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Could blockchain technology save Lifeline?
It is ironic that something called Lifeline is struggling to be relevant. But for the Federal Communications Commission’s (FCC) primary program for helping low-income households afford telecommunications services, this has been reality for several years.
For all of the good intentions of the FCC, state utility regulators, and Lifeline advocates, numerous academic studies have demonstrated that the program is ineffective. The program has also been the victim of considerable fraud.
What can be done? One solution may lie in the technology that made bitcoin possible: blockchain.
What is Lifeline?
Lifeline is a program run primarily under the direction of the FCC and provides discounts of up to $9.25 per month on telecommunications service for low-income consumers. To qualify, recipients must participate in one or more federal assistance programs, such as Supplemental Nutrition Assistance Program (formerly known as Food Stamps), Medicaid, or Federal Public Housing Assistance. Persons living on federally-recognized Tribal lands also qualify.
The recipients don’t really receive the subsidy. They receive a price discount. The consumer’s service provider reports to the Universal Service Administrative Company (USAC) that it is serving a qualifying customer, and if USAC agrees, the service provider receives the subsidy.
What are the problems?
There are several. One is that studies consistently demonstrate that the program has little impact and is costly. For example, a 1995 study found that the program had no statistically significant impact on the number of telephone subscribers. A 1998 study and a 2002 study found that the program has a statistically significant impact on the number of telephone subscribers, but that the impact was quite small. Also, because of poor targeting, it cost nearly $1,600 per year to add a household to the network. A 2014 study found that 21 percent of Lifeline subsidies went to households that would have service without the subsidy. A 2015 study estimated that it costs somewhere between $1,151 and $3,093 annually to use Lifeline to add a household to wireless telecommunications.
Another problem has been substantial fraud. In 2004, the FCC staff estimated that the number of people in California receiving the Lifeline subsidy was 32 percent higher than the number of qualified people. In 2013, the FCC proposed more than $33 million in fines against three service providers because of Lifeline fraud.
How would blockchain help?
Blockchain is a technology developed by the founder(s) of bitcoin, Satoshi Nakamoto. It is essentially a digitized, decentralized ledger of transactions. People conduct transactions on a blockchain by using wallets. A wallet is software that contains a private key and a public key. Someone wanting to send money from a wallet must know the private key. This protects the money (which is recorded on a blockchain) as long as the wallet owner does not reveal the private key to someone. If someone wants to send money to a wallet, the person must know the public key.
Once a transaction occurs, computers called miners verify the transaction and create a hash (this is called hashing), which is a code that has embedded within it all the transactions in the blockchain. This makes the blockchain immutable because, if someone tries to change any of the hashed transactions, the hash changes, so the miners do not accept the change.
Here’s how this might work for Lifeline. Each person that is enrolled in one of the qualifying federal programs and that does not have a phone would be assigned a wallet suitable for the service for which the person wants to use the subsidy. For example, the wallet might be an app on a secure smartphone if the person wants to use the subsidy for mobile service or on a piece of hardware that could plug into a smartphone, laptop, or tablet computer.
Each month USAC could transfer the Lifeline subsidy from a USAC wallet to the recipient’s wallet. The recipient could then use the currency to pay all or part of the service fee, depending on how much the person is paying for service. This payment would be made from the recipient’s wallet to a wallet designated by his or her service provider. The blockchain would not recognize unauthorized wallets. Once USAC had verified that a recipient had received the currency and transferred it to a qualified service provider, miners would hash the transactions to protect the system against fraud.
Based on studies of how long a subsidy is effective, the FCC could limit how long a recipient could receive Lifeline.
Sometime during the Obama administration, people started referring to at least some Lifeline phones as “Obama phones.” Maybe it’s time to change that to Satoshiphones.