Watchdog Group: California PUC "OBrownaphone" Waste Of Consumer Fees Nears Half A Billion Dollars Each Year

More Than $900 a Year in Subsidies For Some Phone Lines? NTLC Says State Subsidized Program Duplicative of Federal Efforts, "Corporate Welfare" for a Few.

Jun 13, 2013, 14:00 ET from National Tax Limitation Committee, Roseville, CA

SACRAMENTO, Calif., June 13, 2013 /PRNewswire-USNewswire/ -- Move over "Obamaphone." Make room for the "OBrownaphone." The embattled California Public Utility Commission (CPUC) is wasting hundreds of millions of dollars a year subsidizing phone lines and phone service even though a federal program already exists to provide the same benefits to low-income and rural consumers in the state, according to the Roseville, CA-based National Tax Limitation Committee (NTLC).

As the debate rages nationally about federally subsidized phone service for low-income Americans (the so-called "Obama phone" under the wireless Lifeline program of the Universal Service Fund), the widely criticized California Public Utility Commission (CPUC) is forcing state consumers to pay almost half a billion dollars a year for phone service subsidies that wastefully duplicate federal "High Cost" program for subsidized rural phone service and "Lifeline" service for low-income state residents.

Lew Uhler, president, National Tax Limitation Committee, said: "Taxpayers should have deep concerns over the state of California spending a king's ransom each year for subsidy programs that wastefully duplicate programs already administered by the federal government. This is scandalous and it appears to be little more than corporate welfare and a huge waste of hard-earned consumer dollars. It is unclear to me why we need to bleed consumers to pay for the wasteful duplication of the California Universal Service program.  Unlike many of the rollbacks that have been made to state programs over the last few years, this is one cut that wouldn't hurt one bit."        

In the NTLC filing with the CPUC, Uhler highlights the following concerns:

  • Massive waste in the "High Cost" program for rural phone service. "In 2011, as California carriers received more than $90 million in federal support for high cost service, the state provided an additional $104 million. According to [the CPUC's] own 2011 report, small carriers in the High Cost program received an average of $629 per year in support per line, a 60% increase since 2005. Add in the federal subsidy ($257 per year for smaller carriers, according to the Federal Communications Commission), and the cost per customer may approach $900 per year. To be clear, this is the cost to state and federal government sources; the customer still has to pay his phone bill every month … In fact, our cash-strapped state has spent nearly half a billion dollars over the past five years on High Cost subsidies.  At a time when some competitive carriers offer service at 6.3 cents a minute to Mongolia, it's worth asking if this money is well spent."
  • Needless duplication of the federal program for low-income phone users. "The federal Lifeline program provides subsidized phone service to low income consumers across the country. In most states, carriers provide free or low-cost Lifeline service using only this federal subsidy. A handful of states have chosen to enact their own Lifeline programs, which provide additional subsidies. Most state programs are modest. California's program is in a class all its own. Since 2009, California has allocated a staggering $1.76 billion to its state Lifeline program, all to subsidize service the federal government is already paying for. The state spent $112 million in staff and administrative costs just to run the state program."
  • Sticking Golden State consumers with the most expensive "Obamaphone"-like coverage in the US.  "Wireless carriers in other states have been able to leverage the subsidy provided by the Federal Lifeline program to offer free service. The California Public Utility Commission imposed a rule requiring state Lifeline customers to pay for their service, notwithstanding the fact that it was being subsidized by the state to ensure phone service to people who couldn't otherwise afford it. In other states, Lifeline service is funded by the federal government, and free to consumers. In California, the federal government pays, then the state pays, and then the consumer pays. The result is the most expensive Lifeline service in the country."
  • Subsidizing antiquated technology over what consumers actually want and use. "Part of the reason may be that California's state Lifeline program, unlike Federal Lifeline, only subsidizes landline service. For years landline service has lost ground to wireless. According to the Center for Disease Control (which monitors phone service usage for its surveys), 51.7% of American households do not regularly use a landline telephone, and 35.8% don't have one at all. Landline telephone service has retreated to penetration levels last seen during World War II. This year, California has allocated $278 million to expand low-income landline service, even as it disappears across the country."
  • Unjustifiable corporate welfare that picks the pockets of consumers. "Who does all this money go to? Overwhelmingly, the answer is AT&T. AT&T (Pacific Bell) receives about 70% of the California state Lifeline subsidies. Verizon receives another 20%. The remaining 10% is divided among all other landline carriers in California. Wireless carriers get nothing."

In the filing with the CPUC, Uhler also wrote: "Would low-income or rural consumers suffer if California's Universal Service Program was abolished? The evidence suggests not.  Lifeline service is alive and well in other states. The federal Lifeline program would continue to provide subsidized service to eligible consumers. For consumers choosing wireless service, service would be free. CPUC regulation of the program could be dropped in favor of federal default rules. Oversight of the federal program would still be provided by the Federal Communications Commission. Eliminating state Lifeline would save $278 million this year alone, including $25 million in administrative costs to the CPUC.  Eliminating state High Cost support would save an additional $68 million."

To review the full NTLC filing online, go to


The National Tax Limitation Committee (NTLC) has been at work since 1975. It is one of the longest standing and strategically oriented pro-taxpayer/entrepreneur organizations in America. NTLC grew out of work that founder and President Lew Uhler did for then-Governor Ronald Reagan to constitutionally limit the growth of taxes and spending year over year in order to control the size of government (Proposition 1, California, 1973).  In 1978, believing that the time had arrived to begin work at the federal level, NTLC reconvened many members of the Proposition 1 task force, including Milton Friedman, Bill Niskanen, Craig Stubblebine, and others. NTLC continues to incorporate taxpayer support to effect state and federal spending limits.

SOURCE National Tax Limitation Committee, Roseville, CA