FCC Program Foots $1.6 Billion in Cell Phone Bills

In 2011, an FCC program covered the cell phone bills of 12.5 million low-income Americans to the tune of $1.6 billion.

An audit, published January 31 of this year, found that the program, called Lifeline, has had little oversight, resulting in waste, fraud and abuse.

According to the audit, “269,000 wireless Lifeline subscribers were receiving free phones and monthly service from two or more carriers.” Customers could easily get multiple free phones and monthly service because there was no internal database to account for who had already received a phone.

The funds for Lifeline come from a program called the universal service fund, which is mandated to provide advanced telecommunications services to needy areas. All telecommunications providers must pay into the fund based on a percentage of their revenues (average 15-18% – click current rate). Most telecom providers pass the fee on to their customers, listing it on cell phone and landline bills as the USF or Universal Service Fee.

Lifeline surged in popularity over the past few years. In 2008, 7.1 million people used the service and the government paid $772 million. Today, Lifeline’s ranks have swelled by an additional 5 million people, running the FCC’s 2011 bill up to $1.6 billion.

To qualify for Lifeline a person can show that they are participating in another government-assistance program, like food stamps, Medicaid, and SSI. Otherwise a family of four must earn less than $31,118, and a single person must earn less than $15,080.

Those qualifying can get cheap phones (not smartphones) from companies like Miami-based TracFone, which had 3.8 million Lifeline subscribers at the end of 2011. The government pays carriers $10 a month for each subscriber. Customers get free phones and 250 free monthly minutes.

The audit looks to curb the ramped-up spending in the future; it set a “savings target” of $200 million for 2012. To reach this mark, it will create a database that carriers must check to make sure a person is not already using the program before allowing them to get a free phone. Additionally, it will create a one-per-household rule, where household is defined as an “economic unit.”