From the outset of the Commission’s Lifeline modernization proceeding, one of the primary challenges has been striking the right balance between the Commission’s dual mandates of affordability and access to “advanced communications technologies.” In other words, how can we guarantee that low-income Americans can take advantage of all the opportunities that real broadband Internet access enables – from jobs to education to healthcare – while also ensuring that this access remains within reach financially?
So, it’s not surprising that since Chairman Wheeler and Commissioner Clyburn announced their proposal for including broadband in the Lifeline program, we’ve heard some questions about what the proposed rules – and, in particular the concept of phased in “minimum service standards” – would mean for the affordability of Lifeline-supported services. Understandably, we have also heard concerns about what the proposal means for future availability of mobile voice service in the Lifeline program.
In her visionary AEI speech on Lifeline, Commissioner Clyburn said, “the FCC should establish minimum service standards … The reality is that for years, the program has not resulted in providers offering much better or diverse services while all of the other consumers appear to have a healthy set of options…This level of stagnation must be addressed and modified.” The Communications Act also makes clear that Universal Service offerings should look a lot like what most Americans are getting. The minimum service standards outlined in the proposal are aimed at ensuring Lifeline begins to deliver real, meaningful service.
At the same time, the law also tells us that service must be affordable for low-income consumers. There’s a tension. And, as we think about setting minimum service standards, we must also keep an eye on this affordability mandate.
The proposed rules, scheduled for a Commission vote on March 31, provide for a phase-in of mobile broadband minimum service standards so that Lifeline providers can have plenty of time to adjust their business models. Each year, starting in December 2016, the phase-in increases the amount of 3G data beginning with 500 MB and then increasing to 1 GB and beyond. We believe this “glide path” would offer a meaningful broadband experience to low-income households at a highly affordable level.
Consider a few facts:
- Today mobile prepaid providers are retailing 3G data at around 1.5 cents per MB, according to table V.C.1 on page 66 of the FCC’s 18th Mobile Competition Report, which shows per-MB prices of 1 cent to 2 cents, and page 1 of a March 2 filing by Tracfone, showing a top-up price of $10 per Gigibit, or 1 cent per MB. So as of today – March 2016 – the 500 MB minimum standard for data would be consistent with a retail price point of $7.50 per month, well within the current $9.25 Lifeline discount. Add in a few dollars per month for a device, and other standard business expenses, and that would be a very affordable mobile data choice for a Lifeline consumer.
- Data costs have been falling at a healthy clip of around 20 percent per year, according to an April 15, 2015 research note by Philip Cusick for J.P. Morgan North American Equity Research.
To ensure that Lifeline is continuing to meet subscribers’ needs and that our reforms are accomplishing their intended modernization goals, the proposal also specifically requires a mid-2019 program review and report by the FCC’s Wireline Competition Bureau.
There’s another an important proposed change to the Lifeline program that would help considerably with the affordability mandate: shifting all eligibility reviews to the National Verifier and thereby decreasing administrative burdens on providers. By helping Lifeline providers realize significant cost savings in their administrative overhead, the National Verifier would also help promote affordable offers that meet the minimum standards.
Finally, modern mobile networks continue to see technological advances that allow services such as voice to be delivered more and more efficiently. For Lifeline, an important trend in the years ahead will be the growing use of so-called Voice-over-LTE capabilities by US wireless providers. On a VoLTE-enabled service, a single megabyte of data – or 1/1000 of a 1 GB plan – could be used to support about 3 minutes of voice. In other words, a 2 GB data plan – such as proposed for the Lifeline minimum standard that would apply three years from now – could support roughly 6,000 minutes of voice. More likely, the customer for a 2 GB plan could use about 1.7 GB for accessing data services and the remaining 300 MB for the equivalent of 900 minutes of voice.
Taking these market trends and reform impacts together – and of course factoring in device costs and companies’ overhead and profit - we are confident that the Lifeline provider market under the proposed reforms would be able to meet the minimum standards with very affordable offers.
Choice is just as important for low-income consumers as it is for other Americans. Some subscribers will want standalone broadband, others will want voice packages of either higher or lower numbers of minutes too. Just as in the broader consumer market, these choices will come with different price tags. Those who want more will pay a little more, and we expect providers will gladly meet consumers’ demands for different choices.
Lifeline has always been an affordability program, but it hasn’t always provided robust levels of service. The proposal’s phase-in of minimum standards would allow ample time for customers and providers to transition from yesterday’s model, and it would help to balance affordability and meaningful service in the new, better Lifeline program.