The top U.S. communications regulator on Monday proposed measures to eliminate the waste and fraud plaguing a telephone subsidy for the poor, and broaden the program to bring high-speed Internet to more low-income households.

The subsidy, offered through the Lifeline program, provides up to $10-per-month discounts on landline or wireless phone service for low-income households. The program is supported by the universal service fund, paid for through fees added to consumers' telephone bills.

While it has helped tens of millions of Americans afford phone service over the past two decades, the Federal Communications Commission said, the program has become outdated and inefficient, lacking cost controls and oversight to prevent abuse of the subsidy.

The FCC is continuing its reform of the $8 billion universal service fund. The agency in October voted to overhaul the largest segment of the fund, roughly $4.5 billion that subsidized telephone service for rural families, shifting the program to support high-speed Internet in rural America and costly-to-serve areas.

FCC Chairman Julius Genachowski on Monday proposed reforms to the fund's Lifeline program that would crack down on duplicate benefits, subsidies for ineligible consumers and fraudulent misuse of Lifeline funds.

Genachowski said his proposal could save the fund as much as $2 billion over the next few years.

A draft order, to be circulated on Tuesday to Genachowski's fellow commissioners, would create a database of Lifeline service recipients to prevent carriers, like Verizon Communications Inc, AT&T Inc and Sprint Nextel Corp, from signing up customers already receiving Lifeline discounts from other providers.

Transparency would be added to the carrier reimbursement process to eliminate abuses, such as carriers signing up ineligible customers or mailing Lifeline-enabled phones to those who have not asked for the service.

Where individuals or companies have unlawfully defrauded or abused our programs, we will penalize them, and we will make it clear that it does not pay to rip off the federal government, Genachowski said in a speech.

Further, carriers that exceed a given annual amount of support from the program would be subject to audits every two years.

The draft order sets a budget for the Lifeline program with the flexibility to shrink or grow from year to year as the economy improves or worsens.

Genachowski said the proposal also begins the process of modernizing Lifeline from telephone service to broadband.

The savings FCC staff estimated would come from revamping Lifeline would be used to support a pilot program aimed at determining how best to increase broadband adoption among Lifeline-eligible consumers.

(Reporting By Jasmin Melvin; Editing by Steve Orlofsky)

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