Free cellphones for poor boon to wireless firms, too

John Cobb, 59, a former commercial fisherman who is disabled with cirrhosis of the liver and emphysema, lives in a studio apartment in Greensboro, N.C., on a fixed monthly income of $674. He has been hoping to receive more government assistance, and in February, he did.

It came in the form of a free cellphone and free service.

Cobb became one of a small but rapidly growing number of low-income Americans benefiting from a new wrinkle to a decades-old federal law that provided them with subsidized landline telephone service.

In a twist, wireless carriers are receiving subsidies to provide people like Cobb with a phone and typically 68 minutes of talk time each month. It is a form of wireless welfare that puts a societal stamp on the central role played by the mobile device.

Cobb's cellphone is a Motorola 175. "I feel so much safer when I drive. If I get sick, I can call someone. If I break down, I can call someone," Cobb said. "It's a necessity."

The users are not the only ones receiving government assistance. Telecommunications-industry analysts said the program, while in its infancy, could benefit mobile-phone carriers, who face a steep challenge of their own: Most Americans already own cellphones, so the poor represent a last untapped market.

"The low-hanging fruit is gone, and the wireless companies are going after the nooks and crannies," said Roger Entner, a wireless-industry analyst with Nielsen. "Oh, the poor: How can we sign them up?"

Carriers can receive up to $10 a month in government subsidies, sufficient to cover what amounts to about $3 in service, not including the initial cost of the phone, Entner said.

Since November, the number of customers receiving free or subsidized wireless service has doubled to 1.4 million, he said. To be eligible for the program, known as Lifeline, a person must meet federal low-income guidelines or qualify for one of a handful of social-service programs, including food stamps or Medicare.

The opportunity has prompted interest from the nation's biggest carriers, including Sprint Nextel and AT&T. But at the forefront is a much smaller company, Tracfone, a Florida provider of prepaid mobile service that has become the face of the fledgling subsidized cellphone.

Tracfone began providing its service, called SafeLink, in Tennessee in August and now does so in 16 states, including New York, North Carolina and Pennsylvania, and the District of Columbia, according to its Web site, which says it's coming to Washington state soon. Each time it enters a market — which generally requires state approval — it runs television ads telling people how easy it is to get a free Motorola phone, like Cobb's.

According to the Federal Communications Commission, Lifeline service was started in 1984 to ensure that everyone had telephone service for emergencies. The Telecommunications Act of 1996 opened competition to new wireline and wireless providers.

More recently, companies, particularly Tracfone, have started pursuing the wireless opportunity. Still, most of the $800 million in subsidies last year went for landline service even as more Americans cut the cord in favor of exclusively using a mobile phone.

The subsidy money comes from a tax applied to phone bills.