The Federal Communications Commission says Sprint is defrauding its Lifeline program, which subsidizes phone and broadband service for the poor. The agency has accused the wireless carrier of claiming subsidies for 885,000 Lifeline subscribers who were not using the service.
The FCC said in a press release Tuesday that this is a violation of a key rule, designed to prevent waste, fraud and abuse in the Lifeline program -- and FCC Chairman Ajit Pai has made a priority of fighting those problems. The 885,000 subscribers represent nearly 30% of Sprint's subscribers receiving the subsidy and account for nearly 10% of all Lifeline subscribers, the agency said.
"Lifeline is an important component of our efforts to bring digital opportunity to low-income Americans," Pai said in a statement. "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."
Pai said he's asked the FCC's Enforcement Bureau to investigate further.
Lisa Belot, a spokeswoman for Sprint, said the company had no intention of defrauding the government and that the issue was the result of an error after the FCC implemented new rules in 2016. She said the company has investigated the issue and is working on a fix.
"When the error was discovered, we immediately investigated and proactively raised this issue with the FCC and appropriate state regulators," Belot said in an email. "We also engaged an independent third party to review the results of our review and the effectiveness of our operational changes."
She added that Sprint is "committed to reimbursing federal and state governments for any subsidy payments that were collected as a result of the error."
Lifeline, which was created in 1985 under President Ronald Reagan, is a $1.5 billion subsidy program designed to help low-income families pay for phone service by giving out a $9.25-per-month subsidy. It was initially designed to provide discounts on traditional phone service for qualifying low-income families. In 2005, the FCC revised the program, adding prepaid wireless mobile plans to the mix. The agency expanded the program again in 2016, allowing the subsidy to be used to pay for broadband service.
The allegations against Sprint come after a 2017 report from the General Accounting Office found Lifeline is rife with waste, fraud and abuse. The three-year audit of the program found that more than $1 million per year had gone to fake or deceased individuals. And more than a third of customers receiving the subsidy couldn't be confirmed as eligible for the program.
In August, Pai proposed an "administrative cleanup" of the program to tackle this issue. The proposal calls on the agency to put in additional requirements to ensure that carriers enrolling subscribers can verify the person is still living. It will also prohibit carriers from incentivizing employees or agencies tasked with signing up new customers by paying commissions for the number of customers they enroll.
The FCC has also imposed other rules to help ensure the program isn't abused. In 2016 it adopted the non-usage rule, which Sprint is alleged to have broken. It requires wireless operators that provide "free" service as part the Lifeline program to de-enroll subscribers who don't use their phones. The FCC says companies have "hawked free Lifeline service aggressively and indiscriminately, knowing that they would get paid each month even if consumers didn't use their phones."
Now carriers providing this subsidy for the free service may only be reimbursed for a Lifeline subscriber if that subscriber has used the service at least once in the past 30 days. Providers must de-enroll inactive subscribers after giving them 15 days' notice.
The FCC said Sprint's violation of this rule came to light as a result of an investigation by the Oregon Public Utility Commission.
Sprint's side of the story
Sprint's Belot said changes made to the Lifeline program in 2016 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 2017.
At that point, the company received complaints from customers of Assurance Wireless, the brand that offered the free Lifeline service via Sprint's prepaid brand Virgin Mobile, that their accounts had not been terminated despite the fact that they hadn't used their phones in recent months, according to Belot. The Oregon Public Utility Commission had several examples of phones that appeared inactive but remained on Assurance Wireless' roles, she said.
Previous FCC administrations have also tried to fix issues associated with the Lifeline program. Julius Genachowski, appointed by President Barack Obama during his first term in office, put into place a system that would root out duplicate applications and ensure that only one person in a household got Lifeline benefits. In 2016, Tom Wheeler, Obama's second-term pick for FCC chairman, created a National Lifeline Eligibility Verifier, which has yet to be fully deployed.
The program went live in March 2018 in six states and will be expanded throughout the country by the end of the year.
Originally published Sept. 24 at 9:54 a.m. PT.
Update 10:22 a.m. PT: Adds comments from a Sprint spokeswoman.