Taking advantage of government subsidies, companies have set up shop — or at least tents — in Hawaii to offer free or significantly discounted cellular phone service to low-income residents and people who live on tribal lands, which include Hawaiian Home Lands.

The federal Lifeline program provides $9.25 per month in non-tribal areas and up to $34.25 per month for households on tribal lands to pay for the service. The program, created in 1985 under President Reagan, has rapidly grown under President Obama. The money comes from a tax that people pay on their monthly cell phone bills.

One company in particular, Texas-based Blue Jay Wireless, has received so much government money through the program over the past year that the former head of the state Public Utilities Commission is calling for an investigation.

A Blue Jay Wireless tent is set up in Hawaii to offer free cell phones to low-income residents and people who live on Hawaiian Home Lands.

Yelp

In a Nov. 6 letter to the PUC, which approved Blue Jay as a Lifeline-only Eligible Telecommunications Carrier in August 2013, Honolulu attorney Carl Caliboso calls on officials to look into the company’s disbursements, enrollment, advertising and marketing tactics in Hawaii.

He notes in his letter, which he also sent to the Attorney General’s Office and Division of Consumer Advocacy, that his law firm was asked to call attention to Blue Jay’s publicly available financial data. He told Civil Beat that he was not authorized to reveal who asked him to send the letter and declined further comment.

The federal subsidies being overpaid to Blue Jay likely exceed $100,000 per month, says attorney Carl Caliboso, but the company disputes that.

“Even assuming that the number of households located in the HHLs has increased to nearly 11,000 in just the last four years, and even assuming that every single household in the HHLs is on a Lifeline-qualifying public assistance program, then Blue Jay would have to have succeeded, in one year, in signing up every single HHL household for Lifeline, completely locking out its ETC competitors,” Caliboso wrote.

“To have accomplished this — let alone in just one year — seems more than remarkable,” he said.

U.S. Census data for 2010 shows there were 7,294 households on Hawaiian Home Lands. With only one Lifeline subsidy allowed per household, the $2.23 million that Blue Jay received during the first half of 2014 equates to an average of nearly 11,000 households, Caliboso said.

That means the amount of federal subsidies being overpaid to Blue Jay since being designated an ETC in Hawaii likely exceeds $100,000 per month and appears on track to exceed $1.2 million per year, he said.

The number of households on Hawaiian Home Lands has indeed risen, but not by that much. There were 8,329 residential leases on Hawaiian Home Lands as of June 30, according to the Department of Hawaiian Home Lands, which has been inundated with calls from Blue Jay customers who were told by Blue Jay to get certified by DHHL.

This Blue Jay Wireless map shows where Hawaiian Home Lands are located in Hawaii. The company has received $3.5 million this year in federal Lifeline subsidies by signing up residents who say they live on Hawaiian Home Lands.

Blue Jay Wireless

PUC Chair Mina Morita and DCA Executive Director Jeff Ono told Civil Beat this week that it’s not their responsibility to investigate Caliboso’s claims, pointing instead to the Federal Communications Commission.

“The Hawaii PUC’s role is to certify that the wireless provider is eligible to conduct business in Hawaii per the FCC’s criteria,” Morita said.

“It really doesn’t make sense at the state level to duplicate the efforts being done at the federal level,” Ono said.

A spokesman for the Universal Service Administrative Company, which runs the Lifeline program for the FCC, said the company does not verify the eligibility of consumers; that responsibility falls on the telecommunications carriers themselves.

USAC conducts audits and in-depth validations of carriers that participate in the program to ensure they are in compliance with program rules, said Philip “Pip” Colvin, USAC program manager of external relations.

But he was unable to confirm if there are any ongoing audits or reviews of Blue Jay or other Hawaii carriers because those are confidential until approved by the USAC Board of Directors and, in some instances, the FCC.

Any carrier that receives more than $5 million in annual support from the program will be part of the Biennial Audit Program, Colvin said, adding that there is no specific timeline for when USAC conducts other audits, in-depth data validations, assessments or reviews.

Blue Jay Working to Address ‘Perceived Issue’

Lauren Moxley, a former USAC program manager who now works for Blue Jay as its regulatory and public relations manager, said the concerns over the amount of subsidies the company has received are not new to her. She said the FCC is aware of the issue and the company has been working with DHHL.

Without citing examples, Moxley said the factual information and analysis in Caliboso’s letter is dated and flawed.

“The Federal Communications Commission’s rules explicitly and exclusively rely on consumers’ self-certification regarding residence on Tribal lands or Hawaiian Home Lands to determine eligibility for the enhanced Lifeline benefit,” she said in an email.

“Blue Jay, however, has been working since May with the Public Utilities Commission of Hawaii and others to address a perceived issue regarding the number of Lifeline subscribers enrolled in Lifeline with Blue Jay and residing on Hawaiian Home Lands.”

Those talks led to Blue Jay developing and implementing a geo-mapping tool to verify applicants’ and subscribers’ self-certification of residence on Hawaiian Home Lands, she said.

“That effort has resulted in the transition of many existing subscribers from the 1,000 minute enhanced plan to the 250 minute standard plan due to Blue Jay’s inability to verify consumers’ certifications of residence on Hawaiian Home Lands,” Moxley said.

More than 10,000 subscribers were transitioned to the standard Lifeline plan through this process, she said, which included a corresponding reduction in the benefits being drawn from USAC that are passed through to subscribers.

Caliboso said he understands there could be a reasonable explanation, but believes the “troubling facts” still call for an investigation.

New Companies Dip Into Ripe Hawaii Market

USAC disbursed $1.8 billion to roughly 14 million Lifeline subscribers in 2013. For 2014, USAC projects disbursements will be $1.64 billion, Colvin said.

Blue Jay has received almost $3.5 million in Lifeline subsidies this year for residents on Hawaiian Home Lands, according to the latest report filed with USAC. The next highest recipient in that category was Sandwich Isles Communications, which received $47,428.

Blue Jay is also among the top recipients of Lifeline subsidies for people in the state who don’t live on tribal lands. The company has received $402,921 in 2014, second only to Total Call Mobile, which reported $451,846.

Total Call, which received just $27,846 this year in Lifeline subsidies for people on Hawaiian Home Lands, secured its ETC status from the PUC in July 2013.

Hawaiian Telcom, among the oldest companies in the state, was the third-largest recipient of non-tribal Lifeline subsidies, reporting $271,507 so far in 2014. That’s significantly less than in 2013, when it was the top recipient with $391,841 in Lifeline subsidies for residents who don’t live on Hawaiian Home Lands.

Total Call, Blue Jay and Hawaiian Telcom are far and away the biggest recipients of Lifeline subsidies of the 10 approved carriers operating in Hawaii.

Hawaii is a prime market for new companies that want to take advantage of the Lifeline program. The state has one of the lowest participation rates in the country, with less than 10 percent of eligible households enrolled in the program based on 2011 figures, according to a June 2013 newsletter from the Division of Consumer Advocacy.

When Blue Jay first began rolling out its Hawaii Lifeline marketing and distribution efforts in November 2013, Moxley said, the company estimated there were nearly 140,000 Lifeline-eligible households in the state with an eligible consumer participation rate in the program of less than 5 percent.

Lifeline Program Abused on Mainland

Media reports in Colorado, California and elsewhere detail fly-by-night companies distributing free Lifeline phones to people who don’t qualify.

In Denver, a CBS news crew uncovered multiple carriers willing to circumvent government rules. 

An agent representing Total Call Mobile told CBS that he received $3 for every phone he distributed. He gave a CBS employee a phone by using someone else’s food-stamp card as verification, even though the CBS employee told him he did not want a phone.

Total Call, Blue Jay and others often set up tents in poorer areas of towns to distribute the phones, advertising on Yelp or Craigslist that representatives will be there for a short time.

A message from Blue Jay on its Yelp page Tuesday said that “for the near future only” the company would have a table set up at the intersection of School and Pohaku streets. But Civil Beat was told by residents in the area that the company had moved on months ago.

The FCC has worked to reform the Lifeline program in recent years. A new database went live in January to prevent multiple carriers from receiving support for the same subscriber.

Read Caliboso’s letter to the PUC here, and Blue Jay Wireless’ response below.

Read Blue Jay Wireless’ response here.