A Year in Review (and a Look Ahead): Time for Lifeline Reform

Federal Communications Commission Chairman Tom Wheeler has been on the job for just over a year. And with 2014 coming to a close, we look back at the accomplishments of the FCC in his first year. Today we look at the FCC’s Lifeline program which provides discounts on monthly telephone service for eligible low-income subscribers.

Universal service is the principle that all Americans should have access to communications services. Universal service policies have helped make telephone service ubiquitous and affordable, even in remote rural areas. But in a world that increasing relies on broadband Internet access, the Federal Communications Commission has found that it must reform, streamline, and modernize all of its universal service programs to transform them from safety nets into springboards, improving access to and adoption of critical advanced communications services.

The FCC’s Lifeline program dates back to 1985 and provides discounts on monthly telephone service for 14 million eligible subscribers. These discounts are currently set at $9.25 per month. The Lifeline program is available to eligible low-income subscribers in every state, territory and commonwealth, and on Tribal lands. However, the FCC’s rules restrict participation in Lifeline to subscribers that either have an income that is at or below 135% of the federal poverty guidelines or to those who participate in one of a number of assistance programs. (1) The rules also prohibit eligible low-income subscribers from receiving more than one Lifeline service per household.

Reforming Lifeline Administration

The Lifeline program has endured numerous claims of waste, fraud and abuse and over the past year we saw an example play out in Georgia. The Georgia Public Service Commission proposed to require participating carriers to bill Lifeline consumers $5 every month or provide them with 500 minutes of call time per month. (Carriers typically had provided much less than that.) The rationale was that having to offer the extra minutes would be enough to deter companies from aggressively -- and perhaps fraudulently -- hawking free phones. “I believe the program is broken,” Georgia Public Service Commissioner Doug Everett, who proposed the rule, said earlier. “We found multiple phones in the same household because no one is verifying or checking information.”

Commissioner Everett argued that carriers were signing up more Georgia households than the total number eligible to participate in the program. But a back-of-the-envelope analysis of Georgia's demographics revealed that the state has many more poor people than Commissioner Everett seemed to think. Instead of a Lifeline penetration rate of 125 percent -- as the Commissioner suggested -- it may in fact be more like a penetration rate of about 30 percent. Moreover, when pressed to describe the impact of the rate hike, Commissioner Everett admitted he had "no idea" how effective the proposal would be and admitted that people would be hurt by the rule.

“There’s always going to be collateral damage when you’re having a war, and we’re having a war with fraud and abuse,” he said.

In Georgia there are nearly 721,000 people who rely Lifeline. The New York Times helped put a face on that “collateral damage”:

Donna James, unemployed because of chronic health problems, uses her Lifeline cellphone to speak with friends who give her rides, with clerks at medical offices, with a caseworker, with emergency dispatchers and, of course, with bill collectors. She said, “If it weren’t for my free phone, there were a few times I wouldn’t have made it to the hospital.” If the Georgia Lifeline fee was enacted, James, who has a monthly budget of about $350, said she was likely to have to choose between her phone and one of the six prescription medications she takes every day.

Commissioner Stan Wise, one of two public service commissioners who voted against the new regulation, conceded that the Lifeline program has been rife with misconduct, but warned that the fee would be ineffective and damaging. “What it really does is harm those in the most need and the ones that the program was designed to help,” he said.

CTIA-The Wireless Association, a trade group that represents the wireless industry, sued the Georgia PSC, claiming that the fees would harm customers who couldn’t afford to pay them and were preempted by federal law that prohibits states from regulating phone rates. U.S. District Judge Richard W. Story agreed with the group, granting a temporary injunction that suspends the fees as litigation plays out.

In early 2012, the FCC addressed Lifeline administrative issues adopting new rules aimed at:

• Setting a savings target of $200 million for 2012, and putting the Commission in a position to adopt an appropriate budget for the program in early 2013 after review of a six-month report and one-year report on the effects of the Order.
• Creating a National Lifeline Accountability Database to prevent multiple carriers from receiving support for the same subscriber. The database will build on FCC efforts in 2011 that eliminated nearly 270,000 duplicate subscriptions in 12 states following review of over 3.6 million subscriber records, saving $33 million.
• Creating eligibility databases from governmental data sources, enabling fully automated verification of consumers’ initial and ongoing Lifeline eligibility.
• Establishing a one-per-household rule applicable to all providers in the program, defining household as an “economic unit” so that separate low-income families living at the same address can get connected.
• Establishing clear goals and metrics to measure program performance and effectiveness.
• Phasing out support for services such as Toll Limitation – subsidies to carriers for blocking or restricting long-distance service—and ending Link Up – subsidies to carriers for initial connection charges. Link Up will continue in Tribal lands.
• Reducing burdens on carriers by establishing a uniform, interim flat rate of reimbursement, allowing carriers to obtain a subscriber’s signature electronically, and streamlining enrollment through uniform, nationwide eligibility criteria.

In December 2013, the FCC began to compile a database of Lifeline subscribers in Arkansas, Louisiana, Maryland, Oklahoma and Washington. The database is intended to help the Commission crack down on waste and fraud by flagging existing duplicates for elimination while preventing enrollment of new duplicates. In April of this year, the FCC’s National Lifeline Accountability Database, was expanded to the entire U.S. https://apps.fcc.gov/edocs_public/attachmatch/DOC-326432A1.pdf “The National Lifeline Accountability Database makes smart use of technology to help prevent waste, fraud and abuse,” said FCC Chairman Tom Wheeler. “The database is preventing new duplicates and has rooted out remaining ones. I commend the industry for working with us to implement this effective solution to eliminating wasteful duplicates.”

Enforcement Actions

The FCC has also been cracking down on abuses of the Lifeline program by the carriers that provide service. Investigations by the FCC’s Enforcement Bureau found that the companies apparently violated the FCC’s rules limiting Lifeline subscriptions to one subscriber per household, and received payments for thousands of consumers that already were obtaining Lifeline service from the same company.

In November 2013, the FCC issued Notices of Apparent Liability (NALs) against:

• Conexions Wireless – $18.4 million for apparent violations over the course of eight months in Arkansas, Maryland, and West Virginia. (2)
• i-wireless – $8.8 million for apparent violations over seven months in Ohio, Illinois, North Carolina, Tennessee, West Virginia, New York, Indiana, and South Carolina.
• True Wireless – $5.5 million for apparent violations over eight months in Arkansas, Maryland, Oklahoma, and Texas.

In December 2013, the FCC issued NALs against three companies for requesting/receiving Lifeline support payments for individual customers who appeared on the companies’ Lifeline subscriber lists more than once: 1) Cintex Wireless ($9,461,978), 2) Telrite Corporation ($22,399,761), and 3) Global Connection ($11,702,695).

This past October, the FCC fined two companies a total of $10 million for storing Social Security numbers, names, addresses, driver’s licenses, and other sensitive information belonging to their customers on unprotected Internet servers that anyone in the world could access. The companies allegedly breached the personal data of up to 305,000 consumers through their lax data security practices and exposed those consumers to identity theft and fraud. This was the FCC’s first data security case and the largest privacy action in the FCC’s history.

The FCC wasn’t the only agency involved in enforcement in 2014. On April 10, the Department of Justice indicted three executives of Associated Telecommunications Management Services LLC (ATMS) for falsely inflating Lifeline claims to the tune of $32 million. FCC Chairman Wheeler welcomed the help from the DoJ.

Modernizing Lifeline

Traditionally, the Lifeline program has supported just landline or very basic wireless service, but we’re seeing efforts to modernize the program so it can bring broadband to low-income consumers.

In early 2014, the California Public Utilities Commission voted unanimously to include reduced-cost smartphone service with voice, data and text capabilities among the kinds of handsets available through the state’s LifeLine program. Previously the program offered only support for traditional landline phones.

"This will make high-tech services which California is famous for available to all," said the lead proponent, Commissioner Catherine J.K. Sandoval. "It's a game-changer for California LifeLine subscribers and for our state as a whole." Having a smartphone with access to the Internet can be essential for people seeking jobs, she said.

Nationally, the FCC’s early 2012 reforms also included:

• Adopting an express goal for the program of ensuring availability of broadband for all low-income Americans.
• Establishing a Broadband Adoption Pilot Program using up to $25 million in savings from other reforms to test and determine how Lifeline can best be used to increase broadband adoption among Lifeline-eligible consumers. The FCC solicited applications from broadband providers and selected a number of projects to fund. Lifeline would be used to help reduce the monthly cost of broadband service, but applicants would be expected to help address other challenges to broadband adoption, including the cost of devices and digital literacy.
• A proposal to increase digital literacy training at libraries and schools. A Further Notice of Proposed Rulemaking sought comment on using savings from other Universal Service Fund reforms to increase digital literacy training at libraries and schools, a key step in increasing broadband adoption.
• Addressing broadband adoption barriers through digital literacy training and low-cost broadband availability with public-private partnerships including the Connect-to-Compete initiative.
• Allowing Lifeline support for bundled services plans combining voice and broadband or packages including optional calling features.

These modernization goals got a new jolt in November 2014. First, the Internet Innovation Alliance (IIA) – a coalition of business and non-profit organizations including AT&T, the American Conservative Union and Connected Nation – released "Bringing the FCC's Lifeline Program into the 21st Century," a report which called Lifeline “outdated in today’s highly competitive broadband environment.” IIA called for the FCC and stakeholders to:

• Bring the Lifeline Program into the 21st Century by making broadband a key part of the program’s rubric;
• Empower consumers by providing the subsidy directly to eligible people instead of companies;
• Level the playing field between service providers to broaden consumer choice and stimulate competition for their purchasing power;
• Safeguard and simplify the program by taking administration away from companies that are not accountable to the American public, instead vesting that governmental responsibility with an appropriate government agency.

Then FCC Commissioner Mignon Clyburn spoke at the American Enterprise Institute saying Lifeline should be expanded to cover broadband Internet access and reformed in other ways so that it helps everyone connect in the 21st century. She offered five principles to guide Lifeline reform:

1. Getting the most bang for the universal service buck by establishing minimum service standards – that include both voice and broadband -- for any provider that receives the $9.25 Lifeline subsidy.
2. Providers should no longer be responsible for determining customer eligibility: "Lifeline is the only federal benefits program that I am aware of where the provider determines the consumer’s eligibility. Removing this responsibility from the provider will shore up the integrity of the program by further eliminating incentives for waste, fraud and abuse. The consumer would benefit through the reduction of privacy concerns." For the provider, this would mean a substantial reduction in the administrative burdens.
3. Encourage broader participation through a streamlined approval process.
4. Leverage efficiencies from existing programs and institute a coordinated enrollment.
5. Public-private partnerships and coordinated outreach efforts.

Of the Clyburn proposal, former FCC staffer Blair Levin said, “Remarkably, in a town driven by divides, immediate respondents had universal support for these reform principles. That kind of response suggests we may be one step closer to the day where everyone can afford broadband service.”

Of Clyburn’s principles, Dr John Horrigan, who developed the inclusion portion of the FCC's National Broadband Plan, said, “First, they call for the FCC to improve how the program functions so that more funds go to those who need it, while lessening administrative burden on the companies that provide the benefit to eligible consumers. Second, the principles provide a vision of what consumers and taxpayers get in return.”

Dr Horrigan highlighted two kinds of benefits that are crucial to the digital inclusion equation. The first is time management: “The efficiencies broadband brings to the household can seem even more magical to low-income families that must spend a lot of time carrying out common tasks.” The second benefit has to do with expectations: In his 2014 survey of low-income households who had recently gotten home broadband access through Comcast’s Internet Essentials program, 83% said their children’s schools expected them to have broadband at home, two-thirds (65%) said banks and financial institutions expected that they had broadband at home, and 53% said this about health insurance companies. Dr Horrigan writes:

"Improving time management and becoming aligned with society’s expectations are crucial pathways to making people “digitally ready” for a society where broadband mediates so many interactions and transactions. New Internet users grow to trust the Internet when home access means they don’t have to take time out of their workday to deal with the health insurance company. Parents gain a sense of efficacy when they can give an email address to their child’s school to receive the same online newsletters about school activities that others do. This gives people an immediate sense of the value of connectivity."

The E-rate/Lifeline Connection

While voting to modernize E-Rate, another universal service program which discounts broadband connections for schools and libraries, a majority of FCC Commissioners voiced support to complete Lifeline modernization, too.

Commissioner Clyburn talked about the three-legged broadband stool: broadband at school, broadband in the library and broadband at home. “Absent one leg,” Clyburn said, “the stool does not stand.” She said the educational success hoped for by reforming the E-rate program would not be fulfilled “unless everyone has access to all three legs of that stool. Reforming the FCC’s Lifeline Program is key to this and should be a major priority for the Commission, schools, libraries and the education community. Absent the ability to close the affordability gap for broadband everywhere, the laudable reforms we are poised to launch today will not completely bring [low-income students] out of the digital darkness.”

Fellow Commissioner Jessica Rosenworcel agreed that the job was not yet completed. “We need to recognize that expanding opportunity goes beyond the school doors,” she said. “We can’t forget that in a world where students rely on online resources and digital content in the classroom, they also need access to broadband when they go home.”

The “Homework Gap,” as Commissioner Rosenworcel calls it, is holding back both individual students and our education system as a whole. Rosenworcel pointed to research indicating that roughly 70 percent of teachers assign homework that requires access to broadband. But FCC data suggest that almost one in three households do not subscribe to broadband services at any speed — for reasons including lack of availability, affordability and interest. For teachers in low-income communities, the Pew Research Center finds that students’ lack of access to online resources at home presents a major challenge to integrating technology into teaching. The result is too many young people going through school without fully developing the skills that give them a fair shot at success in the digital age.

Pointing to the FCC’s reform of the E-rate program that is refocusing funding on making broadband more affordable, Rosenworcel proposed allowing Lifeline consumers to choose between applying program support to either voice service or broadband service. “Doing so,” she said, “would modernize the Lifeline program — and also help address the Homework Gap.”

FCC Chairman Tom Wheeler chimed in saying, “I think that we have just counted three votes for Lifeline reform.”

So we're seeing a familiar pattern at the FCC: first comes the administrative streamlining, then comes the modernization with a focus on broadband. Stay tuned for updates in 2015!

Notes:

1. Medicaid; Supplemental Nutrition Assistance Program (Food Stamps or SNAP); Supplemental Security Income (SSI); Federal Public Housing Assistance (Section 8); Low-Income Home Energy Assistance Program (LIHEAP); Temporary Assistance to Needy Families (TANF); National School Lunch Program's Free Lunch Program; Bureau of Indian Affairs General Assistance; Tribally-Administered Temporary Assistance for Needy Families (TTANF); Food Distribution Program on Indian Reservations (FDPIR); Head Start (if income eligibility criteria are met); or State assistance programs (if applicable).
2. The FCC also proposed a penalty of $300,000 against Conexions for its apparent willful and repeated failure to provide timely and complete responses to the FCC’s requests for information, noting that Conexions’ conduct delayed and impeded the Bureau’s investigation.