Faster, simpler, cheaper process, but no greater support

The federal Lifeline program – a program overseen by the FCC and originally designed to provide subsidized phone service to low-income households – has never been a model of efficiency or consistency. Four years ago the Commission tried to tighten things up on the Lifeline front. And now the FCC has taken dramatic steps to overhaul the program.

In a sweeping 163-page decision (not counting another 60 or so pages of appendices and separate statements), the Commission has decided to: open the Lifeline program to many more carriers; simplify the certification process; reduce the burdens and risks on participating carriers; and reduce the fraud and abuse which has plagued the system from the beginning. The only thing it didn’t do was to raise the subsidy that is paid per participating subscriber.

One example of the inefficiencies riddling the Lifeline program: The process for certifying Eligible Telecommunications Carriers (ETCs) to participate. The Universal Service Fund (USF) statute contemplates that states will handle the ETC certification process in the first instance; only when the states fail to act or disclaim any jurisdiction to act is the FCC allowed to step in. This has left a patchwork of regulatory regimes with a handful of states being subject to FCC certification and the other states employing widely varying certification procedures, some of which involve hearings before state PUCs, in order to get an ETC certification.

This perhaps made sense in an era when ETCs offered service in high cost areas and received concomitant support – a relatively high cost proposition that may have justified the close scrutiny the states gave it. But more recently, many carriers, especially wireless or other CETCs, have sought ETC certifications to offer only basic Lifeline services to customers, a program that awards support on the basis of customers served and nothing else, making for a simplified claim and payment structure. In the last three or four years, however, the FCC has issued only a handful of certifications while it attempted to get its arms around the whole Lifeline process, leaving new carriers unable to get into the program and unable to compete with carriers who had been certificated before the gangplank was raised.

The new program adopted by the FCC changes the ETC designation process – but that’s only one of a raft of major shifts in the Commission’s approach to Lifeline. Here are some of the highlights:

Broadband defined as a telecommunications service.
First, the FCC took the huge step of designating broadband Internet access service (BIAS) as a telecommunications service which is to be supported by the USF. This is an important categorization because it was the big Net Neutrality decision last year that changed the categorization of BIAS from an information service (not common carrier-like) to a telecommunications service (subject to Title II regulation like telephone companies and wireless carriers). As a telecom service, BIAS can now be covered by the USF support mechanisms. One has to wonder what might happen to this bold step if the courts decide to overrule the Commission in the pending appeal of the FCC’s Net Neutrality Order. The Commission seems to have tried to hedge against that possibility by suggesting in a footnote that BIAS would somehow qualify as a USF-supported service even if it is not generally recognized as a telecom service. Suffice it to say that this element of the FCC’s Lifeline decision would need scrutiny if the Court does throw out the Net Neutrality Order.

Broadband rather than voice service preferred.
The new Lifeline Broadband Program is designed to emphasize the delivery of broadband – not voice – to low income households. To that end, newly certificated Lifeline Broadband Providers (LBPs) will be authorized to offer broadband-only or to offer broadband and voice on a bundled basis. They must generally phase out voice-only service over a period of about five years. This is encouraged by gradually reducing the level of support for pure voice service to $5.25 per subscriber in 2021 while gradually raising the minimum level of voice minutes which must be provided to 1000 per month. The FCC clearly believes that voice will simply be an insignificant adjunct to broadband in the future. Interestingly, the support level for broadband service will start and remain at $9.25 per month, despite what would appear to be a significant upgrade over the level of the currently required to be provided (i.e., a relatively trifling 250 minutes of voice service of the same price).

Minimum service levels.
Service levels are prescribed through 2019. For mobile service providers, data allowances start at 500 MB/mo. at 3G speeds and rise to 2GB/mo. in 2018. The Commission wisely elected not to try to predict speed and capacity levels down the road but instead established a process for measuring typical speeds and data capacities in future years and linking the minimum standard to that metric. Higher standards apply to fixed Lifeline providers.

One-to-a-household rule retained.
The Commission retained the one-to-a-household rule that has been the cause of much of the fraud and abuse. Only a single supported subscription is allowed per household, even though there may be two or more adults and numerous teenagers in the same household. This circumstance no doubt drove people to claim that there were no other Lifeline subscribers in the household in order to get more supported subscriptions. The Commission’s obviously inadequate way of dealing with this issue is to allow members of the household to share the data service subscribed to by one family member. The image of a modern, low-income family sitting around the kitchen table Leave-It-To-Beaver style, happily sharing data imported from a single device, comports with no known family in the 21st century.

A single verifying source for eligibility and payment is established.
A “National Verifier” is to be established to act as the sole source of determining whether low-income people qualify for supported Lifeline service. This relieves carriers of the huge burden of trying to get potential subscribers to provide sensitive information and certifications that it is not in the subscribers’ best interest to provide. It also relieves carriers of the liability for employees providing false information or otherwise gaming the system to get customers to sign up.

The new system, which will unfortunately have to be phased in over a period of years in different regions of the country, will access existing federal welfare databases to see if a subscriber is eligible. It is to be a production of the Universal Service Administrative Company (USAC), with input from the FCC’s Wireline Bureau and Managing Director. (Presumably  the USAC will be responsible for maintaining, either directly or possibly through some subsidiary, the system once it’s up and running.) The system will then keep track of which carrier the subscriber is associated with and direct that support payments for the subscriber will go to the right carrier. The system will also prevent subscribers from jumping from carrier to carrier more than annually. The anticipated reduction in churn should provide an increased incentive for carriers to want these customers.

FCC takes over the designation process.
A major change in the Lifeline process is the FCC’s decision to take upon itself the job of designating Lifeline ETCs. As noted above, this was a task that the statute delegated primarily to the states, with the FCC filling in only where the states were not acting. Not only has the FCC now assumed the Broadband Lifeline ETC designating mantle, but it has also preempted the states from designating them at all. Expect this to be a cause of heartburn for state PUCs who have been active in this field and are very protective of their statutory prerogatives. The FCC devoted a lot of ink to trying to legally justify this upending of the statutory scheme – not entirely convincingly in our humble opinion. Nevertheless, the new set-up makes for a far more efficient and streamlined process. Instead of filing separately in various states, each with its own sometimes arcane procedures, a prospective LBP can file a single application with the FCC. It can designate where it intends to offer service at the outset and then modify that easily down the road by a simple notification. The application requires a minimum of detail about the services to be offered and in most cases will be deemed granted after 60 days unless the FCC removes it from the routine processing line. This is a far cry from the laborious process that prevailed in the past in which detailed compliance plans had to be presented to the Commission for microscopic months-long reviews. This single amendment will open the doors to many new competing carriers who might not otherwise have dared to hazard the regulatory straits necessary to get an ETC designation.

We do note that states are not barred from continuing to certificate high cost or voice-only ETCs under their normal procedures. They just can’t designate broadband or broadband-bundled ETCs. Whether LBPs certificated under the new federal program can still qualify for state support is little unclear. But in a single footnote – Footnote 689, if you’re looking – the FCC observed that it did “not here preempt otherwise permissible efforts, consistent with state law, to provide state support.”

Service requirements.
The FCC also slightly eased the requirement that ETCs must advertise their service in media of general availability. Now Lifeline ETCs can address their advertising to niche markets that they are particularly targeting without having to advertise to the world at large. On the other hand, LBPs who provide devices to subscribers must provide devices that are WiFi and Hotspot-enabled. Note that LBPs are under no obligation at all to provide phones to their subscribers, but many do. And when that is done, the phones must have WiFi capability. The intent here is to expand subscribers’ access to free WiFi sources and hotspots which will not count against their paid data buckets. Finally, the FCC modified its non-usage rule to include the origination of text messages as “usage”. Under the current rules, a customer who does not use his or her phone to make a call for 60 days is deemed to not be a customer. (The idea here is that the USF should not be providing support for a subscriber who is not actually using the supported service.) The Commission grudgingly has accepted that texts originated by a customer should “count” as usage, though texts received do not. The permissible non-use period, however, has been reduced to 30 days, with an additional 15-day cure period. Failure to use the service within that 45-day period will result in termination from support.

Budget cap.
Finally, in a much debated and controversial move, the FCC imposed a cap on the amount that can be spent on this service annually: $2.25 billion. That may seem like a lot of money, but if the program is as successful as the FCC hopes in stimulating new providers to offer service and getting low-income folks to sign up, that number could be reached or exceeded. The cap should give some comfort to the Republicans on the Commission that this will not become a runaway train, although they would have capped it at $1.75 billion.

Be aware that many aspects of the program will not be immediately effective due to the need to implement the details and get approval from OMB for some aspects of the plan. But we see this as a significant step forward in rationalizing and controlling a program that had strayed too far from its original well-meaning intent.