The basic tenet of universal service – that the government should assist those who cannot afford basic access to the telecommunications network – has long been a cornerstone of the nation’s telecommunications policy. As I have discussed in an earlier post (0), this assistance is justified by network effects: the larger the number of people a network reaches, the more valuable that network is to each user. Universal service also supports non-economic goals such as improved civic participation, enhanced economic opportunities, free speech, and public safety. As the telephone gives way to the Internet as the nation’s primary telecommunications network, Congress must consider options to narrow the digital divide and assist low-income consumers who cannot afford basic network access.
I have previously advocated (1) for a voucher-based approach to broadband universal service. This approach embraces the Federal Communications Commission’s repeated calls for a “more incentive-based, market-driven” approach to universal service reform. Rather than simply adding a broadband component to an increasingly bloated Universal Service Fund (USF) regime, this proposal would replace the existing fund with a program similar to a telecommunications version of the food stamp program, or a broadband phone card. Eligible consumers could use these non-transferrable vouchers to enhance their purchasing power in the telecommunications marketplace, in a way that narrows the digital divide while simultaneously enhancing competition among participating carriers. Last year, I joined (2) several scholars associated with the Free State Foundation to promote this idea as part of the House Committee on Energy and Commerce’s #CommActUpdate project.
The broadband voucher proposal helps correct one of the biggest deficiencies of the current universal service program, namely the lack of choices available to program participants. In theory, the current federal low-income subsidy program, Lifeline, offers eligible consumers a discount of up to $9.25 per month off their monthly telephone bills. But to participate, a carrier must be certified by state telecom regulators, who determine which companies may participate and on what terms. The result is that few telecommunications carriers elect to participate, and those that do offer limited plan options for Lifeline recipients.
The voucher proposal addresses this problem by placing less restricted subsidies directly into consumers’ hands. Like the current Lifeline program, the voucher would allow eligible consumers to purchase basic service (in this case, broadband service) at a Commission-defined subsidized rate. Eligible consumers would receive a nontransferable voucher equal to the average market rate for basic broadband service in the consumer’s market, minus the subsidized rate. But unlike Lifeline, the voucher would be a fixed, portable amount that the consumers could use for a variety of services. A provider willing to accept the voucher must be willing to provide basic broadband service to voucher holders at no more than the voucher-plus-subsidized rate. But the consumer need not use the voucher to purchase basic broadband service; he or she could instead apply the voucher to a (presumably less expensive) voice-only service, or as a credit toward a suite of more advanced telecommunications services that the provider offers to the public generally. This flexibility extends the promise of at least voice access to households that cannot even afford the subsidized broadband rate, without locking in voucher recipients to the basic tier of service if they are willing to pay for more.
This approach also promotes competition among service providers. To attract recipients and avoid customer defection, providers must compete on price and service as they do in the marketplace generally. While the program prevents providers from charging more than the average market rate for broadband service, providers could charge a lower price. Moreover, because the voucher amount depends on the average market price for broadband service, less efficient providers have incentives to improve their operations while hyper-efficient competitors are rewarded accordingly. And the vouchers are technologically neutral: any provider willing to offer basic broadband service would be eligible to participate, regardless of the platform through which the customer is served.
Of course, defining a basic level of broadband service raises the difficult question of who sets the minimum threshold and on what terms. The definition of “broadband service” has been a politically charged issue in the past few months. The FCC famously established a 10Mbps threshold for companies seeking subsidized buildout to underserved areas, then shortly thereafter established a 25Mbps threshold for purposes of determining broadband market competitiveness. Some commentators have questioned the arbitrariness of these figures and may worry about similar “mission creep” within the broadband voucher program.
One could solve this problem by mandating an activity-based definition of basic broadband service. As part of the voucher plan, Congress should establish the essential services that the program seeks to facilitate – such as emergency assistance, voice service, access to government services and information, and perhaps e-commerce. The FCC would then define a minimum speed necessary for a broadband connection that provides reliable access to those services, which would serve as the baseline for calculating the subsidy and the minimum service obligation placed upon accepting carriers.
The proposal must also address the legacy of fraud and mismanagement at the existing Universal Service Fund. Unlike most other government programs, the Universal Service Fund is administered by an outside organization, the Universal Service Administrative Company (USAC), and funded by a surcharge on telecommunications carriers that varies by quarter based upon USAC’s estimate of plan expenses. Without a hard cap, the fund has doubled in size in a little over a decade, to over $8 billion annually. Outside observers, Congress, and the FCC itself have repeatedly (3) criticized (4) the Universal Service Fund for lax oversight and abuse of resources. While many complaints stem from the High-Cost Fund and E-Rate, two other programs under the USF umbrella, there have also been allegations of fraud (5) within Lifeline, largely from consumers and carriers seeking multiple subsidies per household in violation of plan rules.
To avoid repeating this problem, the broadband voucher program should simply be funded by a line item in the federal budget like any other entitlement program. Paying for universal service from the general treasury would improve the transparency of the program by vesting oversight in Congress or the FCC rather than a murky, semi-private organization. And it would apply a hard budgetary cap to annual expenditures, requiring the FCC to wring inefficiencies out of the system in order to serve the public within congressional funding restraints.
America’s migration to broadband networks presents a once-in-a-generation opportunity to transform its existing telecommunications subsidy program, which is outdated, mismanaged, and unnecessarily complex. Of course, subsidizing access does not alone solve the digital divide—consumers face additional cost hurdles such as equipment costs, and there remain areas where broadband buildout is uneconomical. But a voucher-based broadband program would help bring Lifeline into the Internet era with market-driven incentives that promote consumer choice and competition, while avoiding some of the pitfalls of the existing regime.