National Consumers League

Technology

NCL Technology Issues

Weeding through chatter about the 'ObamaPhone'

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Young woman in distress holding a cell phone to her earYou may have heard about the federal Lifeline subsidy program in the news recently. This program has been under scrutiny by Congress, and many believe that the program should be shut down. Unfortunately, there has been a great deal of misinformation circulating about the program – dubbed by many as the “Obamaphone.”

 To help set the record straight about the program, let's take a look at what people are saying:

“[Lifeline] is a government run, taxpayer-funded program that’s running wild and costing more and more.”

--Official Web site for Congressman Tim Griffin (R-AR).

Fact: Lifeline is managed by the Universal Service Administration Company (USAC), a federally-chartered not-for-profit corporation that administers money for a variety of telecommunications subsidy programs. In addition to Lifeline, USAC manages programs that make telephone service available in rural areas, provide health care in rural areas and connects schools and libraries to broadband.

Fact: Lifeline is funded by telecommunications companies that provide interstate services, including long-distance telephone companies, wireless carriers and VoIP carriers. These companies are allowed to pass along the cost of this program to their end-users through a line-item fee on customers’ bills (usually listed as “USF Fee”). 

“This phone program has expanded far beyond its original intent, and as so many middle class Americans struggle underneath this economy, it is really offensive for Washington to make taxpayers pay for free cellphones for others,'"

--Senator David Vitter (Louisiana) in a May 2013 press release.

Fact: The Lifeline program has grown considerably since the program was expanded to subsidize wireless phone service in addition to landline phone service. However, recent reforms have reduced spending by $178 million and the FCC estimates that these reforms will save $2 billion by the end of 2014.

Fact: Whether one considers a fee like the Universal Service Fee to be a “tax,” or not, the Lifeline program helps millions of consumers afford one of the basic necessities of modern life – access to telecommunications. According to a 2011 study by the New Millennium Research Council, (49 percent) of Lifeline subscribers said the cell phone had “improved their financial situation by helping them find or keep work.” For those working or looking for work, the numbers were higher (63 percent); surprisingly, even the retired (39 percent) and disabled (38 percent) said the phone had helped improve their financial situation. Significantly more African Americans (57 percent) than white Americans (43 percent) said the phone had improved their financial situation. According to the NMRC study, the LifeLine wireless subsidy generates a return $1.08 in economic activity for every dollar invested in the program.

“Obama claims a small cut to federal means losing local police and firefighters, but he’s spending $2.2 billion to give away ‘ObamaPhones.’”

--Tweet by Congressman Steve Stockman, Texas (@SteveWorks4You), February 22, 2013

Fact: The Lifeline program is financed by the Universal Service Fee on telephone bills, not by annual budget appropriations. Even if the Lifeline program were ended, it would not affect federal budget appropriations for local police and firefighters not would it reduce the federal budget deficit or the national debt.

“Nobody should be talking about tax hikes when govt is spending taxpayer dollars on free cell phones.”

--Tweet by House Speaker John Boehner, Ohio (@SpeakerBoehner), February 19, 2013.

Fact: The Lifeline program subsidizes telephone service, not the telephones themselves. Companies that offer “free” cell phones recoup the cost of the handset through profits generated by the subsidized cell phone service.