Crisis in free government cell phone program: Will new demands kill off service providers?

As of December 1, 2020 all Lifeline free government cell phone service providers are required to offer each customer 4.5 GB of data each month. That’s a hefty increase from the previous requirement 3.0 GB per month, and the second 50% increase in a year or so.

To be blunt, this added benefit is causing great turmoil among the service providers. Their profit margins were slim to begin with and now the added expense of another 50% increase in gigabytes may just drive a number of marginally-profitable companies out of the business. And that’s bad news for all free government cell phone customers.

Of course, that’s not how Ajit Pai, Chairman of the Federal Communications Commission, sees it. He issued a statement that said:

“As the communications marketplace continually evolves, it’s critical that minimum standards for Lifeline service increase so that Lifeline subscribers do not receive second-class service.”

Activists who support the Lifeline program agreed. They contend that 3 GB is too skimpy for free government cell phone customers customers to use the internet to look for jobs, to get medical care, and to use all the other services that have migrated to the internet during he COVID nightmare.

Free government cell phone companies don’t dispute that they number of gigs they offer may be restrictive, but they contend that their reimbursement should increase if they are forced to offer increased service. It’s tough to argue with their point of view.

Each Lifeline service provider is reimbursed at the rate of $9.25 per month per customer. That rate has not increased since 2016.

Here’s how a spokesman for TracFone, parent company of service provider Safelink, explained the conundrum to HeraldTribune.com:

“TracFone representatives explained we appreciate the chairman’s efforts to modify and harmonize the MSS formula for calculating the minimum data allowance for Lifeline mobile broadband services,” senior TracFone executive Mark Rubin noted following a conference call.

“Nonetheless, we elaborated on how an increase from the current 3 GB to the proposed 4.5 GB per month would still have a harsh impact on Lifeline consumers due to the asymmetry between the Lifeline subsidy amount – currently at $9.25 – and the retail price of service offerings that would meet the new service requirements.”

Plans including that much data cost $25 to $40 per month, said lawyer John J. Heitmann, who represents the National Lifeline Association (NaLA), who included the prices of dozens of companies in a letter to the FCC. 

“There is simply no evidence in the docket to suggest that a 50% increase in the required mobile broadband data – with no corresponding increase in subsidy support – can be provided without forcing a copay on consumers,” Heitmann wrote. 

To sum up the contradictory issues of the parties involved: The FCC wants Lifeline service providers to offer 50% more gigs per month. The service providers say they can’t afford another increase. And, finally, Lifeline customers say they cannot afford to pay for the additional gigs.

Nancy Huber, president of the National Grange, summed up her fears in a letter to Congress:

“A mandatory copayment on low-income consumers to participate in the Lifeline program could spell the end of the program as we know it.”

This is a case of the unstoppable force (the need to make a profit) meeting the immovable object (customers’ inability to pay more).

We honestly cannot see a solution that will make everyone happy. We sincerely hope that wiser minds than ours will be able to figure out something soon.