Obama Phone Program Costs Govt. Over $2 Billion

Nearly half of the 6 million people who received free cellphones and communications services through the government-funded Lifeline program last year apparently were ineligible or did not respond to certification requests, a new report shows.

The U.S. government spent about $2.2 billion on the program last year alone, reports The Wall Street Journal, which conducted a review of the program's funding.

The Lifeline phones, now referred to as “Obamaphones” by critics, are offered to low-income people, who are given an inexpensive phone with a limited number of voice and text minutes. The service, however, is not new. It actually began back in 1984 as a land-line program to make sure poor people would have a service that allows them to keep in contact with their families and to help them in job searches and emergencies.

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Payouts for the program increased from $819 million in 2008, after wireless carriers persuaded regulators to let them offer the service. Wireless customers who don't participate in the program pay an average of $2.50 a month on their phone bills to subsidize Lifeline and other communications programs.

The Federal Communications Commission tightened the rules on the phones last year, requiring carriers to confirm subscribers were eligible. The FCC estimated that 15 percent of users would be weeded out, but found instead that at least 41 percent could not confirm their eligibility.

Carriers involved in the Lifeline program that don't confirm eligibility can face steep fines. For example, two years ago, General Communication Inc. paid more than $1.5 million to settle allegations that its Alaska DigiTel subsidiary submitted false claims to the FCC for more than four years.

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Lifeline users have helped companies like TracFone grow because carriers get $9.95 per month from the government for each Lifeline customer they have. Many of those customers buy additional minutes of service when their government-funded minutes run out.

The FCC says verification methods have saved the Lifeline program nearly $214 million, with total savings expected to reach $2 billion over the next three years.