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February 12, 2013

FCC Cracks Down on Wireless Phone Subsidies,

By Jacqueline Lee, Contributing Writer

In 1984, the U.S. government devised a program called Lifeline to provide discounts on either wireline or wireless phone service to low-income Americans.

Lifeline guarantees that the poor aren’t cut off from family, jobs and emergency services because they can’t afford telephone service. The program is funded by the Universal Service Fund, which appears on everyone’s phone bill. To be eligible, customers have to be on food stamps, welfare, housing assistance, free lunch programs, Medicaid or other government programs.

According to the Federal Communications Commission (FCC (News - Alert)), the federal government spent $819 million on the program in 2008. However, outputs have skyrocketed since the recession as more wireless carriers have begun to offer the service.

The discount off of monthly service isn’t much: about $9.25 per month. However, carriers use the subsidy to extend service to low-income households at whatever they deem to be an affordable price. Lifeline opens up an untapped customer base to wireless carriers in a market that is highly saturated.

Until now, the FCC hasn’t required carriers to verify customer eligibility for Lifeline. Last year, the FCC decided to tighten the rules and ask for eligibility checks from carriers. The agency expected carriers to drop 15 percent of their Lifeline customers from the program.

An analysis from The Wall Street Journal found that the top five carriers who received Lifeline subsidies dropped 41 percent of subscribers from the program. The customers who were dropped either couldn’t prove eligibility or didn’t answer requests for documentation.

The FCC says it is conducting a probe of carriers who provided Lifeline subsidies without verifying eligibility. The fine for each violation is $150,000 each day or a maximum of $1.5 million.

The old rules for Lifeline allowed subscribers to self-certify that they received benefits, and the FCC didn’t require subscribers to renew their eligibility. “The program rules we inherited were designed for the age of the rotary phone and failed to protect the program from abuse,” stated Julian Genachowski, FCC Chairman.

Last year, the FCC saved $214 million in subsidies after carriers thinned their rolls. By the three-year mark, they expect to save $3 billion.

Edited by Brooke Neuman
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