Lifeline phone company TerraCom defends company record

Company will likely have to answer more questions

INDIANAPOLIS - An executive of TerraCom Inc., a phone company collecting millions of dollars from the federal Lifeline program, on Wednesday defended his company’s business practices as smart, effective and moral.

Chief Operating Officer Dale Schmick testified before the Indiana Utility Regulatory Commission, which in April began investigating the Oklahoma-based company’s explosive growth in the Hoosier state.

The Lifeline program subsidizes phone service for qualified low-income households, working with numerous phone companies nationwide. Phone carriers receive at least $9.25 a month for each household they serve.

Since branching into Indiana in 2012, TerraCom has acquired 30,000 customers there, Schmick said. He bristled at the suggestion that TerraCom approved questionable applications because of financial incentives. No, he told the panel, “I think there has to be at least some assumption of morality here that we're doing the right thing.”

Schmick also was questioned on TerraCom’s data security practices, following a Scripps News investigation in May showing that tens of thousands of TerraCom applicants’ sensitive records -- including full or partial Social Security numbers and bank account numbers -- had been publicly posted online.

TerraCom solicits many of its customers via contract workers paid on commission and operating out of temporary booths at such venues as soup kitchens and flea markets. TerraCom has no permanent supervisors in Indiana, Schmick said.

Aside from TerraCom, the expansion of federal Lifeline from landline service to cellphones in 2005 led to a cascade of complaints about waste, fraud and abuse in the federal program -- such as participating companies unscrupulously expanding their subscriber bases and individuals wrongly receiving multiple phones.

The Federal Communications Commission, which oversees the Landline program, announced sweeping changes last year to tighten oversight.

The FCC had opened its own investigation into TerraCom and its affiliate YourTel America last year, finding duplicate claims of customers.

In February, TerraCom and YourTel America settled with the FCC for $1 million, paying $416,000 in reimbursement and the rest in “voluntary contribution to the U.S. Treasury,” according to the FCC.

That month, Oklahoma’s Corporation Commission also began its own investigation into why TerraCom wasn’t charging Lifeline recipients a token $1 monthly fee to support antifraud measures.

At Wednesday’s hearing, Schmick answered questions related to Scripps’ reporting. After finding records online, the news outlet alerted TerraCom and the information was subsequently protected. Those files included 17,000 Lifeline applications from Indiana residents. Indiana’s attorney general subsequently announced an investigation, and Schmick said Wednesday that TerraCom was discussing the breach with that office.

Schmick said TerraCom has since enhanced safeguards for applicants’ sensitive information. He declined to explain the changes, saying that would “only help a future hacker.

Likewise, he repeatedly refused to explain how TerraCom built its subscriber base in Indiana, citing competitive reasons.

Schmick said TerraCom expanded into Indiana after identifying a significant population of poor people eligible for Lifeline. He attributed the company’s success to its keen business sense. “One of the things we’re very good at is understanding markets,” he said.

The Indiana utility commission should decide within the week whether to close the investigation or seek more information, a spokeswoman told Scripps.

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