETC and subscriber data outlined in the July 11 
        letter?
---------------------------------------------------------------------------
    \5\ Letter from Ajit V. Pai, Chairman, Federal Communications 
Commission, to Vickie Robinson, Acting CEO and General Counsel, 
Universal Service Administrative Company (July II, 2017).
    \6\ Government Accountability Office, supra at p. 28.

    Diligent and continuous efforts to improve the integrity of the 
Lifeline program will ensure that the funds collected from providers 
and consumers are administered appropriately and that all Americans 
stand to benefit from the opportunities of the global digital economy.
    If you have any questions about this request, please contact Sydney 
Paul of Senator Peters's staff at [email protected] or Lot 
Kwarteng of Senator Stabenow's staff at 
[email protected]. We share your goal of reducing waste 
and fraud in the administration of Federal programs and look forward to 
your prompt response.
            Sincerely,
                                            Gary C. Peters.
                                             United States Senator.
                                           Debbie Stabenow,
                                             United States Senator.
                                 ______
                                 

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]                             
                                 ______
                                 
               Federal Communications Commission Washington
                                    Washington, DC, August 21, 2017
Hon. Gary Peters,
United States Senate,
Washington, DC.

Dear Senator Peters:

    Thank you for your letter requesting information related to the 
recent Government Accountability Office (GAO) report identifying waste, 
fraud, and abuse in the Lifeline program.
    I share your views on the overall importance of the Lifeline 
program. It's vital that low income Americans have access to 
communications services, including broadband Internet. My focus has 
been--and will continue to be so long as I have the privilege of 
serving as Chairman--doing everything within the Commission's power to 
close the digital divide. I also believe that it is critical to 
strengthen the Lifeline program's efficacy and integrity by respecting 
the states' role in the program, ensuring the program is fiscally 
responsible, and reducing waste, fraud, and abuse. Addressing these 
issues--especially those identified in the GAO report--would ensure the 
program is actually advancing the Commission's goal of ensuring low-
income Americans have access to affordable communications service.
    Below, please find the responses to the specific questions included 
in your letter.

    1. How do FCC and USAC measure the effectiveness of the various 
compliance and enforcement mechanisms that have been developed to 
improve oversight of Lifeline providers and sales agents?
    Response: To measure the effectiveness of existing compliance and 
enforcement mechanisms, on a monthly basis, USAC tracks program 
metrics, including the percentage of Lifeline subscribers enrolled 
through carrier manual review of eligibility or identity 
documentation,\1\ the ratio of service provider name look-ups in the 
National Lifeline Accountability Database (NLAD) to actual NLAD 
enrollments, and the variance between the number of subscribers in NLAD 
and the number of subscribers for which service providers claim 
reimbursement on their FCC Forms 497.\2\ USAC provides reports to FCC 
staff on these metrics on a quarterly basis. USAC, under the oversight 
of the FCC, then takes steps to address any waste, fraud, or abuse 
concerns indicated in the metrics and refer issues to the FCC's 
Enforcement Bureau and Office of Inspector General, when appropriate. 
USAC and the FCC also maintain whistleblower hotlines, and USAC refers 
any allegations of waste, fraud and abuse in the Lifeline program to 
the Enforcement Bureau and Office of Inspector General.
---------------------------------------------------------------------------
    \1\ As the National Verifier is rolled out, eligibility reviews 
will shift from carriers to the National Verifier.
    \2\ Beginning with the January 2018 data period (for Lifeline 
support payments to be issued in February 2018), USAC, under the 
oversight of the FCC, will disburse Lifeline support to service 
providers based on the number of subscribers enrolled in NLAD instead 
of issuing disbursements based on the FCC Form 497.
---------------------------------------------------------------------------
    The FCC and USAC also use the results of USAC's Payment Quality 
Assurance (PQA) reviews and Beneficiary and Contributor Audit Program 
(BCAP) audits to measure the effectiveness of existing compliance and 
enforcement measures. USAC tracks common audit findings for Lifeline 
service provider audits, annually analyzes the root cause of each audit 
finding, and takes steps or makes recommendations to address the root 
causes. USAC provides FCC staff with a copy of the root cause analysis.
    At the Commission's direction, USAC is currently implementing 
mechanisms by which to monitor and track the activity of individual 
sales agents to more quickly detect and address potential fraud or 
abuse.

    a. What training and guidance on the Lifeline program is offered to 
or required for ETCs and sales agents'?
    Response: USAC, overseen by FCC staff, provides guidance and 
training materials for service providers and their agents, including 
summaries of the Lifeline program rules and common audit findings on 
USAC's website, monthly webinars on Lifeline program rules, a quarterly 
Lifeline newsletter, and e-mail news briefs.\3\ Service providers and 
their agents can subscribe to a Rich Site Summary (RSS) feed to receive 
the latest news from USAC concerning the Lifeline program, including 
information on new FCC orders or guidance, program deadlines, and 
upcoming webinars.\4\ USAC also conducts regular service provider 
outreach to identify areas where additional guidance or training is 
needed. In addition, service providers and their agents can directly 
contact USAC and FCC staff with questions about specific Lifeline 
program rules or requirements.
---------------------------------------------------------------------------
    \3\ See, e.g., Program Requirements, http://www.usac.org/li/
program-requirements/default
.aspx (last visited July 31, 2017); Rules and Orders, https://usac.org/
li/tools/rules-orders/2015-lifeline-order.aspx (last visited July 31, 
2017); Common Audit Findings: Lifeline Program, http://usac.org/about/
about/program-integrity/findings/common-audit-li.aspx (last visited 
July 31, 2017); Lifeline Program Update Webinars, http://www.usac.org/
li/about/outreach/training/lifeline-program-update-webinars.aspx (last 
visited July 31, 2017); Newsletter, http://www.usac.org/li/about/
outreach/newsletters/default.aspx (last visited July 31, 2017).
    \4\ See Subscription Center, https://usac.org/about/tools/
publications/subscription-center.aspx (last visited July 31, 2017).
---------------------------------------------------------------------------
    The FCC's audit plan for Lifeline service providers that must 
obtain third party biennial audits requires an examination of the 
service providers' training for employees and agents concerning the 
Lifeline eligibility rules.\5\ In addition, when the FCC enters into 
consent decrees with Lifeline service providers to resolve violations 
of the Lifeline program rules, the consent decrees typically require 
service providers to develop and distribute Lifeline compliance manuals 
and establish and implement Lifeline compliance training for employees 
and third-party employees covered under the consent decree.\6\
---------------------------------------------------------------------------
    \5\ See Wireline Competition Bureau Announces Release of Final 
Lifeline Biennial Audit Plan, Public Notice, 29 FCC Rcd 3568,3602, 
Attachment 3, Biennial Audit Plan (WCB 2014). See also 47 CFR 
Sec. 54.420(a) (requiring companies receiving $5 million or more in 
Lifeline reimbursements annually in the aggregate, on a holding company 
basis, to obtain third party biennial audits).
    \6\ See, e.g., Blue Jay Wireless. LLC, Consent Decree, 31 FCC Red 
7605, 7610-11, para, 20 (EB 2016); YourTel America, Inc.. Consent 
Decree. 28 FCC Reel 1539, 1545-46, para. 14 (EB 2013); TerraCom, Inc., 
Consent Decree, 28 FCC Reel 1529, I533-34, para. 14 (EB 2013).

    b. Has FCC instituted criteria and timelines for evaluating 
individual ETC compliance plans?
    Response: The Wireline Competition Bureau conducts reviews of non-
facilities-based providers' proposed compliance plans to participate in 
the Lifeline program as a way of seeking to prevent improper payments 
from non-facilities based providers.. These reviews focus on a number 
of factors, including the service provider's proposed Lifeline 
offerings, internal procedures, service history, past compliance with 
Commission rules, and financial and technical ability to provide 
Lifeline service in compliance with Lifeline program rules.\7\ The FCC 
has not established a specific time-frame for completing reviews of 
Lifeline compliance plans.\8\
---------------------------------------------------------------------------
    \7\ See 2012 Lifeline Reform Order, 27 FCC Reel at 6816-6817, 
paras. 379-8 I (20 I 2); Wireline Competition Bureau Provides Guidance 
for the Submission of Compliance Plans Pursuant to the Lifeline Reform 
Order, Public Notice, 27 FCC Reel at 2188 (WCB 20 12).
    \8\ The Commission requires non-facilities-based service providers 
to submit compliance plans for the Wireline Competition Bureau's review 
and approval before they can receive Lifeline support. See Lifeline and 
Link Up Reform and Modernization et al., Report and Order and Further 
Notice of Proposed Rulemaking, 27 FCC Reel 6656, 6813-6814, 6816-6817, 
paras 386-369, 379-381 (2012) (2012 Lifeline Reform Order); Wireline 
Competition Bureau Provides Guidance for the Submission of Compliance 
Plans Pursuant to the Lifeline Reform Order, Public Notice, 27 FCC Red 
2186, 2187 (WCB 20 12).

    c. What is the extent of FCC and USAC's oversight of third-party 
entities contracted by ETCs to determine program eligibility?
    Response: The Commission has made clear that Lifeline service 
providers are liable for any conduct by their employees, agents, 
contractors, or representatives (acting within the scope of their 
employment) that violates the Lifeline program rules.\9\ In addition, 
the Enforcement Bureau has taken action against Lifeline service 
providers for rule violations committed by sales agents.\10\ As noted 
above, at the FCC's direction, USAC is currently implementing 
mechanisms by which to directly monitor and track the activity of 
individual sales agents to more quickly detect and address potential 
fraud or abuse.
---------------------------------------------------------------------------
    \9\ See, e.g., 2012 Lifeline Reform Order, 27 FCC Rcd at 6709, 
para. 110 (``ETCs may permit agents or representatives to review 
documentation of consumer program eligibility for Lifeline. However, 
the ETC remains liable for ensuring the agent or representative's 
compliance with the Lifeline program rules.''); Lifeline Providers are 
Liable if Their Agents or Representatives Violate the FCC's Lifeline 
Program Rules, Public Notice, 28 FCC Rcd 9022, 9022, para. 1 (EB 2013) 
(``The FCC's Enforcement Bureau reminds Eligible Telecommunications 
Carriers (ETCs) receiving federal universal service support from the 
Lifeline program that they are liable for any conduct by their agents, 
contractors, or representatives (acting within the scope of their 
employment) that violates the FCC's Lifeline rules.'').
    \10\ See generally Total Call NAL 31 FCC Rcd 4191.

    d. How many times has FCC determined that an ETC is no longer 
qualified to provide Lifeline benefits, and what is the process for 
making this determination?
    Response: The Commission has terminated or denied the participation 
of two service providers that the FCC determined to be unqualified to 
participate in the Lifeline program. In December 2016. following an 
Enforcement Bureau investigation of Total Call Mobile, Inc. (Total 
Call) for violation of Lifeline program rules, Total Call agreed via a 
consent decree to cease participating in the Lifeline program, 
relinquish all of its ETC designations, and withdraw its pending ETC 
designation applications.\11\ In October 2015, the Commission 
prohibited Icon Telecom, Inc. (Icon) from participating in the Lifeline 
program for a three-year period. after Icon was convicted of making a 
false statement in violation of Federal law in connection with 
fraudulent claims involving the Lifeline program.\12\
---------------------------------------------------------------------------
    \11\ See Total Call Mobile, Inc.. Consent Decree, 31 FCC Rcd 13204, 
13214, para. 27 (EB 2016). The Consent Decree resolved the Notice of 
Apparent Liability concerning Total Call's violation of Lifeline 
program rules by enrolling duplicate and ineligible subscribers. See 
Total Call NAL, 31 FCC Rcd at 4211-13, paras. 74-83.
    \12\ See Letter from Jeffrey Gee, Chief Investigations and Hearings 
Division, Enforcement Bureau, to Wes Yui Chew, President Icon Telecom, 
Inc.. 30 FCC Rcd 10939 (EB 2015).
---------------------------------------------------------------------------
Enforcement Process
    The FCC's Enforcement Bureau may open an investigation upon 
receiving timely information about actionable Lifeline rule violations 
and gathers additional information through a Letter of Inquiry 
(LOI).\13\ If the Enforcement Bureau determines that violations of 
applicable statutes and FCC rules have occurred, the Enforcement Bureau 
may take enforcement actions that include issuing a Notice of Apparent 
Liability for Forfeiture (NAL), which identifies the apparent 
violations and proposes penalties, including monetary penalties.\14\ or 
resolving the investigation through a settlement agreement in a consent 
decree. If an NAL is issued, the service provider has an opportunity to 
respond to the allegations in the NAL.\15\ If the service provider does 
not pay the penalty or demonstrate that a forfeiture penalty should not 
be imposed, the Enforcement Bureau issues a forfeiture order.\16\ If 
the violations are instead resolved through a consent decree the 
service provider may be required to return improperly claimed 
reimbursements to the Universal Service Fund, make an appropriate 
financial contribution to the U.S. Treasury, and adhere to a compliance 
plan to prevent the recurrence of the rule violations.\17\
---------------------------------------------------------------------------
    \13\ Enforcement Primer, https://www.fcc.gov.general/enforcement-
primer (last visited July 31, 2017).
    \14\ See id. See also 47 U.S.C. Sec. 503(b)(1)(B): 47 CFR 
Sec. 1.80(a)(1), (f).
    \15\ See 47 U.S.C. Sec. 503(b)(4); 47 CFR Sec. 1.80(f)(3): 
Enforcement Primer https://www.fcc.gov/general/enforcement-primer (last 
visited July 31, 2017).
    \16\ See 47 CFR Sec. 1.80(f)(4); Enforcement Primer, https://
www.fcc.gov/general/enforcement-primer (last visited July 31, 2017).
    \17\ See Enforcement Primer, https://www.fcc.gov/general/
enforcement-primer (last visited July 31, 2017).
---------------------------------------------------------------------------
Suspension and Debarment Process
    The Commission may suspend and debar persons \18\ from 
participating in the Lifeline upon a criminal conviction of, or civil 
judgment for fraud against a USF program, including the Lifeline 
program.\19\ When cause exists for suspension and debarment, the FCC 
suspends that person and begins a proceeding to debar the person from 
future participation in the USF program, including providing thirty 
(30) days in which to respond to the suspension and proposed 
debarment.\20\ Within ninety (90) days of the response date, the 
Commission may issue a notice of debarment to the service provider.\21\ 
The debarment period is generally three years, but the Commission can 
set a longer period of debarment if necessary to protect the public 
interest.\22\
---------------------------------------------------------------------------
    \18\ The FCC's debarment rules define a ``person'' as ``[a]ny 
individual, group of individuals, corporation, partnership, 
association, unit of government or legal entity, however organized.'' 
47 CFR Sec. 54.8(a)(6).
    \19\ See 47 CFR Sec. 54.8(c).
    \20\ See 47 CFR Sec. 54.8(e)(1), (3).
    \21\ See 47 CFR Sec. 54.8(e)(5).
    \22\ See 47 CFR Sec. 54.8(g).
---------------------------------------------------------------------------
Compliance Plan Review Process
    To promote program integrity, the Wireline Competition Bureau 
conducts a thorough review of compliance plans submitted by non-
facilities-based ETCs. If the ETC fails to provide the required 
information,\23\ the Wireline Competition Bureau notifies the ETC and 
the ETC has an opportunity to submit a revised compliance plan.\24\ The 
Wireline Competition Bureau may issue an order denying the compliance 
plan if the ETC fails to respond to an inquiry to the Wireline 
Competition Bureau's satisfaction or otherwise fails to demonstrate 
that it has met the requirements for compliance plan approval 
established in the 2012 Lifeline Order.\25\ In addition to the 
information required in the compliance plan, information from the FCC's 
Enforcement Bureau, Office of Inspector General, or state commissions 
concerning the service provider may also inform the Wireline 
Competition Bureau's decision on a compliance plan.\26\ In the event 
the Wireline Competition Bureau denies a compliance plan, the ETC 
cannot receive Lifeline support as a non-facilities-based provider.\27\
---------------------------------------------------------------------------
    \23\ See 2012 Lifeline Reform Order, 27 FCC Rcd at 6816-17, paras. 
379-81; Wireline Competition Bureau Provides Guidance/or the Submission 
of Compliance Plans Pursuant to the Lifeline Reform Order, Public 
Notice, 27 FCC Rcd at 2188 (WCB 20 12).
    \24\ See 2012 Lifeline Reform Order, 27 FCC Rcd at 6816, para. 380, 
n.1000.
    \25\ See id.; Conexions Compliance Plan Order. 29 FCC Rcd at 14430-
32, paras. 8-11.
    \26\ See 2012 Lifeline Reform Order, 27 FCC Rcd at 6818, para. 388.
    \27\ See id. 27 FCC Rcd at 6816, para. 380: Conexions Compliance 
Plan Order, 29 FCC Rcd at 14432, para. 12.
---------------------------------------------------------------------------
    2. What steps are being taken to ensure that ETCs and 
subcontractors are aware of the Federal and state databases and other 
information available to them in order to determine program 
eligibility?
    Response: USAC, under the oversight of the FCC's Wireline 
Competition Bureau and Office of Managing Director, is developing a 
comprehensive list of available state and Federal eligibility databases 
that service providers must check while the National Verifier is still 
being implemented. This list will be posted on USAC's website, and USAC 
will update this list every six months and regularly e-mail the list to 
service providers.
    As the National Verifier is rolled out, starting with five states 
in December 2017, eligibility determinations will shift from service 
providers to the National Verifier.

    3. What is your projected timeline for testing and implementing the 
National Verifier System?
    Response: The technical build of the National Verifier is already 
underway, and the initial system launch in at least five states will 
occur in December 2017.\28\ Testing will occur throughout the build 
process. From December 2017 through February 2018, service providers in 
the initial states will be able to test the system and transition to 
the National Verifier.\29\ During this period. USAC will be verifying 
the eligibility of all existing subscribers in these states as they are 
migrated to the National Verifier. By March 2018, all enrollments and 
recertifications in the initial states will be conducted by the 
National Verifier.\30\ The National Verifier will be expanded to at 
least 25 states by the end of 2018, and in all remaining states and 
territories by December 31, 2019.\31\
---------------------------------------------------------------------------
    \28\ See Lifeline Program Update, National Verifier Updates at 11 
(May 27, 2017), http:www
.lifelinesupport.org_res/documents/li/training/2017/May-Lifeline-
Program-Update-Webinar.pdf; Lifeline National Verifier Plan, at 23 (as 
updated July 31, 2017), http://usac.org/_res/documents/li/pdf/nv/Draft-
National-Verifier-Plan.pdf.
    \29\ See Lifeline National Verifier Plan, at 104 (as updated July 
31, 2017), http://usac.org_res/documents/li/pdf/nv/Draft-National-
Verifier-Plan.pdf; See Lifeline Program Update, National Verifier 
Updates at 11 (May 27, 2017), http://www.lifelinesupport.org_res/
documents/li/training/2017/May-Lifeline-Program-Update-Webinar.pdf.
    \30\ See Lifeline Program Update. National Verifier Updates at 12 
(May 27, 2017), http://www
.lifelinessupport.org/_res/documents/li/training/2017-May-Lifeline-
Program-Update-Webinar.pdf.
    \31\ See Lifeline National Verifier Plan, at 23 (as updated July 
31, 2017), http://usac.org/_res/documents/li/pdf/nv/Draft-National-
Verifier-Plan.pdf.

    (a) What are your projected costs?
    Response: Through March 2018 (the initial launch), the projected 
costs associated with implementing National Verifier are $21 million. 
This total includes the costs associated with the development of the 
core system (consumer and service provider application portals), 
Federal and state interface implementation for the initial launch, user 
support (including training, standup, and operation of a call center), 
compensation and benefits of all full-time USAC staff dedicated to 
implementing and managing the National Verifier, and three months of 
operations of the National Verifier during the soft launch period.
    (b) What impediments, if any, have you encountered with state and 
local jurisdictions in acquiring the information you believe is 
necessary to implement the National Verifier system?
    Response: USAC, overseen by Commission staff, has been coordinating 
extensively with states to obtain the information necessary to 
implement the National Verifier. The process of reaching a computer 
matching agreement varies depending on the state. Some states have 
required legislative changes prior to being able to share data with 
USAC, while others have complex procurement processes that USAC must 
navigate. Some state agencies are unable to provide access to their 
data due to technical challenges, such as a lack of resources necessary 
to make system modifications.
    We note that while the goal is to automate eligibility 
verifications as much as possible, it may not be cost-effective to 
build a connection to all state databases. especially if the National 
Verifier has automated connections to Federal databases.\32\
---------------------------------------------------------------------------
    \32\ See id. at 31.

    (c) To what extent will the existing National Lifeline 
Accountability Database (NLAD) be utilized in the development and 
implementation of the National Verifier system?
    The National Lifeline Accountability Database (NLAD) will be fully 
integrated into the National Verifier. NLAD will continue to perform 
identity, address, and duplicate checks for Lifeline subscribers.\33\ 
NLAD will also continue to serve as the official record of enrolled 
Lifeline subscribers, and service providers will still be required to 
update subscriber information in NLAD (e.g., address changes, service 
provider changes, de enrollments).\34\ The NLAD will produce monthly 
reports of each service provider's Lifeline subscribers and service 
providers will certify and request reimbursement based on that list 
instead of the program's current practice of reimbursing service 
providers based on their FCC Form 497 submissions.\35\
---------------------------------------------------------------------------
    \33\ See id at 12, 20.
    \34\ See id. at 19, 20.
    \35\ See id. at 19, 20, 49-50.

    4. Chairman Pai's July 11, 2017, letter to USAC regarding the 
Lifeline program establishes a number of new USAC review and audit 
requirements.\36\ GAO's report, however, states that in at least one 
instance, USAC's routine audit functions have been constrained by 
``limited audit resources.'' \37\ Is USAC adequately resourced and 
staffed to conduct the reviews and audits of ETC and subscriber data 
outlined in the July 11 letter?
---------------------------------------------------------------------------
    \36\ Letter from Ajit V. Pai. Chairman. Federal Communications 
Commission, to Vickie Robinson, Acting CEO and General Counsel, 
Universal Service Administrative Company (July 11, 2017).
    \37\ Government Accountability Office, supra at p. 28.
---------------------------------------------------------------------------
    Response: USAC is adequately resourced and staffed to conduct the 
reviews and audits of ETC and subscriber data outlined in my July 11, 
2017 letter to USAC. In addition, FCC staff continues to coordinate 
with USAC to prioritize and strengthen efficiencies in conducting 
audits and reviews.
    I further note that USAC's routine audit functions for the Lifeline 
program are not constrained by ``limited resources.'' In Fiscal Years 
2014 through 2016, USAC and external auditors overseen by USAC 
completed 94 Beneficiary and Contributor Audit Program (BCAP) audits of 
Lifeline service providers, and in Fiscal Years 2015 and 2016 USAC 
completed 600 Payment Quality Assurance (PQA) reviews of Lifeline 
service providers.
    I appreciate your interest in this matter. Please let me know if I 
can be of any further assistance.
            Sincerely,
                                                Ajit V. Pai

T.S. Senator, good to hear from you. Please feel free to get in touch 
about any FCC-related matters of interest to you and/or Michiganders--
or to talk Harleys in the U.P.

    The Chairman. Thank you, Senator Peters.
    Senator Blumenthal is up next.

             STATEMENT OF HON. RICHARD BLUMENTHAL, 
                 U.S. SENATOR FROM CONNECTICUT

    Senator Blumenthal. Thank you, Mr. Chairman, and thank you 
for holding this hearing. Thank you to all the witnesses for 
being here today.
    All of us are watching with horror and heartbreak the 
recovery in the Gulf Coast from Harvey and the potential for 
another similar natural disaster striking Florida or the same 
region. And all of us are aware of how these natural disasters 
disproportionately affect people who are in poverty. In 
particular, it will be very difficult for Houston's lower 
income population, and I'm told that nearly 30 percent of 
residents in that city are below the poverty level, to get back 
on their feet.
    And I noted, Ms. Gonzalez, particularly that you focused on 
this issue. You said in your testimony, I'm quoting, ``The 
evidence is clear, poor people are disproportionately impacted 
by natural disasters,'' end quote. I take it also that poor 
people are particularly in need of Lifeline in the wake of 
these natural disasters. Would you agree?
    Ms. Gonzalez. I would agree. And, in fact, after Hurricane 
Katrina, we saw the FCC and folks on the Hill here really 
coming together to think creatively about how to get service to 
folks who were displaced by the hurricane. And that was the 
reason for the transition of the program that was at that time 
landline only to provide wireless services, understanding that 
people are displaced by natural disasters, but that poor people 
generally are on the move.
    Senator Blumenthal. And what would be the effect of budget 
restrictions or caps on the recovery in the Gulf Coast or any 
other natural disaster similar to it?
    Ms. Gonzalez. Well, I'm not an economist, but I have a 
moral objection to a cap. If we're really trying to reach the 
hardest-to-reach people--and I spent years doing this in 
California--we can't put an arbitrary, artificial limit. If 
there are folks who need access, we need to make sure that 
we're not standing in the way.
    Senator Blumenthal. All of us are in favor--I mean, I can't 
say all of us because there are always people who disagree, but 
I don't know anyone who's in favor of waste, fraud, and abuse. 
But this program seems to offer a real lifeline to folks who 
are in the midst of natural disasters, which can strike people 
even when there isn't a major weather event, even without 
hurricanes or tornadoes or earthquakes, and those earthquakes 
may be financial in nature, like health care issues, which are 
the most frequent cause of bankruptcy in the United States.
    So as much as I personally, and I think many members of the 
Committee favor efforts to root out waste, fraud, and abuse, at 
the same time, it seems to me that budget restrictions, and 
most particularly caps, are an arbitrary and capricious way to 
root out fraud or waste or abuse.
    Maybe, Mr. Nelson, I can ask you because you were very 
pointed in your focus on waste, fraud, and abuse in your 
testimony, how you feel about those caps or budget 
restrictions.
    Mr. Nelson. You know, I have no problem with a budgetary 
cap. As a matter of fact, I think it's a good idea. But here's 
my observation: Given the level of waste and abuse that the GAO 
report found, if that is truly the level that we're involved in 
here, and with the advent of the National Verifier, if that can 
be eliminated, this program will have more than enough dollars 
to serve those that are applying for it. And so I think both of 
those things can work together.
    Senator Blumenthal. Would you be willing to wait in 
imposing a cap until we know what the results of the National 
Verifier is?
    Mr. Nelson. I wouldn't because, at this point, I think 
we're far enough below the budgetary level that's been talked 
about of like $2.2 billion, that I think it's still going to 
work even if we put a cap in today.
    Senator Blumenthal. Do other members of the Committee have 
any view--any other witnesses have any view on that topic?
    Dr. Eisenach. Just very briefly, I think it's important to 
realize that this program is paid for by communications 
consumers. So every dollar that gets passed through shows up on 
somebody's phone bill. So I think it is appropriate for 
policymakers to make a decision about the balance between the 
increased taxes paid by communications consumers, including 
low-income communications consumers, and the amount of the 
benefit and the effectiveness of the benefit that's going to 
the beneficiaries of the program.
    Senator Blumenthal. Thank you. My time is expired, but 
again my thanks for being here.
    The Chairman. Thank you, Senator Blumenthal.
    Senator Duckworth.

              STATEMENT OF HON. TAMMY DUCKWORTH, 
                   U.S. SENATOR FROM ILLINOIS

    Senator Duckworth. Thank you, Mr. Chairman.
    I do want to thank the chair and ranking member for 
convening today's very important hearing. And thank you to the 
witnesses for coming.
    I've made making sure every hard-earned taxpayer dollar 
being used appropriately in the most effective and efficient 
manner a cornerstone of my service, especially with Federal 
procurement reform, which is why I'm especially concerned about 
the waste that's happening within this program. And while I do 
understand how valuable Lifeline is for thousands of Illinois 
families who play by the rules and rely on the program to 
access services that many of us take for granted, I am 
concerned about the fraud and the abuse.
    So I am deeply troubled by the abuse that GAO uncovered in 
2014. And I do agree with Mr. Nelson that we have to figure out 
how to separate out those who legitimately need this program 
and those who are gaming the system and taking advantage of it.
    I do recognize that the FCC is already working to improve 
the program integrity through enhanced oversight. But clearly 
we can do more to strengthen Lifeline to make every dollar 
invested in this critical service--to make sure that it reaches 
those who need it.
    Ms. Gonzalez, you've already touched on this a little bit, 
but I'm sure you would agree that as we work to improve the 
Lifeline program, it's important to establish proper context as 
we develop performance metrics. As you know, the FCC calculates 
the Lifeline program's improper payment rate, which has ranged 
from 2.93 percent, just under 3 percent, in 2016, to .32 
percent in 2017. And my understanding is that this compares 
favorably to the annual improper payment rates across Federal 
Government, which in recent years has hovered between 4 and 5 
percent. Now, that is still astonishingly a large amount of 
taxpayer dollars that is being wasted, but in comparison, it is 
actually doing OK, relatively well. While wasteful spending is 
absolutely not acceptable at any level, it does appear that 
Lifeline program's improper payment rate is actually lower than 
the governmentwide average. Is this a correct statement?
    Ms. Gonzalez. That is correct. I'd also like to just put in 
context the GAO report a bit for you, Senator. Much of the data 
was gathered before the reforms. While the 2012 reforms were 
being put in place, and before the 2016 reforms have gone into 
effect. The GAO report itself states that it believes the 
National Verifier could solve many of the problems that it 
addressed in the report.
    I also just want to touch on the fact that failure of the 
GAO to verify Lifeline user eligibility does not mean that 
those people were in fact ineligible. The GAO only examined 
three of the programs that people can use to prove their 
eligibility. It said that the data gathered was non-
generalizable, from a non-generalizable selection of states. It 
also explains that states collect and maintain their own 
Medicaid data, which can take up to 3 years to verify. And so 
beneficiaries can be excluded or included retroactively. And 
the GAO report also notes that the consistency, quality, and 
completeness of that data can vary from state to state. And so 
while those findings were very disturbing at face value, when 
you look at the methodology of how you were--they were 
collected, you can see that they're not terribly relevant to 
Lifeline's future.
    Senator Duckworth. So the improper payment rates that I 
just quoted for 2016 actually are after the Verifier--sorry--
the National Verifier System had begun to be implemented. Is 
that correct or--I guess my question is, Is it fair to assume 
that Lifeline program's improper payment rate will drop after 
the National Verifier System is fully implemented?
    Ms. Gonzalez. I think that's fair because the Verifier will 
not go into effect until December of this year. And so the drop 
that we see--or, you know, we're not sure whether 2016--you 
know, whether 2016 was an outlier or what's going on there with 
that number that's higher than a .45 percent from 2015 and 
similar rate for 2014. But what we are seeing there is that the 
rate is already lower than the average for government programs, 
and the National Verifier hasn't even taken hold yet.
    Senator Duckworth. OK. Sorry, I keep doing--I'm approaching 
50, and I'm sort of trying to learn to use bifocals, and I'm 
not very good at it. So they just make me dizzy.
    [Laughter.]
    [Voice.]
    Senator Duckworth. OK, you, too.
    [Laughter.]
    Senator Duckworth. Exactly.
    According to the 2015 National Lifeline Accountability 
Database, Illinois had over 1.4 million program-eligible 
individuals, but only 36 percent subscribed, which amounts to 
about 500,000-522,000 subscribers. Similarly, 936,000 Illinois 
households do not have Internet access, of which 423, so over 
half, are eligible for the Lifeline program. I am incredibly 
concerned about this disparity.
    And, Ms. Gonzalez, you know, I believe that as a nation, we 
must prioritize delivering high-speed Internet to all families 
in the 21st century just as we delivered electricity to all in 
the 20th century.
    I spent August traveling throughout Illinois. People don't 
know that far southern Illinois is further south than Richmond, 
Virginia. And when I go across, especially into the rural parts 
of Illinois, I have children who can't do their homework 
because they don't have access to broadband. They can't do 
their homework. So how do they keep up and remain competitive?
    And for me, it's unacceptable that nearly 60 percent of 
Americans making less than $20,000 a year lack access to 
broadband. Many of those are farming families across my state. 
Moving forward, what would be your top three recommendations to 
the FCC on how they can continue to improve and modernize 
Lifeline to make sure that this program helps us achieve the 
goal of universal access to broadband, but also still keeping 
in mind that we need to reduce the fraud and waste rate?
    Ms. Gonzalez. Thanks for the question, Senator. I think 
there's one big thing that the FCC can do right away, because 
the Lifeline broadband implementation that was supposed to take 
place pursuant to the 2016 order has largely been stalled by 
the FCC's actions in February of this year to revoke the 
designations of nine Lifeline broadband providers, including 
one in Illinois owned by an African American man who was set to 
provide innovative services to address the homework gap that 
you raise in your remarks.
    And so this is freezing competition, innovation, and 
opportunity to get more Lifeline broadband providers into the 
program. The reason that the 2016 order developed this National 
Verification System was so that it would make it easier for 
broadband providers to participate. Folks who know Free Press 
know we're not big fans of making things easier for the 
telecommunication companies. But this makes sense because it 
ensures that there is as robust competition as possible and 
that we're able to reach those folks in your state and all the 
states who really need the access most.
    Senator Duckworth. Thank you.
    I'm well over time, Mr. Chairman. You've been incredibly 
generous. Thank you.
    The Chairman. Thank you, Senator Duckworth.
    We're okay. I think we're going to wrap. To conclude, 
again, I want to thank the panel. I think it has been a great 
discussion. Again, I think most of us approach this issue with 
a recognition that the goal, objective, is to make sure that 
people of all incomes, and irrespective of where they live 
geographically, have access. The question is how to do that 
most effectively and make sure that the taxpayer is getting the 
best bang for their buck.
    I guess one of the things that--one of the biggest problems 
I think that's been identified with the program is that it's 
not getting--it's not focused, I should say, on getting service 
to those most in need. The study that Mr. Bagdoyan quoted, that 
Lifeline has only helped one person who truly needs that phone 
for nearly--or I should say for every 20 people who it has 
subsidized, and that's not something I think the National 
Verifier program will fix.
    I think we all want to get at improper payments and make 
sure that the program is running efficiently as possible, and 
the National Verifier seems to me at least helps us with that. 
But in terms of the overall goals and what this program is 
designed to do, who it's designed to help, it doesn't answer 
that fundamental question.
    So we'll continue to look at this and other programs that 
are under this Committee's jurisdiction, but I think the 
testimony today has been very helpful. The questions and the 
interaction with members of the Committee as well. And it will 
all be part of the record. And I would simply say if members 
have questions, if you could submit them as quickly as possible 
for the record, and we would ask our panelists to respond to 
those, if possible, within a 2-week time period, they'll be 
made part of the permanent record.
    And if there's nothing else, this hearing is adjourned.
    [Whereupon, at 11:44 a.m., the hearing was adjourned.]

                            A P P E N D I X

   Prepared Statement of Hon. Bill Nelson, U.S. Senator from Florida
    What the Government Accountability Office (GAO) uncovered in the 
course of its investigation into the FCC's Lifeline program is deeply 
troubling. There can be no tolerance of waste, fraud and abuse in this 
important program.
    Based upon GAO's findings, Lifeline providers need to do a better 
job training their employees and ensuring robust accountability 
measures to combat the problems documented in the report. The Universal 
Service Administrative Company, the FCC and the states all must engage 
in more effective, ongoing oversight of the program.
    But it is also important to acknowledge that many of the concerns 
raised in GAO's report reflect data that represent a snapshot in time. 
Over the last several years, the FCC has adopted significant Lifeline 
reform measures that are addressing--and promise to further address--
the problems uncovered by GAO, including through a National Verifier 
Database. And the agency has engaged in enforcement actions where 
warranted to penalize bad actors--including launching an investigation 
into GAO's findings.
    Even more importantly, we cannot lose sight of the significance of 
the Lifeline program to low-income consumers throughout the country. 
This program has had strong bipartisan support throughout its 
existence. Lifeline was created during the Reagan administration, 
expanded to wireless services under President George W. Bush and again 
to broadband under President Obama. And it was Congress, on a 
bipartisan basis, that enshrined the notion of a Lifeline program into 
law as part of the Telecommunications Act of 1996.
    Lifeline has helped connect millions of Americans to services--like 
voice communications and broadband--that have become essential to 
everyday life--both in Florida and around the Nation. While the GAO's 
findings offer everyone a chance to reflect on the program and make it 
better, the report should not be used as a political tool to eliminate 
the program or undercut its successes. Doing so would render a 
disservice to millions who use the critical subsidy provided by 
Lifeline to make sure that they are able to contact emergency services, 
and remain connected to family, community, work, and the rest of the 
world.
    We must redouble our collective efforts to rid and insulate this 
program from waste, fraud, and abuse. But we also must maintain this 
program that has done so much good throughout its life. And we must 
ensure that Lifeline remains robust into the digital age where 
broadband has become the means for social, economic, political, and 
educational engagement. To act otherwise would perpetuate the lingering 
digital divide in this country--a divide I know that we all want to 
close as soon as possible.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Maggie Hassan to 
                          Jessica J. Gonzalez
    Question. In your testimony, you outline several examples of the 
Lifeline program's phone subsidy helping to connect people to 
resources. You discuss someone in need being connected to shelter, you 
describe how Lifeline helped a gentlemen with mental-health issues 
connect with a therapist who could meet his needs, and how it helped a 
senior citizen find employment. Last December, the Federal 
Communications Commission approved a number of Lifeline Broadband 
Providers to begin providing Internet service. In your testimony, you 
note that over 17,000 subscribers had been receiving this service, only 
to have it taken away when the Commissioner revoked these approvals. 
Not only does the Chairman's actions to revoke the approvals for the 
Lifeline Broadband Providers hurt the 17,000 Americans who were 
benefiting from the program, but it also limits the growth in 
competition among providers, which may ultimately bring down costs. Are 
the actions of the Chairman consistent with his stated goals of closing 
the digital divide? And what can be done to improve the program, while 
still allowing competition among Lifeline Broadband Providers to 
continue?
    Answer. No, the Chairman's actions are not consistent with his 
stated goal of closing the digital divide. Not only did the Chairman 
revoke the service of 17,000 active subscribers, he also cut off 
imminent Lifeline offerings from eight other Lifeline Broadband 
providers that the FCC had previously approved for launch, and 
introduced a level of uncertainty into the LBP approval process that 
could scare off other potential Lifeline carriers.
    As I noted in my testimony, the main reason that poor people and 
people of color are not online is cost, and Lifeline is the only 
Federal program situated to address the affordability gap. The 
Chairman's stalled Lifeline implementation efforts suggest that he is 
not genuinely committed to connecting poor folks and people of color to 
the internet. To improve the program and prove me wrong (which I hope 
he does), the Chairman should expediently implement the 2016 Lifeline 
Modernization Order, including the reforms, the National Verifier 
system, and the national LBP approval process.

                                  [all]

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