FCC Cracks Down on Fraud By 'Obamaphone' Providers

Monday, 25 Nov 2013 06:24 PM

By Cheryl K. Chumley

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The Federal Communications Commission is cracking down on companies for abusing the Lifeline program, the government phone giveaway that's been derided as the "Obamaphone" plan.

The FCC has proposed nearly $33 million in fines this month against three companies, after action in October in which it levied $14.4 million in fines against five Lifeline providers.

The FCC said that "the companies apparently violated the FCC's rules limiting Lifeline subscriptions to one subscriber per household, and received payments for thousands of consumers that already were obtaining Lifeline services from the same company. This duplicate support is expressly prohibited by federal law."

The larger issue is why the taxpayer-funded program — so riddled with waste and prone to easy abuse — is allowed to continue.

Tom Fitton, president of Judicial Watch, the nonprofit government and legal watchdog, called it an archaic program that's outlived its need.

"It's from a bygone era, and doesn't have much relevance anymore," he said. "It's gone the way of the dinosaur."

Scott Amey, general counsel for the nonpartisan Project on Government Oversight, said, "The FCC's proposed fines are a step forward in the troubled program."

"More needs to be done to ensure that the program isn't subject to waste or fraud, especially when verifying that all Lifeline phone program subscribers are genuine and eligible," Amey said.

The Lifeline program began in 1985 under President Ronald Reagan. It was intended to provide low-income Americans with low-cost telephone service in their homes for emergency purposes. Ten years later, the landline program expanded to include cellular service.

Funding has expanded as well. The Government Accountability Office reported in October 2010 that program expenses went from $802 million for the years 2005-08 to $1 billion in 2009. The number of program participants similarly exploded, from 6.9 million to 7.1 million between 2005 and 2008 to 8.6 million in 2009, the GAO reported.

"The low-income program has no funding cap," the GAO said. And because of the expansion to cellular service, and the accompanying giveaway of cellphones plus phone minutes, the GAO predicted costs would continue to rise.

The GAO was correct. By 2012, taxpayers were footing a $2.2 billion free phone service bill.

The FCC, facing pressure from program critics, agreed to investigate and crack down on service providers who abused the system. The agency also tightened regulations, putting in writing a stipulation that companies had to better vet applicants and make sure their homes weren't already receiving the service.

Then came the "Obamaphone" YouTube video, which went viral. Made in September 2012 at a Cleveland protest against presidential candidate Mitt Romney, it included an interview with an unnamed woman who explained how Obama "gave us a phone," and if he was re-elected, "he gonna do more."

How did Obama provide the phones? "You sign up," she said in the video. "If you on food stamps, you on Social Security, you got low income, you disability," you get the service.

In March, members of the House Oversight and Government Reform Committee wrote a letter to then FCC Chairman Julius Genachowski expressing concern over the growing fraud in the program.

"We are writing in regards to the growth, waste and abuse that has occurred" in the Lifeline program. "Since the American people ultimately pay for the program through a surcharge on their phone bills, and because many of those footing the bill face their own challenges in this economy, we want to make sure ratepayer funds are being spent wisely," the congressmen wrote.

In September, media reports contained news of further Lifeline abuse: Dozens claimed their signatures had been forged on applications to the program. A Scripps News investigation found that at least 50 people complained about their names being falsely submitted to Lifeline service providers by workers with Lifeline contract companies.

"Reforms put in place two years ago don't seem to be doing much,” said Fitton, of Judicial Watch.

The three companies facing fines in the latest enforcement action are Conexion Wireless, i-Wireless, and True Wireless. Federal authorities sent Notices of Apparent Liability to the three companies, giving them a 30-day response deadline.

Specifically, Conexion faces an $18.4 million fine for alleged violations that took place over a span of eight months in Maryland, Arkansas, and West Virginia.

Also, i-Wireless faces $8.8 million in fines for seven months' worth of reported violations in eight states, including New York and South Carolina.

True Wireless was hit with a $5.5 million proposed fine for eight alleged months of wrongful transactions in four states: Arkansas, Maryland, Oklahoma, and Texas.

"The FCC also proposed a penalty of $300,000 against Conexion for its apparent willful and repeated failure to provide timely and complete responses to the FCC's requests for information, noting that Conexion's conduct delayed and impeded the investigation," the federal agency said.

Fines automatically go into effect if the companies do not appeal by Dec. 1.

Earlier, on Oct. 1, the FCC imposed $14 million in fines to five companies. TracFone was the largest, but the others included Assist Wireless, Easy Wireless, Icon Telecom, and uTphone, for similar violations.

Thomas Schatz, president of Citizens Against Government Waste, said private companies such as Comcast cable actually provide lower-income members of their communities with opportunities to obtain reduced-cost communication services.

At the same time, cellphone costs have continued to go down, and most Americans can now afford to keep one with minutes for at least emergency situations – the idea behind Lifeline in the first place, Schatz said.

"We've been talking about the Lifeline program for a long time . . . about the waste, fraud, abuse, and also about the fact that it's expanding well beyond its original parameters," Schatz said. "Expanding it to cellphones certainly made the program far more prone to abuse and far harder to track."

Related stories:

O'Keefe's Cameras Reveal 'Obamaphone' Fraud
'Obamaphone' Video Sparks Debate on Lifeline Service

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