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Phone company lays off hundreds amid inquiry

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A subsidized phone service provider under scrutiny from Indiana regulators is laying off hundreds of salespeople across the country amid inquiries into its sales tactics.

Oklahoma City-based TerraCom Inc., which began operating in Indiana in June 2012, and affiliate YourTel America Inc. have started the process of cutting about 700 salespeople in TerraCom's 23-state service area, the company announced late last week. The process began July 1.

A company representative declined on Monday to release information about employees affected in Indiana.

The move was triggered by a Federal Communications Commission warning issued June 25, reminding providers of the discount phone service program Lifeline that they are liable for any conduct by salespeople that violated FCC rules.

TerraCom and YourTel America began the termination process and are "considering the best business path forward in light of the [FCC's] recent enforcement advisory," said Dale Schmick, chief operating officer of the two firms.

TerraCom and YourTel draw subsidies from the Lifeline program to provide cheap phone plans to low-income customers.

Lifeline provides discounts on basic monthly telephone service to qualifying low-income customers. Applicants must report household incomes at or below 135 percent of the federal poverty level ($32,000 for a family of four), or they need to qualify for food stamps, Medicaid or other federal welfare programs.

All phone customers pay an average of $2.50 per month to the Universal Service Fund, which funnels the money back to the phone providers to reimburse them for offering discounted service.

TerraCom receives $250,000 to $300,000 per month in Lifeline reimbursements for Indiana customers, the Universal Service Fund’s records indicate.

Federal and state regulators have been scrutinizing Lifeline to target waste and fraud.

TerraCom and YourTel America settled for $1 million in February with the Federal Communications Commission, after the FCC claimed they set up multiple Lifeline accounts for individual customers in Oklahoma.

As IBJ reported in May, Indiana utility regulators began asking questions soon after the settlement about how the phone company managed to sign up a massive 30,000 customers in its first six months of business in the state.

At an Indiana Utility Regulatory Commission conference on July 3, TerraCom's Schmick defended the company’s sales methods in Indiana, saying the company recruited so many customers because it has perfected its sales techniques.

Typically, TerraCom’s sales reps set up booths or tents at charity events to hand out marketing material and sign up customers, Schmick told commissioners. Commissioners questioned whether TerraCom was properly screening out all the unqualified applicants before filing the paperwork.

Schmick explained that he is required to sign legal documents for the reimbursements. He would face criminal fraud charges if he knowingly submitted an unqualified Lifeline application, he said.

The FCC issued an enforcement advisory on June 25 regarding the conduct of salespeople and the rules for signing up customers.

"The Enforcement Bureau ... is particularly concerned that some eligible telecommunications carriers are failing to ensure that their agents, contractors and representatives adhere to Lifeline rules," according to the advisory.

Among those regulations, companies must confirm an applicant’s eligibility before activating a Lifeline account, and applicants need to acknowledge that their households do not already have Lifeline accounts.

Companies face up to $1.5 million in fines each time they fail to comply.

In a prepared statement, Schmick said the layoffs beginning July 1 were intended “to ensure continued compliance while we transition to a new business model.”

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