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.
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The Lifeline program is meant to make phone and internet service available to low-income consumers at a discount and in most cases free, where participating providers on average receive a $9.25 monthly subsidy for delivering service to each Lifeline subscriber – which is then passed on to the consumer.
However, FCC rules say that service providers can only be reimbursed and receive the federal subsidy if a Lifeline subscriber has used the service at least once in the last 30 days, and have to de-enroll inactive subscribers after giving them 15 days’ notice. This is mean to prevent waste, fraud, and abuse, which have riddled the Lifeline program for years.
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.
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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.
“Lifeline is key to our commitment to bringing digital opportunity to low-income Americans, and it is especially critical that we make the best use of taxpayer dollars for this vital program,” said FCC Chairman Ajit Pai in a statement. “I’m pleased that we were able to resolve this investigation in a manner that sends a strong message about the importance of complying with rules designed to prevent waste, fraud, and abuse in the Lifeline program.”
When the issue came to light last September, Sprint acknowledged it made a mistake and attributed it to a calculation error that occurred in 2017. Sprint said the error stemmed from its implementation of new rules to the Lifeline program that were approved by the FCC in 2016 and required Sprint to update how it calculates usage, and as a result eligibility of Lifeline customers.
At the time, a Sprint spokesperson said the error was immediately investigated by the carrier and “proactively raised this issue with the FCC and appropriate state regulators. We also engaged an independent third party to review the results of our review and the effectiveness of our operational changes.”
RELATED: Sprint’s Lifeline problems aren't a new phenomenon – report
Sprint had another Lifeline issue dating back to 2013, reported by the Wall Street Journal, that also related to a usage-calculation error and inaccurately counting Lifeline subscribers it was reimbursed for.
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.”