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The US government's Lifeline program collects fees from telecom companies in order to help poor Americans pay for connectivity. AT&T and Verizon are proposing sweeping changes to that setup.

Mike Dano

January 22, 2021

7 Min Read
Verizon, AT&T want to reshape Lifeline

AT&T and Verizon are looking to extricate themselves from the messy business of building a bridge across the digital divide. Instead of collecting money themselves for the government's aging Lifeline program – designed to subsidize telecom services for poor Americas – they want Congress to do it instead.

The move is well timed. A pandemic forcing almost everyone to work and school online has helped to elevate Internet connections from nice-to-have to must-have. And the incoming Biden administration has pledged support for universal broadband.

Further, new proposals from AT&T and Verizon to eliminate Lifeline could actually result in dramatically increasing the amount of money they receive from the US government to provide telecom services to poor Americans. At the same time, they will probably be able to reduce their customers' monthly bills.

It's also probably no surprise that Verizon is in the process of purchasing one of the biggest Lifeline providers in the country, the prepaid MVNO TracFone.

Thus, killing Lifeline would be a clear win for AT&T and Verizon, and the idea ought to drive plenty of lobbying in Washington this year.

Decades of technocracy

To explain what AT&T and Verizon want to do with Lifeline involves delving deep into the bowels of government bureaucracy. But the core of their idea is actually pretty simple: AT&T and Verizon want to remove the Universal Service Fund (USF) fee from their customers' bills, and instead get that money out of the US Treasury. For those of us who both pay taxes and subscribe to telecom services, the ultimate result won't change: We'll still put our money toward crossing the digital divide, we'll just do it in a different way. And, if AT&T and Verizon are ultimately successful in their lobbying efforts, we'll also probably end up putting more of our money toward crossing the digital divide.

The topic traces its origins to the 1980s, when the Reagan administration created the Lifeline program to provide poor Americans with phone service. The Telecommunications Act of 1996 then created the USF – which was designed to promote universal access to telecommunications services, even in rural areas without phone service – and Lifeline naturally fell into the USF. The FCC oversees the USF and the Universal Service Administrative Company (USAC) handles the logistics.

Money for the USF comes from telecommunications providers themselves. Many, like AT&T, choose to pass this expense on to their customers. For example, my wireless service provider puts this charge onto my monthly bill under the "Federal Universal Service Charge" heading. In December I paid a total of $70 per month for my cell phone and the USF charge was $0.54.

The USF collects about $10 billion annually, and it spreads that money out across several programs. Lifeline is one, but others involve funding schools and libraries (E-rate, for example) and the construction of telecom networks in rural areas (the Rural Digital Opportunity Fund, for example).

Eliminating Lifeline to make it bigger

Lifeline provides recipients with a discount of up to $9.25 per month for telecom services, either wired or wireless. Americans can get the discount if they meet federal poverty guidelines or participate in programs like the Supplemental Nutrition Assistance Program (SNAP, or food stamps).

"The funding mechanism for the Lifeline program is unsustainable as the only program available for low-income recipients," Verizon argued recently.

Indeed, according to the USAC, only 8.2 million Americans used Lifeline in October out of the 33 million who were eligible for it, amounting to around $1 billion annually. That's basically just 10% of the USF's total budget; the majority of the money collected by the USF goes toward building networks in rural areas.

"Lifeline's funding structure also needs an update," argued AT&T CEO John Stankey in a Politico essay last year. "The existing program is largely paid for by a narrow set of Americans ... it is effectively a regressive tax on consumers, a policy that absurdly hurts those it is intended to help."

As a result of these shortcomings, critics say, Lifeline has not grown nor adapted to meet the needs of the new broadband era. "While modern communications technologies have evolved from voice calls over rotary phones to essential connectivity over the Internet, the Lifeline benefit has increased little over the past 20 years," wrote AT&T's EVP of federal regulatory relations, Joan Marsh, in a post to the provider's website late last year. "At less than $120/year, the benefit doesn't support 21st century connectivity. For this reason, it is perhaps not surprising that many households eligible for the benefit don't actually accept it."

Verizon fully agrees. "It's time for a new approach," Verizon wrote recently. "Rather than tinker with Lifeline, which can continue as an alternative for low-income customers who prefer it, we should broadly rethink how to address broadband affordability to provide a much more useful option."

Let the lobbying begin

Verizon on Friday outlined perhaps its clearest proposal yet for subsidized telecom services. In its new "Accelerating America" proposal, the company argued Congress should "create a direct appropriation that recipients can use to pay for the broadband service of their choice."

The operator argued the government should administer the program and that the FCC should allow a wide range of providers to participate. And Verizon also suggested Congress should "help pay for a device necessary to access the network, such as a tablet or wireless device," noting that current market prices for devices hover around $200.

Perhaps most importantly, Verizon argued funding for recipients should be increased. "Congress would set the per-household service benefit amount at a much higher level than the current Lifeline amount, perhaps in the range of $20-$50 per month, which would be sufficient to cover all or most of the cost of a home broadband service that supports distance learning and working from home," the operator wrote. "And since the number of people covered and the total cost of the program may vary depending on what Congress ultimately decides, Congress should also explore whether the benefit amount should vary depending on such factors as household size, household income, or school-age children in the household."

AT&T executives have outlined a similar approach, noting that a $35 per month subsidy could cost as much as $12 billion a year – more than the entire USF – if 75% of those currently eligible for Lifeline signed up.

And AT&T officials too have also argued that the money for the effort should come directly from Congress, rather than from the fees the operator levies on its customers.

"As Congress debates increases to the Lifeline benefit, it should also ensure that funds are directly appropriated to support any benefit increase or otherwise ensure that the USF funding mechanism is significantly reformed," AT&T's Marsh wrote. "Relying on decades old funding approaches will only serve to undermine the goal of providing 21st century broadband connectivity to Lifeline eligible households."

Money talks

Interestingly, President Biden recently named FCC Commissioner Jessica Rosenworcel as the FCC's acting chairwoman. Based on her past positions, it's possible that Rosenworcel would consider Lifeline proposals from AT&T and Verizon.

"We need a clear plan for broadband for all," Rosenworcel argued during recent Senate testimony.

And in 2019, Rosenworcel dissented to parts of an FCC order aimed at updating Lifeline, arguing that "instead of taking this four-decade-old program and modernizing it, our approach has been to diminish it – with cruel disregard for those who need it most." Such comments appear to indicate a willingness by the FCC's new chief to tackle Lifeline in some form.

To be clear, as an FCC commissioner Rosenworcel would have no part in Congressional action against Lifeline. And that situation helps to shine a new light on the move by AT&T, Verizon and other telecom operators to halt campaign donations to the GOP lawmakers who voted against Biden's electoral certification. Those election results put Democrats in control of both houses of Congress.

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

Editor's Note: The headline for this article was changed from "Verizon, AT&T want to kill Lifeline" to make it clear that the companies aren't proposing a complete elimination of Lifeline but instead substantial, structural changes.

About the Author(s)

Mike Dano

Editorial Director, 5G & Mobile Strategies, Light Reading

Mike Dano is Light Reading's Editorial Director, 5G & Mobile Strategies. Mike can be reached at [email protected], @mikeddano or on LinkedIn.

Based in Denver, Mike has covered the wireless industry as a journalist for almost two decades, first at RCR Wireless News and then at FierceWireless and recalls once writing a story about the transition from black and white to color screens on cell phones.

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