Broadband Subsidies for Some, Broadband Taxes for Everyone

WASHINGTON D.C. —  At a briefing this morning, the FCC announced that FCC Chairman Tom Wheeler plans to expand the Universal Service Fund’s Lifeline program, allowing low-income consumers to spend the program’s $9.25/month subsidy on broadband Internet or telephone service. Wheeler will circulate a draft proposal today, to be voted on at the Commission’s June 18 meeting. Any increase in Lifeline spending will be funded by increased USF fees on telecom services — which will soon include broadband itself.

“The FCC is dodging the obvious: expanding Lifeline means new broadband taxes and higher taxes overall on telecom services,” said Berin Szoka, President of TechFreedom. “The FCC made broadband taxes inevitable when it reclassified broadband as a telecom service — it’s just a question of the FCC’s Joint Board finding the least awkward time to make it official. USF taxes are the most regressive taxes in America, so families just above the eligibility threshold will suffer most.”

“As long as we’re going to have a Universal Service Fund, extending Lifeline to support broadband adoption makes sense — but not if the FCC creates a new entitlement program that will continue to grow in size,”continued Szoka, noting that Lifeline spending grew 25.9% annually from 2008 to 2012, from $819 million to $2.19 billion. “Total Lifeline spending needs to be capped to minimize the need for new taxes, with subsidies prioritized for the poorest Americans. And if the goal is to bring non-adopters online, rather than to subsidize those who already pay for broadband, the data suggest the problem isn’t primarily affordability, but digital literacy and perceived relevance of the Internet. Those aren’t problems subsidies can solve.”

“Lifeline is the only USF program without a budget or any cap,” explained Szoka. “That means USF fees will automatically increase each year to meet increased demand. The FCC says its Notice will ask whether ‘this is the right time to have a budget’ for the program and insists Lifeline won’t grow in size because the amount of the subsidy won’t change and because of minimum service requirements. Basic arithmetic suggests the program will grow:

1. Annual spending will grow by $111/year for every household that signs up for the first time.
2. The FCC’s minimum service requirements will mean the service plans will be more, not less, expensive over time. And it’s naive to think there won’t be political pressure for the FCC to raise the subsidy to fund more of the cost of faster broadband.
3. Once established as permanent, elastic entitlement, the FCC will always be lobbied to expand eligibility and to allow multiple recipients (for wireless service) per household.
4. The idea that Lifeline recipients might have to bear any part of the cost of service seems to embarrass the FCC. But until 2007, Lifeline never provided completely free service. President Reagan created the program to offer discounts for basic phone service, not free service. The difference is crucial: without skin in the game, fraud, waste and abuse are inevitable.”

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We can be reached for comment at media@techfreedom.org. See more of our work on Universal Service and Title II, including:

• “FCC Lifeline Reform a Good Start but Storm Clouds Loom,” a statement from TechFreedom
• Highlights from legal and policy comments on Title II filed by TechFreedom and the International Center for Law & Economics on net neutrality, and our reply comments