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.