Wireless Carriers Fight Pai’s Solution for Easing Lifeline Costs

FCC Chairman Ajit Pai may have thought he was doing wireless carriers a favor when he slashed by nearly two-thirds a potentially costly requirement that they increase data for low-income subscribers starting in December.

Instead, budget carriers are fighting his plan, leaving an uncertain future for Lifeline, the Federal Communications Commission’s program to help low-income Americans pay their phone and broadband bills.

Pai’s draft order circulated last month would force carriers like TracFone Wireless Inc. to provide 1.5 GB more data than currently required under Lifeline. That’s down from the 8.75 GB increase slated to take effect under an Obama administration plan put in place four years ago that even Democrats now say would be too excessive.

But Pai’s proposed boost, while far less than the Obama plan, would still be too costly for carriers to absorb, according to the National Lifeline Association, an industry trade group. The data increase would force carriers to raise prices $15 or more for subscribers, the group said. That could force subscribers, and by extension, companies, to leave the program.

“To be candid, the question boils down to can we stay in business at all,” Matthew Johnson, co-CEO of Lifeline carrier TruConnect, said.

The fight shows Pai’s challenge in trying to make Lifeline plans more robust so that low-income Americans aren’t left behind in the digital age—even as doing so risks making the service less affordable.

Lifeline carriers say they’re already struggling to make a profit under the program, which requires them to provide a certain level of service to low-income subscribers. In return, the carriers receive monthly payments from the 7 million Americans in the program that includes $9.25 in federal subsidies. Major players in the Lifeline market include TracFone, which is owned by Mexican billionaire Carlos Slim, and Assurance Wireless.

The stakes are high for Lifeline this year, with low-income Americans disproportionately affected by the coronavirus pandemic. More than 28 million people claimed some sort of unemployment benefit in the week ending July 25, according to the U.S. Department of Labor. Many of them are eligible for Lifeline, which requires recipients to have an income at or below 135% of the federal poverty guideline, or to participate in federal-aid programs such as Medicaid.

An FCC spokesperson, in a statement, said that because of Lifeline’s role in ensuring access to affordable broadband for low-income Americans, including families and veterans, its offerings must continually be improved.

“No American should receive second-class service,” the spokesperson said.

Pai’s Predicament

Pai, in announcing his proposed rollback of the Obama data requirement last month, said he wants to prevent “drastic year-over-year increases that could impact the ability of Lifeline carriers to continue providing affordable service.”

But it’s unclear whether Pai has enough support for his order, which hasn’t been made public. Commissioners are still reviewing it.

His solution appears to suffer from too little support from carriers that have to absorb the data requirement, and from Democrats who say broader steps are needed to support Lifeline. Democratic commissioners Geoffrey Starks and Jessica Rosenworcel are likely ‘no’ votes on Pai’s plan.

“As we consider the changes to Lifeline minimum standards, we must view ‘affordability’ through the eyes of low-income families facing unprecedented economic challenges,” Starks said in an email.

Pai can usually count on the backing of GOP Commissioners Brendan Carr and Michael O’Rielly, which would give him a 3-2 majority to pass his plan. But O’Rielly’s future is uncertain after President Donald Trump on Aug. 3 withdrew his nomination for another term.

If O’Rielly resigns or recuses himself, Pai would lack sufficient support, forcing him to negotiate a compromise with Democrats. O’Rielly’s office didn’t respond to a request for comment.

Democrats have called on the FCC to take emergency action to expand Lifeline, as the agency did after Hurricane Katrina, by providing impacted households with a temporary $130 dollar subsidy and a free handset.

“We should have 100% of people online in this country,” Rosenworcel said in a statement. “It’s time for the FCC to recognize this basic truth and update the Lifeline program from front-to-back.” Less than 20% of the roughly 38 million Americans eligible for Lifeline are enrolled, according to USAC data.

The FCC on Monday extended waivers aimed at preventing Lifeline subscribers from being involuntarily kicked out of the program through the end of November.

Carriers Want Status Quo

Lifeline carriers want the FCC to maintain the current data rules, with no increase. They argue that the current 3 GB requirement is sufficient for consumers to stay connected.

An increase to 4.5 GB of data would force program subscribers off the Lifeline rolls because they couldn’t afford the added charge for the data, according to the carriers’ trade group.

Nearly 85% of 7,700 Lifeline subscribers polled in a survey by the National Lifeline Association said they would not be able to afford monthly payments. About 63% of respondents said they don’t have a checking or savings account.

The Lifeline program will likely shrink at a greater rate in most of the country if the data increase takes effect, John Heitmann, a partner at Kelley Drye & Warren LLP who advises Lifeline carriers, said. The exception may be a few areas like California and on tribal lands where enhanced subsidies are available.

Many Lifeline subscribers currently have no monthly phone bill because the $9.25 subsidy covers the cost of their plans, Heitmann said. The data increase would make Lifeline plans more expensive and likely force Lifeline carriers to start charging monthly co-payments, he said.

The carriers have the backing of some consumer groups, who say the risk of forcing consumers off Lifeline because of a data increase is too great during challenging economic times.

“Now is a particularly bad time to be doing this, given the pandemic,” said Jenna Leventoff, a senior policy counsel at technology policy nonprofit Public Knowledge. Lifeline is critical with “people staying home and truly needing access to their phones.”