After FCC Accuses Sprint of Massive Fraud, Merger With T-Mobile in Doubt

Sprint is under investigation by the Federal Communications Commission (FCC) for fraudulently obtaining tens of millions of dollars in subsidies intended for provide broadband and phone service for the poor, and the proposed merger between the company and T-Mobile is now in jeopardy as a result.

In a press release, the FCC said Tuesday that wireless provider had been collecting money for 885,000 supposed members of the government's Lifeline program who were not actually using the service. The program was established in 1985 with the intention of helping low income earners obtain traditional phone service. In 2005, the program was modernized by allowing the federal subsidies to be used for wireless and broadband services.

The FCC said that the 885,000 supposed subscribers amounted to 30 percent of Sprint's Lifeline base, and 10 percent of the entire Lifeline program. Providers who participate in the program typically receive $9.25 a month per subscriber, which is intended to be passed along to the consumer as a discount.

The Commission alleged that Sprint was paid for consumers who used no minutes or data, and that the company had ignored the "no usage rule." The rule requires that users make use of the service at least once every 30 days, and that inactive subscribers be de-enrolled within 30 days. The supposed fraud is said to have first been discovered after an investigation by the Oregon Public Utility Commission.

FCC Chairman Ajit Pai said Sprint's actions were "outrageous" and that an investigation of the matter would be launched immediately.

"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," said Pai in the press release. "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."

FCC Chairman Ajit Pai
FCC Chairman Ajit Pai says that Sprint's alleged abuse has costed taxpayers millions for "doing nothing." NICHOLAS KAMM/AFP/Getty Images/Getty

In a separate statement released Tuesday, FCC Commissioner Geoffrey Starks condemned the alleged misconduct and called for the withdrawal of the proposed merger between Sprint and T-Mobile.

"The misconduct alleged today, if true, amounts to corporate malfeasance. A single company apparently misappropriated funds for nearly 10 percent of the entire Lifeline program. I am outraged," said Starks. "Moreover, this announcement directly impacts our review of the proposed merger between Sprint and T-Mobile, one of the largest wireless transactions in FCC history."

"There is no credible way that the merger before us can proceed until this Lifeline investigation is resolved and responsible parties are held accountable," continued Starks.

Sprint has denied any wrongdoing, instead claiming that the matter was the result of an "error" which occurred after the FCC established new rules in 2016, according to a report from CNET.