A Fresh Look at the Lifeline Program

Abstract

In an effort to expand the use of telecommunications services by low-income Americans, the Federal Communications Commission’s Lifeline program offers subsidies to qualifying low income households. In recent years, the program has undergone significant reform and more modifications have been proposed. Much attention is devoted to improving the administration of the program to reduce waste, fraud and abuse, but some reforms appear motivated by the claim that that nearly all Lifeline subscribers would obtain service even without the subsidy. In this POLICY PAPER, I review the evidence supporting that claim and find it lacking. I then offer new empirical evidence showing that in modern times the relationship between regular paid subscriptions and Lifeline accounts reveal no displacement. Theoretical analysis is offered showing that the “free but limited” service packages offered by resellers may explain this result. This analysis also reveals that many of the Commission’s reforms, including proposals to exclude resellers from the program and the scheduled increases in minimum service standards, are counterproductive in that both reforms will increase the alleged displacement of Lifeline for regular accounts and reduce the adoption of advanced telecommunications services by low-income Americans.

Keywords: telecommunications, broadband, subsidies, Lifeline

JEL Classification: L5, L96