NCPA - National Center for Policy Analysis

Millions Defraud Federal Phone Subsidy Program

February 15, 2013

The Lifeline program, which began in 1984, provides phones to low-income Americans and ensures that the poor aren't cut off from jobs, families and emergency services. The program is funded by charges that appear on the monthly bills of every landline and wireless phone customer, amounting to a roughly $2.50 a month per household fee to fund subsidized communication programs. However, the program is plagued with fraud and is poorly regulated, says the Wall Street Journal.

  • With payments shooting up from $819 million in 2008 to $2.2 billion last year, the Federal Communications Commission (FCC) tightened the rules in 2012 and mandated that carriers must determine eligibility.
  • The FCC expected the tight regulations to rule out 15 percent of users.
  • An audit of the top five Lifeline carriers reveals that 41 percent of its 6 million subscribers could not demonstrate eligibility or did not respond.
  • Accounting for 34 percent of Lifeline subscribers, the top five carriers, AT&T, Telrite Corp., Tag Mobile USA, Verizon and Virgin Mobile provide phones to people who meet federal poverty guidelines or are on food stamps, Medicaid or other assistance programs, and only one Lifeline subscriber is allowed per household.

Carriers have convinced the program to cover cell phones and receive a $9.25 per customer every month to provide free or discounted wireless service.  While the new rules require that carriers certify to the FCC that subscribers are eligible, complying with the new requirements has proven troublesome for the carriers who cannot verify eligibility because too many subscribers would not respond or were previously allowed to self-certify their eligibility.

  • Carriers who violate the rules are subject to a $150,000 fine for each violation for each day of a continuing violation, up to a maximum of $1.5 million.
  • The absence of a master database also makes it difficult to track whether more than one phone has been issued per household.

With new verification measures in place, the FCC says that nearly $214 million was saved last year alone with an expected $2 billion in savings coming in the next three years.

Source: Spencer Ante, "Millions Improperly Claimed U.S. Phone Subsidies," Wall Street Journal, February 11, 2013.


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