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The Lifeline program is one of the Federal Communications Commission’s most important, most noble ventures. It is also one of the most problematic, suffering repeated criticism from the Government Accountability Office and others (including my AEI colleague Jeffrey Eisenach and myself) for waste, fraud, and abuse. To reform the program, the commission has suggested limiting Lifeline participation to facilities-based telecommunications providers. But far from improving Lifeline, this proposal is likely to undermine the program and harm the vulnerable populations that the program seeks to serve.
Lifeline: Overview and proposed reforms
Lifeline is a federal assistance program to help low-income households stay connected to America’s telecommunications networks. It began as a Reagan-era subsidy for basic landline telephone service, expanded in 2008 to include wireless service, and two years ago began shifting from telephone to broadband service. The program currently provides a $9.25/month discount on telephone or broadband service to eligible households and is scheduled to become a broadband-only program in 2021. Like other universal service programs, it is funded by a surcharge on telecommunications customers’ monthly bills.
Last year, the commission recommended limiting Lifeline to facilities-based telecommunications providers — companies such as Verizon, AT&T, and Sprint that operate their own wired or wireless networks. This proposal would exclude resellers like TracFone, which purchase capacity on those networks and resell it to consumers. The agency’s primary goal was to facilitate broadband investment by steering Lifeline dollars toward carriers that actually build and maintain networks. The agency also noted that a reseller ban might limit Lifeline abuse, as most companies investigated for Lifeline misuse have been resellers.
Problems with the facilities-based limitation
The commission’s instinct to promote broadband investment is unquestionably correct. But Lifeline is not the vehicle to pursue this worthy goal. The Universal Service Program has other programs dedicated to building and maintaining broadband networks, such as the Connect America Fund (whose annual cost far exceeds that of Lifeline). Lifeline has a different mission: to make sure that America’s most vulnerable populations are not left on the wrong side of the digital divide. This proposal harms that mission.
First, the reseller ban restricts choice and ignores the preferences of Lifeline consumers. Almost 70 percent of Lifeline recipients currently purchase service from resellers, not facilities-based providers. In other words, the revealed preferences of Lifeline households indicate that resellers are better at serving this segment. By removing competitors from the marketplace, the proposal would limit the options available to Lifeline families — families that already have few options because of limited purchasing power — and bind them to providers that most of them would not choose voluntarily. At a minimum, the ban would be disruptive and burdensome to Lifeline consumers, the vast majority of which would be required to leave their current provider.
More fundamentally, the reseller ban ignores the role that wireless substitution plays in low-income communities. The Centers for Disease Control reports that 67.5 percent of households below the poverty line have eliminated landline service and rely solely on wireless service for voice communication (compared to only 52.5 percent of total US households). And the statistics are similar for broadband: The Pew Research Center notes that 21 percent of households earning less than $20,000 per year have a smartphone but no home broadband service for internet access, compared to only 6 percent of homes earning over $100,000 per year. Because of greater risks to housing and employment, poor families are more susceptible to involuntary moves. In that environment, mobility provides stability and helps keep these families connected during times of disruption.
Perhaps unsurprisingly, the overwhelming majority — 89 percent — of Lifeline dollars are spent on wireless, not wired, plans. And most of these plans are provided by resellers. Sprint is the only facilities-based provider to offer Lifeline in most areas (and it opposes the reseller ban). Most other facilities-based providers provide Lifeline in only a handful of states — and some intend to exit the program. TracFone’s comments show that without resellers, most Lifeline recipients’ wireless options would be minimal, which limits their ability to take advantage of the unique advantages that wireless substitution offers to this vulnerable population.
Lifeline needs reform, but not this reform
I have long argued that Lifeline is a flawed program in need of fundamental reform. But these reforms should enhance the purchasing power of eligible households. A true market-based subsidy would allow these households, as much as possible, to participate like any other family in the marketplace for telecommunications services. The reseller ban instead limits Lifeline recipients’ options and relegates many to wired solutions when most Americans — including many low-income families — prefer the advantages of mobile connectivity. There are better ways to promote build-out and limit abuse without limiting the options of families that have few choices to begin with.
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