If They’re Trying to Kick CUB Out of the Case, You Know We’re On to Something

‘Way back when in 1999, US West (the forerunner of Qwest) filed a request in a court docket that CUB not be permitted intervenor status in a case appeal. The court said definitively, quoting from the statute that voters approved to create CUB, that “CUB may intervene as of right as a party or otherwise participate in any proceeding which includes the review or enforcement of any action by an agency.” (Emphasis ours.)

Since then, no one has even hinted that CUB doesn’t have the right to represent customers in a proceedin….until now. TracFone filed a motion at 4:37 pm last Friday afternoon asking the Public Utility Commission (PUC) to deny CUB’s right to intervene.

TracFone is a wireless telecommunications company that has asked the PUC to certify them to provide Lifeline services (service targeted to low-income individuals) under the brand SafeLink Wireless. While CUB strongly supports increasing telecommunications service options available for low-income customers who depend on Lifeline services, CUB has serious doubts about TracFone’s ability to deliver a good product at fair prices.

CUB filed testimony earlier this week in the docket saying that “TracFone is offering a product that appears to provide less value to customer than the already available, non-subsidized services.” We said “appears to provide” because TracFone has been uncooperative in giving substantive answers to our data requests. They have refused to respond to many questions asked by both CUB and the PUC staff. CUB is so frustrated that we have taken the unusual course of filing a Motion to Compel, asking the PUC to make TracFone respond fully and completely to data requests.

But until the Motion to Compel can be heard and we can get more information, CUB is opposing TracFone’s application because of the potential impact on the cost of Lifeline services, doubts about TracFone’s business model and concerns about TracFone’s ability to be a positive presence in Oregon’s market.

The Principle of Universal Service

Universal service has been a guiding principle for phone service for decades. For phones to be useful, lots of people have to have them. Over time, hidden subsidies developed to expand universal service. But in 1996, federal law required that explicit subsidies replace hidden ones so that consumers knew what they were paying for. This provided the framework for the federal Universal Service Fund (USF) program with subsidies for both high-cost areas and low-income customers.

The universal service principle was traditionally applied to landline phones. However, landline phones generally require stable housing situations. A significant number of Oregon families have economic situations that can lead to more transient living arrangements. The expansion of wireless communications has led to a near elimination of pay phones, leaving phoneless families with little access to telecommunications services.

Directing the “explicit subsidy” of Lifeline/USF support to wireless services has the potential to allow low-income households experiencing housing insecurity to have improved access to telecommunications, permitting more effective job searches and ensuring contact with the outside world. Allowing Lifeline support toward wireless services would allow low-income customers to choose the kind of phone service that makes the most sense for them. CUB supports the creation of subsidized wireless service in Oregon, but not TracFone as a provider. We examine viable alternative options later in this article.

TracFone’s Business Model is Problematic

As far as CUB can understand, TracFone’s intent is to recruit low-income customers who qualify for discounted phone service to apply for its SafeLink wireless service, which is an eligible provider of Lifeline service. TracFone would send these customers a preactivated phone. After receiving the phone, each Lifeline customer would be provided with 68 minutes of use each month so long as their phone was turned on or they called and asked for the minutes. Those minutes would then be added to each customer’s prepaid account.

TracFone would cover the cost of the 68 minutes assigned to a phone by applying to the Universal Service Fund (USF) for $9.90 worth of support for that phone. As noted above, in order for the customer to be credited with the minutes in subsequent months, the phone needs to be charged and turned on for a few days at the start of the month. If that does not happen, the customer needs to contact TracFone to request their minutes. If a customer goes two full months without usage of the phone, TracFone will deactivate that phone and no longer receive USF support. The result of this business model is that TracFone is guaranteed $29.70 ($9.90 x 3 months) in USF for every new customer it signs up, no matter how the phone gets used and no matter who uses it or even if it gets used at all.

Another problem is that TracFone has given no indication that it has prepared for a significant increase in its business in Oregon. The company claims that it has made no plans or has no projections for its new activity in the state. If that’s the case, how does it know how to size its call center to respond to customer concerns and problems? How does it know how many phones it will have to purchase in order to distribute? How can it know its expected revenue from the USF?

Customers of subsidized Lifeline phone services should be able to expect good service. Oregon should require providers to ensure good service. But TracFone’s record in other states casts a pall on its ability to meet Oregon’s expectation of good services. A quick Google search of “TracFone consumer complaints” draws over 53,000 hits. While this is admittedly a non-scientific method, it does raise concerns about widespread dissatisfaction over the company’s business practices, especially its customer service line.

TracFone claimed that its customer service calls are answered within 1 minute. But CUB’s attempt to call the SafeLink customer service number five times over the course of the day on July 28, 2010, had different results.

The first four calls received a recording that said that due to the high volume of calls, calls could not be answered and customers should call back another time. Only the fifth call reached a customer service representative within 1 minute. The fact that TracFone’s call center does not seem to be adequately sized for its current “high volume of calls” suggests that it might have trouble responding to increased volume from Oregon customers.

Customers Contributing to the USF May Not Get Enough Value

The federal Universal Service Fund is not free money. It is not supported by taxpayers, but it is funded by telecommunications consumers for the express purpose of providing universal telephone service in the US by supporting low-income customers and helping companies provide service to high-cost areas.

Rather than supporting low-income customers, TracFone’s business model seems to have an expectation that, after signing up for a phone, some folks simply won’t use it. And, because the deactivation process takes two months, it seems clear that the company is receiving USF support for customers who are no longer receiving and using USF-subsidized service. Rather than a supportive service, it seems like self-support.

TracFone would continue to collect USF monies for those customers in the process of deactivation, enhancing its own bottom line. CUB asked TracFone to provide the number of customers who do not receive their free minutes because their phone is not turned on and those customers who did not contact the company to retrieve their minutes. TracFone responded that this information is “not relevant.” CUB disagrees.

In fact, TracFone promised in its application to the Oregon PUC that “100% of its federal Lifeline support it receives will be flowed through to Lifeline customers in the form of free usage.” The question noted above is directed to find out how many of those free Lifeline minutes are never added to someone’s phone, and therefore cannot be used by customers. Because TracFone promised to pass through 100% of the minutes, we understand that this question might make them uncomfortable and they may not want to answer it, but it is highly relevant.

TracFone’s Service is Overpriced - and There Are Alternatives

Virgin Mobile wireless offers a similar Lifeline subsidized wireless service. But Virgin Mobile offers customers 200 free minutes (as compared to TracFone’s 68 free minutes) and allows customers to purchase additional minutes for 10 cents per minute (as compared to Tracfone’s 20 cents). In addition, customers can purchase prepaid wireless minutes for 7 cents per minute at local retailers. A low income customer, who makes 104 minutes of call per month, would save money by avoiding TracFone’s subsidized service and instead purchasing a 7 cents per minute prepaid service.

CUB Supports Wireless Lifeline

CUB does believe that having a wireless option for Lifeline phone service could benefit low income Oregonians. We are convinced, however, that TracFone’s proposal is overpriced and not a good value for Oregon’s low income customers or for the customers who fund the Lifeline program. Luckily other wireless providers are beginning to offer Lifeline plans that contain real value.

Why Does TracFone Act Like It Has Something to Hide?

TracFone has objected to nearly every CUB request for information in this docket. With its refusal to constructively engage in the discovery process, TracFone has shown that it has little, if any, respect for Oregon’s regulatory process.

CUB goes into each docket with an open mind. It expects a company in TracFone’s position to demonstrate that its request is in the public interest, as the law requires. It is very hard to determine that any service is in the public interest if the entity advocating for its adoption refuses to provide any details about its operation. It’s even more difficult if the company pushes to have CUB, as the statutorily-recognized consumer representative, evicted from the proceeding.

If this is what the courtship is like, what can we expect from the marriage?

Stay tuned for more details about the TracFone docket.

PS. Here’s an interesting historical fact: the same lawyer who represented US West back in 1999, when they pushed to remove CUB as a party, is now representing TracFone in the current proceeding as they ask for the same thing. Coincidence?

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