Six-hundred-and-forty-five thousand Maryland residents had so-called Obamaphones in 2012 — one hundred times as many people as there were in 2009, and double the number in that state who are supposed to be eligible for the program based on their income.
The program, officially called Lifeline, is run by the Federal Communications Commission and imposes hefty fees on every paying customer to give free phone service to low-income Americans.
The profits to telecom companies from the free, government-provided phone service are so great that in Nebraska alone, 51 corporations, many of them who are not even traditional phone companies building infrastructure and attracting paying subscribers, fought for a piece of the pie.
That structure allows advocates to argue that it’s not a tax and doesn’t affect the budget, and lessens the extent to which the FCC is beholden to Congress.
Officials admitted Maryland's 10,000 percent increase over three years in a little-noticed hearing before the House's Subcommittee on Communications and Technology in April last year.
"By the third quarter of 2012, the number of Lifeline subscribers in Maryland had risen almost 100 fold to 645,000" compared to three years prior, industry consultant Billy Jack Gregg told Congress.
"Moreover, the current number of Lifeline subscribers in Maryland is almost double the number of low income households in the state" who are eligible.
The FCC says it has since instituted some reforms to put a damper on fraud. Until recently, applicants could self-certify their eligibility, and the FCC found millions of dollars of abuse when it finally checked.
But it only sent letters saying “don’t do it again, or you might be fined” to people who lied on their forms to obtain multiple phones or obtain them even though they had high incomes, it said at the hearing.
And it used the money recovered not to shrink program costs or refund fee-payers, but as free bonus funds that were reinvested to provide free Internet for the poor, with no authorization from Congress.
Chicago area congressman Bobby Rush said it “infuriates” him that his colleagues were concerned by the rapid rise in Obamaphone usage.
He said it should be called a “Bush-Obamaphone” because the program was expanded from land-lines to cell phones under President Bush, though the 100-fold increase took place during Obama’s presidency.
“There are some letters that I would like to enter into the record... we have a statement from the NAACP, the Leadership Council on Civil Rights and Human Rights, the United Church of Christ,” he said.
Then the committee heard from a lobbyist for CTIA, the Wireless Association, who called the program “critical.”
The dynamic is called “Bootleggers and Baptists,” according to Adam Smith and Bruce Yandle, authors of a new book by that title, who say that among the most successful tactics for gaining corporate welfare is when politically-connected industries that know the levers of power team up with civic groups making emotional or moral appeals, providing political cover.
It’s a reference to when Baptists wanted no alcohol sold on Sundays, and bootleggers helped grease the wheels because the liquor stores being closed meant more profits for them.
One of the primary providers of Obamaphone service is TracFone, which is owned by Obama fundraiser Carlos Slim.
The companies are paid $9.25 a month by the government for each Obamaphone recipient they sign up. Many advertise aggressively to encourage people to sign up, give them free phones in addition to the free service, and even focus primarily on Lifeline subscribers over paying ones, known as “virtual” networks because these companies make no investment in telephone infrastructure.
A state official said that the clamoring of companies for the $9.25 shows that it is more than enough, and suggested that if the program is truly about altruism, companies should be reimbursed only their actual costs, or could be reimbursed $3 and required to show documentation of any higher actual costs.
“My commissioner staff and I asked the TracFone people a lot of questions on what does it actually cost to provide this service, and they refused to give us any information,” another state regulator said.
There is nothing stopping Obamaphone recipients who get free service based on their supposedly low incomes, then upgrade to a high-end phone or extra service, committee members noted. Industry and FCC reps could not say how often that occurs.
"A family of four making $35,000 a year is paying for this. They can't get the free phone... They might not go out to eat one night because that is an important priority that they have set, and it angers them when now they are paying somebody else's free cell phone bill," Rep. Steve Scalise, R-La., said.
"So I would hope when you are trying to think of what to do with the money that you are finally uncovering from waste, fraud, and abuse, you don't see it as some kind of honey pot that you can go and spend somewhere else," he said of the pilot program that is spending the recovered money on free Internet.