Audio Principles for Lifeline Reform

Over the last few years, the particular Commission has taken action to reform each of its universal service distribution programs to refocus them upon broadband. The only program outstanding will be the Low-Income or “Lifeline” program. Given recent pronouncements, I expect several changes to Lifeline in the not-too-distant future.

The Lifeline program had been originally intended to provide low-income consumers with a discount to help make wireline phone service more affordable. Over time, it started to pay for prepaid wireless service, and the “discount” often covers the entire monthly bill. That shift has more than bending the size of the program. It also created difficult incentives that opened the door in order 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 data source (the NLAD) to screen meant for duplicate subsidies. However , it appears that violations 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 particular Commission is still grappling with the outcomes of its previous expansion, so we have to be very cautious about further changes. Furthermore, there is a legitimate debate whether the Lifeline program should be abolished or somewhat scaled back rather than expanding its mission. I would be open to having the thoughtful debate on the best way to deal with a perceived need in this communications area rather than bootstrapping the old program with new responsibilities.

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

1) Arranged a budget for Lifeline : Lifeline is the only universal service program that is not on a budget, and it is time to fixed one, as the Commission contemplated in the 2012 Lifeline Modernization Order. There is absolutely no justification for not having one since it is disingenuous and downright inaccurate to argue it is an “entitlement” program, comparable to Medicare, Social Security and the like. Since GAO has noted, “[t]he Low-Income Program has no financing cap and the addition of broadband and other future telecommunications technology with out key management information and assessment tools has the potential to further raise the cost to consumers who purchase the program through their telecommunications bills. ” Because continuing abuse in the program suggests that sufficient controls aren’t yet in place, setting a roof on reimbursements is a prudent step to protect ratepayers. Dollars lost in order 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 meant for broadband : As the program grows to include broadband, some will believe it will cost more and, therefore , the compensation rate should be increased. But there is evidence that the current $9. 25 reimbursement rate is sufficient. At least one company already includes 10 MB of data per month (on top of the free phone and minutes meant for voice or texts). Other suppliers 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 objective, and we should review whether audio analytics can justify reducing this particular figure.

3) Limit services eligible for assistance : I disagree with people who suggest that the discount can be put on any service of the customer’s selecting. That has no basis in the legislation. Only the Commission can determine which usually services are supported, and you can find limits on what may be funded straight or as a condition of getting support. Moreover, opening the program to the 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 maintained as the program shifts to broadband. We should make clear that a household can decide to apply the discount to some voice plan or to a combined plan that offers both voice plus broadband, but can’t get a individual discount for each.

5) Much better target funding to those who really need it : Recent research has suggested that 7 out of 8 Lifeline subscribers (and 19 out twenty 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 a lot more cost-effective.

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

7) Require a minimum contribution : To deter waste materials and stretch program dollars further, all universal service beneficiaries must have skin in the game. In other universal company programs, beneficiaries have been required to pay in at least 10 percent (which is still too low). We should expect exactly the same in the Lifeline program. A minimum contribution also would help deter consumers from signing up more than once, which has always been a problem despite enforcement efforts. While some have argued that even a little contribution (such as $1) might make service unaffordable for some, that hypothetical risk is outweighed by the benefit of protecting against known program abuses. Furthermore, setting a minimum contribution would better align the current program with the unique 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, involvement in the Lifeline program costs suppliers $600 million annually, or approximately 37 percent of the yearly total cost of the program. Yet most consumers opt for service provided by one of the many wifi “Lifeline-only” providers. USAC reports there are approximately 2, 000 companies which are eligible to provide Lifeline service. Some are incumbents, of course , but several are wireless providers offering company in multiple states. It makes small sense to force incumbents to bear these costs when there are plenty of some other providers willing and able to fill up the role.

9) Automated safeguards against abuse : As an added protection against abuse, we should have a procedure in place to stop brand 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 company suddenly increases its number of subscribers by an improbable amount described in advance. Having safeguards in place will 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 paperwork of a subscriber’s eligibility in order to facilitate oversight. This is a common sense reform, in fact it is even supported by providers who wish 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 affected. While it is very important to protect against duplicate or fraudulent subsidies, using the final 4 digits, along with other checks, need to provide enough information to marijuana out abuse.

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


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