FCC Approves Lifeline Reform Order, Ends Link Up Support

FCC Chairman Julius Genachowski met at length with McDowell and Clyburn Monday to discuss changes each sought. Commissioners and their staff had to look closely at the order Tuesday morning, resulting in a meeting that began an hour later than its scheduled 10:30 a.m. ET start time.

McDowell and Clyburn disagreed fundamentally on the future of the Lifeline program as work progressed, with Clyburn pressing to expand the program and McDowell pushing for fiscal discipline, FCC officials say. Those disagreements surfaced during Tuesday’s meeting.

The order doesn’t impose a cap, but instead sets a savings target of $200 million for the program in 2012 relative to the status quo. It also contains a trigger that requires the commission to address increases if the program exceeds the budget -- similar to a trigger for the Connect America Fund in the USF reform order the FCC approved in October (CD Jan 23 p1). But at the same time, it opens the door for Lifeline to expand to pay for broadband, through a Broadband Adoption Pilot Program costing up to $25 million.

The order launches a national Lifeline Accountability Database to guard against double dipping in the program and will establish a second database to verify initial and ongoing Lifeline eligibility. The second database is expected to take longer to put in place. The FCC noted that the FCC has already identified 270,000 duplicate subscriptions in 12 states following review of more than 3.6 million subscriber records, for savings so far of $33 million. The order eliminates the Link Up part of the program, which paid for connections, with a carve out for tribal connections. It clarifies that only one subscriber per household can make use of the program, though separate low-income families living at the same address can still get connected.

McDowell said with the order the FCC infuses the program “with fiscal discipline for the first time.” But parts of the FCC’s approach remain flawed, he said. He questioned the projected long-term savings claimed. The order “optimistically claims that our action may save the program ‘up to $2 billion,'” McDowell said. “I am not confident in that assertion.” USF represents a highly regressive tax paid by most telephone subscribers, he said. “In short, some consumers pay artificially high rates so others may enjoy artificially low rates, or no rate at all,” he said. “Accordingly, when we spend more on Universal Service to help the fund’s recipients, we are essentially ’taxing’ all other phone consumers whether they are rich or poor. … I hope those who have advocated we adopt no spending restraints at all will understand that many Americans are just scraping by in this economy.”

McDowell questioned the wisdom of launching a broadband pilot when the program as is continues to grow. “We certainly shouldn’t be laying the foundation for inflating the program before shoring up its finances,” he said. He also disputed the commission’s reliance on Section 706 of the Communications Act to justify the commission’s actions in approving the order. McDowell dissented on both issues.

Clyburn strongly supported expanding the Lifeline program to cover broadband. “Less than a third of the poorest Americans in this country have adopted broadband,” she said. “I believe that the Lifeline program can do for broadband service affordability what the Lifeline program has done for telephone service affordability, but it will take a brave commission to do what is necessary to make a financial commitment to ensure that result."

Clyburn questioned whether Lifeline service should be restricted to just one subscriber per family -- the part of the order on which she only concurred. For families with two adults, “I am concerned that a $9.25 subsidy for service may not stretch far enough for them to each have access to a phone when they need it,” she said. “I believe asking low-income families with multiple adults to manage with just one phone is inconsistent with the new norm.” Clyburn also said she had initial concerns about the new verification requirements and the burden imposed on both Lifeline subscribers and carriers. But she said she ultimately agreed that all Lifeline subscribers should be checked this year for continued eligibility in the program. “Currently, about 65 percent of all Lifeline subscribers are being recertified annually, and checking the other 35 percent makes sense as an initial step in our reform of the program,” she said.

"We all reached agreement relatively quickly on the dramatic reforms to tackle waste, fraud and abuse,” Genachowski said during a press conference after the meeting. “When it came to thinking about how to do planning going forward we found ourselves with three different positions.” It became clear as discussions unfolded that “one of the most beneficial things we could do” was to put in place “a concrete target for savings and a process to measure our progress as against that,” he said.

Genachowski defended the FCC’s decision to eliminate the Link Up subsidy for most subscribers. “It’s an example of us looking together as part of a review of a program and saying, ‘This piece of it is not working,'” he said. Link Up “provided a bounty, in effect, for companies that sign people up,” he said. “We identified Link Up as one major mechanism that incentivized waste, fraud and abuse and was no longer necessary because of changes in the business model, the charging structure for companies."

AT&T Senior Vice President Bob Quinn said the reforms approved by the FCC are “long overdue,” though he questioned whether the FCC needs to do more. Quinn said if every eligible person subscribes, the cost of Lifeline would grow to $5 billion. “We fear the speed of reform is getting far outpaced by the actual dollar growth of the fund itself,” he said. “Policymakers must begin to discuss whether it continues to make sense for an independent agency to administer a fund this size with no Congressional oversight or decision-making input to the appropriate size of the fund."

The Lifeline order is a “good start” though “storm clouds loom,” said Larry Downes of TechFreedom. “The majority’s reliance on Section 706 of the Communications Act, which the FCC also used to ground its now-challenged 2010 Open Internet order, is deeply problematic,” Downes said. “Section 706 encourages the agency to remove regulatory oversight of broadband markets. It is not a blank check for the FCC to pursue any agenda it thinks best, no matter how well-intentioned."

The order is a “giant step” toward eliminating waste, fraud and abuse, said Commissioner Anne Boyle of the Nebraska Public Service Commission. Steps already taken to end duplicate service in 12 states don’t weed out all who are ineligible and the databases proposed by the FCC will help, said Boyle, a state member of the Federal/State Joint Board on USF. The move to a Lifeline program for broadband shows the immediate need for the FCC to address the contribution side of USF, said a second state official. Otherwise, the universal support of broadband availability for eligible Lifeline end-user consumers won’t be possible, he said.

"In addition to rooting out inefficiencies, the FCC has recognized with these reforms that broadband is an essential communications tool for all Americans,” said Rep. Anna Eshoo, D-Calif. “The establishment of a broadband adoption pilot program will help close our nation’s digital divide, while addressing a key recommendation of the FCC’s National Broadband Plan.” Rep. Doris Matsui, D-Calif., also praised the FCC for approving the order. “In addition to reforming the program to save an estimated $2 billion in the coming years, the FCC has also committed today to establishing a broadband adoption pilot program,” Matsui said.

Tuesday’s meeting was the commission’s first without former Commissioner Michael Copps and its last with Eddie Lazarus as chief of staff. Genachowski offered an extended tribute to Lazarus, who is being replaced by Zac Katz, also a Genachowski aide. “Thank you for having my back,” Genachowski said. “And I'd like to add, no pressure Zac.” Punctuating the change, the three commissioners posed for a new official photo after the meeting ended.