February 13, 2015 - 3:51 pm
By Michael O'Rielly | Commissioner

Over the last few years, the Commission has taken action to reform each of its universal service distribution programs to refocus them on broadband. The only program outstanding is the Low-Income or "Lifeline" program. Given recent pronouncements, I expect some changes to Lifeline in the not-too-distant future.

The Lifeline program was originally intended to provide low-income consumers with a discount to help make wireline telephone service more affordable. Over time, it began to pay for prepaid wireless service, and the "discount" often covers the entire monthly bill. That shift has more than doubled the size of the program. It also created problematic incentives that opened the door to waste, fraud and abuse that have never been sufficiently resolved. This is unacceptable.

The Commission has taken important steps to rein in program excesses, including by requiring annual eligibility re-certifications and instituting a database (the NLAD) to screen for duplicate subsidies. However, it appears that abuses are continuing.

I would prefer to ensure that there are adequate controls and deterrents in place before considering a revamp of the program to include broadband. In fact, the Commission is still grappling with the consequences of its previous expansion, so we need to be very cautious about further changes. Moreover, there is a legitimate debate whether the Lifeline program should be abolished or significantly scaled back rather than expanding its mission. I would be open to having a thoughtful debate on the best way to address a perceived need in this communications area rather than bootstrapping the old program with new responsibilities.

Since the Commission appears ready to press forward notwithstanding the need for fundamental review, it seems appropriate to outline certain principles for any Lifeline reform effort in order to garner my consideration.

1) Set a budget for Lifeline: Lifeline is the only universal service program that is not on a budget, and it is time to set one, as the Commission contemplated in the 2012 Lifeline Modernization Order. There is no justification for not having one as it is disingenuous and downright inaccurate to argue it is an "entitlement" program, similar to Medicare, Social Security and the like. As GAO has noted, "[t]he Low-Income Program has no funding cap and the addition of broadband and other future telecommunications technology without key management information and evaluation tools has the potential to further increase the cost to consumers who pay for the program through their telecommunications bills." Because continuing abuse in the program suggests that sufficient controls are not yet in place, setting a ceiling on reimbursements is a prudent step to protect ratepayers. Dollars lost to fraud may be returned to the federal government, but not to ratepayers who have already footed the bill.

2) No increase in the reimbursement rate for broadband: As the program expands to include broadband, some will argue that it will cost more and, therefore, the reimbursement rate should be increased. But there's evidence that the current $9.25 reimbursement rate is sufficient. At least one provider already includes 10 MB of data per month (on top of a free phone and minutes for voice or texts). Other providers offer 5-50 MB for just $5 extra. We should keep in mind that the program is supposed to provide a discount, not cover the entire cost of the service. The current $9.25 is adequate for that purpose, and we should review whether sound analytics can justify reducing this figure.

3) Limit services eligible for support: I disagree with those who suggest that the discount can be applied to any service of the customer's choosing. That has no basis in the law. Only the Commission can determine which services are supported, and there are limits on what may be funded directly or as a condition of receiving support. Moreover, opening the program to any service raises serious concerns about accountability and waste.

4) Prohibit double dipping: The one per household rule provides an important check on spending and must be retained as the program shifts to broadband. We should make clear that a household can decide to apply the discount to a voice plan or to a combined plan that offers both voice and broadband, but can't get a separate discount for each.

5) Better target funding to those who really need it: Recent research has suggested that 7 out of 8 Lifeline subscribers (and 19 out 20 wireless Lifeline subscribers) would have subscribed to a phone service even without a subsidy. That suggests that the program is oversized and poorly targeted. At a minimum, we should seek further comment on this issue, including ways to modify the program to make it more cost-effective.

6) Tighten eligibility requirements: One way to better target the program would be to restrict eligibility. For example, instead of setting the income eligibility threshold at 135 percent of the federal poverty guidelines, it could be set lower, which would focus funding on fewer subscribers that are most in need. Moreover, we could limit eligibility to income. That would have the added benefit of simplifying eligibility verification. In some states, the providers must verify eligibility, which imposes costs on them and can create problematic incentives. In response, some have called for a federal process to verify eligibility. But that raises its own concerns, and the data on which consumers participate in which programs is dispersed amongst various agencies, including at the state level. Therefore, it may be much simpler to verify income eligibility.

7) Require a minimum contribution: To deter waste and stretch program dollars further, all universal service beneficiaries should have skin in the game. In other universal service programs, beneficiaries have been required to pay in at least 10 percent (which is still too low). We should expect the same in the Lifeline program. A minimum contribution also would help deter consumers from signing up more than once, which has continued to be a problem despite enforcement efforts. While some have argued that even a small contribution (such as $1) could make service unaffordable for some, that hypothetical risk is outweighed by the benefit of protecting against known program abuses. Moreover, setting a minimum contribution would better align the current program with the original goal of providing discounted (not free) service.

8) Carrier participation should be voluntary: It is time to amend the rules to permit, but not require, high-cost funding recipients to offer Lifeline service. By one estimate, participation in the Lifeline program costs providers $600 million annually, or roughly 37 percent of the yearly total cost of the program. Yet most consumers opt for service provided by one of the many wireless "Lifeline-only" providers. USAC reports that there are approximately 2,000 companies that are eligible to provide Lifeline service. Some are incumbents, of course, but a number are wireless providers offering service in multiple states. It makes little sense to force incumbents to bear these costs when there are plenty of other providers willing and able to fill the role.

9) Automatic safeguards against abuse: As an added protection against abuse, we should have a procedure in place to stop new payments if certain metrics are exceeded. For example, we could automatically halt payments to a provider for new subscribers, pending further review, if the provider suddenly increases its number of subscribers by an improbable amount defined in advance. Having safeguards in place would be especially critical if the Commission does not agree to put the program on a budget.

10) Require document retention: Providers should be required to keep documentation of a subscriber's eligibility in order to facilitate oversight. This is a common sense reform, and it is even supported by providers who want to be able to prove why a subscriber was determined to be eligible. However, to the extent our rules require or permit ETCs to collect and store full social security numbers - as opposed to just the last 4 digits - we should change those rules. We have already seen examples where such sensitive personal information has been compromised. While it is very important to protect against duplicate or fraudulent subsidies, using the last 4 digits, along with other checks, should provide enough information to weed out abuse.

In short, I view these as readily-achievable, common sense principles to help protect the universal service fund and ratepayers against waste, fraud and abuse, and I want to make them part of the discussion as Commission moves forward with its reforms.