On April 7, the FCC issued a Notice of Apparent Liability (“NAL”) against a wireless Lifeline provider, Total Call Mobile, Inc. (“TCM”). An investigation conducted by the Universal Service Administrative Company (“USAC”) and the FCC Enforcement Bureau (“Bureau”) identified what the Commission characterizes as “willful and intentional misconduct persisting for multiple years” involving over 800 third-party sales agents for TCM, as well as TCM employees and management. The NAL proposes a record forfeiture amount for Lifeline violations – more than $51 million – and directs TCM to “explain why the Commission should not (1) order USAC to suspend all Lifeline reimbursements to TCM; (2) revoke approval of TCM’s ETC compliance plan; and (3) initiate proceedings against TCM to revoke its Commission authorizations.” TCM has 30 days to respond the NAL.

The 42-page NAL is one of the more salacious documents issued by the FCC in recent memory. The document describes an “extensive and comprehensive investigation” conducted by the Bureau that included multiple subpoenas, interviews with agents and employees, and even an undercover Commission employee interacting with TCM sales agents.

The NAL concludes that TCM engaged in “egregious” widespread misconduct that included not only third-party sales agents, but also TCM employees (supervisors and management).

The NAL Allegations

The conduct alleged by the NAL includes the following:

  • Enrollment of Duplicate Consumers. The NAL alleges that TCM intentionally enrolled thousands of duplicate Lifeline consumers. Specifically, either one sales agent or multiple agents “would enroll a consumer more than once, making slight changes to the consumer’s identifying information.” In order to enroll duplicate subscribers, the NAL alleges TCM sales agents would routinely override the third-party identification system in the National Lifeline Accountability Database (“NLAD”). The NAL asserts that in the fourth quarter of 2014, 99.8 percent of TCM’s enrollments were the result of an override. (The NAL does not discuss why the NLAD failed to detect this pattern.) The NAL states that the investigation uncovered evidence that some duplicates were the result of an agent creating a phantom customer using a stolen identity.
  • Enrollment of Ineligible Consumers. The NAL alleges the “widespread misuse of eligibility documents that resulted in the enrollment of ineligible consumers in Lifeline by TCM at the behest of high-level managers working for TCM master agents.” The NAL alleges that ineligible consumers typically were enrolled using temporary Supplemental Nutrition Assistance Program (“SNAP”) cards, which do not contain names. The investigation found evidence that TCM employees made TCM management aware of these practices. Moreover, an undercover FCC employee with no identification or eligibility document apparently was able to secure a Lifeline phone from a TCM agent who “possessed extra SNAPs that could be used as the requisite eligibility documentation.”
  • Failure to Ensure Certifications. The investigation found that it was common for TCM’s sales agents to sign the required consumer certification instead of the applicant.
  • Failure to Train Employees. The NAL alleges that multiple agents interviewed by the Bureau never received training from TCM, in apparent violation of the company’s approved Compliance Plan.
  • Inflated and Revised FCC Form 497s. The NAL found that TCM submitted hundreds of Form 497s with inflated subscriber counts and hundreds of revised form 497s after it was notified by USAC that it had identified more than 32,000 alleged intra-company duplicate subscribers. Many Form 497s were revised multiple times. Ultimately, the NAL finds “TCM consistently failed to remove improper enrollments from its Form 497 reimbursement requests.”
  • Delayed, Incomplete Responses to Subpoenas. One perplexing aspect of the NAL is its finding of fault for TCM’s failure to provide documents in response to the Commission’s subpoena for “eligibility documentation for the Company’s new Lifeline consumers.” Even if TCM did indeed have copies of “select eligibility documents” as alleged, at the time of the request, FCC Rule 54.410(c) – which was recently amended – prohibited the retention of the demanded documents.
  • Widespread Misconduct. The NAL asserts that USAC found over 32,000 intra-company duplicate subscribers enrolled by more than 800 sales agents in 13 states. (Note, however, that USAC refuses to publicly divulge the parameters it uses to identify an alleged intra-company duplicate.)
  • TCM Employee Involvement. The NAL asserts that TCM employees were actively involved in the misconduct. For example, “TCM employees who staffed the TCM sales agent help line assisted sales agents in ‘pushing through’ the enrollment through the use of an override function which the TCM helpline employees could remotely activate.”
  • TCM Management Awareness. The NAL asserts that TCM management was made aware of the misconduct, stating, for example: “Disturbingly, TCM employees repeatedly and explicitly told TCM management that the manner in which certain TCM sales agents were enrolling ineligible consumers constituted fraud. Despite these warnings, TCM proceeded to request and receive reimbursement from the [USF] for these ineligible consumers that were specifically identified by TCM employees.”

Record Forfeiture Proposed

The NAL proposes a record forfeiture amount for Lifeline violations – in excess of $51 million – an amount the NAL claims “reflects the seriousness, duration, and scope of TCM’s multiple apparent violations.” The amount was determined using five categories of violations and was computed as follows:

Click here to view table.

In addition, USAC may require TCM to refund overpaid support to make the Universal Service Fund whole.

“Death Sentence” On The Table

The NAL directs TCM to explain why the Commission should not: (1) suspend all Lifeline disbursements; (2) revoke the company’s ETC compliance plan; and (3) revoke TCM’s FCC authorizations. Although the FCC has previously denied a pending Lifeline ETC compliance plan and suspended disbursements, to date, it has not taken the extreme measures of revoking a compliance plan or FCC authorizations, which are akin to a “death sentence” for the company as a telecommunications provider.

Commissioner Pai’s Partial Dissent

Lifeline is consistently among the most politically charged issues at the FCC, and the NAL reveals further dissent among the commissioners. Commissioner Pai, one of the two minority Republican commissioners, dissented in part because he believes the release of the NAL was delayed for political purposes. Commissioner Pai stated:

USAC discovered the intra-company duplicates in November 2014 and even though our investigation was concluded by mid-2015, [FCC Chairman Wheeler’s] office kept the [NAL] on hold until March 2016 – long after the one-year statute of limitations had passed for most of those apparent violations. Even then, Commissioners were told that the [NAL] could not be released or publicly discussed until April 1, 2016, conveniently one day after the Commission was scheduled to expand the Lifeline program to broadband.

Next Steps

TCM has 30 days from April 7 to respond to the NAL.