Wednesday, April 10, 2013

A Balanced Look at Lifeline and Its Reform

Lifeline is a federal program that provides targeted subsidies to low-income consumers to support their access to communications services. In the last few years, the program has become a subject of considerable public debate. For instance, today's Washington Post contains the article "'Obama phones’ subsidy program draws new scrutiny on the Hill." With Lifeline now coming to the attention of many people for the first time, a sober perspective on the program and ongoing universal service reform proposals is needed. 
Lifeline support is targeted directly to low-income individuals. This distinguishes Lifeline from other Universal Service Fund (USF) programs that annually transfer, in a fairly indiscriminate fashion, billions of dollars in indirect subsidies to voice carriers. Concerted reforms are needed to ensure that waste and fraud – such as the receipt of duplicate subsidies by the same person – are, to the extent possible, eliminated from the Lifeline program. At the same time, however, a reformed and modernized Lifeline program, with subsidies carefully targeted to low-income persons that meet income-based eligibility-based criteria, ought to allow more rigorous reform of the USF high-cost subsidy program. Indeed, over time, as competition continues to increase consumer choice and technological developments offer opportunities for ever more means of affordable communications, the USF subsidies that presently are distributed to support "high-cost" providers ought to be diminished substantially.
Lifeline is administered under the umbrella of the FCC-administered Universal Service Fund (USF). The history of USF traces back to the Communications Act of 1934 and what is now Lifeline began in 1985. Universal service policy historically has been justified, in no small measure, by an argument about the positive benefits to overall consumer welfare of so-called "network effects." The idea is that bringing more people onto the network – including those who would be unable to afford voice services without subsidies – benefits all users of communications services. The value of the network to users increases proportionally to the overall number of connected users who can communicate with one another. So while the benefits of Lifeline accrue directly to low-income consumers, other consumers of voice services receive a degree of indirect benefit by being able to communicate with those low-income consumers.
There is nothing wrong at all with implementation of reforms to the program that seek to protect against fraud or abuse. Indeed, they are welcome. But a constructive approach to Lifeline policy should avoid easy dismissal of Lifeline as yet another welfare give-away program. In my view, this is incorrect, and it is short sighted.
For many low-income persons, the program's support is indeed a real "lifeline" – a vital link to today's ever more connected and networked world, a world in which a communications link is often an important gateway to the availability of educational and employment opportunities.