TracFone Wireless, the largest Obamaphone vendor, receives more than $9 per line from the federal government for each phone it distributes to the poor, but sells similar service to the general public for less than $7.
TracFone receives $9.25 per line from the federal government for every subscriber it signs up under the Federal Communications Commission’s Lifeline program, which uses fees from paying customers to subsidize poor Americans’ phones. The firm has refused to tell regulators how much it actually costs to provide service, and the industry paints its involvement in the program as being altruistic.
But one clue about how much it costs is out in the open: Anyone can buy a similar phone line on TracFone’s website for under $7 per month.
That’s even though an entity negotiating on behalf of an enormous group of people would generally get a better rate and thus not have to pay more than what an individual would be charged.
The reimbursement rate was set based on the average cost of cell phone service years ago and is intended to subsidize the cost. Providers are not required to make Lifeline service free, but that has become the norm.
“Prepaid wireless Lifeline-only providers receive $9.25 per subscriber, regardless of what it costs to provide service. Since these providers can offer their Lifeline service for free, it is reasonable to assume that $9.25 is more than enough to cover their costs,” Geoff Feiss, general manager of the Montana Telecommunications Association, *told Congress.
Phillip Jones of the Washington State Utilities and Transportation Commission said the $9.25 rate is “probably not” appropriate. “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,” he said.
In a statement provided by a public relations and crisis communications firm retained by TracFone, it said that to get the under-$7 rate, customers must purchase an Android-platform phone from the company and pay for 90 days of service. Lifeline “offers 250 minutes each month and 1,000 texts,” it said, and there is no requirement to purchase a phone because it is given to them for free.
The paid service comes with slightly fewer minutes, at 180 — or 360 for $10 a month — but also includes a data plan, which Lifeline does not.
Companies have advertised the government program heavily. The domain name obamaphone.net forwards to Qlink Wireless, another major phone provider, the Washington Examiner found, thus allowing the company to capture users searching for free phones using a terminology that a Democratic congressman said is not used by anyone.
“Regrettably, some have made up myths about the program to score political points. Here are the facts. President Obama did not create Lifeline. The government does not give away free cell phones or iPads. Nowhere in America, except in Tennessee, do they call it an ‘Obama Phone,'” Rep. Henry Waxman, D-Calif., said last year.
The difference in the pricing underscores the extent to which phone companies are profiting off of the program, which has grown wildly.
A weak link in the signup process is the way that being on other entitlement programs brings automatic eligibility — a cascading effect by which once one gains entry to the most lax of programs, he is swept into others. If a person is on food stamps, for example, he qualifies for an Obamaphone, even if his income is higher than the standalone income threshold for the phone program, which is 130 percent of the poverty rate.
One can get on food stamps, meanwhile, by virtue of being on other federal programs. It’s a loophole states exploited by creating heating and energy assistance programs that offered a few dollars towards power bills for even moderately poor residents — thereby opening the door to far more dollars, this time from the federal government, in food stamps.
