FCC Lifeline program has a problem

When the Federal Communications Commission votes later this month on a proposal to subsidize broadband service for low-income families, the outcome seems certain. The three Democrats on the five-member board have already expressed support for the plan. But even the plan's author—FCC Chairman Tom Wheeler—acknowledges what many critics have been saying: that the 30-year-old Lifeline program that will distribute the funds is a magnet for abuse.

Significant reforms were adopted in 2012, but a flood of false applications continues to plague Lifeline’s cell phone program, bestowing free phones and a $9.25-a-month service subsidy on people who don’t deserve them. According to a 2013 report in the Wall Street Journal, 41 percent of the 6 million Lifeline subscribers enrolled in five cell phone plans could not produce documents to verify their eligibility. In fact, many didn’t even bother to respond to requests from the FCC to do so.

Before the program guidelines were strengthened, subscribers could verify their low-income status by simply signing their names to a form. Now they’re required to provide proof that they’re eligible for food stamps, housing assistance, or Medicaid. But investigators in Oklahoma and Indiana have revealed how easy it is to circumvent restrictions.

Shopping for a new phone or cellphone provider? Be sure to check out our buying guide and Ratings.

In some cases, Lifeline plans were registered with forged signatures to people who had not requested them. In others, they were assigned to vacant homes. Last November, a TV producer from a Denver news team received a free cell phone from a street-side vendor with ease. When he walked up to the tent and said he didn’t have a food stamp card, the vendor simply used one belonging to another citizen.

Indeed, sidewalk salesmen hired by vendors to work these booths said they were encouraged by their employers to push the applications through regardless of issues. In Denver, they routinely accepted fake food stamp cards, including one with “training card” on it and another clearly printed from an Internet file. Because they receive $3 for each new subscriber they enroll, street agents are eager to approve everyone.

All told, overzealous cell phone carriers and vendors received more than $96 million in fines from the FCC. That may sound like stern punishment, but it's outweighed by the profits that the companies pull in. For instance, TerraCom—one of the companies targeted in the Oklahoma investigation—received $52.3 million from the Lifeline program in 2012. Less than a year later, it agreed to pay $1 million along with an affiliate to resolve FCC claims of improper reimbursements.

In the end, Wheeler makes a strong case for expanding the Lifeline subsidy to include broadband service. In today's world, the Internet is an indispensable tool for job hunting, education, and managing family medical issues. It would be foolish to deny a significant portion of the populace those benefits. Remember, Wheeler isn't asking to raise the $9.25 a month subsidy. He just wants to give people more say in how they use it.

But that won't work if the program is plagued by abuse. The challenge facing the FCC is to find more effective ways to combat fraud while pursuing Lifeline's mission—and make sure the money goes to the people who truly need it.

—Chris Raymond