Over 26,000 Ohioans abusing free cell phone plan (Obama phone™)
Dayton Daily News ^ | 8:21 PM Wednesday, November 23, 2011 | By Josh Sweigart, Staff Writer
Posted on November 23, 2011 10:50:53 PM EST by TSgt
Companies are flooding low-income households with free cell phones and minutes under a plan overseen by the federal government that is prone to abuse, a Dayton Daily News investigation has found.
The investigation found the free cell phone program is growing rapidly because cell phone companies are promoting it heavily and is so commonly abused that 26,500 Ohioans this month have been notified they are violating the rules.
The program is paid for with fees mandated by the government and tacked onto most cellphone and home phone bills, often listed as the Universal Service fee.
It is redistributed to phone companies that provide free or discounted service to low-income residents.
Those companies get up to $10 each month for each person who signs up.
A program subsidizing basic phone service for the poor has been around since the 1980s, but the decision in 2005 to add prepaid cellphones to the program has led to ballooning costs and little oversight of the rule that each household only gets one free phone or discounted line, the Dayton Daily News investigation found.
Enrollment in the program in Ohio has grown from 280,000 in 2008 to nearly 600,000 this year, and the cost of the program in Ohio has grown from $30.4 million in 2008 to $58.9 million in 2010.
Letters went out last week to 26,500 people in Ohio — 5 percent of all subscribers — who are suspected of signing up for more than one line. This could mean as much as $265,000 a month in over payments. The letters give phone users 35 days to pick one carrier.
This is part of an effort by the Federal Communications Commission that has identified 269,000 people in 12 states suspected of abusing the system with more than one subsidized phone or land line.
The number of prepaid cellphone companies offering the service in Ohio grew from one last year to four this year. Four more companies are awaiting approval from the Ohio Public Utilities Commission. One provider, TracFone, which markets its free service by the brand name SafeLink, was the only provider offering the service in Ohio since 2009 and averaged $3.5 million in revenue a month through the fall. Assurance Wireless, which is owned by Sprint, entered the Ohio market in May and took in $2.2 million in October.
That competition has led to the program becoming more visible, but also more susceptible to abuse. The competing companies do not typically share information to check whether a new applicant is already receiving free service from another provider.
“The ... program itself, which provides subsidized cellphones, has been subjected to a lot of waste, fraud and abuse,” said Tom Schatz, president of the advocacy group Citizens Against Government Waste. “People were getting multiple cellphones, they were selling them on Craigslist, so clearly people know how to take advantage of a program like this.”
Proponents of the program say, when the service is used properly, it ensures that the poorest Americans still have basic access to call 911, emergency assistance or help them get and keep jobs.
To qualify for the program, someone must be enrolled in one of numerous federal programs — such as Medicaid, food stamps, Section 8 or free school lunch — or make below 150 percent of the federal poverty level, which is $33,525 for a family of four.
‘It’s a blessing’
Centerville resident Tommy Whiteman, 29, saw an ad for Assurance on television about six months ago, applied online and had his phone within a week.
Whiteman was diagnosed with cancer when he was 12. His cancer has been in remission since 1996, but the treatment caused a host of health problems that left him unable to work.
With four children under age 9, regular doctor’s appointments and occasional calls for an ambulance, Whiteman said being without a phone “would be kind of a scary situation.” But on a fixed Social Security income, he said his regular cellphone is frequently turned off when he can’t make the payments.
“This is what I bounce back on,” he said. “It’s a blessing actually.”
Whiteman said he knows numerous people who either get multiple phones through different vendors or get phones for which they don’t qualify.
“From what I’ve seen it isn’t clear they can’t have both,” he said. “That needs to be more clear.”
But any change to the program should preserve it, he said. “People need it.”
The FCC administers the program under a mandate to make basic service available to all Americans.
“More and more families are cutting the cord to their home phone and just using their wireless phones, which can be more helpful in emergencies, or if you’re on the road or if you need to give it to a kid to be safe,” said FCC Spokesman Mark Wigfield.
Program expands
from 1 company to 8
The service has many names in Ohio. New TV commercials tout the Assurance phone, which was one of three prepaid wireless providers to enter the Ohio market this year. Assurance offers a free handset and up to 250 free minutes a month with the option of “topping up” 250 minutes for $5 more paid by the user. That phone is offered through Virgin Mobile.
The other new plans are i-wireless from Cincinnati Bell and ReachOut Wireless from Nexus Communications. Cincinnati Bell charges for the phone itself and roaming charges, and offers plans starting at 250 minutes a month for free. ReachOut closely resembles TracFone’s plan.
Four more providers have applications pending with the Ohio Public Utilities Commission.
The SafeLink phone from TracFone held the market alone for two years. It offers up to 250 monthly minutes for free or less if users want unused minutes to roll over.
With $32.7 million in program revenue in Ohio through October this year, TracFone is already exceeding its revenue from 2010, according to data reported to the FCC.
Assurance received $2.9 million from August through October, the only months it has reported. Cincinnati Bell’s prepaid service has received $161,617 so far this year and ReachOut has yet to report any revenue. The rest of the program funds went to discounting traditional cellphone or home phone service.
Program growth unlimited
While this program itself is not new, the advent of cheap prepaid phones makes it more difficult to make sure only one person per household is getting the benefit.
The program has doubled nationwide in the last decade from an inflation-adjusted $667 million in 2000 to $1.3 billion in 2010, according to the Federal Communications Commission.
There’s no cap to the size of the program. The amount collected from telecommunication companies — passed along to consumers — is adjusted quarterly based on the number of people taking part in the program. The typical monthly phone bill adds about $2 for this fee.
The FCC this year began discussions on rule changes to address concerns about abuse. Federal regulators say oversight of the program is insufficient right now.
Oversight responsibility in Ohio is placed upon the companies, which usually rely on the honor system and require users to state when they apply if they already have subsidized service.
The fine print above the signature in an application for Assurance Wireless obtained by the Daily News requires applicants to attest, “I am the head of household ... (and) I understand that Lifeline Assistance is only available for one land line or wireless phone per household. If I currently have a Lifeline plan with a different phone service provider, I will notify my current provider when I am approved for Assurance Wireless service.”
GAO report: Costs ballooning
A 2010 federal Government Accountability Office review expressed concerns that the program was ballooning under poor oversight. It found that the addition of prepaid wireless to the program led to a 25 percent increase in the cost of the program from 2008 to 2009 with an even bigger annual increase likely in 2010.
TracFone led this growth. It received $189.7 million in low-income support payments in 2009, accounting for 18 percent of the total market and 90 percent in the increase, the GAO reported.
The number of eligible people taking part in the program rose from 28.6 percent to 31.9 percent from 2008 to 2009. TracFone officials told auditors their success is due to successful marketing to low-income customers, spending $2.4 million on ads in January 2010.
The Universal Service Administrative Company — which administers the program under the FCC — estimates that the program reaches between 20 and 50 percent of eligible participants in Ohio. The U.S. Census Bureau estimates there could be more than 50,000 people making less than 150 percent of the federal poverty guidelines in the Dayton Metropolitan area alone.
“What we’re trying to do is provide a resource to those folks who need it most,” said Jack Pflanz, spokesman for Assurance.
“We assist in providing folks with a way to be able to reach out to employers and get a call back from employers to gain employment,” he said. “At the same time, they save money they would be able to use for other essential needs such as buying food, paying their mortgage, paying for their heat.”
He attributes growth in the program to the economy. “Folks have to take a good hard look at what they can cut back on to try to make ends meet and try to feed their families,” he said.
Pflanz said studies have shown that having such phones helps people get jobs, become taxpayers and contribute to the economy. “It does generate revenue, but it’s also an investment in the customer, in the low income customer,” he said.
Pflanz said his company cross-checks subscribers to make sure they don’t already have service, and hands data over to the FCC so they can check for duplication among companies.
Two states, 111,000 duplicates
But the GAO found the program lacks clear, measurable goals. And the GAO listed a range of fraud concerns both alleged and substantiated.
The GAO found SafeLink phones for sale online and pointed out that prepaid phones have no way of knowing if the subscriber is still in possession of the phone.
The GAO found that only 5 percent of providers have been audited. And 76 percent of the performance audits conducted found at least some cases of multiple subsidized lines per household, contrary to program rules.
In December, USAC completed an audit of TracFone in parts of Florida and Tennessee and found 111,682 subscribers received benefits through both TracFone and another phone company. This caused an overpayment of $1.1 million over two months, the audit said. USAC didn’t seek refunds because it couldn’t pinpoint which company to charge.
The audit also found TracFone claimed 303 duplicate addresses and telephone numbers and issued a finding against the company for $3,013.
The GAO worried the program could grow unhindered.
“An important consideration is that with no funding cap, low-income program support payments can grow indefinitely,” the GAO report warned.
Amid mounting concerns of abuse, the FCC in June issued an order confirming that the program is limited to one line per household, and directing the USAC to identify duplicate users and tell them they must pick only one line.
FCC officials determined 12 states — including Ohio — where the program was growing rapidly and there was little state oversight. In those states, they compared the subscriber list from the top four providers in the program. In Ohio, they compared subscribers to TracFone, AT&T, Frontier North and Cincinnati Bell.
In Ohio, the review found 5 percent of the lines were duplicates. In the full 12 state review, 7.5 percent of the lines were duplicates.
The effort has eliminated 200,615 duplicate lines in the first seven states where it was completed, according to FCC officials.
FCC considering changes
The FCC is considering rule changes to address these problems in the long-term.
Remedies include requiring at least a minimal charge, maybe $1, of people in the program; cutting phones off if they go unused for 60 days; making consumers who receive duplicate service ineligible for the program; creating a national database of users; and making the companies internal verifications of eligibility and duplication public.
“The commission is very aware of the nature of the problem with duplicate claims and is working aggressively to control it and ensure that it’s held to the lowest possible level if not completely eliminated,” said Eric Iversen, spokesman for USAC. “We provide audits of companies that provide services to make sure they provide services only to eligible consumers.”
U.S. Rep. Bob Latta, R-Bowling Green, sits on a committee that oversees the FCC and said, “I encourage the FCC to continue with its proposed rulemaking.”
But others, such as Schatz, think reform doesn’t go far enough.
“Our view is the whole program should be eliminated,” he said. “This is not something that the federal government should be doing. There are better ways to provide benefits to people, but this is a program that has gotten out of control.”
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And to think of what I'm paying a month for my service...
