Pai Proposes $1.75 Billion Lifeline Cap; O'Rielly, Others Doubt Democratic Support

Republican Mike O'Rielly welcomed Pai's proposals, but doubted the FCC's Democratic majority would be interested, and he made clear he wouldn't support expanding the program without a "real budget." Outside parties we talked to were also skeptical there would be a bipartisan agreement. "It's going to be a 3-2 vote," said Public Knowledge counsel Phillip Berenbroick. Kelley Drye attorney John Heitmann, who represents the Lifeline Connects Coalition of small mobile providers, said a 3-2 partisan vote "looks more likely than not." FCC Chairman Tom Wheeler and fellow Democratic commissioners didn't comment.

Pai said Lifeline modernization to help poor families gain high-speed Internet access is a "worthy goal." But in a statement he said the FCC needed to "clean up the waste, fraud and abuse in the program" and so he was proposing a "compromise" to update Lifeline "in a fiscally responsible way." He proposed the FCC set a hard $1.75 billion budget that was "enough to offer Lifeline-supported Internet access to every single Lifeline-qualifying household that isn't online today, as well as to maintain landline voice service as proposed by Chairman Wheeler." Lifeline currently provides more than $1.5 billion in annual support, an FCC staffer said recently. Some eligible consumers who don't participate in the program are already online.

To control costs, Pai proposed the program automatically reduce payments to carriers when estimated costs would otherwise exceed the budget. He cited a recent letter from Sen. Claire McCaskill, D-Mo., (see 1603020053) backing a mechanism "to prevent a repeat of the unchecked increase in spending that was seen the last time the program was expanded" -- when traditional phone support was extended to wireless service. "My proposal would do just that without denying any eligible consumer a Lifeline subsidy," he said.

Pai also urged scrapping the enhanced Lifeline tribal monthly subsidy of $34.25 per consumer (the regular subsidy is $9.25) in areas with more than 50 people per square mile. He said the extra $25 subsidy has encouraged abuse in large cities and suburbs. Finally, he proposed setting the Lifeline minimum broadband data requirements at 25 Mbps for fixed and 4G LTE mobile services. He noted Wheeler had called 25 Mbps "table stakes" for the 21st century. "I believe low-income families and students deserve a seat at the table," he said.

O'Rielly called Pai's "creative proposals worthy of serious consideration," but, based on his experience, he saw "little cause for optimism that anything of the kind will be included" in the FCC's final order. "Despite my best efforts over the past year to convince the Commission to set a budget for Lifeline, it appears that all the majority is willing to contemplate is a fig-leaf mechanism designed to cloud the issue rather than actually control costs," he emailed through an aide. "And as I have made clear from the outset, without a real budget, no proposal to expand the program will earn my support.”

The majority proposal "doesn't resemble any reasonable definition of the word 'budget,'" O'Rielly told the American Action Forum Tuesday, according to his written remarks. "If the stated spending figure (a 50 percent increase over 2015 spending) is approached, there’s an expectation that the Commission would take some unspecified appropriate action, which could be to increase the budget by another 50 percent. In fact, if the Commission agrees to change the proposal to accommodate concerns expressed by outside parties and some members of Congress, it may very well need to do so. Or it could choose not to act and, presumably, the spending could just continue unimpeded. This is not a budget, but rather the closest thing I have seen yet to openly treating American consumers as a bottomless piggy bank.”

The earliest the FCC could act to control Lifeline spending would be in early 2019 under the draft order, an agency official told us. If the total spending reaches 90 percent of the proposed $2.25 billion budget in 2017, the wireline bureau would be directed to report to the commission and offer recommended adjustments by late July 2018, the official said. The commission would then have six months to act under the draft, but that could start with an NPRM, taking more time, the official said. Wheeler counselor Gigi Sohn recently said the FCC expects the broadband expansion to encourage more eligible consumers to use Lifeline, but they don't expect growth to be "precipitous" (see 1603230057).

It's encouraging that Republicans are supporting the broadband move, Berenbroick said. Acknowledging the differences over implementation, he said, "It seems there’s more interest in cost control from some of the commissioners than in universal service." Pai's proposal to cut subsidies to Lifeline providers if the budget is exceeded would force costs onto users that probably would reduce participation, he said.

Heitmann said Pai's proposals "appear to serve up political rhetoric with hardly any explanation of how the proposals are supported by the record or how they would serve Lifeline program’s statutory goal of ensuring affordable access to communications for low-income Americans." He emailed a detailed critique: "The first proposal ignores the groundswell of support for maintaining support for mobile voice service and for letting consumers decide for themselves which communications services best meet their needs. The second ignores the fact that the payments to carriers are reimbursements for discounts provided to consumers to make service more affordable and fails to consider that automatically reducing benefits could jeopardize service for millions of subscribers." The third proposal confuses Lifeline's purpose of ensuring affordability with the Connect America Fund's construction mandate, he said. "It also attempts to use a bald assertion of program abuse as a fig leaf for arbitrarily eliminating support for residents of Tribal Lands that are more densely populated. The fourth ignores the fact that 4G LTE services are not affordable for many (access requires more expensive handsets) or even ubiquitously deployed or available (leaving all Americans dependent on 3G to fill the gaps).”

Another industry representative doubted the Democrats would agree to Pai's proposals. The representative also emailed, "Lifeline actually has far less waste on a percentage basis than all the big programs -- so targeting here seems like chasing pennies in the couch cushions when Medicare/Medicaid fraud is in the hundreds of billions.”