March 10, 2011 3:29 PM

Lifeline Reform: The FCC's "Welfare Cadillac" ?

I recently saw an interesting program about the life of American music icon, and champion of the underdog, Johnny Cash.  Johnny Cash met and performed for every President, from Richard Nixon on.  When he agreed to perform requests for President Nixon, Cash felt two of the songs requested (neither of which were his) were unfair to the poor, or to the young (the "hippies"), and he refused to sing them.  The song that was unfair to the poor was called "Welfare Cadillac", and portrayed those on public assistance (which Cash's childhood home was built with) as scammers, based on a few anecdotes of people who had abused the system.
 
For some reason, I thought about this story while reading the FCC's Lifeline/Link Up NPRM, released Monday.  It goes without saying that in any government subsidy program, there are certainly going to be some that will use the plight of the poor as an excuse to rip off the program.  But, these few scammers don't justify the unbecoming way in which the FCC portrays the growth of the fund in order to limit, or reduce, its size--without any regard to what the true size of the fund should be at this moment in time.
 
So, let's look at what's unfair about the NPRM.  First, consider the "panic" about the growth of the low income fund.  While it's true that the low income fund is growing quickly, that fact alone means nothing.  The Commission seems to forget that--if the purpose of the low income fund is to make voice, or broadband, services affordable to America' poor--the fund should be growing as quickly as America's poor.  That's not just a fact, but it's a fact that the FCC ignore, choosing, instead, to demean the purpose of the fund through unfair innuendo.
 
If you look at Paragraph 27 of the NPRM, the FCC cites some pretty "alarming" growth statistics about the fund, but here is where the NPRM begins to mislead, by exaggerating the "problem."  The paragraph describes the increase in the fund through the years, noting that the fund dispersed an inflation-adjusted $817 million in 2002 (n. 48, p.12).  The fund now stands at an estimated $1.3 billion for 2010. 

The next sentence, though, inflames the fears the FCC seeks to instill in the public, stating that "in the last several years, a number of pre-paid wireless providers have become Lifeline-only ETCs, fiercely competing for the business of low-income customers by marketing 'free' phone service."  The Commission goes on to conclude that, while this "development" has expanded choices for consumers, "it has also led to significant growth in the fund." The paragraph ends with the haunting specter that "[p]re-paid wireless ETCs now account for one third of all Lifeline reimbursements."
 
Now, let's just "unpack" those "facts" and get a little perspective.  The low income fund is supposed to give a monthly, need-based, allowance to low income Americans to help defray the cost of phone service.  Before leaping to its "reefer madness" conclusion, did the FCC ever consider the possibility that--regardless of how, or from whom, eligible consumers are getting their service--the number of poor Americans may have a hand in the fund's growth?
  
In 2002, 34.6 million Americans lived in poverty.  By 2009, more than 9 million more Americans lived in poverty.  Low income fund disbursements in 2009 were $1 billion.  The "average" household in America consists of a little over 2.5 people (based on 2000 Census data at 4).  If we do the math, then we learn that there were about 3.5 million more poor households added between 2002 and 2009.  Keep in mind, also, that the eligibility requirements for Lifeline can be as high as 150% of the Federal Poverty Guidelines (for LIHEAP participation--a Lifeline-qualifying program), so these estimates are the minimum increases in Lifeline-eligible households.
 
What would you expect to happen even if only a third of the new households living in poverty were served by Lifeline?  Well, the fund disbursements would have been slightly less than $1 billion in 2009 (assuming Tribal participation at today's rate)--in other words, about right.  If all of the newly-poor households had participated (and no new ones were added in 2010), the low-income fund would have been well over $1billion in 2009--about what it is expected to be in 2010.  Hmm?  A "fact-driven" explanation for the growth?  That's no way to build panic and urgency. 
 
But wait!  Aren't there still all those blood-sucking, pre-paid wireless, Lifeline-only ETCs?  Well, there are really only two--TracFone Wireless and Virgin Mobile (now owned by Sprint).  What about all the other names listed in n. 50 of the NPRM?  The FCC found that it was in the public interest to allow those companies to provide more service choices for low income Americans, but the FCC has not yet granted these companies the further approvals that would allow them to actually participate in the Lifeline program.
 
Even if the FCC had awarded ETC certification to all those companies, though, what disgrace is that?  The Commission acknowledges that more than a quarter of Americans have "cut the cord" (para 25), so why should it be surprising if a slightly larger number of low income customers have done the same?  The Commission clearly wants more low-income Americans to be able to choose broadband as a means of communication; why not wireless?
 
It's good for the FCC to be concerned that fraud and duplication are limiting the efficiency of the low-income fund, and, I give the Commission credit for proposing a national validation/verification database.  Such an improvement would be a welcome reform to carriers, administrators, and recipients.
 
Nonetheless, the tone of the NPRM, its misleading characterizations of the causes of fund growth, and many of the recommendations it makes (though the FCC concedes Lifeline has helped the poor (para 26)) conveys at best a grudging compliance with the Act's requirement that the USF serve low income Americans.  At worst, though, a reasonable person could be forgiven for considering this NPRM the regulatory successor to "Welfare Cadillac."  It's too bad there's no Johnny Cash on the Commission . . . .

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