FCC reforms phone subsidy program for the poor

The Federal Communications Commission voted Tuesday to bring its subsidy programs for low income families into the 21st century by offering funds for basic broadband service for financially disadvantaged Americans.

In its January open meeting Tuesday, the FCC adopted an order that will eliminate the FCC's Link Up program, which offers a one-time $30 credit for the installation of landlines or activation fee for cell phones. And it announced a new pilot program that will direct universal service funds collected for these subsidy programs to offer subsidies for basic broadband service.

The commission also pledged to root out waste, fraud and abuse in another program called Lifeline, which provides a $10 monthly credit to help defray the cost of phone service.

FCC Chairman Julius Genachowski said the goal of the reform is to migrate the fund toward supporting broadband services, while also reducing fraud and abuse and duplicative service. It's also meant to bring fiscal responsibility to the program, which is funded by charges to consumers' landline and cellphone bills.

The FCC has adopted a similar reform for other parts of the Universal Service Fund, which bring communications subsidies to rural areas.

In addition to cutting the one-time Link Up program, the agency also plans to limit the ongoing monthly Lifeline subsidy to one phone line per home. This means that people who may have received a subsidy for both a home phone line and a cell phone will now have to choose. The agency will set up a database to ensure there are not duplicate recipients.

The fund, which was started in 1997, has grown by about 1,000 percent. At least one commissioner, Republican Robert McDowell, said he would like to see a cap on the fund to keep it from growing higher. But that suggestion was not included in the final order.

The new reforms approved on Tuesday are expected to save about $200 million in 2012 and $2 billion over the next few years. As part of the order, the agency will use these expected savings to begin a pilot program that will shift funds from telephone-only service to broadband service. The agency has made a similar shift in the rural program. It created the Connect America Fund, which will take money raised through the Universal Service Fund to help fund the build-out of broadband for rural communities.

"Broadband has gone from being a luxury to a necessity in the 21st century," Genachowski said during the meeting.

But Republican commissioner McDowell disagreed with starting a pilot program before the real cost savings are known. He said he doesn't oppose using funds to promote universal access to broadband, but he questions whether it's financially sound to commit funds to a program before the real savings have been assessed. He also questioned the agency's legal authority to implement a new program.

Larry Downes, an expert in communications law who blogs for CNET, said that everyone agrees the Lifeline program was in need of reform to prevent waste and abuse. But he agreed with McDowell that he is troubled by the introduction of the pilot program.

"Not only may the agency lack the legal authority to implement a program, but they're committing funds to it before they know how much they will actually get in savings," he said. "What if the data bases don't get up in time and they end up bringing in less money in six months or a year."

Details of the pilot program were not discussed during the meeting. And it could be a day or two before the FCC releases the text of the order adopted today. Downes said he plans to provide a full analysis of the implications of this new program when it is published. So stay tuned.