Last week, the FCC finally released the full, 224-page text of its controversial and anxiously awaited Lifeline Modernization Order, which was approved by a bitterly divided, party-line 3-2 vote on March 31. As we advised in a post summarizing the meeting, the new Order transforms Lifeline from a voice-only subsidy program to one that subsidizes high speed broadband, phases out voice-only Lifeline service, imposes ambitious service standards, facilitates market entry for broadband providers, and transfers responsibility for verifying eligibility of Lifeline applicants to a national database. In summary, the Order:

• Introduces Lifeline subsidies for broadband services yet maintains the monthly per-household Lifeline subsidy at $9.25;
• Phases out the voice-only subsidy beginning in December 2019 and eliminates it by December 2021 except in areas where there is only one Lifeline provider;
• Imposes graduated minimum fixed and mobile broadband service standards and minimum mobile voice minute requirements;
• Establishes a National Lifeline Eligibility Verifier database to determine the eligibility of low income applicants to participate in the program;
• Streamlines and reduces the number of federal and state programs used to determine Lifeline eligibility;Creates a streamlined nationwide “Lifeline Broadband Provider” designation to increase competitive entry by broadband providers (including cable operators and ISPs), bypassing traditional state-by-state designation requirements;
• Establishes a $2.25 billion “soft” annual budget for the program, subject to reviews;
• Creates requirements for wi-fi and hotspot-enabled devices; and
• Introduces numerous other changes and refinements, including to non-usage rules and the annual recertification process, establishing a 12-month window for transferring broadband benefits, publishing subscriber counts, and creating new forms.

We discuss some of the aspects of the newly-modernized Lifeline program below. 

Transition from Voice to Broadband Subsidy

Citing its authority under section 254 of the Act, the FCC expanded the category of services eligible for Lifeline support to include broadband Internet access services provided to mass market customers (referred to by the new and somewhat unfortunate acronym “BIAS” in the FCC’s Open Internet Order).  The new expansion of the Lifeline program will become effective the later of December 1, 2016 or 60 days after the FCC publishes a notice in the Federal Register that the rule received Paperwork Reduction Act (“PRA”) approval.  In addition, the FCC introduced minimum service standards for both fixed and wireless broadband service, and minimum service standards for wireless voice service, and the phase-out of voice subsidies.

Under the new rules, an eligible low-income customer may choose to have his or her Lifeline subsidy applied to standalone voice service, standalone broadband, or a bundle that includes both voice and broadband.  As part of the Order, the FCC reiterated its policy that only one Lifeline subsidy may be provided per household, meaning that a customer cannot apply the discount both a fixed and a wireless service, nor can multiple individuals within a household receive the subsidy.

Minimum Standards

The FCC established initial minimum standards for Lifeline supported fixed and mobile broadband and mobile voiced services “based on services to which a ‘substantial majority’ of consumers have already subscribed.”  The Commission also introduced mechanisms for evaluating the standards on a regular basis and for carriers who cannot meet the standards.

Fixed Broadband

In order to be eligible for a Lifeline subsidy for fixed broadband, the service, in most instances, must have a speed of at least 10 down/1 up Mbps and a usage allowance of at least 150 GB, which the FCC determined are the speed and usage to which 70% of Americans subscribe, thereby meeting the “substantial majority” measure. 

In the event that a fixed broadband provider has not deployed facilities in a service territory capable of meeting the minimum standards in effect for the period, it may receive support for fixed 4/1 Mbps broadband service provided that it: 

1. does not offer any generally available residential fixed broadband product that meets the 10/1 Mbps standard; and
2. offers a 4/1 or better residential service on a generally available basis.

Updating standards for fixed broadband.  The FCC, on or before July 31 of each year, will publish a notice of the minimum standards for Lifeline-supported fixed broadband services for the twelve months to follow.  In general, the standard will be based on the most recently available speed and usage data reported by fixed broadband providers on the FCC Form 477.  If the data is unavailable or outdated, the speed standard will be the speed already in effect, or the standard used for the Connect America Fund (“CAF”) for rate-of-return carriers, whichever is greater. The usage allowance will be updated to reflect the greater of (1) the amount that a “substantial majority” of consumers subscribe to at that point or (2) the usage allowance set for rate-of-return carriers for CAF support.

Mobile Broadband

In the Order, the FCC takes a more complicated approach to implementing standards for the mobile broadband subsidy.  Although, the FCC implements a phased-in approach for the mobile data usage allowances, unlike with fixed broadband service, the FCC does not provide clear rules for wireless broadband providers who cannot meet the minimum standards.  Rather, wireless providers must seek a waiver from the Commission which will grant waivers on a “case-by-case basis” if it determines that an exception from the minimum standards will serve the public interest.

Updating minimum standards for mobile.  The FCC has developed a complex formula for calculating the minimum data usage allowance beginning in 2019.  The formula takes the average number of mobile subscriptions per U.S. household, and multiplies that by the average data used by each smartphone subscriber to find the average mobile broadband usage per household, then discounts the result by 0.7 to account for the fact that most subscribers will use less than the average.  The result will then be rounded down to the nearest 250 Mbps.

In the event that the FCC does not issue the updated usage standards by the date set forth in the Order, the rate will automatically adjust “by the most recent year-over-year percentage change in smartphone data usage per household.”

Mobile broadband speed requirements will only be adjusted if, based on Form 477 data, the FCC determines that a speed adjustment is required to satisfy the “substantial majority principle.”

Wi-Fi Enabled Equipment

To the extent that Lifeline-supported broadband providers distribute equipment to their customers, such as mobile handsets or tablets, providers must offer equipment that is Wi-Fi enabled, as well as hotspot-enabled, the latter requirement being phased in over a number of years.  Beginning on December 1, 2016, providers of Lifeline-enabled service will be required to offer at least one hotspot-enabled device.  The requirement then ramps up to 15% of all devices offered beginning on December 1, 2017 and increases in 5% increments each year thereafter until plateauing at 75% on December 1, 2024 and onward.

Phase Down of Lifeline Support for Voice 

Despite numerous calls to maintain voice service for Lifeline customers, the FCC moved forward with its plan to phase-down support for standalone wireline and wireless voice service except in census blocks where there is only one Lifeline provider. 

Minimum Service Standards. In addition to phasing out Lifeline support for both fixed and mobile voice service, the FCC will implement minimum service standards for mobile voice only.

Bundled Service.  The funding phase-down, which will begin in 2019, will only apply to standalone voice service.  From the effective date of the new rules until November 30, 2019, a service provider will be eligible for the full Lifeline discount as long as the bundle meets either the voice or broadband minimum standards detailed above.  After December 1, 2019, a service provider may receive the full subsidy only if the bundle meets the broadband minimum service standards.  Otherwise, the service provider will only be eligible for phased-down voice support.  If the service provider can meet neither the voice nor broadband minimum standards after December 2019, then it will not be eligible or Lifeline reimbursement unless it is eligible for an exception as detailed above, it receives a waiver from the FCC, or it is the only Lifeline provider in the census block, which would be rare. 

Streamlined ETC Designations for Lifeline Broadband Providers

In an effort to encourage market entry and increase competition among Lifeline providers, the FCC created a new category of provider called Lifeline Broadband Provider (“LBP”) that has streamlined processes for ETC designation and relinquishment and ETC obligations.  In order to do so, the FCC preempted states from the LBP designating process and has instead created a process in which LBPs are to seek ETC designation directly from the FCC for nation-wide service territories.  The FCC finds authority to do so by creating ETC designations specific to the type of supported service for which a provider seeks support.  Providers seeking support for BIAS are thus considered exclusively within the FCC’s jurisdiction based on the FCC’s classification of BIAS in the Open Internet Order, even where the state commission may have authority over other services provided by that same carrier.  This jurisdictional construct allows both greater FCC control over the modernized Lifeline program while simultaneously reinforcing the jurisdictional underpinnings of the FCC’s BIAS reclassification.  The Order also points to section 706(a) for additional preemption authority on the basis that state involvement in the LBP designation process would thwart market entry and competition.

The FCC preserved, however, state authority for ETC designations for Lifeline-only, voice-only service and for broader ETC designations that are not Lifeline-only and include High Cost funding.  Given the phase out of voice-only ETC support and the fact that high-cost support for wireless carriers is capped, this preserved state authority will, as a practical matter, likely be relatively circumscribed in the context of the overall Lifeline program.  The Order also notes that states are free to manage their own state lifeline programs.

The FCC further encourages LBP market entry by easing the requirement under section 214(e)(6) that an ETC provide “exchange service” and “exchange access”—essentially, voice services.  The Order achieves this by concluding that an LBP can satisfy the requirement by providing such services through an affiliate or exclusively through resale.  It then goes one step further and forebears from imposing the exchange service and exchange access requirement for new entrant LBPs that do not otherwise provide such services.

The FCC’s LBP ETC designation process for BIAS support is both streamlined and expedited, including a provision that, absent Bureau notice to the contrary, petitions will be deemed granted within 60 days.  Petitioners for the expedited process must serve at least 1,000 non-Lifeline customers with voice and/or BIAS service and must have offered broadband service for at least two years preceding the filing.  The expedited process is available to tribally-owned (over 50% and actually controlled) providers regardless whether they satisfy the prior service or customer criteria.  In addition, LBPs can expand their service area designation by letter filing with a five business day deemed approved window.

The information requirements for LBP ETC petitions include certifications and demonstrations of:  service requirement compliance, emergency capability, consumer protection/service quality commitments, financial and technical capability, and terms and conditions of Lifeline BIAS plans.  Existing Lifeline-only ETCs may receive BIAS support without re-submitting an LBP ETC designation petition.

The Order also uses “targeted forbearance” to further encourage market entry and competition.  For example, Lifeline-only ETCs are not required to provide Lifeline supported BIAS, but may instead elect to provide only supported voice service by providing timely notice to the FCC.  This will preserve more Lifeline-discounted options for consumers.  In addition, High Cost and Lifeline ETCs may receive support for BIAS within their service areas.  However, the Commission will allow such ETCs to provide supported voice-only services upon timely notification to the Commission.This forbearance does not apply to areas where ETCs commercially offer BIAS pursuant to their high-cost USF obligations.

As a final enticement to encourage LBP ETC market entry, the Commission establishes a streamlined LBP relinquishment process.  Absent Bureau notification to the contrary, LBPs who do not also receive High Cost support may relinquish their designations upon 60 day notice to the FCC.

National Lifeline Eligibility Verifier

The FCC establishes the National Lifeline Eligibility Verifier as a mechanism to make eligibility determinations and perform a variety of other functions necessary to enroll eligible subscribers into the Lifeline program.  By taking on the burden of verifying consumer eligibility, service providers will benefit from reduced compliance costs, and a significant reduction in the risk of enforcement actions for eligibility related issues. 

The Verifier database will perform a number of functions the FCC argues are necessary to the efficient administration of the Lifeline program, such as: 

• determining subscriber eligibility through a combination of electronic and manual means.  Electronic verification will likely be accomplished by utilizing existing state and federal benefits databases of participation in qualifying programs such as SNAP, resulting in a real-time eligibility determination.  However, manual verification will require consumers to submit physical eligibility documentation that must be reviewed by individuals employed by the Verifier.  The FCC claims the Verifier will make an eligibility determination in a “reasonable amount of time,” but the requirement to physically review documentation will undoubtedly delay the ability for consumers to obtain Lifeline service the same day they apply.  Therefore, it is unfortunate that the FCC chose not to implement a pre-approval process, and instead requires a completed full eligibility review before a Lifeline provider may claim and receive support for an eligible subscriber. 
• The Verifier will also function as the default basis for determining support payments to providers.  The FCC has directed USAC to provide a transition plan to phase out the use of FCC Form 497 and implement a mechanism sufficient to base all payments on the records in the database, which if accomplished would relieve providers from the burdens of independently determining which subscribers are eligible for claims.

The FCC recognizes that the development and implementation of a National Lifeline Eligibility Verifier is a considerable undertaking, but outlines an aggressive implementation schedule when considering the delays in developing and implementing the NLAD.  The FCC requires USAC to submit a “Draft National Verifier Plan” to the Commission by December 1, 2016 with the expectation that USAC will deploy the Verifier in at least five states by December 31, 2017, an additional 20 states between January 1, 2018 and December 31, 2018, and all states and territories by December 31, 2019.

Streamlining Eligibility Programs

To increase the performance and technical efficiency of the Verifier, the FCC reduced the number of benefit programs consumers may utilize to provide eligibility for the Lifeline program.  Beginning the later of December 1, 2016 or 60 days following PRA approval, consumers who qualify for and receive Supplemental Nutrition Assistance Program (“SNAP”), Medicaid, Supplemental Security Income (“SSI”), Federal Public Housing Assistance (“FPHA”), or the Veterans Pension benefit will be eligible to receive Lifeline.  Consumers may also still qualify for Lifeline by demonstrating their household income is at or below 135 percent of the Federal Poverty Guidelines, but the FCC amended the Lifeline definition of income to align with the Internal Revenue Service’s (“IRS”) definition of gross income to provide a limit the use of this avenue of qualification.  To continue fostering adoption of Lifeline on Tribal Lands, the FCC maintains the current set of Tribal-specific eligibility programs as well.

The FCC eliminates Low–Income Home Energy Assistance Program (“LIHEAP”); National School Lunch Program's free lunch program (NSLP); and Temporary Assistance for Needy Families (“TANF”) from the default federal assistance eligibility for Lifeline.  The FCC also removes state-specified Lifeline eligibility criteria for Lifeline support to permit efficient comprehensive administration of the program.

The impact of the FCC’s modifications in the programs consumers may use to qualify for Lifeline should be minimal on both Lifeline providers and consumers.  The overwhelming majority of current Lifeline consumers enroll based on participation in SNAP, Medicaid, and SSI.  By choosing to limit demonstration of program eligibility to the programs it has, the FCC claims there is the potential for streamlined interactions between those programs’ systems and the Verifier database.  It remains to be seen whether the FCC’s hope of streamlined interactions proves true. 

Additional Changes 

The Order makes several other changes to the existing Lifeline program rules, including:

1. Non-usage: Changing the rule that a wireless Lifeline provider must de-enroll subscribers who do not use a Lifeline service for 60 consecutive days to a 30-day non-usage rule, while allowing outbound text messages (but not provider-generated texts to subscribers) to constitute “usage.”  Henceforth, providers must notify subscribers of possible service termination on the 30^th day of non-usage, and terminate service if the subscriber does not use the service within the next 15 days.
2. Rolling 12-month recertification:  Revising the annual recertification requirement to be on a rolling basis, requiring a service provider (after querying a state database, if one exists) to re-certify a subscriber within 12 months of his/her service initiation date (effective for enrollments beginning January 1, 2017), rather than by December 31 of each year for all subscribers.  Subscribers will be given 60 days to respond to recertification efforts, and non-responsive subscribers are to be de-enrolled within 5 business days of the expiration of that period.  It is anticipated that the National Verifier will take over this process when implemented.  In addition, providers must now de-enroll a subscriber who requests de-enrollment within 2 business days.
3. Published subscriber counts:  By December 1, 2016, USAC is directed to list on its online disbursement tool the total number of subscribers for which each provider seeks support in each SAC, as well as a breakdown of the number of subscribers receiving each supported service. 
4. First-year Lifeline provider audits:  Audits may now be performed of some but not necessarily all Lifeline providers during their first year of service provision, at the discretion of the FCC’s Office of Managing Director.
5. Standardized Certification/Recertification Forms and One-Per-Household Worksheet:  The Order delegates the Wireline Bureau to create, subject to OMB approval, universal forms for customer certification and annual recertification as well as a one-per-household worksheet, to replace the various provider-created forms currently in use.