- The Washington Times - Tuesday, January 31, 2012

The Federal Communications Commission on Tuesday overhauled two telephone subsidy programs for low-income Americans while adding a new broadband Internet subsidy.

The FCC voted 3-0 to eliminate Link Up, a one-time $30 credit that covers the cost of the installation fee for landlines or activation fee for cellphones. The commission is also making major changes to its sister program, Lifeline, which provides a $10 monthly credit to subsidize phone service.

“These reforms we’re adopting today are major,” FCC Chairman Julius Genachowski said at the hearing. “This is a fundamental overhaul.”

The reforms are meant to address corruption in the two programs. They could save $2 billion over the next few years, Mr. Genachowski said, including $200 million in 2012.

The commission plans to use $25 million of the savings to create a Broadband Adoption Pilot Program that will bring high-speed Internet to low-income Americans.

“I believe the Lifeline service can do for broadband affordability what it has done for telephone affordability,” Commissioner Mignon Clyburn said. “Access to broadband service is not a luxury. It’s a necessity.”

Lifeline has been growing. The program has about 12.5 million subscribers, up from 7.1 million in 2008, according to the Universal Service Fund, a division of the FCC that oversees the program.

That has led to an increase in costs. The program spent $1.6 billion in 2011, up from $772 million in 2008. It has projected spending $2.1 billion this year.

Much of this growth was due to corruption.

Many fraudsters were taking advantage of the two telephone subsidies. Phone companies would sometimes approve duplicate customers who are already using the program with another carrier. They would also approve customers who did not meet the low-income requirements.

These reforms are meant to fix the programs.

“We will not tolerate waste or misuse of funds,” Mr. Genachowski said. “It says to anyone considering gaming the system, ‘Don’t bother, you’ll get caught and punished.’”

Link Up, in particular, provided an incentive for companies to “sign up as many customers as they can,” because much of the $30 fee can be pocketed by the phone provider, Mr. McDowell said.

It was “one major mechanism that was incentivizing waste, fraud and abuse,” Mr. Genachowski explained.

“This piece of it was not working,” he said. “It provided a bounty, in effect, for companies that sign people up.”

The program will, however, stay open to Native American communities.

The FCC plans to fix the Lifeline program with a series of reforms.

The commission is creating a National Lifeline Accountability Database, which will be up and running within 12 months, to streamline the program to prevent multiple carriers from receiving support for the same subscriber.

In 2011, the system was tested in 12 states and caught 270,000 duplicate subscribers, saving $33 million. That showed that about 7 percent of subscribers had multiple subscriptions.

“Part of the problem was Company A had no way of knowing whether Company B was already providing a phone,” Mr. Genachowski explained. “That’s going to happen very quickly.”

But aside from addressing the duplicate problem, it would do little to ensure customers meet the low-income eligibility requirements, Mr. McDowell said.

Customers would be required to show proof that they participate in other subsidy programs such as Medicaid, food stamps, the National School Lunch Program’s Free Lunch Program, or Section 8 Housing. But photo identification would not be required.

“Currently, there’s no way to verify who’s eligible with certainty,” he said.

So a second eligibility database, which would require subscribers to prove who they are and that they qualify, will also be up and running by the end of 2013.