The new FCC majority fundamentally dislikes the Lifeline Program and will seek to weaken it by any means possible

To my great surprise and delight, the recent move by the Federal Communications Commission’s new majority to revoke the designations of nine companies as Lifeline providers has provoked a firestorm in the press, on social media, and on the Hill.

The furor has been so intense that FCC Chairman Ajit Pai felt moved to defend the decision on Medium this week. But the Chairman doth protest too much. His thin arguments fail to mask two clear truths:

1. His actions will make the market for Lifeline broadband services less competitive, limiting choice and keeping prices high. As a result, fewer low income Americans will be able to afford broadband; and
2. He, and fellow FCC Commissioner Michael O’Rielly, fundamentally disagree with the structure and goals of the Lifeline program and will seek to undermine it in word and deed.

First, a Brief Lifeline Primer

On March 31, 2016, the FCC modernized Lifeline – one of its four programs intended to ensure that all Americans have access to modern communications. The Lifeline program provides a small, monthly subsidy ($9.25) to low-income Americans for telecommunications services. Since broadband is essential for full participation in our economy and society, the Lifeline Modernization Order allowed that subsidy to be applied to broadband Internet access service for the first time.

The Lifeline Modernization Order was not only about providing affordable broadband service to low-income people; the FCC also reformed the program to ensure it is efficient. To decrease administrative burdens on service providers while also cracking down on waste, fraud, and abuse, the FCC established a National Eligibility Verifier, taking the task of determining whether a person is eligible for Lifeline support out of the hands of carriers. And the FCC established, for the first time, a budget mechanism for Lifeline.

Importantly, the Lifeline Modernization Order also sought to inject new competition in the market for providing broadband service to low-income households. A number of participants in the Lifeline proceeding complained about the burden of seeking state-by-state approval to provide Lifeline services. The Commission decided that a streamlined approval process would encourage broadband providers who were not currently providing Lifeline services to sign up to participate in the program. The order set up a new category of telecommunications provider – called a Lifeline Broadband Provider or LBP – allowing broadband providers to seek approval from the FCC to provide Lifeline service anywhere in the US.

The thinking was this – the more Lifeline providers, the better and more affordable the service will be, leading to an increase in Lifeline subscribers. Imagine, for example, if one of the cable companies currently providing broadband service at decent speeds for $9.95 a month became a Lifeline provider. That could change the entire Lifeline marketplace and drive the cost of good broadband service down to nearly zero for Lifeline-eligible homes. The impact on the digital divide would be astonishing.

The Chairman’s Defense

For an order that is a mere eight pages long, Chairman Pai gives seven (!) justifications for revoking the Lifeline designations. I’ve put them in three categories:

1. Minor (and False) Procedural Claims: The Chairman first cites two minor procedural errors that the FCC’s Wireline Competition Bureau, which issued the reversal, could have easily found harmless. But his bigger procedural gripe is that some (but, interestingly, not all) of these designations were approved “in the last days of the Administration,” over his and Commissioner O’Rielly’s objections. But Tom Wheeler was the FCC Chairman at the time, and the decision to designate new Lifeline providers was one for the Wireline Bureau, not the full Commission. So there was no process foul here.

2. The Waste, Fraud and Abuse Excuse: Chairman Pai defends the revocations by saying “the Commission needs to make sure that there are strong safeguards against waste, fraud, and abuse before expanding the program to new providers.”

But, of course, there are strong safeguards – in the reforms that the FCC implemented in 2012 and in the process for approval of new Lifeline providers. In fact, the full Commission explicitly found these and other protections to be sufficient to guard against waste, fraud, and abuse in the Lifeline Modernization Order.

The new FCC majority has consistently ignored these protections and their success in significantly reducing Lifeline fraud, choosing instead to aggressively demonize the program and, by extension, its low-income recipients.

3. The Authority Argument (Yet Again): The Chairman is masterful in using the argument “the FCC lacks legal power” to undercut just about every pro-consumer and pro-competition policy he doesn’t like. He used this excuse recently in declining to defend the FCC rules that lowered prison phone rates, and he will certainly do the same when addressing the FCC’s privacy rules for broadband and, ultimately, its network neutrality rules.

I won’t get into the details about how Chairman Pai committed his own process foul by having his Wireline Bureau, in the order revoking the nine Lifeline designations, undercut a legal determination voted on by the full Commission in the Lifeline Modernization Order. Instead, I’ll repeat what should now be obvious – the new FCC majority fundamentally dislikes the Lifeline Program and will seek to weaken it by any means possible.

The Last Word

Not only does last Friday’s decision reduce competition in the Lifeline market, it will also likely discourage any new applicants from providing Lifeline service. There is great irony that this FCC majority would seek to make longer and more burdensome a streamlined process that was requested by many in industry. But what is equally ironic is that a Chairman, who highlighted in his very first speech that closing the digital divide would be one of his core goals, would so quickly act to widen it.

Comment from reader – jimtobias on February 14, 2017