The idea that communication services should be available “so far as possible, to all the people of the United States,”— has been a goal of telecommunications regulation since Congress enacted the Communications Act of 1934. Efforts by FCC, state regulators, and industry to promote universal service generally began in the 1950s. Traditionally, universal service has meant providing residential customers with affordable access nationwide to basic telephone service. In the mid-1980s, FCC changed the way local telephone companies recovered fixed costs and implemented a federal fee for telephone service paid by the subscriber. Though FCC found no evidence this fee would cause low-income consumers to cancel telephone service, it was nevertheless concerned about the below-average telephone subscribership rates of low-income households—80 percent compared to 92 percent for all households in 1984—and their ability to afford telephone service. As a result, FCC initiated two programs to make telephone service affordable for low-income households: Lifeline, which discounts monthly service, and Link Up, which discounts the connection charges associated with telephone service installation. Congress codified the nation’s commitment to universal service and made significant changes to universal service policy through the telecommunications Act of 1996 (1996 Act). The 1996 Act provided explicit statutory support for federal universal service policy and directed FCC to establish a Federal-State Joint Board on Universal Service (Joint Board) to make recommendations to FCC on implementing universal service provisions of the 1996 Act. The 1996 Act also described universal service as an evolving level of telecommunications services the Commission should periodically review, taking into account advances in telecommunications and information technologies and services. In accordance with its definition of universal service, FCC found that basic telephone service must include, among other things, local usage, access to emergency service such as 911, access to operator services, access to long distance service, access to directory assistance, and toll limitation for qualifying low-income consumers. Further, the 1996 Act stated that every telecommunications carrier providing interstate telecommunications services was required to contribute to federal universal service, unless exempted by FCC. The contributions were to be equitable, nondiscriminatory, and explicit. In addition, FCC was authorized to require any other providers of interstate telecommunications to contribute if the public interest so required. Contributions are deposited into the USF, which was established by FCC in 1997 to meet the specific objectives and principles contained in the 1996 Act. Each quarter, FCC calculates a contribution rate for all contributors based on the needs of the universal service programs and assesses it as a percentage of the carriers’ interstate revenue. In the second quarter of 2010, the contribution rate was a historically high 15.3 percent of carriers’ interstate end user revenue. Carriers generally pass the cost of the USF contribution on to their customers, typically in the form of a line item on the monthly telephone bill. The Low-Income Program is one of two significant parts of the USF that remains uncapped, meaning that there is no limit to its growth. Specific to the Low-Income Program, the 1996 Act expressed the principle that telephone rates should be affordable and that access should be provided to “low-income consumers” in all regions of the nation. As a result, in its 1997 Universal Service Order, FCC made Lifeline and Link Up available in all states regardless of whether the states provided matching funds, required all ETCs to offer Lifeline service, and included toll limitation service. Since the passage of the 1996 Act, FCC has taken actions aimed at increasing participation in the Low-Income Program. In June 2000, FCC released the Tribal Order, which enhanced the federal Lifeline and Link Up programs to better serve residents living on or near federally recognized tribal lands and reservations. With its April 2004 order, and consistent with the Joint Board’s recommendations, FCC aimed to increase participation in the Low-Income Program by expanding the federal default eligibility to include an income- based criterion of 135 percent of the federal poverty guidelines and additional means tested programs. According to FCC, at that time only one-third of eligible households were enrolled in Lifeline. In a staff analysis, included as an appendix to the order, FCC estimated that adding the income-based criterion could increase participation in Lifeline by approximately 1.2 million to 1.3 million households. The order also included outreach guidelines and revised verification and certification procedures. In 2005, FCC granted TracFone forbearance from the facilities requirement for ETC designation for Lifeline support only. TracFone is a nonfacilities based, commercial mobile radio services (wireless) provider offering prepaid service. While FCC found that TracFone’s universal service Lifeline offering (known as SafeLink Wireless) would provide a variety of benefits to Lifeline-eligible consumers including increased consumer choice, program participation, high-quality service offerings, and mobility, FCC did not quantify or estimate potential increases in participation and support payments for the Low-Income Program. The Commission required TracFone to meet several conditions regarding access to 911 and enhanced 911 (E911). In addition, TracFone had to require its customers to self-certify at the time of service activation and annually thereafter that they are the head of household and receive Lifeline-supported service only from TracFone; establish safeguards to prevent its customers from receiving multiple TracFone Lifeline subsidies at the same address; and file with the Commission a plan outlining the measures TracFone would take to implement these conditions. In 2008, TracFone submitted its plan to meet the conditions for ETC designation status and was approved by FCC as an ETC in its licensed service areas for the purpose of receiving Lifeline support. FCC later modified a condition imposed on TracFone regarding certification requirements to confirm that it provides customers with access to basic and E911 service. In a May 2010 order, the Commission asked the Joint Board to review the Commission’s eligibility, verification, and outreach rules for the Lifeline and Link Up universal service programs, given among other things, the potential expansion of the Low-Income Program to broadband, as recommended in the National Broadband Plan. The Low-Income Program provides support for low-income consumers through three mechanisms: (1) Lifeline, (2) Link Up, and (3) Toll Limitation Service. Lifeline reimburses ETCs for discounting eligible customers’ monthly bill for basic telephone service. The discount is available for only one telephone connection per household. Lifeline support is distributed in four tiers with varying discounts. According to our survey responses, in 2010, the maximum monthly Lifeline discount available to consumers— federal and intrastate discount combined—ranged from $7 to $38.50 per month; the average maximum discount was $14.43 per month. Link Up reimburses ETCs for discounting either wireline or wireless service connection charges incurred when an eligible consumer starts service for the first time or at a new address. An eligible consumer may only receive the Link Up discount once, unless that consumer moves to a new residence; consecutive discounts at the same address are not allowed. Eligible consumers pay one-half of the customary telephone connection charge with a maximum discount amount of $30; an additional discount is available to eligible residents of tribal lands. Further, all eligible consumers can pay the balance of the connection fee on a deferred payment schedule. Toll Limitation Service (TLS) reimburses ETCs for providing toll blocking or toll control to eligible consumers at no cost to the customer. Toll blocking allows consumers to order a service that prevents the completion of outgoing toll calls. Toll control allows consumers to specify a limit on the amount of toll charges that can be incurred per billing cycle. To provide Lifeline and Link Up, carriers must be designated as ETCs by their state commissions or FCC. States have the primary responsibility for designating ETCs. In a situation where the telecommunications carrier is not subject to the jurisdiction of a state commission, FCC may designate the carrier as an ETC. In the states that do not have or choose not to assert jurisdiction over wireless carriers, FCC has the authority to designate wireless carriers as ETCs. FCC, USAC, state public utility commissions, and ETCs all have responsibilities in the administration of the Low-Income Program. Table 1 summarizes the general responsibility of each entity. States that choose not to provide intrastate Lifeline support must adhere to eligibility criteria and administrative processes developed by FCC and are referred to as “federal default states.” FCC authorized states that provide intrastate support to develop their own eligibility criteria and administrative processes—including reviewing applications, certifying eligibility, and verifying recipients’ continued eligibility for the Lifeline program. As a result, eligibility criteria and the entity responsible for handling the administrative processes vary across states. (See app. II for more detail on Lifeline eligibility criteria and administrative processes and responsibilities.) Lifeline service options for low-income households vary across states. According to our survey, as of June 2010, wireless ETCs were eligible to offer Lifeline discounts in 48 states. However, in 13 of the 48 states with wireless ETCs, the state only provides the intrastate funded benefit to wireline customers, meaning that wireless customers in those states may receive a smaller discount than wireline customers. Additionally, at least one prepaid Lifeline option is available in 25 of the 48 states where wireless ETCs are eligible to participate in Lifeline. Restrictions regarding the application of the Lifeline discount also vary across states. For instance, in some states, recipients of Lifeline support may not purchase additional telecommunications features, such as call- waiting or voicemail service, and continue to receive the Lifeline discounts. In addition, according to our survey, Lifeline recipients in 14 states may not apply the Lifeline discount to a bundled service offering or other package that includes telephone service.