THE FEDERAL LIFELINE PROGRAM

Overview Low-income consumers apply for discounts for local telephone service through the telephone company. Low Income support reimburses eligible telecommunications carriers (ETCs) for providing eligible low income customers with discounts. 2

Overview Low Income support consists of three sub- components: Lifeline reimburses ETCs for discounting eligible customers’ monthly bill for basic, local telephone service. Link Up reimburses ETCs for discounting connection charges incurred when an eligible customer commences service for the first time or at a new address. Toll Limitation Service (TLS) reimburses ETCs for providing toll blocking and toll control to eligible customers at no cost to the customer. 3

Overview To participate, a carrier must be designated as an “eligible telecommunications carrier.” ETC status is granted by state public service commission, or FCC. ETCs must provide service using, at least in part, its own facilities pursuant to section 214(e) of the Telecommunications Act. A company can petition the FCC for forbearance from the requirement to use its own facilities. 4

Disbursements 5

Low Income Program Low Income Support has grown significantly Number of subscribers increased: –from 7 million in 1Q2009 to 9.2 million in 4Q2009 –from 9.6 in 1Q2010 to 11 in 4Q2010. Number of ETCs claiming support increased: –99 new SAC requests from April 2010 to March –Now averaging 18 per month. Participation rate estimated to be 37% as of 4Q

Factors Contributing to Growth “Pre-paid wireless” carriers are non-facilities-based commercial mobile radio service (CMRS) operators that provide Lifeline service on a resold basis. –TracFone Wireless is currently an ETC in 32 states, PR and DC. –Virgin Mobile is currently an ETC in 19 states. –TracFone and Virgin Mobile claim Lifeline support only. 7

Pre-Paid Carriers Lifeline service provided by pre-paid carriers is different from that of other ETCs Provide Lifeline customers free wireless handset. Provide an established number of free minutes of use per month (both TracFone and Virgin Mobile offer up to 250 per month in some states). Advertise heavily (television ads, direct mailings) to attract low-income consumers. 8

Pre-Paid Carriers Additional regulatory requirements imposed on pre-paid carriers Obtain certification that carrier is 911 and E911 compliant. Obtain annual certification that each consumer is head-of-household and receives Lifeline discounts only from the pre-paid carrier. Enact safeguards to prohibit more than one subsidy from the same carrier going to one address. Limited to claiming only Lifeline support (not eligible for Link Up or TLS). 9

Factors Contributing to Growth The number of carriers offering traditional wireless service has also increased. –Nexus, Midwestern Telecommunications and Yourtel America are among the largest non-pre-paid wireless Lifeline providers. –Most traditional wireless carriers receive Link Up support. 10

Factors Contributing to Growth The number of wireline competitors has increased significantly. –These companies have a switch or purchase UNEs, but also provide service to many consumers via resale. –Danger to consumers if these companies are cut off by the wholesale carrier due to a billing dispute. –These companies generally claim Link Up and TLS support. 11

Pending Regulatory Matters Duplicate Lifeline Subscribers FCC addressing issue of consumers receiving Lifeline from two or more carriers. –USAC is conducting In-Depth Data Validations to identify consumers receiving Lifeline from multiple carriers. –FCC is establishing plan to ensure consumers receive subsidized service from only one carrier. 12

Pending Regulatory Matters Notice of Proposed Rulemaking Based on Federal State Joint Board recommended decision and GAO Report. –Consumer eligibility –Treatment of duplicate support claims –Appropriateness of existing outreach and enrollment programs –The potential expansion of Lifeline to include broadband 13

Pending Regulatory Matters National Broadband Plan Establish a pilot program for Low Income broadband support mechanism Allow consumers to apply Low Income subsidy to any service package that includes voice Promote wireless broadband to increase broadband adoption among Low Income households 14