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. 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. 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. 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. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Summary: 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. 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. 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.