The Federal Communications Commission (FCC), the US comms regulator, has proposed that Tracfone pay a fine of USD6,013,000 after it was found they had applied for government subsidies for phone services on behalf of 5,738 ineligible customers. Tracfone is a prepaid MVNO that commonly targets low income customers who may also qualify for the US Lifeline program, which uses public money to ensure poor people can afford a phone. Lifeline has been bedeviled by abuse since its inception. The program creates an incentive for telcos and their intermediaries to register customers who do not qualify because their income is too high, and a disincentive to end subsidies when former customers become inactive. In this case agents of Tracfone invented bogus subscribers to profit from Lifeline:
TracFone’s sales agents — who were apparently compensated via commissions for new enrollments — apparently manipulated the eligibility information of existing subscribers to create and enroll fictitious subscriber accounts. For example, TracFone claimed support for seven customers in Florida at different addresses using the same name, all seven of whom had birth dates in July 1978 and shared the same last four Social Security Number digits. The Enforcement Bureau’s investigation also found that, in 2018, TracFone apparently sought reimbursement for thousands of ineligible subscribers in Texas. Specifically, TracFone claimed more Lifeline support than was authorized by the Public Utility Commission of Texas, which is responsible for making subscriber eligibility determinations in that state.
Today’s proposed fine is based on the 5,738 apparently improper claims for funding that TracFone made in June 2018 and includes an upward adjustment in light of the company’s egregious conduct in Florida.
Commenting on the case, FCC Chairman Ajit Pai noted that an important rule change should reduce future abuse of the Lifeline program.
…we will not sit idly by and let Lifeline carriers fabricate enrollment data to generate more sales. And I’m hopeful that our new rule prohibiting carriers from paying commissions to employees or sales agents based on the number of Lifeline customers they sign up will help deter the kind of apparent fraud we’ve seen in this case.
FCC Commissioner Geoffrey Starks observed the dangers of financial impropriety are rising because the coronavirus epidemic will lead many more Americans to rely on the Lifeline program.
Last week, roughly 3.3 million people filed for unemployment benefits—and we have yet to hit the peak of this pandemic. The FCC should be preparing for a significant increase in need for Lifeline support…
To ensure that Lifeline can meet all of these needs, it is critical that we vigorously investigate violations of the program’s rules and apply penalties that both make the fund whole and deter future violations. I believe the proposed penalty here is appropriate, and particularly that the upward adjustment with regard to TracFone’s Florida conduct is warranted in light of the apparent deception the Commission’s investigation uncovered.
TracFone now has the opportunity to respond to the FCC’s allegations of wrongdoing. The FCC will consider TracFone’s submission before deciding the penalty, which cannot be more than the figure they have already proposed.