Universal Service Fund or Fraud? Inflated costs leads to $6.5 million settlement.
What is the Universal Service Fund?
The United Nations considers access to the internet to be a human right. The United States has taken steps to ensure that everyone, regardless of geography has access to the internet.
It’s easy to provide broadband access in cities because of the density. Lay down some cables and hundreds or thousands of people can get online. The situation is a little different in rural areas. When the cost of laying cables can be between up to $24 per foot, it can cost tens of millions to reach rural areas. Because those rural areas serve only a few people, it may not be economically viable for private companies to make that investment.
In comes the Universal Service Fund (“USF”). The Universal Service Fund is a program administered by the Federal Communications Commission (FCC). Its primary purpose is to ensure †that all Americans, regardless of their location, have access to essential telecommunications services. The USF aims to make communication services more affordable and accessible, particularly for underserved areas and populations.
A key program for the USF is the high-cost program. No, this does not mean companies can pass high costs off to the FCC. It’s a program that provides subsidies to telecommunications companies to help them offer affordable service in rural and remote areas where it would otherwise be too expensive to provide service.
The scheme
The scheme here was simple. Allegedly, five incumbent local exchange carriers (“ILECs”) owned by Armstrong “failed to comply with FCC regulations that governed what costs they were allowed to report for purposes of claiming subsidy payments from the government, and as a result these companies received greater subsidy payments than those to which they were entitled.”
In other words, Armstrong supposedly applied to get reimbursed for costs that they were not allowed to claim reimbursement for. Sure, the costs for providing broadband internet to rural areas are high, but they’re not that high.
The penalty
Armstrong will pay $6.5 million to resolve the allegations.
The whistleblowers
James Ranko, Armstrong’s former controller, tipped off the government about this misconduct. He will receive $1,267,500 as his share of the recovery.
Under the qui tam provision of the False Claims Act, a private party (also referred to as a whistleblower or relator) may file an action on behalf of the United States and receive a portion of the recovery, typically between 15-30%.
If you think you’ve observed fraud or misconduct, we can evaluate your options. Vivek Kothari is a former federal prosecutor who represents whistleblowers. For a free consultation, contact Vivek by email, phone, Signal, or fill out the contact form.