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Edwards Wildman Client Advisory - FCC Enacts Comprehensive Reform of Lifeline Program for Low-Income Telecommunications Consumers

February 2012

On February 6, 2012, the Federal Communications Commission (“FCC”) released a 339-page Report and Order and Further Notice of Proposed Rulemaking (FCC 12-11) establishing comprehensive reforms to the Universal Service Fund’s Lifeline program. The FCC’s enacted its reforms to substantially strengthen protections against waste, fraud, and abuse, to improve program administration and accountability, to improve enrollment and consumer disclosures, to initiate modernization of the program for broadband, and to constrain the growth of the program in order to reduce the burden on all who contribute to the Universal Service Fund.

By way of background, the Lifeline program was implemented in 1985. Its initial purpose was to ensure that any increase in local rates that occurred following the 1984 divestiture of AT&T would not put local phone service out of reach for low-income households and result in service disconnections. The program sought to achieve this goal by giving carriers federal funds when they waived the federal subscriber line charge (“SLC”) for low-income consumers and by establishing Link Up, a mechanism that provided federal funds to carriers that carrier waivers of high, non-recurring charges for commencing telephone service to low-income consumers. The FCC revised and expanded the Lifeline program after passage of the Telecommunications Act of 1996 (1996 Act). After implementation of the 1996 Act, all states participated in the program and the level of federal Lifeline/Link Up support steadily increased.

Since the 1996 Act, the program has been administered by USAC under FCC direction, although many key attributes of the program are implemented at the state level, including consumer eligibility, eligible telecommunications carrier (“ETC”) designations, outreach, and verification. Lifeline support is passed on to the subscriber by the ETC, which provides discounts to eligible households and receives reimbursement from the Universal Service Fund for the provision of such discounts. Lifeline now provides a discount to non-Tribal subscribers averaging $9.25 per month for telephone charges, and Link Up provides a discount of up to $30 on the cost of commencing telephone service for qualifying low-income households. For residents of Tribal lands, Lifeline provides an additional $25 discount on monthly telephone charges, and Link Up provides up to an additional $70 discount on the cost of commencing telephone service for low income households. These amounts may be supplemented by additional funding provided from state universal service funds in some states.

In its February 6, 2012 Report and Order, the FCC has made efforts to make the program more accountable by establishing clear goals and measures and national eligibility criteria to allow low-income consumers to qualify for Lifeline based on either income or participation in certain government benefit programs. The Report and Order adopts rules for Lifeline enrollment, including enhanced initial and annual certification requirements, and confirms the program’s one-per-household requirement. The Report & Order also simplifies Lifeline reimbursement and makes it more transparent.

In order to eliminate waste, fraud and abuse in the program, the Report and Order creates a National Lifeline Accountability Database to prevent multiple carriers from receiving support for the same subscribers. The Report and Order also phases out toll limitation service (TLS) support, eliminates Link Up support (except for recipients on Tribal lands that are served by ETCs that participate in both Lifeline and the high-cost program), reduces the number of eligible subscribers in the program, and imposes independent audit requirements on carriers receiving more than $5 million in annual support.

The FCC anticipates that the reforms in its Report and Order will save the Universal Service Fund up to $2 billion over the next three years. As part of these reforms, the FCC has established a savings target of $200 million in 2012 versus the program’s status quo path in the absence of reform, has created a mechanism for ensuring that target is met, and has put the FCC in a position to determine the appropriate budget for Lifeline in early 2013 after monitoring the impact of today’s fundamental overhaul of the program and addressing key issues in the Further Notice of Proposed Rulemaking, including the appropriate monthly support amount for the program. Using savings from the reforms, the Report & Order also establishes a Broadband Adoption Pilot Program to test and determine how Lifeline can best be used to increase broadband adoption among Lifeline-eligible consumers. Finally, the Report and Order establishes an interim base of uniform support amount of $9.25 per month for non-Tribal subscribers to simplify program administration.

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