Friday, November 20, 2009 - The Progress & Freedom Foundation Blog

Forward Progress at the FCC

Just when it was starting to look like it was "All Broadband, All the Time" at the Federal Communications Commission, a ray of light burst through: an FCC investigation begun into fraudulent billings of the Telecommunications Relay Fund has resulted in indictments brought by the U.S. Department of Justice. Broadcasting & Cable reports that DOJ has charged twenty-six people for allegedly bilking the fund out of $60 million in bogus calls.

Last year at about this time, I wrote a short piece about the results of an FCC Office of the Inspector General semi-annual report on the FCC's administration of various universal support funds, including the TRS fund. All telephone consumers pay into the Telecommunications Relay Service (TRS) fund via assessments on their phone bills. In 2008, these TRS fees totaled about $540 million. The TRS fund has growth exponentially in recent years, largely on the basis of the manner in which it supports video relay services. The FCC's rules permit reimbursements for the video service that can totally hundreds of dollars per hour, so accurate billing of minutes of use are particularly important.

Among the many problems identified by the OIG internal reporting, cost standards and cost controls appear to have gone missing from the TRS Fund program.

The worked (sic) performed . . . found that TRS providers' processes for accumulating and reporting minutes of services provided and related costs were not always adequate. This resulted in some TRS providers being paid for unallowable minutes of service from the TRS Fund. The audit work also concluded that methodologies used by TRS providers for accumulating and reporting minutes of services provided and related costs were not uniform. The increased risk that unreasonable, unallowable, unnecessary and inaccurate costs were considered in the rate used to reimburse providers from the TRS fund. These risks could result in rapid cost growth and require higher funding rates. (emphasis added)

My translation of this finding was that the TRS rate base was "at risk" of containing unreasonable, unallowable, unnecessary and inaccurate costs due to irregular and inadequate controls. That is, waste, fraud and abuse may have added to the tremendous growth of the TRS Fund over the last ten years, but one couldn't be sure because recipient internal controls are lacking.

The OIG report had revealed that the seven providers who were the subject of the performance audits received 15 percent of TRS payments made between 2006 and 2007, and that an eighth failed to provide enough cost and billing information to allow completion of its audit. Thus, a small sub-set of providers may account for a large percentage of the cost increases and at least one of them was either uncooperative or incapable of supplying the requested information to the auditors.

Second, the OIG report singled out one specific form of TRS as likely to have been overpaid: video relay services. It appears that the current compensable hourly rate for VRS is $376.11 (out of a maximum of $404.17). Yet the median rate of pay for a VRS interpreter is only $17.79 per hour, leaving "approximately $385.32 or more of gross margin per reportable hour to cover the other costs associated with the provision of VRS telecommunication services. The other cost associated with VRS discussed in the OIG report is broadband service. Significantly, the report states that "the hourly margin, when compared with the costs of broadband services, suggests that the FCC needs to look much more closely into the allowable expenses and the capital costs that underlie the cost projections that VRS providers submit to the FCC in setting the rates that VRS providers receive per allowable minute of reported service." Wow! That is $385 or more of "gross margin" for a service whose hourly ASL interpreter rates are less than $18! That's quite a business to be in.

It was therefore especially heartening to read that the that the FCC had launched the investigation after receiving evidence of fraud. FCC Chief of Staff Edward Lazarus said the event was "both a tragedy and an opportunity." As a result, Lazarus said the FCC has increased scrutiny of records, resulting in withholding payment on some 2 million minutes worth of submitted calls, plans to put stricter controls on the program's administrator, and plans to undertake to a comprehensive review of the program.

This is a very encouraging development and it should be commended. My colleague Adam Thierer worries that the FCC is reconstituting itself as the "Federal Cloud Commission," and I share his concern. But news of the TRS fund investigation also indicates that behind the scenes, the really important work of the FCC -- the day-to-day carrying out of its explicitly delegated authorities under the Communications Act -- has not been sidelined by National Broadband Plan activity, and that repair of some of the FCC's broken processes is underway. That is real forward progress.

posted by Barbara Esbin @ 11:44 AM | The FCC , Universal Service