In Battle Against Fraud in Free Phone Service, the Poor Might Pay the Price

“If it weren’t for my free phone, there were a few times I wouldn’t have made it to the hospital,” said Ms. James, who is unemployed because of chronic health problems and has no other telephone or Internet connection in her home. She is among the 15.3 million people in the United States who receive the Lifeline telephone service because they meet income guidelines or are enrolled in programs like Medicaid or food stamps.

But the fundamental feature of the program on which Ms. James relies — 250 minutes of free wireless service a month — is at the center of a legal battle linked to a new tactic to reduce fraud in the program. The outcome could have far-reaching consequences for the telecommunications industry and for millions of impoverished Americans.

Alarmed by accounts of households that have more than one subsidized phone — a breach of federal guidelines — and other allegations of fraud, the Georgia Public Service Commission voted this year to make this state the first to require phone companies to collect a fee of at least $5 a month from Lifeline users.

As an alternative, in an effort to force the service providers to better police phone usage, the commission also said that the companies could, for the same compensation they already receive from the government, offer participants 500 minutes a month. But the companies denounced that option.

Georgia regulators made their move about three years after the Government Accountability Office reported that officials from 21 states “indicated that they were somewhat or very concerned about consumer fraud in the Lifeline program.”

Georgia’s mandate, which had been scheduled to take effect in January before a judge in Atlanta granted an injunction last week, prompted outrage from some advocates for the poor, and a legal challenge from a trade group that represents cellphone companies. The group argued that Georgia was circumventing federal law to set rates.

But the author of the regulation has argued that the fee’s benefits outweigh the risks, and that it would do much to reduce Georgia’s share of fraud in the Lifeline program, which began in 1985 and was expanded to include wireless coverage two decades later.

“There’s always going to be collateral damage when you’re having a war, and we’re having a war with fraud and abuse,” Commissioner H. Doug Everett told WABE Radio in October.

Stan Wise, one of two public service commissioners who voted against the new regulation, conceded that the Lifeline program has been rife with misconduct, but warned that the fee would be ineffective and damaging.

“What it really does is harm those in the most need and the ones that the program was designed to help,” Mr. Wise said. “If you have three Lifelines and it’s important to you to have the three phones, what’s $15 to you if you’re promoting fraud?”

The program’s troubles have received widespread attention. Aware of the criticisms, the Federal Communications Commission, which cited the potential for “a significant burden on some classes of Lifeline consumers” when it turned back a plan in 2012 to impose monthly fees across the country, has started a campaign to clean up the program, including the introduction of new national databases tracking eligibility and participation.

But if Georgia’s new policy can survive in court, it could be replicated elsewhere by anxious state regulators.

“These sorts of cases are relatively unusual,” said James B. Speta, a professor at Northwestern University who specializes in telecommunications law. “So in a second state or a third state, they will certainly look at what happened in Georgia.”

As the legal battle plays out, Georgia residents who have Lifeline phones are beginning to contemplate what they will do if the fee is put in effect.

Ms. James, who has a monthly budget of about $350, said she was likely to have to choose between her phone and one of the six prescription medications she takes every day.

“I’ve got medicines I’ve got to buy with $5,” said Ms. James, 47, who lives just northwest of Atlanta and said she has medical debts well into six figures after numerous hospitalizations and health issues that include chronic bronchitis and gastrointestinal ailments.

Others who have the Lifeline phones, including Brenda Florence, said they would immediately return them.

“They’re supposed to be free,” said Ms. Florence, 60, who pays for a home landline and cell service but also participates in Lifeline because she receives Medicaid benefits. “I’m going to put it in the box and mail it back.”

In Georgia, where nearly 721,000 people use Lifeline, the debate has also exposed a fissure among those who work to aid people in poverty.

At the Christian Aid Mission Partnership, which provides food and clothing to the region’s poor and sometimes hosts phone providers offering their wares, officials said they endorsed the state’s new effort to stem fraud.

“I think there should be some skin in the game,” said Linda Oviatt, the organization’s outreach director. But she added that she generally supported the Lifeline program because it was “a godsend” for many of her clients.

Other advocates for the poor, though, have been sharply critical of Georgia’s plan.

“The proposed fee simply serves as a penalty on the poor,” the Rainbow PUSH Coalition wrote in an October letter to commissioners. “It is, in essence, a tax being arbitrarily applied to those who can least afford it and an incursion by the P.S.C. on the free market business practices of private companies.”

Back on Lot 54, Ms. James, whose kitchen on a recent day was cluttered with boxed and canned foods, said she thought the debate should focus less on complex legal arguments. She merely wants to keep her aging flip phone.

“It’s so hard on someone who is on a fixed, fixed income,” she said. “It was just an honor to get something that is going to help me.”

Bits Blog: 5 Reasons That Innovation at Twitter Might Take a Hit

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Disruptions: Rather Than Time, Computers Might Become Panacea to Hurt

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Common Sense: H.P.’s Autonomy Blunder Might Be One for the Record Books

The deal was considered so bad, and such an object lesson for a generation of deal makers and corporate executives, that it seemed likely never to be repeated, rivaled or surpassed.

Until now.

Hewlett-Packard’s acquisition last year of the British software maker Autonomy for $11.1 billion “may be worse than Time Warner,” Toni Sacconaghi, the respected technology analyst at Sanford C. Bernstein, told me, a view that was echoed this week by several H.P. analysts, rivals and disgruntled investors.

Last week, H.P. stunned investors still reeling from more than a year of management upheavals, corporate blunders and disappointing earnings when it said it was writing down $8.8 billion of its acquisition of Autonomy, in effect admitting that it had overpaid by an astonishing 79 percent.

And it attributed more than $5 billion of the write-off to what it called a “willful effort on behalf of certain former Autonomy employees to inflate the underlying financial metrics of the company in order to mislead investors and potential buyers,” adding, “These misrepresentations and lack of disclosure severely impacted H.P. management’s ability to fairly value Autonomy at the time of the deal.”

In an unusually aggressive public relations counterattack, Autonomy’s founder, Michael Lynch, a Cambridge-educated Ph.D., has denied the charges and accused Hewlett-Packard of mismanaging the acquisition. H.P. asked Mr. Lynch to step aside last May after Autonomy’s results fell far short of expectations.

But others say the issue of fraud, while it may offer a face-saving excuse for at least some of H.P.’s huge write-down, shouldn’t obscure the fact that the deal was wildly overpriced from the outset, that at least some people at Hewlett-Packard recognized that, and that H.P.’s chairman, Ray Lane, and the board that approved the deal should be held accountable.

A Hewlett-Packard spokesman said in a statement: “H.P.’s board of directors, like H.P. management and deal team, had no reason to believe that Autonomy’s audited financial statements were inaccurate and that its financial performance was materially overstated. It goes without saying that they are disappointed that much of the information they relied upon appears to have been manipulated or inaccurate.”

It’s true that H.P. directors and management can’t be blamed for a fraud that eluded teams of bankers and accountants, if that’s what it turns out to be. But the huge write-down and the disappointing results at Autonomy, combined with other missteps, have contributed to the widespread perception that H.P., once one of the country’s most admired companies, has lost its way.

Hewlett-Packard announced the acquisition of Autonomy, which focuses on so-called intelligent search and data analysis, on Aug. 18, 2011, along with its decision to abandon its tablet computer and consider getting out of the personal computer business. H.P. didn’t stress the price — $11.1 billion, or an eye-popping multiple of 12.6 times Autonomy’s 2010 revenue — but focused on Autonomy’s potential to transform H.P. from a low-margin producer of printers, PCs and other hardware into a high-margin, cutting-edge software company. “Together with Autonomy we plan to reinvent how both structured and unstructured data is processed, analyzed, optimized, automated and protected,” Léo Apotheker, H.P.’s chief executive at the time, proclaimed.

Autonomy had already been shopped by investment bankers by the time H.P. took the bait. But others who examined the data couldn’t come anywhere near the price that Autonomy was seeking. An executive at a rival software maker, Oracle, a company with many successful software acquisitions under its belt, told me: “We looked at Autonomy. After doing the math, we couldn’t make it work. We couldn’t figure out where the numbers came from. And taking the numbers at face value, even at $6 billion it was overvalued.” He didn’t want to be named because he was criticizing a competitor.

Gadgetwise Blog: A Padlock People Might Want to Steal

You don’t often – or ever – see the words “combination lock” and “cool” in the same sentence, so prepare for a first: the Master Lock 1500eDBX DialSpeed is one cool combination lock.

Master Lock’s 1500eDBX DialSpeed replaces a spinning dial with a touchpad.

The eye catcher is its electronic touch pad face, which takes the place of a spinning dial. It unlocks when you tap up, down, left and right arrows that correspond to letters and numbers.

The lock does some things ordinary padlocks can’t. For instance, it can hold four combinations, one master combination and three guest combinations. (You need to know the master combination to reset the others, but the master combination can also be initially set to one that is easy for the owner to remember.)

But it can’t do what many ordinary combination locks can, and that is be used outdoors. The 1500eDBX isn’t weatherproof.

The lock is available in a black or white case for $25 online from Master Lock.

The combination is flexible. You determine how many taps it needs to open, from a minimum of four to a maximum of 12. Letters and numbers at the four positions of the dial to help you recall your pattern.

When you punch in the right code, the center of the dial lights green, and you are rewarded with a satisfying click as the shackle unlatches, and the arrows on the face light up in sequence as if taking a victory lap.

To make sure you don’t forget the combination, Master Lock includes access to an online service called Vault, which lets you store your combinations in an encrypted file.

Master Lock said the battery for the lock should last five years in normal use, but there is a system for opening it with a second battery even if the main one dies.