‘Obama Phones’ and ‘Wilson Phones’

Most Americans probably don’t notice the universal service fee on their monthly phone bills, or have any idea what it pays for if they do. But as Charlie noted last year, the fee actually goes to pay their neighbors’ phone bills.

The Universal Service Fund was set up as part of the 1996 Telecommunications Act in order to ensure that low-income consumers have access to telephone service at “just, reasonable and affordable” rates. The Universal Service Administrative Company administers “Lifeline” (an already-existing program from the Reagan era that was expanded under the 1996 act), which provides a subsidy of at least $9.25 per month toward landline or — since 2005 — wireless service for eligible recipients.

The expansion of the program to include cell phones helped drive its ballooning costs in recent years, with payouts going from $819 million in 2008 to $2.2 billion last year.

To qualify for the benefit, one’s income must be 135 percent of the poverty level or less, or one must be enrolled in food stamps, Medicaid, or a number of other federal welfare programs. Only one member per household can receive the subsidy. That’s the theory, anyway.

According the Wall Street Journal, millions of people have successfully claimed Lifeline subsides for which they were likely ineligible:

A review of five top recipients of Lifeline support conducted by the FCC for the Journal showed that 41% of their more than six million subscribers either couldn’t demonstrate their eligibility or didn’t respond to requests for certification. . . .

The FCC until last year allowed consumers to self-certify, without requiring documentation, that they met federal poverty guidelines. Subscribers didn’t have to recertify once they were enrolled in the program, and there were few checks on whether households signed up for more than one cellphone.

If it seems incredible that virtually no proof of qualification would be required from someone seeking a free or discounted cell-phone plan, consider that the companies offering the subsidized service had incentives to sign up as many people as possible, regardless of eligibility:

For the carriers, the program is a chance for them to sign up more subscribers and make a small profit, plus more money if customers go over their small initial allotment and need to buy more minutes or text messages. Carriers can set prices for their Lifeline subscribers as the companies wish.

Since an audit of the program last year exposed the abuse, the FCC has taken some steps to try to crack down. They’ve begun to require that customers provide documentation and that carriers check their eligibility on a social-service database, though it’s not clear how they’ll prevent multiple people in the same household from taking advantage of the subsidies.

A Factcheck.org piece in 2009 debunked the notion that free pre-paid cell phones offered by one carrier under the program were “Obama phones” by explaining that the goal of “universal service” actually had its roots in legislation passed by FDR that was influenced by a deal between telecommunications companies and President Wilson. It concluded with the tongue-in-cheek suggestion that they be called “Wilson Phones” instead. That’s not such a bad idea: It nicely sumps up the notion that whatever the initial justification for any government program, it’s pretty likely to morph over the course of 100 years into a multi-billion-dollar boondoggle with a tenuous connection to its original purpose. 

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