FCC Commissioner Geoffrey Starks has called on the agency to put its review of T-Mobile and Sprint’s pending merger on hold until an investigation into Sprint’s apparent misuse of millions in Lifeline subsidies is resolved.
On Tuesday the FCC announced Sprint apparently falsely had collected “tens of millions” in funds from the Lifeline program, which is meant to provide phone and internet service for low-income Americans. Sprint is accused of claiming subsidies for 885,000 Lifeline subscribers who were inactive and not actually receiving services under the program, a figure that represents 10% of the entire Lifeline program’s subscriber base and 30% of Sprint’s Lifeline subscribers.
“Given the enormity of the apparent wrongdoing committed here, we must pause our Commission review,” said Starks. “There is no credible way that the merger before us can proceed until this Lifeline investigation is resolved and responsible parties are held accountable.”
According to a Sprint spokesperson, “an error occurred” in July 2017 when Sprint implemented new requirements that were approved by the FCC in 2016 as part of “sweeping changes” to the Lifeline program and required Sprint to “update how it calculates usage and therefore eligibility of Lifeline customers.”
The FCC said it appeared Sprint had violated the program’s “non-usage” rule, which says providers can only be reimbursed for a Lifeline subscriber that has used the service at least once in the past 30 days, and requires providers to disenroll inactive subscribers after giving them 15 days’ notice.
The agency said Sprint’s alleged disregard of the rule initially surfaced as result of an investigation by the Oregon Public Utility Commission, and Starks questioned why the FCC wasn’t the first to discover the misconduct.
“Why was it that an outside party brought this issue to the FCC’s attention – shouldn’t the FCC have uncovered this? Such apparent misconduct raises serious questions about the accuracy and completeness of both the company’s filings in the merger proceeding and our review,” he said.
According to the Sprint spokesperson, “When the error was discovered, we immediately investigated, 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.
“While immaterial to Sprint’s financial results, we are committed to reimbursing federal and state governments for any subsidy payments that were collected as a result of the error. We are proud of the benefits we provide to eligible low-income individuals through discounted wireless service. We believe this program is valuable for underserved populations,” the statement said.
FCC Chairman Ajit Pai had circulated an item in mid-August, recommending approval of the proposed $26.5 billion merger between Sprint and T-Mobile with conditions, but the agency has yet to release or vote on an order. The U.S. Department of Justice blessed the deal this summer after negotiations that resulted in additional agreements and divestitures to set Dish Network up as a fourth national wireless competitor. But, Sprint and T-Mobile’s tie-up still faces opposition from a coalition of 18 states involved in a lawsuit to block the deal, with a trial slated to start December 9.
Starks said that how T-Mobile and Sprint planned to handle Lifeline “was a prominent part of their merger pitch, so I am alarmed and concerned about such a massive inaccuracy in a core part of the transaction.”
In a note to investors on Tuesday, New Street Research policy advisor Blair Levin said the FCC’s ruling doesn’t affect the issues likely to be raised in the state litigation, but that trial is contingent on the deal receiving FCC approval. New Street analysts still believe the Republican-led FCC majority will approve the transaction, but the Lifeline issue creates a new avenue to challenge the merger. Opponents could raise the question as to whether Sprint is qualified to own its licenses and that could lead to further delays in the deal closing.
According to the FCC, on average providers participating in the Lifeline program receive a $9.25 monthly subsidy per Lifeline subscriber, which is then passed on as a discount to customers and services typically are provided for free.
The Lifeline program in general has been plagued with abuse and fraud for years, and a report from the FCC Inspector General found that 18.5% of payments made by the program were improper.