In news that seems to have soured Sprint’s bid for a mega-merger with T-Mobile, the Federal Communications Commission announced this week that it’s investigating the company over millions in misappropriated subsidies. Sprint, meanwhile, says it improperly collected funds because it was confused about a rule change.
The agency said Tuesday it found that Sprint collected on tens of millions of dollars in federal subsidies through the FCC’s $1.5 billion Lifeline program, which is meant to benefit low-income consumers with a $9.25-per-month subsidy on phone and broadband services. The funds should have benefited some 885,000 subscribers through the Lifeline program, the FCC said, but those consumers were not actively using Sprint’s service, thus disqualifying them from receiving the subsidy.
“It’s outrageous that a company would claim millions of taxpayer dollars for doing nothing. This shows a careless disregard for program rules and American taxpayers,” Chairman Ajit Pai, who backed the Sprint–T-Mobile merger in May, said in a statement. “I have asked our Enforcement Bureau to investigate this matter to determine the full extent of the problem and to propose an appropriate remedy.”
According to the agency, the number of customers for which Sprint misappropriated funds accounts for 10 percent of the total number of Lifeline subscribers and 30 percent of Sprint’s program subscribers. In a statement by email, a spokesperson for Sprint blamed an overhaul of the program that occurred in 2016 in what the company says was an “error” in calculating usage and eligibility for its Lifeline subscribers. The spokesperson said the issue occurred when the changes were put into effect after the FCC rolled out its new rules.
“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,” the spokesperson said. “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.”
A three-year audit conducted by the Government Accountability Office (GAO) and released in 2017 found that, between June 2014 and May 2017, the Lifeline program paid out more than $1 million per year to customers that were deceased or nonexistent. Pai in August vowed to prevent the disbursement of Lifeline funds to dead people through an “administrative cleanup,” of which the investigation into Sprint appears to be a part.
This is, you might say, not exactly great news for a company currently trying to curry favor with the FCC to approve its controversial merger with T-Mobile, a $26.5 billion deal that would bring together the third- and fourth-largest U.S. carriers.
FCC Commissioner Geoffrey Starks said in a statement that the news “directly impacts” the agency’s consideration over whether Sprint should be allowed to merge with T-Mobile. More than a dozen states have joined a lawsuit to prevent the merger, which New York Attorney General Letitia James has said will present “harm to consumers, workers, and innovation”
“There is no credible way that the merger before us can proceed until this Lifeline investigation is resolved and responsible parties are held accountable,” Starks said. “Without the benefit of the findings of this investigation into what appears to be the worst case of Lifeline violations in FCC history, it is impossible for us to trust in the integrity and completeness of the record, evaluate the character and fitness of the applicants, and exercise our statutorily defined obligation to grant only license transfers that serve the public interest.”
Way to go!