INDIANAPOLIS - Indiana investigators said Thursday they were "caught off guard" upon learning that TerraCom Inc. had fired its nationwide sales staff of 700 employees and agents.
The Indiana Utility Regulatory Commission issued an order Thursday calling on the Oklahoma City-based company -- a phone provider that collects millions of dollars from the federal Lifeline program to provide subsidized phone service to the poor -- to explain the mass firing.
The company says the firings stemmed, at least in part, from its concerns about adhering to federal rules.
TerraCom says the firings began July 1. However, two days later, when TerraCom Chief Operating Officer Dale Schmick was called before the Indiana regulatory panel to explain how his company had grown so quickly in the state, Schmick didn't mention the layoffs, according to a transcript of the July 3 hearing. Nor did he express doubts about his confidence in TerraCom's sales staff, according to the transcript.
So, Indiana regulators said it came as a surprise to them to learn last week that TerraCom was firing its sales staff, which the company says operated in 23 states and included third-party agents and company employees.
Indiana regulators said in the filing Thursday that they "were caught off guard" by news of the mass firing because, at the July 3 hearing, they heard a different message from the company.
"TerraCom vigorously defended its business practices and its employees," during the July 3 hearing, the regulatory commission wrote in its Thursday order. "Thus, please explain TerraCom's decision to terminate its sales force."
In an interview, Schmick responded to the order by defending the company's decision not to disclose the layoffs at the hearing. He said that it would have been inappropriate to make such an announcement while people were still being fired.
Schmick also said TerraCom, along with affiliate YourTel America Inc., had been considering ending the agent program for months as part of a business overhaul.
The mass firing comes as TerraCom faces scrutiny beyond Indiana's borders. Last year, the Federal Communications Commission began investigating TerraCom and YourTel America after finding that the same customers had been counted multiple times. In February , TerraCom paid $1 million in reimbursements and "voluntary" payments to the government to close the investigation.
TerraCom faces another ongoing inquiry about business practices, by regulators in Oklahoma . Also, attorneys general in Indiana and Illinois are investigating TerraCom's data-security practices after a Scripps investigation this spring found that sensitive TerraCom customer information -- including full Social Security numbers, bank-account numbers and other sensitive details -- was posted on an unprotected site online.
In announcing the mass firing last week, Schmick called it "the best business path forward" for TerraCom following a June 25 advisory from the FCC. That agency warned that companies participating in Lifeline "are liable for any conduct by their agents, contractors or representatives" and must ensure that agents "scrupulously adhere to the Lifeline rules." Phone companies can be fined up to $1.5 million for each violation, the FCC said.
Whatever concerns he had about the business practices of TerraCom's agents when he announced the layoffs, they were not evident in his July 3 testimony before Indiana regulators.
Then, Schmick defended TerraCom's oversight of field workers. He outlined company procedures, including verifying applicants' identities and auditing agents' work. Those safeguards were designed "to make sure nothing is happening that's not supposed to be happening," Schmick said.
The order for TerraCom to explain its mass firing is part of an investigation launched by Indiana regulators in April into how TerraCom grew so quickly in the Hoosier State, and it requires TerraCom to submit written answers by Aug. 1.