The federal program that supplies poor people with wireless service gave millions of recipients phones despite the fact that they weren't eligible under guidelines established by the FTC.

Wall Street Journal:

The U.S. government spent about $2.2 billion last year to provide phones to low-income Americans, but a Wall Street Journal review of the program shows that a large number of those who received the phones haven't proved they are eligible to receive them.

The Lifeline program-begun in 1984 to ensure that poor people aren't cut off from jobs, families and emergency services-is funded by charges that appear on the monthly bills of every landline and wireless-phone customer. Payouts under the program have shot up from $819 million in 2008, as more wireless carriers have persuaded regulators to let them offer the service.

Suspecting that many of the new subscribers were ineligible, the Federal Communications Commission tightened the rules last year and required carriers to verify that existing subscribers were eligible. The agency estimated 15% of users would be weeded out, but far more were dropped.

A review of five top recipients of Lifeline support conducted by the FCC for the Journal showed that 41% of their more than six million subscribers either couldn't demonstrate their eligibility or didn't respond to requests for certification.

[...]

The program is open to people who meet federal poverty guidelines or are on food stamps, Medicaid or other assistance programs, and only one Lifeline subscriber is allowed per household.

The program, which is administered by the nonprofit Universal Service Administrative Co., has grown rapidly as wireless carriers persuaded regulators to let people use the program for cellphone service. It pays carriers $9.25 a customer per month toward free or discounted wireless service.

Americans pay an average of $2.50 a month per household to fund a number of subsidized communications programs, including Lifeline.

First of all, what do you make of the FTC going ahead and administering a program where even they admit there is at least 15% of recipients engaged in fraud?

Until last year, FCC rules didn't require carriers to certify to the FCC that subscribers were eligible. Consumers could self-certify, and in many states documentation wasn't required.

"Self-certify?" A two billion dollar program and the only fraud prevention measure is trusting people to tell the truth? Nutzo.

Secondly, let's not put the entire blame on government. Wireless companies realized a government sponsored gold mine and went for it:

For the carriers, the program is a chance for them to sign up more subscribers and make a small profit, plus more money if customers go over their small initial allotment and need to buy more minutes or text messages. Carriers can set prices for their Lifeline subscribers as the companies wish.

[...]

Lifeline users have been a source of subscriber growth in the otherwise saturated U.S. market and helped fuel the expansion of companies like TracFone, now the fifth-largest U.S. wireless carrier.

So the carriers took the most irresponsible consumers in the country - people who have difficulty managing the paltry subsidies the government gives them in the first place - and then jacks up the price when they inevitably go over minutes or limits on text messages. Classic exploitation.

A recipient could receive the free cell phone for their entire lifetime because "subscribers didn't have to recertify once they were enrolled in the program, and there were few checks on whether households signed up for more than one cellphone."

And the FTC's response?

The program rules we inherited were designed for the age of the rotary phone and failed to protect the program from abuse," FCC Chairman Julius Genachowski said.

Rotary phones went out in the 1970's. Is the FTC trying to claim that that they didn't have enough time to rewrite the rules to minimally protect the taxpayer's money?

I agree with the notion that a telephone is not a convenience or a luxury. In the 21st century, it is a necessity. Those who truly can't afford service should be subsidized. However, I greatly doubt whether there are $2.2 billion that needs to go to pay for service for people who can't afford it.

If you can afford cable or satellite TV, you can afford a phone.