Bloomberg News

Richest Man Slim Scrutinized for Profiting From U.S. Phones for Poor

April 25, 2013

Billionaire Carlos Slim

Billionaire Carlos Slim owns Mexico’s biggest phone company America Movil SAB, which offers mobile service in 17 Latin American countries and the U.S. Photographer: Susana Gonzalez/Bloomberg

Congressional Republicans want to rein in a $2.2 billion U.S. mobile-phone subsidy for the poor, saying it’s riddled with fraud and benefits the world’s richest man, Mexican billionaire Carlos Slim.

Slim’s TracFone Wireless Inc. received about a quarter of the funds from the U.S. government’s Lifeline program, according to the latest figures. Today, a House subcommittee asked why the program, paid for by fees charged to U.S. phone subscribers, tripled in cost since 2008.

“It’s not fair that people save and work and pay for phones from whatever funds they have, and other people get them for free,” Representative Tim Griffin, an Arkansas Republican who wants to eliminate the mobile subsidy, said in an interview before the hearing. “It’s not fair the biggest beneficiary of this is Carlos Slim, the billionaire owner of TracFone.”

Slim owns Mexico’s biggest phone company, America Movil SAB (AMXL), which offers mobile service in 17 Latin American countries and the U.S. Its TracFone unit is the largest recipient under the U.S. Federal Communication Commission’s Lifeline program, taking in $451.7 million, or 28 percent, of payments in 2011, the last year for which records are available.

“It doesn’t matter who owns the company,” Jose Fuentes, a spokesman for Miami-based TracFone, said in an interview. “Tim Griffin needs to focus on finding jobs, not trying to focus on a valuable program.”

‘Obama Phone’

The Lifeline program subsidizes monthly service, and carriers give away phones. Recipients generally can’t earn more than 135 percent of the federal poverty line, which in most states is $23,550 for a family of four.

Rules limiting phones to one per household may be violated in some cases, Representative Greg Walden, an Oregon Republican who chairs the subcommittee, said today. “We are spending large sums of money and probably squandering much of it,” Walden said.

The program has seen “explosive growth,” said Representative Marsha Blackburn, a Tennessee Republican, at the hearing. “It’s why so many of our constituents are questioning the program and are questioning the use of the ’Obama phones’ as they are commonly called.”

Started in 1985, Lifeline pays companies $9.25 per customer per month. It disbursed $772 million in 2008 and $2.2 billion last year, according to the Universal Service Administrative Co., a Washington-based nonprofit that oversees the subsidies.

TracFone is the largest prepaid wireless company in the U.S., with 23.2 million customers at the end of March and $4.8 billion in revenue last year. Lifeline accounts for about 3.6 million of those customers, Fuentes said.

Program Trimmed

Largest U.S. telephone company AT&T Inc. (T) took in $274.9 million and third-largest wireless provider Sprint Nextel Corp. (S), based in Overland Park, Kansas, received $273.5 million, according to the FCC. AT&T’s share includes aid for wired phone customers.

The FCC last year moved to trim the Lifeline program. The agency voted to set up a database of participants, which is under construction, to prevent households from collecting more than one subsidized phone service from different companies.

The FCC also told carriers to check eligibility of customers annually, which can be shown through enrollment in social assistance programs.

Verifying Eligibility

The number of program participants has dropped, from 18.2 million to 13.2 million, as the FCC has revamped the program, said Representative Anna Eshoo of California, the top Democrat on the subcommittee.

“What we need to stay away from, with all due respect, is simply a disdain for the president and then moving that to apply to policies in telecommunications -- I mean, it just doesn’t mix,” Eshoo said. “It doesn’t make sense; it’s not dignified. I don’t want to have anything to do with that.”

Sprint in January told the FCC it couldn’t verify the continued eligibility of 1.6 million customers, or 44 percent of its Lifeline participants. Dallas-based AT&T said it dropped 47 percent of its customers, or 609,900 people, and TracFone said it couldn’t verify 739,500, or 19 percent, of its customers.

People could drop from the rolls for not responding to a carrier’s query or if they earn more money.

John Taylor, a Sprint spokesman, declined to comment. Until recent changes, FCC rules restricted AT&T from dropping customers with traditional wired phones from the program, Robert Quinn, senior vice president regulatory and chief privacy officer, said in an e-mail.

’Waste, Abuse’

The House Subcommittee on Communications and Technology’s hearing was called “in response to the growth, waste and abuse that has occurred,” Representative Fred Upton, a Michigan Republican who chairs the Energy and Commerce Committee, and Walden said in a March 26 letter to FCC Chairman Julius Genachowski.

Representative John Shimkus, an Illinois Republican, said program supporters don’t seem to “understand the anger that’s out there in America over this.”

Griffin, the Arkansas lawmaker, isn’t on the subcommittee and his bill isn’t slated to receive a vote during the session. The measure has attracted 42 supporters, all Republicans. It calls for eliminating the wireless subsidy. Payments could continue for wired telephones so households retain the ability to communicate, Griffin said.

Wireless Perspective

Regulators shouldn’t cut mobile service from the program because communications increasingly is moving to wireless devices and assistance should be neutral as to technology, Christopher Guttman-McCabe, vice president of regulatory affairs at CTIA-The Wireless Association, said in testimony submitted to the panel. The trade group based in Washington includes as members largest U.S. mobile carriers Verizon Wireless, AT&T, Sprint and T-Mobile USA Inc.

The NAACP and the Leadership Conference on Civil and Human Rights in letters April 23 to Walden and Eshoo said Lifeline should continue to support wireless and traditional wire-based phones.

The name “Obama Phone” was popularized during the 2012 elections as a video of an excited Cleveland woman extolling the program went viral on the Web.

Critics have seized on the misnomer, even though the program was begun under President Ronald Reagan and a Republican FCC chairman in 2005 changed the program to admit new carriers such as TracFone that are driving program growth.

“People say, ‘Well everybody needs a cellphone,’” Griffin said. “Well, what does ’need’ mean? Do you need an iPad? How about a computer? A printer?”

To contact the reporter on this story: Todd Shields in Washington at tshields3@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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