A federal program that provides discounts on landline and wireless phone service for low-income households is slated for a major overhaul under a plan announced Monday by FCC Chairman Julius Genachowski during a speech at Third Way in Washington, D.C.

The Lifeline program, which until now has only been used to subsidize telephone service, will also be used to lower the cost of broadband Internet to eligible households under Genachowski's plan. Broadband providers can apply for the initiative's pilot program starting this year.

The FCC chief also laid out new regulations to address long-standing problems with fraud and abuse with the Lifeline program.

There's currently no centralized database for recipients of the Lifeline program, allowing multiple carriers to claim they're providing service for a single household. The FCC also has received reports that carriers are gleaning subsidies from customers who didn't sign up for Lifeline by mailing them phones already set up for the service or signing up residents who aren't eligible for the program.

"Defrauding a public program designed to help our most vulnerable citizens is flat-out wrong and simply unacceptable," Genachowski said.

Genachowski wants to set up a national database to prevent multiple companies from getting subsidies for the same customer and conduct independent audits every two years on some carriers. He has also proposed a flexible budget for Lifeline that can shrink or expand with changes in the country's economy, which affects the number of citizens eligible for the program.

Genachowski said he will release a draft of his proposal today to commissioners Mignon Clyburn and Robert McDowell.

The plan to reform the Lifeline program comes on the heels of the FCC's overhaul of the Universal Service Fund and intercarrier compensation last fall.

Some in the wireless industry criticized the changes for underfunding mobile broadband and making steep cuts in subsidies for rural operators.