The New Growth Industry in the U. S.; Providing Goods and Services for the Poor and Near Poor

The Character of the American Economy Changes

It doesn’t make a whole lot of sense to expect to make money by selling things to people who are poor or near poverty.  You make money by having people pay big bucks for what you are selling, and by definition, the poor and the near poor don’t have much money.

But if the number of poor and near poor is large and growing so that the size of the market is becoming huge, then one can make money by selling them goods and services.  And if the government is helping those people out with various programs, then maybe serving that market makes good business senses.

Such is the case with cell phone service.  Cell phones have evolved from a plaything for the rich to a tool of commerce and management and finally into an essential part of everyday living.  The basic landline telephone followed the same evolutionary path, and by the 1930’s it had become an essential part of life rather than an optional benefit. 

 

It turns out that the government has had a program in place for years that subsidizes telephone service for low income people.

Ms. Parker, of Shallotte, N.C., is one of millions of low-income Americans who get 250 minutes a month of free cellphone service through a little-known government subsidy program called Lifeline.

The program, funded by charges levied on cellphone bills nationwide, pays carriers such as Sprint as much as $10 a month per customer to be used toward a free or discounted wireless plan.

 This program has been growing, for the unfortunate reason that the number of people eligible for the program has been growing.



Where Growth Present an
Ugly Picture



The program also brings in a precious commodity in the saturated U.S. wireless market: subscriber growth. In any given period, Sprint has said, more than 50% of its net new customers have come to the carrier via the free service.

Lifeline has been growing rapidly in recent years, reflecting both the ferocity of the fight for U.S. wireless customers and the dire financial condition of many consumers as the economy continues its halting recovery.

This is a good thing for cell phone service providers, and a good thing for the recipients for whom a cell phone might be their only telecommunications service.  It is not a good thing in terms of a reflection on the economy. 

Lifeline was created in 1984, originally to offer subsidized service for landline phones. But, since late in the past decade, it has increasingly been used to fund cellphone service. The program is only open to people who meet federal poverty guidelines or are on food stamps, Medicaid or other assistance programs.

Still, the potential market is sizable. According to U.S. Census figures, more than 46 million Americans were living in poverty last year, an 18-year high.

But as a nation, is the following what really what we want the business news to look like?

While Sprint has tried to reel in lucrative contract customers with unlimited data plans, next-generation mobile broadband and now the iPhone, its 2 million net retail customer additions this year have come almost entirely from lower-end customers who generally pay month to month.

Probably not. But everyday the business news takes on this tone, reflecting the economic characteristics of American society.  It is not a pretty reflection.