Subsidized Broadband for the Poor? Republicans Balk at FCC Plan

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An illustration shows US President Barack Obama's Twitter page on a laptop in Washington, DC on May 18, 2015.

Photographer: Mandel Ngan/Getty Images

A U.S. regulator’s proposal to subsidize broadband Internet connections for the poor drew praise from Democrats and criticism from at least one Republican senator who cited fraud in the program.

Federal Communications Commission Chairman Tom Wheeler, a Democrat, asked fellow commissioners to broaden the $1.6 billion Lifeline program that now underwrites phone service for low-income individuals to include Internet service. The five-member commission is expected to vote on the plan June 18.

Being unable to afford smartphones puts low-income Americans at a disadvantage for health care, banking and other services, the FCC said Thursday in a news release.

“Why the FCC wants to expand this program before addressing the regular reports of ongoing fraud is beyond me,” Senator David Vitter, the Louisiana Republican who is chairman of the Committee on Small Business and Entrepreneurship, said in an e-mailed statement. “I cannot support any expansion of a program that has so few safeguards in place.”

Vitter’s committee has been investigating the Lifeline program and cited a report from the investigative arm of Congress, the Government Accountability Office, that questioned its efficiency. In April 2014, the Justice Department announced the indictment of three men for defrauding the FCC of about $32 million by submitting false Lifeline claims from September 2009 through March 2011, the GAO said.

‘Phantom Customers’

Companies have requested subsidies for “phantom customers” and received duplicate payments for the same customers, Commissioner Ajit Pai, an FCC Republican, said in a speech last year.

“Simply expanding the program without ensuring its effectiveness or longevity is the wrong approach,” Representative Fred Upton of Michigan, the Republican chairman of the Energy and Commerce Committee, said in an e-mailed statement. The size of the program should be capped, Upton said.

Democrats commended the FCC for trying to bridge the digital divide between rich and poor in the U.S.

Representative Frank Pallone, of New Jersey, said the FCC “is right to be looking at ways” to ensure all Americans can use the Internet. Pallone, the top Democrat on the Energy and Commerce Committee that oversees the FCC, spoke via an e-mailed statement.

Lifeline, which offers a $9.25 monthly subsidy, is supported by fees paid by telephone subscribers. The FCC didn’t say what effect the proposed change may have on those fees -- currently set at 17.4 percent of a portion of monthly bills -- or on the number of program participants.

TracFone Wireless

In 2012, the FCC trimmed the subsidy that powered growth for TracFone Wireless Inc. amid concerns about waste and fraud as wireless companies distributed free handsets. At the time the agency said it was beginning to move toward subsidizing broadband connections.

The changes in 2012 helped reduce spending, and Wheeler wants additional protections against abuse, the FCC said in its news release. Phone companies would no longer ensure customers are eligible for subsidies -- which they do now, inviting fraud -- and the task may pass to a neutral party, the FCC said.

The FCC hasn’t evaluated Lifeline’s effectiveness in ensuring voice service is available for the poor, according to the March GAO report. The program “may be a rather inefficient and costly mechanism to increase telephone subscribership,” the GAO said.

Mobile Broadband

The FCC should recognize that mobile connections can deliver affordable broadband, CTIA-The Wireless Association, a trade group with members including leading providers AT&T Inc. and Verizon Communications Inc., said in a May 26 filing.

Top recipients under the Lifeline program in 2013 were TracFone parent America Movil, which collected $430.3 million, followed by Sprint Corp. at $320 million and AT&T, which received $153.3 million, according to a 2014 report written for the FCC. Verizon was the ninth-biggest recipient with $59 million, according to the report.

Spending on the Lifeline program dropped to $1.6 billion in 2014 from a peak of $2.2 billion in 2012, according to the Universal Service Administrative Co. The Washington-based nonprofit works with states to oversee the subsidies, which are funded by fees on phone customers’ bills.

Fewer Users

The number of Lifeline users dropped to 14.5 million in 2013 from 17.2 billion in the previous year, according to the 2014 FCC report. The number of participants is more than double that of a decade earlier, before mobile phones were made eligible for subsidies in 2005.

The program has continued to attract criticism. Lifeline has a “reputation as one of the most corrupt federal programs in recent memory,” Vitter said in a Feb. 25 letter to Wheeler. Vitter focused on false claims by mobile phone vendors and said the FCC must hold the companies accountable.

Abuses of the program have continued despite reforms such as screening for duplicate subsidies and requiring annual recertification to participate, FCC Commissioner Michael O’Rielly, a Republican, said in a February blog post.

“There is a legitimate debate whether the Lifeline program should be abolished or significantly scaled back rather than expanding,” O’Rielly said in the blog post.

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