Companies offering free cellphones target ND
BISMARCK — For some living on the economically depressed Turtle Mountain Reservation in north-central North Dakota, it seemed too good to be true.
Two people in a motorhome recently pulled into Belcourt, parked next to a convenience store and began handing out free cellphones in exchange for filling out some paperwork.
“It’s kind of cold out now, so it’s not as good,” Shannon Ouellette, who manages the One Stop Market, said Thursday. “But when they were here about three weeks ago, there was a constant line of about 20 people out there all day long. I don’t know what the catch is or what’s going on, but they’re getting a lot of people out there.”
It’s a scene likely to repeat itself in the near future on North Dakota’s reservations and elsewhere in the state.
In the past year, the North Dakota Public Service Commission has authorized four wireless companies as Lifeline-only eligible telecommunications carriers. A fifth company, Total Call Mobile Inc., had its initial hearing before the PSC last week.
The designation means they may only offer service through the federal Lifeline Assistance Program, created in 1985 to ensure that low-income Americans have access to phones to help them connect to jobs, family and emergency services. Since the program began, the percentage of low-income households with phone service has increased from 80 percent to 92 percent, according to the Federal Communications Commission.
The Lifeline-only carriers don’t have a storefront or other facilities in North Dakota, and prior to last year that would have prevented them from doing business in the state. But the FCC did away with the “own-facilities” requirement for Lifeline-only carriers in February 2012, opening the floodgates for those seeking to capitalize on the subsidized market.
The firm that set up in Belcourt and in Fort Totten on the Spirit Lake Reservation is Boomerang Wireless. It also plans to market to Standing Rock and Fort Berthold reservations.
Boomerang President Kimberley Lehrman said the company, doing business as enTouch Wireless, has distributed about 400 phones in Belcourt and Fort Totten so far and plans to be on the reservations for another 10 days or so.
She said one reason it chose North Dakota is because penetration of the Lifeline program is low here.
Only 10 to 20 percent of Lifeline-eligible consumers in North Dakota, Minnesota and South Dakota were participating in the program in 2011, the most recent year for which estimates were available from the Universal Service Administrative Co., which administers the Lifeline program. Lifeline had more than 10.5 million subscribers nationwide in 2010.
Boomerang Wireless has found that people in small communities often haven’t heard about the program, Lehrman said. The company reaches out with “event teams” like the one in Belcourt to sign people up.
“We’ve found that the tribal areas have been receptive because they haven’t had anyone there,” she said.
The FCC, recognizing that telephone subscribership levels on tribal lands are the lowest in the country, has made it more lucrative to provide phone service in tribal areas.
For every Lifeline subscriber in tribal areas, the FCC provides the carrier up to $34.25 per month, compared with $9.25 per month for subscribers on non-tribal lands.
Lehrman, noting that business models vary, said the FCC payments to Boomerang are used to pay its network expenses, the cost of managing the accounts and state and local taxes. Lifeline-only carriers typically are resellers of commercial mobile services. For example, Boomerang has resale agreements with Sprint and Verizon, using their networks to provide wireless services in North Dakota.
The base Lifeline service is free for users.
Lehrman said it takes “several months” to turn a profit on a new account.
That provides an incentive to offer a high-quality service to ensure that subscribers stick with the company.
“We really think about customer service and the product that they get. It’s truly a full-service phone,” Lehrman said.
Last year in North Dakota, claims for Lifeline subscribers on tribal lands amounted to $635,440, or about one-third of the $1.9 million in claims statewide. By comparison, claims for tribal subscribers accounted for less than 12 percent of claims nationwide.
The Lifeline program is funded by the Universal Service Fund, which also subsidizes rural phone service and pays for broadband services for public schools and libraries. Telephone companies must pay into the fund, but most pass the cost onto consumers with a fee on their monthly bills.
Both landline and wireless phone companies can offer the Lifeline program. Most wireless companies provide a free cellphone at their own expense.
Still, carriers wouldn’t target reservations if there wasn’t money to be made there, and Lehrman said Boomerang doesn’t apologize for being a for-profit company.
“We are managing this program and we feel it’s really important to be good stewards of the program,” she said.
Boomerang offers two Lifeline packages. In tribal areas, subscribers receive 1,000 minutes per month that can be used as voice minutes or text messages, and unused minutes don’t roll over from month to month. The package for non-tribal areas offers either 125 rollover units or 250 non-rollover units. Subscribers can pay more if they want more minutes or, in Boomerang’s case, a data plan. Lehrman said the phones Boomerang provides aren’t high-end smartphones, but have web and email capabilities.
Fraud, abuse targeted
The Lifeline program was launched under President Ronald Reagan, and the FCC expanded it to include subsidizing wireless service in 2005 under the leadership of President George W. Bush.
The program grew rapidly, and waste, fraud and abuse threatened its future, the FCC stated in a report earlier this year.
Reforms since 2010 have aimed to stop practices such as double-dipping, and Lifeline customers are now required to certify their eligibility every year.
The FCC reviewed more than 12 million subscriber records and eliminated 1.1 million duplicate subscriptions as of February with more to come. It is creating a database that will automatically check for double-dippers.
The FCC said in February that the reforms were on track to save at least $400 million in 2013 on top of $214 million in 2012.
Public Service Commissioner Brian Kalk said Lifeline is “a good program” though he is concerned about duplicate subscriptions.
“We’re exploring ways that we can keep an eye on it ourselves in North Dakota,” he said, adding that the state will be able to access the FCC database.
‘Really important benefits’
Turtle Mountain Tribal Chairman Richard McCloud chuckled as he described how the signup in Belcourt led to a rumor that he had signed off on the program so the FBI could listen in on tribal members’ phone conversations.
He said people were skeptical about the free phones.
“If you went to a car dealership looking for a new vehicle and they said, ‘Just take it, it’s free,’ you’d be thinking, ‘What’s going on here?’” he said.
“When people question me, I say it’s a service provided to the community because we’re a poverty area,” he said.
Lehrman said subscribers tell the company how the program helps them find jobs, stay in touch with their kids in school or loved ones in the hospital and improves their access to health care and government.
“Those are really important benefits that Lifeline brings to a community,” she said.