ATTACHMENT

REPORT ON STRATEGIES TO IMPROVE

THE CALIFORINA LIFELINE

CERTIFICATION AND VERIFICATION PROCESSES

California Public Utilities Commission

Prepared by the Staff of the Communications Division

April 2, 2007

Revised May 3, 2007

REPORT ON STRATEGIES TO IMPROVE THE CALIFORINA LIFELINE

CERTIFICATION and VERIFICATION PROCESSES

Table of Contents

	PAGE
I. Executive Summary	3
II. Program History and Description	5
a. California LifeLine Program Prior to Federal Changes	5
b. Summary of Federal Changes	8
c. California LifeLine Program After Federal Changes	9
d. Growing Issue with Certifications	12
III. Federal Rules Allow Substantial Flexibility	14
a. Certifying New Customers	14
b. Verifying Existing Customers	15
IV. Short-Term Strategies for Improving LifeLine	17
a. General Order and Decision Clarification	17
b. Contract Amendment	20
c. Short-Term Outreach Efforts	22
d. Short-Term Solix-Carrier Interface Improvements	24
e. Customer-Carrier Interface Solutions	26
V. Long-Term Strategies for Improving LifeLine	29
a. Improvements in Mail Delivery	29
b. Long-Term Outreach Efforts	30
c. Refinements in Customer Responses	31
d. Customer Pre-Qualification	32
e. Long-Term Solix-Carrier Interface Improvements	33
f. Synergies with Other CPUC Low Income Program	33
g. Lessons From Other States	36
h. Long-Term Appeal and Complaint Solutions	37
VI. Response Rate Comparison	38
a. Carriers Obtained Rates of Over 70%	38
b. Current Rates Are Less Than 50%	41
c. Other State Response Rates Vary Widely	41
VII. Conclusion	46
ATTACHMENTS
1. General Order 153, Appendix E (Current and Proposed Versions)	48
2. LifeLine Data Interface Improvements	50
3. Summary of California's LifeLine Requirements Following the FCC Order	53
4. Sample LifeLine Letter From New York Public Service Commission	55
5. LifeLine Program Administration in Other States	57
6. General Order 153, Section 4.1.3 (Proposed Version)	64

I. Executive Summary

This report details strategies for improving customer response rates and enrollment in the California LifeLine Program (LifeLine)¹. The report identifies changes to General Order (GO) 153 that Staff requests the California Public Utilities Commission (Commission or CPUC) to adopt at its May 3, 2007 business meeting. In addition, the report details Staff's recommendation that any decision lifting the LifeLine suspension include guidance on the types of documentation customers can use to establish LifeLine eligibility. Moreover, it summarizes the extensive work the Staff has been doing and will continue doing to address the issue.

Pursuant to the California Public Utilities (PU) Code², LifeLine provides discounted residential basic wireline telephone service to eligible low-income Californians³. As many as 6.7 million or even 10.1 million Californians may qualify for LifeLine⁴. Currently, carriers provide the discounted service to nearly 3.5 million Californians at a cost of $304.5 million in federal funds⁵ and $251.35 million in state LifeLine funds⁶.

On July 1, 2006, the Commission implemented new Lifeline processes including income certification and verification as well as program eligibility. The Commission instituted the new processes in accordance with the Federal Communications Commission's (FCC) Lifeline Order⁷. To administer the new LifeLine certification and verification processes, the Commission contracted with Solix, Inc. (Solix) to serve as the so-called "Certifying Agent" (CertA), as explained below.

The certification process is for new LifeLine customers; it requires potential new customers to provide proof of program eligibility through either income documentation or participation in one of several approved assistance programs serving low-income people⁸. The verification process occurs annually for existing Lifeline customers; this process requires current LifeLine customers to demonstrate annually continued eligibility on either an income basis or via participation in a recognized assistance program. Both processes rely upon customers to complete and return LifeLine forms to the certifying agent demonstrating their eligibility.

While some decrease in LifeLine customer response rates (e.g., the completion and return of the new CPUC required forms) appears reasonable as the California LifeLine program implements the federal requirements to document eligibility, the new LifeLine process has encountered problems since implementation began in July 2006. In particular, there has been a dramatic plunge in customer response rates. As noted above, at the beginning of the new process in July 2006, approximately 3.5 million customers were enrolled in LifeLine. The response rate of these customers to the new verification process -required in order to stay enrolled in LifeLine - was very low. In August 2006, only 29.43% percent of LifeLine customers needing to send in verification forms to remain on Lifeline did so.⁹ As a consequence, a large number of existing LifeLine customers were removed from the program, leading to a very large number of customer phone calls and complaints to the Commission's Consumer Affairs Branch (CAB) and the customers' carriers. Moreover, there has also been a significant drop-off in new customers signing up for Lifeline (the certification process). Just 31.64% of new LifeLine applicants returned the required forms in August 2006.¹⁰

On November 1, 2006, Commissioner Dian M. Grueneich issued an Assigned Commissioner's Ruling (ACR) suspending portions of GO 153¹¹ relating to the annual LifeLine verification process¹². The suspension, instituted for a period of no longer than six months, has provided Commission Staff an opportunity to identify reasons for the low response rates for LifeLine verifications and certifications and to take steps to resolve these and associated problems.

Staff's review since November 1, 2006 has determined that both new customers applying for the LifeLine program and existing customers verifying their continued eligibility are being disqualified for reasons other than not meeting income or social assistance program requirements. Based on work with LifeLine consumers, consumer groups, Solix, and carriers, Staff has identified a variety of problems contributing to the low LifeLine response rates and affecting customer enrollment in the program. They include:

_ Late receipt or non-receipt of LifeLine forms and documents sent by Solix to customers;

_ Database interface issues between carriers and Solix;

_ Issues with the information both Solix and carriers provide to customers about the LifeLine processes;

_ Insufficient outreach to customers on the new federal requirements; and

_ Lack of customer recognition of new program administration by a third party (Solix).

Staff has also identified significant customer billing problems. The plethora of problems summarized above has resulted in long delays in Solix reviewing LifeLine eligibility forms and larger and more burdensome back billing by carriers of those customers disqualified after the review is completed. Another problem area is conversion regrade charges applied to disqualified customers. Assigned Commissioner Grueneich issued two additional rulings on February 28 and March 28, 2007 addressing these problems.

Staff is taking a multifaceted approach to deal with the low LifeLine response rates, associated billing issues, and the overall confusion in implementation of the new processes. Staff is implementing both short-term and long-term strategies to collectively improve the LifeLine customer response rate and enrollment for eligible customers. These strategies are summarized in the table below.

The items in bold typeface require formal Commission action and are proposed for adoption at the Commission's May 3, 2007 business meeting. The remaining items are being handled by Staff pursuant to existing authority.

Recommended and On-Going Improvements to the LifeLine Certification and Verification Processes
	Short-Term Strategies	Long-Term Strategies
General Order (GO) 153 and Clarifying Changes	_ Formalize extended form processing timeframe in the GO _ Formalize additional customer reminders from CertA in the GO _ Delegate to Staff authority to make ministerial GO changes going-forward via resolution _ Clarify allowable documentation to establish eligibility in the decision lifting the suspension. _ Amend the GO to require on-going carrier reminders to new LifeLine customers	_ Initiate a Phase II of the current LifeLine docket to ensure the short-term actions are implemented successfully and long-term strategies (e.g., possible changes in certification requirements) are expeditiously explored
Solix Contract	_ Pursue Contract Amendment re: _ Form, Letter, Envelope Changes _ Outbound Dialer _ Solix-Carrier data reconciliation/ improvements _ System changes to extend form processing timeframe _ Solix IVR improvements Form, Letter, Envelope Changes _ Outbound Dialer _ Solix-Carrier data reconciliation/ improvements _ System changes to extend form processing timeframe _ Solix IVR improvements	_ Explore mechanisms for faster/ guaranteed LifeLine mail delivery (2nd contract amendment, contractual flexibility, etc.) _ Audit Solix contract compliance
Outreach to Customers	_ Provide materials to CBOs and governmental agencies _ Require one-time carrier reminder to existing LifeLine customers _ Develop on-going carrier reminders to new LifeLine customers	_ LifeLine re-branding effort _ Expanded CBO Outreach _ Enhanced efforts to enroll "hard to reach" applicants
Solix-Carrier Data Interface Improvements	_ Implement form processing improvements _ Implement Solix system/ database corrections	_ Monthly forum to resolve data interface issues (more accurate carrier data, expanded Solix data capacity, etc.)
Customer-Carrier Interface Improvements	_ Implement customer billing improvements _ Implement collaborative changes to expedite appeals/ complaints	_ Monthly forum to discuss issues and identify improvements
Other Solutions	_ Continue regular meetings of the Implementation Working Group and the Marketing Working Group _ Boost CPUC internal resources _ Assigned Commissioner will hold All-Party meetings if necessary _ Continue regular staff meetings with Assigned Commissioner	_ Review unscannable customer mail _ Refine customer response improvements _ Fast track examination of possible new customer pre-qualification via Phase II of current docket _ Move forward with plans for web-based enrollment _ Examine other state solutions (i.e. automated enrollment, digital verification, etc.) _ Review synergies w/ other CPUC low income programs _ Review additional CPUC staffing and streamlining appeal/ complaint process

II. Program History and Description

Below is a brief description of the history of the California LifeLine Program and how the program functions.

a. California LifeLine Program Prior to Federal Changes

Pursuant to the Moore Universal Telephone Service Act of 1983, the Commission established the first explicit universal service policy for California through Decision (D.) 84-11-028 in 1984.¹³ "The [Moore] Act has been, and continues to be, an important means for achieving a universal service by making basic residential telephone service affordable to low-income citizens through the creation of a lifeline class of service."¹⁴ LifeLine subsidizes basic landline service for low-income households and is a means to achieve universal service by providing affordable residential telephone service to low-income households. Surcharges on the billed intrastate services of non LifeLine telephone customers fund the program¹⁵.

Program Rates and Services

Current California LifeLine monthly rates are $5.34 for a flat-rate service,¹⁶ $2.85 for a measured-rate service, and $10.00 for service connection and $10.00 for service conversion.¹⁷ Each qualified low-income customer and members of the customer's household collectively may have only one California LifeLine telephone line.¹⁸ A low-income household with a disabled member using a text-telephone device is eligible for an additional California LifeLine telephone line.¹⁹ The Commission requires all carriers providing residential wireline telephone services to provide basic LifeLine service²⁰.

Program Enrollment, Certification, Recertification, and Verification

Until July 1, 2006, the California LifeLine program operated as follows. Customers whose total household income met income limits set annually by the Commission were eligible for LifeLine service²¹. California law required telecommunication carriers to inform new customers calling to establish residential local telephone service about the availability of LifeLine, including the availability of two LifeLine telephone lines for qualified disabled persons.

Carriers informed interested customers about income eligibility criteria. If the customer verbally certified that he or she was eligible, then the utility enrolled the customer into the LifeLine program immediately and sent the customer a self-certification form. Customers were required to return the signed form within 30 days of provisionally being admitted into the program in order to retain their eligibility. The carriers had the option but were not required to verify each customer's eligibility.²² If the carrier determined that the customer was ineligible to participate in the program, then the carrier removed the customer from the LifeLine program and charged the customer for previous LifeLine related discounts that the customer should not have received²³. Annually, each carrier sent all of its residential customers a self-recertification form to confirm continued program eligibility.

In short, customers undertook their own income eligibility by filling out self certification and annual recertification forms; carriers were not required to verify customers' eligibility.

Program Funding

From its inception in 1984 through 1997, California telephone customers primarily funded the California LifeLine program.²⁴ In 1997, the FCC revised its Lifeline/Link-Up Program²⁵ and established a 4-tier support structure for Eligible Telecommunications Carriers (ETCs).²⁶

The table below shows federal and state of California support for the California LifeLine program from 2001 to 2005²⁷.

In D.96-10-066, the Commission allowed Competitive Local Exchange Carriers (CLECs) to begin to participate in the California LifeLine program in a competitively neutral manner. For the Lifeline/Link-Up programs, the FCC continues to limit the federal support to ETCs. ²⁹ Since the FCC does not permit non-ETCs to participate in the federal Lifeline/Link-Up program, the California LifeLine program wholly funds non-ETCs' low-income customers in California. In 2005, nearly 3.5 million customers were enrolled in the California LifeLine program and were served by 36 carriers. Of these carriers, 22 were Incumbent Local Exchange Carriers (ILECs) which were also ETCs and one was a CLEC that was designated as an ETC.³⁰ The remainder were non -ETC CLECs. The table below depicts the average monthly number of customers served and the amount of financial support received by ETCs and non-ETCs in 2005:

	Number of California Life Line Customers	Amount of Federal Support	Amount of California LifeLine Support	Total Support/ Customer/Mo.
ETCs	3,253,069	$304,520,000	$207,664,000	$13.12
Non-ETC	230,375	$0	$ 43,686,000	$15.80
Total	3,483,444	$304,520,000.00	$251,350,000.00

¹ This program is also known as the Universal LifeLine Telephone Service (ULTS) program.

² Chapter 4, Article 8 of the PU Code, also known as the Moore Universal Telephone Service Act, requires the Commission to implement a lifeline telephone service to meet minimum residential communications needs. Minimum residential communications needs include, but are not limited to, the ability to originate and receive calls and the ability to access electronic information services.

³ The Commission reviews and adopts annual income limits for the LifeLine Program.

⁴ Source: http://www.dhs.ca.gov/ cdic/CPNS/research/download/binder_03/ Below130%FPLand185%FPL03.pdf Staff utilized a Department of Health Services (DHS) survey to estimate how many Californians could qualify for LifeLine. The DHS survey includes the estimated number of Californians with incomes of less than 130% and of less than 185% of the poverty level (per the year 2000 census). Given increases in the population and federal poverty level since the 2000 census, Staff is seeking to refine the estimate of potentially eligible LifeLine customers.

⁵ The FCC requires all telephone carriers to contribute to the Federal Universal Service Fund. The FCC permits carriers to recover this contribution through a customer surcharge.

⁶ The Commission requires all California carriers to contribute to the state LifeLine program. The carriers recover this contribution through a customer surcharge on all intrastate billing. The Commission reviews and approves the surcharge on a regular basis.

⁷ FCC Lifeline and Link-Up Report and Order and Further Notice of Proposed Rulemaking, WC Docket No. 03-109, FCC 04-87 (released April 29, 2004.)

⁸ For a list of the approved assistance programs see Attachment 3 of this report.

⁹ This data is based on invoices from the Certifying Agent to the Commission for administration of LifeLine processes.

¹⁰ Id.

¹¹ GO 153 provides carriers and CertA with explicit responsibilities in its implementation of LifeLine.

¹² Commission Decision (D.) 06-11-017 ratified the November 1, 2006 ACR.

¹³ Although it began to address such issues in 1979 during the first phase of the Deaf and Disabled Telephone Program, the Commission had never formally adopted a universal service policy prior to D.84-11-028.

¹⁴ California PU Code Section 871(b). Added by Stats. 1987, ch. 163, Sec. 2. Effective July 16, 1987.

¹⁵ D.06-08-030 allows the basic rate cap to be lifted on January 1, 2009. There may be some resulting impact on LifeLine funding after that change.

¹⁶ The LifeLine customer does not pay the end-user common line (EUCL) charge, which is paid by the LifeLine program at the ILEC rate to the customer's carrier. The current AT&T California EUCL is $4.38 and residential flat-rate service is $10.69. The current Verizon rates are $6.50 and $17.05, respectively.

¹⁷ California LifeLine rates are established in accordance with PU Code § 874, i.e. not more than 50% of AT&T California's rates for flat-rate service, measured-rate and service connection.

¹⁸ GO 153, Section 5.1.2.

¹⁹ GO 153, Section 5.1.5.

²⁰ PU Code Section 876 states that "the Commission shall require every telephone corporation providing telephone service within a service area to file a schedule of rates and charges providing a class of lifeline telephone service."

²¹ GO 153, Section 5.1.3.

²² GO 153, Section 4.1.1.2.

²³ Ibid.

²⁴ Prior to 1998, the federal Lifeline program provided two assistance plans. Both plans required state support that matched or exceeded the federal contributions. Plan 1 allowed states where subscribers' qualifications were "subject to verification" to receive a federal contribution equal to one half of the $3.50 EUCL. Plan 2 allowed states where subscribers' qualifications were "verified" to receive Plan 1 support and an additional federal contribution toward customers' rate reduction that equaled one half of the EUCL charge. Of the 44 states participating in the federal program, California was the only state receiving federal support under Plan 1.

²⁵ FCC Report and Order, FCC 97-157, In the Matter of Federal-State Joint Board on Universal Service (CC Docket No. 96-45).

²⁶ Pursuant to § 54.401 of Title 47 of the Code of Federal Regulations.

²⁷ Federal data was extracted from latest FCC report: "Trends in Telephony Service", Table 19.11, February 2007. California data are reported by participating LifeLine carriers.

²⁸ Based on the latest released federal data, which is for 2005.

²⁹ FCC 04-87, Paragraph 54. Only an "eligible telecommunications carrier" or "ETC" may receive Federal universal service support. 47 U.S.C.254 (e). ETC requirements are specified in 47 U.S.C. 214 (e). States designate which carriers in their states meet the requirements of 47 U.S.C. 214 (e) and are thus eligible to receive federal universal service support.

³⁰ The CPUC approved the ETC designation of AT&T Communications of California (AT&T) as a CLEC (U 5002-C), on May 26, 2005 in Resolution T-16909. As of March 1, 2006, other non-ILECs that have received ETC designation include: MPower Communications Corp, a CLEC; Sprint PCS, a PCS provider; and Western Wireless, a cellular service provider. However, only AT&T provides California LifeLine and receives federal Life Line/Link-Up support.