Sprint busted for Lifeline fraud, forced to pay $200 million penalty

The FCC loves to pay itself on the back for the work it does to eliminate fraud, waste and abuse in the Lifeline free government cell phone program. This generally consists of finding little old ladies with two government-subsidized cell phones or tracking down a household with multiple Lifeline accounts.

That’s all small potatoes compared to the billions of dollars worth of fraud they just uncovered at Sprint.

FierceWireless.com has the details:

The FCC on Wednesday announced that T-Mobile will pay a $200 million penalty to the U.S. Treasury to settle an investigation into Sprint’s misuse of the federal Lifeline program for collecting federal subsidies for inactive users. According to the FCC, the penalty is the largest ever fixed-amount settlement it has secured to resolve an investigation.

Sprint’s Lifeline issues at hand and the resulting investigation began last year as the company was still working to win merger approval with T-Mobile, and was first flagged by the Oregon Public Utility Commission.

The carrier had been claiming monthly subsidies under the Lifeline program for 885,000 subscribers, even though they were inactive and not using the service, violating the commission’s “non-usage” rule, an investigation by the FCC’s Enforcement Bureau found.

Our readers regularly leave comments in which they complain that they cannot get their service providers to cancel their service. Sometimes they want to switch companies, other times they no longer qualify for the Lifeline program, and sometimes they just plain don’t want to participate int the program for one reason or another. We usually tell them that there are a number of ways to end your service. (1) Contact your service provider’s customer service team to cancel your account. (2) Don’t use the Lifeline cell phone for 30 days at which point service should be automatically cancelled. And (3) Don’t re-certify that you are eligible when the anniversary of your enrollment comes around. Any of these actions (or lack of action) should automatically cancel a Lifeline account.

The government pays each Lifeline service provider $9.25 per month for each active customer. It’s a perverse system that encourages cheating and incentivized service providers to keep customers enrolled even when they no longer want nor need the service.

How bad was the fraud? FierceWireless.com calculated the damage:

Sprint delivers wireless Lifeline service to millions of households under the brand Assurance Wireless. At the start of the investigation, the FCC said the 885,000 inactive Lifeline subscribers Sprint was getting paid for represented 30% of the carrier’s total Lifeline base and a full 10% of the entire Lifeline program’s subscribers.

As part of the announcement today, the FCC said Sprint agreed to enter into a compliance plan to make sure it follows the commission’s Lifeline rules in the future.

… From the start Sprint said it was committed to reimbursing federal and state governments for any subsidy payments that were collected as part of the error.

And while the $200 million is a record penalty, according to the FCC, it’s a far cry from investment analysts’ estimates at New Street Research last fall that said in addition to reimbursements, Sprint could face fines totaling in “the low billions of dollars.”

Scam the government out of billions, pay a penalty of millions.

Is this a great country or what?

h/t: FierceWireless