Sweeping NPRM proposes changes in implementation in low income programs, possible integration of broadband

As part of its ongoing effort to modernize (and rationalize) the various elements of the Universal Service Fund (USF), the FCC has now turned its attention to Lifeline and Link Up. These two programs make up USF’s Low Income component, which seeks to make telecommunications accessible to those with low incomes.  In a 98-page Notice of Proposed Rulemaking (NPRM) released March 4, the FCC has set out a number of proposals for possibly significant changes to its current approach. Many of those proposals implement recommendations from the Federal-State Joint Board on Universal Service (which we reported on here last fall), the Government Accountability Office, and the National Broadband Plan.

To get a better feel for the nature and extent of the proposed changes, it may be useful first to get a sense of the way the Lifeline and Link Up programs work.

The goal of the programs is to insure that “quality telecommunications services” are available to low-income customers at “reasonable and affordable” rates. To that end, the government does not reimburse the low-income customers directly; rather, it reimburses eligible telecommunications carriers (ETCs) who provide service to low-income customers. The ETCs submit quarterly forms reflecting the extent of low income support they have provided. In 2010, the cost of the Lifeline/Link Up programs was $1.3 billion (roughly five times its 2007 size) – in other words, there’s a serious pot of cash to dip into.

There is no uniform, nation-wide set of standards and procedures by which ETCs identify eligible “low-income” customers. Standards and procedures vary among the various states. In many instances, verifying documentation is not required. The potential for innocent error or less innocent fraud is not insubstantial.

The focal points of the FCC’s Lifeline/Link Up reform efforts described in the NPRM are:

  • eliminating fraud, waste and abuse;
  • capping the Low Income Fund;
  • improving program administration; and
  • modernizing Lifeline and Link Up (including reimbursement for broadband, of course).

Out of the hundreds of discrete issues teed up for comment, we have selected a few highlights below.

Fraud, waste and abuse. The FCC is confident that it can reduce fraud, waste, and abuse in the Lifeline and Link Up programs. (It’s so confident, in fact, that it’s already planning a broadband adoption pilot program on which it can spend the money it’s going to save.  See below for more details). To do that, it proposes to eliminate a number of problem areas in the way the programs are implemented. For example, the following would be axed by the Commission:

  • Link Up (activation) reimbursement for carriers that do not routinely impose activation charges on all customers within a state;
  • Duplicate discounts going to the same household (under the rules, each household may only receive one telephone line, either wireline or wireless). To prevent duplication, the FCC proposes to require carriers to obtain a certification from consumers that there is only one Lifeline service per address;
  • Self-certifying for eligibility by consumers (instead, the FCC proposes to require carriers to demand documentation);
  • Inadequate verification sampling (the FCC may require larger sample groups or a census of all customers if an initial sample group reveals too many ineligible customers);
  • Reimbursement for services unused for 60 days (a particular concern for prepaid services);
  • Complete – as opposed to pro rata – reimbursement for subscribers who enroll or disconnect during the month; and
  • Toll limitation service reimbursement (obsolete and susceptible to over-reimbursement).

To ensure that eligible telecommunications carriers (ETCs) providing Lifeline are on board with these goals, the FCC proposes a “more rigorous” approach – including more, and more expanded, audits – to the management of the program.

Capping the Low Income Fund. The NPRM seeks comment on various issues relating to capping the size of the Low Income Fund, for example at the 2010 disbursement level.  It recognizes that the Fund already has an ultimate cap in the sense that only a defined population of eligible households may participate, and support is limited to $10 per month per household.

Program administration. The NRPM suggests various ways to improve program administration, such as: 

  • Adopting a one-per-residence (i.e., U.S. Postal Service address) eligibility rule;
  • Clarifying the eligibility rules for residents of Tribal lands  and proposing eligibility through participation in federal Tribal low income programs;
  • Imposing federal baseline eligibility criteria, including perhaps raising the cutoff from 135% of the Federal Poverty Guidelines to 150%;
  • Coordinating enrollment with other social service assistance programs;
  • Developing a national database to prevent duplicate claims and verify eligibility (anyone who has worked with the FCC’s CORES database will likely be amused at the idea of the FCC creating a database intended to eliminate duplication); and
  • Imposing mandatory outreach requirements.

Broadband.  In keeping with its conviction that broadband service should be universally available, the FCC also proposes to extend the Lifeline program to include broadband. It seeks comment on whether a Lifeline discount should be available for any plan that includes a local voice component, including bundled voice and broadband.  It queries further whether broadband itself should be eligible for Lifeline support (note that this is a separate query from whether broadband should be a required supported service) – and, if so, how can broadband costs be integrated into the program in a way that minimizes (if not avoids) additional waste, fraud or inefficiencies?

Demonstrating that even imaginary money can burn a real hole in a governmental pocket, the FCC already has plans for how to spend the cash that it will save. Of course, any actual savings will require, first, that the proposals be adopted and implemented and, second, that those proposals in fact be effective. Apparently taking for granted that all those pieces will fall happily into place, the Commission has its heart set on indulging its compulsion to pocket funds to feed its broadband habit: it plans to set aside its savings to create a pilot broadband program. The pilot program will test different approaches to providing support for broadband to low-income consumers across different geographic areas and demographics. In particular, the Commission is looking to test how much of a factor hardware is in broadband adoption.

Of particular interest to Lifeline carriers. Carriers considering the daunting prospect of applying for Lifeline-only ETC designation through the forbearance process will be cheered that the FCC is considering doing away with the own-facilities and rural areas redefinition requirements. These requirements are designed to prevent cream-skimming in a High Cost context and don’t make sense in a Low Income-only situation. The Commission is considering codifying the conditions that it has been applying to forbearance grants instead. Even more radical, but strangely sensible, is the Commission’s apparent interest in AT&T’s proposal to allow any carrier to provide Lifeline discounts at a flat rate.

However, the Commission somewhat grimly notes that the fact that “numerous carriers are seeking designation as Lifeline-only ETCs . . . suggests that the current structure of the program may present an attractive business opportunity for firms that employ different business models than traditional wireline carriers.” To prevent funds going to carriers rather consumers, the FCC seeks comment on whether there is a more appropriate reimbursement framework than the current four-tier system based on an ILEC’s subscriber line charge. Furthermore, to protect Low Income consumers from receiving less-than-adequate service, the FCC asks if there should be minimum service requirements for prepaid ETCs (or for other carriers), such as a minimum number of monthly minutes.

The design and implementation of modified Lifeline/Link Up programs present problems of immense complexity for the Commission. Besides the enormity of the project – the raw numbers of eligible customers, the multiple mechanisms for determining eligibility, the detailed auditing process already in place – the Commission must also deal with the concept of grafting a new service (broadband) onto the system. Additionally, the underlying business of delivering telecommunications services is itself developing rapidly, creating new and different business models that may or may not be easily integrated into the Commission’s approach either now or in the future. The preferences of the consuming public also come into play. And don’t forget that we’re talking about a pool of funds that already exceeds one billion dollars, a tempting target for less-than-honest entities.

The scope of the NPRM suggests that the Commission recognizes the daunting nature of the challenge it is undertaking. Whether – and if so, when – the Commission will ever be able to claim that it has met that challenge remains to be seen. But at least the FCC has made the first move in its quest.

The NPRM was published in the Federal Register on March 23. Comments on the proposals in the NPRM are currently due to be submitted by April 21, 2011; reply comments on Sections IV, V (Subsection A) and VII (Subsections B and D) are due by May10, 2011. Reply comments on the remaining sections are due by May 25, 2011.