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.

How to Collect Broadband Lifeline

USF-logoThe Wireline Bureau of the FCC released clarification rules last week in Docket DA 16-1118 that describe how companies can participate in the broadband Lifeline program. This is the program where the Universal Service Fund will compensate ISPs $9.25 per month for broadband customers that qualify for the Lifeline program.

The program requires landline speeds of 10/1 Mbps with a data cap of no less than 150 GB per month. Mobile speeds can be slower and there is also a much lower data cap starting at 500 MB and increasing to 2 GB by the end of 2018. The FCC has established a registry listing eligible participants called the National Eligibility Verifier. Only households in that registry can receive the Lifeline subsidy and only one subsidy is allowed per household.

The new clarification in the docket describes the process for ISPs to participate in the Lifeline Fund. The FCC will require ISPs to register as a Lifeline Broadband Provider (LBP). The FCC is developing an application process for ISPs that want to gain this designation.

The original order said that the FCC had up to six months to act on LBP applications, but there is now the ability to request a streamlined process where the FCC will approve requests within 60 days. Basically an ISP must complete the application, and if they don’t hear back from the FCC then they automatically have the designation on the 60th day after submission of the request. If the FCC asks questions or asks for changes to the submitted information then the request will be approved 60 days after the request filing has been amended and corrected.

In order to qualify for the streamlined and expedited review process an applicant must 1) serve at least 1,000 non-Lifeline voice customers and/or 1,000 Lifeline-eligible broadband Internet access service (BIAS) customers. This would be measured as a snapshot as of the time of making the application; and, 2) has offered broadband service to the public for at least two years, without interruption. So the expedited process is for established ISPs and not new ones.

Any ISP that doesn’t meet the streamlined review process will still have their application reviewed within six months.

Carriers that are already certified as Eligible Telecommunications Carriers (ETCs) or as Lifeline-only ETCs do not need to seek the LBP status unless they are seeking to ask for Lifeline subsidies in new geographic areas where they were not previously certified.

In a petition to seek LBP status a carrier must:

  • Certify that they will meet all of the service requirements of the Lifeline program.
  • They must demonstrate the ability to remain functional during emergency situations and that they have taken precautions such as having back-up power to remain functional.
  • Demonstrate that they will satisfy all applicable consumer protection service quality standards.
  • Demonstrate that they are financially and technically capable of meeting all of the FCC rules needed to provide Lifeline. The FCC will look to see that the company can be viable without receiving the subsidies.
  • Provide the terms and conditions that the ISP will offer to Lifeline subscribers.

The FCC is clearly trying to help as many ISPs as possible to participate in the Lifeline program. If your company is interested in taking part in this program feel free to contact CCG Consulting and we can help you through the application process.

What’s Next After the Net Neutrality Ruling?

Network_neutrality_poster_symbolNow that the US District Court has affirmed the net neutrality ruling in its entirety it’s worth considering where the FCC will go next. Up until now it’s been clear that they have been somewhat tentative about strongly enforcing net neutrality issues since they didn’t want to have to reverse a year of regulatory work with a negative court opinion. But there are a number of issues that the FCC is now likely to tackle.

Zero-Rating. I would think that zero-rating must be high on their list. This is the practice of offering content that doesn’t count against monthly data caps. This probably most affects the customers in the cellular world where both AT&T and T-Mobile have their own video offerings that don’t count against data caps. With the tiny data caps on wireless broadband there is no doubt that it is a major incentive for customers to watch that free content, and consequently drive ad revenues to their own carrier.

But zero-rating exists in the landline world as well. Comcast has been offering some of its content on the web to its own customers. They claim this is not zero-rating, but from a technical perspective it is. However, now that Comcast has raised the monthly data cap to 1 terabit then this might not be of much concern to the FCC right now.

Privacy. The FCC has already proposed controversial rules that apply to the ISPs and consumer privacy. In those rules the FCC proposes to give customers the option to opt-out of getting advertisement from ISPs, but more importantly consumers can opt-out of being tracked. This would put the ISPs at a distinct disadvantage compared to edge providers like Facebook or Google who are still free to track online usage.

Last year the FCC also started to look at the ‘super-cookies’ that Verizon was using to track customers across the web. This privacy ruling (which is now on a lot more secure footing based upon the net neutrality order) could end the supercookies and many other ways that ISPs might track customer web behavior. Interestingly, both Verizon and AT&T have been bidding on buying Yahoo and this potential privacy ruling puts a big question mark on how valuable that acquisition might be if customers can all opt out from being tracked. I think Verizon and AT&T (and Comcast) all are eyeing the gigantic ad revenues being gained by web companies and this ruling is going to make it a challenge for them to make big headway in that arena.

Lifeline. I think that the net neutrality ruling also makes it easier for the FCC to defend their new plans to provide a subsidy to low-income data customers in the same manner they have always done for voice customers. Now that data is also regulated under Title II it fits right in to the existing Lifeline framework.

Data Caps. At some point I expect the FCC to tackle data caps. It’s been made clear by many in the industry that there are no network reasons for these caps, even in the cellular world. The cellular data plans in most of the rest of the world are either unlimited or have extremely high data caps.

The FCC said in establishing net neutrality that they would not regulate broadband rates. And in the strictest sense if they tackle data caps they would not be. The regulatory rate process is one where carriers must justify that rates aren’t too high or too low and has always been used, as much as anything, to avoid obvious subsidies.

But data caps – while they can drive a lot of revenues for ISPs – are not strictly a rate issue, and in facts, the ISPs hop through a lot of verbal hoops to say that data caps are not about driving revenues. And so I think the FCC can regulate data caps as an unnecessary network practice. It’s been said recently that AT&T is again selectively enforcing its 150 monthly gigabit cap, and so expect the public outcry to soon reach the FCC again, like happened last year with Comcast.

Raising Data Caps

comcast-truck-cmcsa-cmcsk_largeBrace yourself, because I am about to say nice things about Comcast. Last week Comcast announced that it was raising its month data caps countrywide to 1 TB (terabyte). This is an increase from the current caps of 300 GB that the company has implemented in a number of markets starting last year. This is good news for me. My household easily exceeds the 300 GB data caps. It’s a relief to know that I am not going to be seeing the small data cap.

There are probably a few reasons why Comcast decided to raise the cap. First, the FCC just required that one of the conditions for Charter’s purchase of Time Warner is that they impose no data caps on customers for seven years. In making that statement the FCC said that they had serious concerns about ISP data caps if those same ISPs also owned video programming, like Time Warner. In such cases, the ISP imposing data caps is favoring their own content over Netflix, Amazon Prime and Hulu delivered over the Internet.

And of course, the ISP that owns the most content is Comcast. They not only own NBC and other TV networks, but they just announced last week that they are going to buy DreamWorks. And so the company probably raised the data caps voluntarily rather than have it imposed on them during any investigation of the DreamWorks purchase.

Comcast was also taking a lot of bashing about the data caps. Data cap complaints have soared to become the most common consumer issue at the FCC. People complained that Comcast wasn’t measuring their usage correctly and that the caps were penalizing them for watching online video rather than buying Comcast video.

I always found the numbers that Comcast quoted about data caps to be suspicious. When they imposed the 300 GB data caps they said that only 8% of their customers exceeded that cap each month. They said last week that 1% of their customers exceed the 1 TB limit. I always thought the 8% number sounded too small, and if the TB number is correct it probably is. It’s hard to think that any household that watches a significant amount of online video doesn’t hit the 300 GB cap.

In addition to video, anybody who downloads games and 4K movies are surely exceeding that cap. It’s not unusual for a game or 4K movie file to be between 40 GB and 60 GB, and it wouldn’t take long for files that large to blow the 300 GB data cap.

But what perplexes me is that if the FCC is generically against data caps, why did they just impose a cap on the new Lifeline data programs? They imposed a cap on any customer getting a landline data subsidy to a 150 GB monthly cap and imposed an unbelievably paltry cap on mobile data of ½ GB per month. I’ve been scratching my head since I read the order trying to figure out why there are any data caps at all on the Lifeline plan.

This is particularly perplexing since one of the major stated purposes of the Lifeline plan is to close the “homework gap.” From everything I read, a large part of homework these days is assigning videos for homework. Students watch schoolwork videos at home, saving valuable class time to then discuss the video. But having data caps on homework plans – or allowing mobile data to be used for this purpose – is puzzling.

There are still a few big players in the industry with data caps that the FCC is surely watching. Both Verizon and AT&T now have video products as part of their monthly service that don’t count against their mobile data caps. It’s hard to think that this is going to be allowed to stand. Mobile data in the USA is close to the most expensive data in the world and hopefully the FCC can find a way to get the wireless carriers to raise data caps in the same way that they are getting the big landline companies to do so. I think the FCC just missed a big chance by not requiring removal of data caps as a requirement to buy new spectrum.

People in the rest of the world are amazed at our data caps. For most of the world, if you have a mobile data plan you can use it pretty much as much as you want. Foreign cellular providers don’t make any promises that mobile data will always be available, but they expect customers to actually use it.  The fact that US cellular carriers impose incredibly stingy data caps is frustrating and I hope the FCC has the wireless carriers in their crosshairs.