Tag Archives: Lifeline

Don’t Forget Lifeline

There has been a big push nationwide to get customers enrolled in the Affordable Connectivity Program (ACP), that provides a $30 monthly subsidy for broadband providers – a discount that can be applied to any broadband product. With the ACP discount, a qualifying customer can buy a broadband product normally priced at $60 for $30.

Most ISPs seem to have forgotten about the FCC Lifeline program that can provide a monthly discount of $9.25 off a telephone or broadband bill for qualifying customers. Consumers can qualify for the Lifeline discount if the household income is at or below 135% of the Federal Poverty Guidelines or else by participating in Medicaid, SNAP (formerly Food Stamps), SSI, Federal Housing Assistance, VA Veterans pension, or VA survivor’s pension.

It’s a little easier to qualify for ACP since it is available to homes at or below 200% of Federal Poverty Guidelines. The ACP discount is also available to those who participate in Medicaid, SNAP, Federal Housing Assistance, WIC, SSI, or Lifeline.

That last requirement is the important one – customers can qualify for both the ACP discount and Lifeline, meaning an ISP can collect a total subsidy of $39.25 for a qualifying customer.

The FCC made some changes to the Lifeline program in July. The most important change for ISPs is that the cap for a lifeline subscriber was increased to 1.28 gigabytes per month – which is higher than the data cap for ISPs like Comcast. The FCC set the new annual budget for 2023 at $2.57 billion and changed the rule so that the size of the funding will be increased each year using the Consumer Price Index.

There have been a few barriers that have kept many ISPs from participating in Lifeline. Many of them thought that the $9.25 subsidy was too small to bother with. There also is a requirement that an ISP must be an Eligible Telecommunications Carrier (ETC), a status that is granted by State regulatory Commissions. Years ago, this implied that an ETC gained carrier of last resort obligations, which meant they were required to serve anybody in a service area. But since broadband has been largely deregulated, carrier-of-last-resort doesn’t have much meaning these days.

A lot of ISPs said that Lifeline was a pain to implement. There was no easy way for ISPs to know if a household qualified, and audits of the program would often mean rebating funds to the FCC. That issue has largely been resolved since the FCC now maintains a database that is updated monthly of homes that participate in the various federal subsidy programs. An ISP can feel safe in giving the discount to a household on this list.

Any ISP that is participating in ACP in order to reach low-income households should consider the Lifeline discount as well. Extending a $39.25 discount to households is a significant saving.

There are still a few nuances for ISPs that try this. Practically everybody that qualifies for Lifeline will qualify for ACP, but not everybody that qualifies for ACP can get Lifeline due to the lower limit on household income.

There are still a lot of questions about how many ISPs are actually trying to implement the ACP discount. Most ISPs have a lot of customers that qualify, but ISPS don’t seem to be pushing the discount. But for any ISP that wants to bring broadband to as many folks in a community as possible, a $39.25 customer discount can make it a lot easier to make broadband affordable.

The Future of the Universal Service Fund

The FCC adopted a Notice of Inquiry on December 15 that asks for comments about the future of the Universal Service Fund. There is not a lot of time to respond with the holidays in the middle since comments are due on January 18. But the NOI is asking the right questions.

High-Cost Programs. On the topic of the High-cost programs, it asks how the giant BEAD grants will impact the future of the FCC broadband awards. It asks if there should be an additional round of RDOF. It asks if some of the highest-cost areas constructed with the BEAD grants will need ongoing high-cost support. It asks if the FCC should adopt a standard of 100/20 Mbps as a requirement for future high-cost support. It asks about the use of future reverse auctions.

Lifeline. The NOI asks about the future of the existing Lifeline fund in light of the funding given to the EBB program and now to the ACP program that provides a larger monthly broadband subsidy.

E-Rate. The NOI asks if the E-Rate program for schools and libraries should be changed due to anything that came out of the Infrastructure Act. It asks about ways to protect against waste, fraud, and abuse.

Rural Health Care. The NOI asks if the program changes due to telehealth funding in the Infrastructure Act.

Funding. The NOI asks if the method of funding the USF should be changed.

I’ve written about all of these questions before. Here are a few quick thoughts I have on these questions – each question deserves a much longer response:

The FCC’s high-cost funding has outlived its usefulness. While this funding did a lot of good and helped telcos build rural fiber, it also made some telco owners rich through overpayments. The overpayments became obscene when the FCC gave $11 billion in CAF II funding to the big telcos and then ignored the reports that upgrades weren’t being done. The RDOF reverse auction is a giant mess and will turn into a disaster if the FCC doesn’t soon kill off unworthy awards in favor of BEAD grants. It’s time to kill this program completely, get the FCC out of the broadband funding business, and downsize the USF accordingly. The need for broadband funding can always be revisited in a decade if some rural places still need ongoing support. But even revisiting the idea is suspect because the FCC is always going to rely on poor mapping and inadequate cost models to determine who gets funded.

The $9.95 Lifeline fund still has some use to support cellphone for homeless and other forgotten communities. But the monthly subsidy is too small to make home broadband more affordable. The FCC should either re-purpose the Lifeline fund to strictly support low-income cellphones or kill the program.

The E-Rate program provides noticeable benefits to schools and has brought gigabit broadband to some of the poorest parts of the country. I’ve never heard anything but good about the Rural Health Care funding.

As far as funding – if the High-cost fund and Lifeline programs are curtailed or eliminated then the amount of needed funding drops drastically. But I think a more fundamental question needs to be asked. Why is the FCC still being allowed to operate a giant slush fund? A huge percentage of the funding over the years has gone to the big ISPs. The USF has been riddled with stories of abuse and fraud. The primary problem with the USF is that regulators are trying to run national one-size-fits-all programs without the needed facts or staffing to do it right. I think it’s time to have a conversation about ending the Universal Service Fund. The E-Rate and Rural Health Care programs are successful, but they are something that should be funded by Congress. Let’s get regulators out of the funding business and aim the agency back towards their primary goal of regulating the broadband industry – instead of funding the companies the FCC is supposed to be overseeing.

The FCC and Urban Broadband

Chairman Ajit Pai recently said during an interview in Buffalo that he supported what he called Gigabit Opportunity Zones as a way to get fiber built to poor neighborhoods in downtown areas of cities like Buffalo.

The idea of Gigabit Opportunity Zones comes from a bill that was introduced in the last Congress in November of 2019 by Georgia Representative Doug Collins. The bill is H.R. 5082 – the Gigabit Opportunity Act.

The bill would mimic many of the provisions of the Opportunity Zones that were created in the Tax Cuts ad Jobs Act of 2017. That law intended to spur infrastructure investment in low-income Census blocks. The original tax change allowed investors to gain two major tax benefits from investing in qualified infrastructure. They could defer or erase existing capital gains by investing capital gain profits into qualified projects for at least ten years. Investors would also see no capital gains from profits made on an opportunity zone investment.

The proposed broadband bill has similar, but different benefits. First, governors would have to

nominate areas in their state that would be eligible for the gigabit tax breaks. Such areas would have to

  • Face obstacles to economic development due to a lack of geographic broadband coverage or speed;
  • Are the focus of mutually reinforcing state, local, or private economic development initiatives;
  • Are poised for economic growth that requires access to high speed broadband for commercial purposes; and
  • Represent the areas of a state where such service would result in the highest return on investment.

Just like with the existing opportunity zone rules, an investor could defer or eliminate existing capital gains by bringing capital gains proceeds to a new qualified project. Even better than the existing opportunity zones investing, the new project could expense the cost of building the fiber network in the first year, thus realizing a huge capital loss in the first year (which is a great way to wipe out capital gains).

It doesn’t look like the bill has moved forward since introduction beyond being referred to the Subcommittee on Communications and Technology. The purpose of the blog is not to say anything negative about the bill. It would be great if something like this would help spur building fiber to urban neighborhoods that might otherwise never see fiber. It does seem to me that the provisions that a qualified investment must result in the highest return on investment makes it likely that this would benefit the richest neighborhoods rather than the poorest. But those kinds of details get worked out during the legislative process.

What I found a bit disturbing is that this bill was brought up in response to the question of what the FCC could do for cities like Buffalo. The Chairman offered the following responses to the question:

  • He said the FCC had expanded the opportunity for people to qualify for the Lifeline program. From what I can see, this FCC has done the exact opposite and would like nothing better than to eliminate this part of the Universal Service Fund.
  • He mentioned E-Rate programs to bring better broadband to schools and libraries. The FCC did make it a bit easier for schools to turn that broadband outward to the parking lots during the pandemic, but otherwise this FCC hasn’t improved the E-Rate program.
  • Chairman Pai said he had asked Congress for the authority to provide hotspots to poor urban neighborhoods, but that Congress hasn’t given him that authority. This highlights that the FCC gave away their authority over broadband and now has no authority to do things like promote hotspots.
  • He mentioned the RDOF grant process as one that is bringing broadband to those that need it, without mentioning that the ‘R’ in RDOF stands for rural – none of that money is going to Buffalo.
  • He mentioned regulatory reform. By that, he is sticking with his story that deregulating the big ISPs will result in more investment in places like Buffalo. From what I can see, none of the big ISPs have responded to ‘light-touch’ regulation by building fiber to poor neighborhoods.
  • Finally, he cited the Gigabit Opportunity Zone legislation. That’s a stalled piece of legislation that might bring benefits, but which has nothing to do with the FCC.

The Chairman’s response should have been that the FCC is not seriously looking at solving the digital divides in cities. The FCC has done its best to write itself out of the broadband picture. The FCC still must administer the Universal Service Fund because it has no choice. The FCC Chairman is sticking to the pure fiction that the big ISPs will solve the broadband problems of the world in response to being deregulated. But in reality, the FCC is doing almost nothing for urban broadband and has no intentions of doing so.

FCC Modifies Lifeline Rules

The FCC released new rules for the Lifeline program in November. These rules will make it harder for some companies to participate in the program, but it opens up the door to many new participants.

The FCC has obsessed for years about fraud in the program. There are numerous cases over the years of the program providing Lifeline subsidies to people who are no longer eligible or who even died. However, a lot of that blame has to placed on the FCC. Carriers have never had any ways to know if Lifeline participant gets a job and is no longer were eligible, or even if the eligible family member dies and the subsidy continues to go to the household. The FCC has finally taken the steps to fix such problems through the creation of the National Lifeline Eligibility Verifier – a database updated monthly by government agencies that provide the support that makes participants eligible.

The following new rules are lifted directly from the FCC, which says the new rules will improve the program by:

  • Prohibiting participating carriers from paying commissions to employees or sales agents based on the number of consumers who apply for or are enrolled in the Lifeline program
  • Requiring participating carriers’ employees or sales agents involved in enrollment to register with the program administrator, the Universal Service Administrative Co. (USAC)
  • Strengthening prohibitions barring Lifeline providers from claiming “subscribers” that are deceased
  • Taking additional steps to better identify duplicate subscribers, prevent reimbursement for fictitious subscribers, and better target carrier audits to identify potential FCC rule violations
  • Increasing transparency by posting aggregate subscribership data, including data broken out at the county level, on USAC’s website
  • Increasing transparency with states by directing USAC to share information regarding suspicious activity with state officials
  • Restoring the states’ traditional role of designating carriers to participate in the Lifeline program.

One of the requirements is somewhat unusual in that ISPs need to identify those employees responsible for enrolling participants in the Lifeline plan. For most ISPs, that’s going to be the customer service staff. The requirement is a headscratcher because it’s hard to conceive of any possible good way that the FCC can use this information.

The last bullet point highlights an opportunity for ISPs that want to participate in the program. For the last several years it’s been exceedingly difficult for an ISP to enter the Lifeline program. During that same period, we’ve seen big telcos like AT&T withdraw from the plan in most of the states where they operate.

An ISP that wants to offer a low-price broadband product for low-income households can collect the Lifeline subsidy to offset price discounts. For example, an ISP could offer a low-income broadband connection and collect $20 from a customer and also collect the $9.25 Lifeline subsidy from the Universal Service Fund. The Lifeline funds are paid directly to the ISP from the Universal Service Fund.

More importantly, ISPs now can apply to become eligible for Lifeline with state regulators rather than from the FCC – which has been blocking new applications for several years. There is a particularly good opportunity for tribal ISPs since the Lifeline subsidy on tribal lands can be as high as $34.25 per qualified recipient.

Enrolling in the Lifeline program is another tool to help ISPs attack the homework gap. ISPs can use the subsidy to provide lower price broadband to qualifying homes with school students. If an ISP serves customers that qualify for a discount, it’s hard to justify not joining the program and giving such customers a break on rates.

The Census Bureau and the Digital Divide

John Horrigan recently wrote an interesting article in The Daily Yonder that cited the results of a survey done by the Census Bureau. The agency conducts an annual survey called the American Community Survey (ACS) of 3.5 million households. In recent years the survey has included a few questions about broadband. The most recent ACS survey included questions about the digital divide. The results are at first glance a bit surprising.

The survey shows that more than 20.4 million homes have no broadband subscription at home. The survey shows that 5.1 million homes with no broadband connection are rural and 15.3 million homes are non-rural. Anybody who tracks rural broadband instantly doesn’t think those numbers can be right. However, the Census Bureau uses its own definition of rural which is different than the way most of the world thinks or rural versus urban.

According to the Census Bureau definition, rural is everything that is not urban. The Census bureau looks at the country by regional clusters of population. They count two kinds of urban areas – urbanized areas (UAs) are clusters with 50,000 or more people and urban clusters (UCs) which have between 2,500 and 50,000 people. Most of us would consider many of the UCs to be rural because within this category are a lot of rural county seats and the immediately surrounding areas. The Census statistics count a lot of people who live just outside of towns as urban when our industry considers homes past the last cable company connection as rural.

Horrigan interpets the results of the Census Bureau survey to mean that affordability is a bigger reason today than connectivity for why people don’t have broadband. He reached that conclusion by considering a recent Pew Research poll on the same topic that shows that more homes cite reasons other than availability as reasons they don’t have broadband.

The Pew Research survey asked households why they don’t have broadband. Respondents could supply more than one response.

  • 50% claimed that price was a major factor and 21% cited this as the primary reason.
  • 45% said that their smartphone could do everything they need.
  • 43% said they had good access to the Internet outside the home.
  • 31% said they couldn’t afford a computer.
  • Only 22% said that they couldn’t order a broadband connection, and only 7% said that was the primary reason they didn’t have broadband.

The Census Bureau also correlated their results with household income, and it’s not surprising that low-income households have a much lower broadband connection rate. The Census Bureau survey showed that only 59% of homes that make less than $20,000 per year have broadband. The subscription rate for all households making more than $20,000 is 88%.

Interestingly, the FCC doesn’t ask why people don’t have broadband. They interpret their mission to measure broadband availability and they count homes with or without broadband connections. This raises a few questions. What exactly is the FCC’s mandate from Congress – to get America has connection to reach the Internet or to make sure that America makes those broadband connections? I read the FCC’s mandate from Congress to have some of both goals. If availability is not the primary reason why homes don’t have broadband, the FCC might get more bang from their buck by putting some effort into digital inclusion programs. According to the Horrigan article, there are now more homes that can’t afford broadband than homes that don’t have a connectivity option.

This implies the need for a much-improved Lifeline Fund. The current Lifeline program is likely not making a big difference in digital inclusion. It provides a small monthly subsidy of $9.25 per month for qualifying households to save money on either their telephone bill or their broadband bill. It’s becoming increasingly hard to qualify for Lifeline because the big telcos like AT&T are backing out of the program. Some cable companies provide low-cost cable lines to homes with school students, but to nobody else – and cable companies don’t operate outside of towns.

In addition to a more effective Lifeline program, digital inclusion also means getting computers into homes that can’t afford them. I’ve written before about the non-profit group E2D that provides computers to school students in Charlotte, NC. Perhaps some of the Universal Service Fund could be used to assist effective groups like E2D to get more computers to more households.

My firm CCG conducts surveys and we’ve seen anecdotal evidence in a few recent surveys in poor rural counties that a lot of homes don’t buy the slow DSL option available to them because of price. These homes tell us that price mattered more than connectivity. I don’t have any easy answer for the best way to promote digital inclusion. But there are folks in the country who have made amazing progress in this area and perhaps the FCC should consider giving such groups some help. At a minimum, the FCC needs to recognize that now that most homes have a broadband connection that price is a major barrier for the majority of those who are not connected.

AT&T Withdraws from Lifeline Program

In March the Public Utility Commission of Ohio allowed AT&T to withdraw from the federal Lifeline program. This is a program that let’s qualified low-income homes get a monthly discount of $9.25 from either their landline telephone or their broadband connection – only one discount per home. AT&T successfully withdrew from Lifeline in Illinois in 2018 and in twelve other states in 2017.

AT&T apparently hasn’t been advertising or pushing the potential discount since they only had 7,300 homes in the state on the Lifeline program. The Communications Workers of America say there are almost 1.6 million households in Ohio that qualify for the discount – although not all of them are served by AT&T.

You might think that AT&T supports Lifeline by looking at their web site. However, clicking through to Ohio notifies customers that the discount will end in June and provides customers a list of other companies that might offer them the discount.

The Lifeline program started in 1985, and at the time the amount of discount was a significant savings for customers. Because of inflation the $9.25 discount represents a far smaller portion of a today’s monthly telecommunications bill.

Participation in the Lifeline program has dropped significantly in the past few years, as has the way the fund is being used. The following revenue numbers come from the 2018 annual report from USAC – the entity that operates the Lifeline Fund. I extraopolated out the number of participants at $9.25 per month.

2016 2018
Telephone $1,477,548,000 $312,300,000
Bundle $25,554,000 $293,707,000
Broadband $18,610,000 $536,424,000
Total $1,521,712,000 $1,142,431,000
Participants        13,700,000        10,250,000

Since 2016 there are 2.5 million fewer participants in the plan – many certainly due to carriers like AT&T withdrawing from the plan. The USAC numbers show a big shift since 2016 of participants applying the discount to their broadband bill rather than to landline telephone or cellphone bill.

The Lifeline Program was in the news recently when the FCC Inspector General issued a fraud advisory that says there are a lot of duplicate names requesting Lifeline and a number of deceased people still getting the discount. Chairman Ajit Pai immediately issued a statement saying that the program needs to be cleaned up.

Fraud has always been a concern in the program. However, it’s a little odd for the FCC to be complaining about fraud today since they are in the process of taking over validation of Lifeline subscribers. Eligibility to participate in Lifeline was previously the responsibility of the states, but in June, 2018 USAC launched the National Verifier, a database that lists everybody eligible to receive a Lifeline credit. As of the end of last year, the federal verifier was active in 18 states, with the remaining states and territories joining the program this year. It seems odd to be yelling about problems of the older state programs when the FCC has already implemented a solution that they believe will solve most of the fraud issues.

I published a blog several days ago saying how regulators are letting the public down. It’s mystifying to me why the Ohio PUC and so many other states are letting AT&T out of the Lifeline program. The Lifeline Fund reimburses AT&T for every discount given to customers, so there is zero net cost to AT&T to participate in the plan. With the new National Verifier, AT&T takes no role in enrolling customers, who must enter through the national Verifier portal. I don’t know why regulators don’t insist that AT&T and every other company that sells residential telephone and broadband be required to participate in the program.

AT&T Phasing out Lifeline?

A lot of homes still rely on the FCC’s Lifeline program to get a discount on their telecom bills. The program is funded through the Universal Service Fund and administered through USAC. The lifeline program provides a $9.25 discount per household that can be applied to landline telephone, cellular telephone or landline data – assuming customers use a provider that participates in the Lifeline program.

AT&T still touts that they participate in the Lifeline program, but numerous customers around the country received notifications this year notifying them that they were no longer eligible for the Lifeline program. This particular notification was from a customer in Houston, Texas. If you visit the USAC website and look for Lifeline providers in Houston, AT&T is the only company that is listed for landline service. There are numerous cellular providers listed in Houston, but AT&T is not among them.

People might wonder why landline Lifeline is still important. Landline penetration rates are reported each year by the Center for Disease Control. (CDC). They track landline and cellular penetration rates through a huge annual survey that studies the topic to understand how the medical community can communicate best with the public during a medical emergency. They reported last year that the nationwide landline penetration rate was at 45% of households – a number far greater than many people would guess.

I hadn’t looked at residential phone rates in a while and just looked at AT&T’s residential rates. In case you haven’t looked at landline rates, they are not cheap. AT&T has three packages: Complete Choice comes with Caller ID and 9 other features (not including Voice Mail) for $40 per month. Complete Choice Basic is a basic line plus Caller ID and Call Waiting for $36. A basic phone line with no features is $28 per month. None of these prices include taxes and fees that add at least another $10 per month. None of these packages includes long distance. AT&T offers lower rates for those that bundle telephone with Internet or cable TV (although they are actively knocking people off their TV product).

In Texas, AT&T mitigated the Lifeline discontinuation notices somewhat by offering discounts of between $8 and $12 per month for qualifying customers who will sign a term contract, and who know to ask for the discount. But since this wasn’t widely advertised there is a good chance that few people asked for the discount. Discount plans like this also come and go and there is no guarantee of this discount surviving into the future.

I can’t see that there are any penalties for AT&T no longer offering Lifeline. There was a time when the big telcos had to participate in the program, but as state Commissions have deregulated telephone service any such requirement probably no longer applies.

What’s shameful about this is that I am sure that any AT&T executive will say that the company supports the Lifeline program. It certainly says so on their website. Both the AT&T and the USAC website imply that customers in Texas can still enroll in Lifeline, but numerous reports on complaint sites show this not to be the case. Perhaps a really persistent customer can still fight through the customer service gauntlet to get the Lifeline discount, but many customers report they’ve lost the discount.

What’s also disturbing about this is that AT&T doesn’t even have to go through the process of qualifying customers for Lifeline eligibility. In Texas customers must certify eligibility by going through the Public Utility Commission. The big telcos complained in the past that certifying customers was expensive and exposed them to liability if they granted eligibility to unqualified households. But Texas and a number of other states took over the certification process, meaning the telcos have little cost or liability for participating in the program, since USAC reimburses them for discount granted to customers. Why would a big telco stop giving the discounts when it costs them so little?

Putting the Lifeline Program on Hold

FCC_New_LogoEarlier this month the FCC under new Chairman Ajit Pai reversed earlier FCC approval for nine Lifeline providers who had been granted the ability to provide either wireline or wireless Lifeline broadband service. The Lifeline program grants a subsidy of $9.25 per month for low-income customers.

These were the first nine companies that had filed for the new Lifeline Broadband Provider designation to provide the subsidy for broadband connections. The Lifeline program for 32 years has provided this same subsidy to telephone service, but last year the program was extended also to data services – with the caveat that a given household is only eligible for one monthly subsidy.

The nine providers are Spot On, Boomerang Wireless, KonaTel, FreedomPop, AR Designs, Kajeet, Liberty, Northland Cable, and Wabash Independent Networks. Four of the providers had obtained their new Lifeline status on December 1 with the others being granted in January. Boomerang Wireless had already started to serve lifeline-eligible customers and the FCC ordered them to notify their customers and to cancel all lifeline subsidies within 60 days of the new order.

The stated reason for the reversals was that the FCC wanted to “promote program integrity by providing the Bureau with additional time to consider measures that might be necessary to prevent further waste, fraud, and abuse in the Lifeline program.” None of these companies has been accused of fraud but rather were the first nine companies to be granted the status of Lifeline Broadband Provider with the ability to sell a subsidized data product.

The fraud issue is an interesting one because the FCC had already overhauled the Lifeline processes to protect against fraud. For years carriers were allowed to self-certify that customers met at least one of several qualifications that made them eligible for Lifeline. But the FCC eliminated self-certification by publishing a national list of eligible customers – the list provided by and updated by other federal agencies overseeing eligible programs.

The FCC had also done compliance audits over the last several years looking for Lifeline fraud and didn’t find much of it. The new FCC order cited a $30 million settlement from Total Call Mobile that had been found to be seeking reimbursement for duplicate and ineligible customers. But the vast majority of the lifeline providers were found to have few or no issues.

Customers may have other options because the 800 carriers that already provide a Lifeline voice subsidy are now also allowed to provide a data subsidy. But nobody knows how many of these existing providers plan to offer subsidized data, and in fact over 80 Lifeline-eligible carriers recently asked to be excused from the program. This includes most of the biggest carriers in the country including AT&T, Verizon, CenturyLink, Charter, Cox, Frontier, Fairpoint, Windstream and Cincinnati Bell. There were also a lot of wireless carriers asking to be excused from the program.

It’s possible that politics has something to do with this order. The FCC under past Chairman Wheeler had reset the Lifeline program’s annual budget to $2.25 billion a year, indexed to inflation. There are Republicans in Congress who have called for the program to be capped instead at $1.75 billion annually. Stopping these new providers is one way to stop the program from growing. One would think that the withdrawal of the biggest carriers from the program will also greatly shrink the fund.

The most interesting thing about this order to me is that it seems to conflict with statements made by new Chairman Pai. On his first day as Chairman he addressed FCC employees and told them that one of his top goals was to bring broadband to all Americans. But this reversal of Lifeline status came just three days later and seems contrary to that goal.

It’s certainly possible that after more internal review that these companies might still be granted Lifeline status. But this also might instead be an indicator that the new Chairman wants to curb the Lifeline program, or maybe even eliminate it. I guess we are going to have to wait a while to see what this all means, including the Chairman’s statements about expanding broadband to all.

Is the Lifeline Program in Danger?

FCC_New_LogoOne has to ask if the FCC’s Lifeline program is in trouble. First, within the last month 80 carriers have asked to be relieved from participating in the program. This includes many of the largest ISPs / telcos and includes AT&T, Verizon, CenturyLink, Charter, Cox, Frontier, Fairpoint, Windstream and Cincinnati Bell. There are a lot of wireless companies on the list and it’s easier to understand why they might not want to participate. The rest of the list is filled out with smaller telcos and some fiber overbuilders.

These companies easily represent more than half of all the telephone customers and a significant percentage of data customers in the country. If these companies don’t participate in the Lifeline program then it’s not going to be available to a large portion of the country. The purpose of the Lifeline program is to provide assistance to low-income households to buy telecom services. It’s hard to see how the program can be sustained with such a reduced participation.

Originally the program was used only to subsidize landline telephone service. For the las few years it also has been available to cover cellphone service as an alternative to a landline. The most recent changes expand the definition to also allow the plan to cover broadband connections, with the caveat that only one service can be subsidized per household. While it’s not yet official, one can foresee that ultimately it will be used to subsidize only broadband and that coverage of telephones will eventually disappear.

The coverage that the new Lifeline provides for cellular data is a mystery. The plan covers 3G data connections and allows the providers to cap such services at a measly 500 megabytes of total downloaded per month. This seems to be in direct opposition to the stated goal of the Lifeline program to provide support to close the ‘homework gap’.

I also foresee larger problems looming for the entire Universal Service Fund program, of which Lifeline is one component. It’s already clear that the new administration is going to remake the FCC to be a weaker regulatory body. At a minimum the new FCC will reverse many of the regulations affecting the large telcos and cable companies.

But there is a bigger threat in that there are many in Congress that have been calling for years for the abolishment of the FCC and for scattering their responsibilities to other parts of the government. This could be done during budget appropriations or by including it in a new Telecom Act.

The opponents of the FCC in Congress have also specifically railed against the Lifeline program for years. There was a huge furor a few years ago about the so-called Obamaphones, where carriers were supposedly giving smartphones to customers, all paid for by the government. It turns out those claims were false. The only plan that was anywhere close to this was a plan from SafeLink Wireless. They used the Lifeline subsidy to provide eligible low-income households with a cheap flip-phone that came with one-hour of free calling plus voice mail. This very minimalist telephone connection gave people a way to have a phone number to use while hunting for a job and to connect with social services. But there were no Lifeline plans that provided smartphones to low income households like was portrayed by many opponents of the Lifeline program.

But rightly or wrongly, there are now a number of opponents to the Lifeline program, and that means that the plan could be a target for those trying to trim back the FCC. It’s going to be a lot harder to defend the Lifeline program if none of the major carriers are participating in it. There certainly will be a lot of changes made in the coming year at the FCC, and my gut tells me that programs like Lifeline could be on the chopping block if the big players in the industry don’t support it. If nothing else, the big ISPs would prefer to have funds allocated to Lifeline today to be re-purposed for something that benefits them more directly.

Note:  In an interesting development the FCC just rejected a petition from the NTCA and the WTA that asked that small companies be excused from some provisions of the Lifeline order. The FCC ruling basically says that any small company that is receiving high cost support and that offers a standalone data product must accept requests from customers who want to participate in the Lifeline Program. I am sure that this is not the end of the story and there will be more back and forth on the issue.

2017 Regulatory Trends

FCC_New_LogoNow that we are at the end of the year I’m going to spend a few blogs looking forward into 2017 from the perspective of small carriers. Predictions about the direction of regulation is perhaps the easiest trend to write about since it looks like the trend for 2017 will be to undo many of the things done by the FCC over the last few years. So here are the regulatory trends I think will be most important to small carriers.

Net Neutrality Will be Reversed. It’s pretty obvious that the FCC’s current net neutrality rules will be reversed in short order in the new year. We already have Commissioners Ajit Pai and Mike O’Rielly strongly on the record opposing the FCC’s prior actions. This could be done in two ways. First could be a direct reversal of the net neutrality ruling. But another tactic might be to reverse Title II regulation but allow the net neutrality principles to stay in place – basically to acknowledge the net neutrality principles that the public clearly likes but to remove the ability to enforce those rules.

Interestingly, net neutrality hasn’t had much direct impact on small carriers since none of them have the market power to violate it. The one impact of this reversal for small carriers is that it will unfetter Comcast, Charter, Verizon and AT&T from most regulations and will give them greater market power and the ability to more aggressively squash smaller competitors.

One benefit of net neutrality was that it gave the general public some comfort that they couldn’t be preyed upon by large ISPs. So small carriers might want to periodically remind your customers that you will still be adhering to the principles of net neutrality even though this might not still be a formal requirement.

Reversal of New Privacy Rules. It’s also clear that the FCC is going to reverse most or all of the new privacy rules. These rules stopped ISPs from using customer data without explicit permission. There were parts of these rule that small carriers didn’t like. But for the most part small ISPs don’t use customer data for marketing purposes and don’t sell customer data to marketers. I think small carriers should periodically remind your customers that you don’t misuse or sell their data, but that your big competitors do.

Lifeline Changes. I think it’s likely that the new FCC will change the data lifeline program that pays $9.25 per month towards the data bill for qualifying families. At a minimum they might curtail this for cellular data plans, but there is even the possibility that they will eliminate it.

There is also talk of going back to a numbers-based method to fund the Universal Service Fund. This would impose a tax of around $1 on every telephone number. This is supported by the big telcos since they no longer control the majority of telephone numbers, but even more so because this would remove USF assessments on special access circuits.

A New Telecom Act. I expect Congress to enact a new telecom act. There are certainly parts of the Telecommunications Act of 1996 that are way out of date. That Act concentrated on copper telco networks and on traditional large cable line-ups and we need to now acknowledge that copper telco networks are quickly disappearing and that the public wants non-traditional cable packages.

But I also expect that any new act is going to drastically change the role of the FCC. My guess is that Congress wants to throttle the FCC’s power so that the agency won’t have much power if there is another change in administration. There have been threats from Congressmen in the past year to abolish the FCC altogether, but I think once they look at all of the things the agency does that cooler heads will prevail. But we might be seeing permanently reduced federal regulatory oversight of the industry.

Resurgence of State Regulation. If the FCC delivers on the stated goal of the new administration to whack FCC regulations, I expect that some state regulators will step in to fill the regulatory gap. After all, regulators like to regulate! It would not be surprising to see the most active state regulatory commissions like California, New York, Texas and Illinois tackle topics that the FCC might drop. And that would undoubtedly mean a string of states-rights lawsuits.