The U.S. government pays companies $9.25 a month per customer to offer phone service to the poor. Public Service Commissioner H. Doug Everett, a Republican who opposes welfare, wants Lifeline users — many of whom pay nothing for cell service — to pay a $5 monthly fee for their service, essentially a 54 percent tax on their subsidy.
Companies that don’t charge the fee would have to offer at least 500 minutes of calling time, potentially making it unprofitable to stay in the market.
The rules are designed to affect firms offering cellphones, not landlines. People getting subsidies for landline phones typically pay more than $5 out of pocket, since that service costs more than the government subsidy.
After taking an early vote in January, Everett said he expects the commission to refine the plan in the next few weeks.
“This to me is a luxury item, it’s not a necessity,” he said. “They have family, most of them. They have the church. I believe they can put a little skin in the game.”
Cellphone companies now offer phones and calling plans that cost less than the government subsidy, meaning the firms can earn a profit. Advocates for the poor say forcing low-income people to pay $5 will discourage them from using the program. Even though telephone companies would keep the fee, most don’t want it and have filed a lawsuit challenging the plan. Company officials say the cost of the collecting the payments exceeds what they would get in extra revenue.
“Those who qualify for Lifeline are already facing economic hardship,” said George Korn, who represents the Rainbow PUSH Coalition, which opposes the rule. The coalition partners with a cellphone provider. “In most cases, they are surviving on a meager monthly income that leaves them little room for extras.”
The dispute centers on the Lifeline program, which started in 1984 under President Ronald Reagan’s administration. Originally, it subsidized wire telephones in poor households. As household income dropped and more telephone carriers entered the program, spending increased sharply. The program, which cost roughly $582 million in 1998, cost about $2.2 billion in 2012.
In a sense, the program is a litmus test of political philosophy. Those who support it note that telephone access in low-income households has increased since the program took effect. Conservatives critics deride the program as “Obama phones,” and U.S. David Vitter, R-Louisiana, failed in a recent attempt to end it.
Prior to recent changes, the Federal Communications Commission estimated that up to 15 percent of Lifeline subscribers may be ineligible for the assistance, costing the government as much as $360 million annually. Those findings prompted the FCC to issue new rules — for example, making clear that users can get just one phone per household. Federal officials are forcing a state-by-state check of customer rolls, searching for people who receive more than one phone and requiring users to recertify that they remain eligible for the assistance.
By the end of the year, FCC officials expect to have a national database that will allow cellphone companies to check whether someone already is enrolled in the program before signing him or her up for service. While considering changes to curtail spending, FCC officials rejected a proposal to charge customers. The commission said it worried that many poor people lacked access to bank accounts and would be discouraged from enrolling, and that there was little evidence the move would discourage fraud.
Everett said the federal rule-tightening does not go far enough.
“A lot of people are giving fictitious names and fictitious addresses, and no one was checking it,” he said.
His most recent plan would require that if companies do not charge $5, they offer a minimum of 500 minutes of phone service. Telephone providers say offering so much service for so cheap would not be profitable.
Companies say there are hidden costs in the plan. Many customers in the program do not have bank accounts or credits cards, forcing them to rely on expensive money orders to pay the monthly $5 bill. Those fees could drive the total charge to nearly $18. And some companies lack the billing departments, databases and accounting staff necessary to track the payments.
“It’s just an administrative nightmare for companies like this that are basically operating on a very thin margin and don’t have the luxury of having a big staff,” said Robert Baker, a former utility regulator who now represents phone companies in the Lifeline program.