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Failure To Communicate

Why haven't half a million needy Tennesseans heard of the state's phone subsidy program?


Shretha Woodley's apartment rarely gets quiet. The television blares cartoons, the baby cries, her 7-year-old son asks for help with his homework, pots and pans rattle in the kitchen, and neighbors yell from outside her window. On most days, peaceful moments are few but cherished. Mysteriously absent in all of this racket is the sound of a ringing telephone.

That's because Woodley doesn't have a phone. She hasn't had one since she moved into this North Memphis housing project in April. A 20-year-old single mother receiving government assistance, Woodley can't afford the connection fees or a monthly telephone bill. Anyone wishing to contact her must call her grandmother's house, leave a message, and wait until Woodley calls back.

Needless to say, it's an inconvenience. In the age of e-mail, cell phones, two-way pagers, and a host of other ways to stay connected, not having a home phone seems archaic. So when Woodley learned that for the last 10 years a government subsidy program has been in place to waive part of the connection fee and greatly reduce the amount for monthly service charged to people in her situation, she was excited.

"You mean I wouldn't have to pay a hook-up fee and I'd only have to pay $8 a month for a phone?" she asked. "I can afford that. Why didn't somebody tell me about it?"


What Woodley and many others have never heard of is a program called Lifeline that, through a combination of federal and state subsidies, pays $12 of the $20 charged for basic telephone service. Lifeline began in Tennessee in 1991 as a joint effort of the Tennessee Public Service Commission -- now known as the Tennessee Regulatory Authority (TRA) -- and the Federal Communications Commission (FCC).

"Lifeline is a federal program," explains Joe Werner, chief of the TRA's telecommunications division. "Under the Lifeline plan the [FCC] said they would chip in $3.50 towards a monthly telephone bill. If the state agrees to chip in another $3.50 then the federal government will put in even more money. I think right now it all comes to about $11.35 off the cost of basic monthly service."

According to Bill Ray, BellSouth's assistant vice president of external affairs for East and West Tennessee, the total amount is actually $12 each month. Of that amount the state, through BellSouth, provides $3.50 and the federal government contributes $8.50. After the $12 is subtracted from BellSouth's cost of monthly basic services -- currently $20 -- customers qualified for the Lifeline plan only have to pay $8 a month for basic residential phone service. Another program called Link-Up, which is fully funded by the federal government, pays half of the installation charge, currently $41.50, so that the Lifeline customers pay only $20.75 to get connected.

To fund the state portion of the subsidy the Public Service Commission ordered BellSouth to add a small amount of money, currently just a fraction of a cent, into the basic rate for every phone line in Tennessee. BellSouth customers do not notice the extra amount because it is embedded in the basic rate and not itemized in the list of services that appear on monthly phone bills.

"With Lifeline a customer could have a residential line for about $8 a month, with unlimited calls in a set calling area," explains Ray. "There's probably not enough people taking advantage of that."

Signs in ATM/Discount?s office inform customers of assistance options.

The question is: Why not?

Last year in sworn testimony before the TRA, Archie Hickerson, a former employee of the Public Service Commission, testified that BellSouth had been collecting the money for the subsidy from the bills of its other customers. When the original order for Lifeline was issued in 1991, Hickerson was the deputy director of the utility rate division and was directly involved in instituting the Lifeline and Link-Up programs. In his testimony, Hickerson said:

David Mills, president of ATM/Discount
"It's built into the existing rate structure of the ILEC. And so they are actually collecting this $3.50 from the customers that ... the other customers that they have." (By ILEC, Hickerson means "incumbent local exchange carrier," the shorthand used by the FCC to refer to regional phone companies like BellSouth.)

That BellSouth collects the money from other customers is not in dispute. The TRA's Werner explains the Lifeline order: "The Public Service Commission said that all carriers were required to provide the $3.50 credit and to provide Lifeline service. In exchange, the state would allow them to recover from their rates what is probably a fraction of a cent on every phone line."

It's a generous allotment and thousands of Tennesseans like Shretha Woodley would likely take advantage of the Lifeline and Link-Up programs -- if they'd ever heard of them. Though at least 480,000 Tennesseans are pre-qualified to participate in Lifeline and Link-Up, according to the TRA only 36,000 are enrolled in the programs. Of the 36,000 participating, 5,000 customers receive their phone service from companies other than BellSouth.

Any Tennessee resident currently receiving any one of several types of public aid -- Supplemental Security Income (SSI); Temporary Assistance for Needy Families (TANF, formerly AFDC); food stamps; or Medicaid -- is pre-qualified for Lifeline and Link-Up. Also, any Tennessean whose gross monthly income is equal to or less than 125 percent of the federal poverty level is qualified.

According to the Department of Human Services (DHS), Medicaid alone has 480,423 adult recipients in Tennessee; there are at least 113,035 people at or below 125 percent of the federal poverty level; 107,800 adults currently receive TANF; 117,679 adults receive SSI; and there are 235,081 food-stamp households in the state. In Shelby County alone there are 122,152 food-stamp households.

Because DHS does not keep records noting the number of people receiving aid from more than one program, it is impossible to know exactly how many Tennesseans qualify but do not receive Lifeline and Link-Up. Considering just the number of Medicaid recipients, BellSouth could have passed on Lifeline savings of almost $64 million last year as well as an additional $9.2 million in Link-Up credits. Moreover, in 2000, there were only 22,000 Lifeline recipients statewide and the years before that had even fewer participants. So, over the 10-year lifetime of the Lifeline program, BellSouth could have passed on at least $640 million in Lifeline phone subsidies to Tennessee's poorest residents and an additional $92 million in Link-Up credits.

However, BellSouth is only required to provide Lifeline and Link-Up assistance to customers who apply for and are qualified to participate. In order to apply, the customers first have to know that the programs exist and most, like Shretha Woodley, have never even heard of them.

Crossed Lines

Close to half a million Tennesseans are qualified to receive the Lifeline subsidy and the program has been in place for 10 years, so why don't most of these people know about it? Representatives from both the TRA and BellSouth don't know the answer to this question. Both organizations claim they've tried to get the word out.

"In the last two to three years the TRA has tried to increase awareness of the program," says TRA spokesman Greg Mitchell. "Two weeks ago we worked with a radio station in Memphis -- "The River" -- at a local Wal-Mart. We broadcast live from there to try and promote the existence of Lifeline."

BellSouth, for its part, has also taken some steps to inform Tennesseans about the program.

"We put information out in the phone bills," says BellSouth's Ray. "We have advertised in the newspapers about it, and all of our service representatives know about it -- so if anyone calls to ask about it, they're aware too. I've also sent letters and brochures to most of the non-profits about it."

Mitchell also noted that information about Lifeline and an application for the program can be downloaded from the TRA's Web site. He says that in cities throughout the state the TRA has run radio ads to educate the public about Lifeline and that last year postcards with information about Lifeline were mailed to the state's food-stamp recipients. Shretha Woodley says she never got hers.

David Mills, president of ATM/Discount Communications, a local exchange carrier in competition with BellSouth, has a few ideas about why Tennessee's poor remain clueless about the Lifeline program.

"I think this was a scheme to enrich a private corporation at the public's expense," says Mills. "I think they [BellSouth employees] have been building nice houses, taking nice vacations, and otherwise enriching themselves off the public trust."

Last fall Discount filed a complaint against BellSouth with the TRA alleging that BellSouth was denying Discount's customers phone service, engaging in anti-competitive acts, and refusing to pass on the Lifeline credits and the federally funded Link-Up credits. On Tuesday, September 25th, the TRA ruled against Discount in its final appeal before the regulatory body, effectively shutting the company down.

Mills had only worked for Discount a few months. Before taking over the company, he lobbied the state legislature for other companies. Early this summer, Tennessee Attorney General Paul Summers told Mills about the problems Discount was facing before the TRA, and Mills decided to step in.

"The Public Service Commission issued an order 10 years ago to provide phone service to this state's least fortunate, and the private corporation charged with collecting the money and implementing the order doesn't do it. You tell me what's going on here," says Mills.

"Lifeline was Discount's business plan," explains Mills. "It was the foundation of our company. We saw that there was a need to try to bridge the gap between those who had access to technology and information and those who did not. Using Lifeline and Link-Up, we found a way to provide those people with access."

Two years ago Discount began signing up Lifeline-eligible customers for pre-paid phone service. Many of the customers had already tried and were turned down for phone service with BellSouth because of outstanding balances or a bad credit history. Discount felt secure in signing up these customers because federal and state Lifeline subsidies would cover $12 of each monthly bill and the customer would pay the balance up front. After two years, Lifeline had approximately 3,500 customers receiving phone service. Mills says that most of these customers were receiving Lifeline and Link-Up assistance.

Like other competitive local exchange carriers Discount had to purchase wholesale phone service from BellSouth to sell to its customers. But instead of applying the federal and state subsidy amounts to Discount's Lifeline customers, BellSouth refused to pass on the money.

"They were killing us, just bleeding us," Mills alleges. "We had to reimburse our customers for the balance on their phone bills. Plus, we were being blocked from competition by any means necessary. There were countless service interruptions; they charged our customers for using directory assistance; they charged our customers for calling 911. These are people who are already on government assistance. They can't afford to pay for all of this other stuff. But BellSouth kept doing all of this until finally the TRA told them to stop."

BellSouth's Ray says that while Discount may have experienced some problems and interruptions in service, none of it was intentional.

"I can't say that none of the local carriers have had problems, but we've had problems too," says Ray. "We're working to comply with Congress and the Telecommunications Act of 1996. We realize that the local carriers' customers are our customers too -- just like our other customers."

Downed Lines

Discount, like hundreds of other start-up telecommunications companies nationwide, took advantage of federal and state laws passed in the mid-1990s to jump into the phone business.

In the Telecommunications Act of 1996, Congress said that Regional Bell Operating Companies (RBOC) like BellSouth have "the duty to provide, to any requesting telecommunications carrier for the provision of a telecommunications service, nondiscriminatory access to network elements at any technically feasible point on rates, terms, and conditions that are just, reasonable, and nondiscriminatory ."

This act allowed for competitive companies like Discount to enter into the telecommunications business. Congress determined that because the federal government had put the telecommunications infrastructure into place before the breakup of the Bell system, they could require the baby Bells -- the RBOCs -- to share that infrastructure with competitors. Needless to say, the baby Bells were none too happy to have the competition and met the newcomers with resistance.

Matters only worsened as the baby Bells began seeing competition coming from other sources too. A full 3 percent of the U.S. population has opted out of hard-wired telephone service altogether, choosing instead to rely on wireless phones. Likewise, with more people using nontraditional means of communication, like e-mail, two-way pagers, and satellite phones, copper-wire phone companies see their slice of the pie getting smaller each day.

"There's a lot of competitors out there now," says Ray. "There are a lot of people who are choosing to only have a wireless phone. That's why offering long-distance service will be a huge part of our package once we receive approval to do so."

Using the carrot rather than the stick approach, the FCC agreed as part of the Telecommunications Act of 1996 to allow the regional Bells to sell long-distance service, but only if the RBOCs could show that they were being fair to the smaller start-ups. Currently BellSouth -- and other regional Bells -- are petitioning each state's Public Service Commission to get approval to offer long distance.

"We're hoping that Georgia will be the first state in our region to approve us for long distance," says Ray. "After that we're hoping that there will be a domino effect for long distance in the other states. Not having long distance hurts us competitively."

Nobody knows yet what the state PSCs will decide, but nationwide the baby Bells have yet to prove they've encouraged competition. RBOCs have been fined millions of dollars for anti-competitive acts. Just last month the Georgia Public Service Commission fined BellSouth $7 million, which brought the company's total to $18.5 million in fines this year in that state. Meanwhile hearings on BellSouth's alleged anti-competitive acts are underway in several other Southern states. Many experts surmise that for the RBOCs, all billion-dollar corporations, it is more cost-effective to pay the fines than to encourage competition. For that reason a bill was introduced in the U.S. Senate last month that would raise the fine amounts considerably and impose treble damages against the baby Bells for repeated violations. There is also a current push in Congress to enforce the "stick" in the Telecommunications Act of 1996 and halt the baby Bells' move into the long-distance market.

In BellSouth's hearing before the TRA on Discount's complaint the regulatory body did find that BellSouth could not charge Discount's customers for services like directory assistance and 911 calls. But on the question of the Lifeline credit, the TRA agreed with BellSouth and said that since the state subsidy was drawn from BellSouth's customers, BellSouth did not have to pass the $3.50 onto Discount's customers.

"The National Exchange Carrier Association puts money into the federal fund and $8.50 is returned to us for each Lifeline customer," says BellSouth's Ray. "The additional $3.50 is funded internally; we don't receive any reimbursement for that."

TRA chairman Sara Kyle was the only dissenter from the decision last fall. In her dissent, Kyle wrote, "I believe BellSouth is in violation of the Telecommunications Act of 1996, current rules, and the terms of its current resale agreement, by refusing to pass through or credit resellers for the $3.50 state Lifeline subsidy."

Though alone in her dissent, Kyle was not the only state official who felt that BellSouth should pass on the subsidy. Summers, the state attorney general, issued a strongly worded legal brief concurring with Kyle. In the first paragraph of his brief, the attorney general wrote: "BellSouth's rates, therefore, to this day include a charge to the consumers of Tennessee for the creation of a Lifeline subsidy that BellSouth should be passing on to Discount, not keeping for itself."

However, Kyle's dissent was just that, and as such it only offers an opinion, not an order. The majority opinion, which came from the two other TRA board members -- Melvin Malone and Lynn Greer -- says that BellSouth did not have to pass the state subsidy amount on to Discount and that Discount was responsible for collecting the state subsidy itself from its 3,500 customers. Mills says that to do so Discount would have to add a large amount of money onto each customer's bill and that doing so would be cost-prohibitive to Discount's customers, most of whom already receive government assistance. The end result is that Discount cannot afford to keep its customers and will exit the hard-wired phone business this week.

BellSouth will take over all of Discount's customers and will continue to offer the Lifeline service to all of those approved to receive it. BellSouth has also agreed to waive the connection charges for all of Discount's customers and to allow the customers to pay off their past-due balances over a year's time.

Discount has appealed the TRA's decision before the Tennessee Court of Appeals, and Mills says he and the attorney general are confident that Discount will be successful. In the meantime, Discount has filed bankruptcy and can no longer afford to provide regular phone service. Mills says the company will continue to offer wireless phone and pager service but cannot continue to sell hard-wired phone service. However, most of Discount's employees will be laid off this week as the majority of Discount's operations have now ceased.

"The Public Service Commission -- now the TRA -- has a mission to look out for the public," says Mills. "Their failure here is colossal. It's not just dropping the ball. Whether it's misfeasance or malfeasance is irrelevant. You have 430,000 Tennesseans who are eligible for a program that has been subsidized in some shape, form, or fashion for 10 years and the people who should benefit from that service have no knowledge of it. Is the TRA the best we can do as a watchdog for the interests of the poor? For the poor, it would be better if the TRA were not there at all."

You can e-mail Rebekah Gleaves at

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