[acb-hsp] [Missouri-l] Federal program buys cell phones for the poor.

[peter altschul]

Federal program buys cell phones for the poor.
By SCOTT CANON
The Kansas City Star
A cell phone in every pocket.  And for growing numbers, it's 
free.
"It's a sign of the times," said Nicholas Eberstadt, a researcher 
at the conservative
American Enterprise Institute and author of "The Poverty of 'The 
Poverty Rate.' "
"When does a luxury become an absolute bare necessity?"
Roughly one in 10 American households qualifies for a direct 
phone subsidy.  In a
fast-growing number of states, including Missouri, that equates 
to a free cell phone.
It is both news and history - the extension of longstanding 
telephone subsidies for
the poor, and cell carriers taking advantage of virtually 
guaranteed profits.
While cell companies see the federal Lifeline program as a way to 
scoop up hundreds
of millions of dollars in business, the move has raised questions 
about the way Americans
subsidize each other's phone service.
More than 2 million poor people have been given free handsets and 
prepaid cell service
- albeit on the simplest of phones, often with barely an hour's 
talk time per month
- as wireless carriers scramble for a toehold with a new class of 
customers..
Access to a cell phone appears to be drawing more low-income 
families to subsidized
service, and to the marketplace of carriers TracFone and Sprint 
Nextel.  Those firms
stand to increase their profits even more by selling minutes to 
the poor beyond what
the government provides.
It has also driven up spending on a longstanding subsidy.  
Between 2008 and 2009,
spending on the phone program grew by nearly $179 million.  The 
portion of people
using the federal government's Lifeline for cell rather than 
landline service rose
to 30 percent from 4 percent.
Phone subsidies for low-income families are projected to rise 
$200 million-plus more
this year and total $1.2 billion.
Advocates of the program, including the Federal Communications 
Commission and social
service agencies, concede that the idea of free cell phones can 
drop jaws.
Yet in an age in which pay phones are an endangered species and 
finding work or managing
child care and health care increasingly demands an electronic 
tether, they contend
handing out cell phones might merely be pragmatic.
Evie Craig, who oversees services for the homeless at reStart 
Inc., said her shelter
recently lost a pay phone.  That, she said, effectively cut off 
people from practical
access to a phone.  Though clients of the agency can have the use 
of a voice mail,
it is obvious to a prospective employer contacting an applicant 
about a job that
the person is staying at a shelter, she said.
"And maybe that shouldn't matter, but it does," Craig said.  
"It's hard for people
to get past the idea that somebody is getting a free phone, but 
it can still be a
practical solution."
For generations, fees have been added to long-distance telephone 
bills under federal
law to steer money to the Universal Service Fund.  That money, in 
turn, has underwritten
the least-profitable sectors of telecommunications, such as rural 
areas.
In 1984, the Democratic Congress and the Reagan administration 
agreed to establish
the Lifeline program.  It pays phone companies to discount the 
bills of poor families.
That was augmented by the Telecommunications Act of 1996 that 
also directed money
from the Universal Service Fund to provide more robust 
communications, and eventually
Internet service, to schools, libraries, and rural hospitals and 
clinics.
For years, the mandated phone discounts to low-income households 
provided about $10
a month per family in reduced landline bills.
Then came TracFone, the prepaid subsidiary of American Movil - 
the carrier owned
by Mexican telecom mogul Carlos Slim.  It proposed to the Federal 
Communications Commission
that some of those subsidies be available for cellular service.
Give that $10 a month to us, the company said, and we will give a 
free phone to any
family that qualifies.  Customers would gain the mobility of a 
cell phone.  Instead
of paying a reduced rate for a landline, the poor would pay 
nothing at all if they
did not use their monthly allotment of 68 minutes.
The FCC gave its OK, and with gradual state-by-state approval, 
TracFone's SafeLink
brand has moved across the country since 2008.  It is now 
available to families in
Missouri, 24 other states and Washington, D.C.  TracFone plans to 
make the free phones
available nationwide.
"We're able to create a profit off it.  We created the business 
model off of the $10
subsidy," said Jose Fuentes, director of government relations for 
TracFone.
Eligibility is the same as it has been for discounts to the poor 
that have been around
for the last quarter-century.  Although the income limits vary 
slightly by state,
they are roughly the same as those for food stamps.  The program 
is also open to the
blind or those receiving disabled veteran benefits.  (The income 
levels vary between
states and allow for certain deductions, but the phones are 
generally available to
a single person earning $11,000 a year or a family of four 
bringing in $22,000.)
Each eligible household is entitled to one free phone and 
service.  TracFone's SafeLink
accounts allow unused minutes to carry over indefinitely.  If the 
minutes are used
up, the phone is still good for 911 calls, and customers can 
purchase more time in
advance at 10 cents a minute - compared with rates ranging from 
15 to 33 cents on
TracFone's other pay-as-you-go plans).  Because it is a prepaid 
service phone, there
is no way to go in debt by calling too much.  The phone simply 
ceases to work.
The family cannot take both the cell service and a discount on 
its landline..  After
a year, the family must requalify for the service.  If, say, mom 
has a job and the
family earns too much to remain eligible for the service, it is 
free to keep the
phone.
That leaves TracFone - which provides the service by buying 
access to AT&T and Verizon's
cell networks - in a position to sell more prepaid minutes.
Overland Park-based Sprint has seen the prospects as well.  The 
company launched its
Assurance Wireless brand in December.  (Sprint won't say how many 
customers have signed
up for the service.  TracFone's SafeLink website claims 2 million 
customers.) Assurance
offers 200 minutes a month.  Unlike Safelink, however, those 
minutes cannot be converted
for text messaging or used on international calls.
Assurance is available in nine states, but not in Missouri or 
Kansas.  It aims to
operate in all 50.  Once approved by state utility commissions 
across the country,
the Sprint subsidiary would be eligible to give service to 35 
million families and
count on the government to cover their admittedly smallish bills.
"That is a good market and we think it has real promise," said 
Sprint Chief Executive
Officer Dan Hesse.
Telecom analysts say that although profit margins won't approach 
what carriers can
make off pricey, data-hungry smartphones, they still represent 
steady income.
"There will be very little marketing costs.  Customer care issues 
probably aren't
that big," said Rick Franklin, a market analyst at Edward Jones.  
"People will come
to it for the free service and probably buy more.  It's a way to 
get your foot in
the door."
Even as the free cell offers have gained quick popularity, their 
cost remains dwarfed
by the money passed out to smaller phone companies to subsidize 
service in rural
areas.  In 2009, for instance, the Universal Service Fund dished 
out about $36.2 million
nationally for free cell phones to the poor.  The same year, it 
paid $4.6 billion
to keep down the cost of the rural telephone service for people 
of all income levels.
Yet it is the cell phones that have begun to renew debate about 
money doled out from
the fund.  At the libertarian Cato Institute, tax policy director 
Chris Edwards said
the fund had developed an unhealthy life of its own.
"People get these fees on their bills and don't really understand 
where it's going,"
he said.  "At the same time they're now subsidizing the cell 
phone industry.  You could
also subsidize everything that a low-income family does - their 
computers, cars,
everything."
At the conservative Hoover Institution, welfare specialist 
Jeffrey M.  Jones noted
that more than 90 percent of Americans carry cell phones, 
including many poor people.
"Is this really a role the government needs to be playing?" he 
said.  "Why not just
let the market take care of this?"
The FCC, which approved adding cell phones to the subsidized 
program, sees wireless
service as increasingly the norm in a country where nearly one in 
four households
has dumped its landline.  It sees the convenience and the 
avoidance of runaway phone
bills - something that disappears with a prepaid service - as a 
way for poor families
to control their budgets.
Those who work with the poor say a cell phone may be the 
difference between landing
a job or not, hearing from a child's teacher, or being able to 
call for an ambulance.
"When somebody is trying to get a job and keep their life 
together," said John Hornbeck
of Episcopal Community Services in Kansas City, "having some kind 
of telephone contact
becomes absolutely essential."
SafeLink Wireless
The SafeLink brand is available to families living in Missouri; 
1-800-977-3768;
www.safelinkwireless.com
.
To reach Scott Canon, call 816-234-4754 or send e-mail to
scanon at kcstar.com
.
Posted on Fri, Jul.  30, 2010 11:05 PM