With all of the negative press about “Obama Phones” there are many questions about the Lifeline Cell Phone Program and how it is funded. The Lifeline Program has existed since 1985 and was expanded to include cellular service in 2005. The term “Obamaphone” became popular during the first term of President Obama even though the program was established under President Reagan and expanded under President George W. Bush to include mobile phones.
Lifeline is paid for by the federal Universal Service Fund (USF). While the USF is not funded by tax dollars, it is paid for by fees collected from service providers who pass the costs along to their end users. While you can say that the USF is not paid for with taxes, it is paid by tax payers in the form of a service charge that is a percentage of their phone and electric bills.
The Universal Service Fund (USF) was created in 1997 in response to the Telecommunication Act of 1996. According to the Act, communication service providers are required to contribute a portion of their revenues that are used to fund the USF. These companies include home phone service providers, wireless telephone providers and VOIP providers.
The carriers are not required to pass the fees on to their customers. However, it has become the industry standard practice to pass the fees on to their customers. This can be seen on their customers’ bills in the form of an item labeled ‘Universal Service’.