More than 10 million U.S. residents pay nothing for their cellphone service. So who pays their bills?
The rest of us.
If you take a close look at your monthly phone bill you'll likely see a fee called USF or "Universal Service." That's the fund that collects fees mandated by the federal government to subsidize phone service for those who can't afford to pay for it themselves, reported our Cincinnati Scripps Station WCPO .
Since the days of President Ronald Reagan, the Federal Communications Commission authorized payment only for land-line phones. The fund would pay for hooking up one line per household, then subsidize most if not all of the monthly phone bill.
The program cost less than $500,000 in 2007 before the FCC decided to let people apply for subsidized cell service. Today the program costs more than $2 billion a year.
While it has been widely decried as the "Obama phone," the free cellphone was added in 2008 during the waning days of the George W. Bush presidency.
Virtually any type of government assistance now comes with a government phone. Regardless of income, participation in any one of nine programs automatically qualifies the applicant, including food stamps, Section 8 housing, temporary assistance, Medicaid or school lunch subsidies.
The offering of free cellphones came at the same time as the great recession, so more people qualified. It has helped some families get back on their feet by providing a phone they can use to apply for jobs.
But the cellphone applications now include a place for the needy to enter their home phone numbers. If they already have a phone, why do they need the Lifeline service?
"This has become more than being a Lifeline for some people. It's about a free phone," said Rep. Steve Stivers, a second-term Republican congressman representing Ohio.
Today there are actually more free cellphones out there than there are subscribers.
"Some people had three or four of these Lifeline phones," said Congressman Stivers.
That's because the government and most of the phone companies were not tracking applications to make sure people weren't getting more than one phone. A study by the Government Accountability Office revealed widespread waste, fraud and abuse in the Lifeline program.
"In fact in Ohio," Stivers added, "it's about $2.5 million -- just the duplicate Lifeline phones."
A Hand-Out With A Marketing Budget
How could this happen? No government agency would review, approve or deny applications for Lifeline service. The FCC left that up to the phone companies, which had a strong incentive to find a way to qualify as many applicants as possible.
There are more than 1 million free government cellphones in Ohio alone.
"We believe you," said Rep. Stivers, mimicking the phone companies. "We make money on this, but we believe you!"
Every month, the typical subscriber gets another 250 free minutes and 250 free texts, and the federal fund pays the bills.
There are hundreds of wireless companies pushing the subsidized cellphone service in ads on the Internet. Some of those companies send extra blank applications to approved subscribers so they can get their friends, family members and neighbors to apply.
In a news release, the FCC acknowledged "perverse incentives" for wireless companies and subscribers to game the system.
There are even recruitment ads where wireless companies encourage prospective sales people to "give away government phones" and earn "high commissions."
Once the government is on the hook for the basic service, many of the wireless providers engage in up-sell techniques to convince subscribers that they need more minutes at additional cost.
The phone itself is absolutely free in most cases.
Assurance Wireless , the Lifeline brand of Virgin Mobile USA and Sprint, is one of the largest providers in Ohio. Assurance told the I-Team that it pays for the phone handset and accessories, not the government. That's true -- the USF will not reimburse phone companies for supplying the phone.
But many companies found a way around that, called Link-Up. Another federal program, Link-Up was originally designed to pay half the cost of establishing land-line service, capped at $30 per line. The subscriber was supposed to pay the other half. Also, that fee was based on what companies charged regular paying customers.
The FCC discovered companies were getting the full $30 from the fund without charging the subscriber the other half, and paying customers often had their connection fees waved. Only the government was paying the fee.
Government phones on eBay?
WCPO found dozens of Lifeline phones for sale on eBay .
We looked for phones with the Assurance Wireless label because most other companies use brand names that are also marketed as regular or pre-paid cellphones. To get an Assurance phone from Virgin Mobile/Sprint,