What's the FCC Doing to the Lifeline Program?

On November 16, 2017, the Federal Communications Commission will vote on an item that will impact the commission's Lifeline program, which provides discounts on telecommunications services for qualifying low-income consumers. On October 26, FCC Chairman Ajit Pai released a draft of the item in advance of the November vote. Here we break down the rules that the FCC plans on changing immediately at the November meeting, the new proposals the FCC is seeking comment on, and the more general evaluation the FCC is launching into the program's "ultimate purposes."

I. What Rules Will Change on November 16?

A) Targeting Lifeline support on Tribal Lands to Rural Areas on Tribal Lands 

The FCC will target enhanced Lifeline support on Tribal lands to residents of rural areas on Tribal lands. The FCC's draft order reads, "Focusing the enhanced subsidy for Tribal lands on rural areas is consistent with the enhanced subsidy’s purpose and will ensure that the Fund is better directed toward the residents of Tribal lands who typically have the least choice for communications services."

Because telephone subscribership levels on Tribal lands are the lowest in the country, enhanced Lifeline benefits are currently available to low-income residents who live on Tribal lands, which includes those who live:

• On a federally-recognized Indian Tribe's reservation, pueblo, or colony
• On a former reservation in Oklahoma
• Within an Indian allotment
• Within an Alaska Native region established by the Alaska Native Claims Settlement Act
• On Hawaiian Homelands held in trust pursuant to the Hawaiian Homes Commission Act of 1920

Tribal Lands Lifeline provides a monthly discount of up to $34.25 off of the cost of telephone service, either wireline or wireless. This discount is currently $9.25 (which is available to all eligible low-income subscribers across the United States) plus up to an additional $25 (which is available only to eligible low-income subscribers living on Tribal lands.) This discount may vary somewhat from state to state, depending on whether the state has its own Lifeline program. In some cases, Lifeline also includes Toll Limitation Service, which enables a telephone subscriber to limit the amount of long distance calls that can be made from a telephone.

Tribal Lands Link Up provides qualified subscribers living on Tribal lands with a one-time discount of up to $100 on the initial installation or activation of a wireline or wireless telephone for the primary residence. Tribal Lands Link Up also enables subscribers to pay the remaining amount that they owe on a deferred schedule, interest-free. Qualifying subscribers may be eligible for Link Up again only after moving to a new primary residence. Tribal Link Up support is only offered to carriers who are building out infrastructure on Tribal lands, so not all carriers may be discounting their activation fee.

The FCC is deciding now that focusing enhanced support on less-dense areas will improve the Tribal support mechanism and better serve the goals of enhanced Tribal Lifeline support to incentivize deployment in areas that need it most and to increase the affordability of Lifeline services for Tribal lands residents.

B) Mapping Resources for Enhanced Rural Tribal Lands Support

The FCC is identifying mapping resources that can be used to locate “Tribal lands” under its rules. These maps can then be intersected with the maps delineating rural areas in order to create a map showing where enhanced Tribal lands Lifeline support is available. The FCC directs the Universal Service Administrative Company (USAC), which administers Lifeline funds, to make these mapping resources available to Lifeline providers.

C) Independent Verification of Residency on Rural Tribal Lands

The FCC will change it's enhanced Lifeline rules so that only subscribers whose residential address or location is shown to fall within the boundary of the enhanced Tribal Lifeline map discussed above may receive enhanced support. Previously, the FCC had permitted providers to accept subscribers’ self-certifications that they reside on Tribal lands. The FCC believes this made the program vulnerable to fraud.  Lifeline providers will be required to independently verify and document subscribers’ rural Tribal residency according to the map and data sources.

D) Targeting Enhanced Lifeline Tribal Support to Facilities-Based Providers

The FCC will limit enhanced Tribal support to facilities-based service providers (that is, telecommunications service providers who own, as opposed to lease, networks used to provide telecommunications services). Currently, two-thirds of enhanced Tribal support goes to nonfacilities-based Lifeline providers.

The FCC will only allow support to:

1. Mobile wireless facilities-based Lifeline service provided on Tribal lands with wireless network facilities covering all or a portion of the relevant Lifeline ETC’s service area on Tribal lands; and
2. Facilities-based fixed broadband or voice telephony service provided through the ETC’s ownership or a long-term lease of wireline loop facilities capable of providing Lifeline service to all or a portion of the ETC’s service area on Tribal lands.

The draft order reads

We find that last-mile facilities are critical to deploying, maintaining, and building voiceand broadband-capable networks on Tribal lands and Lifeline funds are more efficiently spent when supporting such networks. When the Lifeline discount is applied to a consumer’s bill for a facilities based service, those funds go directly toward the cost of providing that service, including provisioning, maintaining, and upgrading that provider’s facilities. In contrast, Lifeline funds disbursed to nonfacilities-based providers will still lower the cost of the consumer’s service, but cannot directly support the provider’s network because the provider does not have one.

Limiting enhanced Lifeline support to facilities-based service provided to subscribers residing on Tribal lands will focus the enhanced support toward those providers directly investing in voice- and broadband-capable networks on rural Tribal lands. We find that this result comports with the Act’s direction to the Commission to base its policies on the principle that “low-income consumers and those in rural, insular, and high cost areas, should have access to telecommunications and information services... that are reasonably comparable to those services provided in urban areas....” Directing enhanced Lifeline funds to facilities-based services makes those services more affordable and competitive for low-income consumers and also encourages investment that will ultimately provide more robust networks and higher quality service on rural Tribal lands. Doing so also ensures that the payments Lifeline providers receive from the Fund to serve rural Tribal lands will be reinvested in the “provision, maintenance, and upgrading” of facilities in those areas.

E) Increasing Lifeline Benefit Portability

In December 2016, the FCC established what's called a "benefit port freeze," requiring Lifeline customers to remain with their service provider for a minimum period (60 days for voice services and one year for broadband service) before they can transfer their benefit to another provider. The FCC is now eliminating the port freeze based on carrier opposition stating that the requirement restricts consumer choice. The FCC concludes now that  

restricting the ability of Lifeline consumers to transfer their Lifeline benefit between service providers ultimately disadvantages Lifeline consumers. Such a restriction limits Lifeline consumers’ ability to seek more competitive offerings and obtain those services that best meet their needs. In addition, restricting consumers’ ability to transfer their Lifeline benefit will not promote competitive service offerings and, in fact, may diminish providers’ motivation to provide higher quality service after enrolling a Lifeline-supported broadband subscriber, because the provider is assured a 12-month commitment from the subscriber.

F) Lifeline and Wi-Fi

The FCC will clarify that “premium Wi-Fi” and other similar networks of Wi-Fi-delivered broadband Internet access service do not qualify as mobile broadband under the Lifeline program rules. Mobile broadband service eligible for Lifeline reimbursement must be provided on a network using at least 3G (Third Generation) mobile technologies. Lifeline-eligible mobile broadband requires a mobile service provided through 3G mobile broadband technologies or subsequent and superior generations of mobile broadband technologies. The FCC will also clarify that a provider does not directly serve a customer with fixed broadband service under the Lifeline rules if that customer cannot access the service at their residential address.

II. What Rules is the FCC Proposing to Change?

On November 16, the FCC will launch a new proceeding asking for public comment about a number of changes to Lifeline rules it is now proposing. The FCC says the aim of the proceeding is to ensure that the Commission is administering the Lifeline program on sound legal footing, recognizing the important and Congressionally mandated role of states in Lifeline program administration, and rooting out waste, fraud, and abuse in the program.

A) The Role of States in Lifeline

The FCC is proposing to eliminate the Lifeline Broadband Provider category of eligible telecommunications carriers (ETCs) and is seeking comment on ways to encourage cooperative federalism between the states and the commission to make the National Verifier a success.

First, the FCC proposes to eliminate the standalone LBP designations to better reflect the structure, operation, and goals of the Lifeline program.

In 2016, the FCC established a framework to designate providers as Lifeline Broadband Providers (LBPs), eligible to receive Lifeline reimbursement for qualifying broadband Internet access service provided to eligible low-income consumers, but not Lifeline voice service. To receive reimbursement from the federal universal service fund’s High Cost Program for providing service in remote and underserved communities -- or for voice services delivered in the Lifeline program -- a wireline or wireless carrier must become an eligible telecommunications carrier (ETC) with approval from whatever state it is operating in. The FCC's LBP framework eliminated states' role for the provision of standalone broadband services. The National Association of Regulatory Utility Commissioners sued to block this change. The FCC's new majority is now concluding that the FCC erred in 2016 and seeks comment on the issue. 

• Would reversing the preemption in the 2016 Lifeline Order resolve the legal issues surrounding LBPs and their designation process? How would reversing the preemption in the 2016 Lifeline Order impact the future of LBPs in the Lifeline program?
• Should ETCs be designated through traditional state and federal roles either for purposes of only Lifeline or for both the high-cost and Lifeline programs?
• What rule changes would be needed to restore the traditional state and federal roles for ETC designations?

The FCC is also asking how it can best partner with states to facilitate the successful implementation of the National Verifier. The FCC established the National Verifier to make eligibility determinations and perform a variety of other functions necessary to enroll eligible subscribers into the Lifeline Program. Rollout of the National Verifier begins later this year. The FCC wants to know how states can be encouraged to work cooperatively with the commission and USAC to integrate their state databases into the National Verifier without unnecessary delay.

B) Improving Lifeline’s Effectiveness

The FCC is proposing policy changes to focus Lifeline support on encouraging service provider investment in networks that offer quality, affordable broadband service. Specifically, the FCC proposes:

• Limiting Lifeline support to facilities-based broadband service provided to a qualifying, low-income consumer over the ETC’s voice- and broadband-capable last-mile network;
• Discontinuing Lifeline support for non-facilities-based service; and
• Continuing the phase down of Lifeline support for voice service -- but not in rural areas.

To empower Lifeline subscribers, the FCC proposes allowing "unit" plans that provide subscribers with particular numbers of units of either voice minutes or broadband service. Under a proposal offered by TracFone, consumers enrolled in wireless Lifeline services would receive 1,000 units per month which could be used for voice telephony service or for mobile broadband Internet access service, depending on each customer's needs and preferences in any particular month. A unit would be either one minute of wireless voice service or 1 MB of mobile broadband service. The thinking is that this would afford Lifeline customers flexibility to utilize their wireless Lifeline service as they choose rather than as prescribed by FCC regulation.

The FCC also proposes to eliminate the Lifeline equipment requirement that mandates that any device that is offered as part of Lifeline service be Wi-Fi enabled and capable of being used as a hotspot. Current rules also prohibit tethering charges. These current rules allow Lifeline subscribers to 1) access Wi-Fi services inside and outside their home; and 2) use their Lifeline device to provide access to multiple devices (like laptops) within the home. Here's the FCC's new thinking:

• A “substantial majority” of Americans already own Wi-Fi enabled smartphones, suggesting such mandates are not needed;
• The mandate increases costs of such equipment; and
• Consumers should be free to choose lower-cost options (example: a cable Lifeline provider should be abke to offer a low-cost modem rather than an integrated modem-Wi-Fi-router to a Lifeline consumer who wants to use a desktop computer to access the Internet).

C) Eliminating Waste, Fraud, and Abuse

We have our Benton legal intern researching this, but it may be unconstitutional to have a Lifeline proceeding that does not address waste, fraud, and their evil step-sister, abuse. In this proceeding, the FCC proposes three steps: 1) improving program audits, 2) tightening eligibility verification, and 3) requiring USAC to periodically report suspicious activity or trends.

On enrollment, the FCC proposes to:

• Prohibit agent commissions related to enrolling subscribers in the Lifeline program; 
• Codify a requirement that ETC representatives who participate in customer enrollment register with USAC;
• Require USAC to directly review supporting documents for manual National Lifeline Accountability Database (NLAD) dispute resolutions;
• Prohibit subscribers from self-certifying their continued eligibility during the Lifeline program’s annual recertification process if the consumer is no longer participating in the program they used to demonstrate their initial eligibility for the program; and
• Limiting ETCs’ use of the Independent Economic Household (IEH) worksheet only when the consumer shares an address with other subscribers already enrolled in the Lifeline program.

D) A Self-Enforcing Budget

The Lifeline program has a budget, but if Lifeline disbursements in a given year meet or exceed 90 percent of that year’s budget, initially set at $2.25 billion, FCC staff are required to issue a report to the full commission detailing the reasons for the increased spending and recommending next steps. The FCC now proposes a self-enforcing budget mechanism to automatically make adjustments in order to maintain the cap in the event the budget is exceeded. Under this proposal, for each upcoming six-month period, USAC would forecast expected Lifeline and Link Up disbursements, as well as administrative expenses attributable to the operation of these programs. If projected disbursements and expenses are expected to exceed one half of the annual cap, USAC would proportionately reduce support amounts during the upcoming six-month period to bring total disbursements under one half of the annual cap. If, however, total payments in the upcoming six-month period are projected to be less than one half the annual cap, USAC would provide the full support amounts as determined by the Commission and collect only what is necessary to fund the demand.

The FCC has lots of questions about how this would work:

• What is the appropriate period over which we should measure and enforce the cap?
• Would a six-month period be appropriate?
• What administrative difficulties should USAC anticipate when forecasting disbursements?
• What steps should USAC take, if any, in the midst of a six-month period in the event forecast disbursements and expenses vary significantly from actual disbursements and expenses?
• Noting that USAC currently projects quarterly requirements for the Lifeline program and submits those projections to the FCC, what can the FCC learn from the accuracy of USAC’s past forecasts that would inform how this proposal would work?
• Alternatively, would another period of time be more appropriate?
• Would a one-year period be more suitable for the Lifeline market?
• Would measuring the budget over a 12-month period fully protect ratepayers from excessive spending?

The FCC also offers an alternative plan. It would allow Lifeline spending in a given period to exceed the cap, but would result in Lifeline disbursements being reduced in the next period to accommodate the excessive spending. In this mechanism, disbursements would be reduced proportionally throughout the following period to ensure the disbursements and expenses do not exceed the budget less the amount by which the previous period’s disbursements and expenses exceeded the budget.

On this proposal the FCC asks:

• When should the cap for the second period of time be set? At the beginning of the first period, or the second one?
• Is it acceptable to allow disbursements to exceed the budget in a given period, even where adjustments made in the following period mean the program spends less than the total budgeted amount over the two periods?
• Would any of the proposed budget mechanisms result in a significant variance in the disbursement cap for consecutive funding years, and if so, what impact would that have on Lifeline consumers and providers?

The FCC also proposes to prioritize Lifeline funding in the event that the cap is reached or USAC projects will be reached in a funding year: 1) rural Tribal lands, 2) rural areas, and 3) all other areas. The FCC asks,

• Should the FCC prioritize Lifeline spending in low-income areas where the business case for deployment is harder to make?
• If the FCC adopts such funding prioritizations, how should it implement such a system?
• Should the FCC adjust all of the support amount categories to different extents, or should categories with less prioritization receive no support before the support of the category with the next-highest prioritization is adjusted?

The FCC also seeks comment on the appropriate initial amount for this cap and how it should be adjusted over time. 

III. What Additional Things is the FCC Asking about Lifeline?

The FCC will also launch a Notice of Inquiry (NOI) on November 16, asking more general questions about the future of the program. The NOI begins saying, "it is necessary to evaluate the ultimate purposes of the Lifeline program and identify the policies that will best accomplish those purposes." The FCC says the aim here is to sharpen the focus of the program to provide opportunity for low-income Americans who have not adopted broadband, or who reside in rural Tribal or rural areas.

A) Improving Provider Incentives for Lifeline Service

The FCC starts by seeking comment on potential changes to the Lifeline program funding paradigm, aiming to ensure that service providers -- facilities-based providers, that is -- have appropriate incentives to deploy and provide services to these populations. The FCC wants to know what actions it can take to create better economic incentives for facilities-based providers participating in the Lifeline program -- and whether it should adopt a support framework that encourages adoption of high quality communications service by low-income consumers.

i. Maximum Discount Level

The FCC is proposing to apply a maximum discount level for Lifeline services above which the costs of the service must be borne by the qualifying household. Currently, many providers offer free-to-subscriber Lifeline services. The FCC asks:

• Do the users of the supported service value that service more if they contribute financially?
• Are such users more sensitive to the price and quality of the service?
• Is there any particular approach taken by another universal service support program that should inform the FCC’s analysis for the Lifeline program? 
• What impact would a maximum discount level have on the affordability, availability, and quality of communications service for low-income consumers?
• How would a maximum discount level for the Lifeline program impact the types of services that consumers obtain through the program?
• Would it change the quality of broadband service that Lifeline providers offer, including speed and data allowances?
• Would this change affect the availability of certain types of service more than others, for example, mobile versus fixed service?
• Would a maximum discount level help ensure that Lifeline funds are targeted at high-quality broadband service offerings that truly help close the digital divide for low-income consumers?
• Would adopting a maximum discount level encourage consumers to more carefully investigate and evaluate the service to which they wish to apply their Lifeline benefit, thereby decreasing Lifeline subscriber churn or violations of the one-per-household rule and helping further reduce waste, fraud, and abuse in the Lifeline program?

ii. Benefit Limit

The FCC proposes adopting a benefit limit that restricts the amount of support a household may receive or the length of time a household may participate in the program. Currently, households remain enrolled in Lifeline for 1.75 years on average. The stated aims of the new proposal are to:

1. Encourage broadband adoption without reliance on the Lifeline subsidy and controlling the disbursement of scarce program funds; and
2. Provide low-income households incentives to not take the subsidy unless it is needed.

On this proposal, the FCC asks:

• How should the FCC operate and enforce such a restriction?
• What data would help the FCC determine an appropriate monetary or temporal limit in support?
• Should the limit be applied to households or individuals, and how would the FCC track benefits received if consumers transfer to different providers?
• Should there be any exceptions to the benefit limit or time limit and, if so, what is the justification for these exceptions?
• How could the FCC implement a benefit limit or time limit with minimal increases in the costs or administrative burdens for Lifeline service providers?
• Are there specific data that would help the FCC evaluate the potential impact of a benefit or time limit on the Lifeline participation rate of qualifying low-income consumers?
• Are there other alternatives to a benefit limit that we should consider to better focus Lifeline funds on those households who need it most?

B. Lifeline Support that Targets the Digital Divide

The FCC seeks comment on whether it should shape its Lifeline support structure to provide enhanced support in areas -- rural areas and rural Tribal areas, in particular-- where providers do not have sufficient incentive to make available affordable high-speed broadband service. Specifically, the FCC asks for comment "on whether the Lifeline program could better reach nonadopters of broadband by focusing Lifeline support in areas where providers need additional incentive to offer high-speed broadband service."

i. Rural and Rural Tribal Areas.

The FCC asks for comment on whether and how it should adjust the Lifeline support amount to encourage affordable broadband access for low-income consumers in rural areas.

ii. Digital Redlining.

Recent reports argue that some service providers engage in “digital redlining” in low-income areas—a practice that results in certain low-income areas experiencing less facilities deployment when compared to other areas, and that results in low-income consumers in those areas experiencing increased difficulty obtaining affordable, robust communications services. The NOI seeks comment on whether and how the FCC should target Lifeline support to bring digital opportunity to low-income areas where service providers have less incentive to deploy facilities or offer robust broadband offerings compared to other areas. The FCC wants to know how to define digital redlining and how to identify the impacted communities. The FCC wants to know if there's more Lifeline money it can offer to providers to stop redlining. 

C. Program Goals and Metrics

The NOI seeks comment on how the FCC should determine and define the Lifeline program’s goals and metrics and how those goals should inform the FCC’s efforts to sharpen the focus of the Lifeline program.

IV. Conclusion

The FCC will vote on these rules changes (section I above) and launch proceedings seeking public comment (sections II and III) on November 16. The item is likely to be adopted -- and it will likely be a 3-2 vote along party lines. Chairman Pai has characterized this item as a way to take a fresh look at the program, focusing on how the program can more effectively and efficiently help close the digital divide, and directing Lifeline funds to the areas where they are most needed. FCC Commissioner Mignor Clyburn has said,

If the goal of the current FCC majority is to widen existing divides, and ensure that our nation's most vulnerable are less likely to be connected, this item sets us on that path. It will harm those less fortunate, those who need to dial 911, stay in touch with their children's educators, keep a job, and stay healthy. The day we head down such a path, is a sad one indeed.

FCC Commissioner Jessica Rosenworcel has said that the proposal isn't real reform, but "a cruel effort to gut the program." 

There will be much more to learn about the Lifeline proposal in the coming weeks. Stay informed through Benton's Headlines.