- The ‘Lifeline’ free-cell-phone scheme cost $2.2 BILLION last year alone, all of it from fees added to the phone bills of paying customers
- The biggest beneficiary other than low-income consumers is billionaire Carlos Slim Helu, whose TracFone has collected $1.5 BILLION to date
- One company told MailOnline it will fire a salesperson who laughed uproariously when a woman said she would sell her phone to buy shoes
- Conservative firebrand James O’Keefe sent undercover actors to pose as ‘Obama phone’ seekers aiming to sell the goods; no one turned them down
- Legislation in Congress would remove the cell phone component of the program, which launched in 1984 and covered only land lines until 2008
Undercover video shot in May by a conservative activist shows two corporate distributors of free cell phones handing out the mobile devices to people who have promised to sell them for drug money, to buy shoes and handbags, to pay off their bills, or just for extra spending cash.
The ‘Obama phone,’ which made its ignominious YouTube debut outside a Cleveland, Ohio presidential campaign event last September, is a project of the Federal Communications Commission’s ‘Lifeline’ program, which makes land line and mobile phones available to Americans who meet low-income requirements.
Lifeline was a $2.19 billion program in 2012.
Recipients most commonly demonstrate their need by flashing an Electronic Benefits Transfer card to verify their eligibility for welfare payments, or by bringing tax statements to a phone provider.
The phones’ legitimate purposes include poverty-level job applicants’ use as contact numbers for job interviews and emergency contacts for children of single parents.
But when James O’Keefe, whose Project Veritas is a perennial thorn in the side of progressive policymakers, sent an undercover actor into a Stand Up Wireless location in Philadelphia, the man’s stated purpose was to buy drugs.
‘Once you guys give me this phone, it’s my phone?’ he asked an employee inside a Philadelphia brick-and-mortal Stand Up Wireless location. ‘I can, like, sell it and stuff?’
‘Whatever you want to do with it,’ the worker replied.
‘So I’m [going to] get some money for heroin,’ he offered.
The employee coolly responded, ‘Hey, I don’t judge.’
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Salespeople working for Stand Up Wireless and TerraCom Wireless – the two companies featured in the video footage – were willing to assign phones to applicants who said they would immediately sell them instead of using them according to the program’s guidelines.
O’Keefe published a five-minute compilation of his video investigation Tuesday morning, along with a longer reel of raw footage. MailOnline has reviewed both.
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Inside an outdoor tent erected by Stand Up Wireless in the City of Brotherly Love, an O’Keefe plant probed a sales rep on May 21.
‘Once it’s my phone, I don’t need to, like, bring it back or anything?’ he asked, while the female worker shook her head in the negative. ‘It’s my phone, right?’
‘Mm-hm,’ she responded.
‘If you’re interested in learning — wanting to know how much the phone’s worth,’ the woman offered later in the conversation, ‘[I] recommend you go to any pawn shop. They’ll be more than happy to tell you, OK?’
‘OK,’ the actor replied. ‘So I could get the phone and then sell it?’
‘Yeah,’ she said, ‘I don’t care what you do with it.’
A TerraCom Wireless salesman performed with similar disregard for federal law.
One young woman, posing as a low-income citizen on May 8 during a Terracom promotional giveaway in Minneapolis, asked plainly if she would be permitted to sell her new phone.
‘It’s kind of like, the first thing that I do is this here,’ the TerraCom rep responded, referring to the required paperwork. ‘And unfortunately there are people on drugs. They get this phone, and they go get $40. … You basically do whatever you want to do with it. That’s what I’m trying to tell you.’
‘Well, I’m not on drugs,’ she replies, ‘but there is a really awesome pair of shoes at the store that I want.’
In mere seconds the TerraCom worker is seen breaking into uproarious laughter.
In the original ‘Obama phone’ YouTube video, now viewed more than 8 million times, a Cleveland woman shouts that minority voters should ‘keep Obama in [as] president, you know? He gave us a phone. He gonna do more!’
‘You gonna own it,’ he says in O’Keefe’s video footage. ‘But if you sell it, you can tell the person that they will have a phone for every month. Every month for the next year they will have a phone. They ain’t got to worry about [a] phone. There’s no bills.’
There are, in fact, bills, but they are covered by Americans who pay for their own phone service. Both land line and mobile bills in all 50 states and the District of Columbia include a Federal Universal Service Charge, a portion of which subsidizes the program.
That makes the program a handout to both lower-income Americans and the companies that supply the phones. To many on the political right, the enterprise has been twisted beyond any semblance of its original purpose.
Like industry leader TracFone, which has received more than $1.5 billion – including $440 million in 2012 alone – to provide phones to 3.9 million recipients, StandUp and Terracom behave more like corporate titans than good Samaritans.
TracFone is owned by Mexican multibillionaire Carlos Slim Helu.
Stand Up Wireless’s parent company, Global Connection Inc. of America, has collected more than $38 million for its subsidized phones. The company itself is owned by Milestone Partners, a venture capital firm based in Radnor, Pennsylvania.
The Oklahoma-based TerraCom Wireless has harvested a total of $168 million for its participation across 23 states. Its self-described ‘sister company,’ YourTel America, Inc., has reaped nearly another $103 million.
President Barack Obama (L) didn’t start the ‘Lifeline’ phone scheme, but his administration has seen its growth skyrocket. The biggest beneficiary may be Mexican telecom billionaire Carlos Slim Helu (R), whose TracFone company scooped up $440 million in Lifeline payments just last year
Together, TerraCom and YourTel entered into an agreement last year with the FCC to pay more than $1 million to resolve claims that they double-billed the government for Lifeline phones, by registering households for both free land lines and complimentary cell phone service.
A TerraCom spokesman told MailOnline that it was the company itself, and not the FCC, that flagged the misconduct.
He added that the salesman seen in O’Keefe’s video – although he hadn’t yet seen it – would most likely be let go.
‘We will immediately look into this matter,’ he said. ‘This kind of behavior is not acceptable and swift action will be taken to address this situation, including the employee’s termination from TerraCom.’
‘We are going well beyond the spirit of the FCC’s rules regarding the Lifeline program,’ he told MailOnline, ‘to ensure that we are preventing and/or quickly identifying potential cases of fraud, waste and abuse in the system.’
Global Connection Inc. of America (GCIOA), Stand Up Wireless’ parent company, was less forthcoming.
Rep. Tim Griffin’s office has distributed a video slamming Carlos Slim Helu for leveraging his TracFone company into more than $1.5 billion in Lifeline program handouts
Company CEO Dave Skogen wrote to an O’Keefe associate on June 10, assuring her that ‘[s]hould an agent or employee of GCIOA not live up to our standards, including enforcing the rules of the Lifeline program, we respond quickly and in an appropriate manner.’
‘We do not benefit from customers selling their Stand Up Wireless phones and do not encourage them to do so,’ he wrote.
But when MailOnline contacted Skogen for this story and shared a lengthy collection of direct quotations from his salespeople’s remarks, he offered little other than an assurance that ‘[w]e have been and will continue to be committed to following all applicable laws and regulations as we serve our customers.’
Pressed for a more detailed statement, Skogen complained that MailOnline ‘asked us to respond to a story on a program that does not exist (free government cell phones) and a video we have not seen.’
Louisiana Sen. David Vitter and Arkansas Rep. Scott Griffin, both Republicans, would rather the mobile phone component of Lifeline actually didn’t exist. They have pushed to eliminate cell phones from the program, leaving the land line portion intact for emergencies and career-building uses.
‘The free government cell phones issue just keeps getting more outrageous,’ Vitter told MailOnline.
‘This phone program has expanded far beyond its original intent, and having Washington force people to pay for free cell phones for others is offensive enough, but the waste, fraud and abuse is beyond words.’
Vitter attempted to attach his legislation to the Farm Bill this month, but Majority Leader Harry Reid blocked a vote. For his recent efforts, Vitter has attracted attack ads in his own district from TracFone.
Griffin is most concerned with what he sees as corporate welfare in the phone program.
‘It’s not fair that people who work, save and pay for their cell phones are forced to fund the Lifeline program that pads the pockets of people like Carlos Slim, the foreign billionaire who has repeatedly been named the World’s Richest Man,’ Griffin said.
‘The tactics used by many of these companies demonstrate that their focus is on maximizing profits, not helping low-income individuals or saving taxpayers money.’
The Lifeline program began in 1984, before cell phones were commercially widespread. Since mobile phones were added to the program in 2008, a Vitter spokesman told MailOnline, costs related to non-land line phones have increased twelve-fold.
The FCC completed a review of Lifeline’s criteria and expenses in 2012, and agreed on a new regimen of standards that the agency says will bring $2 billion in savings by the end of 2014.
Changes included a requirement for marketers to ‘recertify’ every phone recipient on an annual basis and to obtain proof of income eligibility from every new enrollee, steps that weren’t taken previously.
The FCC also found 1.1 million ‘duplicate’ subscriptions that exceeded the one-per-household limit. That number amounted to more than 9 per cent of the program’s enrollments, according to an agency press release.
Still, the FCC insists that Lifeline’s mobile component, the so-called ‘Obama phone,’ is worth saving.
‘[I]n today’s era, with a third of Americans having cut the cord to wireline phone service, it’s appropriate that Lifeline supports wireless service,’ an FCC spokesman told MailOnline, adding that ‘any waste, fraud, or abuse is unacceptable.’
Progressive partisans have defended the program as well. Former CNN contributor Roland Martin wrote in an essay for The Hill that ‘Republicans, goaded by Tea Party extremists, want to cut off poor people from their most viable method of communication when ending Lifeline wouldn’t save the federal government a dime.’
Griffin said his House bill, the Stop Taxpayer Funded Cell Phones Act, would ‘eliminate the waste, fraud and abuse of the Lifeline program by returning it to its original structure.’
That new structure still appears to benefit wireless providers, especially those that don’t screen their applicants closely enough.
O’Keefe told MailOnline that he wanted to conduct ‘an investigation that illustrates the relationship between big government and big business.
‘Well, you can see it first hand here,’ he said, calling the Lifeline program an ‘example of government and politicians abusing the power we have loaned them.’
‘This program utilizes corporate subsidies that enrich the wealthy and hurt the needy,’ O’Keefe added, ‘and are prime picking for abuse.’
At the Stand Up Wireless tent in Philadelphia, one worker counseled ‘taking the Fifth’ on where her new phone might end up, even while she pointed to a giant sign (L) warning about legal penalties for defrauding the Lifeline program. Phones like this cheap Kyocera model (R) are intended to give poor people the chance to make necessary emergency phone calls.
In Stand Up Wireless’s tent, a young woman waited her turn in line. ‘I already have a phone,’ she says in the video footage, ‘but I just need money. So, like, am I allowed to do what I want with the phone when I get it? Could I sell it?’
A female employee busily handing out phones replies, ‘If you want. Sure!’
Asked if the customer should acknowledge on an application form that she intends to sell her new phone, the worker advises that she should ‘probably, like, plead the Fifth on it.’
And if the proceeds were used to buy an expensive handbag?
‘Just keep it to yourself,’ she shrugs.
In a longer conversation, the StandUp employee allows that the young would-be phone recipient could receive – and sell – more than one phone, even though it’s illegal to do so.
‘ONE (1) LIFELINE PHONE PER HOUSEHOLD LIMIT,’ blares a sign hanging behind her.
‘PROVIDING FALSE OR FRAUDULENT INFORMATION TO RECEIVE LIFELINE BENEFITS IS PUNISHABLE BY LAW.’
Still, she concedes that by leaving the tent and going to StandUp’s brick-and-mortar store, a the young woman could disconnect her first phone’s service, and then return for a second.
The Terracom Wireless sales rep also raised the possibility that non-citizens might be obtaining phones subsidized by charges on taxpayers’ phone bills.
‘Obama is being really nice, anybody that’s $16,000 [salary] or less’ can qualify, he says.
‘Anybody. If you might be American, anybody that makes $16,000 or less.’
News reports have documented fraud in the Lifeline program for years.
‘Time and time again, I saw people sign up while texting and talking on their own cell phone,’ reported Chris Nagus of KMOV-TV in St. Louis.
‘I signed up for two already,’ one recipient told him. Another admitted to having four.
Jeff Barnd of WBFF-TV in Baltimore talked with one woman in 2012 who had an even larger collection of ‘Obama phones.’
‘I have six in my purse now,’ Monique Crawford told him. ‘Each and every one of these phones works. At home I know I have about 30 and all of them are on.’