Commissioner Pai’s Plan and the FCC Lifeline “Compromise” That Wasn’t

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Much has been made of the political theatre that surrounded the FCC’s recent vote to modernize the decades-old Lifeline program. A minority on the Commission is pushing a narrative with all the appeal of a particularly wonky House of Cards episode (without the sex and murder): frantic negotiation, last-minute compromises, staff all-nighters, strong-armed negotiation tactics, improper outside influence, and interference from Capitol Hill, the works. All the while they bemoaned the loss of a bipartisan compromise that, they claim, would have brought meaningful reform to the Lifeline program.

The problem is the proposed “reforms” Commissioners Ajit Pai and Mike O’Rielly supported would have actually crippled, and ultimately sunk, the Lifeline program. If their goal was to advance a serious plan to update Lifeline for the 21st century, acknowledging that broadband is a necessity and not a luxury, proposing a punitive budget number picked out of a hat and a minimum service standard that Commissioner Pai has called “arbitrary” and unwanted by most Americans and Commissioner O’Rielly has called “artificially high” and “untenable” was counterproductive.  

First, let’s pop the hood on the Lifeline plan Commissioner Pai floated on Tuesday, March 29. His plan would have capped Lifeline spending at $1.75 billion, reducing payments to broadband providers offering Lifeline-supported services at any point the program’s expenditures are projected to go over budget. Additionally, the plan would have set minimum standards for Lifeline-supported broadband at 25 Mbps download speed for fixed broadband and 4G LTE for mobile broadband.

If one wanted to design a Lifeline plan that leaves tens-of-millions of the most vulnerable Americans without access to basic telephone service in the near term, without line of sight to Lifeline-supported broadband service in the long term, Commissioner Pai’s plan is a blueprint for what to do.

In 2013 and 2014, Lifeline expenditures totalled $1.79 billion and $1.6 billion, respectively. During those years, Lifeline supported basic telephone service for approximately twelve to sixteen million low-income Americans at any given time -- about only one-third of Lifeline-eligible households.

By capping Lifeline at $1.75 billion and telling anyone else to take a hike, Commissioner Pai would effectively tell 25 million+ of the poorest families in the country that universal service -- the fundamental goal of federal telecommunications policy -- isn’t applicable for them. And that 25 million+ figure would only increase when the country experiences its next economic downturn or faces a horrific natural disaster like Hurricanes Katrina and Sandy.

And while we’re at it, just how “low-income” are Lifeline-eligible households? Aren’t these people just ungrateful grifters running around with their “Obamaphones?”

Assuming a forty hour workweek, to qualify for Lifeline under the income requirements, a family of four with two breadwinners can’t earn more than $15.77 per hour, combined (pre-tax) -- that means the two adults combined can take in only 27 cents over the federal $7.25 hourly minimum wage to remain Lifeline eligible, while also covering necessities like food, housing, medical care, child care, and transportation, which incidentally are becoming so expensive that poor Americans can no longer afford them. And remember, many of these households have children. According to the Southern Education Foundation, more than half of public school students are now eligible for free and reduced school lunch (and eligibility for free/reduced school lunch is at 185% and below of the poverty line, making many of these families too “wealthy” for Lifeline).

By Thursday, Pai’s plan had morphed into the rumored bipartisan compromise, which supposedly lifted the budget from $1.75 billion to amount to $2 billion per year. However, the plan still included a hard cap (consumer advocates, civil rights organizations, labor groups, and broadband providers have long agreed a hard cap is inappropriate, counterproductive, and would create massive administrative problems) with no safety valve to review, assess, and address program expenditures (such a mechanism was included in the Wheeler/Clyburn proposal).

As detailed above, only about one-third of eligible households actually participate in Lifeline, with the number of eligible households fluctuating often due to economic trends, seasonal employment, and other factors. The “compromise plan” to set a hard cap at $2 billion would have allowed the program to add several million new subscribers, but would leave at least 20 million eligible households without any access to the Lifeline subsidy their incomes qualify them for. These Americans would be either be turned away, put on a waiting list (which would be impossible to administer), or alternatively, consumers already on Lifeline would be kicked out of the program or told their subsidy (which would cover only a fraction of the cost of the service the Pai plan mandates (more on that below)) would be cut to accommodate increased uptake.

But wait, you ask, while Commissioner Pai’s plan, and even the “compromise” plan might strand tens-of-millions of the poorest Americans without access to basic telecommunications, including families with kids, wouldn’t his super-awesome minimum service standards mean that the Lifeline-eligible households who can subscribe get great broadband at a great price?

No, not even remotely.

But, Commissioner Pai has cited Chairman Wheeler’s claim that 25/3 Mbps is “table stakes” for broadband service and argued that the Pai plan would ensure low-income subscribers have access to high quality services and that the plan the FCC approved relegates Lifeline subscribers to second-class service.

Yes, and the truth is exactly the opposite.

In short, broadband products that meet Commissioner Pai’s minimum standards proposal would be wildly more expensive than the $9.25/month Lifeline subsidy. According to data compiled by Connected Nation and the FCC, the average monthly subscription cost for broadband in the U.S. is over $47 per month. Even armed with the Lifeline subsidy, consumers not already adopting broadband and making near minimum wage are very unlikely to pay $35+ per month for broadband.

And correct me if we’re wrong, but we must have missed the portion of the Pai proposal that would increase the $9.25 subsidy or regulate the rates that broadband providers could charge Lifeline subscribers to ensure that Lifeline-supported broadband is affordable. To a family making near minimum wage, the Pai plan is as effective as offering a 10% discount on a car, but only if they spring for a Cadillac.

That’s the sleight of hand of the Pai plan -- mandate 25/3 Mbps fixed or 4G LTE mobile standards, where available, for all Lifeline subscribers under the guise of ensuring low-income households aren’t consigned to inferior service. But in reality, the Pai plan 1) guarantees the Lifeline program will be ineffective at helping poor families in urban and suburban areas (where services meeting his minimum standards are most likely to be deployed) because they’ll be priced out Lifeline-eligible services, and 2) reduces the types of services that certain consumers can access -- paternally dictating that poor families shouldn’t have the same choices in the broadband marketplace that wealthier subscribers have.

Not only would Pai’s proposed minimum standards be ineffective at bringing 25 Mbps or 4G LTE broadband to Lifeline-eligible households, it would actually be destructive by barring affordable products from the program. Broadband products targeted to low-income consumers, like Comcast’s Internet Essentials, have a 10 Mbps download speed, rather than the 25 Mbps Pai would require. As a result, the very low-cost broadband products that providers have rolled out in order to help more Americans get online would, perversely, be ineligible for use with the low-income subsidy program the FCC is rolling out to help get more Americans online. And, products that would be very low-cost, or even no cost, for Lifeline subscribers with the $9.25 subsidy -- the very products and price points most likely to get non adopters online, a goal of virtually everyone in technology and telecom, civil rights, and social justice policy circles -- would be completely off limits under the Pai plan.

On its face, Commissioner Pai’s “plan” was more of an early April Fool’s press release than serious Lifeline reform proposal. It was either a terrifically inept plan to close the digital divide (as we’ve covered above), or a trap to undermine the Lifeline program altogether -- denying poor families access to basic telecommunications services and driving broadband providers away from a program started by President Reagan’s FCC and that has long enjoyed bipartisan support in Congress and every president from both parties since the 1980s.

The trap embedded in the Pai plan and the “compromise” was that the minimum standards would have priced most low-income families out of the program, leading to a drop in participation rates. As the Center on Budget and Policy Priorities has made clear, requiring payments from poor families (the excessive minimum standards are a poorly veiled indirect co-pay requirement) is a textbook way to drive down participation in low-income support programs, like Lifeline.

Given that Lifeline has been in the political crosshairs already, the precipitous drop in participation rates would be a shot to Lifeline’’s knees that then allowed the program’s opponents to paint the program as low-performing, under-adopted, and worthless--and ultimately to make the case that it should be put out of its misery.

Finally, to close the book on Thursday’s palace intrigue at the Commission, it should not shock anyone that Commissioner Clyburn sought out consensus on Lifeline. She has a consistent record of pragmatic problem solving and coalition building. As a tireless advocate for digital inclusion, it makes sense that the Commissioner sought unity on an issue as important as universal service and modernizing the Lifeline program.

However, as Commissioner Clyburn reiterated in her statement, she has consistently opposed a cap on Lifeline and found the compromise plan’s budget incongruous with her vision of a 21st Century Lifeline program. Thus, it is not at all surprising, given the wreckage the Pai plan would have wrought on the Lifeline program and ongoing efforts to close the digital divide and improve access to affordable broadband, that Commissioner Clyburn ultimately opposed the plan advanced by her Republican colleagues.

As for the public interest community--do we want all Americans to have access to reliable, high-speed, broadband service? Yes, and we’ll keep working toward that day; but if all we’re willing to offer them is $9.25/month, we have to make sure that amount counts for something and the program is available to those who need it most. Commissioner Pai’s plan and the supposed compromise plan would have done the opposite.

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