Telecommunications: FCC Should Evaluate the Efficiency and Effectiveness of the Lifeline Program
Published: 2015-06-02T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Through FCC's Lifeline program, companies provide discounts to eligible low-income households for telephone service. Lifeline supports these companies through the Universal Service Fund (USF); in 2014, Lifeline’s disbursements totaled approximately $1.7 billion. Companies generally pass their USF contribution obligation on to their customers, typically in the form of a line item on their telephone bills. In 2012, FCC adopted reforms to improve the program’s internal controls and to explore adding broadband through a pilot program. This testimony summarizes the findings from GAO’s March 2015 report (GAO-15-335) and provides information on (1) the status of Lifeline reform efforts, (2) the extent to which FCC has evaluated the effectiveness of the program, and (3) how FCC plans to evaluate the broadband pilot program. GAO reviewed FCC orders and other relevant documentation; analyzed 2008-2012 Census Bureau data; and interviewed FCC officials, officials at four pilot projects selected based on features such as technology, and officials from 12 Lifeline providers and four states selected based on factors such as disbursements and participation.
section_title: What GAO Found
paragraphs: The Federal Communications Commission (FCC) has made progress implementing reforms to the Lifeline Program (Lifeline), which reduces the cost of telephone service for eligible low-income households. In 2012, FCC adopted a Reform Order with 11 key reforms that aimed to increase accountability and strengthen internal controls, among other things. FCC has made progress implementing eight of the reforms, including the National Lifeline Accountability Database, which provides a mechanism to verify an applicant’s identify and whether the applicant already receives Lifeline service. FCC has partially implemented three of the reforms. For example, FCC established performance goals for the program, but it has not fully defined performance measures.
FCC has not evaluated the extent to which Lifeline is efficiently and effectively reaching its performance goals—to ensure the availability of voice service for low-income Americans and minimize the burden on consumers and businesses that fund the program. FCC attributes improvements in the level of low-income households' subscribing to telephone service over the past 30 years to Lifeline, but other factors, such as lower prices, may play a role. FCC officials stated that Lifeline's structure makes evaluation difficult, but referred GAO to two academic studies that have evaluated the program. These studies suggest that household demand for telephone service—even among low-income households—is relatively insensitive to changes in the price of service and household income; therefore, several households may receive the Lifeline subsidy for every additional household that subscribes to telephone service due to the subsidy. GAO has found that program evaluation can help agencies understand whether a program is addressing an intended problem. Without a program evaluation, FCC does not know whether Lifeline is effectively ensuring the availability of telephone service for low-income households while minimizing program costs.
The usefulness of the broadband pilot program may be limited by FCC’s lack of an evaluation plan and other challenges. The pilot program included 14 projects to test an array of options and provide data on how Lifeline could be structured to promote broadband. Although GAO recommended in 2010 that FCC develop a needs assessment and implementation and evaluation plans for the pilot, FCC did not do so. A needs assessment, for example, could provide information on the telecommunications needs of low-income households and the most cost-effective means to meet those needs. In addition, the 14 projects enrolled about 12 percent of the 74,000 customers anticipated. FCC officials said they do not view the pilot’s low enrollment as a problem, as the program sought variation. FCC officials noted that the pilot program is one of many factors it will consider when deciding whether and how to incorporate broadband into Lifeline, and to the extent the pilot program had flaws, those flaws will be taken into consideration. In May 2015, FCC released a report which discusses data collected from the pilots.
section_title: What GAO Recommends
paragraphs: In its March 2015 report, GAO recommended that FCC conduct a program evaluation to determine the extent to which the Lifeline program is efficiently and effectively reaching its performance goals. FCC agreed that it should evaluate the extent to which the program is efficiently and effectively reaching its performance goals and said that it will address GAO's recommendation.

section_title: Letter
paragraphs: I am pleased to be here today as you discuss the Federal  Communications Commission’s (FCC) efforts to promote telephone  subscribership among low-income households. Through the Lifeline  program, companies provide discounts to eligible low-income households  for telephone service. The Lifeline program supports these companies  through the Universal Service Fund, which is funded through mandatory  fees that are usually passed along to consumers through a charge  applied to their monthly telephone bills. The Lifeline program was created  in the mid-1980s and has traditionally centered on wireline residential  telephone service. However, FCC actions in 2005 and 2008 paved the  way for prepaid wireless companies to begin offering Lifeline service in  2008; at the time, FCC did not quantify or estimate the potential increases  in participation from its decision. Subsequently, Lifeline experienced rapid  growth in participation and disbursements. In particular, from mid-2008 to  mid-2012, Lifeline enrollment increased from 6.8 million households to  18.1 million households and annual disbursements increased from $820  million in 2008 to $2.2 billion in 2012, a 167 percent increase. In 2010, we  found that the Lifeline program lacked some features of internal controls,  such as the ability to detect duplicate benefits across companies. We  recommended that FCC take actions to improve management and  oversight, including conducting a robust risk assessment and  implementing a systematic process for considering the results of  company audits; FCC agreed with our recommendations.
To comprehensively reform and modernize the program, among other  things, FCC adopted a Reform Order in January 2012 that sought to  improve the program’s internal controls and included a pilot program to  evaluate the inclusion of broadband into the program (see Table 1 for the  Order’s key reforms). For example, to reduce the number of ineligible  consumers in the program, the Order adopted measures to check  consumers’ initial and ongoing eligibility for Lifeline. After FCC began  implementing the Order in mid-2012, Lifeline participation declined to 12.4  million households by the end of 2014, while disbursements declined to  approximately $1.7 billion in 2014.
My remarks today highlight key findings from our recently issued report,  Telecommunications: FCC Should Evaluate the Efficiency and  Effectiveness of the Lifeline Program. I will discuss (1) the status of  FCC’s Lifeline reform efforts, (2) the extent to which FCC has evaluated  the effectiveness of the program, and (3) how FCC plans to evaluate the  broadband pilot program and the extent to which the pilot program will  enable FCC to decide whether and how to include broadband in the  Lifeline program. For our report, we reviewed FCC orders and other  relevant information; analyzed 2008-2012 Census Bureau data to  estimate trends in the number of households that would satisfy the federal  Lifeline criteria; and interviewed FCC officials, officials at four broadband  pilot projects selected based on features such as technology, and officials  from 12 Lifeline providers and four states that were selected based on  factors such as disbursements and participation. We also reviewed two  academic studies that examined the effect of the Lifeline program. More  detailed information on our objectives, scope, and methodology can be  found in the issued report. We conducted the work on which this  statement is based in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives.
subsections: section_title: FCC Has Made Progress Implementing Lifeline Reforms, but Some Reform Efforts Remain Incomplete
paragraphs: Our March 2015 report found that FCC has made progress implementing  reform efforts contained in the Order. In particular, FCC has  implemented eight reforms, including the one-subscription-per-household  rule, uniform eligibility criteria, non-usage requirements, payments based  on actual claims, and the audit requirements. Furthermore, FCC  eliminated Link-up on non-Tribal lands and support for toll limitation  service, and the National Lifeline Accountability Database (NLAD) is  operational in 46 states and the District of Columbia. In May 2015, FCC  reported the results of the broadband pilot program. However, FCC has  not fully implemented three reform efforts:
Flat-rate reimbursement: To simplify administration of the Lifeline  program, FCC established a uniform, interim flat rate of $9.25 per  month for non-Tribal subscribers. FCC sought comment on the interim  rate, but has not issued a final rule with a permanent reimbursement  rate.
Initial eligibility verification and annual recertification procedures: To  reduce the number of ineligible consumers receiving program  benefits, the Order required that Lifeline providers verify an applicant’s  eligibility at enrollment and annually through recertification; these  requirements have gone into effect. In addition, to reduce the burden  on consumers and Lifeline providers, the Order called for an  automated means for determining Lifeline eligibility by the end of  2013. FCC has not met this timeframe or revised any timeframes for  how or when this automated means would be available.
Performance goals and measures: FCC established three outcome- based goals: (1) to ensure the availability of voice service for low- income Americans, (2) to ensure the availability of broadband for low- income Americans, and (3) to minimize the Universal Service Fund  contribution burden on consumers and businesses. FCC identified  performance measures it will use to evaluate progress towards these  goals, but it has not yet fully defined these measures. FCC officials  noted they are working on defining them using the Census Bureau’s  American Community Survey data, which were made available in late  2014.
section_title: FCC Has not Evaluated the Extent to which Lifeline is Efficiently and Effectively Reaching its Performance Goals
paragraphs: In our March 2015 report, we found that FCC has not evaluated the  effectiveness of the Lifeline program, which could hinder its ability to  efficiently achieve program goals. Once adopted, performance measures  can help FCC track the Lifeline Program’s progress toward its goals.  However, performance measures alone will not fully explain the  contribution of the Lifeline program toward reaching program goals,  because performance measurement does not assess what would have  occurred in the absence of the program. According to FCC, Lifeline has  been instrumental in narrowing the penetration gap (the percentage of  households with telephone service) between low-income and non-low- income households. In particular, FCC noted that since the inception of  Lifeline, the gap between telephone penetration rates for low-income and  non-low-income households has narrowed from about 12 percent in 1984  to 4 percent in 2011. Although FCC attributes the penetration rate  improvement to Lifeline, several factors could play a role. For example,  changes to income levels and prices have increased the affordability of  telephone service, and technological improvements, such as mobility of  service, have increased the value of telephone service to households.
FCC officials stated that the structure of the program has made it difficult  for the commission to determine causal connections between the  program and the penetration rate. However, FCC officials noted that two  academic studies have assessed the program. These studies suggest  that household demand for telephone service—even among low-income  households—is relatively insensitive to changes in the price of the service  and household income. This suggests that many low-income households  would choose to subscribe to telephone service in the absence of the  Lifeline subsidy. For example, one study found that many households  would choose to subscribe to telephone service in the absence of the  subsidy. As a result, we concluded that the Lifeline program, as currently  structured, may be a rather inefficient and costly mechanism to increase  telephone subscribership among low-income households, because  several households receive the subsidy for every additional household  that subscribes to telephone service due to the subsidy. FCC officials said  that this view does not take into account the Lifeline program’s purpose of  making telephone service affordable for low-income households.  However, in the Order, the commission did not adopt affordability as one  of the program’s performance goals; rather, it adopted availability of voice  service for low-income Americans, measured by the penetration rate.
These research findings raise questions about the design of Lifeline and  FCC’s actions to expand the pool of eligible households. We estimated  approximately 40 million households were eligible for Lifeline in 2012.  The Order established minimum Lifeline eligibility, including households  with incomes at or below 135 percent of the federal poverty guidelines,  which expanded eligibility in some states that had more limited eligibility  criteria. Further, FCC proposed adding qualifying programs, such as the  Special Supplemental Nutrition Program of Women, Infants, and Children  (WIC) program, and increasing income eligibility to 150 percent of the  federal poverty guidelines. We estimated that over 2 million additional  households would have been eligible for Lifeline in 2012 if WIC were  included in the list of qualifying programs. These proposed changes  would add households with higher income levels than current Lifeline- eligible households. Given that the telephone penetration rate increases  with income, making additional households with higher incomes eligible  for Lifeline may increase telephone penetration somewhat, but at a high  cost, since a majority of these households likely already purchase  telephone service. This raises questions about expanding eligibility and  the balance between Lifeline’s goals of increasing penetration rates while  minimizing the burden on consumers and businesses that fund the  program.
In our March 2015 report, we recommended that FCC conduct a program  evaluation to determine the extent to which the Lifeline program is  efficiently and effectively reaching its performance goals of ensuring the  availability of voice service for low-income Americans while minimizing  program costs. Our prior work on federal agencies that have used  program evaluation for decision making has shown that it can allow  agencies to understand whether a program is addressing the problem it is  intended to and assess the value or effectiveness of the program. The  results of an evaluation could be used to clarify FCC’s and others’  understanding of how the Lifeline program does or does not address the  problem of interest—subscription to telephone service among low-income  households—and to assist FCC in making changes to improve program  design or management. We believe that without such an evaluation, it will  be difficult for FCC to determine whether the Lifeline program is  increasing the telephone penetration rate among low-income customers,  while minimizing the burden on those that contribute to the Universal  Service Fund. FCC agreed that it should evaluate the extent to which the  Lifeline program is efficiently and effectively reaching its performance  goals and said that it would address our recommendation.
section_title: Usefulness of Broadband Pilot Program May Be Limited by FCC’s Lack of Evaluation Plan and Other Challenges
paragraphs: In our March 2015 report we also found that FCC’s broadband pilot  program includes 14 projects that test an array of options and will  generate information that FCC intends to use to decide whether and how  to incorporate broadband into Lifeline. According to FCC, the pilot  projects are expected to provide high-quality data on how the Lifeline  program could be structured to promote broadband adoption by low- income households. FCC noted the diversity of the 14 projects, which  differed by geography (e.g., urban, rural, Tribal), types of technologies  (e.g., fixed and mobile), and discount amounts. FCC selected projects  that were designed as field experiments and offered randomized variation  to consumers. For example, one project we reviewed offered customers  three different discount levels and a choice of four different broadband  speeds, thereby testing 12 different program options. FCC officials said  they aimed to test and reveal “causal effects” of variables. FCC officials  said this approach would, for example, test how effective a $20 monthly  subsidy was relative to a $10 subsidy, which would help FCC evaluate  the relative costs and benefits of different subsidy amounts. However,  FCC officials noted that there was a lack of FCC or third party oversight of  the program, meaning that pilot projects themselves were largely  responsible for administration of the program.
We found that FCC did not conduct a needs assessment or develop  implementation and evaluation plans for the broadband pilot program, as  we had previously recommended in October 2010. At that time, we  recommended that if FCC conducted a broadband pilot program, it should  conduct a needs assessment and develop implementation and evaluation  plans, which we noted are critical elements for the proper development of  pilot programs. We noted that a needs assessment could provide  information on the telecommunications needs of low-income households  and the most cost-effective means to meet those needs. Although FCC  did not publish a needs assessment, FCC officials said they consulted  with stakeholders and reviewed research on low-income broadband  adoption when designing the program. Well-developed plans for  implementing and evaluating pilot programs include key features such as  clear and measurable objectives, clearly articulated methodology,  benchmarks to assess success, and detailed evaluation time frames.  FCC officials said they did not set out with an evaluation plan because  they did not want to prejudge the results by setting benchmark targets  ahead of time. FCC officials said they are optimistic that the information  gathered from the pilot projects will enable FCC to make  recommendations regarding how broadband could be incorporated into  Lifeline. FCC officials noted that the pilot program is one of many factors  it will consider when deciding whether and how to incorporate broadband  into Lifeline, and to the extent the pilot program had flaws, those flaws will  be taken into consideration. Since our report was issued, FCC released a  report on the broadband pilot program, which discusses data collected  from the 14 projects.
We also found that the broadband pilot projects experienced challenges,  such as lower-than-anticipated enrollment. The pilot projects enrolled  approximately 12 percent of the 74,000 low-income consumers that FCC  indicated would receive broadband through the pilot projects. According  to FCC’s May 2015 report, 8,634 consumers received service for any  period of time during the pilot. FCC officials said that the 74,000  consumers was an estimate and was not a reliable number and should  not be interpreted as a program goal. FCC officials said they calculated  this figure by adding together the enrollment estimates provided by  projects, which varied in their methodologies. For example, some projects  estimated serving all eligible consumers, while others predicted that only  a fraction of those eligible would enroll. FCC officials told us they do not  view the pilot’s low enrollment as a problem, as the program sought  variation. Due to the low enrollment in the pilot program, a small fraction  of the total money FCC authorized for the program was spent.  Specifically, FCC officials reported that about $1.7 million of the $13.8  million authorized was disbursed to projects.
FCC and pilot project officials we spoke to noted that a preliminary finding  from the pilot was that service offered at deeply discounted or free  monthly rates had high participation. FCC officials and representatives  from the four pilot projects we interviewed noted that broadband offered  at no or the lowest cost per month resulted in the highest participation.  For example, we found one project that offered service at no monthly cost  to the consumer reported 100 percent of its 709 enrollees were enrolled  in plans with no monthly cost as of October 2013, with no customers  enrolled in its plans with a $20 monthly fee. This information raises  questions about the feasibility of including broadband service in the  Lifeline program, since on a nationwide scale, offering broadband service  at no monthly cost would require significant resources and may conflict  with FCC’s goal to minimize the contribution burden.
Chairman Wicker, Ranking Member Schatz, and Members of the  Subcommittee, this completes my prepared statement. I would be  pleased to respond to any questions that you may have at this time.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: If you or your staff have any questions about this testimony, please  contact Michael Clements, Acting Director, Physical Infrastructure Issues  at (202) 512-2834 or clementsm@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this statement. GAO staff who made key contributions to this  testimony are Antoine Clark and Emily Larson.
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