Magazine | March 11, 2013, Issue

Life, Liberty, and a Free Phone

Against the Uncle Sam cell plan

If you find yourself at a loose end today, take a moment and have a quick look at your latest phone bill. Among the various taxes, surcharges, and fees that clog up the second page, you’ll find something called a “Universal Service Fund” contribution. This suspicious, well-disguised little levy was quietly introduced in the Telecommunications Act of 1996. And you’ll never guess what it’s for.

Well, congratulations are in order: You’re paying someone else’s phone bill! Turns out that any American citizen who is on welfare, food stamps, or Medicaid — or whose income is less than 135 percent of the federal poverty line — is entitled to a free landline or cell phone on your dime. For those who qualify, the program, rather misleadingly called “Lifeline,” will pay for a $30 wireless phone or pick up the costs associated with a landline installation. Then it will pay the bills to the tune of $9.25 a month, which is equivalent to 250 minutes of talk time. As of 2011, 13.7 million accounts had been registered.

Lifeline is run by a private non-profit organization called the Universal Service Administrative Company, which is overseen by the Federal Communications Commission — although I use “overseen” here loosely. Lifeline is a promising contender for the Worst Government Program in America. An FCC audit in 2011 revealed that 400,000 of the program’s wireless subscribers illegally possessed more than one connection and that 41 percent of Lifeline’s cell-phone subscribers either were unable to demonstrate that they were eligible for the program or, worse, had failed completely to respond to certification requests. This was hardly surprising given that, until 2011, the FCC allowed consumers to self-certify and did not see fit to require repeat customers to show that they remained eligible. Astonishingly, it took an inquiry ordered by Senator Claire McCaskill (D., Mo.) for the FCC to confess that, 15 years in, they hadn’t yet got around to building a database. The private companies that provided the phones and the service, happy with the influx of business, apparently kept quiet.

Nowadays, the phones are everywhere. In 2010, a Baltimore woman told Fox News, “I have six in my purse now,”and “at home I know I have about 30 — and all of them are on.” It had been easy to get hold of them, she said. She just went to one of the many vans that regularly roam the city. “I could go to the same van tomorrow and get another phone,” she added nonchalantly. The whole process takes just “five, ten minutes.” It is so easy, alas, that drug dealers have been buying them up, as have anonymous users of eBay and Craigslist. And the supplies keep coming: Mark Henry, who contributes to a website documenting the program, observed that “the audit of just one company in Florida and Tennessee rooted out so many cases of fraud that it was determined that the [cell] company had been overpaid by $1.1 million in just a two-month period.”

Cell-phone companies are as much the villain as is the FCC. Sensing an easy opportunity to expand their profits (providers are paid at retail rates), a number of businesses have jumped avariciously on the bandwagon. The Internet is chock-full of job opportunities for phone distributors. “Get Paid To Pass Out Free Government Cellphones,” says one advertisement, placed by TerraCom Wireless/Treble Enterprises. “Field Agents are paid up to $5.00 for each active phone given to a valid customer. . . . Average monthly commissions are around $2,000.” SafeLink (owned by Carlos Slim, one of the world’s richest men), Assurance Wireless (owned by the Virgin group), and ReachOut Wireless (owned by Nexus) run identical schemes. In total, 14 private companies have got into the game, many sending vans around the poorer areas of America’s cities and encouraging their employees to sign up as many people as possible. A whole industry has sprung up around Lifeline, supported by a host of private websites that provide information about the program. “There are no monthly bills, no long-term contracts, no activation fees, no recurring fees and no surcharges!” one site,, excitedly explains. “Lifelinerates are the same for all calls no matter where you are!” it continues. Would that paying customers could get such deals at such prices.

#page# The program’s private service providers eagerly sell extras to users. For an additional $20 per month, Assurance Wireless’s “customers” can upgrade their plan to include 1,000 voice minutes and 1,000 domestic messages, including texts, instant messages, and e-mails. Virgin’s prepay cards are accepted, too. SafeLink and ReachOut, meanwhile, offer a wide array of options that can be purchased via national services such as Moneygram or in a host of Main Street stores. It has never been explained to critics how consumers who ostensibly can’t pay $9.25 per month for their basic services are nonetheless able to afford maximum minutes and other add-ons. Nor has anyone so much as adumbrated how recent expansions of Lifeline’s offering can be squared with its remit, which is to provide connectivity to the poor in emergencies.

Lifeline’s defenders bristle at such criticisms, charging that opposition is based on hatred of the poor or even, as the editor of the New York Times’ editorial page claimed, a revival of “the Southern Strategy.” To anyone who has been following Lifeline’s inflation, it is abundantly clear that the federal government has transmuted a law that was passed to ensure solid telecommunications infrastructure and to help the genuinely poor with the costs of a landline phone into yet another program that takes money from one group and gives it to another.

Some vehemently deny that the Universal Service Fund fee is a tax.In its “investigation” into complaints, the ludicrously named concluded that “the program is funded by telecom companies, not by taxes.” But this makes little sense. That a tax is levied on telecom companies and not directly on their customers does not make it any less of a tax. Like other businesses, telecom companies pass their costs on to their consumers. America’s cell-phone providers do so openly, identifying as such the USF fees that on average cost each household $2.75 per month. We might say, then, that the Universal Service Fund fee is a government levy that all users of a particular service end up paying, and which is then spent by the government on people and programs of its choice. In other words: It’s a tax.

Not entirely fairly, the program has picked up the moniker “Obamaphones.” A video that went viral during election season featured a woman praising Obama for the program. “Keep Obama in president. . . . He gave us a phone,” she beseeched viewers. “He gave us a phone, he gonna do more.” Not quite, no. That the addition of cell phones to Lifeline’s offering took place near the end of the Bush administration, just months before Obama took office, is a coincidence, and the laws that serve as the program’s foundations were written long before the president was even born. But as more and more people have been added to the welfare rolls, more and more people have become eligible for the benefits associated with that status — and they have signed up in record numbers.

Consequently, the cost of Lifeline has expanded inexorably under Obama — from $772 million in 2008 to $2.2 billion in 2012. Public knowledge about the scheme has increased significantly, too. A well-designed website,, explains in detail how to get hold of what it describes as a “free Obama phone.” Its home page, which features a photograph of Barack Obama making a phone shape with his hand, describes the program as being “designed to assist less fortunate Americans who cannot afford access to a cell phone.” A disclaimer on the bottom explains that the website is independently run and that “Obamaphone” is a misnomer. But it would be easy to miss, as would similar disclaimers on other sites, such as And the administration’s advertising the program by direct mail cannot have hurt subscription numbers.

Efforts to bring an end to the wireless component of the Lifeline program have proved futile. Representative Tim Griffin (R., Ark.) has made abuse of Lifeline his pet cause, pushing the spotlight onto its absurdities and introducing the Stop Taxpayer Funded Cell Phones Act of 2011, which would restore the program to its original intent — subsidizing landlines for houses in poor or remote areas. This bill languished in the House Committee on Energy and Commerce and died with the 112th Congress. It was reintroduced as H.R. 176 in January. According to, it has a 3 percent chance of “getting past committee” and a 1 percent chance of being enacted.

’Twas ever thus.Anyone looking for fine examples of the immortal nature of lousy government initiatives might start with telephone taxes. The first was passed in 1898 to fund the Spanish–American War, and it stayed on the books in various forms until 2006, despite that conflict’s having ended in the same year it started. The Lifeline program has its roots in legislation spearheaded by the Wilson administration in 1913, expanded by FDR in 1934, and modernized by Bill Clinton in 1996. Nothing, it appears, can stop its growth.

The advent of cheap wireless communication and the invention of the Internet have largely made anachronisms of early-20th-century fears that remote areas would be underserved by expensive phone lines and that their inhabitants would find themselves cut off from society. But rather than undermine the case for FCC involvement, this explosion of technology has tethered many even closer to the state.

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