Changes in phone giveaway to save $2B

FCC overhaul follows finding that 26,000 Ohioans abuse program.

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12:25 AM Monday, February 6, 2012

By Josh Sweigart

Staff Writer

Addressing allegations of widespread abuse, the Federal Communications Commission has approved an overhaul of a program that provides free cellphones to low-income households.

This follows reports in the JournalNews and other newspapers about problems in the program in which people improperly acquired more than one phone.

The JournalNews found more than 26,000 Ohioans had more than one free phone through the program.

In the wake of those reports, an enforcement effort finished in January cut off duplicate service to 269,000 people nationwide who had two or three phones.

Ending those subsidies is expected to save $2.9 million a year in Ohio alone. And the adopted reforms are forecast to save $200 million nationwide this year and $2 billion over three years.

“That is a lot of money in the pockets of American consumers who otherwise would have been contributing into a program that was wasting funds on duplicative benefits,” said FCC Chairman Julius Genachowski.

The program is paid for with fees mandated by the government and tacked onto most cellphone and home phone bills, often listed as the Universal Service fee. It is redistributed to phone companies that provide free or discounted service to low-income residents.

A JournalNews investigation found the decades-old program to subsidize home phones for the poor ballooned in 2005 when prepaid cellphones were added.

The number of prepaid companies offering service in Ohio grew to four last year — with four more seeking approval — all courting the same population of eligible, low-income subscribers.

Enrollment in Ohio grew from 280,000 in 2008 to nearly 600,000 last year and the cost of the program grew from $30.4 million in 2008 to $58.9 million in 2010, the JournalNews found.

The FCC will create a national database to prevent multiple cellphone providers from serving the same household. It’s also creating a second database to help verify eligibility for the program.

To qualify for the program, someone must be enrolled in one of numerous federal programs — such as Medicaid, food stamps or Section 8 housing — or make below 150 percent of the federal poverty level, which is $33,525 for a family of four.

Revenue for some wireless companies in the program continues to grow, according to data reported to the FCC and analyzed by the JournalNews.

ReachOut Wireless from Nexus Communications began reporting revenue in November and took in $2.7 million in Ohio in January. Leader TracFone, which markets the SafeLink phone, had its revenues under the program inch up slightly to $3.5 million in January.

Virgin Mobile’s Assurance saw its revenues dip slightly to $1.5 million in January.

Tuesday’s FCC vote also set the stage to adopt a budget for the $1.6 billion federal program for the first time. Since its creation, the size of the fund — including home phones and cellphones — has been dictated by demand, which has doubled in a decade.

FCC Commissioner Mignon Clyburn would not guarantee she would support a budget, citing concerns of limiting “a lifeline for millions of low-income consumers who could not otherwise afford telephone service.”

And the third FCC commissioner, Robert McDowell, expressed misgivings about a provision in the plan allocating savings to extend broadband adoption to all low-income areas.

The plan calls for using up to $25 million to fund a series of pilot projects to find ways to increase broadband Internet service.

Ohio Rep. Bob Latta, R-Bowling Green, sits on a committee that oversees the FCC and expressed mixed feelings on the measure.

“This proposal will help find and eliminate waste, fraud and abuse in the program,” Latta said, adding he has “concerns about the potentially expanding cost of the broadband pilot program.”

Some groups, such as Citizens Against Government Waste, have called for the elimination of the program.

Phones continued on A4

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