Consensus on Wheeler Lifeline Proposal Could Prove Difficult

FCC Chairman Tom Wheeler’s proposal for changing the $1.7 billion USF Lifeline program to cover Internet access could face some resistance from FCC Republicans, industry officials told us Monday. An order and further rulemaking on Lifeline are teed up for a vote at the FCC’s June 18 meeting (see 1505280037). Wheeler proposed an examination of a cap on the program as part of the proposal circulated last week to commissioners. The Senate Communications Subcommittee plans a hearing on Lifeline Tuesday (see 1506010050) The Lifeline item is lengthy and various commissioner offices were still taking a closer look as of Monday, FCC officials said.

FCC Republicans don't look forward to having to take on an order that could potentially expand the Lifeline program, industry lawyers said. A former FCC legal adviser with carrier clients questioned whether the Wheeler proposal does much to court Republican Commissioners Ajit Pai and Mike O’Rielly.

Pai and O’Rielly have counseled fiscal restraint in the program. “I would prefer to ensure that there are adequate controls and deterrents in place before considering a revamp of the program to include broadband,” O’Rielly said in a February blog post. “In fact, the Commission is still grappling with the consequences of its previous expansion, so we need to be very cautious about further changes.” Both Republicans last summer stressed the need to do more to eliminate fraud from the program during a panel at a Multicultural Media, Telecom and Internet Council conference (see 1407300028). Wheeler specifically cited O’Rielly’s suggestions on reform last week in his Lifeline blog post.

Working out an agreement on a cap on benefits won’t be easy, said former FCC Commissioner Robert McDowell, a veteran of several FCC reform initiatives when he was still on the commission. "Historically, when modernizing any of the various universal service funds, commissioners have examined a variety of cost controls,” McDowell said. “In 2011 and 2012, the discussions ranged from no cost controls, to aspirational budgets​ for five years, to variations on caps. Negotiating a hard cap this year will be extremely difficult.”

The last time the FCC took on Lifeline overhaul it had the weakest cost controls of any USF program, McDowell said. "The trade off was securing policies that cleaned up the database, improved the system to verify applicants and weeded out duplicates, all of which saved hundreds of millions of dollars in the short term,” he said. “Now that those cost savings have been realized, with little to no cost controls remaining from 2012, the question becomes how fiscally disciplined does a majority of the Commission want to be? That wasn't a partisan question in 2012, but a question of fiscal responsibility -- especially in light of the shrinking pool on the contribution side and a lack of reform there." McDowell is now at Wiley Rein.

Wheeler is trying to reach out to Republicans “and just isn't very good at it,” said Berin Szoka, president of TechFreedom. “If he were, he'd have vetted this with Ajit and Mike before announcing the proposal, including a more specific concept of how to limit spending.” An alternative explanation is Wheeler really isn’t doing much genuine outreach, Szoka said. “The talk of a budget cap is a fig leaf,” he said. “Whatever they propose will be structured in such a way as to make it easy for the program to keep expanding itself every year.”

“It makes no economic sense to fund a broadband subsidy via a new broadband tax,” said Progressive Policy Institute Senior Fellow Hal Singer. “By taxing broadband services for the first time and thereby making broadband more expensive, Wheeler’s plan could perversely reduce broadband adoption.” Cross-subsidy works for voice service because most of the tax falls on business users, who are less price-sensitive than residential consumers, Singer said. “In contrast, most of the broadband tax would fall on residential users. Price-sensitive broadband customers should not be forced to endure higher broadband bills,” he said. “Better to fund a broadband subsidy for non-adopters through the U.S. Treasury. Not only would this alternative avoid taxing price-sensitive broadband customers, it would also place tax-and-spend authority in the proper hands -- namely, the Congress.”

"While it makes sense that, at some time and in some way, Lifeline will be expanded to include subsidies for broadband, it is also clear that if this is done, there will be pressure to substantially expand the size of the current subsidy,” said Randolph May, president of the Free State Foundation. While Lifeline shouldn't be a partisan issue “it is important to be clear-eyed about the likely cost pressures, and to devise measures to constrain these costs prior to any expansion of the program,” May said. “I'd like to see the subsidies for all of the USF programs run through the appropriations process so that Congress maintains control of the budget and remains accountable for the expenditure of funds.”

Meanwhile, the University of Southern California Annenberg Center on Communication Leadership & Policy said in a filing at the FCC that Lifeline should cover wireless handsets that can receive minimum text messaging and broadband and are equipped with chips so subscribers receive “life-saving information during emergencies when cell phone networks are overwhelmed.” Phones in the Lifeline program also should be capable of receiving Wireless Emergency Alerts, the center said. “Each of these recommendations will help to ensure that the United States continues working toward a public safety system that works for all Americans, from every socio-economic background and in every region of the country.” The filing was made in docket 11-42.

Representatives of True Wireless defended the Lifeline program in a series of meetings at the FCC. “We explained that much of the criticism of the Lifeline program cannot be supported by the evidence, which shows that the program is decreasing in size and has an extraordinarily low rate of erroneous payments under the federal government’s own IPERA [Improper Payment Elimination and Recovery Act] standard,” the carrier said.