Obamaphones: Corporate Welfare Gone Mobile
A group of well-connected Obamaphone advocates have launched a campaign in Washington, D.C., determined to preserve the notoriously wasteful free phone handout, described by Senator McCaskill (D-MO) as, “one of the most fraud-infested programs ever conceived in the federal government."
The Lifeline Program, the official name for Obamaphones, pays companies that enroll eligible low-income consumers $9.25 per month per subscriber and $34.25 per subscriber on tribal lands. Obamaphones are financed from a fee found on phone bills, which goes into a fund operated by a nonprofit under the auspices of the Federal Communications Commission. A total of $7.7 billion collected from 2009 to 2013 was disbursed to corporations for free phones and discounted phone bills. The peak year was 2012, with $2.1 billion.
Proponents of the Obamaphone christened their organization "The Prepaid Wireless Users of America" (PWUA). Barry Bennett, chief executive of PWUA, will not disclose the group’s donors, saying, “I’m not going to give you the list [of funders] because a lot of them haven’t given permission.”
The group recently posted a promotional video aimed at members of Congress who are critical of the free phone giveaways.
The video opens by introducing a veteran diagnosed with cancer, while a voice-over alleges that “some in Congress want to take away his phone.”
Translation: if representatives want to reform Lifeline, they are callously indifferent to the needs of elderly veterans, and would throw them under the proverbial bus if it meant saving tax dollars.
Recipients of free phones are not the ones with the most to lose if Lifeline is cut. The true beneficiaries are politically-engaged telecom corporations which are gaining billions from this "welfare" program.
TracFone Wireless is the largest Obamaphone vendor in the country, and its parent company, Mexico-based América Móvil, claimed $459 million Lifeline dollars in 2012, over one-fifth of all benefits issued. TracFone’s paltry $4.5 million fine in 2013 for signing up ineligible consumers did not even constitute 1 percent of TracFone's Lifeline benefits. TracFone paid nearly $1 million in lobbying in 2013 and formed a political action committee in April 2014.
TracFone pioneered free wireless plans when the FCC approved its petition to become an eligible Lifeline provider six years ago, paving the way for a flood of companies petitioning for similar Lifeline provider status. Waste, fraud, and abuse skyrocketed, along with the program’s cost and enrollment. Julie Veach, the FCC Wireline Competition Bureau Chief, admitted that "[t]he program rules we inherited were designed for the age of the rotary phone and failed to protect the program from abuse."
A Wall Street Journal investigation found that of the top five corporate recipients of Lifeline funds, 41 percent of their subscribers, over 6 million people, could not prove their eligibility for the Lifeline program or ignored certification requests in 2012.
Criminal activities by individuals and corporations have plagued Lifeline for years. Undercover investigations revealed that free phones are frequently steeped in a gritty reality:
• Hundreds of St. Louis residents were mystified upon discovering unwanted phones delivered to their mailboxes, only to find that an Lifeline contractor signed up people at random for free phones, reported Chris Naglos.
• A hidden camera investigation by James O’Keefe captured prospective Obamaphone recipients informing vendors of their plans to sell the phones for heroin, Louis Vuitton handbags, and shoes. The vendors did not care.
• KMOV News 4 filmed customers lining up to a parked car on the streets of St. Louis, handing a man payment as he passed them plastic bags containing Obamaphones. Many customers admitted to having as many as four free phones.
• Oklahoma’s Own News on 6 revealed that an Obamaphone vendor on a cigarette break told an undercover journalist "he would 'make it happen'" and gave him a free phone. No proof of eligibility or ID required.
Not even members of the U.S. Senate are immune from being shamelessly courted by Obamaphone dealers. Senator Claire McCaskill was solicited for a free phone in 2011. “The FCC’s failures in oversight are unacceptable and inexplicable,” McCaskill wrote in a Sept. 2013, letter to the FCC, pointing out that “the FCC cannot allow Lifeline providers in the program to perpetuate fraud, waste and abuse of taxpayer dollars with impunity.”
With billions of dollars at stake, telecom companies must attract and retain as many eligible recipients as possible to maximize their Lifeline funds. This does not mean simply offering a basic free phone: these days, customers can expect text, data, and rollover plans to be offered at a minimum when choosing their Lifeline provider.
There is no incentive to transition a Lifeline recipient off of the program, and companies are making welfare more enticing by continuously improving phone plans. Meanwhile, corporations continue to reap massive profits at taxpayer expense.
Some telecom companies are mobilizing political marketing machines in Washington to silence discussion on eliminating Lifeline, which has grown into a billion-dollar fiasco. Lifeline has been used as a corporate welfare fund for years while masquerading as an aid program for the poor. It is far from heartless for politicians to oppose it.
Matthew Sabas is a contributor to Economics21.
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