Millions Could Lose Phone Service Under FCC Overhaul of Lifeline

by Ryan Barwick, Sept 4, 2018 Center for Public Integrity article here

Pai’s FCC Wants to Kick Resellers Out of Lifeline

Suffering heat stroke on an un-air-conditioned Tulsa, Oklahoma, transit bus, Sweet Paula Ogans-Recess’ cell phone may very well have saved her life. Losing consciousness as her complexion flushed, she dialed 911. First responders traced her call, found her, and administered aid.

"I would have died . . . If it wasn’t for the phone, I wouldn’t be here," said Ogans-Recess.

It’s why she never leaves home without her phone—a phone Ogans-Recess has because she participates in the Lifeline program, a Reagan-era subsidy initiative.

But now, her participation in the program might be at risk, as she is one of more than 7 million low-income households threatened to be disconnected from their phone service under a government proposal to curtail the federal subsidy program.

Federal Communications Commission Chairman Ajit Pai, appointed to the post by President Donald Trump, wants to remove a majority of wireless providers that participate in the Lifeline program in an attempt to eliminate "waste, fraud, and abuse." If such a move were made, the "chaos would be magnificent," said David Dorwart, the chairman of the National Lifeline Association (NaLA), a trade organization that represents Lifeline businesses.

Roughly 10.7 million Americans receive text, voice, and data under the program, and 70 percent would have to look for a new service provider under the proposal, according to NaLA, if an affordable option is even available. The program cost about $1.3 billion in 2017, and the funding comes from the Universal Service Fund, which is collected from phone subscribers by service providers.

"They get their doctor calls, and they reach out to schools, and that won’t be available to them at the cost it is today," said Dorwart of Lifeline users. "It’s not only an accessibility issue, it’s an affordability issue."

Resellers Eliminated

The proposal, introduced by the commission in November of 2017, would limit the Lifeline program to providers that own their networks. This would effectively eliminate "resellers," or providers who instead lease space on a network. Such providers service more than 70 percent of Lifeline participants.

The program has been criticized in the past for fraud. It has been the subject of several reports from the Government Accountability Office, which highlighted "significant risks" for abuse. In a report from May 2017, the GAO found a system in place that was "susceptible to risk of fraud, waste, and abuse," because providers have financial incentives to enroll as many participants in the program as possible without diligently verifying whether they were even eligible for the program.

The GAO was unable to verify the eligibility of 1.2 million individuals participating in the program, about 36 percent of the subscribers it reviewed. The agency also found a single address associated with 10,000 separate subscribers who had been receiving benefits from the same provider, whom the FCC had fined and expelled from the program.

However, supporters point toward reforms taken by the Obama-era commission that eventually led to a $50 million national verification system that went live this year.

Without resellers in the market, there will be little need for the verifier. Opponents of Pai’s proposal, which the FCC could vote on as early as September 26, say his reforms seem to undermine those efforts, which have led to program costs decreasing 30 percent.

Resellers, like TracFone and I-Wireless, are able to offer cheaper wireless coverage by leasing the networks and infrastructure o facilities-based providers like Verizon, AT&T, and Sprint. Resellers profit from marketing more affordable wireless alternatives, and larger providers profit from leasing their excess capacity to resellers.

Over 90 percent of Lifeline participants use their subsidy for wireless service.

FCC and Lifeline

The FCC did not include a transition plan for providers that would lose customers or for users who would lose coverage as a result of the proposal. Instead, the agency asked the public to comment on what a transition should look like and how it would be implemented.

For more on the FCC’s Lifeline changes, check out:

Diverse Group of Opponents

Everyone from low-income advocates to the conservative Citizens Against Government Waste, to large Internet service providers like Verizon and Sprint, agree that Pai’s decision might do more harm than good — and that network-owning providers aren’t interested in picking up the slack.

Sprint is one of the largest providers in the country participating in the Lifeline program and will likely be the only low-cost wireless option available for many if the FCC enacts its rule. Sprint’s Lifeline brand, Assurance Wireless, offers free minutes, texts, 1GB of data monthly, and a free Android smartphone for qualifying households. Outside of Lifeline, a Sprint phone plan typically costs at least $65 a month for one line.

But activists fear that Sprint’s participation in the Lifeline program may be threatened by the company’s planned merger with T-Mobile, a carrier that only provides Lifeline services in a limited number of states and has actively sought to distance itself from the program.

When asked, a Sprint representative said that the company did not "anticipate any impact to our current Lifeline subscribers as a result of the merger" and that the new company created by the merger was committed to serving its Lifeline customers.

Pai, appointed as chairman of the FCC in early 2017, has long been critical of the Lifeline program. Appointed by President Barack Obama to join the commission under former Chairman Tom Wheeler, Pai voted against the program’s modernization in 2016. He did not mention a desire to eliminate resellers in his dissent.

But in November 2017, after his proposal was released, Pai said the commission will take a "hard look at wireless resellers—the group of Lifeline providers that have been the subject of the vast majority of Commission investigations for waste, fraud, and abuse." The chairman has the votes needed to proceed; Republican commissioner that make up the majority have voiced support for the proposal.

Verizon said in a comment on the FCC’s proposal that

"restricting Lifeline support to facilities-based carriers is unlikely to materially improve the business case for broadband deployment in high-cost areas . . . The proposed exclusion of resellers from the Lifeline program would be highly disruptive to existing Lifeline beneficiaries and is at odds with the Commission’s goal of supporting affordable voice [service] and high-speed broadband for low-income consumers," .

The CTIA, the trade organization representing large wireless telecommunications companies, including AT&T and Verizon, told the FCC that it was concerned about the proposed reforms. They would "negatively impact millions of low-income consumers who rely on wireless supported lifeline services," CTIA said in its comment.

"It’s a direct attack on the poor," said Jessica González, deputy director of Free Press, a consumer advocacy group that supports equal access to communications services. Before attending law school, González participated in the Lifeline program after she was let go as a teacher in the suburbs of Los Angeles.

González pointed out that the least-connected groups across the country are often minority and low-income groups.

"There may not be discriminatory intent, but there certainly will be a discriminatory impact from the proposal . . . It’s the cruelest thing I’ve ever seen out of the FCC."

Some History

Established in 1985, Lifeline was created as a discount on landline phone service for low-income consumers "to ensure that all Americans have the opportunities and security that phone service brings," said the FCC.

To qualify for Lifeline, applicants must either have an income no more than 35 percent above the federal poverty guidelines or participate in at least one federal assistance program like Medicaid. The subsidy is applied per household, not per person.

Ogans-Recess is eligible for Lifeline because she’s on disability for her scoliosis. She has had more than 16 surgeries—the first when she was 10—because of her curved spine. Two of the surgeries were on her feet, three were on her back, and both shoulders have received work.

According to the most recent data, 28 percent of eligible households participate in the Lifeline program.

A cellphone covered by the Lifeline program is often a family’s only communication device and portal to the Internet. Minorities and Americans with low incomes disproportionately rely on their mobile devices when they apply for jobs, seek medical advice, and access other digital resources.

Since resellers entered the Lifeline market in 2008, enrollment rose from 6.8 million households to 10 million.

The FCC modernized the Lifeline program in 2016 to include

  • broadband support,
  • minimum service requirements, and
  • the national eligibility verifier, which originated in a rulemaking in 2012.

Although it was President George W. Bush’s FCC that first granted resellers eligibility, his successor is popularly credited with the flood of providers entering the market, providing the low-cost Lifeline wireless plans and devices called "Obama phones." The program receives funding from service providers, which typically recoup the amount through a fee tacked onto phone bills. The subsidy is administered by a nonprofit created by the FCC called the Universal Service Administrative Company (USAC), which runs connectivity programs for the commission.

In addition to the Lifeline program, USAC oversees programs that provide discounts and services to institutions such as schools, libraries, healthcare facilities, and funding to companies providing service in communities that don’t have equitable Internet or phone service.

Digital Divide

Under Pai, one of the commission’s main objectives and talking points has been the closing of what is often called the "digital divide," a lack of access to communications services in rural and low-income areas of the country. Advocates for low-income consumers say that eliminating resellers would only deepen that divide.

The FCC’s justification for the elimination of resellers is an attempt to "encourage investment in broadband-capable networks." That happens to be the mission statement of another USAC initiative, the High Cost program, which USAC says provides funds to companies expanding communications infrastructure in rural and high-cost areas.

By limiting the Lifeline subsidy to carriers that own their own networks, these companies will have an incentive to further expand their own networks and infrastructure, the FCC says. The only problem?

The Lifeline program’s budget is little more than $2 billion a year. That’s not nearly enough for the hefty price tag of continuing to expand broadband deployment. Reaching rural and more displaced areas of the country can cost telecommunication providers up to tens of billions of dollars, TracFone, one of the largest resellers participating in the Lifeline program, told the FCC.

Providers who own their networks, like Sprint and Verizon, have told the FCC that resellers are important to the Lifeline program and that the $9.25 monthly subsidy would do little to expand deployment.

Sprint, the network owner that seems to gain the most from the elimination of resellers, has argued to the FCC that "Lifeline support is not, and cannot be, the financial determinant of capital-intensive facility deployment decisions."

"The [proposal] is really duplicitous because it makes a case for Lifeline as an infrastructure plan, which is something Lifeline was never meant to be," said Phillip Berenbroick, senior policy counsel for Public Knowledge, a telecommunications consumer advocacy group. "It’s basically the first time in the history of the FCC . . . that the FCC is making a concerted effort in backing away from its universal service mission."

Berenbroick and other advocates say it makes little sense for the commission to threaten resellers with elimination by citing accusations of waste, fraud, and abuse just as it begins implementation of the eligibility verifier. The National Eligibility Verifier went live this June in six states, and more are expected to be added later this year.

"Why would you repeal a lot of the great improvements based on allegations of waste, fraud, and abuse that would likely be cured by the national verifier?" said González of Free Press.

The commission’s proposal, and the reforms that target resellers, would ultimately undercut the value of the verification system, said Dorwart of NaLA. "Who the hell’s coming through this $40 million dollar system? It’d be like a Rolls Royce you take out three Sundays a year," he said.

Transition Phase

The budget for the Lifeline program is $2.3 billion as of this year, but the program does not have a cap. Without a cap, the program has more fluidity in the event there is another recession and an increase in Lifeline users. However, in the same proposal that eliminates resellers, the commission sought comment on the implementation of a "self-enforcing budget" cap.

When asked what a transition of Lifeline customers from resellers to facilities-based providers would look like, the FCC responded that the commission had not yet made a decision on the proposal and was seeking comment. The filing period was extended several weeks and closed at the end of March.

The proposal included a "three-year support phase-down period" for non-facilities-based carriers, but little more. It isn’t clear if the FCC has an idea as to what havoc or economic inspiration these reforms might bring. No economic analysis or research is noted or cited in the proposal. No one takes credit for, or supports, the reforms in the comments that have been filed.

The FCC does not have an accurate or updated list of resellers participating in the Lifeline publicly available, nor could it provide a template as to what affordable wireless coverage would look like if the proposed reforms pass.

Lifeline users can access a database on USAC’s website that matches the nearest available ZIP code with eligible carriers, but the database relies on providers self-reporting their location and service options.

Last fall, 56 House Democrats, led by Rep. Gregory Meeks (D-N.Y.), wrote a letter addressed to Pai citing concerns about the proposed changes to the Lifeline program. Several months later, in March, 10 Democratic senators, led by Sen. Jeff Merkley (D-Ore.), wrote another letter to the chairman, asking for specific "data, analysis, academic studies, economic reports, etc." to support his current proposal, including specifics as to what a transition would look like for subscribers that lose service.

"It is your obligation to the American Public, as the chairman of the Federal Communications Commission, to improve the Lifeline program and ensure that more Americans can afford access, and have means of access, to broadband and phone service," the senators wrote. "Your proposal accomplishes the exact opposite—it takes resources out of the hands of the most vulnerable Americans."

In May, Sen. Susan Collins (R-Maine) and Robert Casey (D-Penn.), who lead the Senate’s Special Committee on Aging, wrote another letter, urging the commission "to reject proposals to bar or discourage resellers from participating in the federal Lifeline Program."

Pai responded to the letter, saying that the proposal sought comment on a "wide variety of measures to improve the administration of the Lifeline program" and that the commission would review the record to "determine the best path forward."