Representative Austin Scott (R-GA) has introduced the Stop Taxpayer Funded Cell Phones Act of 2017 (H.R. 3546). The bill, if passed, would prohibit all mobile wireless providers from receiving universal service fund support from the Lifeline program beginning in 2018. Representative Scott’s bill also contains a provision requiring 2018 universal service fund contributions to be collected as if wireless providers will receive the same amount of Lifeline support received in 2017. It then directs this excess funding to be deposited in the general fund of the U.S. Treasury for the sole purpose of deficit reduction. The bill has been referred to the House Energy and Commerce Committee. Representative Scott has introduced similar versions of the bill in the last two congresses.

Wireless Providers Dominate The Lifeline Program

In terms of market share, the Lifeline program is currently dominated by mobile wireless providers, and has been for some time. In 2016, the Lifeline program disbursed roughly $1.51 billion, with approximately $1.36 going to wireless providers. They dominate in terms of customers too. For 2016, the average number of total Lifeline subscribers served by mobile wireless providers per month was 11.45 million. Fixed providers averaged a total of 1.24 million customers per month.

How and why have mobile wireless providers been able rise to such a dominant position in the Lifeline world? The answer is they have found an innovative business model that works well. The mobile wireless providers that dominate Lifeline typically offer a service plan that includes a free basic handset and a free allotment of monthly voice minutes. This business model was pioneered by TracFone Wireless, which provides service under multiple brands. TracFone, like most mobile wireless Lifeline providers, is a non-facilities based carrier that purchases wholesale minutes on a network belonging to one of the four national carriers. It then resells these minutes. For their Lifeline service plans, wireless providers give subscribers a set amount of minutes per month, with the ability to purchase additional minutes. They then receive a reimbursement of $9.25 per month, per Lifeline subscriber.

To be sure, this is not the only type of Lifeline service offered by mobile wireless providers. There are facilities-based wireless carriers that participate in the Lifeline program that do not offer free handsets or free monthly allotment of minutes, but instead simply allow eligible Lifeline subscribers to deduct $9.25 from a monthly service plan. As of late, mobile wireless providers have expanded their Lifeline service offerings to include mobile broadband, a requirement adopted by the FCC in the Lifeline modernization order.

Representative Scott: Clean Up Lifeline and Return The Program To Its Original Purpose

Representative Scott’s Stop Taxpayer Funded Cell Phones Act of 2017 would prohibit all mobile wireless providers from receiving universal service fund support from the Lifeline program for providing voice or mobile broadband service:

Beginning on January 1, 2018, a provider of commercial mobile service or commercial mobile data service may not receive universal service support under sections 214(e) and 254 of the Communications Act of 1934 (47 U.S.C. 214(e); 254) for the provision of such service through the Lifeline program of the Federal Communications Commission.

The bill is intended to clean up the Lifeline program, which has come under intense pressure following the recent release of a U.S. Government Accountability Office (“GAO”) report that details various problems with the Lifeline program. Representative Scott provided the following statement on his proposed legislation:

“Hardworking American taxpayers are already overburdened and should not be forced to pay for a program that has vastly expanded beyond its intended scope and is riddled with waste, fraud, and abuse,” said Rep. Scott. “My bill will reform the Lifeline Program and restore it to its original purpose of providing landline services and prohibit Universal Service support for mobile services. In order to promote government accountability, cut government fraud and waste, and protect consumers from further increases to their phone bills, the Lifeline Program’s free cell phone plans should end.”

Back Door Use of USF Contributions to Pay Down The National Debt?

Two additional provisions in Representative Scott’s bill would require 2018 universal service fund contributions to be collected as if wireless providers will receive the same amount of Lifeline support received in 2017. This excess funding is then to be deposited into the general fund of the U.S. Treasury for the sole purpose of deficit reduction. The provisions contain the following language:

(b) CONTRIBUTIONS.—For calendar year 2018, the amount that telecommunications carriers that provide interstate telecommunications services and other providers of interstate telecommunications are required to contribute under section 254(d) of the Communications Act of 1934 to Federal universal service support mechanisms shall be determined—

        (1) without regard to subsection (a); and

(2) as if the same amount of support for the provision of commercial mobile service and commercial mobile data service through the Lifeline program that is provided in calendar year 2017 is provided in calendar year 2018.

(c) EXCESS COLLECTIONS.—The amount collected pursuant to subsection (b)(2) shall be deposited in the general fund of the Treasury of the United States, for the sole purpose of deficit reduction. No portion of such amount may be treated as a credit toward future contributions required under section 254(d) of the Communications Act of 1934.

Representative Scott’s Bill: A Blunt Instrument

The Real Enemy: Rogue Agents

Like past versions, Representative Scott’s 2017 bill targets wireless Lifeline providers that offer free monthly service along with a free phone – what is now commonly referred to as an Obama phone. These pre-paid wireless Lifeline providers have been the focus of Lifeline critics for many years now. This group includes some of the worst offenders, as evidenced by U.S. Department of Justice indictments, such as the one in 2014 alleging that a provider submitted more than $32 million in fraudulent Lifeline claims. The recent GAO report confirms that an extensive amount of fraud still exists in the Lifeline program, largely due to the way the Lifeline program currently operates – the entity that provides the Lifeline service is the one that determines whether an individual is eligible for the benefit.

Many “free” wireless Lifeline providers hire third-parties to handle day-to-day administrative duties, including the enrollment of subscribers. These third-parties are paid a commission based on the number of consumers they enroll, which has been found to create a “rogue agent” problem. Rogue agents have been known to disregard the Lifeline program’s eligibility standards in order to enroll as many people as possible, thus increasing their monthly pay checks. 

Representative Scott’s bill is a blunt instrument. His proposed solution would do more harm than good. Mobile wireless service is a true Lifeline for low-income Americans. Lifeline gives people the ability to subscribe to phone service, and recently broadband service, which allows them to contact potential employers, family, and public safety during emergencies. Consumers are overwhelmingly choosing wireless service over fixed phone service. Yes, mobile wireless providers have contributed to fraud, waste, and abuse, but simply kicking them out of the Lifeline program is not the answer. As it stands, the best course of action to eliminate fraud lies with the creation of a National Verifier to make the initial determination of whether someone is eligible for Lifeline service. According to the Universal Service Administrative Company, development of the National Verifier is on schedule, with a soft launch scheduled for December 2017 in certain initial states.

*Disclaimer* – This blog post is intended to inform the reader of a recent development related to communications law. It is not, and should not be considered as, specific legal advice.