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Summary:

The FCC is set to reform the Universal Service Fund, which provides subsidized access to voice services to low-income people. As the FCC looks to reform USF to provide broadband as opposed to voice telephone service, it should modernize its Lifeline and Link-up programs.

telephonepoles

Lifeline is a Universal Service Fund (USF) program designed in the mid-’80s to accomplish a straightforward task with clear-cut benefits. As part of USF reform, the FCC wants to make changes to Lifeline so the program encourages broadband adoption by low-income individuals. But will the changes make those individuals essentially ATMs benefiting telcos and service providers while receiving few broadband benefits themselves?

Lifeline provides a subsidy payment directly to phone companies on behalf of low-income residents having trouble affording basic telephone service. It’s mainly focused on urban residents, while the USF’s larger High Cost Fund addresses rural residents. There are three tiers of payment, with most people getting $10/month. A companion program called Link-Up provides up to $30 for low-income residents to install a phone line with the potential for receiving a loan of up to $200 to cover this cost.

According to the FCC’s National Broadband Plan (NBP), “7 million of an estimated 24.5 million eligible households (less than 29 percent) participated in Lifeline in 2008.” The program expects to pay out $1.4 billion in 2010 for Lifeline and Link-Up.

Broadband is changing the landscape as 1) it becomes as vital as any utility including phone service, and 2) the line between data and voice communication blurs. The FCC’s $10 subsidy program buys what someone needs in the telephone world for functional communication. The National Broadband Plan recommends taking the logical next step of applying it to broadband technology. But $10 a month when the average low-end broadband plan today costs between $40 and $50 per month, and tomorrow’s broadband needs require much more capacity, seems quite inadequate.

Not only does $50 greatly exceed the $10 subsidy, but the Washington Post reported on a survey that reveals that in low-income areas in D.C., people pay $51.00 for service that’s almost four times slower than what people in wealthy areas get. From conversations with officials and others in several large metro areas, this is typical elsewhere. By itself, the subsidy converts residents (metaphorically) into ATM dispensers generating $10 monthly payouts to telcos. Unlike with telephone service, residents only get a down payment toward data communication, plus they have little leverage to demand better quality of service now, or  upgrades as current infrastructure in low-income neighborhoods further deteriorates.

Furthermore, there is the “rock and a hard place” dilemma. The FCC doesn’t want to increase USF fees collected via everyone’s phone bills for Lifeline and Link-Up. However, the FCC also wants to give recipients the option to apply their subsidy to a service package that includes telephone and broadband. Do people have to choose between subsidizing the full phone or partial broadband service because clearly they can’t have both? Think that’s going to inspire broadband adoption?

“In Riverside, if our low-income residents faced such an option, we’d create a program to educate them how to use their subsidies for broadband to exchange regular phone service for VoIP and reduce their phone costs to pennies,” states Riverside CIO Steve Reneker. “However, this is only possible because so many of our residents have become computer literate through programs involving community centers and K-12 schools. Without that foundation, how do you expect people to be comfortable giving up phones for unfamiliar computer technology?”

Time to Do Big Things

President Obama said in the State of the Union address that Americans are known for doing big things. Well, Lifeline and Link-Up reform is a good place to start. In its current form, Lifeline seems to reflect a philosophy of giving people the minimum they need to fix a particular problem, explaining, “it’s better than nothing,”

Instead, how about the FCC and Congress transform Lifeline into what I’ll call Catapult, a program to launch low-income people onto a path to transform themselves from just consumers of technology to contributors to community economic growth? Rather than condemning people to numerous years in one more subsidy program that contributes to a “subsistence” mindset, create one- and two-year programs that help them use broadband to create better futures for themselves.

Aggregate $10 per person into collective community buying power. If I pool the money that 10,000 people are eligible for in Lifeline, for example, I get $100,000 per month of negotiating clout to demand better broadband service at a better price. Boston, for example, just negotiated a deal with Comcast to get low-income folks $42 broadband services for $11/month, then $16/month in the second year of the program. The city will use other grant programs to give residents computer skills after using the power of collective buying to negotiate better access fees. Where upscale communities use service bundling to get better prices, struggling communities “bundle” subscribers.

Or aggregate Lifeline and Link-Up subsidies to contribute to building community-owned broadband infrastructure that, combined with public, nonprofit and corporate programs, enables recipients to become masters of their digital destiny, not vulnerable to the whims of others. The Broadband Plan advocates this type of partnering. Do it.

An example of this would be to leverage Lifeline by further reforming the eRate program that subsidizes broadband infrastructure for schools and libraries to allow them to extend that infrastructure from schools out to homes receiving Lifeline subsidies. Then parents can use the service they buy to become fully involved not only in their children’s digital learning, but also assist them transition from school work to the work force.

Joseph Miller, deputy director/senior policy director for the Media Technology Institute at the Joint Center for Political and Economic Studies states, “If your program only shows people how to go online and find information, this is purely consumption. You can’t generate as much progress as you would teaching them how to code, develop applications and do other things that generate an income. Or help them become entrepreneurs. It comes down to more than an adoption program. It’s creating a community business plan and showing how broadband is used in that plan.”

We can either continue to allow Lifeline to be a subsidy contributing to a subsistence lifestyle, or we can move people from the poverty rolls to the ranks of contributors to that future President Obama says we need to win.

Craig Settles is a broadband industry analyst, blogger and co-director of Communities United for Broadband and can be found at @cjsettles on Twitter.

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  1. Craig: Helping poor people get connected is a good thing, but we have to watch if the program actually matches that ideal. One question we need to ask when the proposal comes is how much money is included. It would cost between $1.5B and $8B to reach all the people with affordability problems, depending on what is subsidized. But I don’t think they are going to provide anything like that in new funding. Last I heard, most of the money for lifeline broadband would simply be shifted from lifeline voice, robbing the poor in the name of helping the poor.

    The second question has to be “who benefits?” Comcast has a program coming in which poor families in their 40% of the nation can get connected for $9.95, which deserves more notice. Helping things like that along is help for the poor.

    But Verizon, for a lesser service, wants $30/month for essentially the same thing they sold for $15 in 2007. In general, the duopoly charges far more than the price in competitive markets like France. Providing a public subsidy could have the effect of letting them raise prices and keep most of the subsidy for their bottom line. So it becomes crucial that the U.S. government, if we are subsidizing millions of lines, gets a fair price. I did come calculations that if the carriers took “only” a 40% EBITDA margin, the same amount of federal money would help twice as many people. I don’t think today’s FCC has the courage or bargaining smarts to get a decent deal. These folks talk loudly and carry a small stick, resulting in programs for the poor often being charity for the major corporations.

    Third, are we providing “back of the bus” broadband to the poor. While it may be impractical to provide 50-100 megabits to everyone, like Australia and other countries, there’s no reason not to make sure the poor get the FCC suggested minimum of 4 megabits. Everyone in the industry knows is that bandwidth isn’t free but it’s cheap. A 5 or even ten meg cable service costs the carrier perhaps a couple of dimes more than a 1 meg service. In fact, the cable networks were built in the 1990’s designed to give 10 megabits to everyone. Anything less is back of the bus.

    Let’s make sure the FCC does this right. db

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  2. “Broadband is. . .as vital as any utility. . .” Really? I think if you were to tell a poverty-level family that Internet access is as important as heat, water, sanitation and other basic life services, they might differ. It’s the kind of statement common to academics whose knowledge of poverty is limited to stepping over homeless people. Make this argument on a street corner in Anacostia or the Bronx and I guarantee you’ll be chased right back to the ‘burbs.

    Joseph Miller is on target in saying that improved access to broadband is pointless if the end result is merely greater consumption. To the extent that improved broadband access channels people to training that in turn leads to jobs, that’s great.

    What’s missing in these bread, circus and bandwidth for the masses proposals are specific action plans that point to a result. Someone show me a concrete link between universal broadband and a better jobs market and economy and I’ll be the first to jump on board.

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  3. The minimum a person needs. Sorry but that phrase sticks with me. Tracfone started the lifeline initiative, and with the free phone, they give fr more minutes away than I need to survive with. I’m not blowing my own trumpet for being the best frugal around, but I work for my minutes, and I paid for my phone. It cost less than $10 for crying out loud.

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