FCC Chairman: “It’s outrageous that a company would claim millions of taxpayer dollars for doing nothing.”

Sprint has allegedly received tens of millions of dollars in federal Lifeline subsidies for mobile phones which were inactive and should have been un-enrolled from the program, according to the Federal Communications Commission, which has opened an investigation into how the carrier has managed Lifeline.

Sprint says that a change in Lifeline program rules led to an error in usage calculations, not willful fraud on its part.

According to the FCC, Sprint has been receiving monthly federal subsidies for about 885,000 Lifeline subscribers who were not actually using the service and who should have been un-enrolled from service rather than pay out subsidies for service that wasn’t being actively used. Those 885,000 subs represent about 30% of Sprint’s Lifeline subscriber base and about 10% of the total Lifeline program user base, the agency said.

“Lifeline is an important component of our efforts to bring digital opportunity to low-income Americans, and stopping waste, fraud, and abuse in the program has been a top priority of mine since I’ve been at the Commission,” said FCC Chairman Ajit Pai. “It’s outrageous that a company would claim millions of taxpayer dollars for doing nothing. This shows a careless disregard for program rules and American taxpayers. I have asked our Enforcement Bureau to investigate this matter to determine the full extent of the problem and to propose an appropriate remedy.”

Lifeline is a federal program which provides subsidies for mobile phone and broadband service, with providers receiving a monthly subsidy of $9.25 per month that they must pass along to consumers as a discount — often resulting in the service being free to users. Some states chip in additional funding. The FCC was alerted by the Oregon Public Utility Commission, which manages the Lifeline program in Oregon.

At issue is the “non-usage” rule, which was put in place to prevent waste and abuse of the Lifeline program. Lifeline providers are required to un-enroll users who don’t actually use their phone for a 30-day period. The agency put the non-usage rule, among others, in place a couple of years ago after finding that  “companies hawked free Lifeline service aggressively and indiscriminately, knowing that they would get paid each month even if consumer didn’t use their phones. And because the consumer paid nothing, he or she had no incentive to relinquish the subscription.”

The Oregon Public Utility Commission said that its staff played an integral part in the FCC’s findings.

The Oregon PUC began to investigate Sprint after receiving multiple complaints from active Lifeline customers that their phones were “defective and unusable.” After getting what the PUC described as “conflicting information” from Sprint about whether those defective phones were active and being used, the PUC set up a sting operation: it requested a defective phone from a Lifeline customer, secured it for at least 45 days to ensure that it was not being used and that the legal notification period for de-enrollment notice had passed, and then requested usage reports on the device from Sprint.

Those reports “showed usage of Lifeline services on that specific phone,” according to a statement from Jon Cray, Lifeline program manager with the Oregon PUC.

The Lifeline non-usage rules require that providers of free Lifeline service “may only be reimbursed for a Lifeline subscriber if that subscriber has used the service at least once in the past 30 days,” the FCC said. “Providers must de-enroll inactive subscribers after giving them 15 days’ notice.”

“This customer should have been de-enrolled from the program as a result, and Sprint should not have claimed reimbursement. This spurred notification to Sprint and the FCC of the discrepancy,” said Cray of the Oregon PUC.

Program-wide, the non-usage rule resulted in approximately 3.1 million de-enrollments in 2018, according to the FCC. The agency said that the Lifeline program “has been fraught with waste, fraud, and abuse” and that the most recent report from its Inspector General showed that more than 18% of payments made by the program were improper.

For its part, Sprint says that the FCC’s rule changes, which were approved in 2016 and came into force in 2017, led to an error in usage and eligibility calculations.

The FCC’s changes, according to an emailed statement from a Sprint spokesperson, “required Sprint to update how it calculates usage and therefore eligibility of Lifeline customers. An error occurred when these new requirements were implemented in July of 2017. When the error was discovered, we immediately investigated and proactively raised this issue with the FCC and appropriate state regulators. We also engaged an independent third party to review the results of our review and the effectiveness of our operational changes.

“While immaterial to Sprint’s financial results, we are committed to reimbursing federal and state governments for any subsidy payments that were collected as a result of the error,” the carrier spokesperson added. “We are proud of the benefits we provide to eligible low-income individuals through discounted wireless service. We believe this program is valuable for underserved populations.”

While Pai thanked the Oregon PUC for its work and called states a partner in both managing Lifeline and cracking down on waste and abuse, Commissioner Geoffrey Starks, a Democrat, wondered why it wasn’t the FCC that uncovered the situation.

“The misconduct alleged today, if true, amounts to corporate malfeasance,” Starks said in a statement. “A single company apparently misappropriated funds for nearly 10 percent of the entire Lifeline program. I am
outraged. Our universal service dollars are precious. Every dollar must get to its intended recipient. This is particularly true for our Lifeline program, which makes communications services affordable for the most vulnerable communities.

“Moreover, this announcement directly impacts our review of the proposed merger between
Sprint and T-Mobile,” Starks went on, calling for a pause on commission review of the transaction, “given the enormity of the apparent wrongdoing committed here. He called into question Sprint’s trustworthiness over the information it has submitted as part of the company’s proposed merger with T-Mobile US.

“How the merging parties were going to handle Lifeline was a prominent part of their merger pitch, so I am alarmed and concerned about such a massive inaccuracy in a core part of the transaction,” Starks said. “Such apparent misconduct raises serious questions about the accuracy and completeness of both the company’s filings in the merger proceeding and our review. “There is no credible way that the merger before us can proceed until this Lifeline investigation is resolved and responsible parties are held accountable.” He also noted that the FCC “now has multiple high-profile investigations implicating Sprint and/or T-Mobile that, to this date, remain unresolved, including allegations of the dangerous and unlawful disclosure of wireless customer geolocation information, and the submission of inaccurate coverage data in the agency’s Mobility Fund II proceeding.”


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