Even as the FCC is expected to soon approve the merger of T-Mobile and Sprint, which FCC chair Ajit Pai has publicly supported, the chairman has now launched an Enforcement Bureau investigation into what he said is an "outrageous" apparent violation of the FCC's rules on Lifeline broadband subsidies.
Sprint said it was a mistake it has fixed and would pay back the money.
"The Federal Communications Commission has learned that Sprint Corp. claimed monthly subsidies for serving approximately 885,000 Lifeline subscribers, even though those subscribers were not using the service," the FCC said, which would violate its "non-usage" rule meant to prevent waste, fraud and abuse.
The FCC did not call it an apparent violation, but instead treated it as an established problem the "full extent" of which now needs to be investigated and responded to.
That rule requires Lifeline providers to "de-enroll" subs who aren't using their phones. The FCC said Sprint's violation was uncovered by the Oregon Public Utility Commission, which Pai thanks for its efforts. “States are an important partner with the FCC in both helping low-income consumers get access to affordable communications through Lifeline and cracking down on waste, fraud, and abuse in the program," he said.
Preventing that abuse has been behind Pai's efforts to make it more accountable and prevent just the sort of abuse he said Sprint is guilty of.
That 885,000 represents almost a third of Sprint's Lifeline sub base. The FCC-overseen Universal Service Fund provides $9.95-per-month subsidies to serve low-income consumers, but that service must be provided.
“Lifeline is an important component of our efforts to bring digital opportunity to low-income Americans, and stopping waste, fraud, and abuse in the program has been a top priority of mine since I’ve been at the Commission,” Pai said. “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. "I have asked our Enforcement Bureau to investigate this matter to determine the full extent of the problem and to propose an appropriate remedy.”
It is unclear what, if any, impact the investigation could have on the merger, though the FCC usually likes to wrap up legal loose ends before signing off on deals. The Justice Department has already agreed not to block the deal on various conditions.
"It cuts both ways," said MoffettNathanson senior analyst Craig Moffett of the impact on the merger. "On the one hand, it is certainly a blow to Sprint’s credibility, and that’s an obvious negative for the merger. But it also highlights how precarious Sprint is as a fourth operator, so I suppose that could be spun as a positive for the deal, inasmuch as a merger would effectively take them out as an independent operator."
Sprint countered the FCC in a statement, saying that the problem was an error it had since fixed and would reimburse the federal and state governments.
"In 2016, the FCC approved sweeping changes to the Lifeline program," the company said in a statement. "These changes required Sprint to update how it calculates usage and therefore eligibility of Lifeline customers. An error occurred when these new requirements were implemented in July of 2017.
"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."