Is It time to Shutter a Reagan-Era Broadband Program?

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Scholar argues the FCC’s Lifeline telecommunications subsidy program is no longer needed.

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The Federal Communications Commission (FCC) has long subsidized telephone and broadband internet service for low-income families through a Reagan-era subsidy program. But Daniel Lyons, a professor at Boston College Law School, argues in a recent paper that the program should be terminated.

Lyons contends that the program, known as Lifeline, limits consumer choice, lacks evidence of its effectiveness, and is obsolete due to a new Biden Administration broadband program. He suggests that Lifeline be terminated and offers some tweaks to help the Biden Administration’s program avoid a similar fate.

The FCC created the Lifeline Program in 1984 to offset rising local telephone rates for low-income families. Since 2016, the FCC has prioritized broadband internet service, providing companies with subsidies of $9.25 a month per low-income family for broadband internet service and $5.25 for telephone-only service plans.

Lifeline’s goal, Lyons explains, has been to close the digital divide, a term used to denote the lack of internet access for millions of low-income and rural Americans. The program is meant to close the connectivity gap by assisting families who could not otherwise afford communications services.

Families are eligible for Lifeline subsidies if they have an annual income below 135 percent of the federal poverty rate or if a family member depends on other federal assistance programs, such as Medicaid or the Supplemental Nutrition Assistance Program.

Although Lyons criticizes the FCC for failing to collect data on Lifeline’s effectiveness in closing the digital divide, he argues that the data that do exist suggest that the eligibility requirements are unhelpful for most low-income families. He claims that most Lifeline customers can afford communications services without the subsidy and that the small subsidy is not large enough for most families that cannot afford those services.

Lyons argues that, without an FCC study on the effectiveness of Lifeline at increasing broadband adoption rates, the FCC has no way of knowing whether the $9.25 subsidy to over 7 million families is more effective at closing the digital divide than, for example, a $46.25 subsidy to 1.4 million needier families.

The U.S. Government Accountability Office—a congressional agency that conducts audits aimed at improving government performance—has concluded that Lifeline is a “rather inefficient and costly mechanism” with which to close the digital divide.

Accounting company Grant Thornton has also reported that it failed to find any evidence suggesting that Lifeline contributed significantly to the rise in broadband internet service.

In addition to claiming that Lifeline is ineffective, Lyons argues that the program also strips low-income families of the ability to choose for themselves what plan works best for them. That is because eligible families’ choices are limited to a small set of government-selected service plans that are different from those most Americans use.

Furthermore, the subsidy is sent directly to service companies rather than to the consumer.

Lyons suggests that this policy choice leaves recipients unable to punish service providers for bad service by leaving for a competitor. What Lyons describes as the program’s paternalism also distorts the market for communications services by endowing billions of dollars in government funding to some companies and not to others.

In contrast with Lifeline’s shortcomings, Lyons applauds the Biden Administration’s new program—the Affordable Connectivity Program (ACP)—because it does not restrict consumers’ choices in selecting their service providers. It also provides consumers with a one-time stipend to purchase computers and other critical equipment. And unlike Lifeline, it is subject to congressional appropriations, which according to Lyons helps to ensure greater oversight over fraud, waste, and abuse of federal funds.

Lyons argues, however, that the ACP still suffers from the same “fundamental flaw” as Lifeline–the unproven assumption that the payments will increase broadband usage by low-income families. Without better data on the efficacy of broadband subsidies, Lyons worries that ACP, like Lifeline, is potentially a waste of billions of dollars in taxpayer dollars.

ACP’s proponents might argue that subsidies to low-income families are helpful whether or not those families could afford broadband without the subsidies. But Lyons counters that such logic fundamentally transforms the ACP and Lifeline Programs. Rather than being technology policies designed to improve broadband access, the ACP and Lifeline would become run-of-the-mill welfare programs, he asserts.

Other proponents could argue that collecting data on ACP’s effectiveness would be costly and challenging for the FCC. Lyons responds that the burden is on the program’s proponents to justify spending $14 billion in taxpayer dollars.

To remedy what he sees as the defects in the ACP, Lyons proposes several solutions. He suggests, for example, that the FCC should adopt a data-driven approach to subsidy distribution. He asks for an FCC study on how to target low-income families who do not use broadband, rather than the current practice of targeting low-income families generally. This approach would reduce the number of eligible recipients but could substantially increase the subsidy. The result, Lyons suggests, could be less waste and a substantially reduced digital divide.

Lyons also proposes sending subsidies directly to consumers in the form of vouchers. This would empower eligible families to turn to a different provider if they receive bad service.

Finally, Lyons suggests terminating the Lifeline program altogether. With the advent of the ACP program, the FCC now provides greater consumer choice, funds equipment purchases for consumers, is subject to greater oversight, and provides more funding for the same purpose.

Overall, Lyons suggests that government subsidies require study to determine their effectiveness in providing low-income families affordable communications services. In the absence of such study, he proposes market-based solutions to make federal broadband programs more efficient and effective.