TracFone Targets Low-income Customers 

Not everyone happy about TracFone price plans, however.

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The company TracFone is looking to be a pioneer in Utah, as the first company offering federally subsidized phone service to Utah’s homeless and low-income population.

Unfortunately, its product would give customers only 67 minutes of calling time a month—about the same amount of time these indigent clients would spend on hold with any of the government agencies they regularly interact with.

This criticism is only one of many being offered by local low-income advocates, who worry the TracFone company is taking advantage of new technology to aggressively flood the market with an inferior product.

“Any time that you are in the business of marketing to low-income customers, our concern always is, are they being taken advantage of?” says Sonya Martinez, a housing advocate at the Salt Lake Community Action Program.

Since 1985, the Lifeline Program, implemented by the Federal Communications Commission has allowed expansive subsidized land-line service to many low-income individuals. But in recent months, the Utah Public Service Commission has been faced with the prospect of approving the first wireless company to apply for an Eligible Telecommunications Carrier license to serve Utah’s indigent.

TracFone’s cell phones are advertised as free and having no bills or contracts. When the first free 67 monthly minutes have expired, however, customers will be responsible for buying additional minutes at a cost of 20 cents a minute. They also could only buy those extra minutes in $19.99 increments.

A concern brought up at UPSC’s most recent hearing, on June 7, was that TracFone clients in other states were charged for talking to TracFone’s customer-service representatives, with one client spending 19 of her 67 minutes for the month speaking to TracFone’s agents. TracFone attorney Mitchell Brecher says the company is working to remedy that issue and doesn’t believe it’s one that should hold back license approval.

He’s also said that the company should not be required to contribute to Utah’s Universal Service Support Fund—a fund that verifies the eligibility of customers to use subsidized telephone service—or to chip in for local support to Utah’s 911 service. TracFone’s position has been that, legally, only “billed intrastate retail rates,” require the charge on customers.

Since Tracfone is a one-stop purchase, there’s no bill that could gather the revenue for those services. While Tracfone is federally subsidized, local advocates still worry that adding new clients who don’t support local emergency-service funds will affect state taxpayer-funded services.

Brecher sees that as an issue for state legislatures. “There’s an elegant solution that 13 states have already instituted, and that is they collect the fees at the point of sale,” Brecher says. That way, non-billed products have a legal mechanism for collecting those revenues.

TracFone supporters point out the company is simply filling a service that current land-line providers have failed to deliver on.

“In 2009, only 21 percent (29,982 households) of the estimated 145,986 low-income households in Utah had Lifeline service,” a form letter created by TracFone states. “The low-penetration rate is due in part to the fact that existing telecommunications carriers do not incorporate marketing for the Lifeline program in their business model, and, as a consequence, the majority of Utah’s low-income population do not even know that this program exists.”

Low-income advocates don’t think Tracfone should be setting the bar—especially with 67 minutes a month—for phone service to Utah’s indigent. Tim Funk, director of the Community Housing Advocacy Project of the Crossroads Urban Center, notes that since TracFone put in its proposal, Virgin Mobile has proposed a similar product offering 200 subsidized minutes a month, a more realistic expectation for low-income clients calling government support services or seeking health-care and employment opportunities—let alone any kind of personal calls.

For Brecher, however it’s still a matter of the product. The number of minutes the company allots is based on calculations provided by the FCC. Virgin’s plan may offer more minutes, but Brecher points out they don’t offer texts or international calling like TracFone does—simple marketplace considerations that shouldn’t be cause to halt license approval.

“We’ve got a company willing, ready and able to use federal funds to provide a service to low-income people, but we’re going to put that on hold for two years while we adopt rules for the service?” Brecher asks. “I don’t think that’s in anybody’s interest.”

For advocates like Funk, however, a marketplace has to be set up before business should be transacted. “A generic hearing should be held to review the different offerings and create a new marketplace where true competition could take place,” Funk writes via e-mail.

Eric S. Peterson:

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