The Universal Service Fund (USF) – it’s not just for telephone service anymore.

For more than a decade, the Universal Service Fund (USF) has subsidized (1) telephone lines in places where there isn’t enough of a business case for phone companies to build and operate them, and (2) monthly telephone service for people who couldn’t afford it.

That’s not good enough anymore, according to the FCC.

As the Commission sees it, high-speed Internet – broadband – is a necessity, not a luxury. Accordingly, the FCC is looking to re-direct some USF funds to support broadband. Most likely, this will take the form of a monthly discount on broadband for low-income households.

In moving broadband way up on the list of life’s essentials, the Commission may be getting ahead of many consumers. Affordability is undoubtedly one factor in broadband adoption, but there may also be a number of people who just don’t think it’s that important, or not worth the hassle, or too much of a privacy risk, or any number of other concerns. To change their minds, the FCC has decided to use a ploy familiar to the criminal element: it’s going to test how much free or discounted Internet Joe Consumer needs to get hooked on broadband.  As with any pusher, the FCC’s apparent hope is that eventually the consumer will become addicted and willing to cough up the full price.

Accordingly, in February, the Commission announced (in its overhaul of the USF Lifeline program) that it would be setting up a Pilot Program “to test how the Lifeline program could be structured to promote the adoption and retention of broadband services by low-income households”. And now, with a public notice released April 30, 2012, the Wireline Competition Bureau has followed up on that plan. The Bureau is making $25 million available to eligible telecommunications carriers (ETCs) to carry out “field experiments” on customers.

The experiments will test various factors in encouraging broadband adoption: primarily what discount dollar amount would be most effective, whether it should be a single discount or monthly (and if monthly, how long it should last), and how speed, usage limits, and consumer outreach might affect adoption.

Applications to participate in the Pilot Program are due on or before July 2, 2012. Would-be participants who are not already ETCs must be designated before the application deadline. Participants will likely be selected during the third quarter of 2012. The Pilot Program is anticipated to last about 18 months: three months of provider back office implementation, 12 months of subsidized service, and three months of finalizing and reporting data. For more information, there is a Pilot Program webinar available on the FCC’s website.

Here’s how the program is supposed to work:

Experiment design.  Did you enjoy participating in your high school science fair? Then this program will be right up your alley. ETCs seeking to participate in the Pilot Program must design and submit a project along the lines of a scientific field experiment, including a detailed description of the experimental design and the variables to be tested. As mentioned above, the focus is on learning which discount plans are most effective in promoting broadband adoption and retention, but speeds, usage limits, and the effect of consumer outreach are also of interest. The experimental design should randomize variations on broadband service offerings (e.g., geographic randomization).

Individual applicants are not required to incorporate an extensive number of potential variations of broadband service into their projects; rather, the FCC will create a “portfolio” of projects by selecting multiple projects to test a range of variations in diverse geographic areas (e.g. rural, urban, Tribal). The Bureau encourages ETCs to partner with field experiment experts and third-party organizations working to increase broadband adoption, such as academic researchers, social research organizations, contract-research firms, or non-profit organizations. ETCs are also encouraged to work collaboratively with each other, sharing administrative costs where possible.

Preference. Preference will be given to:

  • Projects that include partnerships with non-ETCs that already have existing adoption programs in place to provide digital literacy (such projects may also include a control group that does not receive digital literacy training).
  • ŸProjects that also test, with appropriate control groups, whether access to equipment can influence adoption.
  • ŸProjects that indicate that their proposed projects promote entrepreneurship and small business, including those businesses that may be socially and economically disadvantaged.
  • ŸProjects that demonstrate ability to execute the proposal (in terms of funding and expert and third-party qualifications).
  • ŸProjects that demonstrate the value of the data to be collected in credibly addressing questions of interest.

The Bureau will also take into account the aggregate funding amount requested for each pilot project. In addition, it will select at least one pilot project directed at providing support on Tribal lands.

Costs and obligations. Participants in the Pilot Program will have the following minimum obligations during the program period (in addition to conducting the project):

  • ŸParticipants must use the funds they receive from USAC to subsidize the discounted services they provide to low-income consumers under the Pilot Program. In other words, if a carrier knocks $10 off a customer’s phone bill, it will be reimbursed $10. Other project-related expenses, however, such as the costs of developing the project design, will not be reimbursed.
  • ŸWhat program would be complete without reporting? In this case, participants must submit two types of forms. First, they must submit monthly reimbursement forms to USAC (similar to Lifeline reimbursement) for (1) any monthly discount of broadband service, (2) any applicable discount amount for voice telephony service if the broadband subscriber is also getting Lifeline support, and (3) any non-recurring fees for broadband provided to subscribers under the pilot project.  Second, participants must submit subscriber data on a “Low Income Broadband Pilot Program Reporting Form” to be collected directly by the ETC and submitted to USAC. Alternatively, at the participant’s request on its application, USAC will solicit this information directly from subscribers using an online survey. In either case, ETCs must obtain consent from their subscribers to provide this information before enrolling them in the program. This information will be collected at least twice: once when the subscriber first initiates service and again near the end of the project. The “anonymized” form will call for disclosure of income, age, ethnicity, family size, and details regarding subscriber usage.
  • ŸSubscribers should all be enrolled within nine months of the start of the trial period, unless applicants make an upfront case as to why their project should have different timelines.
  • ŸParticipants are “strongly encouraged” to file a final report sharing additional information with the Commission about lessons learned from the project, including cost on a per-subscriber basis of converting consumers to broadband. A representative may be asked to present such information at a Commission event.

The Public Notice lists a number of specific items of information that must be submitted with each application that are not itemized here. Feel free to contact us with any questions.