U.S. Phone Subsidies Abuse: Millions Can't Prove Eligibility

By Alexandra Burlacu | Feb 13, 2013 09:31 AM EST

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The U.S. has spent roughly $2.2 billion on subsidized phones in 2012 as part of its Lifeline program, and millions are using the system.

The Lifeline program aims to help low-income Americans get a mobile phone, but new research has found that millions of people have exploited the scheme without being able to prove eligibility. The program started in 1984 and draws funding from charges included in the monthly bills of every landline and wireless-phone customer.

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The Federal Communication Commission (FCC) tightened regulations last year amid concerns that carriers were not properly checking participants' eligibility, and required carriers to conduct stricter scrutiny. The FCC expected about 15 percent of users to be weeded out from the program, but it turned out far more people were not eligible. New research, however, suggests that a significant portion of those currently benefiting from Lifeline are still improperly taking advantage of the service.

The Wall Street Journal (WSJ) conducted a review of the program and found that 41 percent of the six million people who benefited from Lifeline could not prove their eligibility or failed to answer their carrier's requests for verification.

Mobile phone subscribers pay roughly $2.50 per household per month to fund Lifeline and other such subsidized programs. From those funds, carriers get $9.25 per customer each month to offer free or cheap mobile service, reports the WSJ. As more carriers have joined the program over the years, funding for Lifeline has increased as well, but apparent holes in the program have led to significant abuse.

Previously, subscribers did not have to offer any proof of their income level. So-called low-income Americans could continue with the Lifeline program without having to periodically prove their eligibility, and no checks verified how many members of the same household were taking advantage of Lifeline.

As of Jan. 31, 2012, however, the FCC's new Lifeline Reform Order requires Lifeline subscribers to show documentation on their income, and carriers have to verify them every year. Subscribers must also confirm that no one else in their household is benefiting from the program.

As a result, the FCC's Lifeline Year-End Savings Report showed that the new reforms saved nearly $214 million last year, and the agency is expecting even greater savings in 2013 and 2014. Projected savings over the next three years would reach $2 billion, according to the FCC.

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