[acb-hsp] [Missouri-l] Federal program buys cell phones for the poor.
paltschul at centurytel.net
Sat Jul 31 14:43:59 GMT 2010
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
"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
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
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
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
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
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
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
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,
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
"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
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
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
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
"There will be very little marketing costs. Customer care issues
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
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
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
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."
The SafeLink brand is available to families living in Missouri;
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
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