Expand Lifeline, But Keep Consumer Choice

(3/31/16 Ed Note: ITIF congratulates the FCC on its historic vote to transition the Lifeline program into the 21st century. Broadband is the predominant communications platform of today, and supporting broadband access for low-income Americans is long-overdue progress. In addition to broadband support, administrative reforms will streamline the program and reduce the potential for fraud. The FCC made some improvements to the initial draft order, specifically delaying the phase-out of support for standalone voice. However, it would have been better to offer consumers even more flexibility, and it is disappointing to see the minimum standards remain.)

The Federal Communications Commission (FCC) is nearing a historic vote to expand the Lifeline program, which subsidizes communications for low-income Americans. After the rules go into place, recipients will be able to put the $9.25-per-month subsidy towards broadband Internet access instead of the voice telephone service the program originally supported. Such an expansion of the Lifeline program represents a tremendous step toward achieving the goal of ensuring every American has affordable access to the Internet.

As more and more services migrate online, realizing the full promise of the digital economy requires that the vast majority of citizens use the Internet. Network effects, combined with the fact that affordable broadband is a powerful tool for navigating today’s economy and potentially lifting families out of poverty, make a broadband subsidy overwhelmingly good policy. The FCC, especially Commissioner Mignon Clyburn, deserve great credit for guiding this program into the 21st century.

However, ITIF would like to join the chorus of others to reiterate our concerns with the rules as previewed by the FCC. A primary concern is the Commission’s plan to institute a minimum standard of service that companies must offer to qualify as part of the program. Specifically, the FCC appears intent on requiring a certain level of broadband speed (10 Mbps for downloads and 1 Mbps for uploads), as well as other requirements around data caps, voice minutes, etc.

There are two main concerns motivating the Commission’s lean towards minimum standards.

First, many want to ensure Lifeline recipients are not “left behind” with substandard Internet service. This was historically a problem with the Lifeline program when it supported voice-only telephone service. While unsubsidized voice offerings grew over time, with bigger buckets of data and better prices, the offerings by Lifeline carriers more or less stayed the same. But minimum standards are likely to reinforce this problem, giving carriers a low target to shoot for. Moreover, such standards will disproportionately hurt rural recipients, where low population density makes high-speed networks uneconomical.

Here, even the Obama administration has gently pushed back on the Commission’s draft order. In an excellent ex parte filing earlier this month, the National Telecommunications and Information Administration (NTIA) nudged the FCC, acknowledging that “although the Administration wants to avoid relegating Lifeline subscribers to inferior service, we have concerns about an outright dismissal of providers’ strong objection to such standards.” NTIA recognized that “minimum service levels for broadband offerings could deter provider participation, contrary to the Commission’s goal of increasing competition for Lifeline subscribers,” and urged the Commission approach minimum standards with caution.

Instead of setting paternalistic up-front standards for what service should look like, the FCC should encourage as many carriers to participate as possible, maximize consumers’ flexibility in choosing supported services, and rely on competition to drive improvements to offerings over time.

A second possible motivation for minimum standards is somewhat subtler: Minimum standards could act as a roundabout control on the program’s budget. If the minimum standard is such that broadband service would cost more than $9.25, it would require participants to contribute some personal funds before being able to connect, which would help rein in spending. The Lifeline budget is a thorny issue. Republicans have been pushing for a hard cap to the program, but Democrats have resisted, arguing that Lifeline acts as counterbalance to economic downturns—it needs room to grow if the economy goes south.

While it makes sense to have some tools to be able to guide appropriate growth of the program and keep spending under control, such mechanisms should be transparent and carefully designed—not hidden within something like minimum service standards. For example, a “skin in the game” contribution requirement makes a lot of sense. It would help ensure the subsidy is going to those who are putting the service to good use and help control fraud and abuse. But policies like minimum speeds are likely constrain the ability for Lifeline to act as a tool for Internet adoption and unduly limit the program’s potential. As such, instead of speed requirements and other limitations, the FCC should enact an explicit contribution requirement that is phased in over time as recipients come to appreciate the value of access.

ITIF has argued for almost a decade that lifeline should be expanded to broadband.  This change is long overdue and as such the FCC is absolutely right to transition Lifeline to support broadband, but the draft order could be improved upon. Instead of trying to guide what service plans participating carriers can offer or determining what platforms can be supported, the FCC should offer a technologically neutral voucher that consumers can put towards whatever best suits their communications needs. Be it $9.25 worth of minutes for a voice-only feature phone or $9.25 toward a gigabit fiber connection—that decision should be up to consumers, not Washington.