TerraCom defends sales surge, strategy to state regulators

A TerraCom LLC executive credited the phone company’s improving sales strategies for its ability to set up an eyebrow-raising 30,000 subsidized Indiana accounts in half a year.

Dale Schmick, chief operating officer for the discount service provider, told Indiana utility regulators Wednesday morning that it was experience—not fraudulent tactics—that led to the Indiana sales surge for the 8-year-old, Oklahoma City-based firm.

“As we have grown, we have been able to scale processes and build processes, which has helped us grow quicker along the way,” Schmick testified during a conference with the Indiana Utility Regulatory Commission.

As IBJ first reported in May, the IURC began investigating the phone service provider after it set up 30,000 Indiana accounts in about six months for a federal program.

TerraCom started operating in Indiana in June 2012 and has received $250,000 to $300,000 per month from the federal Lifeline program. The service carrier draws subsidies from the program to provide cheap phone plans to low-income customers.

Regulators are worried TerraCom and its affiliate, YourTel America Inc., may have repeated what they did in their home state of Oklahoma, where they received duplicate reimbursements for individual customers. TerraCom and YourTel settled with the Federal Communications Commission for about $1 million.

The FCC is cracking down on cost overruns in the program nationwide, and Indiana officials have joined the effort.

TerraCom’s Schmick on Wednesday told commissioners the company has refined its approach over eight years of business, allowing it to rapidly launch in new markets.

The Indiana sales spree is on par with many of its competitors both in Indiana and other states, he said.

Schmick walked commissioners through the company’s eight-step process to screen Lifeline applicants to make sure they qualify.

In general, the company sets up tables or tents at charity events, and sales representatives hand out information to attendees. People can apply with sales representatives, who then put the information into a computer system that verifies identification and checks for qualifications. Audits serve as a safety net for catching unqualified applicants.

TerraCom pays bonuses to employees based on the number of qualified accounts they set up, Schmick said, but those employees do not approve applications.

Commissioners questioned Schmick about motives, suggesting that TerraCom could have an incentive to approve unqualified applications so it can collect the reimbursements.

Schmick responded defensively.

“I have a reputation to protect. I have employees to protect. … I take this absolutely seriously,” he said.

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.

Staff from the Indiana Attorney General’s office also attended Wednesday’s hearing because of questions about how well TerraCom is protecting customers’ personal information.

A Scripps News investigation in late May found the company mistakenly released more than 170,000 personal records—including such information as Social Security numbers—prompting questions from the attorney general’s office and adding another dimension to the IURC investigation.

There were no discussions on the security issues before the commission took a break a little before 11 a.m. on Wednesday.