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.”

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Bits Blog: SoftBank Chief Hints at More Price Cuts for Sprint

Franck Robichon/European Pressphoto Agency Masayoshi Son, SoftBank’s chief executive, has been behind a sharp decline in prices for broadband and cellphone services in Japan.

Sprint’s new unlimited wireless plan, announced last week after its $21.6 billion acquisition by Japan’s SoftBank, did not deliver the aggressive price cuts that some analysts had expected.

But cheaper plans could be coming.

In a phone interview, Masayoshi Son, SoftBank’s chief executive, hinted that further price cuts could be in the works as the company invests to upgrade Sprint, America’s No. 3 wireless carrier.

“We will be aggressive in technology, price packages, services on every front,” Mr. Son said from California on Wednesday. “At the same time, we will improve the network to be the world’s best,” he said.

SoftBank, the Tokyo-based Internet and mobile communications giant, has a reputation in Japan for undercutting rivals on price to gain market share. Mr. Son has been behind a sharp decline in prices for broadband and cellphone services in Japan.

Expectations are high that Mr. Son will bring that strategy to Sprint, which has struggled with subscriber defections for years and that Mr. Son will inject healthy dose of competition to America’s mobile industry.

But Sprint’s price cuts have not been particularly groundbreaking, and executives have said the cuts were in the works before the SoftBank acquisition.

Under Sprint’s new wireless plan, customers pay $80 a month for unlimited data, texting and calling, down from the $110 Sprint had charged for a similar pricing.

“This is not the ‘magic behind the black curtain’ moment that many were waiting for with SoftBank,” Jennifer M. Fritzsche, senior analyst at Wells Fargo Securities, wrote in a research note on July 12.

Sprint remains under pressure from T-Mobile USA, the No. 4 wireless network, which has been offering a $70 package for unlimited talk, text and data from earlier this year.

Verizon, the industry leader, offers a shared data plan with unlimited talk and text messages for $90 a month, while AT&T, the No. 2 network, has a similar plan for $85.

Mr. Son has said that he planned to invest $16 billion in Sprint over the next two years to shake off competition from T-Mobile while also closing the gap with Verizon and AT&T.

Most of that investment will be spent on base stations for Sprint’s advanced LTE network, he told the Nikkei newspaper earlier this month.
And if SoftBank’s past antics in Japan are a clue, Mr. Son could also start driving down prices.

Bits Blog: The Price of Amazon

Jeff Swensen for The New York Times Jim Hollock’s first book, “Born to Lose,” has been losing momentum, yet Amazon has increased the price by nearly a third.

The Amazon.com story is remarkable. Within living memory, bookselling was a local activity. A major city would have two or three large independent stores selling new books and other large, scruffier stores selling secondhand books. Paperbacks would receive wide if uneven circulation on bus station and drugstore racks. It was not a perfect system, but it had the advantage of being diffuse and thus hard to control. The hippie, black and women’s movements of the 1960s would not have been so successful in challenging authority without the bookstores, which made their ideas widely available and sympathetic in a way that television, for instance, did not.

That transmission system has now been largely dismantled, killed by high rents and new technology. With little discussion, Amazon has skillfully absorbed a large part of the book trade. It sells about one in four new books, and the vast number of independent sellers on its site increases its market share even more. It owns as a separate entity the largest secondhand book network, Abebooks. And of course it has a majority of the e-book market.

The company is a marvel in many ways. You can get almost any print book you want, by the end of the week! And Amazon will pay the postage! For book lovers, it was a dream come true. Amazon presents itself as less a company and more a public utility. One of its greatest accomplishments is the way it has made the future of bookselling seem as if it will inevitably be owned by Amazon.

One consequence of this shift is that soon no one will know what a book’s “real” price is. Price will be determined by demand and perhaps by whim. The first seeds of this can be seen in the Justice Department’s suit against the leading publishers, who felt that Amazon was pricing their e-books so low that it threatened their viability. The government accused the publishers of colluding to raise prices in an anti-consumer move. Amazon was not a party to the case,  but it emerged the big winner.

Perhaps as a result, the question of how Amazon prices books is now a radioactive topic with some publishers. While reporting my article in Friday’s New York Times, I tried to ask the University of Chicago Press why Amazon seemed to be cutting discounts on its books, effectively making them more expensive and thus possibly less salable. Laura Avey, promotions manager, replied: “This just isn’t something that anyone here is going to be able to comment on. Pricing questions involve proprietary information, and we just aren’t able to share that.”

One of the few publishers willing to speak his mind about Amazon is Dennis Loy Johnson, proprietor of the Melville House, one of the most interesting new presses since its founding in 2001. Melville had an immediate hit last month with a rediscovered article by James Agee, “Cotton Tenants.” But as sales slow in the days since publication, Amazon is charging more for it.

The price-tracking site camelcamelcamel shows “Cotton Tenants,” which lists for $24.95, moving from $16 on Amazon shortly after publication to $19.79 last week before falling back slightly to the current $19.23. If you were a few weeks late getting the news about “Cotton Tenants,” you paid 20 percent more.

But it is still cheaper than the neighborhood bookstore, assuming of course there is one left. Right?

“I don’t like the fact that there’s one retailer able to so massively underprice other retailers, especially in a business that so desperately needs more retailers,” Mr. Johnson said. “And I don’t like the inconsistency of the pricing, either — the raising, the lowering — because it sends a confusing message that good books are worth less, and because it encourages buying based on something other than the quality of the book. It’s just an unhealthy business if people are buying a thing mostly because of its price, not its quality. That’s how you sell widgets, not books.”

“Discounting, and especially inconsistent or shifting discounting, really messes with a publisher’s ability to price a book fairly and accurately to its cost,” he added. “You have to consider the fact that whatever price you put on the cover, Amazon is going to reduce it by as much as half — unless they don’t — or they may, but only for a while. But in short they’re going to make your book look like a thing with a cost lower than the one you placed on it.

“So do you raise the price, knowing they’re going to lower it, so that the price will then appear closer to what you need it to be? But if you do that then you’re screwing the more honest retailers who can’t discount. And we’ve gotten a long way from recognition of the fact that publishers have costs in making books, and that should have something to do with the price.”

Bits Blog: With Price Cuts, Retailers Anticipate New iPad

12:38 p.m. | Updated with Wal-Mart Comment

Apple has been pumping out new versions of its flagship devices for so long now that it’s a question of which month, not whether, it will introduce new iPads and iPhones.

The electronics retailer Best Buy on Wednesday took its best guess that the latest iPads are coming soon from Apple by slashing prices on one line of the Apple tablets by 30 percent.

The price cut applies only to third-generation versions of the devices, not the latest vintage, otherwise known as fourth generation iPads. Best Buy is now selling the least expensive third-generation iPad, with 16 gigabytes of storage, for $314.99, down from its previous price of $449.99. A third-generation iPad with 64 gigabytes of storage and support for LTE cellular networks now sells for $545.99, down from $779.99.

Jonathan Sandler, a Best Buy spokesman, said the steep price cuts are not unusual, “especially when looking ahead to potential new product launches by our vendors.” Mr. Sandler stressed that Best Buy has no privileged insight into when Apple might introduce new iPads, beyond the seasonal product introductions most people expect from the company.

The third-generation iPad is a bit of an oddity so it’s not surprising to see a retailer try to clear out its inventory of the devices. Apple introduced the product in March of last year and then, in an unusual move, released a fourth-generation iPad in the fall. The newer version has Apple’s new lightning connector and a faster processor, raising the question of why any customer would bother buying a third-generation device without a significantly lower price.

Walmart, meanwhile, has begun offering a more modest discount on iPad minis. Normally selling it for $329, the retailer is now offering the device for $299.

Sarah Spencer, a spokeswoman for Wal-Mart, said the retailer did not lower the price of the iPad mini in anticipation of a new model from Apple, but rather to sell even more of the product during periods of gift-giving like Mother’s Day, Father’s Day and graduation season. Ms. Spencer said the iPad mini is one of the best-selling electronics products at Wal-Mart.

The iPad is facing a lot of tough competition from the likes of Amazon, Samsung, Google and Microsoft and has been losing share. But some analysts believe the company enjoys advantages over rivals that will give it a significantly bigger position in the years to come than it has in smartphones, where the iPhone accounts for a bit over 20 percent of worldwide shipments.

In a research note published on Wednesday, Toni Sacconaghi, an analyst at Bernstein Research, estimated that Apple will account for 40 percent of the worldwide tablet market in its next fiscal year, down from 57 percent during its last fiscal year. Mr. Sacconaghi thinks Apple will sustain higher market share in tablets than in smartphones in part because it has been more aggressive in courting more price sensitive consumers with the iPad mini, the iPad has better global distribution than the iPhone and there are more apps optimized for the iPad than there are for competing tablets.

E-Book Price War Has Yet to Arrive

Last spring, the Justice Department sued five major publishers and Apple on e-book price-fixing charges. The case was a major victory for Amazon, and afterward there were widespread expectations — fueled by Amazon — that the price of e-books would plunge.

The most extreme outcome went like this: Digital versions of big books selling for $9.99 or less would give Amazon complete domination over the e-book market. As sales zoomed upward, even greater numbers of consumers would abandon physical books. The major publishers and traditional bookstores were contemplating a future that would pass them by.

But doomsday has not arrived, at least not yet. As four of the publishers have entered into settlements with regulators and revised the way they sell e-books, prices have selectively fallen but not as broadly or drastically as anticipated.

The $10 floor that publishers fought so hard to maintain for popular new novels is largely intact. Amazon, for instance, is selling Michael Connelly’s new mystery, “The Black Box,” for $12.74. New best sellers by David Baldacci and James Patterson cost just over $11.

One big reason for the lack of fireworks is that the triumph of e-books over their physical brethren is not happening quite as fast as forecast.

“The e-book market isn’t growing at the caffeinated level it was,” said Michael Norris, a Simba Information analyst who follows the publishing industry. “Even retailers like Amazon have to be wondering, how far can we go — or should we go — to make our prices lower than the other guys if it’s not helping us with market share?”

Adult e-book sales through August were up 34 percent from 2011, an impressive rate of growth if you forget that sales have doubled every year for the last four years. And there have been more recent signs of a market pausing for breath.

Macmillan, the only publisher that has not settled with the Justice Department, said last week as part of a statement from John Sargent, its chief executive, that “our e-book business has been softer of late, particularly for the last few weeks, even as the number of reading devices continues to grow.” His laconic conclusion: “Interesting.”

Mr. Norris said Simba, which regularly surveys e-book buyers, has been noticing what it calls “commitment to content” issues.

“A lot of these e-book consumers aren’t behaving like lab rats at a feeder bar,” the analyst said. “We have found that at any given time about a third of e-book users haven’t bought a single title in the last 12 months. I have a feeling it is the digital equivalent of the ‘overloaded night stand’ effect; someone isn’t going to buy any more books until they make a dent in reading the ones they have already acquired.”

Another, more counterintuitive possibility is that the 2011 demise of Borders, the second-biggest chain, dealt a surprising blow to the e-book industry. Readers could no longer see what they wanted to go home and order. “The print industry has been aiding and assisting the e-book industry since the beginning,” Mr. Norris said.

It is possible that Amazon, which controls about 60 percent of the e-book market, is merely holding back with price cuts for the right moment.

The next few weeks are when e-book sales traditionally take a big jump, as all those newly received devices are loaded up with content.

Amazon declined to comment beyond saying, “We have lowered prices for customers from the prices publishers set on a broad assortment of Kindle books.” Barnes & Noble declined to comment on its pricing strategy.

The question of the proper price for e-books has shadowed the industry ever since Amazon introduced the Kindle in late 2007 and created the first truly popular portable reading device. Amazon had a natural impulse to build a market and was an aggressive retailer in any case, so it took best sellers that cost $25 in independent bookstores and sold them for $9.99 as e-books. Consumers liked that. E-book adoption soared.