“It’s a pilot program. The FCC’s trying to see what works better, and the direction the FCC wants to take after that is entirely up to them.”
Federal pilot contracts for the Internet program were awarded in December and are an expansion of the $2.4 billion-a-year Lifeline phone program, which is funded by a “universal service” charge of about $2.50 per household added to customers’ monthly bills. The decades-old program was used to subsidize landlines and attracted little scrutiny, but since 2008, when it began paying for cellphones, demand has exploded, largely because of the efforts of TracFone, which has cornered the market on the subsidized distribution of phones without Internet data plans.
“TracFone currently has over 4 million Lifeline subscribers. Furthermore, in every state in which TracFone provides Lifeline service it has increased the Lifeline participation rate by a substantial percentage,” TracFone wrote in its proposal for the broadband pilot.
TracFone, the nation’s largest provider of prepaid cellphone services, provides far more subsided service than any other telecommunications company, with more than three times as many recipients as Verizon.
America Movil’s Mr. Fuentes acknowledged that growth in the program was a result of its marketing, including canvassing, promoting “free camera phones” with 250 minutes of talk time.
“We do a very aggressive advertising, grass-roots campaigns to alert the people that this government program is available,” he said.
Last year, the FCC announced its intention to expand the program to provide broadband Internet, envisioning cable companies providing wired hookups to home computers. In December, it selected proposals from 14 companies for a $25 million pilot program, the vast majority of which provide DSL hookups for desktop or laptop computers, and many of which also require digital literacy training.
But TracFone’s proposal was different. There would be no computers in sight, no opportunities to practice typing, read extensively or polish a resume. The company proposed instead simply offering fancier phones with Internet plans included, something it knows appeals to the poor.
“As proposed by TracFone, 500,000 to 1,000,000 low-income households would participate in the trial. In the pilot program, TracFone will offer its customers handsets that have an Android operating system. In addition, all plans will include the following bundled services each month: unlimited voice, unlimited texts, and 2GB of data,” billing the government at up to $45 per person per month, the successful proposal says.
The company later significantly scaled back its pilot proposal to a $1 million plan that would require the largest group of customers to pay $10 a month, with the company filing for reimbursements for up to $25 per customer monthly.
But if the pilot program goes full scale and TracFone achieves the same number of customers as its current phone service, it would be billing the fund $100 million per month.
Unlike others’ proposals, even those who already are paying for Internet service would be eligible for the service under TracFone, and for five out of six test groups, no digital literacy training would be required.
The entire idea of subsidizing Internet access for the poor came from TracFone, the company said. “In October 2008, TracFone filed with the [FCC] a petition in which it proposed that the commission establish a pilot program for a broadband support mechanism based on the Lifeline and Link Up low-income support programs,” it wrote.
In addition to the Pollaks’ connections to Mr. Obama, the company has doubled its lobbying in the past five years, spending more than $600,000 last year on lobbying the government.